I say capex, you say opex, let's call the whole (sustainability) thing off

Procurement says CapEx. Finance and Operations say OpEx. Sustainability says carbon. And never the twain shall meet, which is awkward, because there are three of them.

Three functions, three budgets, three scorecards, one asset. Procurement is measured on unit price. Operations and Finance carry the running cost. Sustainability calculates the emissions figure months later and wonders why it is behind on a target it has no hand in influencing: PwC's latest count puts only 46% of companies on track for Scope 1 and 56% for Scope 3.

 Same piece of kit. Three completely different definitions of a good outcome.

The number that settles it

On energy-intensive equipment, the purchase price is the small part of what you pay.

We modelled a 12 kW electric boiling pan recently. Over a twelve-year service life the whole-life cost came in at roughly £25,000, of which energy and maintenance were about 80%. The purchase price, the only figure anyone argues about, was the remainder.

The European Commission's Joint Research Centre found the same thing in commercial refrigeration. Updating the Ecodesign study for the sector, it concluded that buying culture in several appliance categories still runs on acquisition price rather than life-cycle cost, and that proven, affordable efficiency technology goes unbought as a result. That is a regulator, in a technical document, describing a habit rather than a technology gap.

So when you save £2,000 on the purchase, you haven't saved £2,000. You've bought a liability and arranged for someone else to pay for it. Day one it reads as a win. Year three it is a line item nobody can explain.

A known problem we keep ignoring

Economists call this the principal-agent problem, or split incentives.

The International Energy Agency, which advises some thirty governments on energy policy, put a number on it in 2007. Mind the Gap took eight case studies across five countries and found more than 3,800 petajoules a year of energy use affected, about 85% of Spain's annual consumption. One quirk in who pays for what, wasting close to a country's worth of energy. 

Nineteen years on, the IEA still lists split incentives as a live barrier. 

The textbook version is a landlord who buys the fridge and a tenant who pays to run it. In our world it is more often the integrated facilities manager: the IFM specifies and procures, the client pays the energy bill, and the contract rewards the IFM for the capital number.  

The same fault line runs through organisations that own both budgets, where capital and revenue are approved and defended by different people. Nobody has to behave badly for this to go wrong.

 A specification consultant put it to me plainly: CapEx and OpEx are two departments and two people, the CapEx team doesn't much care what OpEx thinks, and by the time OpEx sees the decision it is fixed. His clients will happily carry the higher energy cost, because it lands on a different line in a different year and nobody's bonus depends on it. 

Sustainability gets the worst seat

They weren't in the room at decision but they collect the data afterwards and watch it land across all three scopes at once. Gas-fired kit burns on site: Scope 1. Electricity: Scope 2. The asset itself: Scope 3, Categories 1 and 2. One decision, three scopes they are tasked with reducing, and nobody asked them.  They simply watch and report.

Business solved this in 1992

Here is what irritates me. This isn't an unsolved management problem. 

Kaplan and Norton published the balanced scorecard in Harvard Business Review in 1992, on a simple premise: measure a function on one dimension and you will get that dimension, optimised, at the expense of everything else. Thirty-four years later most organisations run scorecards at board level, in operations and in HR, then evaluate a twelve-year asset on a single number negotiated once at the point of purchase.

 Procurement of energy intensive equipment never got its balanced scorecard. That is the gap, and closing it isn't exotic:

• Whole-life cost on the evaluation sheet, beside the purchase price, not in an appendix to the business case.

• A carbon dimension that includes the use phase, not just the embodied figure, because the use phase maybe where the emissions are.

• Sustainability with a vote at specification rather than a spreadsheet at year end. 

• Product-level supplier data as a condition of tender, because none of the above works on category averages or marketing claims.

  
  

That last one is the real bottleneck, and the one most operators quietly gave up on, because until recently the data simply wasn't there.

The twain can meet. They just need something to meet over, and a single credible whole-life number does that better than any quantity of cross-functional goodwill.

Niscai provides product-level energy, carbon and whole-life cost data for commercial equipment. We'd love to hear how this plays out in your organisation.