JFS Newsletter No.185 (January 2018)
https://www.japanfs.org/en/news/archives/news_id036008.html

Nihonkai Gas's PaaS Model Fan Heater Rental Service
In our July 2017 issue, we introduced the story of Nihonkai Gas Co. practicing a business model known as "Product as a Service" (PaaS), which promotes the "circular economy" concept of selling services, rather than products.

Selling Services, Not Products: 15 years of Efforts and Achievements by Nihonkai Gas
https://www.japanfs.org/en/news/archives/news_id035860.html

Nihonkai Gas, based in Toyama City, Toyama Prefecture, is active in a broad range of business areas including selling gas appliances, in addition to its main business of producing, supplying and selling a variety of gas products. The company also sells fan heaters as one of its gas appliance products.

Besides selling fan heaters, the company offers a new service, a heater rental program that responds to the needs of customers who want warmth during wintertime. By renting out fan heaters, the company really is selling only "warmth" as a service. In the "circular economy," this approach of selling the service provided by a product, not the product itself, is called Product as a Service (PaaS).

The PaaS-style gas fan heater rental service was launched by the president and CEO, Hachiro Nitta, in September 2001. A cumulative total of 21,622 fan heaters was rented to date in the 17 years since the service started.

The company has a high ratio of repeat customers, as they are attracted to the services of delivery and collection, cleaning and maintenance, while they don't need any storage space for the units in summer and they pay almost no initial purchase costs.

The Nihonkai Gas heater rental program results in a longer product life cycle for fan heaters thanks to having the maintenance work done by trained personnel, and this helps reduce the resources and energy consumed in manufacturing.

The fan heater rental service appears to be environmentally friendly because of the extended product life cycle of the heaters. But how good are they really for the environment? The company conducted a project to estimate the effects of the service in collaboration with experts in Life Cycle Assessment (LCA). This article reports on the LCA project for the fan heater rental service.

Measuring Environmental Impacts with a Life Cycle Assessment

An LCA is defined as a quantitative evaluation technique for environmental impacts (carbon dioxide emissions, metal consumption, water consumption, etc.) generated throughout the life cycle of products and services. As with human beings, products and services also have life stages "from the cradle to the grave." Specifically, the cycle starts from the procurement of raw materials and goes on to include manufacture, transportation, use and disposal. The magnitude of environmental impacts varies with the life cycle stage of a product or service, so LCAs are done by stage.

The LCA was first introduced by Harold Smith when he reported his calculation of cumulative energy requirements for the production of chemical products at the World Energy Conference in 1963. Then in 1969, the Coca-Cola Company commissioned the Midwest Research Institute to do a study on beverage packaging, laying the foundations for today's LCA techniques.

In Japan, major manufacturers pioneered the use of LCA, and nearly all industries use these techniques now. These days, corporate reporting, including corporate social responsibility (CSR) and annual reports, use the carbon footprint to indicate how much CO2 has been emitted and the water footprint to indicate the use and consumption of water throughout the lifecycles of particular products or services.

How can an LCA be useful? To begin with, an LCA can help one understand the magnitude of environmental impacts of a product or a service. For example, producing 1 kilogram (kg) of pork consumes 6,000 liters of water. That's 6,000 times the weight of the meat actually produced.

Water Footprint Network
http://waterfootprint.org/en/water-footprint/product-water-footprint/water-footprint-crop-and-animal-products/

Thus, by understanding their environmental impacts, business owners can strategically manage the risks related to their businesses. For example, an LCA for a product produced in an area of high water stress might reveal that the water use is much greater than expected, which might make the business owner see business risks not previously noticed and think about how to manage those risks.

Businesses can also compare environmental impacts before and after changing their raw materials and manufacturing processes, for example, leading to greater environmental efficiency and optimization at the product, process, or organizational level. Take an automobile for example. A manufacturer that tries out lighter but stronger materials might realize how much it can improve fuel efficiency and reduce CO2 emissions and other environmental impacts, leading to improvements in raw materials and manufacturing processes.

Lastly, as the magnitude of the environmental impacts can be shown in numbers, LCA can also be useful for communications. By using the LCA for communicating with governments, investors, markets and consumers on environmental issues, businesses can promote their products as being environmentally friendly and improve brand image, which, in turn, can attract investors that prioritize environmental, social and governance (ESG) criteria. It is worth a look at Ecoleaf, a made-in-Japan environmental labelling system that shows environmental information for all life cycle stages of a product using the LCA methodology.

Ecoleaf
http://www.ecoleaf-jemai.jp/eng/

In the LCA project for the fan heater rental service of Nihonkai Gas, two scenarios (rental versus purchase) were developed for different household configurations (single person, workers stationed in Toyama and living alone away from family, married couple, or family with children), housing type (detached or attached), and the number of days of use (weekdays and/or weekends). For each scenario, environmental impacts were calculated by LCA methods and the effects were estimated.

The LCA calculation involves the collection of basic data on what is used or consumed and how much, then multiplying this with a corresponding coefficient of environmental load, to produce the total environmental load.

In this assessment, environmental loads cover not just greenhouse gases, but 79 items in total, including metal consumption.

After calculating 79 environmental loads, each load is converted to a figure representing environmental damage and then integrated (Figure 2). By converting to a monetary amount for damage, different types of environmental loads can be integrated into one measure and represented in monetary terms.

The basic data used were actual measured values and available statistical values. Environmental load conversion coefficients were calculated using an IDEA database and the Life-cycle assessment Method based on Endpoint modeling (LIME) developed to evaluate LCA in Japan.

Findings

The LCA estimate found that Nihonkai Gas's PaaS (rental) service for the past 17 years generated a benefit by avoiding environmental impacts evaluated at about 2 million yen (about US$17,699) compared to the purchasing scenario (Figure 3).

The biggest environmental benefit for the PaaS service was savings in resource consumption (610,000 yen, about US$5,398), followed by climate change (420,000 yen, about US$3,716), and waste (350,000 yen, about US$3,097). Urban air pollution and ecotoxicity (atmosphere and hydrosphere) showed significant benefits as well. Thus, the PaaS rental service resulted in beneficial environmental impacts, especially in the areas of resource consumption and climate change.

Regarding differences among various family structures, it was found out that the reductions in environmental damage per household of workers living alone away from family were three times higher than for other households. Among the users of Nihonkai Gas's rental service, 5,300 households consist of workers living alone away from family, with the remainder being the 16,000 with other family structures. For the households of workers living alone away from family, the reduction effect is high although these households are not very large in number at the moment. Therefore much further reductions in environmental load could be achieved by approaching them more actively.

How about climate change? The assessment shows that the company's gas fan heater rental service program reduced CO2 emissions by a total of 411,352 kg of over 17 years (Figure 4). Per household, the reduction varies from 390 kg-CO2 (households of workers living alone away from the family) to 130 kg-CO2 (all other households).

The amount of this reduction so far is equivalent to the carbon sequestered by 44,889 Japanese cedar trees, which absorb 9 kg of CO2 per tree, according a report by Japan's Forestry Agency that provides examples of CO2 emissions and carbon sequestration in forests (cedar plantations). Thus, the PaaS service could be described as having the same effect as planting that many trees.

In terms of metal consumption, the assessment found that the service reduced metal usage by 42,402 mg over the 17 years. Metal consumption reportedly causes not only environmental problems such as changes in landform due to mining, as well as ecosystem degradation, mining pollution affecting rivers and soils, but also social problems such as labor under harsh conditions, including child labor and forced labor, and health problems for communities affected by metal refining plants. Thus, Japan as a metal importer is called upon to actively limit metal consumption. From this perspective, the heater rental service could be considered to be worthwhile as it does exactly that.

Conclusion

With this study, Nihonkai Gas estimated the environmental impacts of the company's PaaS service for the past 17 years using the LCA framework. It turned out that the environmental load of the PaaS rental service scenario is less than the gas heater purchase scenario. The assessment also shows that the PaaS service is effective in not only fighting climate change but also reducing metal consumption, the latter being a topic that has not attracted much attention so far.

Nihonkai Gas said "We will further improve our rental service business based on these LCA evaluation results." The company is also expected to utilize the results to attract ESG investment funds and improve the corporate brand value by reporting the findings in CSR reports and other publications as one of its activities related to the United Nations' Sustainable Development Goals (SDGs).

We hope the LCA framework will be used more widely as it can lead to further improvements and better communications by recognizing important aspects of environmental activities and by quantifying environmental impacts.

Written by Yuya Ono and Junko Edahiro