“Green Servicizing” for a 

More Sustainable US Economy:

Key concepts, tools and analyses to inform policy engagement 

September 2009 

US Environmental Protection Agency 

Office of Resource Conservation and Recovery 

Washington, D.C. 20460 

EPA530-R-09-006 

September 2009 

“Green Servicizing” 

For a More Sustainable US Economy: 

Key concepts, tools and analyses to inform policy engagement 

US Environmental Protection Agency 

Office of Resource Conservation and Recovery 

Washington, D.C. 20460 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ii 

Acknowledgments 

Many individuals and organizations contributed generously of their time and expertise in the 

development of this report. Particular thanks are owed to the Chemical Strategies Partnership and the 

Chemical Management Forum, Thomas Green of the IPM Institute of North America, Sung-Duk Kim 

of the Korea National Cleaner Production Center, Carrie Koplinka-Loehr of the Northeastern IPM 

Center, Robert Mills, Oksana Mont of Lund University, David Ness of the University of South 

Australia, Kathy Seikel of US EPA and Douglas Stoughton of the Virginia Farm Bureau.* 

This report builds on the conceptual foundations of the 1999 Tellus Institute report commissioned by 

US EPA’s Office of Resource Conservation and Recovery (then called the Office of Solid Waste): 

Servicizing: The Quiet Transition to Extended Product Responsibility. Its approach and analysis are 

substantially informed by the experience of the 3-year Green Product Service System research initiative 

of the Institute for Global Environmental Strategies, Japan. 

*While affiliations are provided for purposes of identification, these experts contributed in an 

individual capacity, not as representatives of their organizations. Their mention here does not imply 

that they endorse the findings of this report. 

Submission Note 

This report was developed by Mark Stoughton, Ph.D. (mstoughton@cadmusgroup.com), Chris Frantz, 

Thomas J. Votta, P.E. and Richard Krop, Ph.D. of The Cadmus Group, Inc., under US EPA Contract 

No. EP-W-07-003, subcontract No. 26OR00221, at the direction of Priscilla Halloran of US EPA’s 

Office of Resource Conservation and Recovery. 

Dedication 

This report is dedicated to the memory of Thomas J. Votta (1967—2009), an extraordinary person who, 

in his short career, combined a warm and outgoing nature, enormous imagination, deep respect for the 

environment and keen business acumen to make the world a better place by rethinking the nature of 

commerce in our society in fundamental, innovative ways. 

Disclaimers 

This document was prepared under contract to an agency of the United States Government. Neither the 

United States Government nor any of its employees makes any warranty, expressed or implied, or 

assumes any legal liability for any third party’s use of or the results of such use of any information, 

product, process, or business models discussed in this document. Mention or illustration of company or 

trade names, or of commercial products does not constitute endorsement by the United States 

Environmental Protection Agency (US EPA). As of the date of this document, external links are current 

and accurate, and are offered by way of example only for reference purposes. The US EPA is not 

responsible for content of non-US EPA links. The analyses, findings and recommendations contained 

herein are for informational purposes and do not constitute policies of US EPA or the United States 

Government. 
“Green Servicizing” for a More Sustainable US Economy: 

Key concepts, tools and analyses to inform policy engagement 

(EPA530-R-09-006  September 2009) 

Abstract 

A sustainable economy requires economically successful business activities and models that achieve fundamental reductions 

in energy, material and water throughput in the delivery of necessary goods and services. The primary environmental policy 

interest in these sustainable business models is that they provide an environmentally superior alternative to the “business as 

usual” (BAU) ways that existing economic needs are served and functions delivered. 

Sustainable service-led business models are particularly required, both to address the challenge of the “services transition” 

and to exploit the promise of the “functional economy.” The focus of inquiry for service-led business models that constitute a 

more sustainable alternative to BAU are innovative or emergent product service systems (PSSs) or “servicizing” models. 

The PSS concept describes the economic space in which products and services are combined in value propositions to meet 

customer needs. While PSS activity is poorly captured by economic statistics, “BAU” PSSs are ubiquitous—e.g., mobile 

telephony, car rental, pizza delivery, capital equipment leasing—and are an important determinant of the overall performance 

of the US economy, both in environmental and traditional terms. 

Innovative and emergent PSSs that intensify the service component can improve eco-efficiency over BAU approaches to 

delivering key economic functions and services. Examples of such Green Servicizing include: leasing/sharing arrangements 

(e.g. car-sharing; “lifecycle solutions” for IT equipment); functional procurement and efficiency services (e.g. Chemical 

Management Services, Resource Management, Energy Services Companies), among others. International experience 

indicates that “Green Servicizing” approaches can achieve eco-efficiency improvements ranging from marginal to radical, with 

the latter generally obtained by models focused on the sale of “function” rather than products per se. 

The US Environmental Protection Agency’s Office of Resource Conservation and Recovery, long interested in and supportive 

of these types of business models, commissioned this work to obtain critical tools, concepts and analysis needed to consider 

policy engagement to achieve the potential of “green servicizing.” Towards this end, the report briefs the Green Servicizing 

concept; provides a working definition of high-potential Green Servicizing models; identifies 10 such models and briefs their 

market status and environmental performance; provides analysis and methodologies to assist in weighing policy engagement; 

and identifies possible next steps to begin more substantive engagement. 

The report finds that Green Servicizing can make a significant contribution to a more sustainable US economy by providing 

more eco-efficient alternatives to the BAU delivery of environmentally problematic and economically critical functions and 

products. However, achieving its full potential will require policy engagement. Towards this end, a possible key initiative for US 

EPA would be to develop and implement a strategy to achieve the full eco-efficiency potential of functional procurement and 

efficiency services models. 

These models, which include the Energy Service Company (ESCO) model, Resource Management, Integrated Pest 

Management (IPM) Services, Chemical Management Services, etc., can reduce the consumption of environmentally 

problematic goods and services by transforming their procurement into performance-based service arrangements. 

Collectively these models address the critical elements of the “environmental footprint” of the economy generally and of many 

individual enterprises and institutions. 

i 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. v 

Table of Contents 

ACRONYMS VII 

EXECUTIVE SUMMARY ES-1 

1. INTRODUCTION ................................................................................................... 1

1.1 Needed: sustainable business models for the sustainable economy 1 

1.2 A focus on services and “sustainable service-led business models” 1 

2. A RE-ORIENTATION TO “GREEN SERVICIZING” ............................................. 5

2.1 From “Servicizing” to “Product Service Systems”—and back again 5 

2.2 What is a Product-Service System? 6 

2.3 Servicizing: Innovative/emergent PSSs that intensify the service component 9 

2.4 Classifying PSSs and “Green servicizing” mechanisms 9 

2.5 What is known about the “sustainability potential” of Green Servicizing? 15 

2.6 PSS Classifications vs. treatment of services in economic statistics 16 

2.7 Comparison to the “Tellus Report” Classification scheme 17 

3. INFORMATION AND ANALYSIS TO INFORM POLICY ENGAGEMENT: 

 CONTRIBUTIONS AND LIMITATIONS OF THIS REPORT ............................... 19

3.1 Leveraging green servicizing with policy 19 

3.2 Information and analytical requirements and the contributions of this report 19 

3.3 Limitations 21 

3.4 Orientation to the remainder of this report 21 

4. KEY CONCEPTS AND APPROACHES 

 FOR IDENTIFYING HIGH-POTENTIAL SERVICIZING BUSINESS MODELS ... 23 

4.1 A working definition of “sustainability potential” 23 

4.2 “Quick search” approach to identifying high-potential models 24 

5. MARKET AND ENVIRONMENTAL PERFORMANCE BRIEFS:

 10 HIGH-POTENTIAL MODELS ......................................................................... 31 

5.1 About the research process. 31 

5.2 The business model briefs 31 

5.3 Summary Matrix: High-potential “green servicizing” business models 32 

Brief #1: Car-sharing 34 

Brief #2: Chemical Management Services (CMS) 38 

Brief #3: Deconstruction 43 

Brief #4: Energy Services Companies (ESCOs) 46 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. vi

Brief #5: IPM & Performance-based Pest Management Services 51

Brief #6: IT Lifecycle Solutions 59

Brief #7: Remanufacturing 63

Brief #8: Resource Management 69

Brief #9: Telepresence (high-end videoconferencing) 73

Brief #10: Third Party Logistics (3PL) 76

6. TOWARD POLICY ENGAGEMENT .................................................................... 81

6.1 Needed: information about barriers, drivers and determinants of environmental performance 81

6.2 Mapping barriers, drivers and determinants to policy “targets” 82

6.3 Analysis: Chemical Management Services 83

6.4 Analysis: Resource Management 85

6.5 Analysis: ESCO model 88

7. KEY FINDINGS 93

8. REALIZING THE POTENTIAL OF GREEN SERVICIZING: 

 KEY CONSIDERATIONS AND POSSIBLE NEXT STEPS FOR US EPA .......... 99

8.1 The need for focus 99

8.2 Why focus first on functional procurement/ efficiency services models? 99

8.3 Potential first step: internal stock-taking 101

8.4 Potential next step: Summit of key actors. 101

8.5 Considerations for concurrent actions, looking ahead 102

REFERENCES ...................................................................................................... 105
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. vii 

Acronyms 

3PL Third party logistics 

3R Reduce, reuse, recycle 

B2B Business-to-business 

BAU Business as usual 

BEA (US) Bureau of Economic Analysis 

BTU British Thermal Unit 

C&D Construction and demolition 

CM Chemical management 

CMS Chemical management services 

CSP Chemical Strategies Partnership 

DOE (US) Department of Energy 

EC European Commission 

EPR Extended producer responsibility 

ESCO Energy services company 

ESPC Energy Savings Performance Contract 

EV Electric vehicle 

EU European Union 

FP5 5th Research Framework Program of 

the European Commission 

GAO (US) Government Accounting Office 

GDP Gross domestic product 

GHG Greenhouse gas 

HVAC Heating, ventilation and air 

conditioning 

HUD (US) Department of Housing and 

Urban Development 

IGES Institute for Global Environmental 

Strategies (Japan) 

ILSR Institute for Local Self-Reliance 

IPM Integrated pest management 

IT Information technology 

K-12 Kindergarten through 12th grade 

KNCPC (South) Korea National Cleaner 

Production Centre 

LCA Life-cycle analysis 

METI (Japan) Ministry of Economy, Trade 

and Industry 

MKE (South Korea) Ministry of Knowledge 

Economy (previously MOCIE) 

MLTMA (South Korea) Ministry of Land, 

Transport and Maritime Affairs 

MOCIE (South Korea) Ministry of Commerce, 

Industry and Energy (became MKE in 

2008) 

MOE (South Korea) Ministry of Environment 

LEED Leadership in Energy and 

Environmental Design 

MUSH Municipal and state governments, 

universities, schools and hospitals 

NAESCO (US) National Association of Energy 

Services Companies 

NAHB (US) National Association of Home 

Builders 

NAICS North American Industrial 

Classification System 

NAPCS North American Product Classification 

System 

NRDC Natural Resources Defense Council 

NRCS (US) National Resources 

Conservation Service 

O&M Operations and maintenance 

OEM Original equipment manufacturer 

ORCR (US EPA) Office of Resource 

Conservation and Recovery (formerly 

the Office of Solid Waste) 

PC Personal computer 

PRO Producer responsibility organization 

PS Product-service 

PSS Product service system 

REACH (EC) Registration, Evaluation, 

Authorisation and restriction of 

CHemical substances regulation 

RFP Request for Proposal 

RM Resource management 

SCORE! Sustainable Consumption Research 

Exchange 

SCP Sustainable consumption and 

production 

SME Small and medium enterprise 

SPS Sustainable Product Services 

ULEV Ultra-low emission vehicle 

US United States 

USDA United States Department of 

Agriculture 

US EPA United States Environmental 

Protection Agency 

VMT Vehicle miles travelled. 

WEEE (EC) Directive on Waste Electrical and 

Electronic Equipment 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES–1 

Executive Summary 

The US Environmental Protection Agency’s (US EPA’s) Office of Resource Conservation and 

Recovery (formerly the Office of Solid Waste) commissioned this work to obtain critical tools, 

concepts and analysis needed to identify appropriate, substantive and effective next steps for using 

green servicizing to aid in decoupling material, energy, water and chemical use from economic growth. 

The need for sustainable service-led business models 

A sustainable economy requires economically successful business activities and models that help 

achieve fundamental reductions in energy, material and water throughput while providing necessary 

goods and services. The primary environmental policy interest in these sustainable business models is 

that they provide an environmentally superior alternative to the “business as usual” (BAU) ways that 

existing economic needs are served and functions delivered. 

Sustainable service-led business models are particularly required, both to address the challenge of the 

“services transition” and to exploit the promise of the “functional economy.” 

The Services Transition 

The services transition refers to the growth in importance of services in the US and other wealthy and 

fast-developing economies, including the increasing service content of many product-producing 

industries. In early efforts to consider the environmental implications of this change, a number of 

researchers and experts speculated that a service-led economy could separate economic growth from 

growth in material and energy throughput, leading to an overall greening of the economy. However, 

while services tend to be less material and energy-intensive per dollar of output than manufactured 

goods, the service transition has not reduced absolute material and energy throughput in the economy. 

Why? 

The service economy depends fundamentally on the industrial economy; most of the fastest-growing, 

most dynamic service sectors in the US economy (e.g., logistics, health care, and telecommunications) 

require corresponding growth in the environmentally problematic products and infrastructure that 

support them. Further, the US environmental regulatory system is heavily oriented around large 

manufacturing facilities, with many service enterprises unaware of and in poor compliance with the 

regulatory requirements that do apply to them. In short, the system deals poorly with services from both 

de jure and implementation perspectives. 

Thus, if we are to achieve meaningful movement towards a truly sustainable future economy, we must 

find a way to make a service- and information-led economy a green economy. Put another way, we 

must find ways that services can change—for the better—the ways that products are designed, made, 

used and dealt with at end of life. 

The Promise of the Functional Economy 

Since at least the mid-1990s, the potential of a functional economy to decouple economic growth from 

environmental pressure has had a central place in conceptions of the sustainable economy. In a 

functional economy, products serve as means, not ends: “What we want from these products is not 

ownership per se, but the service the products provide; transportation from our car, cold beer from the 

refrigerator, news or entertainment from our television” (Hawken 1993). And as Tukker writes: 

“Many authors...quickly understood that, if one could really take final consumer. needs (rather than the 

product fulfilling the need) as a starting point, the degrees of freedom to design need fulfillment 

systems with factor 4–10 sustainability improvements are much higher. The idea that needs-focused 

solutions could be inherently more sustainable than products was borne” (Tukker 2006). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-2 

Product-Service Systems and Servicizing 

The focus of inquiry for service-led business models that constitute a more sustainable alternative to 

BAU are innovative or emergent product service systems (PSSs) or “servicizing” models. 

The PSS concept describes the economic space in which products and services are combined in value 

propositions to meet customer needs. While PSS activity is very poorly captured by economic statistics, 

“BAU” PSSs are ubiquitous—e.g., mobile telephony, car rental, pizza delivery, capital equipment 

leasing—and are an important determinant of the overall 

environmental performance of the economy. 

PSS Categories 

PSSs are generally classified into three categories (see Product-oriented PSSs are dominantly box). geared towards the sale of products, but 

added services are a source of 

Innovative or emergent PSSs business model often provide additional value. These services include, 

an alternative to BAU means to achieve a given economic e.g., extended warranties, maintenance, 

function. When this involves intensifying the service upgrading, and end-of-life management. 

component and employing services to add value in ways 

Product ownership lies with the 

consumer. 

that are different from “business as usual,” than the PSS is 

a servicizing business model. (See table beginning on page Use-oriented PSSs are centered 

around provision of products, but they ES-6 for examples.) offer value by providing consumers with 

access to the product and the function it 

Under some servicizing models, consumers may no longer provides without the need to own the 

purchase the product itself, but the function (or service) product. Leasing and rental models are 

that the product provides. In other cases, the changes from in this category 

BAU are less radical. Regardless, emergent PSSs Results-oriented PSSs offer value by 

restructure the economic relationships that mediate how directly providing a function to the 

products deliver function or utility. As a result, the customer, who in turn pays for this 

function rather than use of or access to a manufacture, use, or end of life management of products particular product. The function may be 

or infrastructure changes in some way. tangible (i.e., waste management) or 

intangible (i.e., communication.) 

The promise of “green servicizing” 

This restructuring can improve the eco-efficiency of the economic function by closing materials cycles, 

dematerializing economic activity, improving energy efficiency, and other mechanisms. Where such 

eco-efficiency improvement occurs, this report terms it “Green Servicizing.” (See table beginning 

on page ES-6 for examples.) 

There is now an extensive body of research, especially in Europe, regarding the environmental potential 

and promise of servicizing approaches.1

 This body of research indicates that the eco-efficiency 

improvements obtained in practice by servicizing approaches range from marginal to radical, with the 

latter generally obtained by models focused on the sale of “function” rather than products per se. 

However, because mandatory take-back is rare in the US context, servicizing models that include take 

back and recycling/re-use/remanufacturing may achieve much higher improvements over BAU than 

they would in the Western European/EU context, where mandatory forms of Extended Producer 

Responsibility (EPR) are far more common. 

1

 Most European research focuses on Innovative or emergent PSSs without using the term servicizing per se. This is a 

difference of terminology, not substance. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-3 

In this body of literature and accumulated experience. it is also 

clear that the details matter, and the environmental 

performance of different implementations of the same basic 

servicizing model can differ significantly. 

The challenge for US EPA 

With respect to servicizing, the current challenge and 

opportunity for US EPA specifically and for environmental 

policy-making generally is to: 

Identify innovative and emergent servicizing business 

models of high sustainability potential (see box), 

Validate this potential, and, where appropriate and 

feasible, to 

Design and implement policies that foster market 

and regulatory environments that help such models 

become business as usual, and best assure that the 

“greenest” versions of these models are the ones that 

grow. 

In general policies can be designed to (1) reinforce drivers, (2) 

reduce barriers, and/or (3) strengthen the determinants of 

“green” performance. Policy engagement may involve, but is 

not uniquely synonymous with, regulatory actions. Support for 

pilots, development of market information, manuals and 

information portals, establishing voluntary “green standards” 

or certifications, and developing voluntary programs and 

alliances based on these approaches are all important but 

non-regulatory forms of policy engagement in the area of 

“green business.” 

Justification for policy engagement 

As discussed below, this report identifies and briefs 10 

high-potential green servicizing models. While some of these 

models are well-established in key niches and market 

segments, none have reached their full market potential—nor 

is it a foregone conclusion that all will achieve broad adoption. 

What does “high 

sustainability potential” 

mean? 

The “sustainability” or “greening” 

potential of a business model is a 

function of four factors: 

Micro-level environmental 

performance. That is, eco-efficiency 

gain over BAU at the level of the 

individual customer or unit of function. 

Market potential. The potential of a 

model to become the BAU means to 

obtain a particular economic function 

or service. 

Environmental Significance. The 

portion of national emissions, 

pollutant loads or resource demands 

that can be attributed to the 

manufacture, use, delivery and end of 

life management of the principal 

goods or services to whose BAU 

consumption the servicizing model 

constitutes an alternative. 

Potential Social impacts. Models of 

very high potential have readily 

identifiable characteristics. A model 

must be high-potential if all the 

following are true: (1) micro-level 

environmental performance is a 

significant improvement over BAU; 

(2) market potential is high; (3) the 

market the model operates in has 

high environmental significance and 

(4) the model presents no obvious 

social concerns. 

Similarly, poor micro-level 

improvements over BAU OR poor 

market potential OR low 

environmental significance will alone 

generally assure low potential. 

Further, there are often greener and less green variants of these models—and experience shows that 

current market conditions do not necessarily assure that it is the greenest version that grows. 

Fully exploiting the environmental benefits of green servicizing therefore requires evaluating the case 

for and—where appropriate and feasible—formulating and implementing policy to help foster market 

and regulatory environments that would help high-potential “green servicizing” models become 

business as usual, and would best assure that the “greenest” versions of these models are the ones that 

grow. 

There is a long-standing aversion in US policy-making to “picking winners” (whether technologies, 

enterprises or sectors), rooted in the conviction that this is best left to market forces. It is important to 

understand that in the context of this study, policy support for green servicizing is (1) not contemplated 

on the level of individual enterprises, but at the level of business models and value propositions; and (2) 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-4 

is predicated on a clear performance-based criterion: does or can the model offer significant 

environmental performance improvements over BAU approaches? Both serve to distinguish “green 

servicizing support policy” from “picking winners” as the term is usually understood. 

To further assure that policy engagement is—and is seen as—appropriate, policy engagement should 

be guided by and generally limited to three well accepted justifications: 

(1) Leveling the playing field. The existing policy regime and market environment, almost by 

definition, tends to favor BAU approaches. Policies can “level the playing field” by, e.g., 

reducing information asymmetries, internalizing pollution or other environmental costs, and/or 

offsetting the advantage that externalized environmental costs may confer on BAU approaches. 

(2) Reducing entry barriers. Market forces are understood to function least effectively at the 

earliest stages of a new offering, where, for example, customer awareness and information is 

highly imperfect, financing is scarce for unfamiliar business concepts, and past performance 

“success stories” are scarce. Policy engagement can address these and other barriers to entry, 

including the entry of proven models into new customer sectors. 

(3) Formal and informal standard-setting. Standards, whether formal or informal, are essential 

for markets to function efficiently, and standard-setting usually requires a facilitating actor. 

Responding to the challenge: Objectives and contributions of this study 

In addition to serving as a primer on green servicizing concepts, this research was designed to directly 

respond to the policy challenges identified above. 

 Identifying models of high sustainability potential. The economic data to support a 

systemic, economy-wide scan to identify high-potential innovative and emergent servicizing 

business models does not exist. Therefore, this report used a methodology that combined 

literature review with gap analysis and targeted search. The result was the identification of 10 

models2

 that, at first examination, had the potential to offer significant eco-efficiency 

improvements over BAU in environmentally critical sectors. (See table beginning on page ES-6) 

 Validating potential. 3–5 page Business Model Briefs were developed for each of the 10 

models. These briefs synthesize publicly available information regarding environmental 

performance and market information, describe value propositions and provide links to cases 

studies and business offerings. 

The briefs do not undertake a rigorous, quantitative assessment of each model against the four 

criteria that define sustainability potential. However, the information provided by the briefs 

does support less formal evaluations of sustainability potential against the four criteria, and on 

this basis the models selected should be considered of high sustainability potential. 

2

In some cases the selection process did not identify a specific business model, but rather a “core component” (e.g. 

re-manufacturing) of a set of servicizing business models serving different sectors, focused on different types of products, or 

having multiple variants within a single sector. For simplicity, however, the term model is used to refer to all selections. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-5 

 Identifying targets for policies. The mandate of this 

research did not extend to recommending specific 

policy measures. However it does provide 

information, analysis and tools to support this process: 

Going beyond the basic information in the model 

briefs, an analysis of barriers, drivers and determinants 

of environmental performance for three 

performance-based “functional procurement” or 

“efficiency services” models is presented. 

These models were chosen both because the research 

results strongly suggest high sustainability potential 

and to assess the hypotheses that these models share 

strong similarities in drivers, barriers and value 

propositions—and that therefore government policy 

engagement around these models as a class may bring 

significant synergies and economies. 

For these three models, the analysis is taken one step 

further: barriers, drivers and determinants of 

environmental performance are mapped to policy 

“targets.” Policy targets are not specific policies, but 

rather a statement of the immediate goal or effect that 

a policy or policies are intended to achieve. Policy 

targets have a clear, logical relationship to the barriers, 

drivers or determinants to which they 

correspond—they weaken the barrier, reinforce the 

driver, address the determinant.3 

This analysis framework is intended to be useful in 

undertaking similar exercises for other models, and for 

guiding stakeholder discussions under the “functional 

procurement/efficiency services initiative,” a key 

consideration for US EPA in engaging with green 

servicizing. 

Models excluded 

from the study 

Four classes of “green servicizing” 

models were excluded by the 

search methodology: 

1. Models identified as 

high-potential in the literature, but 

with uncertain application or utility in 

the US market. 

2. Well-publicized “servicizing” 

approaches that are either arguably 

“business as usual” or which do not 

have obvious “green” dimensions. 

For example, the 1999 Tellus report 

included case studies of IBM and 

Xerox as examples of traditionally 

product-based companies that had 

embraced product-based services 

as a core business strategy. 

Service/product integration is 

arguably a “business as usual” 

strategy in the IT sector, and this 

integration—of itself—does not 

have intrinsic green dimensions. 

3. Large number of “niche market” 

models identified in the case 

literature. 

4. Models dealing with products 

currently covered by national-level 

EPR initiatives in the US for which 

PRO (Producer responsibility 

organizations) are already 

constituted and active (e.g. 

batteries, carpet). The rationale is 

that the dominant business 

approach to addressing product 

disposal has already been 

determined, and it is largely outside 

a for-profit servicizing approach. 

Servicizing models identified and briefed; environmental performance results 

The table on the overleaf summarizes the models identified, their primary customer sectors, and their 

environmental performance. The models were selected via the literature search/gap analysis 

methodology described above. 

3

 For example, in recently completed research in the Japanese market, (Stoughton et al 2007) note that the environmental 

performance of the 3PL model is strongly determined by the environmental performance of 3PL assets such as vehicle fleets 

and buildings. In consequence, they identify “Making 3PL assets (including fleets, buildings and siting of facilities) as green 

as possible” as a policy target. As an indicative example of a policy that would support this target, they suggest making 

“existing [Japanese] tax benefits for efficiently sited logistics infrastructure investments contingent on adoption of green 

building standards.” 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-6 

Business Model Environmental Performance: Improvement 

Mechanisms & Findings 

Car-sharing 

Car-sharing is a “personal mobility PSS” that provides 

short-term use of cars located in special reserved parking 

spaces distributed throughout a service area (e.g., an urban 

area or campus.) 

Primary customer sectors: Institutional campuses; Individual 

& corporate customers in middle & upper-income urban areas,. 

Reduced vehicle miles travelled (VMT) per customer: 

Car-share members reduced VMT by 44% across several studies. According to 

a Zipcar survey, car-share members increase public transit trips by 47%, 

increase bike trips by 10%, and increase walking trips by 26%. 

Reduced total vehicles/service population: 

Every US car-share vehicle "removes" between 6 and 23 vehicles from the road, 

depending on the study. 

Cleaner vehicles: 

30% of US car-sharing vehicles are hybrids or powered by alternative fuels. 

Improved Environmental Data: 

100% of CMS customers reported improved environmental data. 

Chemical Management Services (CMS) 

CMS is a “strategic, long-term relationship in which a customer 

contracts with a service provider to supply and manage the 

customer's chemicals and related services. Under a CMS 

contract, the provider's compensation is tied primarily to 

quantity and quality of services delivered not chemical volume. 

Reduced Total Amount of Chemicals Being Applied: 

Over 50% of CMS customers reported reductions in total chemicals being 

applied. 

Increased Recycling/Reusing of Chemicals: 

Over 45% of CMS customers reported increased chemical reuse/recycling. 

Primary customer sectors: Chemical-intensive 

manufacturers (e.g. auto, electronics, aerospace) 

Technological Process Efficiencies & Chemical substitutions 

Over 30% of CMS customers reported increased process efficiencies; 

approximately the same number reported beneficial chemical substitutions. 

(Data from Chemical Strategies Partnership’s 2004 CMS Industry Report.) 

Deconstruction 

Deconstruction is the process of selectively dismantling or 

removing materials from buildings before or instead of 

demolition. 

Primary customer sectors: Property owners and developers 

Recovery of Waste for Reuse and Recycling: 

Deconstruction has the potential to reduce the materials sent to incinerators and 

landfills and alleviate demand on virgin materials. According to the Institute for 

Local Self-Reliance, US deconstruction could recover an estimated 24 million 

tons of Construction and Demolition (C&D) waste for reuse and another 6 million 

tons for recycling. This represents a 46% total recovery rate. 

Energy Services Companies (ESCOs) 

An ESCO provides energy-efficiency-related and other 

value-added services and assumes performance risk for their 

project or product—that is, their compensation and profits are 

tied to energy efficiency improvements (and thus, savings in 

purchased energy costs) actually obtained by the client. 

Reduced Energy Consumption: 

According to a 2007 review of the ESCO industry completed by the Berkeley 

National Laboratory, ESCO projects on average reduce energy consumption by 

23% or 47 kWh/m2/yr. Using US EPA’s Emissions & Generation Resource 

Integrated Database, this corresponds to average reductions of 67.42 lbs of 

CO2/ m2/yr, 0.34 lbs of NOx/m2/year, and 0.15 lbs of SO2/ m2/year. 

Primary customer sectors: Manufacturing facilities, 

institutions, and offices, including government. 

Reduced Water Consumption: 

A small percentage of ESCO projects also result in reduced water consumption. 

IPM & Performance-based Pest Management Services 

In performance-based pest management, a pest management 

services provider commits to achieving a certain standard or 

level of pest control, rather than being compensated for a 

particular treatment or application. Intergrated Pest 

Management services are the green implementation of this 

concept. 

Primary customer sectors: Structural: Institutions, housing 

authorities, school districts, corporate and government facilities; 

Agricultural: Model is embryonic in agricultural applications, 

but most likely market are larger agricultural producers and/or 

those growing “high value” crops (e.g. fruits, vegetables). 

Reductions in the Use, Toxicity, and Dispersion of Pesticides: 

Multiple case studies have shown that IPM can achieve significant reductions in 

pesticide use, toxicity, and dispersion, with reductions as high as 93% in grams 

of pesticide active ingredients applied. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-7 

IT “Lifecycle Solutions” 

IT Lifecycle Solutions are business offerings that bundle 

provision of corporate IT equipment (particularly personal 

computers, servers and printers) with associated services. The 

“solutions provider” is responsible for most or all configuration, 

maintenance, repair, and upgrade. 

Primary customer sectors: Large corporations & institutions, 

government 

Reduced Incidence of Improper Disposal 

and Uncontrolled Recycling: 

End-of-lease responsibilities are placed on the equipment provider, which is 

much more likely than individual customers to have appropriate disposal and 

recycling practices in place. 

Increased Reuse, Recycling, and Parts Salvaging: 

Equipment providers have a strong financial incentive to reuse, recycle, or 

salvage the equipment they lease. 

According to one study, enhanced recovery and re-leasing together may reduce 

PC lifecycle impacts by ~50%. 

Remanufacturing 

Remanufacturing is the process of restoring used, durable 

products to a ‘like new’ condition. Remanufacturing is not a 

specific PSS model, but there are many remanufacturing-based 

PSSs. 

Primary customer sectors: Varies by the product involved 

(e.g. corporate fleets are a key customer for remanufactured 

tires.) 

Reduced Energy Consumption: 

One landmark study calculated that remanufacturing in the US requires on 

average 85% less energy than manufacturing a new product. Using US EPA’s 

Emissions & Generation Resource Integrated Database, this corresponds to 

savings of about 35bn kWh or ap. 47bn lbs of CO2, 73mn lbs of NOx, and 190mn 

lbs of SO2 in avoided air emissions. 

Reduced Need for Raw Materials: 

Remanufacturing also uses fewer virgin raw materials than manufacturing “from 

scratch.” One study estimated in the US over 14 million tons of raw materials are 

saved annually by remanufacturing. 

Resource Management Contracting (RM) 

Resource Management (RM) Contracting is a 

performance-based approach to waste management. It centers 

on an innovative contrac- tual partnership between a 

waste-generating organization and a qualified waste contractor 

that changes BAU compensation structures and otherwise 

incentivizes waste minimization and recycling. 

Primary customer sectors: Manufacturing facilities, 

institutions, schools districts, commercial property managers. 

Increased Reuse, Recycling, and Overall Waste Minimization: 

RM moves waste up the reduce, reuse, recycle hierarchy, and more truly makes 

disposal the waste management option of last resort. For example, General 

Motors, which pioneered the model, realized an average reduction of 20% in 

overall waste generation, a 65% increase in recycling, and a 60% decrease in 

disposal tonnage across 50 North American plants. 

Telepresence 

Telepresence allows individuals/groups in different locations to 

communicate in a simulacrum of “face to face” exchange far 

superior to that achieved by traditional video-conferencing. This 

is achieved via high-quality, high-definition audio and visual 

feeds, the use of multiple cameras and screens, and specially 

designed, dedicated rooms. 

Primary customer sectors: Large Business, Educational 

institutions, Conference facilities providers (e.g. hotels) 

Reduced Physical Travel & Associated Energy Consumption: 

Studies indicate substantial CO2 reductions on average compared to physical 

travel & that savings increase with avoided travel distance; e.g. an NTT study of 

actual videoconferences in Japan estimated 60%-90% reductions in lifecycle 

CO2 emissions as compared to physical travel. 

Third Party Logistics (3PL) 

Third-party logistics (3PL), also referred to as logistics 

outsourcing or contract logistics, focuses on improving resource 

utilization and process efficiency in order to reduce costs and 

improve service. 3PL providers deliver comprehensive 

logistics-related services, including delivery, storage, inventory, 

customer service, cargo handling, supply/distribution 

information systems, etc. 

Primary customer sectors: Manufacturers, retailers, 

government. 

Reduced Energy Consumption: 

The logistics efficiency improvements achieved by 3PL tend to improve logistics 

energy efficiency, even without specific “green” contract incentives. In the case 

of automobiles, these incidental gains have been estimated at between 0.5 and 

2% of lifecycle CO2 emissions (including the use phase). A specific focus on 

greening would be expected to increase efficiency gains. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-8 

Findings 

1. Real and significant eco-efficiency gains. 

Review of the environmental performance sections of the business briefs (see summary table above) 

confirms that, while the quality of quantitative environmental performance data varies significantly 

across the models, the green servicizing business models identified and briefed can produce significant 

eco-efficiency improvements over BAU. This is significant because the models provide alternatives to 

the BAU delivery of environmentally critical economic functions and products. The implication is that 

at their full market potential, these models possess significant potential to improve the eco-efficiency of 

the overall economy. 

This is consistent with key findings of research outside 

the US, which indicate that while servicizing generally is 

not necessarily green, certain models can be strongly so, 

and these are clustered under “results-oriented” models. 

2. Scope and need for policy engagement. 

The business briefs and the more detailed analyses of 

barriers, drivers and determinants of environmental 

performance conducted for three functional 

procurement/efficiency services models indicates that 

there is scope for—and at least in some cases strongly 

suggests the need for—policy engagement to achieve 

this potential, for two reasons: (1) without policy 

engagement, adoption of many or most green servicizing 

models is likely to be slower; and (2) without policy 

engagement, it may not be the greenest version of these 

models that become market standards. 

3. Special potential of performance-based 

“functional procurement”/“efficiency services” 

models 

Of the 10 models selected, half are “functional 

procurement/efficiency services” models. These include: 

CMS, RM, performance-based Energy Services 

(ESCOs), 3PL, and IPM-based pest management 

services. 

Aligning economic 

incentives for use reduction 

in efficiency services 

models 

seeks to 

In contracts structured on increase 

unit cost vs. volume. . . 

Chemicals 

supplied, 

energy provided, 

waste removed 

SUPPLIER/

SELLER 

CUST

O

M

ER 

n contracts structured on 

otal cost and function. . . 

Chemicals, 

energy, or waste 

SERVICES 

S

UPPLIER/

SELLER 

seeks to 

decrease 

seeks to 

decrease CUST

O

MER 

seeks to 

decrease 

These models were selected because, in principle, they can transform the procurement of 

environmentally problematic goods and services into performance-based service arrangements—and in 

so doing, incentivize the service provider to reduce the customer’s consumption of the environmentally 

problematic good or service in question (see figure above). Collectively, these models address the 

majority of most organizations’ environmental footprints. 

Overall, the findings strongly reinforce the idea that, as a class, performance-based functional 

procurement/efficiency services models have high potential to achieve very significant eco-efficiency 

improvements in critical economic functions and sectors: 

 Good market and environmental performance information is available for CMS and ESCO 

offerings, and this information indicates both strong market potential and that this 

environmental performance improvement mechanism is being strongly operationalized. 

 Good market information is available for 3PL. While 3PL’s ability to drive down 

distribution-related CO2 emissions has not been an explicit focus of 3PL in the US context to 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-9 

date, experience outside the US (e.g. Japan), shows that 3PL can be implemented with just such 

a “green” focus. 

 CMS, ESCOs and 3PL are “business as usual” (or almost) in their core markets, though all 

have substantial room for growth, either within these core markets or in new market segments. 

Resource Management and structural IPM services, by contrast, are far earlier on the adoption 

curve, but both have consistently demonstrated strong environmental results in the context of 

profitable business offerings. 

 Agricultural IPM services are embryonic, though US offerings do exist that provide 

proof-of-concept. (Additional examples exist in the European literature.) 

 These eco-efficiency gains that can be delivered by these models are high-value and 

high-leverage as these models act high on the “3R” hierarchy, functioning as reducing agents 

that shrink the size of the material and energy cycle required to service a given level of 

economic activity. 

4. Strong parallels between different performance-based 

“functional procurement”/“efficiency services” models 

As described immediately above, performance-based functional procurement/efficiency service 

models possess, by definition, substantially similar “greening mechanisms” and value propositions. 

Beyond this, the more detailed assessment of barriers, drivers and determinants of environmental 

performance conducted for the CMS, RM and ESCO models showed strong parallels in these areas as 

well. 

A reasonable working hypothesis is that these similarities would extend to other models in this class, 

and this is suggested by more limited drivers, determinants and barriers information in the business 

briefs themselves. 

5. Inadequacy of economic information 

The research highlighted a basic gap in official economic data and statistics: despite recent progress in 

the treatment of services, these statistics continue to divide the economy into distinct “product” and 

“service” sectors, and generally do not characterize how combinations of products and services are 

packaged as value propositions. 

This gap is critical, as product-service systems are important determinants of environmental 

performance of the economy as a whole. Moreover, understanding how products and services combine 

to produce value—and how this combination is changing over time—is critical to understanding issues 

and trends in economic competitiveness, structural economic change, and other fundamental concerns 

of economic policy. In not capturing PSS and servicizing activity in the economy, current official 

economic data handicaps not only environmental policy, but other key areas of policy making as well. 

Realizing the potential of green servicizing 

It is unlikely that high-potential “green servicizing” models are limited to those identified and briefed in 

this report. But even if they were, “green servicizing” would still have strong potential to green the US 

economy. However, this potential will only be reached fully and expeditiously with appropriate policy 

engagement. 

Thus, it is important for US EPA to consider: 

 Committing to a policy of leveraging and fostering high-potential “green servicizing” 

models for a more sustainable US economy. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-10 

 As a first initiative under this policy, developing and implementing a strategy whose 

objective is to achieve the full eco-efficiency potential of functional 

procurement/efficiency services in the US economy by: 

Assuring that the greenest version of the models become market standards; and 

Accelerating the adoption of these models in key/high impact sectors. 

Why focus on a subset of green servicizing models? For a number of reasons, successful policy 

engagement requires model-by-model consideration. US EPA’s resources are limited, particularly for 

discretionary policy initiatives, and focus is essential. 

Why focus first on functional procurement/ efficiency services models? Several factors combine to 

make this class of models the appropriate target: 

 Greening potential. As noted, the research results strongly suggest that as a class, 

performance-based functional procurement/efficiency services models have high potential to 

achieve very significant, high-value/high-leverage eco-efficiency improvements across a set of 

critical economic functions and sectors. Together, these functions and sectors constitute much 

of the critical “environmental footprint” of the economy as a whole (and of many individual 

facilities). 

 Playing to economic strengths, addressing key economic issues. Such a strategy would play 

to one of the core strengths and capabilities of US Business-to-Business (B2B) 

markets—widespread and highly sophisticated use of 3rd party technical services to reduce 

costs and maximize flexibility. 

Critically, in a economic context in which the use of such services goes hand-in-hand with 

concerns regarding the erosion of the domestic employment base at all levels (e.g. 

“offshoring”), these models generally do not incur these social costs and concerns. First, the 

services they provide must be delivered on-site. Second, these services support skilled 

“efficiency professionals” whose salaries are ultimately paid from the efficiency gains they 

deliver to the client. These services directly support the competitiveness of their customers by 

delivering cost reductions not primarily derived from reductions in US-based staff. 

 Coherent theme; potential policy synergies and economies. The substantially similar 

greening mechanisms and value propositions that define these models offer a theme that is at 

once coherent and, as a first initiative, manageably narrower than “Green Servicizing.” 

In addition, the strong parallels revealed by the more detailed assessment of barriers, drivers 

and determinants of environmental performance conducted for the CMS, RM and ESCO 

models (see Chapter 6) suggest that policy engagement around these models as class rather 

than individually may bring significant synergies and economies. 

 Existing engagement and a leadership opportunity. US EPA already has engaged 

significantly with these models, but in a generally uncoordinated way. Thus, expertise exists 

within the agency regarding many of these models, as do lines of communication with key 

stakeholders. Both are critical significant building blocks for more coordinated policy 

engagement. 

 International leadership. Finally, it should be noted that, despite significant policy interest 

outside the US in these models individually, no country has yet developed a coordinated 

strategy to fully exploit the eco-efficiency benefits of efficiency services. US international 

leadership in this area is both possible, and given the national “comparative advantage” in the 

use of 3rd party technical services in the B2B sector, logical. Further, US EPA’s engagement 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-11 

with these services in fact would be and could be presented as an innovative approach to 

support US commitments made under the G8 “3R” initiative.4 

Possible key next steps 

 Internal stock-taking. As a first step, the Agency should take stock of its own past and current 

engagement in functional procurement and efficiency services. Highlights of this engagement 

are presented in the business model briefs and in subsequent chapters of the report, but the 

Agency will require a more definitive stock-taking, including lessons learned, as a prelude to 

any further (and more coordinated) policy engagement. 

 “Summit” of key actors. Strategy development will require that the Agency refine its 

understanding of market status, barriers and drivers. It will also require the engagement and 

participation of stakeholders in these markets and models. 

An effective approach would be to address these needs simultaneously by convening—or 

supporting and facilitating the convening of—a 2-day “summit” on functional procurement 

and efficiency services that draws key providers, progressive customers, and other relevant 

stakeholders. 

(As an alternative, a set of one-day, model-specific focus meetings could be convened. 

However a multi-model “summit” would yield interesting and relevant synergies and insights, 

particularly as there is apparently little communication between these sectors despite common 

challenges and value propositions.) 

These meetings could be structured around the analytical framework developed in this report, 

eliciting a picture of drivers, barriers, and determinants of environmental performance from 

those with direct knowledge as providers and customers. From this base, the goal should be to 

identify policy “targets” and potential measures to address these targets, with the targets and 

illustrative measures for CMS, RM and ESCOs developed in this report serving as discussion 

drafts. Both demand side and supply side issues and measures should be addressed, and focus 

placed on approaches common to this class of models. 

These recommendations would form an important input to US EPA’s “functional 

procurement/efficiency services” strategy. The intelligence gained from those in the field will 

sharpen overall strategy, and the gathering and exchange itself will build a network critical to 

US EPA’s own efforts—but also to progressive providers and customers themselves. 

Considerations for concurrent actions, looking ahead 

Concurrent with the above steps to develop a functional procurement/efficiency services strategy, US 

EPA programs and offices engaged with other green servicizing models should be encouraged to take 

stock of their engagement using the barriers/drivers/determinants framework of this study. This 

stock-taking may result in adjustments or additions to the engagement strategy, or proposals for future 

activities. 

Looking ahead, the implementation of a functional procurement/efficiency services strategy should 

lend insight into the question of whether generalized policy support for green servicizing is feasible, 

and the forms it might take. Explicit consideration of this question should be part of any internal US 

EPA review of strategy implementation. 

4

 Most recently, see the “Kobe 3R Action Plan” adopted by the G8 environment ministers’ meeting of 24–26 May 2008 in 

Kobe, Japan. Available at www.bmu.de/files/pdfs/allgemein/application/pdf/g8_kobe2008_3r_actionplan.pdf 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. ES-12 

Finally, US EPA should explore avenues for engaging in dialogues and participating in fora that shape 

the evolution of official economic statistics to improve characterization of PSSs and their evolution 

over time. This will help address a key need of both economic and environmental policy; efforts that 

US EPA undertakes to gain a more rigorous understanding of green servicizing—including this report 

and the Agency’s engagement to date in individual green servicizing models—should enhance the 

value-added that the agency can bring to these discussions. 
1 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 1 

Introduction 

1.1 Needed: sustainable business models 

for the sustainable economy5 

Business6 is the primary agent in the economy that combines resources, labor and capital into the goods 

and services that satisfy individual needs and wants.7

 Business is also a primary provider of 

livelihoods, and the source of the value-added that pays, directly or indirectly, for public and private 

goods and services essential to present and future social welfare (e.g., public health care, law and order, 

public and private pensions); environmental integrity (e.g., ecosystem protection and restoration); and 

economic vitality (e.g., investments in research and development, infrastructure, and education). 

The transition to a more sustainable economy—i.e., one that has successfully decoupled economic 

growth from material consumption and waste generation, and has, in absolute terms, substantially 

reduced material and energy throughput—is a critical challenge facing society at the global, regional 

and national levels. A sustainable economy requires business activities and models that are 

environmentally sustainable. That is, they must help achieve fundamental reductions in energy, 

material and water throughput while providing necessary goods and services. 

However, these environmentally sustainable business models must also be economically sustainable. 

This is not because the survival of any particular business enterprise should be a concern or goal of 

environmental policy, but because business operates according to economic realities. Over the long 

term, non-viable businesses will fail, providing neither goods and services, nor jobs and value-added. 

In some cases, sustainable business models may serve new needs or create new economic functions. 

However, the primary environmental policy interest in such models is that they provide an 

environmentally superior alternative to the “business as usual” (BAU)

8

 ways that existing needs are 

served and economic functions are delivered. 

1.2 A focus on services and “sustainable 

service-led business models” 

For more than a decade, the idea that services have a key role to play in “sustainable business models” 

has had strong currency in the sustainability research and policy community. There are two principal 

reasons for this, one derived from the challenge presented by the “services transition” in the economy, 

5

 This section in part adapted from Stoughton et al, 2007. 

6

 The term “business” is here used broadly to include public, private, parastatal and non-profit enterprises. 

7

 The use of the term “individual” rather than “consumer” is deliberate. Theories of the sustainable economy are rooted 

strongly both in social justice and functionalist perspectives. (The latter focus on ways to achieve the end-goals of economic 

activity at reduced ecological scale/environmental cost.) In both perspectives, the fundamental function (or end goal) of the 

economy is to sustain individuals singly and the community or population generally at an adequate level of material well-being 

and with abundant and equitable opportunities for the realization of human potential; consumption is a means to satisfy needs 

and help achieve this potential, not an end in itself. The “consumer” is thus just one of the roles taken on by each individual, 

and the individual is the basic, indivisible unit at which “needs satisfaction” must be assessed. 

8

 Here, “business as usual” encompasses not just the transaction between a vendor and end-customer that allows the 

end-customer to fulfil an economic need or want, but the chain of intermediate transactions, extraction and production 

processes throughout the supply chain that allow the vendor to offer the product or service to the customer. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 2 

and the other from the ability of services to provide function-based alternatives to “business as usual.” 

Each is discussed below. 

The “Services Transition:” a sustainability challenge 

While a sustainability transition of the economy has barely begun, a different type of fundamental, 

structural economic change is already well underway in all wealthy industrial economies—and many 

fast-developing ones. This is the growth in importance of services. 

In the US, for example, the service sector now generates slightly under 70% of GDP. This represents a 

40% increase in relative terms since 1950, with the most substantial increases occurring post-1980.9

 In 

absolute terms, manufacturing employment has declined 6 percent while service employment has 

increased 16 percent over the past decade, with the latter now constituting 80 percent of total private 

employment.10 And, as discussed later, these absolute figures mask the increasing service content of 

many product-producing industries. These changes have created enormous opportunities for 

entrepreneurs and new national wealth on the one hand—and huge social costs attendant to the decline 

of traditional industries and challenges for public policy on the other. 

Similar statistics can be cited even for wealthy economies that are much more oriented to the export of 

manufactured goods than the US, such as Japan and Germany. Between 1971 and 2001, the percentage 

of nominal Japanese GDP attributable to manufacturing declined from 43 to 27 percent (a relative 

decline of more than one-third), while the percentage attributable to services increased from 52 to 72 

percent. Over the same period, manufacturing employment as a percentage of the total workforce has 

dropped from 34 to 29.5 percent, and service employment rose from 47 to 64 percent of the 

workforce.11 12 

Some scholars and commentators speculated—or predicted—that a service-led economy could 

separate economic growth from growth in material and energy throughput, leading to an overall 

greening of the economy. For example, the structural transformation of the economy could drive an 

“environmental Kuznets curve”13, whereby after a certain level of wealth or stage of development, 

economic growth is associated with a cleaner and healthier environment. 

9 This uses the US Bureau of Economic Analyses’ broad definition of services which includes utilities; wholesale trade; retail 

trade; transportation and warehousing; information; finance, insurance, real estate, rental, and leasing; professional and 

business services; educational services, health care, and social assistance; arts, entertainment, recreation, accommodation, and 

food services; and other services, except government. Source US BEA, Gross Domestic Product by Industry Accounts, 

accessible at www.bea.gov. 

10 Source: US Department of Labor, Bureau of Labor Statistics. Comparison of 1997 to 2006 total annual employment figures 

for total private employment (Series ID : CEU0500000001) and private services-producing industries (Series ID : 

CEU0800000001). Accessible at www.bls.gov. 

11 Government of Japan, National census, Ministry of Public Management, Home Affairs, Posts and Telecommunications 

SNA, Cabinet office. Originally cited in Stoughton et al, 2007. 

12 In these examples, reductions in “manufacturing intensity” of the economy in part reflect the migration of 

manufacturing—particularly of light manufactures, apparel, electronics assembly—to other countries whose costs are usually 

lower. However, it also reflects that services account for an increasing portion of the “basket” of consumption by end 

consumers—and presumably in Business-to-Business markets as well. (See Suh (2006) for documentation of this trend in US 

personal consumption expenditures.) 

13 The environmental Kuznets Curve is the subject of a large literature. Broadly speaking, this literature indicates that while a 

service transformation may result in decreasing environmental damage per unit of economic output, it is changes in citizen and 

public policy values typically associated with rising incomes that achieve absolute improvements in environmental quality. 

See, for example: Yandle et al, 2004. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 3 

However, while services tend to be less material and energy-intensive per dollar of output than 

manufactured goods, this transformation has not reduced absolute material and energy throughput in 

the economy. There are at least two reasons for this: The first is that the service economy depends 

fundamentally on the industrial economy.14 For example, delivering health care services (one of the 

fastest-growing service sectors in the US) requires (1) a large and sophisticated set of manufactured 

goods, (2) an extensive transportation network, and (3) energy- and waste-intensive health care 

facilities. Nor is the health care sector an isolated example. Many of the fastest-growing, most dynamic 

service sectors in the US economy require corresponding growth in the most environmentally 

problematic products. For example, telecommunications and information services require electronic 

hardware (and power); trade, transport, and logistics services require vehicles, fuels, and significant 

investments in physical infrastructure.15 

Second, experience indicates that economic growth in the absence of environmental safeguards puts 

environmental quality at risk. Our environmental regulatory system was and is heavily oriented around 

large manufacturing facilities. And many service-enterprises are unaware of and in poor compliance 

with the regulatory requirements that do apply to them. In short, the system deals poorly with services 

from both de jure and implementation perspectives. 

Thus, if we are to achieve meaningful movement towards a truly sustainable future economy, we must 

find a way to make a service- and information-led economy a green economy. Put another way, we 

must find ways that services can change—for the better—the ways that products are made, used and 

managed at end of life. 

The promise of services: “functional sales” and degrees of design freedom 

Since at least the mid-1990s, the potential of a functional economy16 to decouple economic growth 

from environmental pressure has had a central place in discussions of “sustainability transitions.” In a 

functional economy, products serve as means, not ends: 

“What we want from these products is not ownership per se, but the service the products 

provide; transportation from our car, cold beer from the refrigerator, news or entertainment 

from our television.” (Hawken 1993, emphasis added) 

Thus, services are central to the concept of the functional economy. As Tukker writes: “Many 

authors...quickly understood that, if one could really take final consumer needs (rather than the product 

fulfilling the need) as a starting point, the degrees of freedom to design need fulfillment systems with 

factor 4–10 sustainability improvements are much higher. The idea that needs-focused solutions could 

be inherently more sustainable than products was borne.” (Tukker 2006). 

Slower to emerge—but now widely understood—was an appreciation of the barrier to “functional 

sales” often posed by the intangible value of ownership for goods such as cars, appliances and 

electronics, particularly in business-to-consumer markets. 

14 Referencing (Suh 2004), (Tukker et al 2006b) characterize services as often forming an “envelope” around traditional 

production—i.e., carrying with them all the environmental burdens associated with product manufacture, use and disposal. 

15 See (Suh 2006) for a detailed assessment of the greenhouse gas emission intensity of services versus manufactured goods. 

He concludes “a shift to a service-oriented economy is shown to entail a decrease in GHG emission intensity per unit GDP but 

an increase, by necessity, in overall GHG emissions in absolute terms” (6555). (Halme et al 2006) evaluate the sustainability 

of potentially “green” European household services and arrive at highly mixed results regarding environmental performance. 

(Suh 2004) shows that life-cycle impacts of services are not substantially different from those of products, reflecting the 

reliance of services on products. Also see (Salzman. 1999). 

16 See, e.g. (Friend, 1994 & 1996; Pantzar, 1994; Margetta, 1997; Popov and DeSimone, 1997) 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 4 

The challenge of the service transition and the promise of the functional economy both lead to the need 

to identify and foster what can be termed “sustainable service-led business models.” As noted in the 

first Chapter, such models are economically viable and help achieve fundamental reductions in energy, 

material, and water throughput while providing necessary goods and services. 
2 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 5 

A re-orientation to “green servicizing” 

2.1 From “Servicizing” to “Product Service 

Systems”—and back again 

In 1999, Tellus Institute examined for US EPA’s Office of Resource Conservation and Recovery 

(ORCR) (formerly Office of Solid Waste (OSW)) the potential of one class of potentially sustainable 

service-led business models to deliver existing economic functions with improved eco-efficiency (or 

superior levels of environmental performance) over BAU (White et al 1999).These were “servicizing” 

business models; the particular focus of the report was on the potential of these models to 

operationalize product stewardship.17 The Tellus report defined “Servicizing” as: 

The emergence of a class of product-based services; manufacturers who traditionally 

delivered “products in a box” are increasingly viewing products as a vehicle or platform to 

deliver service or function. (White et al 1999). 

The Tellus Institute study reflected both the perspectives discussed above (Section 1.2), and grew from 

and contributed to growing interest in eco-services, the “functional economy” and related topics. 

Reviewing the bibliography of the Tellus Institute report shows that in the late 1990s, scholarship and 

analysis of these issues was relatively equally divided between the US and Europe. 

Over the next several years, that balance changed markedly at the same time that the volume of research 

grew exponentially. Under its Fifth Framework Program (FP5) of funded research, the European 

Commission (EC) sponsored extensive product-service system (PSS) research as part of its 

“Competitive and Sustainable Growth Programme.”18 As this implies, the research was to explore both 

the eco-efficiency potential of PSS business models and their potential for providing a sustainable 

source of competitive advantage to the European private sector. 

PSSs are defined and discussed in detail below, but the PSS concept is best understood as defining an 

“economic space” that includes, in principle, all ways that products and services can be combined in a 

value proposition.19 “Servicizing” as defined in the Tellus Institute report, is a process of change. 

17 Then termed “Extended Product Responsibility (EPR). EPR is the principle that actors along the product chain or lifecycle 

share responsibility for the lifecycle environmental impacts of the whole product system, including up-stream, production and 

downstream impacts. The greater the ability of the actor to influence particular environmental impacts within the product 

lifecycle, the greater the share of responsibility for addressing those impacts should be. Internationally, EPR usually means 

Extended Producer Responsibility, as is strongly associated with the regulatory requirements for product take-back. The U.S. 

continues to define EPR as extended product responsibility. 

18 PSS research funded under FP5 included initiatives on: MEPPS (Methodology Development and Evaluation of PSSs; 

Homeservices; HiCS (Highly Customerised Solutions); ProSecCo (Product Service Co-design) and Innopse (Innovation 

Studio and Exemplary Developments for Product Services.) The FP5 archive is available at www.cordis.lu/fp5/home.html. 

Also supported was SusProNet, a network to serve as a platform for experience exchange among PSS research initiatives and 

experts. Summaries of the PSS initiatives under FP5 and many of their results are archived at www.suspronet.org. The 

successor to SusProNet was SCORE! (Sustainable Consumption Research Exchange; www.score-network.org), supported by 

the EU 6th Framework Program (FP6) which served “as one of the EU`s central support structures for the UN`s 10 Year 

Framework of Programs for Sustainable Consumption and Production (SCP).” Support to SCORE! ended in 2008. 

19 This characterization of PSSs is neutral with respect to their environmental performance. This is consistent with the large 

majority of, but not all, scholarship. Mont, a key researcher and expert in the field, for example, defines product service 

systems as “a system of products, services, supporting networks and infrastructure that is designed to be: competitive, satisfy 

customer needs, and have a lower environmental impact than traditional business models” (emphasis added, Mont 2001 and 

subsequent publications). This definition also applies equally to innovative, emergent and status-quo product-service 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 6 

“Servicizing,” and “product service systems” are thus not identical concepts. In the narrow sense used 

in the Tellus report, servicizing moves traditional manufacturers from one portion of PSS “economic 

space” (in which product sales are the dominant source of profits) to another portion in which services 

are central to or dominate value propositions and profit models. 

Beyond this distinction, however, the PSS concept encompasses a broader range of economic activity 

than that encompassed by “Servicizing” in the Tellus report. 

Under the funded European research, the more inclusive PSS concept became the umbrella for 

“sustainable service-led business model” research and—while the Tellus Institute and other 

“servicizing” research was widely cited—the standard term of art in English-language research and 

policy analysis.20 This research also led to a more formal and refined understanding of the possible 

scope and range of these models, and strongly indicated that this broader scope is necessary to capture 

the full range of service-led environmental performance improvements over BAU. Accordingly this 

report adopts the PSS concept. 

Lagging Europe by a few years, “sustainable service-led business model” research and interest in 

Japan, and later, Korea emerged strongly.

21 In these contexts, the term “servicizing” has been generally 

adopted, with the connotation (as in the Tellus report) of changes from business as usual that result in 

service-led alternatives to traditional means of fulfilling economic functions. In Japan, “Servicizing” is 

used in a broad sense, generally covering the full reach of the PSS concept, not the narrower sense of 

the term used in the 1999 Tellus report. Policy interest in Korea thus far is focused on servicizing in the 

area of “sustainable product services”22 

Thus, this report argues below that use of both the “servicizing” and “PSS” terms (and the concepts 

behind them) is important to achieve clarity in policy discussions about leveraging “sustainable service 

led business models” to change BAU. 

2.2 What is a Product-Service System? 

There are a number of definitions of “Product Service System” that have been proposed and used by 

different researchers and policy institutions.23 No consensus definition exists, but Tukker, van den Berg 

combinations. On this point, the European literature is ambiguous, treating PSS both as a concept that can describe any 

product-service combination, and as one that applies purely to product-service combinations that are more service-centered 

alternatives to BAU. For this latter situation, this report uses the term servicizing; see section 2.3. 

20 The closely related term “servitization” does have some current use in Europe, but “Product Service Systems” are by far the 

dominant term of art. The earliest mention of either “servicizing” or “servitization” that could be identified for this research 

was (Vandermerwe and J Rada 1988) 

21 For a summary of PSS-related research, pilot activities and awareness-raising in Japan, see (Stoughton et al 2007) Annex A.. 

22 At this writing, Korea’s Ministry of Knowledge Economy (formerly the Ministry of Commerce, Industry, and Economy 

Energy (MOCIE)) is actively implementing a “Sustainable Product Services” initiative. See extended textbox “Policy for 

Green Servicizing in Some Peer Economies” at the end of Chapter 6. 

23 For example, Goedkoop et al, 1999, offered an early and widely-used definition substantially reflected in the Policy 

Document on Environment and Economy published by the Government of the Netherlands: “a marketable set of products and 

services capable of jointly fulfilling a user’s ‘need’”. SusProNet, the network of PSS researchers and consultants established 

as part of the FP5 PSS research, adopted a provisional definition of PSSs as “tangible products and intangible systems 

designed and combined so they are jointly capable of fulfilling specific customers’ needs” (www.suspronet.org). Mont defines 

“a system of products, services, supporting networks and infrastructure that is designed to be: competitive, satisfy customer 

needs, and have a lower environmental impact than traditional business models.” (Mont, O. 2001b); and for UNEP, Manzinni 

and Vezzoli developed this definition: “A Product-Service System can be defined as the result of an innovation strategy, 

shifting the business focus from designing and selling physical products only, to selling a system of products and services 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 7 

and Tischner offer the following two-part definition, intended to incorporate the experience of 

SusProNet,24 and thus the full experience of the European PSS research conducted under the FP5. It is 

likely that this definition comes closest to a consensus definition and will be increasingly adopted; we 

thus adopt it for the purposes of this report: 

 “Product-service (PS): a mix of tangible products and intangible service designed and 

combined so that they jointly are capable of fulfilling final customer needs. 

 “Product-service system (PSS): the product-service including the network, technological 

infrastructure and governance structure (or revenue model) needed to “produce” a product 

service.25 (Tukker at al 2006a) 

This definition of PSSs is admittedly abstract, but PSSs are very much a part of all developed and 

developing economies. For example, rent-a-car businesses, mobile telephony, pizza delivery, and 

utilities are all examples of PSSs that are very much “business as usual” in the US.26 

“Business as usual” PSSs have changed over time, driven by changes in income levels, consumer 

preferences, and technological development, among other factors. As shown by the three 

innovative/emergent PSSs on the overleaf, these changes are environmentally beneficial in some cases. 

In other cases, they have not been: for example, rising incomes and technological change have reduced 

the US market share of PSSs such as laundries, public baths, and public transport systems, replacing 

them with less eco-efficient—but often more convenient—private ownership of products and 

infrastructure to deliver the same basic function (i.e., washing machines, in-home plumbing, private 

automobiles). 

which are jointly capable of fulfilling specific client demands” (UNEP 2002). Additional definitions are available in Tukker et 

al 2006b. 

The lack of a single agreed definition does not pose a significant barrier to identifying sustainable emergent and innovative 

PSS business models. Stoughton et al (2007) note—and that this appears consistent with the views of most other 

researchers—that excessive debate over minor differences in alternative PSS definitions or argument over whether a particular 

business model is or is not a PSS is generally unproductive. This is particularly true as the body of PSS research strongly 

demonstrates that the simple fact of that a business model is a PSS is no guarantee that it offers environmental performance 

(eco-efficiency) improvements over BAU. As discussed in Section 2.4, while upper bounds of environmental performance 

improvement vary by PSS categories, actual environmental performance improvements are highly case-specific. 

24 See footnote 18 for a description of SusProNet. 

25 Tukker et al elaborate slightly on this definition subsequently, adding terminology they explain and develop over the course 

of the chapter. The revised definition does not have significant content differences from the original, but does not lend itself to 

stand-alone use. (cf Tukker et al 2006a, pp 24 and 31.) The original definition is thus used here. 

26 While this definition (and previous ones on which it draws) clearly state that the PSS concept defines an economic space 

rather than a process of change, much of the literature simultaneously treats PSSs as representing a change from BAU. As 

described in 2.3, it seems clearest to use the PSS concept as defined, and to use the term servicizing to describe changes from 

BAU. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 8 

Three innovative/emergent PSS examples 

and their environmental improvement mechanisms 

Note: More information about each model is available in the relevant Business Model Brief in Chapter 5. 

Business models Mechanism for potential 

environmental improvements over BAU 

Car-sharing 

Car-sharing is a “personal mobility PSS” that 

provides short-term use of cars located in 

special reserved parking spaces distributed 

throughout an urban area. 

Compared to traditional car rental, car-sharing is 

characterized by short rental periods (15 

minutes to a few hours), decentralized location 

of vehicles, and fee structures that combine 

membership and time-based usage fees. 

In this PSS, the product is the vehicle and 

service is the mobility provided by the vehicle, as 

well as the insurance and maintenance included 

in the fee. 

Car-sharing can provide the service or function 

of car ownership at lower total cost and/or 

greater convenience than car ownership. 

This may reduce the total number of cars 

required by the population of a city or area, 

reducing the material use, energy and 

pollution associated with car manufacturing 

and vehicle disposal at end-of-life. 

At high levels of adoption, car sharing could 

reduce traffic congestion & parking problems 

in urban areas. This can result in shorter trip 

times, reducing fuel use and associated air 

pollution 

Research also suggests that those who use 

car sharing as an alterative to ownership tend 

to drive less, thus reducing pollution, fuel use 

and congestion. 

Chemical Management Services (CMS) 

In CMS, a chemical user outsources one or 

more chemical management activities (e.g., 

inventory management, application, collection, 

disposal). The CMS provider is compensated 

based primarily on the basis of the services the 

chemicals provide, not the volume of chemicals 

purchased.* 

In this PSS, the product is the chemicals. The 

service are aspects of chemical management 

undertaken by the CMS provider. 

In traditional chemical procurement, the 

chemical supplier has a profit incentive to 

maximize sales of chemicals. 

In CMS, fees are based primarily on the 

services provided, not the volume of chemicals 

used. Contracts feature “shared savings” or 

other mechanisms that reward the provider for 

reducing the customer’s total costs of chemical 

use. 

Often this results in reduced chemical use. In 

addition, CMS makes handling and disposal of 

chemicals more professional and thus should 

lead to improved compliance with 

environmental regulations, reduced chance of 

accidents. 

Telepresence (High-end Videoconferencing 

systems) 

High-end video-conferencing (“telepresence”) 

allows people in different locations to 

communicate in a simulacrum of “face to face” 

exchange far superior to that achieved by 

traditional video-conferencing. This is achieved 

via high-quality, high-definition audio and visual 

feeds, the use of multiple cameras and screens, 

and specially designed, dedicated rooms. 

In this PSS, the product is the hardware and the 

service component includes bandwidth, network 

functionality, and support services. 

In principle, videoconferencing offers a 

substitute for physical travel. To the extent that 

videoconferencing replaces physical travel, 

the energy consumption and emissions 

associated with travel are prevented. 

*For more information about the CMS model, see www.chemicalstrategies.org; (Stoughton and Votta, 2003); 

and (Mont et al, 2006). 

Source: adapted from (Stoughton et al, 2007) 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 9 

The examples of “BAU” PSSs cited above indicate that such well-established PSSs play a significant 

role in defining the patterns of consumption and production in the current economy, and that the 

environmental performance of these PSSs is thus one important determinant of the overall 

environmental performance of the economy as a whole. More quantitative assessments of the economic 

and environmental performance of PSSs is limited by data constraints (see Section 2.5). 

2.3 Servicizing: Innovative/emergent PSSs that 

intensify the service component 

However, US EPA’s primary interest is in finding ways to change the status quo and move 

meaningfully towards a more sustainable economy. The examples cited in Table 1 indicate that in some 

cases, innovative or emergent27 PSSs should constitute significantly more eco-efficient alternatives to 

BAU. 

The defining characteristic of these innovative or emergent PSSs business models is that they intensify 

the service component, employing services to add value in ways that are different from “business as 

usual” ways to achieve a given economic function. In some cases, consumers may no longer purchase 

the product itself, but the function (or service) that the product provides. In other cases, the changes 

from BAU are less radical. Regardless, emergent PSSs restructure the economic relationships that 

mediate how products deliver function or utility.

28 As a result, the manufacture, use, or end of life 

management of products or infrastructure changes in some way. Generically, this report terms such a 

change from BAU “Servicizing.” 

This restructuring can improve the eco-efficiency of the economic function by closing materials cycles, 

dematerializing economic activity, improving energy efficiency, and other mechanisms. The box on the 

previous page describes these mechanisms for each of its three examples. Where such eco-efficiency 

improvement occurs, this is termed “Green Servicizing.” 

Innovative or emergent PSSs are the primary focus of this report. However, it should be noted that 

environmental policy also has an interest in “BAU” PSSs where changes to them may substantially 

improve their environmental performance. (For example, if all delivery fleets were upgraded to ULEV 

standards, significant environmental performance improvements would result.) 

2.4 Classifying PSSs and 

“Green servicizing” mechanisms 

As numerous definitions of PSSs have been developed, so have numerous classification schemes. In 

general, however, there is a convergence of these schemes around three PSS categories: 

27In strict economic usage, “innovative’ refers to the first commercial application of an invention or an original process or 

value proposition. Here, also of interest are in emergent PSSs—i.e., those that are commercially available, often offered by 

several providers, and which may be firmly established in one or more market niches, but which are currently well-short of 

fulfilling their full market potential. In general, the term emergent will be used informally throughout this document to include 

the concept of innovative as well. 

28 Tukker , van den Berg and Tischner characterize this differently, noting that a focus on needs fulfilment as the end rather 

than on a particular product as means can open up additional “degrees of design freedom” necessary to decouple needs and 

wants fulfilment (and economic growth) from material inputs. (Tukker et al 2006a). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 10 

Product-oriented, Use-oriented, and Result-oriented.29 The table below reproduces the descriptions of 

these categories from (Tukker et al 2006a, 32) and (Stoughton et al 2007, 19). 

Tukker et al write in synthesis of the SusProNet experience, and synthesize and extend a set of previous 

schemes.30 The scheme by Stoughton et al is likewise based on a broad review and synthesis of the 

literature, including early outputs from SusProNet.31 

Table 1: Primary PSS categories 

PSS Category As described in Tukker et al* As described in Stoughton et al 

Product-oriented Here the business model is 

dominantly geared towards sale of 

products, but some extra services 

are added 

Emergent PSSs in this category 

offer value (and are different from 

BAU) by adding services to 

products such as extended 

warranties, maintenance, 

upgrading, and end-of-life 

management. Product ownership 

remains with the consumer. 

Use-oriented Here the traditional product still 

plays a central role, but the 

business model is no longer 

geared towards selling producs. 

The product stays in the ownership 

of the provider and is made 

available in a different form, and 

sometimes shared by a number of 

users 

Emergent PSSs in this category 

offer value (and are different from 

BAU) by providing consumers with 

access to the product and the 

function it provides without the 

need to own the product. Leasing 

and rental models are in this 

category, including individual and 

joint use 

Result-oriented Here, the client and provider agree 

on a result, and there is no 

predetermined product involved. 

Emergent PSSs and allied models 

in this category offer value (and are 

different from BAU) by directly 

providing a function to the 

customer, who in turn pays for this 

function rather than use of or 

access to a particular product. The 

function may be tangible (i.e., 

waste management) or intangible 

(i.e., communication.) 

Tukker et al characterize these three categories as describing a spectrum from mainly product-content 

to mainly service-content. Classification is thus oriented towards the product-service mix; an emphasis 

conveyed by Figure 2, which also lists the subcategories they identify under each major PSS category. 

29 These categories, and particularly the identification of PSS types within each category (see Table 2), represent a more 

sophisticated classification scheme than that presented in the 1999 Tellus report (White et al 1999). The 1999 Tellus report 

organized services (not product service systems) into three categories. See Annex B for a comparison of this scheme and the 

one adopted for this report. 

30 Tukker et al cite (Zaring et al 2001) and (Tukker and van Halen 2003) as key sources, also noting (Hockerts et al 1994), 

(Behrendt et al 1999) and (Prepare 2000). 

31 Stoughton et al cite (White et al 1999), (Bartolomeo et al 2003), (Hrauda and Jasch 1999), (Tukker 2004), and (Wong 2004). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 11 

Figure 2: PSS Classification scheme of Tukker et al 

Adapted from (Tukker et al 2006a) 

In recognition of the synthesis of the SusProNet learning and experience that Tukker et al represent, and 

to maximize ease of communication and exchange with the European PSS community, this report 

adopts the (Tukker et al 2006a) classification scheme. The key categories and sub-categories of PSS 

models in this scheme are described in the tables that follow. Except where noted, the category 

descriptions are adapted from (Tukker et al 2006a).32 

Also contained in the tables are descriptions of the expected mechanisms whereby innovative or 

emergent PSSs in each category may improve environmental performance over BAU (in short, “Green 

Servicizing Mechanisms”). The emphasis in describing these mechanisms is on improvement 

mechanisms that are (or can be) intrinsic to the structure of or economic incentives created by each type 

of model. 

For example, a car-share service may choose to offer only ULEV, “Zero-emission” or hybrid vehicles, 

or an office cleaning service may choose to use only “green” cleaning compounds. These choices may 

have significant effects on the environmental performance of the PSS in question, and may 

substantially improve its performance compared to BAU. However, they are not choices driven by the 

intrinsic structure of the class of PSS models to which each belongs. 

Except where otherwise noted, descriptions of environmental improvement mechanisms are generally 

adapted from (Stoughton et al 2007). In some cases, (Stoughton et al, 2007) have identified classes of 

models within a sub-category that have distinctly different “environmental improvement mechanisms.” 

These are noted in the scheme. 

32 This classification is versatile and inclusive, but not perfect. As Tukker et al note that, “as with any classification system, 

there are exceptions for which this classification does not work well. The classification assumes that ‘products’ by definition 

have a material character, and for some products—most notably software—this is simply not the case.” (Tukker et al 2006a). 

To this list of exceptions, this report would add “insubstantial products” or “tangible services” such as waste management and 

electricity. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 12 

Table 2: Classification Scheme for Innovative and Emergent PSSs with 

Definitions and Environmental Improvement Mechanisms 

Product-oriented . 

PSSs in this category are dominantly geared towards the sale of products, but added services are a 

source of additional value. These services include, e.g., extended warranties, maintenance, upgrading, 

and end-of-life management. Product ownership lies with the consumer. 

PSS TYPE 

Product-related services 

In addition to direct sale of the 

product, the provider offers services 

related to the use phase: e.g. 

maintenance, extended warantees, 

financing, supply of consumables, 

take-back, etc. 

“Green Servicizing Mechanism” 

(How can innovative/emergent PSSs in this class 

achieve eco-efficiency gains over BAU?) 

Environmental performance mechanisms primariliy exist 

unders three variants of product-related services.* 

Product take-back models. 

The primary value-added service in these models is 

product take-back at end-of-life (or once the customer no 

longer requires the product.) Thus, these models are 

expected to lead to increased re-use and material recovery. 

Recycling/remanufacturing-based businesses 

While not PSSs according to some definitions, we include 

them in this category as they add services to the end-of-life 

phase of a product, and thereby change its final disposition. 

These businesses recover not products at end of life, but 

waste material, from which they create new products. 

Expected environmental benefits are reduced demand for 

virgin materials and reduced disposal impacts. 

Product life extension 

The primary value-added services in these models are 

maintenance and upgrades, both of which should extend 

product lifetime. This reduces the total number of products 

over time, thus reducing all impacts in phases prior to use 

(e.g., extraction, manufacturing), as well as reducing 

disposal impacts. 

Product-related 

advice/consultancy 

In addition to direct sale of the 

product, the provider offers advice or 

consultancy on the most efficient use 

of the product, which may extend to 

logistics systems and management 

structures, 

“Efficiency consultancy” has the potential to reduce the 

in-use impacts of the product (e.g. energy consumption) 

and, potentially, to extend product lifetime. 

*Notes: Other “Product-related services,” models may achieve environmental improvements, but this 

report poses that the three classes of models identified are those to which environmental improvement 

mechanisms are most intrinsic, and are most likely to achieve environmental performance improvements 

over BAU in practice. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 13 

Use-oriented 

PSSs in this category are centered on the provision of products, but they offer value by providing 

consumers with access to the product and the function it provides without the need to own the 

product. Leasing and rental models are in this category, including individual and joint use approaches. 

PSS TYPE 

Product lease

 (Individual lease or rental) 

Models in this category offer the customer 

exclusive (i.e., individual) use of a rented or 

leased product over the lease or rental term. 

Maintenance and repair responsibilities 

generally lie with the provider. 

Examples include long-term leases for e.g., 

IT equipment, vehicle and capital 

equipment. 

“Green Servicizing Mechanism” 

(How can innovative/emergent PSSs in this class 

achieve eco-efficiency gains over BAU?) 

. 

These models place end-of-life responsibility for the 

product on the provider and also should place a 

premium on product durability and maintainability. 

Thus, these models may provide incentives to 

producers to pursue Design for Environment (DfE) 

approaches, creating more durable products with 

increased proportions of recyclable/reusable parts. 

As a result, environmental loads prior to the use 

phase (e.g. virgin materials inputs, energy 

consumption associated with production) may be 

reduced. In addition, as ownership remains with the 

provider, proper disposal and/or improved recovery 

may be more likely. (However, this is not the case 

when products are disposed by sale to secondary 

markets.) 

Joint use (Sequential and pooled) 

Joint use models offer product rental or 

leasing in such a way that a number of 

individual customers use the same product. 

This joint use may be simultaneous or, 

when the rental period is short, sequential. 

Maintenance and repair responsibilities 

generally lie with the provider. 

Traditional car rental and car-sharing both 

fall in this category. The short rental period 

of car-sharing and the concept that cars 

stations are “shared” among users in the 

vicinity mean that car-sharing is a “pooled 

use” model; traditional car rental is a 

sequential use model. 

In addition to the potential benefits under “individual 

lease or rental” enumerated above, these models 

should reduce the total number of products required 

to deliver a given level of economic function. Thus, 

they may further reduce all impacts in phases prior to 

use (e.g., extraction, manufacturing), as well as 

further reducing disposal impacts. 

Pay-per-service unit 

In Pay-per-service-unit models, the 

customer pays for the output of a product on 

a per-unit basis. In contrast to “functional 

result” models (below), the user is 

responsible for operation of the equipment. 

“Well-known examples include the 

pay-per-print formuls now adopted by most 

copier producers. In this formula, the copier 

producer” (Tukker et al 2006a). 

In addition to the potential benefits under “individual 

lease or rental” enumerated above, these models can 

provide a clear, utilization-based price signal to the 

user, which may stimulate conservation behaviors, 

reducing the utilization of the product and attendant 

use-phase environmental impacts. 

Notes: Tukker et al distinguish between sequential and pooled joint use. They term the former “product 

renting/sharing” and the latter “product pooling.” 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 14 

Results-oriented 

PSSs and allied models in this category offer value by directly providing a function to the customer, who 

in turn pays for this function rather than use of or access to a particular product. The function may be 

tangible (i.e., waste management) or intangible (i.e., communication.) 

PSS TYPE 

Activity Management/Outsourcing 

In these models, the provider 

undertakes responsibility for a service 

that a customer would otherwise 

undertake in-house, with its own 

employees. 

Examples include outsourcing of 

cleaning, mailroom, or 

customer-service functions. 

Functional results 

Tukker et al characterize functional 

results models as those in which the 

provider is engaged to deliver a result, 

without reference to a specific 

technological system (i.e., the means 

of delivering the result are at the 

provider’s discretion.) 

Examples cited include Integrated 

Pest Management (IPM) services, in 

which IPM providers promise to keep 

farmer’s losses to an agreed minimum 

rather than selling pesticides. 

In reality, however, this may be a 

difficult standard to meet; results 

provision is rarely fully detached from 

a specific technological system. This 

report poses that the basis of 

compensation is the sounder criterion 

on which to identify “functional results” 

models. (See “performance based 

functional results” immediately at 

right.) 

“Green Servicizing Mechanism” 

(How can innovative/emergent PSSs in this class 

achieve eco-efficiency gains over BAU?) 

As Tukker et al note “in many cases, the way in which the 

activity is performed does not shift dramatically” [compared 

to how the customer would perform the function in-house]. 

(2006a, 34). Potential environmental benefits arise when 

the provider realizes cost savings and efficiency gains in 

material and energy inputs, not via the utilization of 

lower-priced labor. (Tukker et al 2006b) 

In addition to this general situation, we identify two types of 

models, spanning both the Activity Management and 

Functional results categories, in which environmental 

performance improvements are most likely to arise: 

IT Dematerialization 

IT dematerialization models utilize information technology 

to deliver a function to a customer in such a way as to 

substantially eliminate the need for the products and 

services that deliver this function under BAU. Examples 

include Video conference and tele-presence systems (in 

principal reducing the need for travel) and e-learning (in 

principal reducing the need for travel and instruction 

facilities). Benefits arise when the IT-based approach 

indeed reduces material and energy intensity compared to 

physical presence. 

Performance-based “functional procurement” 

Performance-based services provide functions such as 

chemical management, waste management, energy 

services, and logistics management (3PL). In these 

services, traditional compensation mechanisms (e.g., fees 

per ton waste hauled, per BTU used) are replaced by 

performance-based compensation mechanisms that give 

the service provider incentive to reduce the customer’s 

generation of waste, their use of energy, or consumption of 

other environmentally problematic goods or services. 

This category includes “efficiency services,” which may not 

have a clear product associated with them, but do alter the 

utilization of products and infrstructure (e.g., ESCOs, 3rd 

Party Logistics). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 15 

2.5 What is known about the “sustainability 

potential” of Green Servicizing? 

The discussion to this point, and particularly the discussion of greening mechanisms in the tables 

above, raises a critical question: what environmental performance gains does “Green Servicizing” 

achieve in practice over BAU? (Or more generally, what sustainability performance gains are 

achieved, where sustainability requires consideration of social, not just environmental, performance.) 

Researchers have assessed greening or sustainability potential in a number of different ways, but in 

general, there is an effort to account for both environmental and social dimensions, a recognition that 

environmental performance needs to be assessed with attention to several performance dimensions (e.g. 

energy, materials, etc.) and that the analysis requires at least a sensibility to lifecycle impacts.33 (The 

approach adopted for this report is discussed in Section 4.1) 

A consistent conclusion of these efforts to assess the environmental (or more broadly, the 

sustainability) potential or performance of “Servicizing Models” and cases is that details matter, and 

“most authors hence conclude that the question of whether a PSS is better than a product system has to 

be answered on a case-by-case basis” (Tukker et al 2006b).34 

However, accumulated experience with servicizing approaches does support some general conclusions. 

Results from recent, multi-model/case assessments are summarized below: 

 (Tukker et al 2006b). In a comparative analysis of the environmental performance of 

“Servicizing” approaches over BAU, Tukker et al examined more than 200 cases compiled 

under the SusProNet synthesis of European PSS research. Their analysis indicates: 

Product-oriented models & product-lease models. Only when product-related services 

include take-back and recycling [or better, reuse or remanufacturing] are these models likely to 

result in substantial environmental gains. Such gains should only be ascribed to the PSS in 

markets where end-of-life recycling/energy recovery under BAU is limited. (Thus, where 

take-back and recycling is mandated, these activities, if carried out under the PSS, will not 

represent an environmental performance gain over BAU). 

Maximum typical eco-efficiency gain: With recycling/reuse/remanufacturing, up to Factor 2; 

otherwise less, with worse-than-usual performance possible in some leasing cases. 

Use-oriented models (except product-lease). Product renting, sharing and pooling can 

achieve significant environmental performance gains when either (1) the use phase of the 

product is not a significant source of its life-cycle impacts; or (2) the use phase is a significant 

source of impacts, but the model results in significantly reduced use levels of the product by 

individual customers. (Car-sharing is a “pooled use” model with this effect.) Pay-per-use 

models also will tend to reduce use levels. 

Maximum typical eco-efficiency gain: Factor 2 

33 The most common assessment approach is simple scoring (e.g. on a 5 point scale) of performance gains/losses in each 

dimension, based on expert judgement (e.g., Tukker et al 2006b; Halme et al 2005.) A more limited—but still 

substantial—number of formal quantitative evaluations have been performed, including formal LCAs. Some of these more 

quantitative evaluations are referenced in the Business Model Briefs section of this report. 

34 Tukker et al do not use the term “Servicizing.” In the terminology adopted for this report, this sentence would be rendered 

“most authors hence conclude that the question of whether a “Servicizing” approach is superior to the BAU alternative must be 

answered on a case-by-case basis. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 16 

Results-oriented models: Activity management/outsourcing should result in environmental 

performance gains when the economic efficiency improvements achieved (i.e., the value 

proposition to the customer) derive in some part from increases in material/energy efficiency, 

not simply labor inputs. 

Maximum typical eco-efficiency gain: Factor 2 

Results-oriented models: Functional results models are the only PSS type to which “factor 

X” potential can generally be attributed. (Factor X suggests radical eco-efficiency gains of up 

to the “Factor 10” thought to be necessary in wealthy economies to achieve a sustainable global 

economic system.) 

 (Stoughton et al 2007). Based on a detailed assessment of 25 Japanese cases (chosen by a 

screening process that considered almost 300), Stoughton et al find that as a class, 

performance-based “outsourcing” models “have high potential to reduce the size of the 

materials cycle and/or to reduce energy use (and associated environmental loads) for a given 

level of economic function.” They note that models in this class include ESCOs, 3PL, and 

performance-based water-services. (Their sample did not include Chemical Management 

Services and resource management, which are poorly represented in Japan, but these models 

are “close kin” of those they do list.) 

In the context of this report, all are “performance-based functional procurement” or “efficiency 

services” models in the “functional results category.” They also find that telepresence (an IT 

dematerialization model) had high potential. 

 (Halme et al 2005) assessed more than 200 household service cases in six Western European 

countries thought to offer potentially more sustainable alternatives to BAU. (Household 

services were defined as “services offered to the consumer on the housing premises—namely 

in their dwelling, in their building or on the building grounds”). These included energy 

services, repair and recycling services, “ecological groceries” home delivery, among others. 

They find that particular services (and classes of services) in their sample do achieve 

“substantial” and in some cases “major” eco-efficiency improvements in key environmental 

dimensions (e.g., material use, energy use, water, waste, etc.) No class of services achieves 

“substantial improvements” in all environmental dimensions, and if the scores for all cases are 

averaged, the result in each dimension is a moderate eco-efficiency gain: i.e., something 

between the “status quo” and a “substantial improvement.” 

The results of (Tukker et al 2006b) and (Stoughton et al 2007) strongly emphasize that functional 

results models as a class have special potential—though this does not exclude “outlier” high performers 

in other PSS categories. However, because mandatory take-back is rare in the US context, servicizing 

models that include take back and recycling/re-use/remanufacturing may achieve much higher 

improvements over BAU than they would in the Western European/EU context, where mandatory 

forms of EPR are far more common. And, again, throughout this literature and accumulated experience, 

it is clear that environmental gains within a model are not automatic, but depend on the details of its 

implementation at the business or case level. 

2.6 PSS Classifications vs. treatment of services 

in economic statistics 

While current knowledge permits general conclusions about the eco-efficiency potential of “green 

servicizing,” far less can be said about the prevalence of either PSS activity in the economy generally, 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 17 

or about servicizing as a type of change in PSS activity and offerings over time. Both are very poorly 

captured by official economic statistics. 

The basic problem is that the PSS concept and the classification scheme above conceive of 

“production,” offerings in the market, and value-added as non-separable combinations of product and 

service, official economic statistics generally view “output” as either a product or a service. 

For example, US BEA statistics are based on the North American Industry Classification System 

(NAICS). A basic division in the NAICS is between “goods-producing sectors” and 

“services-producing sectors.”35 Output and value-added produced by the former are generally ascribed 

to goods, irrespective of the service content of the offering. Likewise, service sectors are assumed to 

produce services, even when the service has a substantial product component (e.g. newspapers). 

This poses a fundamental problem to a rigorous statistical understanding (or even rough estimates) of 

the “deepening” of service content in “goods-producing sectors,” the extent to which product sales are 

being displaced by function-based alternatives, or similar questions critical to understanding the 

evolving role of PSSs in the economy (that is, servicizing). 

This said, significant efforts are being made to standardize classifications of the “products” of the 

service sector, and to improve economic characterization of statistics. In a landmark study of 

Productivity in the US Services Sector, Triplett and Bosworth note: 

“The trend toward services claiming a growing share of the economy was long ignored by a 

statistical system originally structured to report the production and consumption of goods. For 

many years the outputs of major services-producing industries were estimated by making 

simple extrapolations of their past relationships to employment or some similar partial 

indicator. The research reported in this book highlights the progress that has been made in the 

US statistical system in expanding the range of surveys of the services-producing industries 

and in developing an improved methodology for measuring both the output of services and the 

contribution of critical new high-technology products. (Triplett & Bosworth 2004) 

Development of the North American Product Classification System (NAPCS)—a joint effort of the 

statistical agencies of Canada, Mexico and US—has to date focused on service “products” and should 

over time support improved statistics collection regarding trade in and domestic production of 

services.36 

However, these efforts do not yet address the statistics and data needed to understand the evolving role 

of PSSs in the US economy. 

2.7 Comparison to the “Tellus Report” 

Classification scheme 

The PSS classification scheme of (Tukker et al 2006a) adopted for this report is more sophisticated than 

the services classification scheme presented in the 1999 Tellus report (White et al 1999), and 

incorporates the results of subsequent scholarship. The 1999 Tellus scheme is compared to the current 

classification scheme on the following page. 

35 Mostly broadly: utilities; wholesale trade; retail trade; transportation and warehousing; information; finance, insurance, real 

estate, rental, and leasing; professional and business services; educational services, health care, and social assistance; arts, 

entertainment, recreation, accommodation, and food services; and other services, except government. Additionally, 

construction is counted as a service when traded internationally. 

36 See the NAPCS home page at http://www.census.gov/eos/www/napcs/napcs.htm. 
Productoriented

Product-related service

Useoriented Joint use (Product renting/shariing + product pooling)

Resultoriented

Functional result 

“Green Servicizing” for a More Sustainable US Ec

Tellus/US EPA 1999 (text from (White et al 1999)) Tukker et al 2006 Major Categories Sub-Categories Major Categories Sub-Categories 

Pure Product 

Material Services Material, or product-based, services use an established, physical product as the vehicle, or platform, for delivering services related to the product for customers. 

Product Extension Services Characterized by customer ownership of the physical good, and thus represent only a minimal departure from a traditional, pure sell-buy arrangement which places full responsibility for the product in the hands of the buyer. Product extension services enhance the utility that ownership of the product delivers to the customer. The most familiar versions of these services include warranties and maintenance agreements. 

Product Service Systems 

Product-related advice/ consultancy 

Product Function Services In this category of services, ownership of goods resides with the service provider. Customers have the use of the product, but maintenance as well as end-of-life disposition are the responsibility of the service provider. Thus, the customer gains the function of the product is provided without ownership. Thus, traditional rental or leasing arrangements fall into this category. . . Also in this category are non-traditional leasing arrangements [functional sales]. 

Product leasing 

Pay per service unit 

Activity managemenoutsourcing 

Nonmaterial services Non-material services are delivered via a supporting infrastructure and goods that remain in the hands of the service provider. Their value to the customer is totally — or near totally — tied to the information or technology embodied in the transaction. Non-material services include, 

Dematerialized Services In these cases, technology has obviated or drastically reduced the need for products altogether. . . One example is that of centralized voice mail supplanting answering machines (in which the messaging service once provided by a desktop machine is now provided by a combination of remote hardware and information transmission. Other non-material services “Traditional” services, e.g. health care, hair salons, insurance and banking. 

Pure Service 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 19 

3 Information and analysis to inform policy engagement: 

contributions and limitations of this report 

3.1 Leveraging green servicizing with policy 

In commissioning this work, US EPA’s Office of Resource Conservation and Recovery (formerly the 

Office of Solid Waste) sought critical tools, concepts and analysis needed to identify appropriate, 

substantive and effective next steps for using green servicizing to aid in decoupling material, energy, 

water and chemical use from economic growth. 

With respect to servicizing, the current challenge and opportunity for environmental policy is to: 

Identify innovative and emergent servicizing business models37 of high sustainability 

potential, validate this potential, and, where indicated, to make policies that foster a market 

and regulatory environment that help such models become business as usual, and best assure 

that the “greenest” versions of these models are the ones that grow. 

As this statement implies, the case for policy engagement may not always exist. Further, policy 

engagement could involve, but is not uniquely synonymous with, regulatory actions. Support for pilots, 

development of market information, manuals and information portals, establishing voluntary “green 

standards” or certifications, and developing voluntary programs and alliances based on these 

approaches are all important but non-regulatory forms of policy engagement in this area. 

Likewise, “validating potential” may be a matter of passive research, or it may entail policy 

engagement in the form, e.g., of supported pilots. (For example, US EPA has supported pilots of 

Chemical Management Services to test its efficacy outside its “traditional” core manufacturing client 

sectors.) Any assessments of environmental performance must be conducted with a sensibility to 

lifecycle impacts. 

A second challenge and opportunity for policy is to identify high-leverage changes to existing 

product-service systems that substantially improve the efficiency of these systems. However, this work 

is primarily concerned with innovative and emergent business models. 

3.2 Information and analytical requirements and 

the contributions of this report 

Chapter 2: “A Re-orientation to Green Servicizing” provided essential basic concepts. But what 

additional information and analyses are needed to address the challenge and exploit the opportunity of 

“green servicizing”? 

Consistent with the discussion in 3.1, above, needs can be divided into two main areas: those supporting 

identification of innovative/emergent models of high “greening” or sustainability potential, and those 

supporting policy engagement with these models. In addition, information about market status and 

environmental performance support both areas. 

37 The use of the term “models” in this context is deliberate. As noted in the introduction to this work, the survival of an 

individual business is generally not a concern of environmental policy. “Green business” policy must operate at the model 

rather than the individual business or case level. The focus on models vs. cases is a key difference between this report and the 

1999 Tellus Institute report. See discussion in Section 5.1. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 20 

These needs are set out in the text and tables below, along with an explanation of how this report 

addresses these needs. 

Model identification and supporting information and analysis 

Identifying models of high sustainability 

potential requires. . . 

This report. . . 

A working definition of high 

sustainability potential or a process for 

distinguishing models of high sustainability 

potential 

A. Provides a working definition, defining 

sustainability potential as arising from the interaction of 

four factors, and provides a simple, qualifitative 

analytic scheme to identify “high potential” 

combinations of these four factors. 

A scan or survey approach by which to 

identify such high-potential models in the 

economy. 

B. Utilizes a “quick search” approach to identify a 

set of models for which there are strong a priori 

reasons to believe that sustainability or greening 

potential is high. The approach combines (1) a 

literature search for high potential models and (2) a 

rough gap analysis to identify key sectors or streams 

for a more targeted search. 

C. Outlines options and approaches to gain a deeper 

and more systematic understanding of “green 

servicizing” business activity in the economy. 

D. Key deliverable: Business model briefs. These three to four-page briefs synthesize 

publicly available information about the market status and environmental performance of 10 

servicizing models identified via the “quick search” approach described above. The briefs do 

not make a formal, quantitative assessment of the sustainability potential of these models, but 

they do support a less formal appraisal. 

Information and analysis supporting Policy Engagement. 

Understanding and assessing the need 

for policy support (if any), potential 

points of policy intervention and policy 

approaches requires. . . 

This report. . . 

Information about drivers, barriers and 

determinants of environmental 

performance, rendered in terms relevant to 

the the formulation of policy objectives. 

This information is required as, generally 

speaking, policy for “green business” can 

(1) reinforce drivers, (2) reduce barriers, 

and/or (3) strengthen the determinants of 

“green” performance. 

E. Assesses barriers, drivers and determinants of 

environmental performance for three models, and 

illustrates an approach for translating this information 

into high-level policy “targets” or objectives. 

(The business model briefs also contain less detailed 

information about drivers and barriers for all models 

examined.) 

Information about the existing policy 

environment, as the design of policies is 

rarely a greenfield exercise, but must be 

cognizant of, accommodate, leverage 

and/or change existing requirements and 

incentives. 

Policies that have a significant and obvious impact on 

the market for a model are captured in the business 

model briefs, and especially in the detailed barriers 

and drivers assessment undertaken for three models. 

In general, however, the research undertakes no 

systematic assessment of the current policy 

environment. 

Models of policy engagement and F. Provides a brief synopsis of policy engagement 

synthesis of lessons learned. with servicizing in some “peer economies.” 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 21 

Information about market status and environmental performance 

Information about the market status and environmental performance of high-potential models 

supports both key areas above: Verifying a model as “high potential” requires information 

about its environmental performance and an indication of its market potential, as discussed in 

Section 4.1 Policy engagement requires information about customer sectors and market 

position. 

Publicly available information regarding environmental performance and market status is 

synthesized in the business model briefs. 

3.3 Limitations 

As discussed above, this report and the research effort it represents are intended to help understand the 

challenges and opportunities of “green servicizing.” While the report is intended to provide critical 

concepts and tools, it cannot fulfill all the information and analysis needs identified above. Specifically, 

the report does not: 

 Undertake a thorough characterization or “baseline” of “green servicizing” activity in the 

economy. Rather, a quick search approach is employed to identify models thought to have high 

potential with respect to environmentally critical products and sectors, and briefs summarizing 

publicly available market and environmental performance information are developed for these 

models. 

 Characterize drivers or barriers in detail for most models, and does not characterize the existing 

policy environment in detail for any model. Both types of information are important to weigh 

policy engagement and, if appropriate, formulate policy approaches. 

3.4 Orientation to the remainder of this report 

The remainder of this report presents the information and analysis described in the tables above, and is 

organized as follows: 

 Chapter 4: Discusses concepts and approaches critical to identifying high-potential 

servicizing business models. This includes a working definition of “sustainability potential” 

and the “quick search” process. 

An extended text box discusses approaches the agency might pursue to develop a more 

rigorous and systematic understanding of “green servicizing” activity in the economy, focused 

as appropriate on sectors or mechanisms of interest. 

 Chapter 5: Presents the results of research on the market status and environmental 

performance of 10 high-potential servicizing approaches, including a summary matrix and the 

business model briefs. 

 Chapter 6: Contains a detailed assessment of barriers, drivers and determinants of 

environmental performance for three “close kin” models, and maps this assessment to “policy 

targets” (intermediate policy objectives). This information and analysis model is intended to 

support US EPA in weighing policy engagement, to provide a model for analysis of other 

models, and to help assess the hypotheses that similarities in drivers, barriers and value 

propositions exist and that therefore government policy engagement around these models as a 

class may bring significant synergies and economies. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 22 

 Chapter 7: Presents overall findings, derived from cross-model synthesis and analysis of the 

information presented in Chapters 5 and 6. 

 Chapter 8: Presents key considerations for moving forward toward achieving wider adoption 

of green servicizing in the US economy and possible next steps. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 23 

4 Key concepts and approaches for identifying 

high-potential servicizing business models 

4.1 A working definition of “sustainability 

potential” 

As noted above, identifying models of high “sustainability” or greening potential requires a working 

definition of such potential. Drawing on (Stoughton et al 2007), “sustainability” or “greening” potential 

can be understood as a function of four factors: 

1. “Micro-level” environmental performance. As noted above, the basis of environmental 

policy interest in “innovative and emergent” PSSs or “green servicizing” business models is 

that they may provide a more eco-efficient alternative to the BAU means by which an existing 

economic function is delivered or achieved. “Micro-level” environmental performance is an 

assessment of this eco-efficiency gain at the level of the single customer or “unit of function.” 

Micro-level performance needs to be evaluated with a sensibility to the life-cycle impacts 

involved. 

(“Micro-level performance” is thus distinguished from “Macro performance,” which describes 

the impact of the model on the eco-efficiency or the economy as a whole.) 

2. Market potential. Market potential is the extent to which a model has the potential to become 

BAU in the market for the principal goods or services to whose BAU consumption the 

servicizing model constitutes an alternative. If a model has high market potential and this 

potential is achieved, then the micro-level performance improvements will have maximum 

benefits to the eco-efficiency of the economy as a whole. 

Determining market potential is always a subjective exercise, but key indications of low 

potential include situations in which: a model’s value proposition to the customer limits it to 

serving a small niche in its market; regulatory barriers are systematic or comprehensive; 

barriers include basic and fundamental issues of customer acceptance; and/or providers are 

thus far unable to offer the model profitably. 

3. Environmental Significance. Environmental Significance refers to the portion of national 

environmental loads that can be attributed to the manufacture, use, delivery and disposal of the 

principal goods or services to whose BAU consumption the servicizing model constitutes an 

alternative. 

A model may offer significant improvements in “micro” environmental performance over 

BAU, and it may have the potential to become BAU in its market. But if the market is not 

environmentally significant, then the model has low sustainability potential—that is, its impact 

on the eco-efficiency of the overall economy will be very low. 

4. Social considerations. Social issues are a key dimension of sustainability. Changes to BAU 

associated with PSS models can bring social benefits as well as social costs. (Costs, for 

example, may be a particular concern in outsourcing models that may involve labor 

displacements.) Environmental performance assessment techniques and information are 

generally more refined than their social counterparts, but at least a rough screening for 

significant beneficial and adverse social impacts should be a part of assessing sustainability 

potential. 
Some

concerns (e.g. 

labor losses)

Benefits only

LOW

HIGH

HIGH LOW SMALL 

REDUCTIONS

HIGH HIGH LARGE 

REDUCTIONS

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 24 

With respect to these four factors, models of very high potential have readily identifiable 

characteristics. A model must be high-potential if: (1) micro-level environmental performance is a 

significant improvement over BAU and (2) market potential is high and (3) the market the model 

operates in has high environmental significance and (4) the model presents no obvious social concerns. 

Similarly, poor micro-level improvements over BAU or poor market potential OR low environmental 

significance will alone generally assure low potential. 

This qualitative integration and assessment is depicted in Figure 3, below. An advantage of the scheme 

is that it can be utilized with both high-quality/quantitative or lower-quality/qualitative data. 

Figure 3: Four-factor analysis for identifying high-potential models 

“Micro-level”

Environmental

performance 

compared to

BAU

1 & 

Market potential

2 & 

Environmental 

significance of

goods & services in

market relative to 

national 

environmental load

3 & 

Social

concerns? 

Benefits?

4 

Potential to help

achieve 

Sustainable 

Economy Goals

LARGE 

REDUCTIONS HIGH HIGH Benefits only HIGH 

SMALL 

REDUCTIONS LOW HIGH 

Some 

concerns (e.g. 

labor losses) 

LOW 

MIXED MODERATE MODERATE Mixed

benefits & 

concerns

NOT CLEAR

Source: adapted from Stoughton et al 2007. 

As indicated by the last row in the figure, a qualitative approach to integration does not result in a 

ranking of models, nor is it able to assess the potential of models characterized by “moderate” or 

“mixed” results across the four factors. 

Trying to reach a rank-order, or to resolve “mixed results” situations (e.g., as represented by the last line 

of the table in Figure 3) is a non-trivial exercise, even setting aside the difficulties of rigorously 

quantifying each factor. For example, integrating the four factors into a quantitative “sustainability 

potential index” requires an ordinal ranking of performance improvements obtained in different 

environmental media. (E.g. is a 20% reduction in CO2 emissions more or less significant than a 25% 

increase in water efficiency?). However, US EPA’s current purposes do not require rank-ordering. 

Further, this framework provides a robust approach to understanding “sustainability potential.” 

4.2 “Quick search” approach to identifying 

high-potential models 

Why a “quick search” approach? 

US EPA’s policy interests would ideally be addressed by an economy-wide “scan” of “innovative and 

emergent servicizing business models” against the four criteria that define high sustainability potential. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 25 

However, the underlying economic data that would support such an effort does not exist (see Section 

2.5), and the resources available for this current work are inadequate to the task of generating it (see text 

box at end of this chapter). Therefore, a far more limited and targeted “quick search” approach was 

adopted for this report. 

The “quick search” methodology 

The approach employed two identification/selection mechanisms: 

1. Literature review. First, an initial “core set” of models of high sustainability potential were 

identified from the literature, particularly recently published syntheses of European research38 

and recent results from Japan.39 

2. Gap analysis & targeted search. These initial “top shelf” models were then characterized by 

key customer sectors and waste and/or input streams affected (see Section 5.1). This permitted 

a rough gap analysis against waste or input streams (or sectors) identified as important to 

ORCR. 

A more targeted search was then undertaken for servicizing models that addressed key gaps. 

This search was undertaken by revisiting the literature and by: 

a. conducting an informal assessment of the highest potential “green servicizing 

mechanisms” that existed in potentia for these streams and sectors, conducted with 

reference to the PSS classification scheme presented in Section 2.3; and then 

b. searching the web and business press for evidence that such servicizing schemes are in fact 

being implemented. 

The selection process made an initial, quick, qualitative evaluation of the models against the four 

sustainability criteria. The set of models selected should thus be understood as a screening result—that 

is, based on the preliminary information available and prior to detailed research, there were strong 

reasons to believe that the models possessed high sustainability potential. 

The research on market status and trends and environmental performance presented in Chapter 5 

provides basic information to evaluate this hypothesis of “high potential.” A formal, quantitative 

evaluation of the “sustainability potential” of the models against the four criteria was not undertaken. 

However, as discussed in Chapter 7, qualitative assessment of the available data support the hypothesis 

that the models selected are of high sustainability potential. 

In the selection of both the initial set of models based on literature review and those derived from the 

gap analysis, preference was generally given to “high-level” models—i.e. those that appear to have the 

potential to change BAU at the sectoral or basic economic-function level rather than in narrow niche 

markets. This reflected US EPA’s need to acquire as broad a perspective on the servicizing 

phenomenon as possible and its policy interest in changing BAU at the highest feasible level. It also 

helped assure that models met two key “sustainability criteria” market potential and environmental 

significance. 

38 See the SusProNet archive, housed at www.score-network.org; also the discussion in Section 2.5 of this report. 

39 (Stoughton et al 2007; presentations at the “Korea-Japan-US Exchange Seminar on Servicizing” (Kwansei Gakuin 

University Umeda Campus, Osaka, Japan , 3 July 2007) and the "International Workshop on the Potential of PSS for 

Sustainable Production, Consumption and Supply Chain" (IGES Kansai Centre, 16 Nov 2004, Kobe Japan.) Proceedings 

available at http://www.iges.or.jp/en/be/activity.html. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 26 

As a result, in some cases the selection process did not identify a specific business model, but rather a 

“core component” (e.g. re-manufacturing) of a set of servicizing business models serving different 

sectors, focused on different types of products, or having multiple variants within a single sector. For 

simplicity, however, the term model refers to all selections. 

Consistent with the research findings discussed in Section 2.4, a high 

percentage of the models selected were of the “functional results” type. Models selected 

Car-sharing 

Types of models excluded Chemical Management 

Services

The models selected (see box) represent the outcome of the “quick 

search” process. The exclusion of certain classes of models was another Deconstruction 

important outcome of the process, and illustrative of its implementation. Energy Services (ESCOs) 

Models excluded included: Integrated Pest 

Management/Performance 

 Models identified as high-potential in the literature, but with -based pest control 

uncertain application or utility in the US market. For example, services 

Stoughton et al (2007) identify “skeleton infill” approaches to “Lifecycle solutions” for IT 

high-rise housing as being of high potential in Japan, where a equipment 

key environmental policy priority is changing “demolish rather Remanufacturing 

than remodel” practices in the housing sector. The relatively low Resource Management 

prevalence of new high-rise housing in the US, however, means Telepresence 

that the potential of this model in the US market is probably low. 

Third-party logistics 

 Well-publicized “servicizing” approaches that are either 

arguably “business as usual” or which do not have obvious 

“green” dimensions. For example, the 1999 Tellus report included case studies of IBM and 

Xerox as examples of traditionally product-based companies that had embraced product-based 

services as a core business strategy. Service/product integration is arguably a “business as 

usual” strategy in the IT sector, and this integration—of itself—does not have intrinsic green 

dimensions. 

 Large number of “niche market” models identified in the case literature. For example, Halme et 

al (2005) assessed more than 200 “potentially green” household services in six Western 

European countries, with examples including energy services, repair and recycling services, 

etc. Many of the cases (and by inference, the models underlying the cases) served relatively 

small niche markets. 

Also excluded were products currently covered by national-level EPR initiatives in the US for which 

PRO (Producer responsibility organizations) are already constituted and active (e.g. batteries, carpet). 

The rationale for excluding these products is that the dominant business approach to addressing product 

disposal has already been determined, and it is largely outside a for-profit servicizing approach. 

A model not found: Stand-alone, performance-based water efficiency services for 

industrial and commercial customers 

A gap analysis of the initial models identified against the resource and waste streams they affected 

determined that models impacting water consumption were lacking. Conceptually, performance-based 

water efficiency services offerings could fill this gap for large industrial and commercial water users. 

Examples of such services exist in Japan (Stoughton et al 2007) and Europe. 

Such services would be analogous to Chemical Management Services or ESCO offerings (see Chapter 

5): the provider of water efficiency services would assume performance risk for their project or 

product. That is, their compensation and profits would be tied to water efficiency and/or water quality 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 27 

improvements (and thus savings) actually obtained by the client. The provider might have an ongoing 

role in operations of water treatment systems and water utilization processes. 

Such services are distinct from “one-off” water efficiency consulting and audit services, in which the 

consultant conducts an assessment, makes recommendations, and may undertake equipment 

installation or modification, but does not assume performance risk or have an ongoing role in 

operations. Such consulting and audit services are probably important contributors to overall water 

efficiency of the US economy, but they are not servicizing business models as defined in this report. 

Many utilities and firms offer such consulting and audit services. However, significant evidence of 

stand-alone performance-based water efficiency services offerings for industrial and commercial 

customers could not be found. Of note, performance-based water efficiency services are an element of 

some CMS and ESCO offerings; this is discussed in the CMS and ESCO business briefs in the 

following Chapter. 

Limited evidence for performance-based water efficiency services was found in the landscape 

irrigation area.40 

Strengths and Limitations 

This “quick search” approach could not capture the full scope of “high-potential green servicizing” in 

the US economy, and US EPA would clearly benefit from more rigorous and systematic approaches, as 

outlined in the box beginning on page 50. 

Despite its limitations, however, this quick search approach was designed to deliver a robust and 

defensible performance in critical respects: it should, with high reliability, capture a selection of models 

that do have significant greening potential, constituting a needed “proof of concept” for US EPA. By 

focusing search effort on sectors or waste/resource streams identified by US EPA as environmentally 

important, it should also identify models that respond to identified environmental priorities. 

40 In the US, 58% of potable water—or most of the 7 billion gallons of water consumed each day by residential and 

commercial users—is for landscape irrigation. It is estimated that as much as half of that water is lost or wasted “due to 

evaporation, wind, or improper irrigation design, installation, or maintenance” (Certification Programs for Irrigation 

Professionals, EPA, 2006). Several different studies have found that the average residential landscape can reduce the amount 

of water used for irrigation by over 50% using many simple technologies and techniques. 

Landscape irrigation professionals design, install, maintain, and/or audit irrigation systems for commercial or residential water 

use. In principle, these services can be offered via “one-off” consulting/audit arrangements, or in performance-based 

arrangements, though we found more evidence of the former. EPA has a certification program through the WaterSense 

Partnership for landscape irrigation professionals adhering to the water efficiency principles. The professionals are part of the 

estimated $70–75 billion US landscaping services market. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 28 

Building blocks and entry points for a deeper and more systematic 

understanding of green servicizing in the US economy 

PSSs and Servicizing as a type of change in economic 

activity over time are very poorly captured by official 

economic statistics (Section 2.5). However, US EPA 

clearly has an interest in gaining a more rigorous 

understanding of "green servicizing" activity in the US 

economy than afforded by the “quick search” approach 

taken in this report. 

Approaches the agency could take to improve its 

understanding of this phenomenon range from the 

relatively simple to quite complex: 

At the simpler end of the spectrum, US EPA could limit 

its investigations to developing a catalogue of known 

servicizing activities with green potential in critical 

sectors or serving critical “economic functions.” 

At the other end, US EPA could field a full-scale 

national survey of establishments engaged in (at least 

potentially) “green servicizing.” 

Fortunately, these approaches are not mutually 

exclusive; rather, they can be viewed as building 

blocks, with smaller scale studies informing and laying 

the groundwork for more complex analyses. 

A. Identifying “Green” Servicizing 

Activities 

US EPA may have a broader interest in understanding 

the environmental footprint of service activities. 

However, with respect to green servicizing, the 

Agency’s primary interest is not in characterizing all 

PSS activity, but in characterizing potentially green 

servicizing activity—i.e. emerging or innovative PSS 

business models that represent a change from the 

status quo and which have “greening potential.” The 

starting point for any effort should be to develop a 

catalogue or list of potentially green servicizing activity. 

Focus on critical sectors. This should not be an 

economy-wide effort, but rather focus on 

environmentally critical production sectors, products or 

economic functions identified by US EPA. (For 

simplicity, “sector” is used as a general term.) 

In essence, this requires vetting economic activity in 

each critical sector against the catalogue of PSS types 

and “greening mechanisms” set out in the tables of 

Section 2.3. The objective is to identify “matches”—that 

is, instances when a "servicizing mechanism" is being 

actively marketed as a value proposition. 

Sectoral expert consultations. To identify these 

matches, US EPA could convene a mini-panel of five to 

eight experts for each critical sector.. The panel would 

review the list of servicizing mechanisms against their 

knowledge of business activity in the sector. 

In some cases, one-on-one interviews with sector 

experts may be sufficient, rather than convening a 

panel per se. In general, these experts would be drawn 

from several sources, including industry analysts (from 

the financial services sector), consultants, trade 

associations, and select companies in the market. 

The panel’s efforts would not start from scratch, but 

would be informed by a list of “servicizing” examples 

drawn from the (mostly non-US) literature and from the 

knowledge of general “servicizing experts” supporting 

US EPA in this process. 

A generalist panel or consultation group. It would 

then be valuable to assemble a panel or consultation 

group of “business and environment generalists” to 

screen the sectoral servicizing activity lists for 

"plausible greenness." In other words, the generalist 

panel can ascertain whether the servicizing activities 

identified by the consultations with sectoral experts are 

"plausibly or potentially green" enough to justify 

collecting more detailed data 

Avoiding duplication of existing knowledge. Note 

that this effort may not be required for servicizing 

mechanisms or sector where the servicizing 

phenonmenon has been well-studied. 

In these cases, a desk review of the existing literature 

or consultation with a key sectoral expert would be 

sufficient to identify key servicizing activity in a critical 

sector. This report provides a useful starting point in 

characterizing the state of knowledge, and the general 

“servicizing experts” supporting US EPA in this process 

would quickly determine where desk review or very 

limited consultation would be sufficient. 

Further focus. In addition to focusing on critical 

sectors, US EPA could focus on PSS types/greening 

mechanisms of particular potential or interest.. These 

should include functional results models, since it is 

generally agreed that as a class these have higest 

“greening” potential. 

B. Developing an Understanding of the 

Market Status and Environmental 

Performance these Activities 

Once a sectoral list or catalogue of “servicizing 

activities of interest” is constructed, the challenge is to 

develop an understanding of the "market status" and 

environmental performance of these "plausibly green" 

servicizing activities within each sector. There are a 

number of options: 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 29 

 Commissioned market reports/industry 

surveys by sectoral experts on the model of the 

Chemical Strategies Partnership's CMS Market 

Reports (www.chemicalstrategies.org) or surveys 

of the ESCO sector produced by Goldman, Hopper 

et al (see ESCO brief). 

 Convening an expanded version of the sectoral 

mini-panels recommended in part A to identify 

green servicizing activity. 

 Conducting detailed searches of the business 

and economics literature, both in the US and 

abroad, that documents the role played by each 

mechanism in each sector. 

 Reviewing existing NAICS and other 

government economic data for sectors and 

mechanisms that are clearly defined and 

distinguishable in the data. 

 Surveying establishments engaged in potentially 

green servicizing. 

As indicated, for some sectors such as CMS and 

ESCOs, market reports and environmental 

performance information are available and US EPA 

would not need to duplicate these efforts. 

C. Surveying Potentially Green Servicizing 

Mechanisms 

However, the most rigorous and statistically valid 

information would come from a survey of a statistical 

sample of establishments and customers of emerging 

or innovative green product service systems. As 

discussed above, this would be limited to critical 

sectors/mechanisms identified by US EPA. 

Fielding a full-scale survey to collect data on “potentially 

green servicizing” from a national probability sample of 

establishments and customers entails several steps: 

1.Develop an analysis plan. What questions need to 

be answered? What type of data is required to answer 

these questions? How will these data be analyzed – 

what summary statistics, models, or other evaluations 

are needed? The analysis plan should address these 

questions and will guide both the data collection effort 

and the analysis of the data collected. 

2.Develop the sample frame. The frame is the list of 

elements from which the sample is to be selected. For 

the sample to be representative, this list (or lists) must 

be exhaustive. For the producer survey, it must contain 

each establishment offering one of the “potentially 

green servicizing” models identified via the process set 

out above. The customer survey requires a list of all 

potential customers of the product service system. This 

step is crucial; without a proper frame, a valid sample 

cannot be selected. 

3.Develop the sampling plan. The sampling plan 

determines the type and size of the sample to be 

selected. It reflects the data quality objectives of the 

study. It also must reflect the type of analyses to be 

conducted. 

4.Create the survey instrument. Several forms are 

available for collecting data, including self-administered 

questionnaires (paper or web-based), on-site 

interviews, and computer-assisted telephone 

interviews. This step develops the questionnaires, 

determining their form and content. 

5. Select the sample and field the survey. Once the 

frame has been developed and the sampling plan set, 

the sample can be selected and data collection 

undertaken. 

6.Develop data bases. The data collected must be 

stored in electronic databases. These databases store 

the data and allow for computerized quality assurance 

checks. They also will facilitate analyses of the data. 

7.Analyze and summarize the survey’s results. The 

analysis plan will guide the type of statistical analyses 

of the data that are required. The analyses must take 

into account the sampling plan, accounting for sampling 

probabilities, stratification of the data, and so on. 

Development of an accurate, complete sample frame is 

critical and begins with the development of the 

catalogue or list of “green servicizing activity” as 

discussed under part A, above. 

Once the list of servicizing activities with green potential 

in the critical sectors is in hand, a list of establishments 

would be developed from standard sources. A list of 

their potential customers also would be established to 

support the demand-side survey. 

If US EPA elects to proceed with such a full survey 

approach, a single survey need not cover all sectors or 

mechanisms addressed in Part A. Surveys can be 

conducted where data needs require it on a 

sector-by-sector or mechanism-by-mechanism basis. 

D. Participating in efforts to shape future 

directions for national statistics 

US EPA should not be alone in its interest to acquire a 

more rigorous, systematic understanding of how 

products and services combine to produce economic 

value, and how this combination is changing over time. 

These issues are important to economic 

competitiiveness, to understanding and predicting 

structural economic change, and to other fundamental 

concerns of economic policy. In not capturing PSS and 

servicizing activity in the economy, current official 

economic data leaves other agencies at a disadvantage 

as well. 

US EPA could explore avenues for engaging in 

dialogues and participating in fora that shape the 

evolution of official economic statistics. Efforts that US 

EPA undertakes to gain a more rigorous understanding 

of green servicizing should enhance the value-added 

that the agency can bring to these discussions. 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 31 

5 Market and environmental performance briefs: 

10 high-potential models 

5.1 About the research process. 

Following identification of high-potential models under the “quick search” protocol described in 

Chapter 4, the key research task was to search out and synthesize information regarding their market 

status and trends (e.g. market share, customer sectors served) and environmental performance. 

Information about drivers and barriers were noted where available, but detailed assessments of drivers 

and barriers were carried out only for 3 models (see Chapter 6). 

In many cases, research was first required to elaborate and refine a basic description of the model—that 

is, how a basic servicizing concept or value proposition is actually elaborated and implemented in the 

market, and the change it constitutes from business as usual. 

Information was primarily gathered via public sources: the business and environmental press, academic 

journals, and publicly available company information. A limited number of interviews were conducted, 

but resources generally did not permit intensive interviews, original assessments of environmental 

performance, or other generation of primary data. 

The critical difference between this research and that conducted for the 1999 Tellus Institute report is 

its focus on models and markets. The 1999 Tellus Institute report presented a number of servicizing 

“case studies,” but was unable (and was not intended) to assess the broader adoption of the business 

models that the case studies represented. These briefs, by contrast, are focused on the market status of 

these business models, and present individual cases only for illustrative purposes. 

5.2 The business model briefs 

This research was synthesized into business model briefs of three to 

five pages each, following the outline in the box at right. 

Business Model 

These briefs provide the primary data that are the basis for (1) the Briefs: basic outline 

findings regarding the eco-efficiency potential of Green Servicizing Description and value and (2) the recommendations for US EPA policy engagement proposition 

(Chapters 7 & 8, respectively). They are intended to provide adequate Environmental basis for US EPA to evaluate these findings and recommendations. Performance 

Should US EPA pursue policy engagement, the briefs are the critical Key Markets and Market 

base upon which to build a more detailed understanding of market and Share 

environmental performance, and of drivers and barriers. Examples 

References 

Two points are important to note: 

• The individual briefs were current at the time of their original research and writing, ranging 

between August 2007 and July 2008. No subsequent updates were made. 

• The briefs represent an abridged synthesis of many sources and the synthesis process itself 

entails a significant amount of judgment, exhaustive footnoting was not possible. Footnotes are 

reserved for statistics or observations of particular note. The references section contains all 

sources cited in footnotes, as well as those considered to be particularly high-value “entry 

points” for those seeking more information. 
Individual & corporate customers in

middle & upper-income urbanareas; campuses.

Reduced mileage driven/household (when used asalternative to ownership)Fewer vehicles/capita to meet transport needs

Reduced energy inputs to use phasesReduced energy, chemical, water,materials inputs to vehicle manufacture 

Chemical-intensive manufacturers(auto, electronics, aerospace)**

Improved chemical use efficiency,better chemical use information; substitution with safer chemicalalternatives; increased professionalism of chemicalhandling; chemical substitution

Reduced chemical and energyinputs

Manufacturing facilities,institutions, offices, including government

Improved energy use efficiency viapractice & equipment changes Reduced energy inputs

“Green Servicizing” for a More Sustainable U

5.3 Summary Matrix: High-potential “green servicizing” business models This matrix summarizes the key characteristics of high-potential models identified by the “quick search” process. Briefs for eacthis matrix. Columns relating to environmental benefits specify results expected in principle; the briefs contain information to eModel & brief description Primary customer sector(s) Basic mechanisms for 

environmental benefit(s) 

Primary input stream(s) affected 

Property owners and developers 

Diversion of demolition debris from the waste stream, substitution of reclaimed materials for virgin and other construction materials inputs (e.g. wood.) 

Reduced demand for virgin wood 

Car-sharing 

Car-sharing is a “personal mobility PSS” that provides short-term use of cars located in special reserved parking spaces distributed throughout a service area (e.g., an urban area or campus.) 

Chemical Management Services (CMS) 

CMS is a “strategic, long-term relationship in which a customer contracts with a service provider to supply and manage the customer's chemicals and related services. Under a CMS contract, the provider's compensation is tied primarily to quantity and quality of services delivered not chemical volume. 

Deconstruction 

Deconstruction is the process of selectively dismantling or removing materials from buildings before or instead of demolition. 

Energy Services Companies (ESCOs) 

An ESCO provides energy-efficiency-related and other value-added services and assumes performance risk for their project or product—that is, their compensation and profits are tied to energy efficiency improvements (and thus, savings in purchased energy costs) actually obtained by the client. 

IPM & Performance-based Pest Management Structural: Institutions, housing Services authorities, school districts, 

In performance-based pest management, a pest corporate and government Co-consideration of cultural, management services provider commits to achieving a facilities. biological, genetic and chemical Reduced use of pesticides and/or certain standard or level of pest control, rather than Agricultural: Model is embryonic, methods, to prevent use of pesticides of lower human being compensated for a particular treatment or but most likely market are larger unacceptable levels of pest and ecosystem toxicity application. Intergrated Pest Management services are agricultural producers and/or those damage the green implementation of this concept. growing “high value” crops (e.g. 

certain fruits, vegetables). 
Large corporations & institutions, 

government

Incentivizes increased re-use of equipment (thus reducing demandfor new equipment) & reduceimproper disposal and uncontrolled recycling.

Reductions in all energy * material input streams required for manufacture of new equipment 

Varies (e.g. customer sectors for IT, construction equipment) 

Reduced need to manufacture newproducts and to dispose of old ones per customer/unit of use.

Varies by sector – material, energyand water inputs required for new product manufacture 

Manufacturing facilities,commercial organizations(institutions, hospitals offices,schools, retail, etc.) 

Improved resource recovery, reduced waste generation(focused generally on non-hazardous waste) 

Reduced inputs (highly mixed, butpaper, plastics predominate)

Large Business, Educational institutions, Conference servicesproviders (e.g. hotels)

Reduced business travel Reduced Energy inputs to travel

“Green Servicizing” for a More Sustainable U

Primary customer sector(s) Basic mechanisms for 

environmental benefit(s) 

Primary input stream(s) affected 

Manufacturers, retailers, government 

Improved efficiency in routing, loading and modal choice reduces trips and miles travelled and increases logistics-related fuel efficiency. Improved building 

Reduced energy inputs to transportation and building use. 

energy use. 

Model & brief description IT “Lifecycle Solutions” 

IT Lifecycle Solutions bundle provision of corporate IT equipment (particularly personal computers, servers and printers) with associated services. The “solutions provider” is responsible for most or all configuration, maintenance, repair, and upgrade. 

Remanufacturing 

Remanufacturing is the process of restoring used, durable products to a ‘like new’ condition,. Remanufacturing is not a specific PSS model, but there are many remanufacturing-based PSSs. 

Resource Management Contracting (RM) 

Resource Management (RM) Contracting is a performance-based approach to waste management. It centers on an innovative contractual partnership between a waste-generating organization and a qualified waste contractor that changes BAU compensation structures and otherwise supports and incentivizes waste minimization and recycling. 

Telepresence 

Telepresence allows people in different locations to communicate in a simulacrum of “face to face” exchange far superior to that achieved by traditional video-conferencing. This is achieved via high-quality, high-definition audio and visual feeds, the use of multiple cameras and screens, and specially designed, dedicated rooms. 

Third Party Logistics (3PL) 

Third-party logistics (3PL), also referred to as logistics outsourcing or contract logistics, focuses on improving resource utilization and process efficiency in order to reduce costs and improve service. 3PL providers deliver comprehensive logistics-related services, including delivery, storage, inventory, customer service, cargo handling, supply/distribution information systems, etc. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 34 

Brief #1: Car-sharing 

Description and Value Proposition 

Car-sharing is a “personal mobility PSS” that provides short-term use of cars located in special reserved 

parking spaces distributed throughout a service area (e.g., an urban area or campus). 

Compared to traditional car rental, car-sharing is characterized by short rental periods (15 minutes to a 

few hours), decentralized location of vehicles, remote rental procedures, and fee structures that 

combine membership and time-based usage fees. 

In this PSS, the product is the vehicle and the service is the mobility provided by the vehicle, as well as 

the insurance and maintenance included in the fee. 

Car-sharing can be an alternative to car rental or car ownership. In both cases, the value proposition to 

the customer is based on cost and convenience. 

 For short rental periods, car-sharing is cheaper than ordinary car rental, and more convenient. 

 Where a car is not required for daily commuting, car-sharing can constitute a lower-cost 

alternative to car ownership without the inconvenience of maintenance, insurance, and 

fuelling. 

 Car-sharing can also alleviate the need to find or pay for parking by providing designated 

spaces in frequented destinations. 

The primary barrier to car-sharing as an alternative to ownership for individual customers is the 

intangible value assigned to car ownership; incentives to adoption include costs, liabilities, and 

inconveniences attached to ownership (e.g. shortage of parking). In addition, a significant portion of car 

share customers are “green consumers,” attracted to car-sharing as a car ownership alternative. To 

retain customers, however, car-share schemes must in practice deliver high levels of convenience to 

their customers, primarily measured by vehicle availability. This requires a sufficient number of 

car-share vehicles to meet service needs in strategically located parking spaces. 

The most commercially successful car-sharing businesses make extensive use of IT for on-line 

reservations, vehicle tracking, and remotely enabling customer access to vehicles. 

Environmental Performance 

In principle, car sharing can reduce environmental loads via three mechanisms or vectors, detailed in 

the table below. Quantifying actual environmental performance improvements is non-trivial and 

subject to measurement errors, as it requires defining a base case (or prior condition) for comparison. 

(For example, how does one verify that car-sharing is serving as an alternative to ownership; how is 

“before and after” vehicle utilization assessed?) 

Even acknowledging these uncertainties, however, existing studies indicate that each of these 

“improvement vectors” is achieved in practice: 

Environmental improvement mechanism Achievement in practice 

Reduced VMT/customer. Car-sharing provides a 

clear “per unit use” price signal to customers, and 

requires a minimum amount of “advance planning” for 

each incidence of vehicle use (i.e., making an on-line 

reservation). 

US car-share members reduce their total 

Vehicle Miles Traveled (VMT) by an 

average of 44% across several studies. 

According to a survey conducted by Zipcar, 

car-share program members report a 47% 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 35 

Thus, car-share customers who use the service as an 

alterative to ownership should tend to drive less, thus 

reducing pollution, fuel use, and congestion. 

increase in public transit trips, 10% increase 

in biking trips, and 26% increase in walking 

trips over their pre-membership behaviors. 

Reduced total vehicles/service population. 

Car-sharing is a “shared use” PSS model. When it 

replaces individual ownership, car-sharing should 

reduce the number of vehicles required to provide 

“individual transport services” in the car-sharing 

service area. 

This in turn should reduce: 

(1) the material use, energy, and pollution associated 

with car manufacturing and vehicle disposal at 

end-of-life;41 

(2) traffic congestion & parking problems in urban 

areas (thus shortening trip times, reducing fuel use 

and associated air pollution); and 

(3) road maintenance and needs for expanding road 

capacity. 

However the latter two effects are likely to manifest 

only at very high (and as yet unseen) levels of 

adoption. 

Every US car-share vehicle “removes” 

between 6 and 23 vehicles from the road, 

depending on the study. 

Between 11% and 29% of US car-share 

members sold private vahicles after joining 

and between 12% and 68% either 

postponed or avoided a vehicle purchase. 

The Association of Washington Business 

estimated that as of 2005, Flexcar had 

“removed” 7,000 vehicles from the road, 

eliminating the need for 21,000 parking 

spots (corresponding to 70,000 tons of 

concrete), and preventing the emission of 

35,000 tons of carbon monoxide to the air. 

Cleaner vehicles: Depending on the composition of 

the car-sharing fleet, car-sharing may put 

cleaner-than-average vehicles on the road. 

Cleaner vehicles: 30% of US car-sharing 

vehicles are hybrids or powered by 

alternative fuels 

Car-sharing has been used elsewhere (e.g. Japan) as a vector for introducing electric vehicles. As 

car-share parking “stations” can easily be coupled with charging stations, and maintenance and fuelling 

are the responsibility of the car-share provider, the model may be well-suited to deploy and promote 

market acceptance of electric, fuel cell, and hydrogen vehicles. 

Key markets and market share 

Car-sharing can serve individuals, corporations, and universities/colleges or other “campus” 

institutions. 

The business model requires that, for success, each vehicle parking location (“station”) must be 

accessible to a large number of customers; thus car-sharing requires relatively high-density, usually 

middle to upper-income urban areas or campuses. Experience shows that car-sharing is particularly 

successful when it exists in combination with public transit. 

Currently, the large majority of car-share users are individual members, however, recently there has 

been a sharp rise in corporate participation and partnerships with universities/colleges. Partnerships 

with universities/colleges have become increasingly popular, because they allow these institutions to 

alleviate demand for parking. 

For example, Arizona State, which recently partnered with Flexcar, has 52,000 students on its Tempe 

campus but only 19,000 parking spots. This is a common situation that often results in schools barring 

undergraduate students from having vehicles on campus. Most of these students are not old enough to 

use conventional car rental companies, but car-sharing offers an alternative that many schools are 

taking advantage of. 

41 Car-sharing does not change the end-of-life disposition of vehicles; they will still be sold onto second-hand markets. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 36 

As of July 2003 there were an estimated 25,727 members and 784 car-share vehicles on the road in the 

US (Shaheen et al 2004), constituting an estimated 112% increase in membership and a 52% increase in 

total vehicles since August 2002. By 2006 US membership had grown to 117,656 and the number of 

car-share vehicles had increased to 3,337 constituting a growth of 357% and 326% respectively from 

2003 (Shaheen et al 2006). 

An indication of market growth (“model uptake”) since 2003 can be obtained by looking at the 

operations of Zipcar and Flexcar, which account for over 94% of US car-share customers, based on the 

2003 survey. 

 According to Zipcar, the company currently has over 100,000 members and operates 3,000 

vehicles in the US in 12 states. It has been profitable since July 2004 and has averaged an 

increase of 4,000 new members each month. It has partnerships with over 30 

universities/colleges. 

 Flexcar reports over 600 corporate customers that use car-sharing to either reduce or eliminate 

corporate fleets, as well as partnerships with 27 universities/colleges that make the cars 

available to 500,000 students. Flexcar operates in over 16 cities in 12 states. 

Although the above numbers indicate tremendous growth in recent years, as of July 2006 there were an 

estimated 136.5 million cars (excluding buses and trucks) registered in the US, making car-share 

vehicles less than 0.1% of the total. 

Of course, car-sharing does not offer an alternative to personal and corporate ownership of vehicles in 

all segments of the vehicle market. For example, the target individual customer lives in a relatively 

high-density urban area and does not require a car for commuting. For such customers, car-sharing will 

often be a viable alternative to car-ownership to meet their needs for “short-haul individual transport 

services.” Unfortunately, public transportation and demographic statistics do not allow us to quantify 

this car-sharing demographic, and we are unable to offer more refined estimates of the total, potential 

car-share market within the resources available. The campus market can be estimated more closely: 

according to the 2000 Census there were 14,375,764 undergraduate students enrolled in US schools. 

Examining the major metropolitan areas not yet served by car-share and the portion of campuses also 

unserved, it is reasonable to expect that the total potential market for car-sharing is at least one and 

potentially two orders of magnitude greater than the current market size.42 

Illustrative examples: 

ZipCar For Profit 

(www.zipcar.com ) 100,000 US members 

3,000 vehicles 

Operates in US, Canada, and UK (23 cities total) 

Profitable since July 2004 

Adding an average 4000 members per month 

Flexcar For Profit 

(www.flexcar.com) 90% of vehicles qualify for US EPA Smartway certification 

30% of fleet is hybrid vehicles 

42 To some extent, car-sharing also competes against tradition car-rental services. However, use of car-sharing in lieu of 

traditional car rental is unlikely to have significant environmental benefits, so we do not attempt to assess this portion of the 

car-share market here. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 37 

Won Association of Washington Business’s 2005 Environmental 

Excellence Award 

Recently partnered with TerraPass in an effort to become 100% carbon 

neutral 

Operates in WA, OR, CA, AZ, WI, IL, OH, PA, VA, DC, GA, FL and over 

16 cities 

City Carshare 

(www.citycarshare.net) 

Not for Profit 

Operates exclusively in the San Francisco Bar Area 

As of 2001 had 1500 members and 70 vehicles 

Sources 

“Flexcar Now Available to 500,000 College Students Across the U.S.” Business Wire: Press Release 

(December 23, 2007). 

“Flexcar Wins Environmental Excellence Award from Association of Washington Business; Company 

honored for its positive environmental impact on the state.” Business Wire: Press Release 

(August 26, 2007). 

“Highway Statistics 2005.” US Department of Transportation, Federal Highway Administration 

(2006). http://www.fhwa.dot.gov/policy/ohim/hs05/index.htm 

Shaheen, Susan A., Andrew Schwartz, and Kamill Wipyewski. “U.S. Carsharing and Station Car 

Policy Considerations: Monitoring Growth, Trends, and Overall Impacts”. Institute of 

Transportation Studies (September 2, 2004). Institute of Transportation Studies. Paper 

UCD-ITS-RR-03-12. http://repositories.cdlib.org/itsdavis/UCD-ITS-RR-03-12 

Shaheen, Susan A., and Adam P. Cohen. “Worldwide Carsharing Growth : An International 

Comparison.” (2006). 

Stoughton, Mark, Yuhta Horie, and Yuriko Nakao. “Service-led businesses for sustainability?: 

Evaluating the potential of and policy for innovative product service systems in 

Japan.” Institute for Global Environmental Strategies : Kansai Research Center (February 28, 

2007). 

Zipcar Environmental and Community Impact Report. Updated July, 

2007. http://www.zipcar.com/press/onlinemediakit/environmental_and_community_impact.p 

df 

www.citycarshare.net 

www.flexcar.com 

www.zipcar.com 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 38 

Brief #2: Chemical Management Services (CMS) 

Description and Value Proposition 

This report uses the definition of chemical management services (CMS) developed by the CMSForum, 

“a coalition of chemical management service providers, their customers, Tier II chemical suppliers, and 

other stakeholders interested in promoting CMS.”43 

CMS is a “strategic, long-term relationship in which a customer contracts with a service 

provider to supply and manage the customer's chemicals and related services. Under a CMS 

contract, the provider's compensation is tied primarily to quantity and quality of services 

delivered not chemical volume. CMS goes beyond invoicing and delivering product to 

optimizing processes, continuously reducing chemical lifecycle costs and risk, and reducing 

environmental impact.44 

Thus, under the CMS model, chemical users shift away from traditional chemical procurement 

practices and relationships with chemical suppliers to a strategic alliance with a “chemical service 

provider”. Instead of purchasing chemicals, the manufacturer purchases chemical management 

services: i.e., assistance in purchasing, managing, tracking, and sometimes use, of chemicals. The 

change in the compensation model described in the definition means that chemical service providers are 

rewarded for reducing costs, optimizing chemical use and improving environmental performance of 

their customers. 

The value proposition to the customers of this model is a mix of cost savings and environmental 

performance/compliance improvements. In the Chemical Strategies Partnership’s (CSP’s) 2004 

Industry Report, 70% of the CMS customers surveyed stated that the primary driver for them to initiate 

their CMS program was to reduce costs. This was reaffirmed in the customers’ opinions on what is 

driving the overall market for CMS: the top two answers were operational efficiency and cost 

reduction. Additional drivers include getting suppliers expertise in logistics, safety and environmental 

reporting. The environmental function is often the point of entry to introduce the CMS concept, and 

they work jointly with the procurement and supply chain function in developing the program. 

CMS providers generally seek to reduce the customer’s total costs of chemicals. Total costs are the sum 

of costs incurred across the “chemical lifecycle” in the customer’s organization. The Chemical 

Lifecycle is depicted in Figure 4; it begins with procurement and extends through use and 

end-disposition of chemicals. At each stage of the lifecycle, a company incurs quantifiable costs of 

labor, materials, equipment, liability, safety training, and compliance. The scope of cost reduction the 

provider can obtain depends on the scope of the CMS program within this lifecycle—e.g., programs 

that limit the CMS provider to procurement, delivery and inventory functions will have fewer cost 

reduction opportunities than programs of broader scope. 

43 CMS Forum website, www.cmsforum.org, accessed 13 October 2007. 

44 Ibid. The definition was developed by a group of 14 leading CMS providers in 1999 (www.cmsforum.org). 
Procurement 

Delivery 

Inventory 

Internal 

distrbution 

Application/ 

use 

Collection 

Treatment/ 

isposal 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 39 

Figure 4: The Chemical Lifecycle 

D

EHS, monitoring and reporting 

Liability 

Emergency preparedness 

IT support/efficiency services 

Source : Chemical Strategies Partnership 

Design and implementation of CMS programs is complex, as the chemical lifecycle itself involves 

many functions/departments in the customer organization. 

Environmental Performance 

Generally, CMS programs offer benefits from reduced chemical volume, reduced emissions45, and 

reduced risk. CSP’s surveys of CMS customers indicate that most or all CMS programs deliver 

environmental performance/compliance improvements. Figure 5, below, is based on CSP’s 2004 

industry report and indicates the types of improvements reported and their frequency. In addition, all 

customers reported improved environmental data as a benefit of CMS programs. 

However, environmental benefits realized are highly dependent on the “baseline conditions” at the 

customer facility prior to implementation of the program. “Baseline conditions” include the types of 

chemicals and processes involved, and the rigor and efficiency of internal chemical management 

efforts. 

45 Reduced emissions are achieved by reducing the amount of chemical being applied and by implementing recycling or reuse 

alternatives. Chemical substitution and process efficiency were also cited as approaches to reducing emissions. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 40 

Figure 5: Environmental benefits realized in CMS programs 

0% 10% 20% 30% 40% 50% 60% 

Other 

Chemical substitution 

Other technological 

process efficiencies 

Recycling/reusing 

chemicals 

Reduce the amount of 

chemical being applied 

Percent of Respondents 

Source : (CSP 2004) 

Key Markets and Market Share46 

CMS providers surveyed in CSP’s 2000 CMS Industry Report (CSP 2000) represented about $800 

million in CMS revenue (1999 data) and were active in five sectors: automotive, metalworking, 

aerospace manufacturing, air transport maintenance, and electronics. (Revenue includes CMS provider 

management fees as well as the amount of chemicals sold.)47 In 2003, the CMS providers surveyed 

were active in eleven sectors representing $1.22 billion.48 Thus, growth in the CMS market is estimated 

to be about 50% from 1999-2003. 

A CMS provider is generally focused on a few industries, as CMS programs must be tailored to the 

chemicals used, manufacturing processes employed, and logistics and QA/QC needs. These are often 

similar within a sector, but vary widely between different sectors. For example, the automotive and 

heavy equipment industries are large users of lubricants, solvents, and coolants. Their chemical profile 

is less diverse than the aerospace and electronics industries which generally use smaller quantities of 

many chemicals. 

Table 3, below, presents CSP’s estimated adoption of CMS by seven industries. (CSP was not able to 

gather sufficient information for the remaining four industries to make an estimate.) CMS is now 

essentially “BAU” in the automotive sector. Since 2000, the greatest growth sectors have been in 

aerospace and air transport maintenance. However, the strongest growth trend is in the number of 

industries now using CMS. 

Several organizations have estimated the overall potential CMS market. These estimates are in rough 

agreement, giving an overall potential market size for CMS of $17–$19.5 billion (CSP 2004, p 11). The 

CMS providers surveyed by CSP in 2004 realized about $1.22 Billion in CMS revenue in 2004, which 

46 This section is modified from “Chemical Strategies Partnership, 2004 CMS Industry Report” 

47 This revenue reflects the CMS activity of an estimated 85% of CMS providers. (CSP 2000, p 11). 

48 Revenue estimate was derived from responses to the CMS provider surveys. This revenue reflects the CMS activity of an 

estimated 85% of CMS providers. Some revenue figures were specific and some were derived from responses identifying a 

range of revenue. 
40-50%

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 41 

constituted an estimated 85% or more global CMS revenues (CSP 2004, p 7), but only 6-7% of the 

potential $17-19.5 billion market. 

The number of sectors using CMS has nearly doubled between 2000 and 2004. This development bodes 

well for future growth, as CMS adoption rates in these new “toehold” sectors are likely to increase 

sharply. (For example the aerospace and air transport sectors were relatively new CMS adopter sectors 

in 2000. The 2004 figures suggest that CMS adoption is likely to be rapid within a sector once it is 

adopted by a few industry leaders.) 

Table 3: Provider’s estimates of CMS penetration in key sectors 

Sector Provider Estimates of CMS 

Penetration 2004 

Provider Estimates of 

CMS Penetration 2000 

Automotive 75-80% 50-80% 

Automotive Suppliers 30-40% Included in automotive estimate 

Heavy Equipment 15-25% 15-25% 

(formerly metalworking) 

Aerospace manufacturing 25-30% 5-15% 

Air Transport Maintenance 10-20% 

Electronics 30-40% 30-40% 

Steel Manufacturers 20-30% ---

Energy/Utilities Under 10% ---

Misc. Manufacturing Under 10% ---

Food/Beverage Under 10% ---

Research/Laboratory Under 10% ---

Source: Based on survey responses from CMS providers. CSP 2004. 

Adoption of the CMS model does however, face a number of barriers. Synthesizing published analyses 

and expert opinion, these are as follows: 

1. Lack of public information about the value of CMS 

2. Confusion in the marketplace and lack of standards. 

3. Internal barriers within customer organizations. These include lack of management 

commitment/focus to address what is perceived as a small cost center (i.e., chemicals), the 

perceived high transaction of CMS program implementation and the operational risk concerns. 

4. Customers have poor awareness/knowledge of their “total chemical costs.” CSP estimates that 

the cost of chemical management range from 1 to 3 times the purchase cost of chemicals.49 

Typically, total costs are not known because many chemical management costs are pooled in 

overhead accounts and/or the chemical management activities are highly decentralized. This 

issue is compounded by the notion that many companies already believe they are doing the best 

possible job and there is little room for improvement. 

49 Personal communication, Jill Kauffman Johnson, Director, CSP, January 2008. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 42 

5. Both strategic sourcing initiatives (leveraged purchasing, which focuses on reducing unit costs 

of chemicals purchased) and stand-alone chemical information management software are 

probably reducing the total market for “full service” CMS. These narrower services appear to 

offer customers an alternative to CMS, but generally will not deliver the same level of 

environmental benefits. 

6. The RFP/bidding process is long (6–12 months) and inefficient. In some cases RFPs have been 

put to bid but contracts never awarded. In other cases, the customer signs a contract with the 

CMS provider, but does not initiate the program. This adds to the costs and risks of business 

development activities for CMS providers. 

Water efficiency services in CMS programs 

As noted in Section 4.2, were were unable to find significant evidence of stand-alone performance-based 

water efficiency services for industrial and commercial customers. 

In such services,the provider of water efficiency services would assume performance risk for their project 

or product. That is, their compensation and profits would be tied to water efficiency and/or water quality 

improvements (and thus savings) actually obtained by the client. The provider might have an ongoing role 

in operations of water treatment systems and water utilization processes. 

A CMS Forum survey of its members, however, indicated that such services are embedded in many CMS 

programs. Ten of 13 CMS providers responded, servicing all key CMS customer sectors: 

Questions # of responses 

To what extent is industrial water efficiency/water management an explicit 

focus of your CMS programs? 

Most: 7 

Some: 2 

If "some" or "most," are contract incentives or performance benchmarks 

usually tied to water efficiency? 

Yes: 3 

Sometimes: 1 

Even if improvements in industrial water efficiency are not an explicit focus of 

your programs. . . 

. . .are they a common outcome? 

. . .are site managers addressing water efficiency in the context of 

addressing wastewater constituents or other "mainline" chemical 

management issues? 

Yes: 8 

Often: 6 

Sometimes: 2 

Source: Chemical Strategies Partnership/Chemical Management Forum, 2008. 

Water effiiciency services are also embedded in ESCO offerings. See the ESCO Business Brief. 

Illustrative Examples: 

Numerous CMS program case studies can be found 

at http://www.chemicalstrategies.org/resources_casestudies.htm. Information on provider companies 

can be found at http://www.chemicalstrategies.org/about_cmsforum.htm. 

Sources 

Bierma, Thomas J; Waterstraat, Frank L. “Chemical Management: Overcoming Barriers to Diffusion”, 

Champaign, IL: Illinois Waste Management and Research Center, 2001. 

Chemical Strategies Partnership, 2000. Chemical Management Services: Industry Report 2000. 

Chemical Strategies Partnership: San Francisco. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 43 

Chemical Strategies Partnership, 2004. Chemical Management Services: Industry Report 2004, 

Creating Value Through Service. Chemical Strategies Partnership: San Francisco. 

Chemical Strategies Partnership/Chemical Management Forum, 2008. Results of Survey of CMS 

Forum Membership Regarding Water Efficiency Services in CMS Programs. (Personal 

communication, Jill Kauffman Johnson, Director.) 

Brief #3: Deconstruction 

Description and Value Proposition 

According to the National Association of Home Builders (NAHB), deconstruction is the process of 

selectively dismantling or removing materials from buildings before or instead of demolition (Falk, 

2002). Deconstruction is literally an ancient practice, but its prevalence in the US economy over the last 

century has fluctuated significantly over time and by region, reflecting changes in labor and disposal 

costs and the availability of building materials and demolition equipment. 

Structures are, in a very literal sense, product-service systems. They include an initial product (the 

structure “as delivered”) and require the input of a large variety of services over its lifetime—including 

utilities, maintenance, landscaping, insurance, etc. The product and services are generally delivered by 

separate parties, though there has been a trend in the market towards “extended warranty service” on 

new homes and “total property management” solutions. Deconstruction is, in essence, an end-of-life 

service applied to an existing product that changes the product’s final disposition. As such, it is a 

product-based service in the remanufacturing/recycling category. The customer is the owner of the 

structure—in many cases, a new developer who has bought the land for a purpose not compatible with 

the existing structure. The “business as usual” model in this instance is total demolition of a building 

(also a service) either without attempting to retrieve salvageable material or with “soft stripping” only 

(see below). 

Deconstruction practices are divided into three levels (NAHB 2000): 

 Soft-stripping—a common practice in which specific components and equipment are removed 

before a building is demolished. Some example items are plumbing or electrical fixtures, 

appliances, HVAC equipment (heating, ventilation, and air-conditioning), cabinets, doors, 

windows, and hardwood flooring. 

 Individual assemblies—particular building assemblies are removed prior to demolition 

depending on their condition. Some example items are rafters, floor joists, wall framing 

members, and sheathing materials. 

 Structure—an entire building is dismantled and the majority of the components and materials 

are reused or sold. No demolition takes place. 

Deconstruction is an economically viable option in many cases, as it can frequently be cheaper to 

dismantle a building and sell the salvaged materials than it is to demolish the same building and then 

pay to dispose of the wreckage. Deconstruction requires an attention to detail that cannot be achieved 

by machinery; buildings must be pulled apart piece by piece in order to preserve and separate the 

salvageable material from the waste. This process almost always leads to higher labor costs, but those 

costs can be mitigated or outweighed by the savings on disposal fees and the value of the salvaged 

materials, which can be sold or used in another construction project. The more cost effective option 

depends on the building and the disposal fees in the area, but numerous case studies have shown that 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 44 

deconstruction can be the cheaper method. Below are the results from a study done by the Center for 

Construction and Environment at the University of Florida: 

 6 wood framed residential homes were deconstructed and the financial results were compared 

to the cost of demolishing similar buildings. 

 Costs were an average of 21% higher for deconstruction before sale of salvaged materials. 

 Costs were an average of 37% lower for deconstruction after sale of salvaged materials. 

Deconstruction has also been identified as a source of job creation for minimally skilled workers. As 

noted above, it is a labor-intensive process, and requires more people than demolition. It also requires 

less technical expertise than building a structure, but provides an opportunity to learn how buildings are 

put together, and can thus be an entry point for unskilled entrants to the construction sector. (As with all 

construction and demolition activities, safety hazards on the job are significant, and care is required in 

addressing them, particularly with new-entrant or unskilled workers.) 

Residential buildings in need of removal also are more common in low income areas, where skill levels 

tend to be lower and unemployment rates higher. This opportunity has been identified by private sector 

groups and government organizations, including the US Department of Housing and Urban 

Development (HUD) (Falk, 2002). The Institute for Local Self Reliance (ILSR) estimates that this 

industry could create as many as 200,000 full-time jobs annually, representing a huge increase from the 

estimated current total of approximately 8,700. 

Environmental Performance 

Environmental benefits are difficult to quantify, because of the huge variability between different 

deconstruction projects. The composition of the structure as well as the extent to which it is 

deconstructed will determine the level of waste reduction and the type of waste that is eliminated. 

According to the ILSR, the construction and demolition (C&D) industry generates 65 million tons of 

waste annually. Their studies have shown that deconstruction could recover 24 million tons of this 

waste for reuse and another 6 million tons for recycling. These reductions would eliminate a huge 

volume of waste that ends up in incinerators and landfills, directly impacting pollution levels locally, 

nationally, and internationally. The air pollution from incinerators has local, regional, and global 

ramifications, and disposal facilities often have significant local impacts, e.g. producing airborne toxins 

and groundwater contamination. 

By facilitating the reuse of salvaged materials, deconstruction should reduce demand for virgin 

materials as well, thus avoiding the extraction, manufacturing and disposal impacts entailed in their 

production (Institute for Local Self Reliance, 2007). The reuse of lumber has shown particular promise 

and will be discussed further below. 

Aggregate numbers for the pollution abatement resulting from deconstruction were not available; 

however numerous case studies have resulted in a salvage rate of about 60%-80% by weight for wood 

framed residential buildings. These studies are all examples of structural (total) deconstruction; the 

rates are far less for soft-stripping and individual assemblies. 

It should be noted that under “business as usual” demolition, much debris is recycled, if it is not too 

contaminated. The debris constituents most commonly recycled in the US are concrete, asphalt, metals, 

and woods. In 1996, 20% to 30% of the total debris created by C&D operations was recycled (Franklin 

Associates, 1998). While this is environmentally preferable to disposal via landfill or incinerator, it is 

far less preferable than reuse. According to ILSR estimates, if deconstruction was used to its full 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 45 

potential, 37% of materials embodied in end-of-life structures could be reused and 9% recycled, for a 

total recovery rate of 46%. 

Key Markets and Market Share 

It is difficult to measure the market for deconstruction, because many C&D companies salvage some 

parts of the buildings they eventually demolish, normally intending to use the material in another 

project. However, in 2006 ILSR estimated that there were about 350 companies in the US and 50 

companies in Canada that specialize in deconstruction (ILSR, 2006). This represents an extremely 

small portion of the industry; in the US there are 80,000 commercial construction firms alone.50. 

The demand for these services has increased significantly since the 1970s, as the market for salvaged 

products has grown and government incentives have increased as well. According to a report by the 

National Association of Home Builders (NAHB) research center, government agencies are increasingly 

including language in their Requests for Proposals that encourage sustainable building practices, 

including deconstruction. Some examples are HUD’s Economic Development Grants and 

Neighborhood Initiative Programs. According to the same report “PHAs [Public Housing Agency] and 

Not-for Profits may be able to partner with local governments to incorporate deconstruction as part of a 

larger project that aims to stabilize and revitalize a small community or neighborhood.” Many of the 

successful large scale deconstruction projects involve partnerships between non-profits, businesses, 

developers, and/or general contractors. 

The market for salvaged construction materials has grown for two reasons. First, recovered materials 

are almost always cheaper than buying the same product new. Second, some building materials are 

becoming scarce. Many deconstructed buildings were built in prior decades when old-growth lumber 

was readily available. Older wood is considered to be better quality, and can bring a high price even if it 

is salvaged. Certain characteristics such as nail holes and discoloration that would reduce the price of 

virgin wood can actually increase the price of salvaged wood, because it can be seen as a specialty item 

(Falk, 2002). Only 5% of North America’s old growth forests are still standing, and so many experts 

believe the dwindling supply of this lumber will drive the prices of its salvaged counterpart up 

(“Deconstruction: New Opportunities for Salvage”). 

Although the deconstruction industry has been growing over the last several decades, there are many 

barriers to this market: 

 It is a labor intensive process, because machines are not capable of carefully deconstructing a 

building and then sorting the salvaged materials. Labor markets with high costs or low 

availability can be detrimental to deconstruction. 

 The quality of salvaged materials is often questioned, because there are no rating/grading 

systems for these products. 

 In some instances the market value of salvaged goods is so low that it cannot cover the costs of 

collecting the materials. 

 The cost of disposing debris at C&D landfills (tipping fees) fluctuates depending on the area, 

but these fees are often so low construction companies have little incentive to avoid them 

through salvaging materials. Increasing these fees has been identified as one of the most 

effective methods of encouraging deconstruction (Guy et al, 2000). 

50 http://www.hoovers.com/commercial-construction-contractors/--ID__18--/free-ind-fr-profile-basic.xhtml, accessed 

October 12, 2007. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 46 

Examples 

Resource Conservation Group, LLC http://www.resourceconservationgroup.com/ 

Nuprecon http://www.nuprecon.com/ 

Re-Use Consulting http://www.reuseconsulting.com/ 

Heartwood Resources http://www.heartwoodresources.org/ 

Lovett Deconstruction http://lovettdeconstruction.com/ 

Sources 

“A Guide To Deconstruction.” NAHB Research Center, Inc. Washington, D.C. (2000). 

“Characterization of Building-Related Construction and Demolition Debris in the United States.” 

Franklin Associates (1998). 

“Deconstruction: Building Disassembly and Material Salvage.” NAHB Research Center, Inc. 

“Deconstruction: New Opportunities for Salvage.” The C&D Waste Reduction and Recycling Series. 

Falk, Bob. “Wood-Framed Building Deconstruction: A Source of Lumber for Construction?.” Forest 

Products Journal 52, no. 3 (2002). 

Guy, Bradley and Sean McLendon. “Building Deconstruction: Reuse and Recycling of Building 

Materials.” Center for Construction and Environment, University of Florida (2000). 

“Waste to Wealth Program: 2006 Activities.” Institute for Local Self-Reliance, Washington, D.C. 

(2006). 

www.ubma.org Building Materials Resource Association, accessed October 10, 2007. 

www.ilsr.org Institute for Local Self-Reliance, accessed October 10, 2007. 

www.epa.gov/epaoswer/non-hw/debris-new/index.htm US Environmental Protection Agency, 

accessed October 10, 2007. 

www.cdrecycling.org/ Construction Materials Recycling Association, accessed October 10, 2007. 

Brief #4: Energy Services Companies (ESCOs) 

Description and Value Proposition: 

Goldman et al, in their market surveys of the ESCO sector, define an ESCO as “a company that 

provides energy-efficiency-related and other value-added services and for which performance 

contracting is a core part of its energy-efficiency services business” (Goldman et al 2005, Hopper et al 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 47 

2007).51 Performance-based contracting in this context is defined as compensation schemes in which 

the ESCO assumes performance risk for their project or product—that is, their compensation and 

profits are tied to energy efficiency improvements (savings in purchased energy costs) actually 

obtained by the client.52 

In general, ESCOs make their profits via the reductions in energy consumption they are able to obtain 

for their customers, thus the basic profit mechanism of this business model should drive improvements 

in energy efficiency. These reductions in energy consumption lead to lower “total costs of energy” for 

the customer, and this is the essence of the value proposition, though improvements in productivity, 

comfort, and safety may also be important considerations. 

As Goldman et al note, this definition excludes “engineering companies, contractors, equipment 

manufacturers, or construction firms that may offer energy-efficiency services but do not assume 

performance risk for their projects. It also excludes companies that only engage in other customer-side 

energy services—such as design and installation of onsite generation or renewable energy 

systems—without also deploying energy-efficiency measures.” 

Services typically delivered by ESCOs include the development, design, and finance of energy 

efficiency projects; installation and maintenance of entailed equipment, energy management and 

building controls [particularly heating, ventilation and air conditioning (HVAC), and lighting-related] 

and monitoring and verification of project performance.53 

A minority of ESCOs are utility-affiliated, and this percentage has been falling, from an estimated 35% 

in 2000 to 15% in 2006 (Hopper et al 2007). 

ESCO projects typically have a significant upfront capital cost—reflecting the acquisition costs of 

energy efficiency equipment—and relatively long pay-back. Financing is thus part of many projects, 

and debt repayments are tied to and derive from energy savings obtained. However, there are examples 

of approaches that focus instead on optimization of existing equipment and patterns of energy use.54 

Environmental Performance 

Generally speaking, ESCOs improve customer energy efficiency by replacing lighting with high 

efficiency fluorescent lamps and units, installing high efficiency transformers, remodeling and 

upgrading air conditioning systems for variable fan speeds and variable pump flow, introducing 

co-generation systems, introducing heat storage pump systems, remodeling ventilation control systems 

for taking in non-conditioned outdoor air, and designing and implementing operations protocols for this 

equipment. 

51 These surveys were commissioned by the U.S. Department of Energy and undertaken in collaboration with the National 

Association of Energy Service Companies (NAESCO), a trade association. 

52 For a comparison of the services of ESCOs to other energy equipment and services firms, see “Energy Service Companies: 

Cost-Savings Partners for Industry” in Energy Matters. U.S. Department of Energy, Sept. 1999. 

(http://www.oit.doe.gov/bestpractices/energymatters/sep1999_energy_service.shtml). The National Association of Energy 

Service Companies (NAESCO) defines an ESCO as a business that “develops, installs, and finances projects designed to 

improve the energy efficiency and maintenance costs for facilities over a seven to twenty year time period. ESCOs generally 

act as project developers for a wide range of tasks and assume the technical and performance risk associated with the project.” 

(http://www.naesco.org/about/esco.htm, accessed 13 Sept 2007) 

53 After NAESCO,. Op cit. 

54 E.g. Energy Education Inc. delivers “People-Driven Energy Conservation” programs to school districts, universities, and 

large churches, and advertises a performance-based guarantee: that they will pay to the client any difference between verified 

savings and program implementation costs. See www.energyeducation.com. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 48 

ESCOs attempt to reduce the amount of energy that is being consumed by their clients (on a normalized 

basis), and consequently they reduce the pollution that is associated with energy production. These 

pollutants include CO2, NOx, SO2, etc. On average, 90% of client savings come from reductions in 

energy costs, while only 10% come from non-energy related areas such as Operations and Maintenance 

costs. 

Industry wide data and averages regarding energy savings are listed below: 

 An industry report found as of 2005 the average 

ESCO project saved 47 kWh/m2

/year of energy 

(m2

 refers to floor space), or average savings of 

23% on total energy consumption. These savings 

ESCOs and Water Efficiency 

Services 

fluctuate somewhat depending on the sector ESCOs are engaged to reduce energy 

being analyzed, with state/local governments 

and institutions the highest at 60 kWh/m2

/year 

and federal government the lowest at 40 

costs for a facility. Water use and 

treatment entails energy use, and water 

efficiency improvements can result in 

savings even if energy dimensions are 

kWh/m2

/year. Since ESCOs primarily contract not considered. As a result, water 

with medium to large sized facilities the above 

averages translate to substantial reductions in 

efficiency is often addressed within the 

context of ESCO programs: 

energy consumption (Goldman et al 2005). A survey of the U.S. ESCO industry from 

2000-2006 reports that water 

 The above averages can be converted to pounds 

of avoided air pollutants using the US EPA’s 

conservation, consulting and master 

planning, O&M services, and 

non-energy improvements accounted for 

Emissions & Generation Resource Integrated 10% of total ESCO revenue (water 

Database, which calculates average direct air conservation was not listed separately). 

emissions per kWh generated over the US A separate study of U.S. ESCO project 

generation base. Based on this database, the data found 10% of projects involved 

average ESCO project saved 64.06 lbs of work on plumbing systems (Goldman et 

CO2/m2

/year, 0.09884 lbs of NOx/m2/year, and al 2005). 

0.2554 lbs of SO2/m2

/year. These ratios are 

based on the average energy mix for the US, and 

vary widely depending on energy sources. (For example, Coal power plants produce roughly 

2.3 lbs of directly emitted CO2/kWh, while direct CO2 emissions for nuclear plants are zero.) 

 ESCO projects can decrease energy use for lighting, climate control, and other building 

functions in excess of 20% with commensurate reductions in CO2 emissions. 

Energy savings is assessed in many case studies, though it is reasonable to assume that these studies 

(many of which are produced by ESCOs themselves) will show a bias towards the top of the range. The 

following are some representative examples of such studies: 

 Amaresco was able to cut annual energy costs for Charleston Air Force Base by $800,000 by 

reducing energy consumption by 40%. It also helped the Toronto Dominion Centre increase 

energy efficiency, eliminating 35,000 tons of CO2 emissions annually. 

 By installing improvements in 32 facilities, Energy Systems Group was able to save the 

Baltimore Public School System $45 million over 15 years. All the savings were due to 

reductions in energy consumption. 

 Noresco was hired to upgrade the energy efficiency of the University of Massachusetts 

(UMass) Medical Center. After several infrastructure changes, this UMass facility is 43% more 

energy efficient and consequently will cost $36 million less to operate over the next 10 years. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 49 

 Trane was contracted to update the HVAC system at the Sydney Entertainment Center, with a 

resulting 20% increase in efficiency. The facility won the Energy Smart Green Gold Medal. 

Energy efficiency gains, particularly by large facilities, can reduce or eliminate the need for increased 

electrical and gas supply or transmission and distribution capacity. 

Key Markets and Market Share 

Market information for the ESCO sector is more extensive than for many of the other models briefed in 

this chapter, since there is an industry association (the National Association of Energy Services 

Companies) and publicly available market surveys. Most information in this section is drawn from 2 

key sources: Hopper et al, 2007 and Consortium for Energy Efficiency, Inc., 2006. 

Historically, ESCOs have been most active with large and medium sized facilities. Most work has been 

done on existing buildings, although new construction projects can be targeted as well. Contracts tend 

to be over a period of 7 to 10 years (Musser 2003). The 2006 Industry survey reports that industry 

revenue was derived as follows: 

 58% state/local governments and institutions (universities, schools, and hospitals) 

 22% federal government 

 9% commercial 

 6% industrial 

 3% residential 

 2% public housing 

Overall, revenue for the industry in 2006 is estimated at $3.6 billion, of which 73% derives from energy 

efficiency projects, 16% from customer-sited generation including renewables, and 11% from 

consulting/master planning and other services. The industry saw 20% annual growth from 1991-2000. 

This slowed to 3% from 2000-2004, but has increased drastically to 22% from 2004-2006 with 

projections for industry revenue in 2008 around $5.25 billion (Hopper et al 2007). 

The Hopper 2007 study of the industry suggests the recent growth is due to customer response to rising 

energy prices, renewed interest in energy efficiency and climate change, re-authorization of energy 

savings performance contracts (ESPC) in the federal market, the adoption of aggressive energy savings 

goals for federal agencies, and the ramping up of public-benefit- and ratepayer-funded energy 

efficiency and renewable energy programs. 

During this period of growth the number of companies has consolidated slightly, shrinking from the 

mid 50s in 2000 to the high 40s in 2006. The majority of ESCOs are independent companies; the rest of 

the industry is made up of building and equipment manufacturers, utility companies, and other energy 

and engineering companies. 

There is a growing market for these services. In 2006, state governments alone budgeted a total of $2.6 

billion for energy efficiency, up 13% from 2005 according to the US Energy Efficiency Programs 

Report. According to some projections, the industry has an eventual $200+ billion market (Musser 

2003). This is a huge percentage of the energy industry; in 2007 the US electric energy distribution 

industry grossed $220 billion in revenue, and the US natural gas production and distribution industry 

grossed $100 billion in revenue (www.hoovers.com, accessed 2/28/2008). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 50 

Examples: 

Ameresco http://www.ameresco.com/ 

Energy Systems Group http://www.energysystemsgroup.com/ 

Noresco http://www.noresco.com/site/content/index.asp 

Johnson Controls, Inc. http://www.johnsoncontrols.com/publish/us/en.html 

Synergy Companies http://www.synergycompanies.org/ 

Trane http://www.trane.com/Commercial/ 

Sources 

Elliot, R. Neal. “Vendors As Industrial Energy Providers”. White Paper. American Council for an 

Energy-Efficient Economy: Washington, D.C. (July 2002). 

“Emissions & Generation Resource Integrated Database”. US Environmental Protection Agency. 

Updated April 30, 2007. http://www.epa.gov/solar/egrid/index.htm 

“ESG to Save Baltimore Schools Over $45 Million”. Press Release. Energy Systems Group (July 11, 

2006). 

Goldman, Charles, Nicole Hopper, and Julie Osborn. “Review of U.S. ESCO Industry Market Trends: 

An Empirical Analysis of Project Data”. Environmental Energy Technologies Division, 

Ernesto Orlando Lawrence Berkeley National Laboratories (January 2005). 

Hopper, Nicole, Charles Goldman, Donald Gilligan and Terry E. Singer. “A Survey of the U.S. ESCO 

Industry: Market Growth and Development from 2000-2006”. Energy Analysis Department, 

Ernest Orlando Lawrence Berkeley National Laboratory (May 2007). 

Musser, Phil. “Utility-Affiliated energy service companies [ESCOs]: Is the Honeymoon Over?”. 

Transmission and Distribution World 55 (January 1, 2003). 

Stoughton, Mark, Yuhta Horie, and Yuriko Nakao. “Service-led businesses for sustainability?: 

Evaluating the potential of and policy for innovative product service systems in 

Japan” Institute for Global Environmental Strategies : Kansai Research Center (February 28, 

2007).

 “U.S. Energy Efficiency Programs: A $2.6 Billion Industry”. Report. Consortium for Energy 

Efficiency, Inc. (2006). 

http://www.naesco.org/ National Association of Energy Services Companies 

http://www.ameresco.com/ 

http://www.energysystemsgroup.com/ 

http://www.trane.com/Commercial/ 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 51 

Brief #5: IPM & Performance-based Pest 

Management Services 

Description and Value Proposition 

US EPA defines pests as “living organisms that occur where they are not wanted or that cause damage 

to crops or humans or other animals.” This broad definition includes insects, mice and other animals, 

weeds (unwanted plants), fungi, microorganisms such as bacteria and viruses, and prions. However, in 

popular usage, the term pest management—the activity or process of controlling the damage caused by 

pests—has the primary meaning of control of plant and animal pests, including insects. 

Pest management can be divided into three broad categories: agricultural, structural, and natural 

resources/recreational environment applications. This brief focuses on the structural and agricultural 

categories. 

 Structural pest management is concerned with control of pests in and around structures (e.g. 

schools, warehouses, campuses, residential buildings and complexes) that may damage the 

structures, their contents, associated landscaping, or present health risks to those using or 

inhabiting them. 

 Agricultural pest management is focused on control of pests that damage crops and harm 

livestock. 

Effective pest management in these sectors is essential to human health, quality of life, agricultural 

production and food security. In general, the damage caused by pests is proportional to their population; 

and pest management usually focuses substantially on reducing these populations. Towards this end, 

“business as usual” pest management relies to a high degree on chemical pesticides as both the 

preventative and curative tool of first resort. 

Agricultural pest management can be and is undertaken by farm owner/operators without the assistance 

of outside parties; property managers or owners likewise undertake many pest control activities. Of 

interest to this study, however, are pest management services provided on a commercial basis by third 

parties. Green servicizing potential exists specifically in the area of performance-based pest 

management, in which a pest management services provider commits to achieving a certain standard or 

level of pest control, rather than being compensated for a particular treatment or application. 

In such a regime, the provider may have some incentive to reduce the use of pesticides, as pesticides 

become a cost of service provision rather than a source of profit. However, this incentive may operate 

with little effect unless the provider is aware of, skilled in, and has a commitment to complementary 

non-chemical approaches to pest management. 

For this reason, performance-based pest management services that explicitly focus on integrated pest 

management (IPM) are the “green servicizing” approach to pest management. 

What is IPM? There is not a universal definition for IPM, but the definition put forth by the National 

Road Map for Integrated Pest Management is widely-accepted and conveys the general concept well: 

Integrated Pest Management, or IPM, is a long-standing, science-based, decision-making 

process that identifies and reduces risks from pests and pest management related strategies. It 

coordinates the use of pest biology, environmental information, and available technology to 

prevent unacceptable levels of pest damage by the most economical means, while posing the 

least possible risk to people, property, resources, and the environment. IPM provides an 

effective strategy for managing pests in all arenas from developed agricultural, residential, 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 52 

and public areas to wild lands. IPM serves as an umbrella to provide an effective, all 

encompassing, low-risk approach to protect resources and people from pests.55 

As a strategy, IPM thus seeks to optimize results across three dimensions: economic, environmental, 

and human health. IPM is not a single “recipe” for pest management, but fundamentally an adaptive 

management strategy that draws on a continuum of practices whose choice is determined by location, 

type of pest, type of crops or facility, and many other factors. 

The extent to which IPM is being practiced in the US depends on the benchmark used. With respect to 

the agricultural sector: 

 The “greenest version” of IPM requires that pesticides are used as a last resort after all other 

methods have been considered to eliminate a given pest. Under this definition, corresponding 

to Lester E. Ehler’s definition of “true IPM,” as of 2000 IPM was being practiced on 8% or less 

of US crop acreage (Ehler et al, 2000). 

 This said, most experts agree that “BAU Pest Management” has moved beyond scheduled 

pesticide treatments and that successful growers tie pesticide applications to field monitoring 

and, moreover, are using an array of pest management methods, such as pest-resistant varieties, 

cultural controls, and good sanitation practices. By this standard, “BAU Pest Management” has 

advanced significantly in the past generation, and now stands on at least the lower rungs of the 

IPM continuum. 

The remainder of this brief discusses agricultural and structural IPM separately due to significant 

differences in value proposition, environmental benefits, and market share between the two categories. 

IPM Value Proposition: Agriculture 

US EPA’s most recent pesticide market analysis estimates total US pesticide purchases amounted to 

about $11 billion in 2001, representing about 1.2bn pounds of active agreements. Of this amount, 

commercial agricultural applications accounted for about $7.4bn in purchases (US EPA 2004).

56 This 

compares to total farm expenditures in that year of $200.8bn57 and net farm sector value-added of $45.7 

bn, of which owner/operator income and corporate farm profits totaled $28.7bn. (US Census Bureau 

2008) 

Pesticide purchase costs are thus a significant percentage of farm expenditures (3.7% in 2001; US EPA 

2004)58, particularly in an often low-margin industry. And while pesticides prevent significant crop 

losses, they do not deliver ideal results: e.g., “despite the widespread application of pesticides in the 

United States at recommended dosages, pests (insects, plant pathogens, and weeds) destroy 37% of 

potential crops”—and at least 10% of pesticide costs go to combating increased pest resistance. 

(Pimental et al, 2005). 

55 The federal government first started using the term IPM in 1972, when President Nixon directed federal agencies to promote 

the concept. In 1993 the EPA, USDA, and FDA all called for a commitment to implement IPM on 75% of U.S. farms by 2000. 

In order to quantify the results IPM was defined as the “prevention, avoidance, monitoring, and suppression” (PAMS) of pests, 

and any farm using 3 out of those 4 practices would qualify. This definition has drawn criticism from many IPM experts as it 

requires neither monitoring nor the integration of alternative pest suppression tactics, both of which are central tenets of IPM 

(Ehler, 2005). 

56 (US EPA, 2004 ) 

57 USDA, National Agricultural Statistics Service, as cited in (US EPA, 2004.) 

58This percentage increases if pesticide application costs, the costs of crops lost to market due to over-threshold pesticide 

residues, and similar “hard” costs of pesticide use are included. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 53 

There is substantial evidence that IPM methods consistent with the National IPM Roadmap definition 

can yield the same if not greater productivity and cost-effectiveness as traditional pest management 

approaches, while reducing reliance on pesticides. For example: 

 According to a 1989 report by the National Academy of Sciences, farmers using alternative 

pest management strategies can be as productive and profitable as conventional farmers (As 

cited in Moffitt, 1993). And if a long term approach is taken and soil health as well as human 

health are considered, then it is likely IPM practices are more profitable than conventional 

approaches. 

 While the value proposition for IPM is dependent on crop types, farm size and location, etc., 

the extensive IPM case study literature is, in aggregate, persuasive that IPM is at least as cost 

effective an approach to Pest Management as traditional methods, and can often result in higher 

yields and lower costs than conventional farming practices. 

The cost-effectiveness of IPM as a pest management strategy is—or should be—only the supply side of 

the IPM value proposition for agricultural producers. On the demand side, adopting IPM should in 

principle provide producers the ability to offer “IPM-grown” products that command a price premium, 

analogous to that commanded by organic goods. As in the case of organics, this premium reflects 

consumer willingness-to-pay for two perceived attributes: lower environmental impact59 and lower 

health risks from pesticide residues. 

However, this supply side mechanism currently operates at much less than its likely full potential. 

Achieving this potential would require well-recognized and trusted “IPM labeling” schemes 

(analogous to the USDA “organic” label). Historically, the diversity of IPM definitions and the nature 

of IPM as a continuum of practices have presented difficulties to standards development and clear 

communication to the market. Now, however, region and crop-specific IPM standards are increasingly 

coming into their own60—though as yet their recognition and acceptance in the market still lags that of 

organic standards, now substantially consolidated around the USDA organic standard and label. 

There is a distinction between farm owner-operators adopting IPM as a self-practice and the use of 

commercial IPM services.61 The focus of this brief is the extent to which such IPM services are or may 

be a viable vehicle for changing BAU pest management. For this to be true, IPM services must either 

offer superior cost-performance to BAU approaches, or provide agricultural producers with market 

access otherwise denied them. 

IPM Value Proposition: Structural 

The IPM value proposition for structural pest management services has both supply and demand-side 

elements: 

 Supply side. There are numerous studies that show IPM applications are more effective at 

controlling a variety of pests than conventional methods in many different types of facilities 

(see Table 4, below). The initial labor required is normally greater, but the number of service 

requests drops significantly over time—therefore requiring less work for the contractor and 

59 A 2006 survey of U.S. consumers, ages 13 to 26, found that 89% would be likely to switch to a brand associated with a good 

cause if quality and price of the product were equal. This demographic includes 78 million people (as cited in Green, 2008). 

60 There are dozens of examples of these certification programs including California Clean, Green Shield Certified, and 

SYSCO’s Sustainability/Integrated Pest Management Program. A more comprehensive list can be found at The IPM Institute 

of North America, Inc. website (http://www.ipminstitute.org/links.htm, accessed 5/16/2008). 

61 As the discussion above makes clear, IPM based pest management services are of their nature performance-based. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 54 

increasing client satisfaction. Greene et al (2002) found a 93% reduction in service requests 

over 10 years of using IPM practices. This benefit is contingent upon a performance-based 

contract instead of “per visit” payment. 

 Demand-side. The efficacy of IPM applications in controlling pests and reducing pesticide use 

(and consequently the health problems that they cause) is also driving customers to request pest 

management providers that have IPM capabilities. 

There is a high level of public awareness that the active ingredients in pesticides can cause a 

variety of negative health effects, from asthma to cancer, and the opportunity to reduce the 

occurrence of these effects is attractive, especially in structures that are frequented by children 

such as schools. IPM’s proven ability to reduce levels of allergens and irritants for those 

suffering from asthma is of particular note given the sharp rise in this affliction in recent years 

(Hoppin, 2007). 

Environmental Performance 

The environmental performance of IPM services is identical to the environmental performance of IPM 

itself as compared to “BAU Pest Management practices.” The most direct environmental benefits of 

IPM derive from reductions in and changes to pesticide use, although, as listed above, there are other 

environmental benefits as well. 

Agriculture 

As noted above, 2005 US pesticide use has been estimated as 500 million kg of 600 different products. 

From an environmental and human health perspective, it is the side-effects of this use that are of 

concern. These include: health impacts, ranging from premature mortality, to acute and chronic illness, 

to the multiple impacts of endocrine disruption; reduction in populations of beneficial species (e.g., 

honeybee losses and reduction in wild bee pollination—bees are vital to the pollination of many crops 

including fruits and vegetables); pollution of ground water; and bird and fish kills, among others. 

The national system of pesticide regulation is intended to assure, in part, that the benefits of pesticide 

use for each formulation and application substantially outweigh the risks. However, these “side 

effects”— while difficult to quantify—without doubt remain very substantial.62 

Further, the science behind regulatory assessments of pesticide risks is constantly evolving, with the 

general trend over time that known risks have grown at lower exposure levels for broad classes of 

chemicals. Thus, both the logic of reducing known risks and the precautionary principle indicates that 

economically effective opportunities to reduce pesticide impacts should be exploited to the greatest 

extent possible. 

It is difficult to quantify the reductions in pesticide impacts thus far achieved by IPM on a national level 

given the many factors involved, including changes in the types of pesticides used and their toxicity 

levels. 63 However, national results must ultimately be the aggregate of field- and farm-level results, 

62 Efforts to rigorously estimate even the hard economic costs of pesticide side effects are difficult and controversial, but these 

efforts at the very least provide a catalogue of pesticide side effects and indications regarding their potential extent. Pimental at 

al (2005) quantify the “hard costs” of these side-effects, also considering non-environmental economic costs such as increased 

pest resistance (at least 10% of pesticide use is to combat increased pesticide resistance in pests), government spending on 

pesticide pollution control, crop losses & domestic animal poisonings due to pesticides, etc.. This effort of necessity requires a 

significant number of assumptions and extrapolations, but the study finds that the costs of pesticide use at least double when 

the above indirect costs are taken into account. 

63 For example, a 2001 GAO report intended to assess the USDA’s IPM initiative found “IPM as implemented to this point has 

not yet yielded nationwide reductions in pesticide use” (Ehler, 2005). This report has been countered by studies that show 
Wang et al 2006

Cockroach 

management in 66 

apartments over 7 

months.

IPM uses 

significantly less

bait (pesticides). 

IPM was more 

effective and 

sustainable. 

Gouge et al 2006

Transition to IPM 

practices in 10 school 

districts in 7 states. 

An average of 

71% reductions

in pesticide 

applications.

78% reduction in pest

complaints.

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 55 

and the case study literature clearly indicates—with numerous studies across many different crop 

types—that IPM tends to significantly reduce the use, toxicity, and/or dispersion of pesticides.64 

Structural 

Agricultural pesticide use is of concern from an environmental and human health perspective because it 

simultaneously (1) introduces toxic chemicals into the environment in a highly dispersive way; and (2) 

deposits these chemicals directly on foodstuffs intended for human consumption and livestock feed. 

Structural applications of pesticides, by contrast, are of concern primarily because they concentrate 

these chemicals in living and working areas. 

Some of the benefits of reducing the use of pesticides in structural applications are a reduction in 

asthma attacks for individuals for whom cockroach and rodent allergens are asthma triggers, less 

exposure to high-risk pesticide formulations (e.g. aerosols, foggers, rodenticides), and, in general, 

improvements in quality of life. Multiple studies on structural IPM implementation show that large 

reductions in both pesticide application and pesticide residuals can be achieved. Table 1 summarizes 

some representative studies: 

Table 4. Structural IPM Studies 

Study & Subject Results: 

Pesticide Use 

Results: 

Pest Management 

Other Results 

Initial costs of IPM are 

almost double those of 

“BAU,” but in the long run 

IPM costs are comparable 

or cheaper than BAU. 

IPM practices are diffusing 

throughout school districts. 

The number of Arizona 

students in schools using 

IPM has grown from 1.8% 

to 18.2% between 

2000-2005. 

Greene et al 2002 

Transition to IPM 

practices in 55 GSA 

buildings (offices, 

storage, warehouses, 

and miscellaneous) 

over 10 years. 

93% reduction in 

grams of 

pesticide active 

ingredients 

applied. 

93% reduction in 

tenant service 

requests. 

many less toxic alternatives are being used at higher rates, and, consequently, toxicity levels have gone down by 14% over the 

same period (as cited in Green, 2008). 

64 The “win-win” outcomes deriving from broad adoption of agricultural IPM are well-captured in a 2007 Natural Resource 

Defense Council (NRDC) issue paper: “IPM can help the Natural Resources Conservation Service (NRCS) protect the soil, 

water, animals, plants, and air, and typically provides benefits to multiple resources. Crop and livestock producers can benefit 

from IPM practices to manage insects, nematodes, weeds, plant and animal diseases, vertebrate pests, and invasive species. In 

addition to providing cost-effective pest management, IPM’s smarter, prevention-based approach can reduce pesticide runoff 

and leaching to groundwater, improve air quality by reducing emissions of smog-forming gases, improve soil health, reduce 

risks to wildlife, improve worker safety, and prevent pesticide drift.” (Hamerschlag, 2007). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 56 

Williams et al 2005 

Compared IPM 

practices to a calendar 

based pesticide 

application approach in 

9 North Carolina 

schools, primarily 

targeting cockroaches. 

Environmental 

residues of 

pesticide active 

ingredients were 

much lower with 

IPM. 

IPM more effective in 

eliminating 

cockroaches. 

IPM had higher labor 

costs, but the total costs of 

the two approaches were 

similar. Discovered that 

many pesticide 

applications in under the 

calendar-based approach 

were unnecessary. 

Key Markets and Market Share 

Agricultural Sector 

In the agricultural sector, “full service” pest management services offerings are responsible for a small 

portion of pest management activity, with farm owners/operators carrying out much of this activity 

themselves: 

 Use of 3rd party “scouting” (field monitoring) services and “full service” pest management 

offerings is generally cost-effective only for larger operations; however many large operations 

employ a full-time, in-house pest management expert. 

 For smaller operations, the use of pest management services is usually reserved for high-value 

crops or applications that require specialist equipment or certifications. 

Within this limited full service pest management sector, only a few examples of IPM-focused pest 

management services could be identified, among them the following: 

 Syngenta Crop Protection, Inc. (a major agrochemical manufacturer) runs a program called 

Citrus Solutions that offers some IPM services, though they appear to retain a significant focus 

on pesticides. 

 Western Farm Service65 (WFS) offers services that appear to be much more true to the intent of 

IPM, including crop monitoring, soil testing, and weather station networks. They report 

particular success with celery farmers. 

 The Lodi-Woodbridge Winegrape Commission (established in 1991) runs a program that 

partners producers with pest managers. One of the goals of the commission is to create an 

area-wide IPM program, and now membership includes 750 growers constituting 20% of all 

wine from California. The Commission has a full time IPM director on staff and runs meetings, 

field days, research seminars, etc. intended to educate growers and pest control advisors. A set 

of IPM certification standards were created, and the number of growers obtaining certification 

continues to grow (doubling from 2005 to 2006) each year (Green, 2008). 

While this survey could not be comprehensive, the strong indication is that while niche offerings exist 

and may well constitute critical proof-of-concept for future growth of an IPM services sector, currently 

the IPM-focused pest management services sector is embryonic. 

65 According to its website, WFS is “an operating segment of Agrium, a global producer and distributor of nitrogen, 

phosphate, potash and sulfate. WFS has a sister company in the Midwest, Crop Production Services (CPS), which services the 

Corn Belt to the east coast.” (www.westernfarmservice.com, accessed 30 October 2007.) 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 57 

What could drive the sector to grow from its current low base and where might such growth first occur? 

The most effective stimulus is likely to be strengthening consumer and intermediate buyer demand for 

“IPM goods.” Existing trends indicate that such demand is growing: the significant developments in 

IPM labels and certification (cited above) and the efforts of some large buyers (e.g. SYSCO) to impose 

IPM standards on their supply chain are both responses to and stimuli for consumer demand for 

“greener and safer” IPM-labeled products. 

Implementing IPM effectively and at its full potential requires knowledge and expertise on the part of 

owner/operators. In the presence of a strong market signal for IPM-labeled products, this need should 

present a market opportunity for crop consultants who can offer at least partial “IPM services.” 

Independent crop consultants are already concentrated in high value crops such as cotton, vegetables, 

and certain fruits whose economics can often support some form of pest management services even for 

smaller operators. Thus, these crops likely constitute the most fertile market for IPM services. 

(However, of the estimated 13,500 US crop consultants, about 96% work for pesticide retailers; this 

group may therefore not be oriented towards pesticide use reduction (Green, 2007)). 

Structural 

In its structural applications, pest management is already heavily outsourced. That is, the use of 

specialist pest management providers is BAU, and IPM-based services have had some success in 

schools, commercial buildings, and other large and heavily trafficked structures. In particular, IPM 

practices have diffused throughout school districts. The number of students in Arizona school facilities 

using IPM grew from 1.8% to 18.2% between 2000 and 2005 (Gouge et al, 2006). Public housing 

buildings have also been the subject of numerous IPM projects; this has been driven by studies that 

have shown high levels of pesticide residues in these facilities (Julien, 2008). 

The food processing, distribution, and retail industries have also taken an interest in IPM. “Driven by 

current and anticipated growth in consumer demand, companies are incorporating IPM and other health 

and environmental initiatives into corporate social responsibility (CSR) portfolios that include 

dedicated leadership at the highest levels of management, a substantial investment in resources, and 

regular reporting to shareholders, consumers, and the general public” (Green, 2008). 

The government has also provided further incentives for this business model to grow. In 1996 the 

Federal government required that “Federal agencies shall use Integrated Pest Management techniques 

in carrying out pest management activities and shall promote Integrated Pest Management through 

procurement and regulatory policies, and other activities” under Title III, Section 303, of the Food 

Quality Protection Act, 1996. There are also public agency bid specifications that give a preference to 

pest management service providers that are certified by an independent third party (Green, 2008). As 

with agricultural IPM, these third party certifications are becoming commonplace (see footnote above 

on certification). 

Structural IPM appears to have high potential as a “green servicizing” business model. It is already a 

service industry in which performance-based contracts are common. Numerous studies have shown 

IPM to be economical and more effective at removing pests than conventional techniques. IPM also 

reduces the amount of pesticides needed as well as the residues left over after application, which has 

multiple health benefits, particularly for asthma patients. Federal, state, and local governments are 

already pushing the adoption of IPM practices through legislation and contracting preferences. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 58 

Examples 

Syngenta Crop Protection, 

Inc. 

http://www.syngentacropprotection-us.com/citrus_solutions/products/ 

Western Farm Service, Inc. http://www.westernfarmservice.com/ 

Orkin, Inc. http://www.orkincommercial.com/ 

Sources 

Braband, Lynn. “Pest Management Practices: A Survey of Public School Districts in New York State.” 

Cornell University (2002). 

Ehler, Lester E. “Integrated Pest Management: A National Goal.” Issues In Science and Technology 

(Fall 2005). 

Ehler, Lester E. “The Illusion of Integrated Pest Management.” Issues In Science and Technology 

(Spring 2000). 

Gouge, D. H., M. L. Lame, and J. L. Snyder. “Use of an Implementation Model and Diffusion Process 

for Establishing Integrated Pest Management in Arizona Schools.” American Entomologist 52, no. 

3 (Fall 2006): 190-196. 

Greene, Albert and Nancy L. Breisch. “Measuring Integrated Pest Management Programs for Public 

Buildings.” Journal of Economic Entomology 95, no. 1 (2002): 1-13. 

Green, Thomas, President, IPM Institute of North America, Inc. personal communication (Oct. 8, 2007 

and Jan. 15, 2008). 

Green, Thomas A. “Private-Sector Roles in Advancing IPM Adoption.” Forthcoming (2008). 

Hamerschlag, Kari. “More Integrated Pest Management Please: How USDA Could Deliver Greater 

Environmental Benefits From Farm Bill Conservation Programs.” NRDC Issue Paper (February 

2007). 

Hoppin, Polly, Molly Jacobs, and Laurie Stillman. “Investing in Best Practices for Asthma: A Business 

Case for Education and Environmental Interventions.” Produced for Asthma Regional Council of 

New England at The Medical Foundation, University of Massachusetts Lowell, and Children’s 

Hospital Boston (April 2007). 

Julien, Rhona, Gary Adamkiewicz, Jonathan I. Levy, Deborah Bennett, Marcia Nishioka, and John D. 

Spengler. “Pesticide Loadings of Select Organophosphate and Pyrethroid Pesticides in Urban 

Public Housing.” Journal of Exposure Science and Environmental Epidemiology 18, no. 2 (2008): 

167-174. 

Long, Rachel. “IPM Revisited.” Issues In Science And Technology (Winter 2006): 16-17. 

Moffitt, L. Joe. “Integrated Pest Management and Water Quality.” Contemporary Policy Issues 11, no. 

2 (April 1993): 113-121. 

“National Road Map for Integrated Pest Management.” National Information System for the Regional 

IPM Centers (May 17, 2004). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 59 

“Orkin/Virginia Tech study proves IPM more effective than traditional pest control.” Hotel & 

Management 220, no. 9 (May 16, 2005): S1. 

“Partnering with the Food Industry on Sustainability and IPM: Suggestions for IPM and SARE 

Coordinators.” Regional IPM Centers, SARE, EPA, and land grant specialists. 

Pimentel, David H. “Environmental and Economic Costs of the Application of Pesticides Primarily in 

the United States.” Environment, Development and Sustainability 7 (2005): 229-252. 

Stelljes, Kathryn Barry. “Palouse Revolution in the Making: A 3-year crop rotation with IPM 

challenges traditional farming in eastern Washington and Idaho.” Agricultural Research (April 

1995). 

US Census Bureau, 2008 Statistical Abstract of the United States, Table 806: Farm Sector Output and 

Value-Added. Available at 

www.census.gov/compendia/statab/cats/agriculture/farm_income_and_balance_sheet.html. 

US EPA (Kiely, T. D. Donaldson and A. Grebe), 2004. Pesticide Industry Sales and Usage: 2000 and 

2001 Market Estimates. EPA/OPPT/OPP: Washington, DC. Publication # 

733-R-04-001. http://www.epa.gov/oppbead1/pestsales/index.htm. 

Wang, Changlu and Gary W. Bennett. “Comparative Study of Integrated Pest Management and Baiting 

for German Cockroach Management in Public Housing.” Journal of Economic Entomology 99, no. 

3 (2006): 879-885. 

Williams, Gregory M., H. Michael Linker, Michael G. Waldvogel, Ross B. Leidy, and Coby Schal. 

“Comparison of Conventional and Integrated Pest Management Programs in Public Schools.” 

Journal of Economic Entomology 98, no. 4 (2005): 1275-1283. 

http://www.ipminstitute.org/ The IPM Institute of North America, Inc., accessed October 28, 2007. 

http://www.ipmcenters.org/index.cfm National Information System for the Regional IPM Centers, 

accessed May 16, 2008. 

http://www.syngentacropprotection-us.com/citrus_solutions/products/ accessed October 28, 2007. 

http://www.westernfarmservice.com/ accessed October 28, 2007. 

Brief #6: IT Lifecycle Solutions 

Description and Value Proposition 

IT Lifecycle Solutions is a broad term used to describe business offerings that bundle provision of 

corporate IT equipment (particularly personal computers (PCs), servers and printers) with associated 

services. The “solutions provider” is responsible for most or all configuration, maintenance, repair, and 

upgrade. 

This brief will focus specifically on instances in which this equipment is leased rather than purchased. 

These leases exist in two general forms: operating leases in which the lessor retains ownership of the 

product during and after the lease term, and capital leases in which ownership of the product moves 

from the lessor to the lessee after the lease term. This discussion further focuses on operating leases, 

because capital leases offer “no [environmental] advantage over an environmentally thoughtful 

purchase of new or reconditioned equipment” (Federal Electronics Challenge 2006). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 60 

Such leasing arrangements allow the user organization to “bundle acquisitions of hardware, software, 

services, and maintenance into one monthly payment,” thereby conserving cash and preserving credit 

lines (Fishbein et al 2000). Typically, leases last between one and four years, at the end of which the 

lessee has the option of purchasing the equipment, releasing the equipment, or beginning a new lease 

with new equipment. 

Many of these IT Lifecycle Solutions offerings also include options to upgrade to newer technology 

during the leasing period (Fishbein et al 2000). This is a particularly useful option, because information 

technology evolves quickly, and some equipment and/or software can become obsolete in a matter of 

months. Leasing allows organizations to take advantage of newer technologies without having to 

remarket or dispose of their existing equipment. 

IT Lifecycle Solutions providers also offer equipment at a discount, because of the healthy market for 

re-leasing or selling previously used equipment (Vosicky 1992). And beyond procurement savings, 

customers also benefit from significant avoided costs of disposal: the cost of disposal for one PC is on 

average between $100 and $400 depending on the method.66 IT Lifecycle Solutions providers, 

however, reduce these costs with economies of scale, and by resale or release of equipment. In sum, a 

reasonable rule of thumb seems to be that for organizations requiring more than 1000 PCs, the use of 

“IT lifecycle solutions” can save up to 12% on acquisition and 15% over the three year cost of 

ownership compared to traditional purchasing (Fishbein et al 2000). 

This mix of customer motivations is reflected in the results of a 1999 report by Dell Financial Services, 

a major IT Lifecycle Solutions provider, regarding why organizations choose to lease, as compared to 

purchasing IT equipment: 

 Technology transition (i.e., total cost of ownership, technology refresh) 68% 

 Ease of acquisition 68% 

 More cost effective than purchasing 54% 

 Ease of disposal 42% 

 Off-balance-sheet financing 20% 

IT Lifecycle Solutions also offer benefits to the provider. Configuration and maintenance services 

allow them to generate additional value-added from an existing product, including at the end of the 

original lease. As noted above, there is a thriving market for leasing or purchasing used equipment, and 

IT Lifecycle Solutions providers are well-placed to exploit this: most are business units of the original 

equipment manufacturer (OEM) or have direct partnerships with the OEM, and thus have easy access 

to parts for repair and refurbishment (Fishbein et al 2000). Illustrating the importance of these 

post-lease markets for providers, Fishbein et al find that provider preferences for post-lease disposition 

of equipment are as follows, from most to least preferable: 

 Refurbish and resell directly to end users. 

 Resell “as is” to secondary market brokers. 

 Utilize for spare parts in service departments. 

 Donate to charitable organizations. 

66 The methods of computer disposal and their corresponding costs are as follows: sell to broker $118.90, throw away $216.75, 

sell to employee $272.49, donate to charity $343.90, and re-deploy or cascade within organization $397.30. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 61 

 Recycle for material value. 

In many states, regulations also provide significant demand-side drivers for IT Lifecycle Solutions. For 

example, in Florida there are strict regulations on the storage and transport of computer monitors if they 

are going to be landfilled or incinerated but not if they are going to be reused or recycled. Massachusetts 

has banned the disposal of computer monitors in landfills, and California has done the same with 

monitors and televisions. The European Union directive on Waste Electrical and Electronic Equipment 

(discussed below in the remanufacturing brief) creates even stronger incentives, requiring that 

60%-80% of electronic equipment be recovered and recycled by the manufacturer (Macauley 2003). 

Environmental Performance 

IT equipment presents significant in-use, manufacturing/upstream, and end-of-life environmental 

impacts. IT Lifecycle Solutions generally do not reduce equipment utilization, and thus have little 

effect on in-use impacts (i.e. impacts of electricity consumption). But, as described below, they can 

affect the other two impact areas. Of these, while manufacturing/upstream impacts are substantial,67 it 

is the end-of-life impacts that are usually viewed as most environmentally significant: 

While exact impacts are not well-quantified, the disposal of End-of-life IT equipment (“e-waste”) 

presents a number of significant environmental issues, most related to the hazardous materials they 

often contain. Of these, lead is normally of most concern,68 but many toxins and heavy metals can 

escape when these products are placed in a landfill or incinerated (Macauley 2003). 

The issue is significant because the volume of e-waste is so large: it is estimated that from 2000 to 2010 

one billion pounds of lead from computers and other electronics will enter the waste stream in the 

United States. As of 2000, electronic products comprised the largest proportion by weight of sources of 

lead entering the waste stream in the U.S, and the use of lead in electronic products was the second 

largest (22%) application of lead overall, behind the transportation industry (65%) (Macauley 2003). 

IT Lifecycle Solutions offer the potential to improve the lifecycle environmental performance of IT 

equipment in two ways: 

 By reducing the incidence of improper disposal and uncontrolled recycling. IT Lifecycle 

Solutions place end-of-lease responsibilities for IT equipment with the provider instead of the 

user. Compared to IT users, IT Lifecycle Solutions providers are more likely to have systems 

and policies in place to assure proper disposal and/or well-controlled recycling, as (1) this 

waste stream is directly tied to environmental management of core operations; and (2) proper 

end-of-life management can be a selling point to customers. Thus, where equipment is 

immediately decommissioned post-lease, its disposal or recycling should be better-controlled 

on average than when equipment is directly disposed by users. 

 By moving disposition of post-use equipment up the “3R” hierarchy. As discussed above, these 

models provide strong incentives and enabling conditions for providers to (1) extend the life of 

equipment through post-lease refurbishment and resale/re-lease, and (2) otherwise recover 

maximum value from post-lease equipment (e.g. via parts salvage). Both should reduce total 

market demand for new equipment, and thus total manufacturing/upstream and disposal 

impacts. 

67 Building a 24 kg PC with monitor requires at least 240 kg of fossil fuels and 22 kg of chemicals. (Thurston & de la Torre, 

2007). 

68 Exposure to lead has many well documented negative health effects, including hypertension, stroke, premature death, 

neurological damage, and interference with nervous system development. Macauley et al, (2003): 17. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 62 

The critical question is the extent to which IT Lifecycle Solutions operationalize these potential 

“improvement mechanisms.” We could not locate industry-wide data on post-lease disposition of 

equipment; however, Fishbein et al examined the five major US-based PC manufacturers (Dell, 

Compaq, Gateway, Hewlett-Packard, IBM, and Packard Bell–NEC), who together account for over 

50% of the units produced, and found that the majority of post-lease computers are remarketed. Those 

not remarketed are typically demanufactured for spare parts or recycled for material value and to avoid 

the potential liabilities of improper disposal. (Data on the end-of-life disposition of remarketed 

computers is not available, but disposal practices can be assumed to be no worse than average.) Thus, 

there is good evidence that at least the second “improvement mechanism” is functioning strongly. 

Nagashima et al (2005) undertook a lifecycle analysis (LCA) of a stylized PC leasing system. They find 

that the enhanced recovery rate of end-of-life PCs expected under leasing reduces lifecycle PC 

“environmental load” (an aggregated measure of all impacts) by 17%, and that re-leasing reduced 

lifecycle environmental loads by 30%. 

In principle, leasing could incentivize manufacturers deriving significant revenue from IT Lifecycle 

Solutions divisions to modify their products in order to increase their end of life value and ease of reuse. 

However, at least as of 2000, there was no evidence of manufacturers changing product design as a 

direct result of leasing (Fishbein et al 2000). 

Key Markets and Market Share 

Customers for IT equipment leasing tend to be businesses, not households, and the vast majority of 

large US corporations lease at least some portion of their IT equipment. The US IT leasing industry 

grossed $23.8 billion in revenues in 2003 (down from $26.1 billion in 2000), with 6.5% annual growth 

forecast through 2007. Of this 2003 revenue, PCs and workstations accounted for $9 billion, and 

servers and mainframes for $7 billion (Information Week Industry Overview). 

By comparison, revenue for the US computer manufacturing sector in 2007 was about $75 billion, of 

which PCs and workstations accounted for 50% ($37.5 billion) and servers and mainframes for 15% 

($11.25 billion).69 

Although these two groups of statistics are for different years, they do permit a reasonable 

approximation of the relative sizes of these two industries: 

 The IT equipment leasing industry is about one-third the size of the computer 

manufacturing industry (based on revenue). 

 The revenues generated from PC and workstation leasing are about one-quarter those 

generated from PC and workstation manufacturing. 

 The revenues generated from server and mainframe leasing are nearly two-thirds those 

generated from PC and workstation manufacturing. 

The above statistics demonstrate that the IT equipment leasing industry is a substantial part of the IT 

sector and of the US economy. 

Examples 

Compaq Financial Services 

69 www.hoovers.com, accessed 2/27/2008 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 63 

Dell Computer Corporation 

Gateway 

International Business Machines (IBM) 

Fuji Xerox http://www.fujixerox.co.jp/eng/ 

Sources 

Fishbein, Bette K., Lorraine S. McGarry, and Patricia S. Dillon. “Leasing: A Step Towards Product 

Responsibility.” Inform, Inc. New York, NY (2000). 

“Integrating Environmental Objectives Into Information Technology Leases.” Federal Electronics 

Challenge (March 15, 2006). 

Macauley, Molly, Karen Palmer, and Jhih-Shyang Shih. “Dealing with Electronic Waste: Modeling the 

Costs and Environmental Benefits of Computer Monitor Disposal.” Journal of Environmental 

Management 68 (2003): 13-22. 

Nagashima, K T Honda, H N Xuan, Y Wang, R Yamamoto. “The Reduction Effect of Environmental 

Load by Leasing Personal Computers” in Transactions of the Materials Research Society of 

Japan. Vol 30 no 4 (2005): 935–937 (2005). 

“Tech Leasing May Be an Early Beneficiary of Turnaround.” Information Week (September 1, 2003). 

Thurston, Deborah L. and Jessica P. de la Torre. “Leasing and Extended Producer Responsibility for 

Personal Computer Component Reuse.” Int. J. Environment and Pollution 29, no. 1/2/3 

(2007): 104-126. 

Vosicky, John J. “Capturing the Benefits of High-Tech Leasing.” Financial Executive 8, no. 4 

(July-August 1992): 39-42. 

www.hoovers.com/computer-manufacture-/--ID__212--/free-ind-fr-profile-basic.xhtml, accessed 

February 27, 2008. 

Brief #7: Remanufacturing 

Description and Value Proposition 

US EPA has defined “remanufacturing” as “the standard term for the process of restoring used, durable 

products to a ‘like new’ condition” (US EPA 1997). However, the term is also employed with slightly 

different meanings, and other terms are used with a roughly equivalent sense to this meaning of 

remanufacturing. This brief uses the US EPA definition, thus, remanufacturing is a form of “reuse” 

rather than “recycling.”70 

70 For example used tires could be recycled into a playground surface, but the purpose of remanufacturing tires (essentially 

bonding new tread to and verifying the structural integrity of the used tire) is for re-use on a vehicle. Products can also be 

reused without being remanufactured, as in the case of refillable beverage bottles. Some terms that are sometimes used instead 

of remanufacturing are restoring or refurbishing. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 64 

Remanufacturing is practiced in both closed and open loop systems, meaning the restoration and resale 

of the used product may be done by the original manufacturer (closed loop) or a third party (open loop). 

Regardless of who remanufactures the product, the value propositions are the same. Depending on the 

industry, refurbishing may be cheaper than creating a product from scratch. It also provides a way for 

manufacturers to recover value from goods that are returned during their life-cycle (commercial returns 

and warranty returns), on which US companies are losing an estimated $100 billion annually (Harrison 

et al 2003). These savings are often passed down to the consumer (average remanufactured product 

costs 30%-80% less than new products), which may attract new consumers that cannot afford new 

products, or consumers that believe the cost savings outweigh any quality difference between new and 

remanufactured products. 

“Remanufacturing” is not a new practice. Its roots in the modern US economy can be traced back to the 

Great Depression and World War II when many raw materials were in short supply. Remanufacturing 

has been evolving ever since, expanding within industries and into new ones. The market status, drivers 

and barriers, and potential environmental gains are highly sector/product dependent. Therefore, the 

market and environmental characteristics of the “remanufacturing model” as a whole will be briefly 

addressed below, followed by a more in depth description of several of the sectors in which 

remanufacturing is established or emerging. “Remanufacturing,” especially in the sense of 

“refurbishment,” is standard and very much business as usual in some industries/sectors. For example, 

mechanics refurbish a car when they replace major components such as transmissions, windshields, etc. 

for the owner. Such practices that are entirely ‘business as usual” are not addressed here. 

Remanufacturing, like deconstruction, applies an end-of-life service to an existing product, altering that 

product’s disposition. However, unlike deconstruction, remanufacturing requires a reverse logistics 

system. It is less correct to call remanufacturing a Product-Service System in and of itself than to speak 

of remanufacturing-based PSSs. 

Environmental Performance 

Remanufacturing has the potential to reduce both the consumption of raw materials and the volume of 

waste, thus reducing both upstream and disposal impacts. Many products also require less energy to 

rebuild rather than manufacture from scratch. The types of “avoided emissions” vary depending on the 

product, but some examples are greenhouse gases such as CO2, SO2, NOx, heavy metals and 

halocarbon materials from batteries, oil from car parts, etc. Some environmental statistics are listed 

below: 

 A limited survey estimated that over the entire industry remanufacturing recoups between 85% 

and 95% of the materials and energy used to make the original product (as cited, Hauser et al 

2003). 

 Giuntini et al (2003) estimate that worldwide, the remanufacturing industry annually saves 

over 117 billion kWh of energy, corresponding to roughly 56 billion lbs of avoided CO2 

emissions annually. 

Key Markets and Market Share 

Historically, remanufacturing was dominated by heavy and/or durable machinery and machined goods 

such as automotive parts (e.g. rebuilt engines, carburetors, etc.), construction equipment, refrigeration 

components (e.g. rebuilt compressors), and textile machinery. However over the last two decades, 

remanufacturing has extended to classes of new products. Consumer electronics is a particularly new, 

but promising sector. 

A 1996 survey estimated that there were over 73,000 firms in the US selling approximately $53 billion 

worth of remanufactured goods in 46 different major product categories. These firms accounted for an 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 65 

estimated 500,000 direct employees (25 people in the average company) and estimated annual 

company sales of $2.9 million (Lund 1996). Lund notes in subsequent work that these figures likely 

have an upward bias due to imperfect data availability, but they still accurately and strongly indicative 

of the economic scale and scope of the remanufacturing industry (Hauser & Lund, 2008). The largest 

single remanufacturer is the US Department of Defense, which refurbishes and reuses a large portion of 

its equipment (Steinhilper 1998). However, as stated above, remanufacturing is established in many 

different sectors. 

Most remanufacturing has been driven by two factors: the cost savings offered in comparison to new 

products (see above), and legislative incentives. Laws limiting certain pollutant outputs (Clean Air Act, 

Clean Water Act, etc.) often create economic environments where it is beneficial to refurbish old 

products rather than manufacture from scratch.71 Some states have enacted laws that discourage the 

disposal of electronic products. 

For example: In Florida there are strict regulations on the storage and transport of computer monitors if 

they are going to be landfilled or incinerated but not if they are going to be reused or recycled. 

Massachusetts has banned the disposal of computer monitors in landfills, and California has done the 

same with monitors and televisions (Macauley et al 2003). The European Waste Electrical and 

Electronic Equipment (WEEE) directive requires a certain amount of reuse and recycling (Seliger et al 

2003). 

Despite the success of many different remanufacturing enterprises, there are substantial barriers that 

often render remanufacturing uneconomical. Reverse logistics are often more complicated than new 

product logistics, because they require the collection of products from a far greater number of locations. 

A new product is distributed to the retailers, where it can be sold to many different consumers. 

Collecting these products at the end of their lifecycle into central locations where they can be examined 

and sorted is a potentially complicated and expensive process. Inspection and sorting is also a difficult 

process, because it requires expertise, efficiency, and normally cannot be automated. Manufacturing 

companies considering refurbishing their old goods are also often afraid they will cannibalize the sales 

of their new goods. Despite these barriers, the industries detailed below have had financial success 

remanufacturing. 

Sector Vignettes 

Automotive Industry 

As of 1998 remanufacturing had already reached between 45% and 55% of the market share for 

replacement parts in the automotive “aftermarket” (that is, parts replaced by other than dealer service 

providers) with some parts as high as 90%, such as alternators and starters. The parts cover a huge range 

of automotive needs, from water pumps to entire engines, and cost between 35% and 50% less than new 

parts (Steinhilper 1998). In the US market, an estimated 67,500 tons of discarded auto parts were 

remanufactured in 2004 (“The best kept secret to US economic growth: Remanufacturing”). 

One specific example of remanufacturing in the auto industry is the re-treading of used tires. Over 3.8 

billion tons of rubber tires were disposed of in 1995 in the US In many cases, new tread can be added to 

these tires for 30% to 70% of the cost of making a new tire and in such a way that the tires meet all 

safety standards set by the National Highway Traffic Safety Administration, get comparable mileage to 

new tires, and can be driven at the same speeds. Each remanufactured truck tire conserves an estimated 

71 In some instances it is cheaper to manufacturer a new product rather than remanufacture an old product, but the pollution 

created by building the new product is far greater. Under normal circumstances a company would not engage in 

remanufacturing, but environmental regulations often impose fines that create an economic environment in which the 

company chooses to remanufacture instead to avoid the fines or penalties. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 66 

15 gallons of oil (610 kWh roughly converted). In 1995 Bell Atlantic began using retread tires for 60% 

of its fleet; this new policy equated to savings of $430,000 in 1995 and $560,000 in 1996 (US 

Environmental Protection Agency 1997). 

Examples: Black’s Tire Service: www.blackstire.com ; BMW: www.bmw.com 

Electronics 

The potential environmental gains of remanufacturing electronic goods have received significant 

attention due to the high levels of energy and emissions embodied in electronics—and because 80% of 

“e-products” disposed of are still fully functional. Goods in this category include, e.g. computers, 

printers, keyboards, cashier equipment, and most recently, huge numbers of cell phones. In 2006 

Americans discarded approximately three million tons of household electronics (Mooallem 2008). 

Cell phones illustrate the material volumes and environmental issues involved even in highly compact 

products; as of 2003 it was estimated that there were over 1.3 billion cellular phone subscribers 

globally, each of whom requires at least one phone. In 2006 1.2 billion cell phones were sold 

worldwide. Rapid technological change (and limited durability) has driven short lifetimes: cell phones 

have an average life span of less than 2 years—and in the US this average drops to about 1 year 

(Mooallem 2008). 

The huge number of users coupled with the short life span of phones has resulted in more than an 

estimated 500 million mobile phones laying idle (not disposed of and not in use). This equates to 

approximately 250,000 tons of equipment embodying very significant upstream and manufacturing 

inputs and emissions. An even larger number of phones end up as domestic waste and have the 

“potential for release of heavy metals or halocarbon materials from batteries, printed wiring boards, 

liquid crystal displays, plastic housings, wiring, etc” (Seliger 2003). A 2007 study by the US EPA 

placed 34 recent model cell phones in landfill conditions and found that on average they leached 17 

times the amount of lead that constitutes hazardous waste under federal law (Mooallem 2008). 

Although there is high customer demand for cutting edge technology in this market, third party 

remanufacturers are making a profit selling remanufactured phones to less developed markets. Many of 

the most prominent carriers and manufacturers in the US have voluntary take-back programs. This 

industry first started in the US in the 1990s with companies taking advantage of “Charity Recycling,” 

and has grown to an annual sales volume of over 3 million phones in 2003 (less than 1% of the total cell 

phone market).72 In 2006, cell phone recyclers and remanufacturers estimated that they received about 

1% of the phones that were discarded globally. Phone remanufacturing is expected to show significant 

growth in Europe due to the WEEE directive (discussed above), which will require 75% of cell phone 

weight to be recovered (reused or recycled). The growth in many African countries also should be 

noted. The continent is one of the biggest markets for used cell phones, and in the less developed 

nations over 75% of phones are cell phones. Demand for these phones is increasing by between 30 and 

40 percent per year in some of these countries (Mooallem 2008). 

Computers are also characterized by short technological life cycles and high demand for the latest 

technology, both of which pose barriers to remanufacturing. In 2005 an estimated 250 million 

computers became obsolete, and those computers pose a substantial environmental threat, because they 

contain mercury, cadmium, lead, brominated flame retardants, and other toxics (“New Innovative 

Partnership with Staples, Electronics Manufacturers to Take Back E-Waste from Customers” 2004). 

Many localities are banning e-waste disposal, so take-back and recycling are becoming increasingly 

72 Indicative Examples: FOB Miami, Inc. http://www.fobmiami.com/, Cornerstone Wireless 

http://cornerstonewirelessinc.com/about.html 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 67 

common. Some manufacturers—e.g., Dell and IBM—have started remanufacturing programs by 

designing products with modular components that can be converted to parts for refurbished computers 

at the end of their lifecycle. The resulting computers are then sold through Dell and IBM distribution 

channels to customers who do not require latest-generation performance. Companies are also 

increasingly noticing that the full capabilities of PCs are not used in any case, and thus are more willing 

to accept equipment that is less than “cutting edge” (Ferguson et al 2006). 

Third parties (e.g. Remanufactured Computers.com: http://www.remanufacturedcomputers.com/) have 

also become involved in this industry, often selling computers to customers, such as schools, that 

cannot afford to upgrade to new computers on a regular basis (Ferrer 1997). 

One of the best known examples of remanufacturing is the Fuji Xerox model, in which copiers are 

leased, and either refurbished at the end of the lease period and then leased out again, or used for parts 

for new copiers. As a result of this system Fuji Xerox recovers as high as 98% of some of their products 

and reports annual savings of about $200 million due to remanufacturing (“Corporate societal 

responsibility: knowledge learning through sustainable global supply chain management.” 2005). 

Examples : 

IBM: http://www-132.ibm.com/webapp/wcs/stores/servlet/HelpDisplay?storeId=1&cat 

alogId=-840&langId=-1&subject=2576394&cm_re=masthead-_-products-_-ibmcue 

Fuji Xerox: http://www.fujixerox.co.jp/eng/ 

Dell: http://www.dell.com/content/default.aspx?c=us&cs=22&l=en&s=dfh 

Collective Good: http://www.collectivegood.com/ 

ReCellular: http://www.recellular.com/ 

Furniture 

Office furniture is a recent US growth sector for remanufacturing activity, with US sales of 

remanufactured furniture growing by around 25% annually. Available remanufactured products cover 

the spectrum of office furniture, and include desks, desk chairs, filing cabinets, partition panels, 

meeting tables, chairs, etc. Customers typically realize savings of about 50% over new products, and 

this has lead to quick growth in the industry. In 10 years, remanufactured furniture has obtained a 10% 

market share of the $9 billion commercial furniture industry, with many experts predicting an increase 

in 25% in the next 5 years in the US (Steinhilper 1998). There is also the potential to reduce disposal 

costs up to $93 million (US EPA 1997). 

Examples: Office Furniture Warehouse, Inc.: http://www.myofficefurniture.net/; Kentwood 

Office Furniture: http://www.kentwoodoffice.com/SWAPPID/87/PCPage/152428 

Construction Equipment 

Caterpillar, Inc. is the world’s largest producer of construction and mining equipment and has been 

remanufacturing its products since the 1970s. Remanufacturing began with engines and has grown to a 

large range of products. In 2005, 135 million lbs of components (2.2 million units) were returned to 

Caterpillar Remanufacturing Services. Of the items returned, 70% were remanufactured and those 

remaining were recycled. This success has been achieved through leasing machinery and one-for-one 

exchange programs, both of which eliminate many of the reverse logistics problems associated with 

remanufacturing. In 2006, Caterpillar signed a letter of intent with China’s National Development and 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 68 

Reform Commission (NDRC) to promote the Chinese remanufacturing industry (Caterpillar Inc. 

2006). 

Example: Caterpillar, Inc.: http://www.cat.com/cda/layout?m=105410&x=7 

Sources 

“Caterpillar Forms New Remanufacturing Division in Support of Enterprise Sustainability, Growth 

Goals.” PR Newswire (October 14, 2005). 

“Caterpillar to Help Develop Remanufacturing Industry in China.” PR Newswire (September 14, 

2006). 

“Corporate societal responsibility: knowledge learning through sustainable global supply chain 

management.” Fuji Xerox (2005). 

“Endless: 2006 Sustainability Report.” Caterpillar Inc. (2006). 

Ferguson, Mark E. and L. Beril Toktay. “The Effect of Competition on Recovery Strategies.” 

Production and Operations Management 15, no. 3 (Fall 2006): 351-368. 

Ferrer, Geraldo. “The Economics of Personal Computer Remanufacturing.” Resources, Conservation 

and Recycling 21 (1997): 79-108. 

Ferrer, Geraldo and D. Clay Whybark. “From Garbage to Goods: Successful Remanufacturing Systems 

and Skills.” Business Horizons (November-December 2000). 

Franke, C., B. Basdere, M. Ciupek, and S. Seliger. “Remanufacturing of mobile phones—capacity, 

program and facility adaptation planning.” Omega 34 (2006): 562-570. 

Giuntini, Ron and Kevin Gaudette. “Remanufacturing: The next great opportunity for boosting US 

productivity.” Business Horizons (November-December 2003). 

Guide, V. Daniel R. Jr., Terry P. Harrison, and Luk N. Van Wassenhove. “The Challenge of 

Closed-Loop Supply Chains.” Interfaces 33, No. 6 (November-December 2003): 3-6. 

Hauser, William and Robert T. Lund. “Remanufacturing: Operating Practices and Strategies.” 

Department of Manufacturing Engineering, Boston University (May 2008). 

Hauser, William and Robert T. Lund. “The Remanufacturing Industry: Anatomy of a Giant.” 

Department of Manufacturing Engineering, Boston University (June 2003). 

Lund, Robert T. “The Remanufacturing Industry: Hidden Giant.” Boston University (January 1996). 

Mooallem, Jon. “The Afterlife of Cellphones.” The New York Times (January 13, 2008) 

Macauley, Molly, Karen Palmer, and Jhih-Shyang Shih. “Dealing with Electronic Waste: Modeling the 

Costs and Environmental Benefits of Computer Monitor Disposal.” Journal of Environmental 

Management 68 (2003): 13-22. 

“New Innovative Partnership with Staples, Electronics Manufacturers to Take Back E-waste from 

Customers.” US Newswire (January 10, 2004). 

“Remanufacturing: An Answer to Global Warming.” Automotive Parts Rebuilders Association. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 69 

Sarkis, Joseph and Abdul Rasheed. “Greening the Manufacturing Function.” Business Horizons 

(September-October 1995). 

Steinhilper, Ralph. “Remanufacturing: The Ultimate Form of Recycling.” Fraunhofer IRB Verlag, 

Germany (1998). 

Seliger, Günther and Markus Ciupek. “Contribution to Efficient Cellular Phone Remanufacturing.” 

CIRP seminar on life cycle engineering. Copenhagen, Denmark (May 2003). 

US Environmental Protection Agency. “Remanufactured Products: Good as New.” WasteWi$e Update 

(1997). 

Brief #8: Resource Management 

Description and Value Proposition 

Resource Management (RM) Contracting is a performance-based approach to waste management. It 

centers on an innovative contractual partnership between a waste-generating organization and a 

qualified waste contractor that changes BAU compensation structures and otherwise supports and 

incentivizes waste minimization and recycling. It can include both hazardous and non-hazardous waste. 

Solid waste and recycling contracts directly influence how the vast majority of waste streams are 

managed. Most BAU waste and recycling contracts incentivize contractors to maximize disposal 

volumes (hauls), feature a limited scope of service with multiple contractors handling separate waste 

streams or recyclables, or both. This “fragmented” approach often lacks an emphasis on recycling and 

resource efficiency73 and does not tend to support waste minimization efforts. 

Under RM, by contrast, a waste contractor’s profit model is not based on “haul and dispose more 

volume,” but on attaining performance benchmarks—and thus compensation incentives—to “minimize 

waste and manage resources better.” 

More specifically, RM Contracting is based on three premises: (1) significant cost-effective 

opportunities exists to reduce waste, boost recycling, and otherwise optimize services; (2) contractors 

will pursue them when offered proper financial incentives; and (3) significant financial incentives to 

contractors can be financed from the savings generated through cost-effective improvements to a waste 

producer’s current waste/recycling system. (Such savings result from avoided disposal costs, increased 

commodity revenues for material recycled and other cost savings from waste minimization efforts.) 

For example, if contractors identify cost-effective recycling markets for disposed materials or 

techniques for preventing waste altogether, they receive a portion of the savings resulting from the 

innovation. RM contracts are generally structured so that base fees cover the cost of service, but profits 

are derived from such shared savings incentives. 

Thus, the value proposition for the waste generator is to increase recycling and receive value added 

services (e.g. improved reporting, dedicated customer service, and waste stream analysis) at no 

additional cost or with decreased costs. Benefits should include: reduced total cost of waste and 

potential liabilities; improved waste-related data tracking and reporting; increased recycling rates for 

73 Resource efficiency refers to source reduction, reuse, and recycling/diversion, or other means to decrease generation and 

disposal of waste (e.g., enhanced procurement/delivery techniques, material handling, or use). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 70 

materials already recovered; and in some cases the extension of recycling/recovery to new components 

of the waste stream. 

For waste contractors, this business model offers a means to diversify revenues, enjoy longer term and 

closer relationships with customers and differentiate themselves in a very competitive market. Most 

important for RM contractors is the potential for large profits that can result from substantial untapped 

opportunities for cost-effective recycling and source reduction. The result is that RM provides a 

profit-driven “efficiency services market” for waste reduction and pollution prevention. 

The term “Resource Management” was coined by General Motors, which began to deploy RM 

programs at its North American plants in 1997. A few innovative examples of municipal programs 

exist, but RM’s general potential probably lies more strongly in the commercial and manufacturing 

sectors. The model is new and emergent, and has received interest and promotion from US EPA’s 

Waste Wise program and several states, most notably, Massachusetts and Minnesota74. 

Environmental Performance 

The primary environmental benefits of RM derive from moving the management of waste up the 

reduce, reuse, recycle hierarchy, and more truly making disposal the management option of last resort. 

There is no comprehensive study documenting the benefits of RM; improvements are dependent on the 

types of waste generated by different organizations and the degree to which any organization is 

recycling prior to implementing an RM contract. However, case study evidence does indicate strong 

waste performance improvement potential in a wide variety of waste-generating sectors: 

 General Motors (GM) has comprehensive RM programs covering hazardous waste (including 

management of waste pad), industrial non-hazardous waste (sludges, grinding swarf, etc.) and 

plant trash (e.g., MSW). For 50 of GMs’ North American plants that have had RM contracting 

in place for a year or more, they have realized a 20% reduction in overall waste generation 

(30,000 tons), a 65% increase in recycling (from 50,000 tons to over 82,000 tons), a 60% 

decrease in disposal, and a 30% decrease in waste management costs (Tellus 2001). Individual 

assembly plants see greater than 25% reduction in waste per vehicle. 

• Public Services Enterprise Group, a New Jersey Utility, also was an early adopter of 

performance based waste contracting and has separate contracts for their hazardous waste and 

non-hazardous waste. Over the first 8 years of their program, hazardous waste generation was 

reduced by 93% and recycling of non-hazardous waste was above 94%. Total savings of the 

program was $1.75 million (equivalent to approximately 30% of “baseline” total waste 

management prior to program implementation) (US EPA, 2002). 

• Lempel Shattuck Hospital in Massachusetts, a small 1,000 bed state-run facility, has an RM 

program that includes all non-hazardous waste and confidential paper. In the first 4 years of the 

program, it has increased waste diversion by 18% (from 807 tons to the landfill in FY 03 to 659 

tons in FY 07). The recycling tonnage increased from 14 tons before the RM program to 108 

tons. The program is responsible for creating new recycling programs for cardboard, wood 

palettes, scrap metal, bottles and cans and a program to compost leaf and yard waste. In 2007, 

an organics program was being tested which could dramatically increase the waste diversion 

numbers as food waste makes up a large portion of the current waste stream. 

74 See websites in the Illustrative Example section at end of this brief. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 71 

• The West Des Moines school district in Iowa, with a student population of 8,600, 

implemented RM in December 2003. The program had to essentially create a waste 

minimization program from scratch; in the first year, recycling rates for the District jumped 

from less than 2% to 20%, with a variability of 15% to 35% at different schools. Central to the 

program’s success was the creation of individual recycling manuals for each school. (The RM 

provider was able to obtain recycling bins for each school at no cost to the District from a state 

grant and matching corporate contributions.) 

Clearly waste-producing organizations can undertake internal programs to pursue waste minimization 

and materials recovery, and to obtain the resulting benefits. However, even the most successful internal 

programs reach a plateau. RM contracting helps to achieve and sustain a higher level of recycling and 

waste minimization. 

Key Markets and Market Share 

RM contracting is a very new and emergent model, and market information generally does not exist. 

However, as virtually all commercial entities contract for solid waste and recycling services and are 

therefore candidates for RM contracting; an indication of total potential RM market size can be derived 

from estimates of the total market size of the US commercial solid waste sector: 

Figures on the size of this sector are not firm, as there are a significant number of public and private 

contractors in the market offering a wide range of services, with little public data available on many 

privately held companies. RW Beck performed an extensive survey from 1999–2001 to gauge the size 

of the solid waste industry (all waste that was not hazardous75) and estimated that in total, the industry 

managed approximately 545 million tons of waste and had $43.3 billion in annual sales (Repa, 2001). 

Measuring a more limited number of waste streams, Franklin Associates estimated that 217 million 

tons of MSW were generated 76 in 1997 (US EPA, 1999). 

The higher figure is probably most relevant for deriving RM market size, as RM is applicable to 

industrial non-hazardous waste, medical waste, and other wastes not included in the lower estimate. To 

estimate the market for RM contracting for the commercial, business and institutional sector, we must 

take a portion of this total number. This Franklin report and numerous other sources estimate that 

between 35% and 45% of MSW is commercial waste. Using the lower end of this range would yield an 

191 million tons of “RM-eligible” waste with associated annual revenues of $15 billion. 

While these figures are clearly indicative at best, they do suggest a large potential RM market size: even 

if the estimate is scaled back by 50% to focus on larger waste generators (the most likely customers for 

RM), the market would be 96 million tons of waste and annual revenues of $7.5 billion. 

While there has never been a study to assess how widely used RM contracting is, market penetration is 

assumed to be low outside of the auto sector. As noted, General Motors originated the RM model and 

currently has 6 RM service companies who serve their sites. 77 After finding that RM can be profitable, 

75 Solid waste for this study was defined as any non-hazardous waste sent off-site for final disposal, incineration, recycling or 

composting. Non hazardous waste included household waste; commercial, business or institutional waste; special waste; 

construction and demolition debris; regulated medical waste; yard waste; sludge; and scrap tires. 

76 Municipal solid waste ( MSW) includes wastes such as durable goods, nondurable goods, containers and packaging, food 

scraps, yard trimmings, and miscellaneous inorganic wastes from residential, commercial, institutional, and industrial sources. 

Examples of waste from these categories include appliances, automobile tires, newspapers, clothing, boxes, disposable 

tableware, office and classroom paper, wood pallets, and cafeteria wastes. MSW does not include wastes from other sources, 

such as construction and demolition debris, automobile bodies, municipal sludge’s, combustion ash, and industrial process 

wastes that might also be disposed in municipal waste landfills or incinerators. 

77 Based on personal communications with General Motors, January 2008. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 72 

these same companies have marketed their services to other automakers, and large equipment 

manufacturers (e.g. Caterpillar, John Deere). 

RM does, however, appear to be making inroads into other sectors with large volumes of 

non-hazardous industrial waste or specialized waste. Known RM customers include refineries, food 

and beverage processors, and cruise lines78. New programs have largely been driven by contractors 

who market the RM model to their customers, typically large waste generators with high annual waste 

costs (greater than $1mn). 

Seeing the potential of the RM model in the auto sector and other large waste generators, US EPA and 

several states environmental agencies have sought to test the model in much smaller organizations and 

in ones with more benign waste streams.

79 Out of these projects, RM has shown promise in K-12 

schools, universities, hospitals, retail, hospitality, and other sectors. At least two states have supported 

pilot RM program development in the past year: Minnesota (Independent School District 196, 

Mahtomedi School District, and Macalester College) and Massachusetts (Raytheon, Bridgewater State 

College). The progress of these programs will be important as the annual waste costs or these 

organizations are as small as $50K and have waste profiles typical of many commercial and 

institutional organizations. 

Illustrative Examples: 

US EPA Waste Wise Website http://www.epa.gov/wastewise/wrr/rm.htm 

Massachusetts DEP Website http://www.mass.gov/dep/recycle/reduce/rmcontr.htm 

Minnesota PCA Website http://proteus.pca.state.mn.us/oea/lc/rmcontracting.cfm 

Also see RM reports and case studies 

at: http://www.ceaconsulting.com/services/resource_management.html. 

Sources 

Repa, Edward, 2001. “The US Solid Waste Industry: How Big is It?”, WasteAge, December. 

(http://wasteage.com/mag/waste_us_solid_waste/). 

Tellus Institute, 2001. “Advancing Resource Management Contracting in Massachusetts: Reinventing 

Waste Contracts and Services, Executive Summary,” Tellus Institute: Boston. December. 

US EPA, 2002. WasteWise Update: Resource Management: Strategic Partnerships for Resource 

Efficiency”, US, Environmental Protection Agency: Washington, DC. March. 

US EPA, 1999. “Characterization Of Municipal Solid Waste In The United States: 1998 Update”, US 

Environmental Protection Agency, Office of Solid Waste: Washington, DC. Report No. EPA530, July. 

78 Based on personal communications with RM contractor representatives. 

79 For reports and case studies see: http://www.ceaconsulting.com/services/resource_management.html. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 73 

Brief #9: Telepresence 

(high-end videoconferencing) 

Description and Value Proposition: 

High-end video-conferencing (“telepresence”) allows people in different locations to communicate in a 

simulacrum of “face to face” exchange far superior to that achieved by traditional video-conferencing. 

This is accomplished via high-quality, high-definition audio and visual feeds, the use of multiple 

cameras and screens, and specially designed, dedicated rooms.80 

Telepresence systems are PSS offerings, including as they do room configuration, hardware, 

installation and maintenance, bandwidth, and control software. 

The value propositions to the customer are the avoided costs of travel and the ability to more quickly 

convene widely dispersed parties. The latter can accelerate strategic decision-making and otherwise 

improve business response times. While these benefits were promised by traditional 

video-conferencing, the relatively poor simulacrum of “eye contact” and “face to face exchange” these 

systems offer has limited the extent to which traditional video-conferencing actually displaces travel.81 

However, to realize these benefits, potential customers must have sufficient internal demand to offset 

substantial installation and operation costs. Although prices have been declining (a trend that is 

projected to continue, both due to competition and technological advances), each individual conference 

room ranges from $79,000 to $550,000 depending on the company and the number of participants it is 

designed for, and monthly service fees range from $8,000 to $18,000. 

Environmental Performance 

In principle, videoconferencing offers a substitute for physical travel. To the extent that it does so, the 

considerable energy consumption and emissions associated with travel are avoided. 

However, the energy and material inputs to the manufacture of telepresence systems likewise 

considerable, as are the energy requirements of the systems in use. Thus, in rough terms, the net 

environmental benefits of telepresence as an alternative to travel are the resource and energy savings 

achieved via travel reductions less the upstream and in-use requirements of the telepresence system. 

Environmental savings from travel increase with the avoided travel distance, including the distances 

travelled from home to meeting, and the travel to and from meals, hotels, local sites, etc. They also 

increase with the portion of the time the videoconference equipment is in-use, as this amortizes 

upstream and disposal impacts over a larger number of use-minutes. Some indicative results from 

LCA-based studies follow: 

 In a comparison of use-phase impacts (Reichling 2002) finds that videoconferencing requires 

less energy than travelling to a meeting by air, rail, or car except when very short distances are 

involved (example: a trip requiring a flight of 1000km consumes 500 times more energy than 

videoconferencing). 

80 (Internet video calling provides 2-way voice and visuals on personal computers, normally with one entity supplying the 

bandwidth and another the equipment. 

81 The Economist notes colorfully that “videoconferencing sometimes works so badly that it leaves users feeling alienated, and 

keener to meet face-to-face than they had been in the first place.” (“Far away yet strangely personal: The despised business of 

videoconferencing is about to get a new lease on life” in the Economist 23 Aug 2007.) 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 74 

 Nakamura et al found that the lifecycle CO2 “break-even” point for a videoconference system 

was 13 meetings annually involving 2 participants. (That is, if fewer meetings were held, 

physical travel was more eco-efficient on a CO2 basis than videoconferencing. However, if the 

number of participants or the number of meetings increase from this baseline, 

videoconferencing becomes markedly more eco-efficient than physical travel.) 

 Comparing a sample of actual videoconferences conducted by NTT to the travel that would 

result had participants attended the meetings in person, (Takahashi et al 2004) estimates that 

the average conference achieves a 60%-90% reduction in lifecycle CO2 emissions as compared 

to physical travel. Again, the result depends on the combined miles that would be travelled by 

the participants, the mode of transportation they use, and the frequency of use of the 

videoconference equipment. 

In this and the previous case, Japanese results would be expected to understate environmental 

benefits in the US context, as business travel in the US involves greater average distances and 

less use of rail. 

 Energy consumption is exponentially less for a video conference as the travel distance for a 

traditional conference increases past 100km (Stoughton et al 2007). 

It should be noted that environmental performance improvements scale directly with the financial 

savings (that is, avoided travel costs) realized by customers. While airfare is linked to travel distance 

imperfectly, travel time—and associated labor and per-diem costs—are closely linked to travel 

distance. Environmental benefits of telepresence are thus tied to a self-reinforcing economic 

mechanism. 

Key Markets and Market Share 

As noted, telepresence customers must have sufficient internal demand to justify large 

installation/acquisition and operations costs. 

Current customers are large corporations, especially banks and financial services companies that have 

widespread (normally international) offices. (Single-office companies are unlikely to need the service.) 

Current users include, e.g. Price Waterhouse Coopers, Time Warner, Capital One, AOL, Glaxo Smith 

Kline, Canon, PepsiCo, etc. Frost and Sullivan, a market consultancy, estimate that the corporate sector 

accounts for 90.3% of the US demand for telepresence. 

There are several other sectors that are beginning to show interest and hold promise for future 

expansion of the customer base. These include luxury hotels, universities, and medical centers. Hotels 

can meet with their own clients virtually, or offer patrons the same capability. The University of 

Arizona and Duke University have adopted the technology in order to make classes available to distant 

students or other schools. 

Medical centers also see tremendous value in creating “virtual classrooms” that allow students or 

teachers to participate from different locations, and get the added benefit of the traditional conference 

style uses. Clinicians and specialists are also able to use the technology to review cases and adopt or 

change courses of treatment.82 (However, both academic and clinical applications may make certain 

educational or clinical services more widely available, or increase their quality, but it is not clear that 

they are potentially displacing physical travel.) 

82 AHA Solutions, Inc., a subsidiary of the American Hospital Association (AHA), recently endorsed Tandberg (equipment 

provider for the HP Halo Gateway) as its “preferred visual communication solutions” provider. AHA members include 5,000 

hospitals and healthcare organizations and 37,000 healthcare professionals. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 75 

Cisco, one of the industry leaders, estimates that sales of its telepresence systems will double each year 

until 2011. One well-cited projection for the industry estimates 56% growth annually, reaching $1.24 

billion by 2013 (Frost and Sullivan 2007). BusinessWire reports that as of August 28, 2007 there were 

120 HP Halo studios in operation or being installed globally. The HP Halo Collaboration Studio was 

released in December of 2005 and was one of the first telepresence systems on the market. 

Estimating the portion of the US travel market for which telepresence services potentially offer a viable 

alternative is more difficult. The most immediately relevant sub-market is long-distance intra-office 

travel within large corporations. The information needed to estimate travel demand in this sub-market 

is not available, however in 2003 an estimated $174.7 billion was spent on business travel for 37.89 

million business person trips. 

Illustrative Examples: 

HP Halo 

Collaboration Studio 

http://www.hp.com/halo/index.html?jumpid=re_r138/051212xa/Halo 

Cisco 1000 and 3000 

Telepresence 

Meeting 

http://www.cisco.com/en/US/products/ps7073/products_data_sheet090 

0aecd80543f46.html 

Polycom Viewstation 

EX 

http://www.polycom.com/usa/en/products/video/large_conference_room 

/large_conference_room.html 

Tandberg http://www.tandberg.com/ 

Telesuite 

Sources 

“American Hospital Association Endorses TANDBERG as Preferred Videoconferencing Technology 

Provider.” TANDBERG: Press Release (August 21, 2007). 

“Far Away Yet Strangely Personal.” The Economist (August 23, 2007). 

Frost and Sullivan. “North American Telepresence Markets.” Market Engineering Research (May 3, 

2007). 

“HP Unveils Halo Collaboration Studios: Life-like Communication Leaps Across Geographic 

Boundaries.” HP Newsroom: News Release (December 12, 2005). 

Larorce, Aude. “Virtual Meetings Get More Real.” Forbes.com (January 26, 2004). 

Levy, Ari. “Cisco Expects Banks to Bolster Orders of Telepresence (Update3).” Bloomberg.com (June 

6, 2007). 

Meckbach, Greg. “Cisco Enters High-End Video Conferencing Market.” Computing Canada. 

Cedrom-SNi, Inc. (December 11, 2006). 

Nakamura, J., K. I. Takahashi, K. Honjo, S. Nishi, and T. Kunioka. “Life Cycle Assessment for 

Information Communication Technology.” NTT Information Sharing Laboratory Group. 

“Pan Birmingham Cancer Network Chooses LifeSize HD Video Communications Systems to 

Implement Telemedicine Program.” Business Wire: Press Release (August 15, 2007). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 76 

Reichling, M., T. Otto, J. Park, N. and N. Roome. “In Ecology of the new economy.” Greenleaf 

Publishing, Sheffield, UK (2002): 119-129. 

Stoughton, Mark, Yuhta Horie, Yuriko Nakao. “Service-led businesses for sustainability?: Evaluating 

the potential of policy for innovative product service systems in Japan.” Institute for Global 

Environmental Strategies : Kansai Research Center (February 28, 2007). 

Takahashi ,Kazue Ichino, Hidetoshi Tatemichi, Tohoru Tanaka and Shiro Nishi. “Environmental 

Impact of Information and Communication Technologies Including Rebound Effects.” NTT 

Energy and Environmental Systems Laboratories (2004). 

“TANDBERG and HP Open Up World of Telepresence.” TANDBERG: Press Release (August 28, 

2007). 

Toffel, Michael W. and Arpad Horvath. “Environmental Implications of Wireless Technologies: News 

Delivery and Business Meetings.” Environmental Science and Technology: web publication 

(March 18, 2004). 

Brief #10: Third Party Logistics (3PL) 

Description and Value Proposition 

Third-party logistics (3PL), also referred to as logistics outsourcing or contract logistics, focuses on 

improving resource utilization and process efficiency in order to reduce costs and improve service. 3PL 

providers deliver comprehensive logistics-related services, including delivery, storage, inventory, 

customer service, cargo handling, supply/distribution information systems, etc. 3PL providers are 

usually not specifically focused on improving environmental performance, but on improving logistics 

efficiency. Reductions in environmental loads are often achieved as by-products of the efficiency 

improvements. Strategies intended to reduce fuel consumption and vehicle-miles such as modal shifts, 

joint delivery, and increased load efficiency also reduce energy consumption and CO2 emissions. 

Logistics outsourcing has been shown to provide substantial economic benefits for the large 

manufacturing firms that make up the vast majority of 3PL clients. Some of the quantifiable benefits for 

US companies are listed below (Langeley 2006): 

 Reduced logistic costs by 9.9% (11.5% globally) 

 Reduced fixed logistics assets by 12.7% (20.0% globally) 

 Reduced the average order-cycle length from 11.0 to 8.4 days (12.7 to 9.7 globally) 

The same study found that 88% of users believed 3PL providers offered them a competitive advantage, 

and 62% of the North American users felt these providers implemented “new and innovative ways to 

improve logistics effectiveness.” 

Environmental Performance 

Although 3PL has the potential to provide environmental benefits, and often does provide those 

benefits, sustainability goals have not yet become a focus of the industry. According to a 2006 survey 

only 18% of 3PL providers are pursuing strategies to “go green” by utilizing renewable energy sources. 

Of that group 69% have only rerouted transportation routes in order to save on fuel costs, 15% are using 

hybrid vehicles, and 15% have researched solar power options (www.sdcexec.com 2007). An article on 

3PLWIRE.com describes the 3PL industry as “behind the curve environmentally.” 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 77 

Despite little specific focus by 3PL providers on environmental performance, they often achieve 

environmental performance gains for their clients due to increases in overall efficiency of the logistics 

system, e.g., reduce vehicle-km by optimizing loading and routing. A comprehensive assessment by 

Facanha and Horvath (2005) estimated the environmental effects that 3PL has had on the automotive 

industry and then extrapolated those effects to the manufacturing industry. The results are reported as 

reductions per item manufactured over the lifetime of the item, and the ranges given are dependent on 

the level of involvement of the 3PL provider. The results of the study are summarized below: 

 Automobiles: lifecycle energy use is decreased by 0.4%-1.9%, global warming potential (CO2, 

CH4, N2O, and CFCs) by 0.5%-2.0%, and fatalities by 0.8%-3.3% 

 Other manufactured products: lifecycle energy use is decreased by 0.4%-1.7%, global warming 

potential (CO2, CH4, N2O, and CFCs) by 0.4%-1.9%, and fatalities by 0.7%-2.9% 

The above effects are significant (again, note that figures cited are for total lifecycle performance and 

include the use phase of the product) and the potential to achieve even greater environmental 

performance is frequently cited, because the main goal of 3PL providers is to streamline the supply 

chain in order to increase efficiency. Increased efficiency almost always leads to a reduction in energy 

consumption. There is also empirical evidence that suggests logistics competence and environmentally 

responsible practices are correlated (Facanha and Horvath 2005). If this industry starts to react to the 

market pressure for sustainable alternatives that is growing in many other industries, then the 

combination of efficiency and sustainability goals is likely to lead to even greater reductions in 

environmental loads. 

Towards this end, US EPA recently launched its “SmartWay Transport” voluntary program, which the 

agency describes as “innovative collaboration between the freight industry and government to reduce 

air pollution and greenhouse gas emissions, improve fuel efficiency, and strengthen the freight sector.” 

Logistics providers are a key class of targeted partner under the program, and a number of 3PL 

providers participate as partners (US EPA SmartWay Transport website). 

It is interesting to note that in Japan, 3PL is being explicitly tied to and promoted as a mechanism to 

help client companies achieve green house gas reduction targets, developed as part of Japan’s strategy 

to meet its Kyoto Protocol obligations. 

Key Markets and Market Share 

Large manufacturing companies are the primary clients of 3PLs, and these companies normally 

purchase a large range of logistics services, from direct transportation to product testing. The 

automotive industry was the first to use 3PLs on a large scale and remains the most extensive user; 

according to a 2006 global study 88% of the automotive industry respondents use 3PL services. A 2004 

survey of the 500 largest manufacturing firms in the US found that 80% of respondents used 3PL 

services, up from 38% in 1991. The average user spent 40% of its annual logistics operating budget 

buying these services. The most common services purchased by these companies are listed below 

(percentages are the percent of users purchasing those services): 

 Direct transportation services 67% 

 Customs brokerage 58% 

 Freight payment services 54% 

 Freight forwarding 46% 

 Warehouse management 46% 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 78 

The reasons that some large manufacturing firms do not employ 3PL providers are varied, but some of 

the most common are listed below. These are reasons that companies have given and are not necessarily 

backed by empirical data: 

 Logistics is a core competency/expertise of the company 

 Costs would not be reduced 

 Control would diminish 

 3PL providers do not have the necessary global capabilities 

The US 3PL industry has been growing exponentially since the late 1980s. Industry revenue reached 

$10 billion in 1993, $45 billion in 1999, and $114 billion by 2006. Global revenues in 2006 were $391 

billion, with $139 billion coming from Europe (Lloyd’s List 2007). 

A major growth area for the industry has been expansion to serve and access international markets, 

particularly China and Western Europe. The 2004 survey indicated that 80% of US 3PL clients were 

using the services both domestically and internationally. This is up from 69% in 2003. This expansion 

has been driven by market demand for single 3PL providers with ‘global capabilities’, although 60% 

percent of users still employ multiple 3PL providers. The expansion has been achieved with both 

internal growth and acquisition. 

Examples 

1stTransport, Inc. www.1sttransport.com 

FedEx www.fedex.com 

DHL www.dhl.com 

United Parcel Service www.ups.com 

Riverside Logistics, Inc. www.riversidelogs.com 

Sources 

“Continued Double-digit Growth Seen for the Third-Party Warehouse Logistics Industry 3PLs' outlook 

upbeat, despite concerns of rising fuel costs, technology investment requirements, IWLA 

survey finds.” Editorial. www.sdcexec.com (April 11, 2007). 

“Environmental issues threaten competitiveness in Southern California.” Third Party Logistics Trends, 

News, and Information. 3PLWIRE.com (May 9, 2007). 

Facanha, Cristiano and Arpad Horvath. “Environmental Assessment of Logistics Outsourcing.” 

Journal of Management Engineering. 21, no. 1 (January 1, 2005). 

Knemeyer, A. Michael and Paul R. Murphy. “Evaluating the Performance of Third-Party Logistics 

Arrangements: A Relationship Marketing Perspective.” The Journal of Supply Chain 

Management: A Global Review of Purchasing and Supply (February 2004). 

Langley, C. John Jr. “2006 Third-Party Logistics: Results and Findings of the 11th Annual Study.” 

Capgemini US, LLC (2006). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 79 

Lieb, Dr. Robert and Brooks A. Bentz. “The Use of Third Party Logistics Services by Large American 

Manufacturers: The 2004 Survey.” (September 1, 2004). 

Stoughton, Mark, Yuhta Horie, and Yuriko Nakao. “Service-led businesses for sustainability?: 

Evaluating the potential of policy for innovative product service systems in Japan” Institute for 

Global Environmental Strategies : Kansai Research Center (February 28, 2007).

 “US third party sector nets revenue record.” Lloyd’s List. (April 16, 2007). 

US EPA “Smartway Transport” website. http://www.epa.gov/smartway/transport/ , accessed 28 

August 2008. 

Useful “portal” websites: 

http://3plstudy.com/index.php?p=home Third Party Logistics Study 

http://www.iwla.com/ International Warehouse Logistics Association 

http://www.tianet.org/ Transportation Intermediaries Association 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 81 

6Toward policy engagement 

As outlined in Chapter 3, identification of high-potential business models is a necessary step to fully 

exploit the environmental benefits of green servicizing. But it is not sufficient. While some of the 

models identified in this report are well-established in key niches and market segments, the Business 

Model Briefs make clear that none have reached their full market potential—nor is it a foregone 

conclusion that all will achieve broad adoption. Further, the briefs point out that there are often greener 

and less green variants of these models—and experience shows that current market conditions do not 

necessarily assure that it is the greenest version that grows. 

Fully exploiting the environmental benefits of green servicizing therefore requires evaluating the case 

for and—where appropriate and feasible—formulating and implementing policy to help foster market 

and regulatory environments that would help high-potential “green servicizing” models become 

business as usual, and would best assure that the “greenest” versions of these models are the ones that 

grow. 

As noted in Chapter 3, policy engagement may involve, but is not uniquely synonymous with, 

regulatory actions. Support for pilots, development of market information, manuals and information 

portals, establishing voluntary “green standards” or certifications, and developing voluntary programs 

and alliances based on these approaches are all important, non-regulatory forms of policy engagement. 

There is a long-standing aversion in US policy-making to “picking winners” (whether technologies, 

enterprises or sectors), rooted in the conviction that this is best left to market forces. It is important to 

understand that in the context of this report, policy support for green servicizing is (1) not contemplated 

on the level of individual enterprises, but at the level of business models and value propositions; and (2) 

is predicated on a clear performance-based criterion: does or can the model offer significant 

environmental performance improvements over BAU approaches? Both serve to distinguish “green 

servicing support policy” from “picking winners” as the term is usually understood. 

To further assure that policy engagement is—and is seen as—appropriate, this report envisions policy 

engagement as being guided by and generally limited to three well accepted justifications: 

1. Leveling the playing field. The existing policy regime and market environment, almost by 

definition, tend to favor BAU approaches. Policies can “level the playing field” by, e.g., 

reducing information asymmetries, internalizing pollution or other environmental costs, and/or 

offsetting the advantage that externalized environmental costs may confer on BAU approaches. 

2. Reducing entry barriers. Market forces are understood to function least effectively at the 

earliest stages of a new offering, where, for example, customer awareness and information is 

highly imperfect, financing is scarce for unfamiliar business concepts, and past performance 

“success stories” are scarce. Policy engagement can address these and other barriers to entry, 

including the entry of proven models into new customer sectors. 

3. Formal and informal standard-setting. Standards, whether formal or informal, are essential 

for markets to function efficiently, and standard-setting usually requires a facilitating actor. 

6.1 Needed: information about barriers, drivers and 

determinants of environmental performance 

In most general terms, any policies to exploit the benefits of green servicizing models can be designed 

to (1) reinforce drivers, (2) reduce barriers, and/or (3) strengthen the determinants of “green” 

performance of the model in question. Thus, identifying and designing policies requires detailed 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 82 

information about these barriers, drivers and determinants. The briefs presented in the previous chapter 

treat these issues only in a very general way. 

This chapter provides a more in-depth and systematic assessment of drivers, barriers and determinants 

of environmental performance for three models: Chemical Management Services, Resource 

Management, and Energy Services (ESCOs). All are “performance-based functional procurement” or 

“efficiency services” models. They were chosen both (1) because the research results strongly suggest 

high sustainability potential and (2) to assess the hypotheses that these models share strong similarities 

in drivers, barriers and value propositions. (If the latter is true, then government policy engagement 

around these models as a class may bring significant synergies and economies.) 

6.2 Mapping barriers, drivers and determinants to 

policy “targets” 

For these three models, the analysis is taken one step further: barriers, drivers and determinants of 

environmental performance are mapped to policy “targets.” 

Policy targets are not specific policies, but rather a statement of the immediate goal or effect that a 

policy or policies are intended to achieve. Policy targets have a clear, logical relationship to the barriers, 

drivers or determinants to which they correspond—they weaken the barrier, reinforce the driver, 

address the determinant. For example, in recently completed research in the Japanese context, 

(Stoughton et al 2007) note that: 

 The environmental performance of the 3PL model is strongly determined by the environmental 

performance of 3PL assets such as vehicle fleets and buildings. 

 Thus, “Make 3PL assets (including fleets, buildings and siting of facilities) as green as 

possible” is a policy target. 

 As an indicative example of a policy that would support this target, they suggest making 

“existing [Japanese] tax benefits for efficiently sited logistics infrastructure investments 

contingent on adoption of green building standards.” 

The identification of policy targets is intended to facilitate US EPA’s own evaluation of the case for 

policy and to indicate the types of policies that may best foster a supportive regulatory and policy 

environment. To further assist this process, examples of potential policies are provided for many of the 

targets. 

While resources existed to conduct three such analyses only, the process and results presented should 

be a useful model for similar assessments. 

The analysis presented in this chapter does not evaluate the case for policy. And while examples of 

possible policy measures are provided in many cases, these are intended to be purely indicative. 

Recommending specific policy measures is beyond the intent and scope of this report. Rather, this 

report is intended to provide critical analysis, concepts, information and tools for US EPA to use in 

evaluating and undertaking policy engagement, to indicate the focal areas in which these tools and 

information should be applied, and to suggest key next steps for US EPA to use “green servicizing to 

aid in decoupling material, energy, water and chemical use from economic growth.” 

Towards these ends, this chapter is the final “building block” of analysis, concepts, information and 

tools. Chapter 7 then synthesizes the overall research findings and Chapter 8 provides options and 

suggestions regarding strategy and next steps for US EPA. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 83 

6.3 Analysis: Chemical Management Services 

For an overview of the CMS model, refer to Business Model Brief #2 in Chapter 5. 

Determinants of environmental performance 

As described in the CMS Brief, environmental benefits are intrinsic to the CMS model to a significant 

degree. CMS Customers receive from their providers comprehensive chemical use information (the 

type of chemicals used, the quantities, where they are used), all of which are linked—at a minimum— 

to Material Safety Data Sheets (MSDS). Experience shows that this information significantly increases 

customer awareness of chemical use and leads to strong support for chemical use reduction. 

In addition, chemical use often becomes a source of cost to CMS providers, who thus have incentives to 

reduce it. Beyond these “intrinsic mechanisms,” the determinants that will affect and can maximize the 

environmental benefits of the model include: 

1. The program must first of all have the appropriate scope of services. For example, some 

programs simply seek to reduce the unit price of the actual chemical products themselves by 

outsourcing the procurement function (e.g. “leveraged purchasing”). Programs limited in this 

way are not “CMS” under the definition used in this report. While they may result in cost 

savings for the customer, their limited scope precludes the achievement of the full 

environmental benefits of the CMS model, including reduced chemical use from process 

efficiency improvements, the substitution of less toxic chemicals, etc. 

2. The inclusion of contract metrics and incentives that explicitly reward environmental 

improvements. With a fuller scope of services, the correct metrics and incentives can further 

maximize the environmental potential of the model. 

3. The inclusion of more detailed health and ecological risk information that goes beyond 

information in MSDS sheets. This information can be built into CMS providers’ information 

technology platforms. 

4. The use of CMS providers to introduce the growing number of “green chemistry” 

products or other environmental best practices. As each CMS provider has many 

customers, the deployment of new chemistries and technologies can be more rapidly 

introduced and implemented. 

Drivers and Barriers 

Experience over the past decade indicates that the following are key drivers and barriers to uptake of the 

CMS model: 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 84 

Table 5: CMS Drives and Barriers 

CMS Customers 

Drivers to CMS adoption Barriers to CMS adoption 

CMS Providers 

For prospective Customers, CMS programs: Chemicals are a small percentage of overall 

Lower costs. operating costs. 

Improve operational efficiencies. Customers often have a poor understanding of 

their total chemical lifecycle management costs. 

Reduce the volume of chemicals used. Transaction costs to baseline current chemical 

Improve environmental performance. management costs and processes and develop a 

Provide expertise in logistics, safety, CMS RFP and evaluate responses can be high. 

environmental reporting and compliance, For prospective customers in sectors where CMS 

particularly in the face of Increasing regulatory adoption is low, there is a lack of credible 

complexity/compliance costs (e.g. the European information regarding benefits & trackrecord. 

REACH regulations). Resistance to change. 

Are consistent with other business trends (core 

competency, outsourcing, suppliers as a strategic 

resource). 

Fear of losing process control and internal 

expertise. 

For providers, developing CMS offerings: Poor understanding by customers of their own 

Can provide a new source of revenues. chemical management costs makes the value 

proposition difficult to sell. 

Forge closer and longer-term relationship with 

customers. CMS providers who are also manufacturers may 

have credibility problems; i.e., customer suspicion 

Can provide key intelligence for development of that they will use the program simply as a platform 

“next generation” chemical products through to push their own products. 

access to point-of-use in the customer facility. Narrower chemical-management (CM) related 

market offerings such as stand alone CM software 

or leveraged chemical purchasing can divert 

customers from more comprehensive CMS 

offerings. 

The CMS RfP process is inefficient, often taking 

6-12 months, and there is no guarantee a contract 

will be awarded. 

In mature CMS programs, providers can find it 

difficult to deliver the “continuous improvement” 

demanded by most contracts; mature programs 

may become increasingly low-margin. 

Policy targets (Intermediate objectives) 

CMS providers can serve as a high-leverage vector for policy that seeks to promote green chemical use 

practices. That is, a dozen or so CMS providers can reach hundreds of end-user companies. This 

consideration, and the drivers, barriers and major determinants of environmental performance 

presented above suggest the following policy targets. They focus principally on shaping CMS programs 

to strengthen the determinants of “green performance” and on reducing the barriers to adoption of 

CMS; both should strengthen CMS as a high-leverage mechanism to disseminate green chemical 

practices and chemistry. 

• Accelerate substitution of green products (e.g., by providing a clearinghouse for new green 

chemical products.) 

• Standardize environmental metrics and incentives customers will adopt in programs and 

assure that these metrics and incentives reflect US EPA priorities. (For example, “best 

practice” CMS programs might measure chemical use reduction and the reduction of certain 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 85 

toxic chemicals and provide significant positive incentives to the CMS provider to reward 

meeting pre-established targets.) 

• Educate and “break open” new sectors for CMS through better environmental cost 

accounting around chemical lifecycle costs. For example, US EPA has promoted CMS in the 

K-12 school context and this model can be replicated into other sectors. 

• Support environmental performance improvements under CMS through award or 

recognition programs (perhaps tie to existing US EPA programs). 

• Increase awareness of CMS and its benefits. This could be done through case studies, 

workshops, targeted outreach to specific sectors, establishing peer-to-peer networks, etc. 

It should also be noted that CMS is in substantial part a logistics service, and as such embodies many of 

the potential environmental benefits of 3PL, e.g. CO2 reductions via streamlined logistics. Any policy 

developed to maximize these benefits under 3PL should also be examined for application to the CMS 

sector. 

6.4 Analysis: Resource Management 

For an overview of the Resource Management model, refer to Business Model Brief # 8 in Chapter 5. 

Determinants of environmental performance 

The core idea and objective of RM is a re-orientation and re-conceptualization of “waste management 

services” wherein the “reduce, reuse, recycle” hierarchy is implemented as a core contractual objective 

and source of profit, thereby obtaining the greatest utility from resources after their initial useful life is 

over. The highest level of the hierarchy, reduce, requires considerations around procurement itself. 

Environmental benefits flow directly from the implementation of the “3R” hierarchy. 

The primary determinants of the environmental performance of the RM model in any particular case are 

the complexity of the waste streams of a given organization, the infrastructure available within an 

economic distance to support reuse and recycling of these materials, the ability to influence an 

organization’s procurement, and the ability of a service provider to offer innovative solutions for 

problematic waste streams in a cost-effective manner. The ability to realize environmental benefits will 

further depend on: 

1. Access and scope of services sufficient that the supplier has the ability to change 

processes/BAU at the point of waste generation. Customers must provide access to their data 

and facilities so suppliers can initiate audits and target appropriate materials. The customers 

themselves then must work with suppliers to implement new recycling or source reduction 

programs. 

2. The existence of cost-effective opportunities to reduce waste, boost recycling, and 

otherwise optimize waste-related services. Few companies are willing to pay much more to 

move their waste stream up the 3R hierarchy unless they are very committed to sustainability or 

have other internal drivers that allow for cost increases. (The fact that the customer company 

has not already exploited such opportunities does not mean that they do not exist. A key part of 

the suppliers’ value-added is the specialist expertise and direct incentive to identify, evaluate or 

implement opportunities.) 

3. The existence of contractual incentives that provide significant financial benefit to the 

supplier as it moves waste management up the 3R hierarchy. This is critical both in 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 86 

incentivizing the supplier to be the driving force behind 3R activities and fund themselves from 

cost savings through contract incentives. 

Drivers and Barriers 

A key challenge to RM contracting lies in the fact that the cost-effectiveness of recycling vs. disposal 

for most materials is locally or regionally determined by available recycling infrastructure, disposal 

costs and regulations, and demand for the resulting materials. 

With this fundamental reality in mind, experience indicates that the following are key drivers and 

barriers to uptake of the RM model at the company/institution or site level: 

Table 6: Resource Management Drives and Barriers 

RM Customers RM Suppliers 

Drivers to RM adoption 

For prospective customers, RM can 

Help meet waste reduction or sustainability 

goals/commitments, whatever their origin. (E.g. 

such goals/commitments may arise from 

stakeholder pressure—employees, regulatory 

agencies, customers, from leadership 

commitments to environmental stewardship, etc.). 

Reduce operating costs—or, at a minimum, 

provide a means to meet waste reduction 

goals/commitments without increasing costs. 

Reduce risks and liability (for hazardous and 

industrial non-hazardous waste streams). 

For waste management providers, developing RM 

offerings can: 

Provide a means to diversify revenue. 

Serve to differentiate them from their competitors 

in the waste management industry. 

Secure longer term contracts and reduce customer 

turnover. 

Provide a “growth channel” within existing 

customers, as RM leads to an increased 

knowledge of customer operations, which can lead 

the provider to propose additional services. 

Barriers to RM adoption 

Waste/recycling does not readily get management 

attention (particularly as it is often a low 

percentage of overall costs). 

Lack of awareness of RM potential and the 

value-added services that are available under RM 

programs. 

Poor understanding of true waste and recyling 

costs and waste stream composition. 

A highly dispersed waste and recycling supplier 

market with limited capability to supply RM 

services at national scale and in certain customer 

segments. 

Lack of contracting expertise (especially in mid 

size and small companies where waste contractng 

is handled by operational personnel). 

Economies of scale are important: RM suppliers 

currently focus on large waste generators due to 

larger waste volumes. 

Reducing the volume of waste destined for 

disposal may pose an internal conflict of interest for 

waste management companies that own assetts 

such as landfills, incinerators, etc. 

A waste management and recyling sales force 

accustomed to selling and negotiating on a unit 

cost/volume basis (e.g. cost per container pull on a 

specified schedule), can have difficulties in selling 

RM offerings based on more comprehensive 

services and on-site assistance, and embodying 

very different compensation schemes. 

As noted in the table, RM can pose an internal conflict of interest for companies that own landfills, as 

their primary financial incentive as a company may be to “feed the hole.” Beyond this, another 

problematic financial incentive can arise between companies in the waste management sector: Often, 

companies that own waste and recycling assets can greatly determine the local economics of recycling 

and diversion by what they charge haulers/RMs to bring material to their end use facilities (landfills, 

material recovery facilities, etc.). This is particularly true in markets where a single company owns the 

majority of waste and recycling assets. Often the result is that landfilling remains the most financially 

attractive disposition option. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 87 

Policy targets (Intermediate policy objectives) 

Continued development of recycled material markets and recycling infrastructure is critical to the 

development of RM itself, since this will expand the cost-effective opportunities available to RM 

suppliers to move management of their customers’ wastes up the 3R hierarchy. US EPA and state 

governments are already significantly engaged in this area. 

Beyond this larger question of recycling market development, the drivers, barriers and major 

determinants of environmental performance presented above suggest the following policy targets 

specifically for the RM model: 

• Build supplier capability to provide RM services. Most companies within the waste and 

recycling industry are focused on “haul and remove” and thus compete with each other (and 

make sales) on a unit cost/volume basis. RM provides an opportunity for forward thinking 

companies to develop increased revenues through value-added services. 

US EPA could, for example, undertake outreach to forward thinking haulers, recyclers and 

waste companies to raise their awareness of this new value proposition and how to offer it 

profitably. To do this, US EPA would need to first understand current supplier capability. Such 

an initiative could tap successful RM suppliers as a resource for peer to peer networks to help 

educate new potential RM suppliers—though only so long as the companies operate in 

non-overlapping markets. 

• Increase awareness of the model among potential customers. This could include successful 

case studies as well as the dissemination of contracting assistance tools and a list of qualified 

RMs. 

• Reduce transaction costs of key knowledge acquisition for RM suppliers. For many 

current and potential RM suppliers, the need to become expert in waste and recycling markets 

and the use of products made of recycled materials is a substantial barrier to entry/expansion, 

and one which becomes larger as the potential service area grows. 

To reduce this barrier, US EPA could, for example, serve as a technical clearinghouse for such 

information. As a first step, this would include compiling many of existing state level 

information and recycling market development studies. A key challenge would be to keep the 

information current, as many recycling markets are highly volatile. 

 Test cooperative approaches to achieve necessary economies of scale. RM requires 

sufficient material volume to make many diversion options cost-effective, and this means that 

many smaller facilities cannot currently benefit from the model. US EPA can support/facilitate 

pilot approaches in which smaller sites to form cooperatives to achieve the necessary 

economies of scale. 

• Leverage materials aggregation potential of RM suppliers to address gaps in recycling 

infrastructure. Regional gaps in recycling infrastructure are a barrier to RM growth—for 

example, there are a very limited number of composting facilities in the US, with significant 

gaps in regional coverage. At the same time, limited supply of diverted materials is a barrier to 

infrastructure development. RM suppliers, however, have the effect of aggregating a number of 

different waste generators, and can rapidly increase the supply of diverted material where the 

infrastructure exists. 

To take advantage of this potential, US EPA could engage in a dialogue with RM providers to 

obtain a better understanding of key recycling infrastructure gaps. US EPA could then facilitate 

the process of determining where RM suppliers may be able to guarantee critical volume of 

diverted materials to make new facilities viable. In principle, this approach could be used with 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 88 

both large-volume/low toxicity waste streams such as organics and with more problematic 

waste streams. 

6.5 Analysis: ESCO model 

For an overview of the Energy Services Contracting model, refer to Business Model Brief #4 in Chapter 

5. 

Determinants of environmental performance 

The source of environmental performance gains offered by the ESCO model is straightforward: the 

value proposition and the business case for each contract rely on reduced energy usage, with 73% of 

ESCO sector revenues deriving from energy efficiency projects (Hopper et al 2007). 

Efficiency gains (and thus environmental benefits) delivered by ESCOs depend significantly on the 

degree to which contracts (1) incentivize the ESCO to aggressively seek efficiency improvements on an 

ongoing basis, and (2) accommodate extended “crediting” of efficiency gains. In addition, efficiency 

gains also depend significantly on: 

 Energy prices & costs of emissions. Sustained higher energy prices incentivize customers to 

reduce energy costs (and thus to seek ESCO services)—but they also strengthen the business 

case for efficiency upgrade options that are not economical when energy prices are lower. 

Similarly, if GHG emissions have a firm cost, or if emissions reductions are marketable, then 

the business case for efficiency upgrade options likewise strengthens. 

 Costs of capital. Bundled financing, in which the capital costs of energy efficiency upgrades 

are paid for out of energy savings is a key benefit/attraction to many institutional ESCO 

customers. As capital costs increase, the business case for many energy efficiency options 

correspondingly weakens. Overall energy efficiency gains are likely to fall as a result. 

 Scope of services. Analogous to RM and CMS, the broader the scope of energy-using 

applications that an ESCO is given license to address, the larger the potential energy savings. 

(Thus, an ESCO whose remit extends, e.g., to lighting and HVAC, but not to industrial motors 

or water treatment may not be able to achieve the full, economically efficient set of energy 

efficiency gains available from a facility.) 

 Expertise of the ESCO. The more expansive the scope of services, the broader the expertise 

required of the ESCO (or the team the ESCO assembles). Insufficient ESCO/team capability 

means that the full, economically efficient set of energy efficiency gains available from a 

facility will likely not be achieved. 

Drivers and Barriers 

There are two primary drivers for all market segments: 

 Cost reductions in the face of rising energy costs. ESCOs trace their start in the 1970’s to the 

sudden rise in energy prices during that period, and the ability to achieve absolute cost 

reductions continue to be a primary driver for the model—particularly in view of recent sharp 

rises in fuel and electricity prices. 

 A resurgent concern over environmental impacts of energy use, including climate change 

and the impacts of non-GHG emissions such as NOx, SOx, particulates and Mercury from 

power plants, boilers, etc. While ESCO revenues to date have largely relied on energy 

efficiency retrofits in the Federal/MUSH markets, trends in green building improvements and a 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 89 

strong interest in developing renewable energy sources is expected to contribute to more 

diversified revenue streams and growth of the ESCO sector. For example, the Leadership in 

Energy and Environmental Design (LEED) standards are contributing to significant 

consideration and adoption of energy efficient design methods and the use of renewable energy 

in new and existing buildings. 

In addition, the federal and MUSH segments have some additional drivers that have fuelled growth in 

these segments. The first is the Federal Energy Savings Performance Contract (ESPC) authorization, 

renewed and extended through 2016 by the Energy Policy Act of 2005. This encourages federal 

agencies to use ESCOs and allows for the longer term contracts required to recoup savings from ESCO 

funded projects. Additionally, the 2005 Energy Policy Act set goals to: a) cut federal facilities energy 

use (compared to 2003) by 2% per year in 2006 through 2015 and; b) increase use of renewable energy 

to not less than 3% of total electricity use in 2007-2009, not less than 5% in 2010-2012, and not less 

than 7.5% in 2013 and thereafter. 

As suggested by the discussion of “determinants of environmental performance,” above, the current 

tightness of credit market is a general barrier to ESCO projects requiring long-term financing. The 

barriers to the adoption of ESCOs contracts by specific customers sectors are outlined below. 

• Federal and MUSH market: The Federal and MUSH (municipal and state governments, 

universities, schools and hospitals) segments are where the majority of ESCO activity lies 

(with 80% of revenues) and at least prior to the current economic slowdown, expectations 

amongst ESCO companies for growth in these segments were quite bullish, with estimates of 

greater than 20% growth in 200883. 

This is not to say that barriers do not exist in this sector, but they center on introducing the 

model and establishing the contract in compliance with all government purchasing guidelines 

where appropriate. These are typical sales hurdles for many service companies. It is worth 

noting that growth was very sluggish when the ESPC authorization expired in 2003 which 

suggests the importance of specific authorization for federal agencies to enter into long term 

performance contracts. 

• Industrial market: The industrial and commercial segments account for 15% of ESCO 

revenues. The major barriers acting against higher ESCO market penetration in the industrial 

segment are a set of characteristics intrinsic to industrial customers. These customers: often 

have the expertise to do energy efficiency projects in-house; have high investment hurdle rates 

(i.e., they require quick payback or high rates of return); often accord low priority to energy 

efficiency projects compared to investments with a more direct impact on sales or production; 

are hesitant to allow outside providers access to core production processes—both for fear of 

ceding proprietary competitive advantage and because industrial customers consider the 

process and its control a core competency. In addition, ESCO providers often lack the specific 

process knowledge needed to address the needs of a given industrial facility. 

• Commercial: The most important barriers to ESCO growth in this market segment revolve 

around the split financial incentives intrinsic to owner-tenant relationships. Briefly, while 

owners of buildings are responsible for making capital investments, operating expenses (e.g. 

lighting and heat) are generally the responsibility of the tenants. This limits interest by building 

owners in long-term performance contracts. Other barriers include short tenant leases, high 

investment hurdle rates for non-owner occupied commercial space and the unwillingness of 

83 Hopper, Nicole, Charles Goldman, Donald Gilligan and Terry E. Singer. “A Survey of the U.S. ESCO Industry: Market 

Growth and Development from 2000-2006”. Energy Analysis Department, Ernest Orlando Lawrence Berkeley National 

Laboratory (May 2007). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 90 

some owners to take on long term debt, which may limit their ability to sell or “flip” their real 

estate asset. 

• Residential and public housing: The most important barrier to ESCO growth in this market 

segment, which currently accounts for about 5% of ESCO revenues, is achieving feasible 

economies of scale in individual projects. Individual residential units (or the “common space 

and services” of public and private housing developments) typically consume much less energy 

than large institutions and campuses. The high transaction costs of creating individual 

performance based contracts with individual home owners may not be immediately off-set with 

the energy savings, especially if the payback period is long and individual homeowners are 

unsure of how long they will stay in their home. 

Policy targets (Intermediate objectives) 

It is important to note that, of the “green servicizing” models profiled in this report, the ESCO model is 

probably the most mature. ESCOs have a 30-year history, and ESCO offerings are well-established in 

both the Federal and MUSH market segments, where ESCOs have a proven track record of developing 

comprehensive projects that utilize energy efficiency, onsite generation and renewable energy 

technology (Hopper et al 2007). And as noted above, there is already very specific federal policy 

engagement with the ESCO model, in the form of statutory authorization for Federal entities to enter 

into long-term energy performance contracts. 

This said, some of the barriers to long-term performance contracts in key energy-consuming market 

segments outlined above are likely intrinsic to these segments, and such contracts may not be the 

optimal mechanism to deliver energy efficiency services to these market segments. 

The discussion above, these considerations and the dynamic state of energy related services generally 

suggest the following policy targets: 

• Enhance access to and reduce cost of capital for energy efficiency investments. As noted 

above, the costs of capital to undertake energy efficiency investments is a critical determinant 

of the environmental performance gains that ESCOs can deliver. This is particularly critical in 

tight credit markets. 

• Promote environmental co-benefits of energy efficiency improvements. As noted above, 

the core of the ESCO value proposition is cost savings via energy efficiency gains. But these 

efficiency gains are typically delivered hand-in-hand with emissions reductions (including 

CO2, SOx, NOx, Mercury and particulates), which may have tangible bottom-line, public 

relations, and regulatory compliance/cost benefits. (E.g. they could affect air emissions 

permits, major/minor source designations, etc.) 

Case studies are one way to document and promote these benefits. US EPA could also consult 

with ESCO providers to determine whether any unintentional regulatory or policy barriers exist 

to fully realizing these co-benefits, and consider appropriate policy changes or regulatory 

flexibility. 

• Identify and leverage ESCO capability in the context of a rapidly changing energy 

services landscape. As noted, ESCOs have a proven track record of developing 

comprehensive projects that utilize energy efficiency, onsite generation and renewable energy 

technology, particularly in their core markets. In these markets, ESCOs are high-leverage 

vehicle for disseminating cutting-edge energy efficiency technologies and practices. At the 

same time, private equity interest in renewable energy and greenhouse gas mitigation projects 

as well as in numerous companies in the green design industry is radically changing the energy 

services field. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 91 

This suggests the need for a stock-taking broader than the series of ESCO market surveys 

commissioned by DOE (of which Hopper et al 2007 is the most recent). Such a stock-taking 

would seek to (1) first evaluate the current state of the ESCO market in the context of the 

broader market for energy services and energy efficiency; and then (2) to ask critical questions 

such as which technologies and markets ESCOSs can best reach, and which are best 

approached through other market intermediaries (lighting and HVAC contractors, engineering 

firms, original equipment manufacturers, architects and consultants) and policy approaches 

(standards, codes); and (3) whether there may be significant synergies to be obtained through 

networks of ESCOs and other energy related companies serving the industrial, commercial and 

residential market segments. 

• Encourage private-sector investment (implemented via ESCOs and other energy 

efficiency services providers) in green buildings and clean energy options (such as 

renewable generation technologies). In 2006, the private sector investments leveraged by 

ESCOs is about the same as authorized spending for all utility and public benefit energy 

efficiency programs (Hopper et al, 2007). This is a significant addition to the promotion of 

energy efficiency and should be fully exploited. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 92 

Policy for “Green Servicizing” in some peer economies 

Outside the US, there has been significant policy engagement in “green servicizing” in some key peer 

economies/regions. This box provides a high level summary of this engagement. 

Europe 

A number of European countries have promoted specific “Green Servicizing” models, and these experiences are 

too many and too varied to summarize here. 

As described in Chapter 2, the European Commission (EC) made a significant investment in PSS research under 

the 5th Framework Program (FP5). At the European level, interest in PSSs has not so much waned as merged into 

the broader “sustainable consumption and production” research and policy agenda, with an emphasis on the 

integration of infrastructure, economic activity and consumer behavior. This is evidenced, for example, in the fact 

that the literature archive of SusProNet, the coordinating network for the FP5 PSS research, is now housed on the 

Score! (Sustainable Consumption Research Exchange) website at www.score-network.org. Sustainable 

Consumption and Production research has received significant EU funding under the current (FP6) framework 

program. 

Separately, the EC’s Environment Directorate recently funded as study of “new business models with 

environmental benefits,” with the aim of identifying factors for success and to “inform discussion of policy that could 

promote business models that both reduce environmental impact and generate profit.” The research was 

undertaken by the Danish consultancy COWI; an expert’s workshop to review preliminary results was held 30 May 

2008 and the final paper published in November 2008 (EC-DG Environment/COWI, 2008). All the models reviewed 

are PSSs, and there is a significant emphasis on functional procurement/efficiency services models. 

Japan 

The Ministry of Economy, Trade and Industry (METI) has commissioned formal studies and a consultation 

committees on “Green Servicizing.” METI provides start-up grant support to a limited number of SME-led “Green 

Servicizing” businesses, selected on a nationally competitive basis. 

At the national level, Japan has promoted the ESCO, 3PL and car-sharing models. 3PL (with a focus on EV and 

advanced vehicle deployment and tie in to eco-city initiatives. 3PL providers are increasingly tieing their offerings to 

helping clients achieve GHG reduction obligations under the Kyoto Protocol. Car-sharing was actively promotoed in 

the context of eco-town initiatives, and tied to EV and clean vehicle deployment.. 

In addition to these national initiatives, there have been support for specific green servicizinging businesses at the 

local level, also often tied to eco-town initiatives. 

Japan has mandated take-back for some white goods and for computers, monitors and printers. Recycling targets 

have also been established for a number of other goods. Deconstruction is also effectively mandated, tied to 

recycling requirements for construction and demolition waste. 

South Korea 

South Korean policy engagement with “green servicizing’ dates back to at least 1991, when the Rational Energy 

Utilization Act was amended preparatory to providing preferential credit for ESCO projects. Long-term and 

low-interest government loans for ESCO projects were initiated in 1993 and public sector demostration projects in 

1998—the latter requiring amendment of the public procurement law to permit energy services performance 

contracts. Policy engagement was managed by the the Ministry of Commerce, Industry and Energy, since 2008 

called the Ministry of Knoweldge Economy (MKE) (Lee et al 2003). 

Since 20007, MKE, via the Korea National Cleaner Production Center, has been implementing a multi-year 

“sustainable product services” (SPS) initiative. To date, this has included support for 11 SPS projects, including 

CMS and sharing and rental-based business models. A definition of “product servicizing business” has been written 

into law, as part of the framework “Legislation Promoting the Shift to an Environment-Friendly Industrial Structure.” 

In 2008, the Ministry of Land, Transport and Maritime Affairs(MLTMA) announced an action plan for greening 

logistics, with a signficant focus on 3PL. In 2009, MLTMA has announced it will introduce the "Green Logistics 

Partnership" and and a "Green Logistics Certificate," linked to South Korea’s LCGG(Low Carbon Green Growth) 

policy goal (Kim 2009). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 93 

7 Key Findings 

Syntheses and comparative analysis across the 10 models yield a set of key findings. While this 

research was subject to some key limitations—i.e., it was generally limited to environmental and 

business performance information in the public domain, and it was not possible to undertake a 

systematic “scan” of the US economy for green servicizing models—these findings emerge sufficiently 

strongly that it is highly likely they will prove robust to the results of more detailed 

information-gathering and analysis at the sectoral, model or mechanism level. 

1. Real and significant eco-efficiency gains. 

Review of the environmental performance sections of the business briefs reveals that, while the quality 

of quantitative environmental performance data varies significantly across the 10 green servicizing 

business models, all the models can produce significant eco-efficiency improvements over BAU 

(see Table 7, next page). This is significant because the models provide alternatives to the BAU delivery 

of environmentally critical economic functions and products. The implication is that at their full market 

potential, these models possess significant potential to improve the eco-efficiency of the overall 

economy. 

This is consistent with key findings of research outside the US, which indicate that while servicizing 

generally is not necessarily green, certain models can be strongly so, and these are clustered under 

results-oriented models. (See discussion in Chapter 2.) 

2. Scope and need for policy engagement. 

The business briefs and the more detailed analyses of barriers, drivers and determinants of 

environmental performance conducted for three functional procurement/efficiency services models 

indicates that there is scope for—and at least in some cases strongly suggests the need for—policy 

engagement to achieve this potential: 

 Without policy engagement, adoption of green servicizing models is likely to be slower. 

For example, poor market information and lack of a performance track record are typical 

barriers to market adoption for new models and for existing models trying to enter new 

customer sectors. These issues appear, for example, in the CMS, RM and IPM briefs. Absent 

supported pilots, case studies, and/or similar policy engagement, the efforts of individual 

provider companies alone tend to overcome these barriers only slowly. 

Policy engagement needs are not limited to information dissemination and supported pilots. 

For example, car-sharing success depends on strategically located parking spaces. Such spaces 

are also a significant business cost (if available at all), particularly on and near the campuses 

and in the dense urban areas that are the model’s key markets. Policy engagement could, for 

example, make publicly-owned spaces available to car-share operations at concessionary rates; 

private entities may be more willing to dedicate spaces they control if doing so results in a tax 

benefit, public recognition, or other benefit. 

 Without policy engagement, it may not be the greenest version of these models that 

become market standards. For example, the experience of CMS is that “leveraged 

purchasing” programs compete with CMS in the marketplace—and in fact are often labeled as 

CMS, though they do not possess the “green drivers” that CMS programs do. 

The 3PL brief highlights that the 3PL model has significant potential to drive greenhouse gas 

reductions from the transport sector, and that the model is in fact being tapped for this purpose 

outside the US. However, in the US, this potential has thus far been little operationalized in 

practice. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 94

Table 7: Green Servicizing Models: Environmental Performance Summary 

CAR SHARING 

Reduced vehicle miles travelled (VMT) per customer: 

Car-share members reduced VMT by 44% across several studies. 

According to a ZipCar survey, car-share members increase public transit 

trips by 47%, increase bike trips by 10%, and increase walking trips by 

26%. 

Reduced total vehicles/service population: 

Every US car-share vehicle "removes" between 6 and 23 vehicles from 

the road, depending on the study. 

Cleaner vehicles: 

30% of US car-share vehicles are hybrids or alternative fuels vehicles. 

CHEMICAL MANAGEMENT SERVICES (CMS) 

Improved Environmental Data: 

100% of CMS customers reported improved environmental data. 

Reduced Total Amount of Chemicals Being Applied: 

Over 50% of CMS customers reported reductions in total chemicals 

being applied. 

Increased Recycling/Reusing of Chemicals: 

Over 45% of CMS customers reported increased chemical 

reuse/recycling. 

Technological Process Efficiencies & Chemical substitutions 

Over 30% of CMS customers reported increased process efficiencies; 

approximately the same number reported beneficial chemical 

substitutions. 

(Data from the Chemical Strategies Partnership’s 2004 CMS Industry 

Report.) 

DECONSTRUCTION 

Recovery of Waste for Reuse and Recycling: 

Deconstruction has the potential to reduce the materials sent to 

incinerators and landfills and alleviate demand on virgin materials. 

According to the Institute for Local Self-Reliance, US deconstruction 

could recover an estimated 24 million tons of Construction and 

Demolition (C&D) waste for reuse and another 6 million tons for 

recycling. This represents a 46% total recovery rate. 

ENERGY SERVICES COMPANIES (ESCOs) 

Reduced Energy Consumption: 

According to a review of the ESCO industry completed by the Berkeley 

National Laboratory, ESCO projects on average reduce energy 

consumption by 23% or 47 kWh/m2/yr. Using US EPA’s Emissions & 

Generation Resource Integrated Database, this corresponds to average 

reductions of 67.42 lbs of CO2/ m2/yr, 0.34 lbs of NOx/m2/year, and 0.15 

lbs of SO2/ m2/year. 

Reduced Water Consumption: 

A small percentage of ESCO projects also reduce water consumption. 

INTEGRATED PEST MANAGEMENT SERVICES 

Reductions in the Use, Toxicity, and Dispersion of Pesticides: 

Multiple case studies have shown that IPM can achieve significant 

reductions in pesticide use, toxicity, and dispersion, with reductions as 

high as 93% in grams of pesticide active ingredients applied. 

IT LIFECYCLE SOLUTIONS 

Reduced Incidence of Improper Disposal 

and Uncontrolled Recycling: 

End-of-lease responsibilities are placed on the equipment provider, 

which is much more likely than individual customers to have appropriate 

disposal and recycling practices in place. 

Increased Reuse, Recycling, and Parts Salvaging: 

Providers have a strong financial incentive to reuse, recycle, or salvage 

the equipment they lease. According to one study, enhanced recovery 

and re-lease may together reduce PC lifecycle impacts by ~50%. 

RESOURCE MANAGEMENT (RM) 

Increased Reuse, Recycling, and Overall Waste Minimization: 

RM moves waste management up the 3R hierarchy, and more truly 

makes disposal the waste management option of last resort. For 

example, GM, which pioneered the model, realized an average reduction 

of 20% in overall waste generation, a 65% increase in recycling, and a 

60% decrease in disposal tonnage across 50 North American plants. 

REMANUFACTURING 

Reduced Energy Consumption: 

One landmark study calculated that remanufacturing in the US requires 

on average 85% less energy than manufacturing a new product. Using 

US EPA’s Emissions & Generation Resource Integrated Database, this 

corresponds to savings of about 35bn kWh or ap. 47bn lbs of CO2, 73mn 

lbs of NOx, and 190mn lbs of SO2 in avoided air emissions. 

Reduced Need for Raw Materials: 

Remanufacturing also uses fewer virgin raw materials than 

manufacturing “from scratch.” One study estimated in the US over 14 

million tons of raw materials are saved annually by remanufacturing. 

TELEPRESENCE 

Reduced Physical Travel & Associated Energy Consumption: 

Studies indicate substantial CO2 reductions on average compared to 

physical travel & that savings increase with avoided travel distance; e.g. 

an NTT study of actual videoconferences in Japan estimated 60%-90% 

reductions in lifecycle CO2 emissions as compared to physical travel. 

THIRD PARTY LOGISTICS (3PL) 

Reduced Energy Consumption: 

The logistics efficiency improvements achieved by 3PL tend to improve 

logistics energy efficiency, even without specific “green” contract 

incentives. In the case of automobiles, these incidental gains are 

estimated at 0.5–2% of lifecycle CO2 emissions (including use phase). 

Source: Business Model Briefs, Chapter 5. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 95 

As these examples show, and as highlighted in Chapter 3, policy engagement can involve, but is not 

uniquely synonymous with, regulatory actions. Support for pilots, development of market information, 

manuals and information portals, establishing voluntary “green standards” or certifications, and 

developing voluntary programs and alliances based on these approaches are important forms of policy 

engagement. 

And, as discussed in Chapter 6, such policy engagement should not be burdened with the label of 

“picking winners,” since policy support (1) is not contemplated on the level of individual enterprises, 

but at the level of business models and value propositions, and (2) would be predicated on a clear 

performance-based criterion: does or can the model offer significant environmental performance 

improvements over BAU approaches? Further, it would conform to well-accepted justifications for 

policy action: leveling the playing field, reducing entry barriers, and standards-setting. 

3. Special potential of performance-based 

“functional procurement”/“efficiency services” models 

Of the 10 models selected, half are “functional procurement/efficiency services” models. These 

include: CMS, RM, performance-based Energy Services (ESCOs), 3PL, and IPM-based pest 

management services. 

These models were selected because, in principle, 

they can transform the procurement of 

environmentally problematic goods and services into 

performance-based service arrangements—and in so 

doing, incentivize the service provider to reduce the 

customer’s consumption of the environmentally 

problematic good or service in question (see Figure 7). 

Collectively, these models address the majority of most 

organizations’ environmental footprints. 

Overall, the findings reinforce the idea that, as a class, 

performance-based functional procurement/efficiency 

services models have high potential to achieve very 

significant eco-efficiency improvements in critical 

economic functions and sectors: 

 Good market and environmental performance 

information is available for CMS and ESCO 

offerings, and this information indicates both 

strong market potential and that their 

environmental performance improvement 

mechanism is being strongly operationalized. 

 Good market information is available for 3PL. 

While 3PL’s ability to drive down 

distribution-related CO2 emissions has not been 

Figure 7: Aligning economic 

incentives for use reduction in 

efficiency services models 

seeks to 

In contracts structured on increase 

unit cost vs. volume. . . 

Chemicals 

supplied, 

energy provided, 

waste removed 

SUPPLIER/

SELLER 

CUST

O

M

ER 

seeks to n contracts structured on decrease otal cost and function. . . 

Chemicals, 

energy, or waste 

SERVICES 

S

UPPLIER/

SELLER 

CUST

O

MER 

seeks to seeks to 

decrease decrease 

an explicit focus of 3PL in the US context to date, 

experience outside the US (e.g. Japan), shows that 3PL can be implemented with just such a 

focus, although in the US implementation should consider a range of environmental results to 

ensure unintended consequences do not arise. 

 CMS, ESCOs and 3PL are “business as usual” (or almost) in their core markets, though all 

have substantial room for growth, either within these core markets or in new market segments. 

Resource Management and structural IPM services, by contrast, are far earlier on the adoption 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 96 

curve, but both have consistently demonstrated strong environmental results in the context of 

profitable business offerings. 

 Agricultural IPM services are embryonic, though US offerings do exist that provide 

proof-of-concept. (Additional examples exist in the European literature.) 

 These eco-efficiency gains that can be delivered by these models are high-value and 

high-leverage as these models act high on the “3R” hierarchy, functioning as reducing agents 

that shrink the size of the material and energy cycle required to service a given level of 

economic activity. 

4. Strong parallels between different performance-based 

“functional procurement”/“efficiency services” models 

As described immediately above, performance-based functional procurement/efficiency service 

models possess, by definition, substantially similar “greening mechanisms” and value propositions. 

Beyond this, the more detailed assessment of barriers, drivers and determinants of environmental 

performance conducted for the CMS, RM and ESCO models showed strong parallels in these areas as 

well. 

For example, for all three models, the following are critical determinants of environmental 

performance: 

 Contracts that strongly operationalize incentives for the provider to find eco-efficiency 

improvement opportunities via the performance measures and compensation mechanisms they 

establish. 

 Sufficient contract scope to enable the provider to address critical eco-efficiency 

improvement opportunities and sufficient scale of operations to enable efficiency gains to pay 

for the cost of the provider’s value-added services. 

 Sufficient provider expertise/capability to identify and exploit improvement opportunities. 

In addition, barriers to performance-based contracting (whether institutional, legal, or perceptual) are a 

key barrier for each model. All face competition from superficially similar offerings that operationalize 

far less strongly (if at all) incentives for reduction in the consumption of the environmentally 

problematic good or service in question. CMS and RM share common barriers to growth in the area of 

“information deficits” such as customer knowledge of total costs, availability of trusted information 

regarding the model and contracting norms, etc. 

A reasonable working hypothesis is that these similarities would extend to other models in this class, 

and this is suggested by the more limited information regarding drivers, determinants and barriers that 

is contained in the business briefs themselves. 

5. Inadequacy of economic information 

The research highlighted a basic gap in official economic data and statistics: despite recent progress in 

the treatment of services, these statistics continue to divide the economy into distinct “product” and 

“service” sectors, and generally do not characterize how combinations of products and services are 

packaged as value propositions. 

From US EPA’s perspective, this gap is critical as product-service systems are key determinants of 

environmental performance of the economy as a whole. Moreover, understanding how products and 

services combine to produce value—and how this combination is changing over time—can be critical 

to understanding issues and trends in economic competitiveness, structural economic change, and other 

fundamental concerns of economic policy. In not capturing PSS and servicizing activity in the 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 97 

economy, current official economic data can handicap not only environmental policy, but other key 

areas of policy making as well. 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 99 

8 Realizing the Potential of Green Servicizing: 

Key considerations and possible next steps for US EPA 

It is unlikely that high-potential “green servicizing” models are limited to those identified and briefed in 

this report. But even if they were, “green servicizing” would still have strong potential to green the US 

economy. The research in this report strongly suggests, however, that this potential will only be reached 

fully and expeditiously with appropriate policy engagement. 

On this basis, it is important that US EPA consider: 

 Committing to a policy of leveraging and fostering high-potential “green servicizing” 

models for a more sustainable US economy. 

 As a first initiative under this policy, developing and implementing a strategy whose 

objective is to achieve the full eco-efficiency potential of functional 

procurement/efficiency services in the US economy by: 

Assuring that the greenest version of the models become market standards; and 

Accelerating the adoption of these models in key/high impact sectors. 

8.1 The need for focus 

Why a more limited “first initiative”? As indicated by this report, “green servicizing” covers a wide 

range of sectors and economic activity. Yet, at the same time, policy engagement must be predicated on 

a detailed understanding of both (1) model environmental performance and its determinants and (2) 

drivers and barriers. The former is known to be highly case- and model-specific (see Section 2.4); 

regarding the latter, information regarding value propositions and drivers and barriers in the briefs also 

shows high diversity. Thus, successful policy engagement requires model-by-model consideration. At 

the same time, however, US EPA resources are limited, particularly for discretionary policy initiatives. 

This strongly suggests the need for a narrower focus within the “green servicizing” area. 

8.2 Why focus first on functional procurement/ 

efficiency services models? 

Why focus a first initiative on functional procurement/efficiency services? Several factors combine to 

make this class of models the appropriate target: 

Greening potential. As noted, the research strongly suggests that as a class, performance-based 

functional procurement/efficiency services models have high potential to achieve very significant 

eco-efficiency improvements across a set of critical economic functions and sectors. Together, these 

functions and sectors constitute much of the critical “environmental footprint” of the economy as a 

whole (and of many individual facilities). 

Again, these eco-efficiency gains flow directly from the structure of these models and the value 

propositions they embody. These gains are high-value/high-leverage since these models act high on the 

“3R” hierarchy. These models also help to operationalize “sustainable infrastructure” concepts (see 

box, following page). 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 100 

Playing to economic strengths, addressing key economic issues. Such a strategy would play to one 

of the core strengths and capabilities of the US business-to-business (B2B) sector—widespread and 

highly sophisticated use of third-party technical services to reduce costs and maximize flexibility. 

Critically, in a economic context in which the use of such services goes hand-in-hand with concerns 

regarding the erosion of the domestic employment base 

at all levels (e.g. “offshoring”), these models generally 

do not incur these social costs and concerns. First, the 

services they provide must be delivered on-site. Second, 

these services support skilled “efficiency professionals” 

whose salaries are ultimately paid from the efficiency 

gains they deliver to the client. These services directly 

support the competitiveness of their customers by 

delivering cost reductions not primarily derived from 

reductions in US-based staff. 

Coherent theme; potential policy synergies and 

economies. The substantially similar greening 

mechanisms and value propositions that define these 

models offer a theme that is at once coherent and, as a 

first initiative, manageably narrower than “Green 

Servicizing.” 

In addition, the strong parallels revealed by the more 

detailed assessment of barriers, drivers and determinants 

of environmental performance conducted for the CMS, 

RM and ESCO models (see Chapter 7) suggest that 

policy engagement around these models as class rather 

than individually may bring significant synergies and 

economies. 

Existing engagement and a leadership opportunity. 

US EPA already has engaged significantly with these 

models, but in a generally uncoordinated way. For 

example, 

 ORCR commissioned this report and the 1999 

Tellus Institute report on Green Servicizing 

(White et al, 1999), highlighted RM in its 

WasteWise voluntary program, funded several 

pilots testing the limits and creativity around 

these models, and otherwise supported and 

promoting servicizing models and concepts. 

“Efficiency services” and 

sustainable infrastructure. 

“Performance-based functional 

procurement” models have been correctly 

described as creating markets for 

efficiency. This places these models at the 

center of any effort to identify sustainable 

economic mechanisms to increase the 

eco-efficiency of the economy. 

However, the briefs in Chapter 4 suggest 

another perspective as well: these models 

increase the utilization efficiency of 

infrastructure. 

That is, when widely adopted, these models 

hold the potential to reduce the investment 

needed in material, energy, water, transport 

system, and waste disposal capacity to 

service a given level of economic activity.* 

As such, these models may help contribute 

to more sustainable approaches to 

infrastructure , a key prerequisite of a 

sustainable economy. 

Further, in view of the escalating costs of 

such infrastructure capacity and the 

backlog of infrastructure investment 

required in the US, these models may, in 

effect, leverage and conserve scarce public 

infrastructure funds. 

A useful overview of sustainable 

infrastructure concepts is provided by (Ness 

2007). 

*Chemicals and CMS can also be viewed in 

the context of infrastructure. Basic 

industries such as power, steel, refineries 

and basic chemicals serve as “pumping 

stations” for material and energy throughput 

in the economy, and in essence part of key 

economic infrastructure. 

 The Office of Pesticide Programs has been significantly involved in IPM issues, including the 

promotion of IPM-based approaches to structural pest control. 

 US EPA recently launched its “SmartWay Transport” voluntary program, which the agency 

describes as “innovative collaboration between the freight industry and government to reduce 

air pollution and greenhouse gas emissions, improve fuel efficiency, and strengthen the freight 

sector.” Logistics providers are a key class of targeted partners under the program, and a 

number of 3PL providers participate. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 101 

 The Office of Pollution Prevention and Toxics promotes CMS in its Green Suppliers Network 

program. This program is a joint effort between US EPA and the US Department of 

Commerce's National Institute of Standards and Technology's Manufacturing Extension 

Partnership (NIST MEP), a leading provider of technical assistance to manufacturers. The 

Green Suppliers Network works with large manufacturers to engage their small and 

medium-sized suppliers in low-cost technical reviews that focus on process improvement and 

waste minimization. 

Other examples are cited in the business models briefs. 

Thus, expertise exists within the agency regarding these models, as do lines of communication with key 

stakeholders. Both should provide significant building blocks for more coordinated policy engagement. 

Finally, it should be noted that, despite significant policy interest outside the US in these models (see 

box, “Policy for Green Servicizing in Some Peer Economies” in chapter 6) individually, no country has 

yet developed a coordinated strategy to fully exploit the eco-efficiency benefits of efficiency services. 

US international leadership in this area is both possible, and—given the national “comparative 

advantage” in the use of third-party technical services in the B2B sector—logical. Further, US EPA’s 

engagement with these services would in fact be and could be presented as an innovative approach to 

support US commitments made under the G8 “3R” initiative.84 

8.3 Potential first step: internal stock-taking 

As a first step, US EPA should take stock of its own past and current engagement in functional 

procurement and efficiency services. Highlights of this engagement have been presented above and in 

the business model briefs, but the Agency should complete a more definitive stock-taking, including 

lessons learned, as a prelude to any further (and more coordinated) policy engagement. . 

8.4 Potential next step: Summit of key actors. 

Strategy development will require that the Agency refine its understanding of market status, barriers 

and drivers. It will also require the engagement and participation of stakeholders in these markets and 

models. 

An effective approach could be to address these needs simultaneously, by convening—or supporting 

and facilitating the convening of—a “summit” on functional procurement and efficiency services that 

draws key providers, progressive customers, and other relevant stakeholders. 

(As an alternative, a set of model-specific focus meetings could be convened, however, it is likely that a 

multi-model “summit” would yield interesting and relevant synergies and insights, particularly as there 

is apparently little communication between these sectors despite common challenges and value 

propositions.) 

These meetings could be structured around the analytical structure developed in this report, eliciting a 

picture of drivers, barriers, and determinants of environmental performance from those with direct 

knowledge as providers and customers. From this base, the goal could be to identify policy “targets” 

and potential measures to address these targets, with the targets and illustrative measures for CMS, RM 

and ESCOs developed in this report serving as discussion drafts. Both demand side and supply side 

84 Most recently, see the “Kobe 3R Action Plan” adopted by the G8 environment ministers’ meeting of 24–26 May 2008 in 

Kobe, Japan. Available at www.bmu.de/files/pdfs/allgemein/application/pdf/g8_kobe2008_3r_actionplan.pdf 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 102 

issues and measures should be addressed, and focus placed on common approaches to this class of 

models. 

These recommendations would form an important input to an US EPA “functional 

procurement/efficiency services” strategy. The intelligence gained from those in the field will sharpen 

an overall strategy, and the gathering and exchange itself will build a network critical to US EPA’s own 

efforts—but also to progressive providers and customers themselves. 

Policy Tools for a Functional Procurement/Efficiency Services Strategy 

As noted in Chapter 6, policy engagement to promote high-potential green servicizing models should satisfy 

one of three basic justifications: Levelling the playing field; Reducing entry barriers; Formal and informal 

standard-setting. 

What, however, is the set of actual policy tools to be utilized in a strategy to “achieve the full eco-efficiency 

potential of functional procurement/efficiency services in the U.S. economy”? 

Examining (1) the indicative policies suggested by the analysis of drivers, barriers and determinants of 

environmental performance presented in Chapter 6; (2) the general “toolkit” available to—and used by 

EPA—in its policy engagement with “green business”; and (3) the specific experience of the CMS and RM 

models, suggests four relevant categories of policy tools: 

Direct support, assistance and training 

This category includes supported pilots (e.g. to explore or demonstrate applicability of a model in new

customer sectors); financial incentives (e.g. tax credits; preferential credit terms); and training of existing

publicly supported technical assistance providers to promote model and provide assistance.

Information and tools disseminatation/ outreach 

In this category are development and dissemination of market information, case studies, and benchmarking 

data; education of key potential customer groups and providers in the “total cost” principles upon which the 

value propositions of these models are based; and development and dissemination of tools to help potential 

customers and providers evaluate the business case for adopting the model. 

“Green standards” and leadership programs 

EPA may be able to function as a facilitator or convenor to develop standards for “green” implementations of 

the various models, or to further promote existing standards. 

There may be opportunities to promote these standards via existing voluntary or leadership programs. 

Alternatively, or in addition, create a new voluntary/leadership initiative that links and promotes functional 

procuement/efficiency services models in a coordinated manner. 

Regulatory changes 

In some cases, key barriers may be regulatory, or certain types of regulatory flexibililty would be a significant 

incentive to accelerated adoption of a particular model. In this case, EPA may wish to consider regulatory 

changes. However, experience indicates that key regulatory issues may not be environmental; and that as a 

matter of feasibility and need, non-regulatory interventions are likely to dominate the strategy. 

8.5 Considerations for concurrent actions, 

looking ahead 

Stock-taking of green servicizing engagement outside functional 

procurement/efficiency services models 

US EPA’s engagement to date with green servicizing models has not been limited to functional 

procurement/efficiency services approaches. The programs and offices engaged with other models 

should be encouraged to take stock of their engagement using the barriers/drivers/determinants 

framework of this study. This stock-taking may result in adjustments or additions to the engagement 

strategy, or proposals for future activities. 
“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 103 

Consider the question of generalized policy support for “Green Servicizing.” 

As noted above, policy engagement based on a “drivers/barriers/determinants” framework requires 

model-by-model consideration. However, the experience of a functional procurement/efficiency 

services strategy/initiative should lend insight into the question of whether generalized policy support 

for green servicizing is feasible, and the forms it might take. Explicit consideration of this question 

should be part of any internal US EPA review and stock-taking of the initiative. 

Possible “general support” approaches may include, for example, a competitive funding mechanism for 

“green servicizing pilots” to support new green servicizing models or the expansion of existing models 

into new sectors (Japan’s METI has such a program, targeting SMEs) or tax incentives attached to 

savings (enhanced revenues) demonstrably derived from eco-efficiency gains-sharing. Generalized 

support within US EPA for green servicizing might include, e.g., a competitive mechanism making 

internal Agency resources available to support development and implementation of green servicizing 

activities proposed by offices and programs. 

Explore avenues for engaging in dialogues and participating in fora that shape the 

evolution of official economic statistics. 

As discussed in Chapters 2 and 4, understanding how products and services combine to produce 

value—and how this combination is changing over time—is critical to environmental and economic 

policy. Currently, official economic statistics and information shed little light on this issue. 

US EPA’s environmental mission means that the agency does have particular interests in the 

environmental performance aspects of PSSs and their evolution that are not necessarily shared by other 

Federal entities. US EPA can independently address these interests, systematically increasing its 

understanding of “green servicizing” activity in the economy with respect to critical sectors, products 

and economic functions. (See extended box “on page 49.) 

But to address aspects of this issue that should be of more common interest, US EPA should seek 

opportunities to engage in the dialogues and participate in fora that shape the evolution of official 

economic statistics to improve characterization of PSSs and their evolution. Efforts that US EPA 

undertakes to gain a more rigorous understanding of green servicizing—including this report and the 

Agency’s engagement to date in individual green servicizing models—should enhance the value-added 

that the agency can bring to these discussions. 

“Green Servicizing” for a More Sustainable US Economy  September 2009  pg. 105 

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