Tag Archives: IPCC

Seeking Links Between Supply Chain Sustainability, Logistics & the U.N. Climate Conference (COP16)

30 Nov

As the world’s nations converge on Cancun this week for the two week UN Climate Change Conference (COP16) a few statistics are in order to put the supply chain and related logistics industry into perspective.  It’s a pretty sure bet (given poor results at COP15 in Copenhagen and recent Congressional elections here in the U.S.) that it’s unlikely that any major binding agreements will be reached on setting measurable and verifiable targets for greenhouse gas (GHG) emissions cuts for industrialized nations.  What is at least hoped for is that there will be some progress on establishing more robust means to appropriate and distribute micro-finance funds to support development of technologies in developing countries that lack the dollars themselves to manage their own greenhouse gas footprints.

Logistics and Transportation Share a Big Piece of the Carbon Pie

But the fact remains that logistics is a major source of CO2 emissions, accounting for 13.1% of global greenhouse gas emissions, according to the Intergovernmental Panel on Climate Change (IPCC, 2007) – although, this figure also includes passenger transportation.  The “transport sector’ sector as a whole is responsible for 24% of global CO₂ emissions!  So as the logistics industry grows and expands to respond to the ever changing demands by global commerce, so will energy consumption and GHG emissions related to daily logistics.  To that end, in a report issued this fall by Deutsch Post/ DHL, “Delivering Tomorrow: Towards Sustainable Logistics[1], a study of more than 3600 companies found that “two-thirds, i.e. 63 % of business customers, believe companies will regard transportation as a key lever to reduce their carbon footprint”. And while the report suggests that low-carbon logistics solutions and flexible transport modes are not yet widely available, there are a few market-ready technologies or solutions today that can meet the specific needs of the transport and logistics sector.

“We want to take a significant step forward to improving carbon efficiency and do our part to facilitate a low-carbon economy,” says Chief Executive Officer of Deutsche Post DHL Frank Appel. Deutsche Post DHL was the first logistics company worldwide to commit to a carbon efficiency target – 30 percent improvement by the year 2020 compared with 2007.  Other companies such as UPS and FedEx are implementing similar programs designed to optimize operations in a sustainable manner.

The report also cited that “70 % of respondents believe that legislation is needed in order to bring about a substantial shift towards a sustainable logistics industry.” The study shows that carbon pricing mechanisms can likely accelerate a market-based dynamic toward more sustainable solutions. Once there is a real price tag attributed to carbon emissions, the environment will be an integral part of investment decisions.    Customers in Asia in particular appear quick to accept that sustainable solutions may cause higher prices, according to the study. For example, 84 percent of consumers in China, India, Malaysia and Singapore say they would accept a higher price for green products – compared to only 50 percent in Western countries.  This type of hesitancy on the part of Western countries falls in direct line with the ‘foot dragging’ that has occurred at past climate conferences.

The report concluded by suggesting seven key developments that are likely to take place that can largely be influenced by the ways that logistics can affect global commerce:

1. Logistics counts – it is not a commodity. Logistics is not only a chief catalyst of global trade and a defining component behind value creation – it is also a business of strategic importance in the move towards a low-carbon economy.

2. Technological change will be achieved through a concerted planning and implementation effort between private companies, governments and financial institutions.

3. Collaboration will increasingly be seen as an enabler to attain sustainability even between perennial competitors. This will especially be the case as greenhouse gas emissions reduction becomes a priority for suppliers, business customers and logistics companies.

4. Business models of logistics companies will change as sustainable innovations and technological advances create new opportunities.

5. Carbon labeling will become standardized. Carbon ‘tags’ offer ways for customers to compare environmental impacts of products. This increased product ‘transparency’ can raise confidence among logistics customers and end consumers when making climate-friendly choices.

6. Carbon emissions will eventually have a price tag, whether it’s mandated by law or not. Already, carbon accounting has become part of companies accounting, decision making and corporate reporting practices in many market sectors. Increasing movement in this direction, with possible government or free market intervention will only increase the demand for a price to be attached to CO2 emissions.

7. Carbon pricing will lead to more stringent regulatory measures.  However companies will only accept a price tag on carbon emissions if governments ensure a level playing field across industries (and more challenging will be across economies).

Companies are not Waiting Around

Already, big product manufacturers and retailers like Unilever and Walmart are reaching deep into their supply chain to stock shelves with less harmful products.  Gavin Neath, senior vice president for sustainability for Unilever says that this approach not only helps the company cut costs, but create new products that are less impacting to the environment and expand in developing-world markets that are likely to be hit hard by global warming, he said. With efforts to secure a global climate treaty barely inching forward “big companies like ours, which have very extensive supply chains, reaching across all continents and 60, 70 countries, can make a difference,” Mr. Neath explained.

That brings us back to COP16.

UPS Carbon Neutral Shipping Program (courtesy Logistics Management Magazine)

It’s been suggested by some practitioners and policy makers that at COP16, a binding agreement is more likely to occur when countries take ownership of their entire life-cycle emissions and when such agreements are based on data that attributes emissions fairly.   It’s also been proposed that national inventories be generated by adopting measurement tools that follow the principles established by existing carbon accounting methodologies already used by corporations and at a product level.   Supply chain wide carbon accounting (at the product design, manufacturing and distribution levels) is a vital ingredient to achieve this result.

I’ll be watching COP16 developments closely in Cancun these next two weeks and will offer additional insights about what potential policy driven outcomes these negotiations may have on supply chain logistics.

[1] The study on sustainable logistics was developed with experts from MIT, Potsdam Institute for Climate Impact Research, National University of Singapore and the Technische Universität Berlin, Deutsche Post DHL, and manufacturers/retailers like Fujitsu, Henkel, HP, Unilever, and Walmart.

Climate Change, the Clean Air Act and the Political Sandbox

13 Mar

Yesterday, climate change experts from throughout the world wrapped up three day conference on climate change in Copenhagen.  At the conference British economist Nicholas Stern (who authored a major British government report detailing the cost of climate change) told hose assembled that the global recession presents an opportunity to build a more energy-efficient economy.

“Coming out of this we have got to lay the foundations for a low-carbon growth, which is going to be like the railways, like the electricity, like the motorcars, this is going to be over the next two, three decades the big driver in investment,” Stern said.

What’s our tattered economy to do?  In this same week, the U.S. Environmental Protection Agency proposed the first comprehensive national system for reporting emissions of carbon dioxide and other greenhouse gases produced by major sources in the United States.  EPA is developing this rule under the authority of the Clean Air Act (CAA).  Draconian perhaps?  Yes indeed, as I will opine in a moment.  It is my humble view that decades of economics based incentives to reduce air emissions appear to be about to be thrown under the bus.  And while the focus of the attention is on more energy intensive sectors such as cement production, iron and steel production, and electricity generation, the net is being cast much wider and may inadvertently capture less polluting industries and small businesses, impacting a wider sector of the economy which may be unnecessarily burdened.

So what’s the problem?  Congress appears to be the problem. While a number of states and regional initiatives are preparing their patchwork of GHG cap and trade frameworks and legislation (some like in Oregon and Washington appearing to be in a death spiral), Congress is sitting on its hands and all too slowly is slogging away at bringing meaningful and balanced cap and trade legislation to the floors of Congress.  Further, President Obama’s appears to be burdening climate change legislation with extra baggage, and this is not making the situation any better. The 2010 budget plan calls for using a carbon cap-and-trade system to raise as much as $646 billion in new revenue for the government between 2012 and 2020.  Much of the funds would go to subsidize clean technology research.  All good it seems.  Until one digs into the details.  According to the budget plan, most of the money raised would go toward a refundable tax credit of up to $400 for working individuals and $800 for working families, subject to income limits.  While I am all for social reinvestment, this makes reaching consensus on climate change more politically charged.

The President may be entering dangerous waters by putting economic renewal too heavily on the back of cap and trade legislation and in mixing social agenda issues in as well.  In fact, it’s the Democrats that are now putting up such a big fuss.  As noted in the Wall Street Journal (blog) http://blogs.wsj.com/environmentalcapital/2009/03/12/cap-and-horse-trade-obamas-uphill-battle-for-climate-bill/, the so called “Blue Dog” Democrats worry that the Presidents blueprint for tackling climate change will unduly burden Rust Belt states by raising energy costs for consumers and manufacturers. Many Democrats are upset that the revenue will be used for generic tax cuts and to help fund other programs, rather than for specific help to cushion the blow of increased climate regulation.

Indeed, what I hear in the great Northwest among business leaders appears to echo those in the beltway, who are concerned about the impact of federal or state cap and trade legislation on local economies.  But consider the alternative…the EPA way.

Many argue that the U.S. Supreme Court’s 2007 decision, Massachusetts v. EPA (which affirmed that carbon dioxide emissions are a pollutant as defined by the CAA) is the leverage needed to allow for carbon emissions to be regulated by the EPA.  That is true, because the EPA was essentially forced by the Massachusetts v. EPA decision to proceed with developing greenhouse gas regulations under the Clean Air Act unless or until Congress acted.  Many argue that the EPA is in the best position to manage a federal cap and trade program and integrate seamlessly all of the many regional and state initiatives currently in process.  But one can only imagine the years of litigation that will result from imposing new, wide reaching rules.  Despite the relative success of the CAA over the past 30 years, it’s a relatively rigid framework, whereas market-based systems like Cap and Trade may be more successful in the long run at controlling costs and spurring innovation through incentives and regulatory flexibility. But now the President appears to have convoluted the political process by padding the legislation with social agenda items.

Scientists assembled at this week’s climate conference have restated clearly that the urgency of the current situation cannot be overemphasized.  Climate change appears to be accelerating at a rate beyond previous Intergovernmental Panel on Climate Change (IPCC) expectations, and that the window for a timely response is closing quickly. The dire direction in which our world appears to headed requires a dual pronged strategy that provides a policy pathway that will begin to reduce emissions immediately, and a political pathway that avoids continued gridlock, as is being witnessed in Washington this week.

Is everyone able to play in the same sandbox? Do it for our planets sake.