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Editorial - A silly - and a sensible way to manage supply chain carbon emission

Friday, October 23, 2020

There are two ways to reduce carbon emissions in complex supply chains. The first option is if each party in the supply chain tries to individually become 'net zero'. The second option is if each party keeps track of the carbon emitted in the production of its product, adds it to the carbon emitted from producing anything it buys, and passes this number to its customers.

The first approach is popular, but only the second makes sense.

Consider WeWork's "Carbon Neutral Plan". This is a company which rents large office buildings and then rents space to individual companies. It also (as we learn here) buys some plastics and serves food to its staff and tenants. The plan mentions nothing about the concrete and steel used to make the buildings, or the gas to heat them, but it does mention stopping use of single use plastics and that it refuses to pay for meat. These tenants of course may also be oil and gas companies, or may buy their lunches elsewhere. Or they may be vegetarians but think that is their decision, not WeWork's. So if we're all keeping carbon 'ledgers' it should go on their personal ledger.

You can see that if we live in a world where everyone is deciding what should go on their own carbon ledger, based on what makes them look good and what they can shove onto someone else, we just have lots of pointless arguments and the CO2 still gets emitted.

What would really drive decarbonisation is a way for people to be able to make all purchasing decisions based on solid, transparent knowledge of how much carbon was emitted in producing it in all levels of the chain. Whether they are buying office space, cars, electricity or TVs. Perhaps ultimately with a financial penalty linked to the amount of carbon. The second option can deliver this.

A side note, for people with an oil and gas background, is that the "everyone goes to net zero" approach is popular with the sort of renewables enthusiasts who believe oil and gas is inherently bad and should be eliminated, oil and gas companies should be responsible for the emissions from combustion of their products, while renewables people should not be responsible for the steel and concrete emitted in creating their products, and renewables could one day provide all energy needs.

The idea of supply chain transfer of emissions data was expanded at this week's virtual conference from PIDX, an oil and gas standards body focussing on digital communication between oil companies and suppliers. PIDX is developing an electronic standard for exchange of emissions related data through a supply chain. There was also a presentation from Johan Krebbers, IT CTO & VP TaCIT Architecture with Shell, talking about OpenFootprint, a project which BP, Microsoft, SAP and many more are supporting, to develop standard ways to store emissions related data. These two projects can deliver the data standards baseline to deliver what we are talking about above, and seem well worth supporting.

It requires people with skills of working with energy, data in a commercial environment, which is a good match of the skillset of many oil and gas people.

We are interested in running a webinar to explore these sorts of ideas further, perhaps with participation from PIDX / EDTX, please let me know if you have interesting ideas you might like to share.

A further idea - perhaps one day a system of carbon footprint data exchanged from buyer to supplier could replace our VAT system. As with VAT, the buyer pays the supplier a premium, but calculated on the basis of the carbon involved in the product, rather than a fixed percentage. At the end of every quarter, business buyers and sellers claim back any tax they have paid, as they currently do with VAT. Only the last person in the chain, the consumer, does not get the premium back (as with VAT). The consumer does not pay any more tax (since the carbon premium replaces VAT), but will preferentially buy lower carbon products. There is no direct effect on business, apart from a penalty for higher carbon suppliers. And as all carbon data is carefully tracked through the chain, it will be clear to all whether (for example) electric cars really are better than hybrids from the planet's point of view..

Karl Jeffery

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