Environmental implications of leasing
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This thesis will investigate the possibility of leasing as a 'greener' form of business transaction. With leasing, the customer pays for the service obtained form the product, but does not own the physical asset; ownership remains with the lessor. This has been claimed to increase resource productivity and close material loops. Numerous complications exist, however, such as tax regulations limiting operating leases to terms of 75% of the total product's life. In addition, no clear pattern has emerged in leasing practices, and in most cases manufacturers approach leasing on an ad hoc basis. Research has found that usage-phase impacts play a major role in determining the advantages realized by leasing. Products such as vehicles or refrigerators that continually consume energy negatively impact the environment much more during their use than during manufacturing or transportation. Because most lease agreements contain maintenance contracts, the opportunity to upgrade and increase product efficiency during this use-phase is paramount to reducing negative impacts. Remanufacturing also shows potential to further reduce resource requirements. However, if product efficiency is not improving significantly, remanufacturing alone does not make a significant impact. In some cases, such as carpets, remanufacturing is not practical, but recycling can be utilized. However, tax regulations require leased terms to be less than that of a product's designed life, hastening replacement. This has the potential to offset any advantages seen with a lease agreement. Academic work in this area remains very limited and product-specific. Case study analyses performed in this thesis found that increased product turnover can actually be environmentally beneficial when product technology is improving. These gains can be further improved with remanufacturing and optimized product replacement moderated by lease agreements. If usage energy is significantly less than manufacturing energy, leasing has little value for reducing impacts. Also leasing may motivate closed material loops, without improving product efficiencies there is no advantage to optimizing life cycles with lease contracts.