Cost Accounting for a Low-Resource Future

In my previous article, I pointed out that focusing solely on carbon emissions is a flawed approach to understanding the climate crisis. In that piece, I wrote the following: It is not a “low-carbon” but a “low-resource” vision of the future that must come to the fore. I ended it with this sentence: The next article will be about how cost accounting can be used in the climate struggle.

My previous article tried to shed light on the negative environmental impacts of the digital world. Now, I am broadening the focus.

In discussions on the climate crisis, the most prominent metric is carbon emissions. Focusing only on carbon emissions reveals only one part of the ecological crisis we are facing. The ecological crisis describes a much larger-scale catastrophe.

From production to consumption, from energy to transportation, the amount of natural resources we consume at every step is as decisive as carbon. Therefore, it is not a “low-carbon” but a “low-resource” vision of the future that must come to the fore.

The concept of Material Input per Service Unit (MIPS) was developed to help us comprehensively measure our ecological footprint. MIPS quantifies how much raw material, energy, water, land, and biomass are required to produce any product or service. It takes into account not only carbon emissions but also the total resource intensity used throughout the entire production process.

Source: Wuppertal Institute

The MIPS approach is directly connected to the previous article in which I discussed the invisible environmental impacts of the digital world. In that piece, I explored how technologies that appear “clean,” from data centers to smart devices, actually create a massive ecological burden.

The use of cost accounting within the framework of the MIPS concept can offer solutions to ecological problems. Of course, if there is the will and the intention. And we are very aware of how far we live from such political will and intention.

The Origins and Basic Logic of MIPS

The MIPS concept was developed in the 1990s by the German chemist Friedrich Schmidt-Bleek at the Wuppertal Institute. Schmidt-Bleek’s starting point was that the economy is a subset of nature, and therefore every economic activity draws resources from nature. Measuring only waste and emissions was not sufficient to solve the problems. It was also necessary to quantify how many natural resources were used behind products and services. MIPS was designed for this purpose.

MIPS is calculated by dividing the total material input used throughout the entire life cycle of a product or service by the service unit provided. This way, the resource intensity of different production and consumption patterns can be compared.

MIPS has an extremely simple formula. However, this simple formula requires very solid statistical data. For such data, institutions, people, and technology dedicated to this calculation are needed.

The “service unit” expresses the function provided by the product or service. For example, when calculating the MIPS value of a car, the amount of steel, aluminum, plastic, energy, and water used in the production of the vehicle, the fuel consumed during its use, and the resource inputs in maintenance and recycling phases are all calculated. This total is then divided by the service the car provides (for example, a transportation capacity of 150,000 kilometers). Do we have the technological means to perform these calculations today? Yes.

Efficiency Increase and the Jevons Paradox

To understand the MIPS approach, it is not enough to look only at the absolute level of resource use. It is also necessary to question how efficiency gains affect outcomes on a global scale.

When we talk about efficiency gains and the amount of use of any resource whose efficiency has increased, the Jevons Paradox immediately comes to mind. In the 19th century, William Stanley Jevons, through his observations on coal use, argued that as efficiency increased, total consumption did not decrease but rather increased.

The same situation applies in the digital age. When faster processors, more efficient data centers, or lower-energy-consuming devices are developed, it is expected that resource use will decrease. Yet, in practice, the opposite happens. Efficiency gains lead to wider use and an increase in total resource demand.

Christopher L. Magee and his colleagues published a study in 2017. The result of the study is this: none of the 57 inventions in materials, energy, and digital technologies from 1930 to the present has led to an absolute decline in global resource use. In other words, since 1930, none of the 57 inventions in materials, energy, and digital technologies has resulted in a reduction in global resource use. The same researchers also have other important studies.

A 2015 article by Federico M. Pulselli and his colleagues explains that efficiency gains often create a “rebound effect.” It shows that the economic system increases total consumption by using cheaper technologies more.

The market is constantly in search of efficiency. However, it does not seem possible to say that this quest is “beneficial” for nature and humanity. No matter how fast technological progress is, the Jevons Paradox operates very powerfully. Unless it creates a reduction in global resource use, efficiency gains cannot solve environmental crises. As the above accounts clearly show, they do not solve them. There is historical evidence.

MIPS offers a much more holistic and realistic assessment compared to approaches that measure only carbon emissions or energy efficiency.

MIPS by Examples

Paper and Digital Documents

Reducing paper consumption by turning to digital solutions seems environmentally beneficial. However, digital storage and e-mail systems operate through data centers, and data centers consume high amounts of energy and water. When comparing the MIPS of printing one page with the MIPS of storing a document digitally throughout its lifetime, the result may unexpectedly show that digital also has quite a high resource input.

Plastic Bags and Cloth Bags

Cloth bags are presented as “environmentally friendly.” However, producing a cloth bag requires very high water and energy inputs due to cotton use.

The MIPS advantage of a cloth bag only appears when it is used hundreds of times. For example, according to a Danish life cycle assessment, cotton bags must be used at least 7,100 times to offset their environmental load. For an organic cotton bag, this number is 20,000. According to the UK Environment Agency, a conventional cotton bag must be used about 131 times to equalize the environmental load of a single-use plastic bag.

Vehicles

Electric vehicles are advantageous in terms of carbon emissions. However, the extraction and processing of minerals such as lithium, cobalt, and nickel used in battery production increase the MIPS value. Therefore, to truly understand whether a vehicle is “sustainable,” it is necessary to look not only at its carbon footprint but also at its total resource use.

Factor 4 and MIPS

To better understand the MIPS approach, it is worth mentioning Factor 4, which has an important place in sustainability literature. This concept was first introduced in the 1995 book, Factor Four: Doubling Wealth, Halving Resource Use by Ernst Ulrich von Weizsäcker, Amory Lovins, and Hunter Lovins.

Factor 4’s core message is this: it is possible to achieve the same level of welfare with only one-quarter of the resource use. In other words, with existing resources, we can create twice as much wealth, or sustain the same wealth with only a quarter of the resources. This is a striking approach that aims to decouple economic growth from natural resource consumption.

Here MIPS comes into play. Factor 4 defines a vision or target. Yet, if the question of how this target will be measured remains unanswered, it cannot be applied in policy or practice. MIPS serves as the measuring and concretizing tool of this target.

Thus, Factor 4 is a guiding principle for sustainability, while MIPS is the method that makes it possible to put this principle into practice.

MIPS and Cost Accounting

One of the most critical problems in the climate struggle is that environmental impacts are still not visible in cost tables. Companies take into account only the market price of the resources they use in their production processes. This is natural. However, the real cost of a product necessarily requires also taking into account the water, land, biomass, and energy drawn from nature. The world must turn the MIPS approach into a powerful tool for cost accounting.

Since MIPS measures the resource input per service unit, it makes it possible to conduct an “ecological cost accounting” alongside traditional cost accounting. We are obliged to do this. We can expect three key contributions from MIPS:

Quantifying Resource Efficiency: Companies can report not only their financial expenses but also the total MIPS value of the raw materials and energy they use. This reveals which production method is more “resource efficient.”

Transparency in Product Comparisons: The MIPS value plays a critical role in comparing two products that serve the same function. For example, while the carbon difference between a liter of bottled water and tap water may seem limited, an MIPS comparison shows that bottled water consumes much more resources due to packaging, logistics, and recycling processes.

Guidance for Policy and Investment Decisions: Integrating MIPS data into cost accounting guides not only companies but also states in policy design. Tax regulations, incentive mechanisms, and sustainability standards can be shaped not just on the basis of emissions but also on the basis of resource intensity.

We must go beyond approaches that reduce the climate struggle to “cutting carbon.” The real issue is to reduce the total resource load that the economy draws from nature and make this visible in financial decision-making processes.

MIPS and Legislation

MIPS is not only an analytical tool but can also be used as a guiding measurement method for policy and legislation. Today, most environmental legislation revolves around carbon emissions, air pollution, or waste management. Yet, at the root of the ecological crisis lies the total resource load drawn from nature. Therefore, existing legislation must be strengthened to make resource use visible.

The European Union’s Green Deal and Circular Economy Action Plan aim to increase resource efficiency. However, the measurement tool for these goals is still unclear. MIPS, by revealing resource consumption on a product and service basis, can place these policies on a more solid foundation.

Energy efficiency labels are widely used today. Similarly, resource intensity labels can be made mandatory. This way, consumers can be informed about the resource consumption of a product throughout its entire life cycle.

Public procurement mostly proceeds on the basis of “lowest price.” If MIPS integration is made, “lowest resource consumption” can also become a criterion. States can provide tax reductions or incentives for products and services with low MIPS values.

The real costs of resource use cannot be reflected solely in company balance sheets. These costs are distributed to the entire society and nature through environmental destruction and ecological pressures. Therefore, MIPS-based costs are costs that require social sharing. Tax regulations, subsidies, and public spending should aim to share this burden more fairly.

Companies can use the MIPS method in different ways:

1. Product Life Cycle Analysis: MIPS data reveals the resource consumption of products throughout their entire life cycle, from raw material extraction to disposal. This analysis shows companies at which stage they can achieve resource savings.

2. Supply Chain Management: Companies can consider not only their own production processes but also the MIPS values of intermediate goods and raw materials from their suppliers. This creates pressure to reduce resource intensity throughout the chain.

3. Reporting and Transparency: Alongside carbon emissions, MIPS values can also be shared in sustainability reports. This provides investors and the public with a more comprehensive picture of environmental performance.

4. Strategic Decision-Making: MIPS answers the question, “Which product or service consumes fewer resources?”, from product design to investment choices. In the long run, this provides both competitive advantage and legal compliance. Incentives that push companies to compete on low resource use can be aligned with their financial savings and efficiency policies.

Integrating MIPS into legislation not only takes us beyond carbon-focused regulations but also strengthens legislation, makes resource burdens visible, clarifies application standards for companies, and ensures that the resulting costs are shared fairly across society. This approach creates a common ground both in companies’ strategic planning and in the shaping of public policies.

Conclusion

At the point we have reached today, search for solutions to the climate crisis still revolves mostly around carbon emissions. As the Jevons Paradox indicates, efficiency gains alone are not sufficient. Unless technological progress reduces resource use, environmental pressures will not decrease.

By focusing not on carbon but on resource intensity, MIPS has the potential to transform not only our modes of production, but also the decision-making mechanisms ranging from cost accounting to public policy. Real sustainability is possible not through greater efficiency, but through an economy that consumes fewer resources.

Let efficiency increase, but what we must focus on is reducing resource use. Historical evidence tells us that increasing efficiency does not reduce consumption. The effect is exactly the opposite of what is expected.

I did not write this article with hope in any way. I am fully aware of how “irrelevant” it will appear in the current agenda. I am simply trying to do what is right in principle and morally.