A Triple Bottom Line Opportunity For Our Cities Bob Prieto Senior Vice President Fluor March 8, 2008
A Triple Bottom Line Opportunity For Our Cities Bob Prieto Senior Vice President Fluor The triple bottom line for capital project delivery means the integration of financial, environmental and social objectives for a sustainable outcome. We re talking about the very core of how a private sector company conducts its own business and how it works with its client to find a balance of solutions to their capital project delivery, financing and ongoing operations. This represents a significant challenge, but one that we at Fluor are taking head on. Before I start I would like to define how we at Fluor see sustainability. For us, sustainability means meeting the needs of our clients while conducting our business in a socially, economically, and environmentally responsible manner to the benefit of current and future generations. In this paper I will cover two topics: Fluor 1. The triple bottom line opportunity 2. How Fluor can help its clients and the citizens of our growing urban areas meet this challenge - Focus will be on one particular infrastructure opportunity In order to provide context it is necessary to define the space that we identify in the marketplace. Headquartered in Dallas, Texas. Fluor acts as an engineer, constructor, operator and maintainer in several major markets including: 1. Oil, gas and chemicals 2. Power, including offshore wind power 3. Mining and metals 4. Manufacturing, life sciences, commercial and institutional facilities including various social infrastructures 5. Specialty government facilities, and 6. Transportation and other civil infrastructures In this last market we act as a project developer in addition to providing our more traditional engineering and construction skills. This paper focuses on anopportunity in this last market. And finally, to provide some dimension, Fluor is the largest publicly traded US engineering and construction company with 2007 revenues of $16.7 Billion, and a 2007 backlog of approximately $ 30 Billion.
The Triple Bottom Line Opportunity It is important in considering the triple bottom line and its role in sustainable infrastructure that we adopt a perspective of viewing this objective not as a challenge but rather as an opportunity, and a predictable opportunity at that. For five millennia the percentage of the world s population that has lived in ever growing villages has grown constantly. Today these villages are the world s cities and they account for approximately 50% of the world s population, 75% of its economic activity and 60-70% of the world s greenhouse gas emissions. Cities exist as an economic and social model because they create real wealth and promote social development. It is all too easy to focus on the challenges of cities but we must not loose sight of why this social and economic construct accounts for more of human activity with each passing millennia. I would like to spend just a minute to illustrate this wealth creation effect because it will become important later as I discuss how the concentrations inherent within a city, while sowing many of its problems, also represent the opportunity for achieving true sustainable infrastructure. I will use Washington, D.C as a model of the wealth creation effect of cities. Comparison of Various Differences between Income and CPI Indexes for Wash. DC MSA 8.0% 7.0% 6.0% 5.0% 4.0% Delta CPI 3.0% 2.0% 1.0% 0.0% -1.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005-2.0% Year PI - WE Per Capita PI - WE Avg Earn/job - WE Avg Wage Disb - WE PI - Consumer Per Capita PI - Consumer Avg Earn/job - Consumer Avg Wage -Consumer The chart above describes the probability that wealth growth exceeds the underlying growth in the cost of living, as measured by the change in the Consumer Price Index (CPI). Over this most recent period the net wealth creation effect can be seen at different points in the economic cycle. The channeling of this wealth to meet the social and
environmental needs of these cities and society in general represents perhaps one of the greatest opportunities for achieving the triple bottom line objectives of sustainable infrastructure. As an engineer, it would be my observation that urbanization actually offers the potential for more easily attained technical solutions because of concentration, economy of scale, and limited area. Large urban populations also have the ability to take action and make material impact through their own initiative. In fact, I would observe that on a certain level, public opinion is already open to change and inclined to be supportive of efforts necessary to address emission and infrastructure issues. As builders, Fluor and others of our industry can provide information, perspective, alternative ideas and can deliver technology, but the one big thing we cannot do is take over the political role in making decisions for a community. In many ways, political will or more appropriately, its absence, is the biggest challenge in meeting the triple bottom line of the world s infrastructure. In fairness, the political challenge is daunting, involving some hard tradeoffs such as: 1. Cost, risk and aesthetic trade-offs between nuclear power, wind power and clean coal. At Fluor we serve each of these sectors so for us the selection of technology is not a driver but rather that the necessary frameworks for success be in place. 2. The premium for mass transit versus the public s willingness to give up freedom of the car. 3. Perceived premiums of requiring sustainable measures in new building codes, an area that I believe is ripe for its potential to favorably impact change, and an area where I think cities should place much greater emphasis. 4. Loss of freedom in more restricted urban planning and zoning. In addition to such trade-offs, the political process must also address price. Making trade-offs and doing what must be done comes with a financial price tag. This price tag must be honestly addressed. After all, nothing is free and most political leaders have an aversion to new taxes. But it is in considering this last point where the triple bottom line can make a contribution, by carefully reflecting the social and environmental returns that a financial investment results in. How Can We Help Clients and the Citizens of Our Growing Urban Areas Meet This Challenge Let us turn now to how we can help our clients, the states and cities of the world, meet their sustainability needs within the context of the triple bottom line. Control and reduction of greenhouse gas emissions represents a critical global and national challenge. There are no silver bullet solutions and as such sustained control and ultimate reduction of greenhouse gas emissions will require efforts across all sources of such emissions.
In 2006, the last year for which data is readily available (1), US anthropogenic greenhouse gas emissions totaled 7075.6 million metric tons of CO2 equivalents (2). Today, CO2 equivalent greenhouse gas emissions in the US are growing at an average rate of about 1% per year, however, growth from the transportation sector is at a rate that is approximately 30% higher than this average growth rate. Since 1999, transportation has been the leading end-use sector contributing to the emission of carbon dioxide. Petroleum combustion, primarily as gasoline or diesel motor fuels, is by far the largest source of carbon dioxide emissions in this sector. While transportation sector emissions from gasoline and diesel fuel are traditionally linked to growth in vehicle miles traveled (VMT). I would like to suggest that another factor may be contributing significantly to growth of transportation sector emissions of greenhouse gases. And more specifically one which lends itself to the application of a triple bottom line approach. From 1990 through 2006, motor gasoline carbon dioxide equivalent grew 23.3%. During this same period, distillate fuel related CO2 emissions grew 68.9%. Together gasoline and diesel fuel usage grew by 33.3%. The conventional linking of the growth in gasoline and diesel emissions to growth in VMT, however, ignores consideration of one key factor which is the efficiency of the transportation network. Simply put, a more efficient network would reduce the period during which a vehicle s engine is generating greenhouse gas emissions without contributing to VMT. Said another way, the more congested our transportation network becomes, the less efficient it will be. Let me now look at changes in congestion in the US and its impact on US greenhouse gas emissions. Congestion and Greenhouse Gas Emissions Congestion is growing in the US. Since 1990, congestion as measured by gallons of fuel wasted has grown by 223% to a level now equivalent to the output from Prudhoe Bay. This is a 5.2% annual rate that exceeds the approximate 3% growth in VMT. Approximately 73% of this growth in congestion has been concentrated in major metropolitan areas (1) consistent with long term population trends which show over 80 % of population growth occurring in metropolitan areas. Congestion in very large metropolitan areas resulted in a 31.25% increase in wasted fuel between 2000 and 2005 alone. When large metropolitan areas are considered, congestion in these 40 metropolitan areas during this five year period accounted for nearly 9.5% of all motor fuel related
greenhouse gas emission growth during the period with the 14 very large areas accounting for 58% of this total. This percentage will continue to grow as the duration and extent on congestion affecting our urban areas expands. Reducing congestion, especially in the very large metropolitan areas can make a meaningful contribution to the reduction in greenhouse gas emission growth. Managing Congestion in Very Large Metropolitan Areas Let me now look at one solution to address this congestion issue, a social issue impacting quality of life, while also addressing the growing environmental challenge of greenhouse gas emissions and the persistent shortfalls in funding to finance needed infrastructure improvements. And to see this demonstration of the triple bottom line at work we need to look only within the Washington D.C. MSA. ***** Financial close was reached at the end of last year on the $1.7billion Capital Beltway high occupancy toll (HOT) lanes. The dynamic tolling system it will utilize will introduce the next generation of a highly sophisticated congestion pricing mechanism, which may set the standard for years to come. Dulles Toll Road Westpark Connector Jones Branch Drive S Route 7 S Route 29 I - 66 Gallows Road N Braddock Road N Phase VIII Springfield IC
This innovative public private partnership (PPP) project completes a critical link in Virginia s high occupancy vehicle (HOV) network, by connecting two existing HOV facilities, the I-95, which enters the Capital Beltway at the Springfield interchange, and the I-66, which has an intersection with the Beltway at Falls Church. I suspect many of you in this room are more familiar with the challenge that congestion on the Capital Beltway presents than me! In return for the much-improved service, single and dual occupant vehicles will have the choice of either paying a toll or staying in the free lanes, which will be less congested than they otherwise would have been because of the increase in capacity of the Capital Beltway from eight lanes to 12. Under the agreement reached with VDOT on September 10, 2007, construction of the new HOT lanes and nine interchanges will begin in 2008 and are expected to be completed within five years. The project will expand a 14-mile section of the Capital Beltway which circles metropolitan Washington DC, the fifth largest urban area in the US. The expansion will add four new lanes (two in each direction) extending from the Springfield interchange to the Dulles Toll Road. Two of the main Capital Beltway intersections are ranked in the top 20 worst bottlenecks in the nation. The road currently carries in excess of 200,000 cars per day. Congestion management will be accomplished by utilizing a toll setting algorithm, which seeks to maintain an optimum operating flow of 1,600 vehicles per lane per hour. The algorithm considers a combination of real-time observation and monitoring, and combines this with historical data that provides statistical prediction of the level of congestion at a certain section of the road. This forms the basis of setting a dynamically variable toll. Under the congestion pricing system, cars with less than three occupants will pay a toll to travel along sections of the Beltway while HOV 3 cars will travel free further reducing congestion by slowing VMT growth from single occupancy vehicles.
The Beltway upgrade will also ease congestion and increase access to the retail and office center at Tyson s Corner, the twelfth largest downtown area in the country. The area will benefit from the addition of three new access ramps, thus distributing traffic more effectively and enabling the existing interchange to function more efficiently by opening new lines of entry to Tyson s Corner. The Capital Beltway is an outstanding example of mobilizing private sector capital with incentives for performance and sharing of upside gains with the public sector. It is an excellent example of private sector innovation driving a simpler and cheaper solution and reducing the number of property takes from over 300 to less than 10 while improving mobility, each a major societal concern. And finally it addresses the growing challenge that congestion especially in the nation s largest urban areas. Opportunities exist to reduce the contributing effects of congestion through policies that encourage use of mass transit, car pooling and more efficient use of the nation s road network. These opportunities and the potential to achieve measurable reductions in greenhouse gas emissions from the business as usual trend line are noticeably present in our largest metropolitan areas, such as Washington D.C. The Capital Beltway HOT lanes project focuses on this congestion related greenhouse gas emission opportunity by targeting the Washington D.C. metropolitan area which is the fifth largest urban area in the US. The project also address two intersections ranked in the top 20 worst bottlenecks in the nation. The solution we helped develop for the Washington D.C. MSA is just one of many such triple bottom line type projects we are creating and delivering. But our efforts don t stop there, they extend into our own operations and how we run our company each and every day.
Footnotes: (1) Emissions of Greenhouse Gases in the United States 2006; Energy Information Administration Office of Integrated Analysis and Forecasting; U.S. Department of Energy; DOE/EIA- 0573(2006); November 2007. (2) Carbon dioxide equivalent: The amount of carbon dioxide by weight emitted into the atmosphere that would produce the same estimated radiative forcing as a given weight of another radiatively active gas. Carbon dioxide equivalents are computed by multiplying the weight of the gas being measured by its estimated global warming potential. Carbon equivalent units are defined as carbon dioxide equivalents multiplied by the carbon content of carbon dioxide. (3) Distillate fuel is one of the petroleum fractions produced in conventional distillation operations. It includes diesel fuels and fuel oils. Products known as No. 1, No. 2, and No. 4 diesel fuel are used in on-highway diesel engines, such as those in trucks and automobiles, as well as off-highway engines. References: Building a Sustainable Development Program For Your Business: Six Critical Steps by Nancy Kralik and Dave Stayshich Article for Construction Executive July 2007 Perspectives on Sustainability from an EPC Company by Nancy Kralik Manufacturers Alliance / MAPI Environmental Management Council 10/2007 Urban Infrastructure: A Look Back at the First Hundred Years of the Third Millennium, presented to the U.S. Army Corps of Engineers, Washington, DC, January 30, 2003, by Bob Prieto Transportation in the Built Environment: Cities in the Third Millennia, Tall Buildings and Urban Habitat, Council on Tall Buildings and Urban Habitat Sixth World Congress Cities in the Third Millennium, Melbourne, Australia, February 26-March 2, 2001,by Bob Prieto