Product Environmental Footprint of a cash cycle

Environment is high on the agenda of all organisations and measuring the impact of their activities requires using appropriate and recognised procedures. This applies also to the cash cycle. The European Central Bank, together with the NCBs of the euro area have developed a project using the Product Environmental Footprint (PEF) methodology for assessing the environmental impact of a cash cycle and more particularly the annual average cash payments of a European citizen.
The PEF methodology, developed by the Joint Research Centre of the European Commission, provides a clear framework for conducting a Life cycle assessment and allows experts to carry out an objective assessment of a product’s environmental impact. The PEF is a more detailed approach than other LCA methodologies. It not only focusses on a few environmental impact categories, such as climate change but on 16 impact categories including climate change, land, water and resource uses.
The euro banknote PEF study considers the entire life cycle of euro banknotes from raw material acquisition and manufacturing to distribution, use and disposal. The detailed and reliable results obtained allow to better understand the origins of the environmental impact of the cash cycle, to define plans and actions for reducing it and to quantify the improvements envisaged or made. It also allows future potential comparisons with the environmental impact of other means of payments. The experience gained in the frame of this project can be used by other issuing authorities to assess the environment impact of their own cash cycle.

The ECB banknote environmental team in cooperation with a network of euro area National Central Bank experts and the contributions of stakeholders from the whole cash cycle (e.g. suppliers of raw materials, papermakers, printers, banknote equipment manufacturers, cash-in-transit companies, cash centres, commercial banks).

The environmental impact assessment of a cash cycle with the PEF methodology allows, to quantify the environmental impact of each of its single steps; to inform all relevant stakeholders of the environmental impact of their activities; to define with them actions to reduce it; to assess the progress made; and to compare it with the environmental impact of other day-to-day activities of citizens. Such a study is positive for a cash cycle in order to make it more sustainable not only from the environmental point of view but also for the trust of citizens in their currency.
The PEF on euro banknotes had a positive impact by concluding that the average annual environmental footprint of a European citizen paying with euro banknotes is very limited in comparison to other European citizen’s activities.
On the one hand it shows that the distribution via automated teller machines (ATMs) and the transportation are the most impacting activities of the cash cycle and on the other hand that progress have already been made to reduce the impact of these activities by increasing the energy efficiency of ATMs and trucks. The study found that significant efforts have been made by ATM manufacturers and banks to reduce their environmental impact related to cash. The total energy consumption of ATMs, for instance, has fallen by 35% between 2004 and 2019, even though the number of ATMs has significantly increased in the euro area. Also turning to green energy sources, using energy-efficient devices, or having activated the energy-saving mode when not in use should continue reducing the impact coming from ATMs.
The study quantified the progress made in other steps of the cash cycle such as the production of banknotes where for example the environmental impact attributed to cotton has been reduced by 51% since 2014.

Running a PEF study requires to put in place a project team and to involve the relevant stakeholders of the different steps of the cash cycle. A first phase consists in defining the goal and the functional unit (FUnit). In the case of euro banknotes, the Eurosystem decided to focus on the function of cash as a means of payment. The next phase consists in defining which parts of the cash cycle stages and processes are required for carrying out the FUnit (i.e. the system boundary). In the case of a PEF all inputs and outputs of the cash cycle from the extraction of raw materials to the disposal of unfit banknotes have to be considered. This includes all the relevant aspects of the distribution and use stage, such as transportation, consumption of energy and waste.
Then, the life cycle inventory which involves collecting from the stakeholders all the energy and raw material inputs and outputs, waste disposal, emissions into air, water and soil required for realising the FUnit. The next phase is to model the life cycle and enter all data input in a dedicated software, such SimaPro, a commercial software, which performed the PEF assessment.
Once the results are available starts the phase of analysis, communication of the results with the stakeholders and defining of potential actions to further improving the sustainability of the cash cycle. There are activities on which the Issuing Authorities have direct influences and can define improvement plans with the stakeholder (e.g. production of banknotes, sorting or waste disposal of shredded banknotes). The challenge for rolling-out the findings of a PEF study is with the actors on which the Issuing Authorities has indirect influence and which, however, have a significant role in ensuring that cash is widely available (e.g. transport by CiTs, ATMs).

The methodology used for the PEF on euro banknotes is based on a robust methodology recommended by the European Commission and continuously improved. The PEF methodology also involves conducting a data quality assessment which calculates a Data Quality Rating (DQR) for all the background data used in the model. The DQR ensures the accuracy and robustness of the study. Furthermore, a PEF study has to be reviewed and validated by an independent certified PEF reviewer in order to be recognised as complying with the PEF methodology. Such PEF analysis can be run periodically to continuously assess the progress made in reducing the environmental impact of a cash cycle or when making changes in the cash cycle. Therefore, the PEF provides a sound baseline to assess any – even potential – change in the product as well as in the processes.

The PEF methodology is unique by its scope and robustness. It provides clear guidance, requirements and technical details on how to conduct a life cycle assessment, and a fair and unbiased assessment of the environmental impact stemming from all involved stakeholders.
The use by the Eurosystem of the PEF methodology to assess the environmental impact of the euro banknote cash cycle is a unique experience which demonstrates how deep Issuing Authorities can go to better know the environmental impact of their cash cycle and work on reducing it.
This methodology is not only focussing on a few environmental impact categories, such as climate change but on 16 impact categories including climate change, land, water and resource uses, ozone depletion and eutrophications, which is not common with other methodologies.
This methodology allows clear comparison of the environmental impact of the cash cycle with other activities of our daily life, and to communicate the low impact of the banknotes.
The euro banknotes study was the first time a PEF methodology has been used to study the environmental impact of banknotes as a payment instrument herby allowing – when eventually becoming available – comparison with PEFs of other means of payments.

By its intrinsic purpose, the use of the PEF methodology aims at reducing the environmental impact of the cash cycle. The study identifies areas that can be improved in terms of environmental impact and the model was built to allow modular focus on various areas in the cash cycle. The outcome has been communicated in detail to the stakeholders providing data in the course of the PEF, hereby allowing them in a first step to get a better understanding of the environmental impact of their activities and incentivising follow-up work. On Eurosystem level further work is ongoing to define the concrete action plan for the medium term.
Running a PEF study has very limited impact on the environment since it consists in desk work, in exchanging digital files with stakeholders and running a software on standard laptops.