{"id":13759,"date":"2016-11-04T17:51:52","date_gmt":"2016-11-04T21:51:52","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/owens-illinois-an-old-school-american-manufacturer-adapts-to-climate-change\/"},"modified":"2016-11-04T17:51:52","modified_gmt":"2016-11-04T21:51:52","slug":"owens-illinois-an-old-school-american-manufacturer-adapts-to-climate-change","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/owens-illinois-an-old-school-american-manufacturer-adapts-to-climate-change\/","title":{"rendered":"Owens Illinois: An Old-School American Manufacturer Adapts to Climate Change"},"content":{"rendered":"<p>When Americans think about addressing the alarming issue of global warming, they likely conjure images of Google\u2019s driverless cars or General Electric\u2019s wind turbines. In the rare instance that Ohio based glass-container manufacturer Owens Illinois Inc. (\u201cO-I\u201d or \u201cCompany\u201d) does enter the conversation, it is in the context of a pejorative label: polluter.<\/p>\n<p>Founded in 1903, O-I is the world\u2019s largest producer of glass containers with $6 billion of annual revenue from 49,000 customers. It employs 27,000 workers in over 80 manufacturing facilities in 23 countries (17 in the US). [1][2] These jobs pay well, typically don\u2019t require a college education and are located in rural parts of the country; they are of the sort that Republican nominee Donald Trump has built a campaign vowing to protect.<\/p>\n<p>&nbsp;<\/p>\n<p><strong><u>Business Risk from Climate-Change Related Regulatory Action <\/u><\/strong><\/p>\n<p>Manufacturing glass is an energy intensive process. Industrial-sized furnaces superheat a mix of sand, limestone, soda ash and recycled glass to 1,565 degrees Celsius. Once the molten glass cools, forming machines mold it into glass containers which are reheated and cooled to strengthen the glass. [3] O-I estimates energy costs constitute between 10% \u2013 25% of total manufacturing process expenses. [4] With 2015 EBITDA margins of 12% and significant financial leverage (4.0x 2015 Adj. EBITDA), increases in the price of energy could materially harm the financial viability of the business. [5]<\/p>\n<p>O-I fuels its operations through a continuous supply of energy in the form of natural gas, fuel oil and electrical power. These energy sources contribute to the creation and release of carbon dioxide (\u201cCO2\u201d), the primary greenhouse associated with global warming. Regulators are increasingly pursuing policies aimed at limiting global CO2 emissions through governmental interventions such as a carbon tax, cap and trade scheme or government-mandated changes to industrial processes. Several regulations already impact O-I: [6]<\/p>\n<ul>\n<li>European Union Emissions Trading Scheme cap and trade system<\/li>\n<li>Extension of the Clear Air Act definition of pollutants to include CO2 emissions (EPA now has broad authority to regulate CO2)<\/li>\n<li>The State of California and Province of Quebec cap and trade system<\/li>\n<\/ul>\n<p>These measures have not meaningfully increased energy prices; however, the prospect of future, more restrictive regulation seems likely.<\/p>\n<p><strong>\u00a0<\/strong><\/p>\n<p><strong><u>Sustainability Efforts at O-I<\/u><\/strong><\/p>\n<p>To its credit, O-I acknowledges climate change as one of the \u201cgreat challenges of our time\u201d and recognizes the imperative of reducing greenhouse gases. [7] In response, the Company integrated sustainability into its core strategy.<\/p>\n<p>To document the problem, O-I commissioned a 3<sup>rd<\/sup> party \u201ccradle to cradle\u201d carbon footprint analysis of the packaging sector (i.e. includes all outputs and inputs for each life cycle stage). While carbon intensive, glass was the most sustainable form of packaging as it (i) has the smallest carbon footprint, (ii) is made of natural, readily available ingredients and (iii) is infinitely recyclable. In North America glass packaging used 0.171 kgCO2 per container\u201425% and 135% less than similarly-sized PET (plastic) and aluminum packaging, respectively: [7]<\/p>\n<p style=\"text-align: center\">\u00a0<a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/2-11.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-13410\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/2-11-163x300.png\" alt=\"2\" width=\"163\" height=\"300\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/2-11-163x300.png 163w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/2-11-326x600.png 326w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/2-11.png 383w\" sizes=\"auto, (max-width: 163px) 100vw, 163px\" \/><\/a><\/p>\n<p>In 2009, O-I set 10-year goals to transition to a more energy efficient and sustainable business model. The goals involved reducing the energy and CO2 emissions per container by 50% and 65%, respectively, and increasing the usage of recycled glass (\u201ccullet\u201d) to 60% globally. Through 2014 the company had improved in all areas though not at a pace sufficient to achieve the aggressive long-term targets; however, several best-in-class plants already demonstrated proof of concept by exceeding the targets. [8]<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/3-7.png\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-13412 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/3-7.png\" alt=\"3\" width=\"551\" height=\"198\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/3-7.png 1018w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/3-7-300x108.png 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/3-7-768x276.png 768w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/3-7-600x216.png 600w\" sizes=\"auto, (max-width: 551px) 100vw, 551px\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p><strong><u>Ideas for the Future<\/u><\/strong><\/p>\n<p>O-I has demonstrated leadership on sustainability issues and a willingness to invest in long-term solutions to climate change. Despite the risks, it should accelerate this commitment and focus on positioning itself for a future in which government regulations will force companies and consumers to internalize the costs of pollution.<\/p>\n<p>The Company has an opportunity to differentiate its commodity bottle business by being a trusted and innovate provider of best-in-class sustainable products. As customers increasingly demand sustainable products, this positioning could reverse the headwinds the Company faces from consumers substituting glass for cheaper alternatives like aluminum cans and plastics and make glass the container of choice for the 21<sup>st<\/sup> century. [9]<\/p>\n<p>Though counterintuitive, O-I should proactively contribute and shape the conversation surrounding the public policy solution to pricing carbon. Given glass is the most sustainable packaging and O-I is the market leader with the resources and scale to develop and deploy new technologies, the Company would likely be competitively advantaged by an across-the-board increase in energy prices that would be in part passed along to consumers. Additionally, if the policy ultimately isn\u2019t thoughtfully constructed and applied globally, glass production which is subject to foreign competition would just shift to lower cost and less sustainable facilities abroad [10]: a terrible outcome for O-I, the US economy and the environment. The risk of not doing anything, as O-I already seems to understand, is just too great.<\/p>\n<p>[Word Count: 800]<\/p>\n<p>&nbsp;<\/p>\n<p><strong>References:<\/strong><\/p>\n<ol>\n<li>Owens Illinois Inc., \u201c10-K\/A Year Ending 12\/31\/15\u201d, http:\/\/investors.oi.com\/phoenix.zhtml?c=88324&amp;p=irol-reportsAnnual, accessed November 2016<\/li>\n<li>Owens Illinois Inc., \u201cCompany Facts\u201d, http:\/\/www.o-i.com\/About-O-I\/Company-Facts\/, accessed November 2016<\/li>\n<li>Owens Illinois Inc., \u201cHow Glass is Made\u201d, http:\/\/www.o-i.com\/Why-Glass\/How-Glass-Is-Made\/, accessed November 2016<\/li>\n<li>Sustainable Accounting Standards Board, \u201cCONTAINERS &amp; PACKAGING Research Brief\u201d, http:\/\/www.sasb.org\/wp-content\/uploads\/sites\/4\/2015\/03\/RT0204_CP_Brief1.pdf, accessed November 2016<\/li>\n<li>Owens Illinois Inc., \u201cO-I Investor Day Presentation\u201d, http:\/\/investors.oi.com\/phoenix.zhtml?c=88324&amp;p=irol-calendar, accessed November 2016<\/li>\n<li>IBID<\/li>\n<li>Owens Illinois Inc., \u201cLife Cycle Assessment Study\u201d, http:\/\/www.o-i.com\/sustainability\/life-cycle-assessment\/, accessed November 2016<\/li>\n<li>Owens Illinois Inc., \u201c2014 Sustainability Report\u201d, http:\/\/www.o-i.com\/uploadedFiles\/Content\/Sustainability\/O-I-SustainabilityREPORT_FAsingle.pdf, accessed November 2016<\/li>\n<li>IBID<\/li>\n<li>Office of Senator Sherrod Brown, \u201cBusiness Leaders Urge Attention to Sen. Brown&#8217;s Clean Energy Manufacturing Competitiveness Provisions\u201d, https:\/\/www.brown.senate.gov\/newsroom\/press\/release\/business-leaders-urge-attention-to-sen-browns-clean-energy-manufacturing-competitiveness-provisions, accessed November 2016<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"<p>This post explores whether an energy-intensive 20th century glass-bottle manufacturer can be part of the 21st century solution to climate change.<\/p>\n","protected":false},"author":1911,"featured_media":13760,"comment_status":"open","ping_status":"closed","template":"","categories":[1366,1575,1218,1950,161,699],"class_list":["post-13759","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-carbon-dioxide","category-carbon-dioxide-emissions","category-climate-change","category-glass","category-manufacturing","category-regulation"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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