Environment and energy: Ways to reduce pollutants and save energy

With the rise of sustainability practices in business, firms have been seeking a systematic approach to address their environmental challenges and in response adopting environmental management systems (EMS), defined as frameworks for the effective implementation of environmental management. Reflecting this trend, the number of issued ISO 14001 certificates, which signify the active and structured implementation of EMS, has increased exponentially since 1996, and obtaining ISO 14001 certificates has become the norm for environmental management. According to the ISO (International Organization for Standardization), the number of ISO 14001 adopters reached 568,798 in 176 countries worldwide by the end of 2020.

Academia has been responding to this EMS enthusiasm in practice by researching the drivers and consequences of ISO 14001 adoption. As expected, studies report that ISO 14001 adoption has a positive impact on waste reduction and waste management, the reduction of air pollution and atmospheric emissions, and the efficient use of resources. Reflecting this view, the ISO officially announced the key benefits of ISO 14001 as follows:

“Organizations using ISO 14001 have found success across a range of areas, including reduced energy and water consumption, a more systematic approach to legal compliance and an improved overall environmental performance.”

However, environmental management activities (e.g., pollution control) might be performed at the cost of other inputs, especially energy. Evidence from engineering studies suggests that more energy is required to reduce pollution or other natural resource inputs. For example, treating waste to make it safer for disposal requires additional energy. So does the advanced treatment of air pollutants and wastewater.

Accordingly, the U.S. Environmental Protection Agency (EPA) developed and provided practical guides to help firms improve their energy efficiency in wastewater treatment facilities. This view suggests that the implementation of EMS may decrease firms’ energy efficiency, and thus firms face two conflicting goals in relation to EMS: reducing environmental impacts and increasing energy efficiency.

Using novel panel data on energy efficiency and EMS standards obtained from 2,690 South Korean plants operating between 2001 and 2014, my collaborator and I empirically investigated the impact of EMS on energy efficiency at the plant level. We found evidence of a trade-off relationship between environmental performance and energy efficiency in relation to EMS adoption. Our study shows that the adoption of ISO 14001, the representative EMS standard, results in approximately 6%–12% lower energy efficiency compared with non-adoption, although it effectively reduces air, water, and waste pollution.

Understanding the trade-off associated with environment and energy is particularly important because a lack of such understanding may sustain and even worsen unintended consequences over time, undermining the efficacy of societies’ collective actions to reverse climate change.

In fact, firms are increasingly cognizant of the importance of energy management. Reflecting this awareness, the ISO introduced a new standard focused on energy management in 2011: ISO 50001. The number of adopters for ISO 50001 rapidly increased and reached 45,092 in 100 countries worldwide by the end of 2020 (ISO). This rise of energy management systems is well aligned with the global initiative to achieve Sustainable Development Goals for climate change, established by the United Nations.

As the impact of climate change turned severe and destructive to the extent of threatening the entire human habitat (e.g., steep sea level rise, unprecedented heat waves, and frequent wildfires), reducing greenhouse gas emissions, which are highly associated with the improvement in energy efficiency, has recently become a more urgent matter. In this regard, it is clear that both pollution and climate change are equally important global challenges that industrial organizations as critical social stakeholders should take an active role to address.

Therefore, alerted by the trade-off relationship between environmental performance and energy efficiency in relation to EMS adoption, sustainability managers in organizations are advised to (1) actively incorporate energy management activities into their action plans to implement EMS activities as well as overall continuous improvement projects; (2) develop and utilize more specific measurements for energy efficiency, such as energy usage per employee, space, or product; (3) redesign incentive schemes to facilitate management activities to improve energy efficiency as well as environmental performance; and, more importantly, (4) focus more on pollution prevention (i.e., source prevention) than on pollution control (i.e., end-of-pipe treatments) to improve both environmental performance and energy efficiency simultaneously.