Sustainable Business Innovation in the Internet Economy Klaus Fichter and Siegfried Behrendt1 As to the environmental effects of e-commerce and Internet use, three levels can be distinguished: direct environmental effects of the information technology infrastructure (energy use etc. of networks, servers, receiver systems, PCs etc.), secondary effects caused by Internet use, and tertiary effects due to subsequent and rebound effects. Until now, positive environmental effects brought about by Internet use and ebusiness have generally been unintended coincidental side-effects. The growth in significance of e-business and Internet for the economy and environment means that companies in future will have to take environmental demands into specific consideration as part of their innovation strategies. E-business provides four environmental strategies for sustainable company development: 1. Greening of ICT: environmentally friendly production, use recycling of information and communication appliances and technologies, 2. E-substitution: Substitution of physical products by electronic and environmentally friendly alternatives for products, mail order services and uses; 3. E-support: Use of the Internet and e-business for the safeguarding and dissemination of environmentally friendly products and services and 4. E-services: use of Internet based services, business models and networks for safeguarding the environment and improving eco-efficiency. Growing importance of e-business The initial euphoria over the new economy has in the meantime given way to more realistic valuations after the failure of many Internet start-ups and the still low proportion of e-commerce in the overall trade turnover. E-business will not be the be-all and endall in the future, but e-commerce and Internet use will certainly gain in importance. According to forecasts of the European Commission there will be 500 million Internetusers worldwide by 2003 and a rapid increase in e-commerce turnover, especially in the area of business-to-business. However, when looking at the objectives of sustainable development the expected effects of the Internet revolution are uncertain. The following article looks into the environmental effects resulting from e-commerce and Internet use and where the strategic starting points lie for companies to use the potential of the Internet revolution for sustainable development. Environmental effects of e-commerce und Internet use As to the environmental effects of e-commerce and Internet use, three levels can be distinguished: direct environmental effects of the information technology infrastructure (energy use etc.of networks, servers, receiver systems, PCs etc.), secondary effects caused by Internet use, and tertiary effects due to subsequent and rebound effects. This distinction is suitable to classify environmental effects of information and communication technologies in general.
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Fig. 1: Environmental effects of e-business and Internet use
First order effects due to IT infrastructure ➨ ➨ ➨
Networks, router, server etc. Receiving systems (modems etc.) End appliances (PC, mobile phones etc.)
Second order effects due to Internet use ➨ ➨ ➨ ➨ ➨
▲ ▲ ▲ ▲
Energy use Pollutants and electrosmog Electronic waste etc.
▲ ▲ ▲ ▲
Product design and life cycle management Manufacturing and supply chain management Logistics/distribution Electronic markets and online services Product use, take-back, recycling
Material and energy use Transport volume Use of space environment-related knowledge
Third order effects due to subsequent or rebound effects ➨ ➨ ➨
Changes in economic structure Changes in life styles and consumption patterns Rebound effects due to:
▲ Decreasing prices for IT devices and Internet use ▲ Increasing performance potentials ▲ Cultural effects: appreciation of „onlinelife“: anywhere, anytime ▲ Standardization effects: „Everybody‘s got one, so I need one as well“
Source: Fichter 2001.
As far as material implications of the technological infrastructure are concerned, various aspects are characteristic: - In spite of gains in efficiency per produced unit, market growth results in increasing material turn over. This manifests itself in growing amounts of waste. Out of the 1.3 to 1.5 million tons of electric and electronic waste in Germany, entertainment equipment accounts for about 444.000 tons and ICT for about 208.000 tons. A large part of old sets (within the EU the share is 90%) is not yet recycled but rather disposed of in incinerating plants or disposal sites. For the remaining sets, material recycling prevails whereas reuse is very rare. Fast innovation dynamics lead to a further decrease in average duration of product use, which aggravates the waste issue. Cellular phones even threaten to become a throwaway product. This is just one part of the produced waste: First eco-balances indicate, that for some products 98% of the material flows occur during manufacturing or preceding stages of production in the form of waste and only 2% flow into the product2. - The energy consumed by the the Internet infrastructure (PCs, servers, routers etc.) has reached a considerable level. Estimates give numbers between 1 and 3% of the electricity consumption. Standby losses of sets are an issue in particular, since considerable amounts of energy are wasted this way. In Germany they come to about 16.1 TWh per year3. That’s almost as much as the amount of electricity consumed by the city of Berlin and more than the annual output of two 1 GW power plants. About 1.2% of Germany’s carbon dioxide emissions is due only to the fact that sets aren’t completely shut down.
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- Even though the market dynamics of the New Economy has slowed down, it is to be expected that its ecological significance will keep on growing. According to first estimates, the share of the total electricity consumption accounted for by the Internet could multiply by 8 by the year 2010, from currently 0.8% to more than 6%, which would correspond to 35 TWh4. This forecast is based on today’s technologies and energy efficiency. Standby losses will presumably grow by about 11% until 2010 as compared to 19955. The transition from analogue to digital TV technology, as presently under way in Great Britain, will probably bring about an additional increase of standby losses. At the same time, there’s a variety of innovative solutions reducing energy consumption. If energy efficient technologies and modes of use were introduced, the annual electricity consumption in 2010 could come to an estimated 13 TWh only, thus being lower by 22 TWh. The general introduction of many innovative approaches is however impeded by market, cost and information-related barriers. While the production, use and disposal of IT and Internet infrastructure unmistakeably leave their ecological „footprints“, the ecological effects produced by the application of those technologies can both be positive (substitutive effects) and negative (generative effects). The assessment of the net effect on the macro-level is only at its beginning. It is to be determined yet, if the secondary and tertiary effects of the Internet add to the direct consumption (primary effects), or rather compensate or reduce it. It is remarkable that in the pre-Internet era (1992-1996) the US gross national product grew by an average 3.3% per year, whereas energy consumption rose by 2,4%. During the Internet era (19962000) however the annual increase of the GNP was 4%, but the energy demand only grew by 1% per year6. This could hint at a contribution made by IT and the Internet to the decoupling of resource and energy consumption from economic growth. However the comparison is not as evident as it might appear at first sight. Other trends of tertiarisation have probably also contributed to this development, so that the role of ICT remains difficult to assess. Whether individual applications of ICT for e-commerce have a positive or negative overall impact will also depend on the progress made in the field of "design for environment". This can be demonstrated by the follwing example: If a message of 1000 letters is sent by conventional mail over a distance of 100 km, 5.3 g of CO2 are produced. Sent as an e-mail between 2 PCs the same message brings about almost the triple amount: 15.1 g. An e-mail sent between two energy-efficient laptops causes only 2.7 g and thus the lowest amount of carbon dioxide emissions7. The core insights of the so far available studies8 may be summarized as follows (Fichter 2001): - There is no general answer to the question whether the use of new media will lead to increased or decreased environmental impacts. - New and classic media each have their specific advantages: so, for instance, with respect to selective search for information, electronic media are usually more efficient and more environment-friendly (time-saving search functions, energy use and environmental exploitation crucially dependent on use). With respect to entertainment and unspecific background input, conventional media are often more advantageous. - Electronic media often are not so much a substitute as rather a supplement for printed or other media, thus tending to increase environmental exploitation. There is the risk of summation effects and incomplete substitution.
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- Digitalization of products (music, news, e-mails etc.) does not automatically lead to dematerialization but often rather entails subsequent effects. So, for instance, digitalized music files downloaded from the Web (e.g. via Napster) are often stored on CDs, received e-mails are printed out on paper etc. These are re-materialization effects. - Side-effects of digitalized media, like packaging of CDs, or printed user manuals, do considerably influence the eco-balance. - Environment-friendliness of Internet use and electronic media does heavily depend on the way of electricity production, hence on the respective shares of the technologies used for current generation. As to printed media, the aspect of paper recycling does strongly influence environmental effects. - Of considerable relvance for energy consumption and environmental exploitation is, apart from the terminals, the network infrastructure (server, router etc.). - Potentials for increasing resource productivity are presumed to lie above all in the business-to-business area. American studies9 point at considerable potentials in the fields of reducing stocks, flawed products, energy consumption and floor space occupied for retail and office businesses. - Any assessment of the environmental effects of e-commerce on traffic and environment is linked to multiple assumptions and requires complex modelling. The results of respective analyses of environmental effects are thus extremely dependent on the underlying assumptions. - Online orders tend to accelerate the delivery of goods and to change the structure of shipped freight towards smaller units, thus lead to an increase in courier, express, and parcel deliveries. - On the other hand, Swedish studies show that e-commerce does not necessarily entail more traffic10. Under certain preconditions, online shopping contains a potential of pollution and traffic reduction. The realization of that potential depends crucially on: the respective population density as to home delivery service, the share of ecommerce users, the delivery distances, and the modal split of the respective region. - Rebound effects are not considered in any of the existing studies! All respective studies reflect only the effects at a certain point in time. - To sum up, the overall pattern of environmental effects of Internet use on transport, material and energy use, as well as on environment-related knowledge is composed of a variety of positive, neutral, and negative effects. Approaches for sustainable business strategies Until now, positive environmental effects brought about by Internet use and e-business have generally been unintended coincidental side-effects. The growth in significance of e-business and Internet for the economy and environment means that companies in future will have to take environmental demands into specific consideration as part of their innovation strategies. E-business provides four environmental strategies for sustainable company development: 1. Greening of ICT: environmentally friendly production, use and recycling of information and communication appliances and technologies
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2. E-substitution: Substitution of physical products by electronic and environmentally friendly alternatives for products, mail order services and uses. 3. E-support: Use of the Internet and e-business for the safeguarding and dissemination of environmentally friendly products and services. 4. E-services: use of Internet based services, business models and networks for safeguarding the environment and improving eco-efficiency. These strategies may be applied both to providing products or services and to using and recycling them. Fig. 2: Sustainable e-business-strategies
E-substitution
Product Design
E-support
Manufacturing
E-services
Product Marketing
Product Use
Takeback Recycling
Greening of ICT Source: authors
Greening ICT The ecological effects and problem areas of the information infrastructure, especially of the end appliances, have been an object of scientific examination and a main development focus for many manufacturers of information technology equipment (German Bundestag 1998, Reichl, Griese 2000). The main responsibilities here lie in the development of energy saving appliances, the avoidance of toxic substances such as lead, mercury or cadmium, the reduction of generated waste through better recycling and the optimisation of the life and use of appliances, for example through leasing and sharing. The manufacturers and suppliers of Internet information and communication technology have the task of including environmental protection as a definite requirement in their development and innovation management and to use the potential for a greening of the information technology. In the future, sustainability will not only depend on the information infrastructure but primarily on how Internet technologies are used.
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E-substitution The strategic approach of substituting physical products (telephone books, newspapers, diaries, construction design plans etc.) and transport by electronic alternatives will probably be of minimal importance regarding the potential of safeguarding the environment. The potential possibilities of traffic avoidance and reduction of material consumption should however be individually examined. The question arises as to whether electronic products or alternative forms of mailing really are better for the environment when the entire life cycle of the product is examined. Since there are no general answers, individual examinations and evaluations must be made. It must be determined how such an evaluation can be justified regarding cost and to what extent real alternative forms of action can subsequently come into force. Alternative action is an issue for both suppliers and users of electronic substitutes. Electronic alternatives (virtual mail-order catalogues, electronic construction design plans, electronic manuals, pocket PCs etc.) are not put on the market or bought out of concern for the environment, but because of price, speed and marketing etc. Alternative action by companies is, however, not determined by the issues of whether an economically advantageous electronic substitute can be put on the market, but by the issue of whether this can be done in an environmentally friendly way and in general, this means producing appliances which are energy saving, free of toxic substances and recyclable. E-support Internet use to support the production and use of products (e-support) may provide greater potential for safeguarding the environment than electronic substitution strategies. This is shown, for example, in the improvement of communication within eco-efficient mass production designed specifically for the customer. The US-American chemical company ChemStation, which produces commercial detergents, uses the Internet to find out about customer-specific needs and take them into account when determining the composition of cleaners. In that way, superfluous additives can be avoided and correct dosage can be determined more exactly. Other forms of production that are specifically designed for customers, such as printingon-demand and building-to-order are interesting strategies. In this way, for example, Dell Computer succeeded in minimalizing the stock of electronic parts with its order service which is specifically designed for customers. Stocks are thus avoided which would quickly lose their value due to accelerating developments in the field of computers. Computers outdate so quickly that electronic parts not only lose their value but there is an increase in the amount of waste to be disposed of and materials are wasted (Cohen 2000, 3). Transponders (smart tags) are an interesting example of how physical products can be used most favourably through Internet support. They are devices containing a simple microchip and a unit which can both receive and transmit and thus ‘communicate’ via the Internet. The wafer-thin transponder can be integrated into products such as household appliances or packaging. Electrolux, the worlds largest producer of household appliances is testing, for example Internet-enabled household appliances which can be rented to the customer and which will be paid by use. This is one way of creating incen-
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tives for efficient use. In this context, there are of course questions that need to be clarified, regarding data protection for example. E-services An even more important strategy for sustainable e-business solutions lies in the development of Internet based services and company networks (e-services). Internet portals specific for careers and tasks offer information on the latest sector news and technologies and could be used by development engineers or information managers in the search for eco-efficient technologies and service models. Use of the Internet creates new opportunities for substance chaine management. Internet based services are also opening up new potentials for safeguarding the environment in the areas of extending the use of products and recycling, for example, the exchange for the recycling of cars on the Internet by the renet company (www.renet.de and Albrecht 2000). Further electronic services are provided by Internet portals and online shopping guides for environmentally-friendly products and services. One example is www.GreenOrder.com, a web-service that helps business and admininstration to easily find eco-labelled products on the Internet. The described approaches in the strategy areas, e-substitution, e-support and e-services show the variety and potentials of sustainable e-business solutions. It must be emphasized, however, that the outlined approaches do not guarantee environmental protection. Whether the strategies really do lead or could lead to eco-efficient or environmentallyfriendly solutions must be examined on an individual basis. Tab. 1: Approaches for sustainable e-business solutions Approaches
Functions Product and service development
Purchase and production
E-Support Internet support of production and product use • Internet-based learning programs for sustainable product design • Internet based benchmarking • Virtual costumer communities • Use of shopping-robots • Built-to-order and for purchase of products printed-on-demand which are both ecostrategies friendly & socially ac• Internet based coceptable operation regarding material flow along the value chain E-Substitution Substitution of physical goods by electronic goods • Product and manufacturing simulation by Internet engineering • Digital construction design plans/ documents
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E-Services Internet based services and networking • Internet based R&D networks • Career & task specific Internet portals for providing information on innovations • Internet based markets for surplus materials (e.g. Henkel) • B2B-platforms for surplus equip-ment and sites
Marketing
Optimisation of product use and recycling Management of knowledge and information
• Virtual showrooms and shopping-malls: labelling and benchmarking products according to environemtal standards • Software upgrading of household and office appliances
• One-to-one marketing • Internet portals and onstrategies on the Internet line shopping guides for • Internet based consumer eco-friendly products communication for mass and services customisation • Online support for • Internet based recycling leasing and sharing exchanges (e.g. for car models parts) • Virtual eco-communities • C2C-markets for second hand products • Manuals on the Intranet • Training support • Internet communities • Reporting on environthrough online learning specific for careers & ment and sustainability modules tasks on the Internet • Internet based environ- • Online data banks with mental accounting and product life cycle data controlling
Source: Fichter 2001
Challenges for politics Minimizing ecological impacts and exploiting ecological potentials of IT and the Internet is not only a task for companies but also poses a particular challenge for politics. Without political provisions in the fields of environment, research and economy, and without supporting the sustainability strategies of companies, ecological impacts and the consumption of resources will rather grow. The observable trend in the use of IT and the Internet runs contrary especially to the efforts of the German Federal Government to reduce CO2-emissions by 25% by the year 2005 (as compared to the value in 1990), and international commitments (e.g. the Kyoto Protocol). In view of these commitments and the existing saving potential there’s a considerable demand for action. Despite the progress already made and on-going activities (e.g. WEEE), the discussion on environmental development targets for ICT is not yet concluded. As far as applications of ICT are concerned, the political discussion is only at its beginning. In Great Britain the project "Digital Futures" is exemplary. It studies the effects of the Internet and the digital economy on society and environment (www.digitalfutures.org.uk). In Germany the same issue led the coalition parties (Social-democrats and Greens) in Parliament to bring forward the motion "Strategie für eine nachhaltige Informationstechnik" (Strategy for Sustainable IT), which was approved of on May 11, 200011. In order to put into practice this parliamentary decision, the Federal Government initiated via the Federal Ministry of Education and Research the project NIK12. The mission of NIK lies in linking information society to the challenges of sustainable business. As a framework for this effort, a roadmap is drawn up. It will be based on a dialogue process between business, politics and research and will demonstrate innovation paths for technological, economic and social developments towards an ecologically sustainable design and use of ICT. The roadmap for sustainable ICT goes beyond on-going activities by offering a comprehensive orientation along with concrete fields of action. This will contribute to coordinating at an early stage the mid and long term evolution of ICT with the requirements set by politics and society. This roadmap
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will not only discuss ecological challenges and innovation paths but also specify goals and measures to be taken and prepare self-commitments that are binding for all those involved along with deadlines for achieving specific targets. This initiative for drawing up a roadmap driven by a consensus-oriented dialogue complements on-going activities of the Federal Government in the field of ICT, e.g. within the frameworks of the “Bündnis für Arbeit” (Alliance for Jobs), of the action programme of the Federal Government „Innovation und Arbeitsplätze in der Informationsgesellschaft des 21. Jahrhunderts“ (Innovation and Jobs in the Information Society of the 21st Century) or the “Initiative D21” (Germany 21 - Moving Ahead into the Information Age). Die „Nationale Nachhaltigkeitsstrategie“ (National Sustainability Strategy) could become a model for European solutions. Conclusion As a future medium and form of market transaction, Internet and e-commerce are of central importance for sustainable development. At the moment, three clear conclusions can be made: 1. There is a scarcity of available statistics and facts on the environmental impact brought about by e-commerce and Internet use, but research on this topic is developing rapidly. Soon we will have reliable empirical data on environmental effects of ebusiness-applications. 2. Reliable forecasts estimate that the use of new information and communication technologies will have both damaging and beneficial effects on the environment but the overall ecological net impact cannot yet be predicted. 3. Inspite of the high level of inherent dynamism in the development of information and communication technologies and the rapid increase in Internet use, the digital revolution is not deterministic but in many areas it is still evolving and there is therefore a possibility of guiding and controlling it. It is not the medium of the Internet which determines sustainability but the way in which it is designed in an environmental and intelligent way. It depends on suitable political prevailing conditions and also the intelligent use of the Internet and e-business by companies. This includes looking in advance at the environmental impact of information and communication technologies, e-business models and Internet based products and services as part of innovation management. Additionally, it depends on how the potential of the Internet is used for eco-efficiency, service-design, dematerialisation, recycling and a sustainable knowledge management. Notes 1
Klaus Fichter, Ph.D., is director of the BORDERSTEP Institute for Innovation and Sustainability, a Berlin-based, not-for-profit research institute. One major focus of the BORDERSTEP research agenda is on the digital economy and its impacts on the environment. Contact: Klaus Fichter, BORDERSTEP Institute, Lyckallee 26, D-14055 Berlin, Germany, Tel. +49.30.342 31 04, Fax +49.30.30 10 85 55, EMail:
[email protected] Siegfried Behrendt, Dipl.Biol., Dipl.-Pol., is projectleader and coordinator of the workgroup "sustainable economy" in IZT Institute for Futures Studies and Technology Assessment. Contact: IZT, Scho-
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[email protected] Hilty, L.M.; Ruddy, T.F.: Towards a sustainable information society, Informatik - Informatique, 2000. UBA Umweltbundesamt: Klimaschutz durch Minderung von Leerlaufverlusten bei Elektrogeräten Sachstand/Projektionen/CO2-Minderungspotenziale, UBA-Text N6. 45/97, Berlin 1997. Barthel, C.; Öechtenböhmer, S.; Thomas, S.: GHG Emission trends of the Internet in Germany, in: Langrock, Th.; Ott, H.E.; Takeuchi, T. (Hrsg.) Japan & Germany: International Climate Policy & the IT-Sector, Wuppertal Spezial 19, Wuppertal 2001 UBA Umweltbundesamt: Klimaschutz durch Minderung von Leerlaufverlusten bei Elektrogeräten Sachstand/Projektionen/CO2-Minderungspotenziale, UBA-Text N6. 45/97, Berlin 1997 Romm, J. u.a.: The Internet Economy and Global Warming, A scenario of the Impact of E-Commerce on Energy and the Environment".1999 www.cool-companies.org/ecom Barthel, C.; Öechtenböhmer, S.; Thomas, S.: GHG Emission trends of the Internet in Germany, in: Langrock, Th.; Ott, H.E.; Takeuchi, T. (Hrsg.) Japan & Germany: International Climate Policy & the IT-Sector, Wuppertal Spezial 19, Wuppertal 2001 The number of empiric studies is rapidly increasing today. The following are examples of presently available studies: Kortmann/Winter 1999; Greusing/Zangl 2000; Reichart/Hischier/Schefer 2000. Cf. Romm/Rosenfeld/Herrmann 1999; Cohen 2000. http://www.swedenenvironment.environ.se/no0001/0001.html’art13 BT-Drs. 14/2390 sowie Behrendt, S.; Pfitzner, R.; Kreibich, R.; Hornschild, K.: Innovationen zur Nachhaltigkeit - Ökologische Aspekte der Informations- und Kommunikationstechniken, Berlin, Heidelberg, 1998 www.roadmap-it.de
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