Surf’s Up, Dude!

It is summer, and I have to write my first column for this journal, and it is so hard to concentrate on what I should muse about with you … sun’s beating down on me, my cold beer is turning warm … think, think, what to write about? … it is so hot … well, Duh! What is on everybody’s mind these days! We are surrounded by news and reports on the predicted effects of global warming on species survival, destruction of coral reefs and habitats, weather impacts on agriculture, and population displacement. The only silver lining in all of this are visions of stockbrokers having to wade through a flooded Manhattan to their jobs, Canada as a warm vacation spot, and, of course, better surfing. We all feel we should do our part—after all, we are environmental professionals and are here to find solutions and pay our mortgages in the process, right? But what can we do that is meaningful in context of our business practices and that will really actually help? David Ellis of Dupont also pondered this issue as it applies to Dupont’s stated sustainability goals, and invited a varied group of stakeholders in remediation representing academia, industry, consultants, and state and federal government agencies to a meeting in Wilmington, Delaware, in November 2006 to discuss the idea of sustainability and remediation. I admit I was both intrigued and skeptical of the idea; I mean, how much impact can remediation choices really have on sustainability? But I had it backward—it really is about how a sustainability framework leads to better remediation decisions. The outcome of this meeting was the formation of the Sustainable Remediation Forum, or SURF, and additional meetings were held in Wilmington, Delaware, and Washington, D.C., in 2007. More are planned. So, should we ground water practitioners think about getting our surfboards to catch this wave? Let us look at the current situation. To meet cleanup goals, many of our ground water remedies can take decades to centuries and require constant energy input over that time frame, involve significant disruption to the natural environment or communities, or consume natural resources. Your perspective on what a remedy should look like changes when you consider sustainability of the remedy and not just the remedial goals. Will your remedy reduce or eliminate consumption of energy and natural resources, reduce or eliminate the releases of greenhouse gases (GHG) to the air, harness a natural process, improve the natural capacity or diversity of the environment, allow you to reuse recycled materials or land? Would you select a different remedy if you changed your perspective to consider sustainable practices? Well, it will depend on what metrics we decide are important to measure a sustainable remedy. Most people think of the reduction of GHG as the principal metric of the success of sustainability. A simple example is obtaining your electricity for your pump-and-treat (P&T) system from a green source such as solar or wind rather than from the grid supplied by coal-fired generation stations. But, a more full life-cycle analysis will consider all the components that make up the remedy, such as the GHG associated with the burning of fossil fuels used by your field crew to go to the site to build the system and collect those ground water samples (do you really need quarterly sampling?); the production of materials you chose for the controls, plumbing, and valves (will you purchase from different suppliers using materials or processes that offset GHG or eliminate them?); and the disposal of spent granular activated carbon (GAC). Another metric could be how you dispose of the treated water. Is it being wasted by discharge to culverts and draining to the sea, or used to recharge the ground water resources in the area? Monty Python Flying Circus’“And Now for Something Completely Different!” really did help you look at life from a different perspective. So how about this perspective—“Remedies for Fun and Profit!” by taking an existing P&T system from being an annual operations and maintenance (O&M) cost to your client and turning it into a profit center for them. Sound like a Monty Python skit? This may not be so ludicrous as it first sounds, when you consider that carbon is trading for $40 per metric tonne in Europe, and ozone-depleting compounds under the Montreal Protocol cost $1,000/tonne or more. For example, let us assume that you have just won a contract to operate the O&M of a legacy remedy that uses a P&T system to contain a source of volatile organic compounds. You won the contract because your bid factored in the long-term benefit, in this case financial, of retrofitting the remedy to use a green source of electricity. Let us assume that this is a moderately sized system that consumes 100,000 kilowatt hours (kwh)/year of electricity to pump the ground water, with air stripping and off-gas treatment and steam regeneration of the GAC. There are various sources of carbon dioxide gas being generated: fuel consumed to collect and send samples to a lab, electricity to run the downhole pumps and blowers, electricity for the housing and control systems and to generate steam. Using EPA estimates, such a fund-led P&T system has a median annual O&M cost of approximately $350,000. The electrical cost would be about $15,000 assuming $0.15/kwh. So, when would be it a good time to consider using a renewable source of electricity? Let us pretend that the United States implements a cap and trade on carbon dioxide, and that carbon dioxide equivalent credits (tCO2e) trades at current European prices (i.e., starting at $40/tonne), and we further assume that electrical energy costs (starting at $15,000/year) inflate at 4% or 8%, and carbon dioxide prices/tonne increase at 10% or 15%. Figure 1 shows the change in annual energy cost vs. tCO2e credits, and Figure 2 shows the net difference between energy and tCO2e credits (e.g., tCO2e credits increase in value at 15%, while electrical costs increase at 8%). The data for these figures were generated using the built-in future value formulas in Excel™ using the starting costs or value of electrical energy and tCO2e, respectively, and inflated at their respective rates presented previously. Not considering the cost of adding the new clean energy source, the figures suggest that clean energy sustainable options can almost neutralize your electrical costs over the immediate future, and that you could actually generate revenue! At moderate inflation and increasing value tCO2e, you could be generating $100,000/year of additional revenue. Energy cost vs. carbon credit revenues over time. Carbon credits revenues over electrical costs. As shown by this extremely simplified analysis (and I apologize in advance to all those CFOs, accountants, and other astute financial guys), installing a renewable energy system not only makes sense because it is sustainable but it can also prove to be financially beneficial in the long run. This specific investment problem can be evaluated like any other financial options for stocks traded on the NYSE or NASDAQ. For instance, a call option gives you the right but not the obligation to take an action (i.e., buy a stock) at a predetermined price (i.e., the exercise price), for the life of the option. If the stock goes through the roof, you exercise our option and buy the stock at the predetermined price. If it tanks, you do nothing and let the option expires. For our investment problem, you can view the added cost of having a renewable energy system as the cost of the option. If the added cost of the renewable energy system is less than our estimate of the equivalent “financial” option estimated using current prices of tCO2e and its volatility, then investing in the renewable energy system may be warranted. Then the owner can wait until the right moment arrives and switch from dirty to clean energy. Hmmm … maybe I will want to start buying up dirty P&T systems in 10 or 20 years! The real point of the previous thought exercise is not to figure out how to make money off of being sustainable (though, that is nice) but to make you think about sustainability in a different light as you ply your trade. If technology advances significantly reduce the cost and improve the efficiency of solar or other clean energy systems, will P&T systems become relatively inexpensive remedies to treat dense nonaqueous phase liquids (DNAPL) sources? How will you account for the true total life-cycle cost of a remedy if carbon trading becomes accepted and a widespread practice? How does sustainable life-cycle information affect cleanup goals and remedy selection? These and other questions will come to mind when you start really thinking about sustainable remediation practices. So, I will leave you with the thought that there are interesting sustainable winds coming over the water, and swells are starting to build. I think I will start learning to surf. My gratitude to R. David Espinoza, Ph.D., P.E., who had got me thinking about sustainable practices, and who bounced ideas around about how we could make money off of P&T systems and on pricing example. Dr. Espinoza currently manages an engineering group out of Geosyntec’s Washington, D.C. office. Dr. Espinoza’s technical experience includes projects in a wide range of waste management applications, geotechnical engineering, and financial risk evaluation. Dr. Espinoza was Principal Investigator of a research project titled “Environmental Risk Management and Quantification Using Real Options” funded by the National Science Foundation. He is currently developing procedures for the application of Option Pricing Theory to the valuation of sustainable projects.

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