Science of Sustainability 49 hydrogen, natural gas or liquid petroleum gas, and electricity (McKinnon et al, 2015). Some of these developments are still in their infancy, just like newer sources of renewable energy, and also have their own environmental impacts. For example, growing crops for biofuels requires the use of arable land which displaces growing crops for food. A response to that situation might see farmers cultivating more forests and grasslands for food produc- tion, thus possibly negating the positive effects of greenhouse gas emissions reductions from using biofuels.
The second purpose (Halldórsson and Svanberg, 2013) is energy that is embedded in physical products, eg electricity through assembly such as energy consumption for vehicle assembly, or via their material content such as oil used in consumer products. These purposes also affect service provision. For example, energy includes mobility, eg transport, heating, eg households and warehouse facilities, and cooling, eg storing of drugs and food.
The World Business Council for Sustainable Development (2007b) notes that warehousing, as one aspect of the manufacturing and industrial sector, accounts for 40 per cent of worldwide energy use. Initiatives to increase the efficiency of building in using energy and reducing emissions have been developed by the Leadership in Energy and Environmental Design certifi- cation program (LEED) in the United States and the Building Research Establishment Environmental Assessment Method (BREEAM) in the UK (McKinnon et al, 2015). Such accreditations consider the following categories of building sustainability: the indoor environment quality including light- ing, the materials and resources used in construction, the energy source and building atmosphere including electricity use, sustainable building sites, and water use efficiency. The ultimate goal for a sustainable building is a net zero operation where a building uses little or no outside energy or resources at all, for example by generating its own electricity through solar power, recycling and reusing waste water. This topic will be further discussed in Chapter 4.
Economic development is fundamentally a process of structural trans- formation and involves the transformation of productive factors from traditional to modern agriculture, industry and services, and the reallocation of those factors among industrial and service sector activities. This process involves shifting resources from low- to high-productivity sectors to be successful in accelerating economic growth (UN Department of Economic and Social Affairs, 2007). Essentially, sustained economic growth is asso- ciated with the capacity to diversify domestic production structure, ie to generate new activities, strengthen economic linkages within the country, and create domestic technological capabilities.
Since the end of the World War II, modern industrial policies have led to rapid growth in the developing world through such diversification of produc- tion into manufacturing and services. The business management mantra of outsourcing manufacturing to low-cost, global producers during the 1960s and 1970s, coupled with a reduction in transportation and communica- tion costs combined with corresponding increases in technological power especially computing and data processing power, has led to a physical disintegration of production. Because of lower transaction costs, different components of final product are now manufactured in several different countries. The product may then be assembled in yet another country and finally distributed worldwide. This means that, to get products or services to the market, it is now important to tap into the global production and supply chains now operating in the 21st century (UN Department of Economic and Social Affairs, 2007). This structural transformation is also known as the two great ‘unbundlings’.
The first unbundling is the end of the necessity to produce goods close to consumers. This transformation has been accelerated by the rapid decline in transportation regulation and costs during the last four decades, particularly with the widespread use of containers and bulk carriers. Thus, the impact has been that much manufacturing production, especially of the more standard and labour-intensive goods, has been transferred to developing countries with lower labour costs. The second unbundling is the end of the need to perform most manufacturing stages near each other. This has been made possible by rapidly falling costs of telecommu- nications, the possibility of codifying and digitizing tasks and increasing data processing power to turn such data into information. The result- ant impact has been that many service tasks supporting manufacturing as well as other services, such as back-office accounting and customer service support, have been sent offshore to countries with lower labour costs.
Science of Sustainability 51
The shift to offshore facilities has led to significant growth in developing countries such as China, India and Southeast Asia. Total gross domestic product (GDP) at purchasing power parity, representing the sum value of all goods and services produced in the country valued at prices prevailing in the United States, was estimated across the globe in 2015 at US $113.7 tril- lion, as shown in Table 2.3 (CIA, 2016). The three major geographic regions that account for the bulk of this economic activity are China with 17.1 per cent of world GDP, the 28 member states of the European Union (EU) with 16.9 per cent, and the United States with 15.8 per cent. However, three other countries worthy of note are India (7.0 per cent), Russia (3.7 per cent) and Brazil (3.2 per cent). These three plus China make up the so-called ‘BRIC’
group that have been presented over the last decade as rapidly developing countries. In fact, China has been the best performer of the four and now leads the world ahead of the EU and United States in terms of GDP.
A method to compare the logistics performance of various countries to their GDP performance is the World Bank Logistics Performance Index (Arvis et al, 2016) or LPI. The LPI is a multidimensional assessment of logistics perfor- mance rated on weighted average scale of individual country scores on six key dimensions with a maximum score of 5.0 (one being the worst and five being the best). The six dimensions are the efficiency of clearance processes, quality of trade and transport-related infrastructure, the ease of arranging competi- tively priced shipments, the competence and quality of logistics services, the Table 2.3 Comparison estimated gross domestic product (purchasing power
parity) in 2015
Country GDP (US $ trillion)
Percentage World GDP
World 113.7 100.0
China 19.4 17.1
European Union 28 19.2 16.9
United States 18.0 15.8
India 8.0 7.0
Japan 4.8 4.2
Germany 3.8 3.3
Russia 3.7 3.2
Brazil 3.2 2.8
SOuRCE CIA (2016).
ability to track and trace consignments, and the timeliness of shipments in reaching their destination within a scheduled or expected delivery time. In 2016, the top five countries as shown in Table 2.4 were Germany (4.23 LPI score), Luxembourg (4.22), Sweden (4.20), Netherlands (4.19) and Singapore (4.14). In comparison, the four BRIC countries were ranked as follows: China 27th (3.66), India 35th (3.42), Brazil 55th (3.09) and Russia 99th (2.57).
One way of considering these differences is that those countries that have both high GDP and LPI values are highly efficient in terms of production and logistics and SCM. However, both the EU and the United States are more efficient in their logistics activities as represented by LPI scores and in economic performance as represented by their GDP standings. Further, that does not necessarily translate into efficient or better sustainability.
The countries emitting the most CO2 in 2012 according to the US Energy Information Administration were China and the United States at 8.0 and 5.5 billion tonnes respectively (EIA, 2015). Hence, it is significant that both were signatories to the COP 21 agreement in Paris in late 2015.
Table 2.4 World Bank logistics performance index 2016
Country Rank LPI Score
Germany 1 4.23
Luxembourg 2 4.22
Sweden 3 4.20
Netherlands 4 4.19
Singapore 5 4.14
Belgium 6 4.11
Austria 7 4.10
United Kingdom 8 4.07
Hong Kong SAR, China 9 4.07
United States 10 3.99
Norway 7 3.96
Japan 10 3.91
China 27 3.66
India 35 3.42
Brazil 55 3.09
Russian Federation 99 2.57
SOuRCE Arvis et al (2016).
Science of Sustainability 53 Industrial processes themselves remain very much the same, albeit enhanced by recent manufacturing techniques such as lean production and just-in-time (JIT). Industry extracts materials from the natural resource base, such as minerals and energy resources discussed above and, coupled, with financial and human resources, develops products for market. However, coupled with this activity is the production and distribution of pollution into the human environment.
Issues of depletion also affect non-energy inputs for industry, such as iron, copper and rare earth elements, and the concept of ‘peak’ also applies to them. The British Geological Survey (2016) publishes an annual Risk List for chemical elements or element groups that possess economic value and are necessary to maintain our economy and lifestyle. The numerical rank- ing value on the Risk List is an index score reflecting seven criteria: scarcity, production concentration, reserve distribution, recycling rate, substitutabil- ity, and governance of both the top-producing and reserve-hosting nations.
In 2012 those elements considered at high or very high risk, ie with index scores greater than 8.5, were rare earth elements: antimony, bismuth, germa- nium, vanadium and gallium. The top reserve holder and leading producer for all these elements except germanium and gallium is China. China is also the leading global producer of all the elements listed above and in fact is the leading producer of 15 of the top 20 high-risk elements on the Risk List.
The Risk List gives an indication of which elements or groups may be subject to supply disruption resulting from human factors such as geopoli- tics, resources nationalism, strikes, accidents and lack of sufficient reserves.
The British Geological Survey’s message for firms and countries is to develop diversified supplies of primary resources and make full use of secondary or substitute resources and recycling to reduce intensity of resource use. Such activities will also impact current logistics and supply chain designs and operations.