Around this time of the year, many companies are looking for the by now famous CDP (Carbon Disclosure Project) report. And the 2009 report is on-line. But that's not the only information available. For the first time CDP has also issued their first Supply Chain Report with as subtitle: "Managing climate change in the supply chain". In that report they are looking at scope 3 emission management amongst others and this is where things really become interesting.
Indeed, scope 1 (direct) and scope 2 (indirect, related to provisioning of energy) reporting is mandatory, but the unclear nature of what is included in scope 3 emissions makes their reporting optional.
However, from a Supply Chain perspective, analyzing the climate implications of outsourcing manufacturing and logistics, of buying components and intermediate products, and of managing the product flow from cradle to grave, is an interesting exercise. Not only should the environmental impact be assessed, but through understanding CO2 emissions, the actual amount of energy used can be assessed. Reducing CO2 emissions may have a direct impact in lowering the energy bill. Many companies forget this in their quest for carbon neutrality and the use of green energy.
Jean-Pascal van Ypersele, the Vice-Chair of the Intergovernmental Panel on Climate Change (IPCC), keeps pointing out the best energy is the one that is not used, not the one that is offset. In their quest of becoming green, companies should first look for energy reduction
To be able to do this, one needs to visualize the emissions across the supply chain, preferably on a product level. And here is where the problem is. Today no companies have the tools to identify the greenhouse gas emissions (GHG) at product level.
HP did calculate the total GHG emissions of its supply chain, and started reporting in 2008. Despite working closely with our tier one suppliers, the approach is still rather crude. Suppliers allocate HP's share of their energy consumption in proportion of the value of our business in their annual revenue.
This unfortunately does not allow taking key decisions related to which products require loads of energy to manufacture and which ones no. Balancing the portfolio from an environmental perspective is not possible with such approach.
Maybe we should take a completely different tag. For every product manufactured, we have a bill of materials (BOM) and a bill of process (BOP). If each partner in the Supply Chain could calculate the amount of GHG emitted to manufacture one unit of their product (component, sub-assembly, substance...), a "Bill of Carbon" (BOC) would be developed for each. I actually highlighted this concept in a blog entry last year, labeled BOS & BOC, new acronyms to get used to?
The question is obviously how this information could be consolidated to obtain a true picture of the environmental impact of the finished product. And here is where another concept I highlighted, called a community cloud, could help.
Indeed, if all participants would consolidate, using the BOC of all components included in the BOM of their end product, the amount of GHG emitted in the process, we would have a great view of the manufacturing impact. By adding the transportation piece that is found in the BOP, a reasonably complete picture could be established. Obviously, one can argue that averages may be used and, resulting from there, that the number is not absolutely correct. However, it would give a picture that is closer to reality and much more granulate than the current one.
Using a cloud approach, such community could be established without requiring one of the parties to implement a hosting infrastructure. No CAPEX investment would be required, making it easier for the parties to participate. A pay-per-use or subscription fee could be used to finance the service.
To take full advantage of this approach, it should be combined with standard metrics, such as the ones included in SCOR 9.0. Ultimately, this would allow companies not only to publish the carbon footprint of their products, but also to analyze the environmental impact of their product portfolio, allowing them to retire the most polluting ones, while promoting the others. Managing a portfolio from an environmental point of view prepares companies to benefit from upcoming legislation around carbon taxation and others, by understanding their impact at the product level.
A couple days ago I received a quick note from one of my colleagues concerning an activity initiated by the UK government, the "Greening Government ICT: Efficient, Sustainable, Responsible". In this initiative, they aim at making energy consumption of their ICT systems carbon neutral by 2010, and making them carbon neutral across their lifetime (including manufacture and disposal) by 2020. This raised the question of carbon neutrality in my mind. I have heard a number of companies claiming to be carbon neutral, but frankly have never been sure what this meant.
According to an Ezine article, Carbon Neutral - What does it mean?, carbon neutral does not mean that no carbon dioxide is released into the atmosphere, but rather that the carbon dioxide emitted is balanced by equivalent reductions somewhere else. This can be by using biofuels, which are considered carbon neutral although they release CO2, or by using energy that does not generate CO2, such as wind, solar, hydroelectric or even nuclear. Unfortunately, in the case of biofuel and nuclear, the emissions generated to manufacture the fuel in the first place is not included in the calculation, so this is already a first approximation to remember.
There are three approaches to reduce CO2 emissions from fossil origin, and these are:
- Reduce the amount of energy consumed all together. And this is obviously the best way. I always like to refer to a quote from Jean-Pascal van Ypersele, vice chairman of the Intergovernmental Panel on Climate Change. "The best energy is the energy that is not used", seems so logic that the question should be raised why there is not more focus on this approach. According to a study of the WWF, buildings in the US consume twice the energy of similar ones in Europe.
- Replace fossil energy by energy provided from other sources such as wind, solar, wave power, water, biomass etc. Actually the Sun provides the earth in one hour more energy than we require in one year. So, it would seem easy to resolve the CO2 problem, unfortunately not enough investments are made to capture the solar energy. Through increasing those investments, companies can become carbon neutral.
- Buy carbon offsets, this means in simple words, continue emitting as much carbon dioxide as usual, but pay somebody else for capturing a similar amount of CO2. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Other common project types include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects.
- Scope 1: all direct emissions generated by the company (typically petrol, diesel, refrigerant leaks, process waste and emissions)
- Scope 2: emissions from purchased energy (typically electricity)
- Scope 3: emissions from other indirect sources (typically from purchased material, products or services): these emissions are direct emissions of the suppliers/subcontractors and can be controlled by supply chain management criteria requiring these suppliers/subcontractors to also be Carbon Neutral.
A number of electronic companies have claimed to be "carbon neutral" at this point in time. They typically aim for scope 2. However, knowing that the same companies increasingly outsource their manufacturing, logistics, repair and recycling operations, one could ask what the real impact is of such claim. On top of that, a number of them achieve this through the use of Carbon offset which are actually put in question by a number of studies. Some even go as far as talking about the "Carbon Neutral Myth". So, the question about whether such claims are made more for marketing purpose rather than any other. To somehow illustrate this, Gartner released a study "How Green is the IT Industry", where it analyses progress made by ICT companies in reducing carbon emissions, which should be the ultimate goal isn't it? Well, at least one of the companies claiming to be "carbon neutral", was at the bottom of the list.
So, what is more important for the planet, becoming more carbon neutral or reducing the overall carbon emissions in a company value chain. Frankly, I am voting for the latter. So let's hope that the UK government, in its laudable effort, focuses on reducing the emissions of CO2 from fossil origin, and is not limiting its effort to the purchase of carbon offsets. The planet will be greatful.