Climate Change requires changes in your supply chains

Roger OakdenLogistics Management, Logistics Planning, Procurement, Supply Chains & Supply NetworksLeave a Comment

Sustainability in food

A scenario for reduction of carbon emissions

The objectives of the COP26 climate meeting in Glasgow, Scotland were not achieved. Governments failed to provide sufficient targets for the required reduction in CO2 emissions by 2030.

The UN scientist report of August 2021 titled Code Red for Humanity stated that carbon emissions must be reduced by 45 percent over 2010 levels by 2030 for the world to not exceed 1.5°C warming. Achieving the decarbonisation of the atmosphere will likely require developed countries to re-think their economic model of more consumption and higher growth, based on fossil fuel based energy:

  • Manufacturing of consumer goods reliant on low cost (mainly labour) countries (LCC)
  • Global transport (sea, air and rail) from developing to developed regions
  • Personal transport systems based on private vehicles
  • Food system that is energy intensive through the process from farm to consumer and disposal of waste
  • Buildings (including houses) not designed to be energy efficient

Some challenges in making the change

World energy demand is projected to grow by more than 40 percent to 2040. Currently, electricity generated by fossil fuels is estimated to account for more than 40 percent of the world’s energy related CO2 emissions. Approximately 25 percent of CO2 emissions comes from large-scale industrial processes, such as the production of steel, fertiliser and cement; gas processing and petroleum refining.

Electricity grid designed for centralised distribution, from coal/gas/nuclear fired power stations to end users. In countries with plenty of sun and/or wind, installation is required of a bi-directional electricity network using locally generated renewable power.

Vehicle emissions reduction: Requires a base standard for vehicle emissions in a country (e.g. Euro6 compliant engines). To attain zero emissions by (say) 2035, reduce the allowed emission each year for new vehicles. If total annual sales exceed the emissions target, the responsible vehicle company is fined. This provides an incentive to sell electric vehicles with zero emissions.

Air transport: The German airline Lufthansa estimates the fare for long-haul international flights will increase by U$650-800, as the use of sustainable aviation fuels (SAF) is mandated. For example, more than 60 percent of aviation fuels sold in the EU must be SAF by 2050. This will require non-EU based airlines that land in the EU to use SAF, or be taxed.

Time to accept, implement and use technology at scale

Some governments, especially those reliant on mining, oil and gas and high emissions industry, are relying on ‘new technologies’ to be invented and developed to achieve a net-zero emissions target by 2050. The most promoted technology is Carbon Capture and Storage (CCS).

This is not a new technology. There has been more than 30 years of development, with little success in large scale commercial installations. In 1989, the Carbon Capture and Sequestration Technologies Program at the Massachusetts Institute of Technology (MIT) was established to conduct research into technologies to capture, utilize and store CO2 from large stationary sources. In 1996, the Statoil Sleipner gas field in Norway was the first commercial example of CO2 capture and storage. The technology has accounted for less than 0.5 percent of global investment in energy efficiency technologies, indicating that industry is not convinced of success..

Research reports concerning the time for a new technology to be accepted and used at scale is limited. In medicine, a 2006 report by the School of Public Health at Saint Louis University in the US, stated that it took about 17 years for original and tested research to be integrated into mainstream medical practice.

An elapsed time of about 20 years for a new technology to become generally accepted indicates that success for a new technology is not short term. In industrial logistics operations, the acceptance of technologies follows a similar 20 year timeline:

Barcodes were first used commercially in 1974. However, general acceptance and implementation in the wider Logistics community only occurred from the mid-1990’s.

RFID: The first patent was awarded in 1973. In the mid-1980s, a commercial RFID system was implemented for charging road tolls. In the late 1990s, low-cost RFID tags enabled products to be tracked through a supply chain. In 2004 a second generation standard was ratified, to enable broad adoption.

Artificial Intelligence (AI): Is being promoted in articles as the ‘next big thing’ for supply chains. However, Pattern Recognition within Neural Networks (a required element of AI) was used in the mid-1990s to model the daily arrival of loaded trucks into California. The most recent Gartner ‘Hype Cycle’ shows that AI is likely to be in general use through supply chains only after 2030.

Commercial businesses to deliver emissions reduction

Governments of all persuasions do not like telling their citizens about change, especially those that will cost money or cause disruptions to sectors in the economy. Likewise employees, including CEOs and managers, do not like change that has unknown outcomes.

If net carbon emissions in your country is required by 2050, there could be another six CEOs to make the tough decisions about addressing climate change for your organisation. However, it is most likely that these decisions will be strongly influenced by shareholders, customers (major retailers and industrial companies) and financial firms.

At COP26, the International Financial Reporting Standards [IFRS] Foundation announced the International Sustainability Standards Board [ISSB]. In the second half of 2022, the initial set of requirements for globally consistent climate related company reporting disclosures will be published.

The global standards will enable companies to inform investors and lenders in a standardised manner about the impact of climate change on their business. The standard report will also dissuade companies from painting a flattering picture of their climate policies and business practices (called ‘greenwashing’).

Similar to financial reporting and auditing, the intention is for an assurance framework to provide checks on whether the ISSB standards are correctly applied by companies, but success will rely on the support of major countries. The European Union (EU) already requires companies to also explain how their operations can influence climate change.

When shareholders, customers or financial firms place pressure on your organisation to reduce emissions, the CEO will quickly require costed implementation plans from those who can deliver. The supply chains group is one, so be prepared, using today’s technologies.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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