APPLYING SUPPLY CHAIN ENVIRONMENTAL RISK MANAGEMENT IN TRANSITIONING

APPLYING SUPPLY CHAIN ENVIRONMENTAL RISK MANAGEMENT IN TRANSITIONING ECONOMIES Nicholas P. Cheremisinoff, Ph. D. Princeton Energy Resources International, LLC Rockville, MD March 2004 Princeton Energy Resources International, LLC

PRESENTATION OUTLINE Ø HOW AN EMS IS SUPPOSED TO WORK ØREASONS FOR INTEGRATING P 2 ØWHY THE NEED FOR SCERM Princeton Energy Resources International, LLC

Environmental Management Systems Overview PLAN REVISE The Continual Improvement Process CHECK Princeton Energy Resources International, LLC DO

The Continual Improvement Process · FORMULATE ENVIRONMENTAL POLICY · IDENTIFY ENVIRONMENTAL COMPLIANCE NEEDS PLAN · IDENTIFY AND PRIORITIZE OTHER ENVIRONMENTAL PERFORMANCE IMPROVEMENT NEEDS REVISE DO CHECK Princeton Energy Resources International, LLC · DESIGN PROGRAMS/ACTION PLANS TO IMPROVE ENVIRONMENTAL COMPLIANCE AND PERFORMANCE

The Continual Improvement Process PLAN DO REVISE CHECK Princeton Energy Resources International, LLC · IMPLEMENT THE ENVIRONMENTAL PROGRAMS/ACTION PLANS

The Continual Improvement Process PLAN REVISE DO CHECK Princeton Energy Resources International, LLC · MONITOR ENVIRONMENTAL PERFORMANCE · EVALUATE PROGRESS OF THE ENVIRONMENTAL PROGRAMS AND ACTION PLANS

The Continual Improvement Process PLAN · REVISE THE ENVIRONMENTAL PROGRAMS/ACTION PLANS · CONSIDER CHANGES IN THE ENVIRONMENTAL POLICY DO REVISE · CONSIDER NEW ENVIRONMENTAL COMPLIANCE AND OTHER PERFORMANCE IMPROVEMENT NEEDS Princeton Energy Resources International, LLC CHECK

The Five Steps and Elements of ISO 14001 Step 1 Environmental Policy Clause 4. 2 Step 2 Planning Clause 4. 3 • Environmental aspects Step 5 Management Review Clause 4. 6 • Legal and other requirements • Objectives and targets CONTINUAL IMPROVEMENT Step 4 Checking and Corrective Action Clause 4. 5 • Monitoring and measurement • Environmental management programs Step 3 Implementation and Operation Clause 4. 4 • Structure and responsibility • Training, awareness, compliance • Non-compliance and corrective and prevention action • EMS documentation • Records • Document control • EMS audit • Operational control • Emergency preparedness and response Princeton Energy Resources International, LLC

Pollution Management Hierarchy • LIABILITIES • PUBLIC IMAGE • WORKER SAFETY • CAPITAL INVESTMENTS • INCREASED O&M COSTS • NEGATIVE ROI RISK AXIS COST AXIS • LOWER CAPITAL INVESTMENT • PARTIAL COST RECOVERY • COST SAVINGS • IMPROVED PRODUCTIVITY • IMPROVED QUALITY DISPOSAL TREATMENT RECYCLE Princeton Energy Resources International, LLC P 2

Principle Drivers Behind Accelerating EMS Adoption By U. S. Firms ØDirectly attributable operating cost reductions ØResponse to market preferences or requirements ØResponse to lender, insurer, and investor preferences ØEasier compliance and easier adaptation to growing stringency in environmental regulations ØRegulatory agency accommodation for temporary noncompliances ØImproved environmental security and emergency preparedness ØBetter stakeholder relations Princeton Energy Resources International, LLC

Other Key Benefits Include ØEnhanced public image ØIncreased productivity and efficiency ØReduced regulatory burden Princeton Energy Resources International, LLC

For the U. S. – Compliance and the Image of Being a “Good Corporate Citizen” Is Critical ØPolluter pays principle ØStrict and several liabilities ØAll forms of waste remain liabilities forever Princeton Energy Resources International, LLC

Basic Elements Of Integrated EMS/P 2 Programs Organize for EMS implementation Organize P 2 program implementation Conduct initial environmental review Conduct pre-assessment activities Confirm commitment to P 2 and continual improvement Establish environmental policy P 2 audit: Identify P 2 cost savings opportunities Top management review Monitor, evaluate, and revise environmental management programs Identify & prioritize environmental aspects and impacts, and compliance needs Top management review P 2 Audit: Formulate P 2 action plan(s) using Life Cycle Formulate environmental management program(s) Implement environmental management program(s) Princeton Energy Resources International, LLC Monitor, evaluate, and revise P 2 action plan(s) Implement P 2 action plan(s)

Good Environmental Performance Effects Competitiveness Meeting the needs of the market and stakeholders transparency performance Environmental reporting and green claims ISO 14001 EMAS credibility Princeton Energy Resources International, LLC Environmental Management Systems

Elements of a SCERM Program EMS Auditing of Suppliers Environmental Performance Pollution Prevention Environmental Security Regulatory Compliance Metrics Princeton Energy Resources International, LLC

Impacts of Supply Chains Coca Cola of Jordan Bottle Supplier Excess Water + High Energy + High Labor + High Rejects = $40 k ROOT CAUSES Monomer Supplier Valero Refinery Rubber Supplier ROOT CAUSES Princeton Energy Resources International, LLC Rejects (Solid Waste) + Fires = $10, 000 + Bad Press + Litigation Costs

Other Parts of the World Weak Regulatory Climate Subsidized Water and Energy Subsidized Industry Sectors Lack Capital Lack Regulatory Infrastructure Markets Struggling Lack Capital Regulations Not Established Princeton Energy Resources International, LLC

P 2 and EMS Needs Repackaging – It’s Not a Matter of Environmental Performance for Companies Best Available Practices (BAPS) & technologies that eliminate all forms of waste and inefficiencies at the source: – High water demands – Lost raw materials (chemicals feedstocks) – Excessive turnarounds – Frequent job interruptions – Poor quality and high off-spec – Labor intensity – High energy demand – Costly waste and pollution treatment – Low throughput Waste and inefficiencies represent direct financial losses Princeton Energy Resources International, LLC

Integrated P 2/EMS Programs Focus On Enterprise Competitiveness TIER 1 USUAL OR NORMAL COSTS TIER 2 HIDDEN OR INDIRECT COSTS TIER 3 FUTURE LIABILITY COSTS TIER 4 LESS TANGIBLE COSTS Princeton Energy Resources International, LLC

Applying Metrics - What Companies Are Reporting Source: National Academy of Engineering - from a sampling of 220 companies Princeton Energy Resources International, LLC

Minimum Set of Metrics to Consider ØProduct-Use Metrics – Water Use/efficiency – Material Use/efficiency – Energy Use/efficiency – Pollutant Releases (Air, Water, Solid) – Greenhouse Gas Emission – End-of-life Disposition Princeton Energy Resources International, LLC

Companies Must Take a Holistic View of Their Businesses - Through Life Cycle and Pollution Prevention – As An Example Consumption of produce Return To Environment (Air, Water, Soil) Harvest Society’s Need for Fertilizer Plant Uptake Application Distribution Produce Mineral Fertilizers LIFE CYCLE OF POTASH AND PHOSPHATE MINING Exploration Mine Development Beneficiation and processing to concentrate ore Princeton Energy Resources International, LLC Mining

How a SCERM Program Benefits ØReduces costs ØReduces potential for environmental liabilities ØStrengthens relationships with suppliers ØImproves quality of products and services ØReduces reputational risks ØIncreases supplier sustainability ØFacilitates response to green market demands ØMakes businesses more competitive Princeton Energy Resources International, LLC