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Life cycle assessment of cash payments in the Netherlands

  • REGIONAL TOPICS FROM EUROPE
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Abstract

Purpose

This study quantifies the impact of the Dutch cash payment system on the environment and on climate change using a life cycle assessment (LCA). It examines both the impact of coins and of banknotes. In addition, it identifies areas within the cash payment system where the impact on the environment and on the climate can be reduced.

Methods

The ReCiPe endpoint (H) impact method was used for this LCA. The cash payment system has been divided into five subsystems: the production of banknotes, the production of coins, the operation phase, the end of life of banknotes and the end of life of coins. Two functional units were used: (1) cumulative cash payments in the Netherlands in 2015 and (2) the average single cash payment in the Netherlands in 2015. Input data for all processes within each subsystem was collected through interviews and literature study. Ten key companies and authorities in the cash payment chain contributed data, i.e. the Dutch central bank, the Royal Dutch Mint, a commercial bank, a cash logistic service provider, two cash-in-transit companies, two printing works, an ATM manufacturer and a municipal waste incinerator.

Results and discussion

The environmental impact of the Dutch cash payment system in 2015 was 2.42 MPt (expressed in eco points) and its global warming potential (GWP) was 19 million kg CO2 equivalents (CO2e). For an average single cash transaction, the environmental impact was 654 μPt and the GWP was 5.1 g CO2e. The operation phase (e.g. energy use of ATMs, transport of banknotes and coins) (64%) and coin production phase (31%) had the largest impact on the environment, while the operation phase also had the largest impact on climate change human health (89%) and climate change ecosystems (56%). Finally, scenario analysis shows that reductions of the environmental impact (47%) and the impact on climate change (50%) could be achieved by implementing a number of measures, namely reducing the number of ATMs, stimulating the use of renewable energy in ATMs, introducing hybrid trucks for cash transport and matching coins with other countries in the euro area.

Conclusions

This is the first study that investigates the environmental impact and GWP of the cash payment system in the Netherlands, by taking both the impact of banknotes and coins into account. The total environmental impact of cash payments in 2015 was 2.42 MPt and their GWP was 19 million kg CO2e.

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Notes

  1. The euro area is a monetary union of 19 countries in the EU which have adopted the euro as their common currency.

  2. The number of banknotes and coins in circulation in the Netherlands is unknown since the introduction of the euro in 2002.

  3. The acceptance of cash, debit card and credit card differs per market segment. Cash, debit card and credit card acceptance is almost universal at POS locations where many transactions take place and where the transaction amounts can be high, i.e. at petrol stations, supermarkets (low credit card acceptance) and in large stores. Almost all small stores, street vendors, bars and restaurants accept cash, but not all of them accept debit card payments and credit card acceptance is rare.

  4. A card payment needs to be authorised by the bank of the payer and processed by the bank of the payer, an automatic clearing house and the bank of the payee in order to transfer the funds from the payer’s account to the payee’s account. In case of a debit card payment, this may take a working day, and in case of a credit card payment, this may take a few weeks.

  5. Note that, although the transfer of cash from payer to payee is immediate, the depositing of cash by payees at the bank or cash-in-transit company in order to have the value of the cash deposit transferred to their current account is not immediate, as it also requires processing activities by the payee’s CiT company and/or bank.

  6. Roos Lindgreen et al. (2018) use one average debit card payment of EUR 28.68 at the POS in the Netherlands in 2015 as functional unit.

  7. Marincovic et al. (2011) use the provision of CAN 2000 of cash value over a time span of 7.5 years as functional unit, Shonfield (2013) uses the provision and use of GBP 1000 of cash value over 10 years and Luján-Ornelas et al. (2018) use the number of banknotes required to provide an average Mexican household with a monthly cash amount of MXN 12,708 in MXN 200 banknotes in HD paper and polymeric substrate over a period of 5 years.

  8. Based on total production of euro coins (4.3 billion euro coins), net matching of euro coins between euro countries (−700 million euro coins) and loss and destruction of euro coins (−1 to 2% of the euro coins in circulation per year). Also confirmed by DNB statistics and expert interviews. In the EU, the same factor (~ 10×) is seen between coins and banknotes.

  9. The following production figures illustrate this: the production of coins before 2002 was over 2 billion euro coins per year, whereas, in the years thereafter, the number of annually produced euro coins declined from around 150 million euro coins to 50 million euro coins (KNM 2015).

  10. Matching does not occur on a large scale in the euro area. Only a handful of euro countries are currently matching euro coins.

  11. Own estimation based on the estimate by Brits and Winder (2005) of 7.1 billion cash payments at the POS in 2002 and by Jonker et al. (2018) of 3.2 billion cash payments at the POS in the Netherlands in 2015. We have estimated cash usage in the years 2003–2014 by linear interpolation. This is a reasonable assumption as debit card usage, the substitute of cash in NL, grew fairly linearly between 2002 and 2014, with an average y-o-y growth rate of 8% (see DNB 2017).

  12. We excluded storage from the analysis as the environmental impact of storage is below the 1% cut-off threshold.

  13. The data provided by CiT companies includes the total number of kilometres driven for the transportation of cash in 2015. Other types of transportation, e.g. matching and transport of unfit cash, are included in the total environmental impact of transportation in the operation phase.

  14. According to one of the CiT companies, the average lifetime of an armoured truck is 675,000 km. As 8.7 million km was driven, 13 armoured vehicles were consumed in 2015.

  15. Unlike Luján-Ornelas et al. (2018) who made an LCA of Mexican banknote in the Netherlands, the impact of the cash payment system on water depletion is negligible, as hydroelectric activities are hardly used to generate electricity.

  16. We reduced the total energy consumption by 25% in this scenario. Note that this may be slightly overestimated, as we did not take into account any change in the ratio of idle/in use time of the remaining ATMs because of intensified usage.

  17. We did not take into account the possible impact of differences in average transaction value of a cash payments and a debit card payment. For debit card payments, the value of the transaction does not affect the environmental impact. With respect to cash, it is not clear a priori whether the number of coins and banknotes used for a transaction, which influence their impact, depends on the transaction value, due to the usage of different denominations.

  18. As the total environmental impact of the Dutch economy is unknown, but its GWP is known, the GWP of the cash payment system is compared with the GWP of the Dutch economy.

  19. We use the Dutch economy’s GDP in 2015 as a proxy of the economic value of all goods and services used in the Netherlands in 2015. A country’s GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—in a country in a given period of time (say a quarter or a year). It counts all of the output generated within the borders of a country (see the definition provided by the IMF) at https://www.imf.org/external/pubs/ft/fandd/basics/gdp.htm. GDP is composed of goods and services produced for sale in the market and it also includes some non-market production, such as defence, healthcare and education provided by the government. There may be a difference between the resource costs for all products sold and the total monetary value according to market prices, i.e. the profit made by sellers which is included in the market prices, but not in resource costs. However, at a country level, the difference between the two is expected to be fairly small due to market competition, as in a perfectly competitive market, the marginal costs of a product equal its market price.

  20. We proxy the economic importance of the cash and debit card payments in 2015 with their resource costs to society. This method has been well established in central bank studies on estimating the cost of the retail payment system (see e.g. Brits and Winder 2005, Schmiedel et al. 2012 or World Bank 2016 for extensive descriptions of the cost methodology). Costs for cash payments to society reflect the costs of the use of resources in the production and issuance of coins and banknotes, cash transportation, labour time costs associated with carrying out cash payments at the POS, capital cost and labour time cost made by market parties such as the central bank, retail banks and CiTs. We have used cost figures for banks and the central bank in the Netherlands in 2009 (Jonker 2013) and cost figures of cash payments for 2014 for retailers (Snoei et al. 2015), which we extrapolated to the year 2015 by taking into account changes in the main cost drivers (i.e. for banks: numbers of ATMs, bank branches delivering cash services, sorted banknotes, bank employees) to estimate the resource costs of the Dutch cash payment system in 2015. A similar approach was taken in Roos Lindgreen et al. (2018) for the debit card payment system.

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Acknowledgements

We thank Hans Brits, Erik Roos Lindgreen and Lonneke de Graaff for their valuable comments during this study, two anonymous referees for their valuable comments on an earlier version of the manuscript, Garreth Budden for linguistic services and our colleagues from DNB and other stakeholders in the cash payment system for sharing data with us. The results of this study are mainly based on the master’s theses by Atakan Larçin and Randall Hanegraaf of Utrecht University. The outcomes are slightly different as new information has become available. The views expressed in this paper are our own and do not necessarily reflect those of DNB or the European System of Central Banks.

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Authors and Affiliations

  1. Omgevingsdienst Veluwe, IJssel, Stationsplein 50, 7311 NZ, Apeldoorn, The Netherlands

    Randall Hanegraaf

  2. Techniplan Adviseurs BV, Watermanweg 102, 3067 GG, Rotterdam, The Netherlands

    Atakan Larçin

  3. De Nederlandsche Bank (DNB) Payments & Market Infrastructures Division, Westeinde 1, 1017 ZN, Amsterdam, The Netherlands

    Nicole Jonker

  4. Faculty of Geosciences, Utrecht University, Heidelberglaan 8, 3584 CS, Utrecht, The Netherlands

    Steven Mandley

  5. De Nederlandsche Bank (DNB) Cash Division, Westeinde 1, 1017 ZN, Amsterdam, The Netherlands

    Jelle Miedema

Authors
  1. Randall Hanegraaf
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  2. Atakan Larçin
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  3. Nicole Jonker
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  4. Steven Mandley
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  5. Jelle Miedema
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Corresponding author

Correspondence to Nicole Jonker.

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Responsible editor: Matthias Finkbeiner

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Hanegraaf, R., Larçin, A., Jonker, N. et al. Life cycle assessment of cash payments in the Netherlands. Int J Life Cycle Assess 25, 120–140 (2020). https://doi.org/10.1007/s11367-019-01637-3

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