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Objectives and ApproachObjectivesThis report examines opportunities for carbonemissions reduction across supply chains.We provide a quantitative and segmented outlineof the size of carbon emissions across productlife cycles.We articulate potential trends in future demandfor global supply chain services, in response toexternal drivers of change.We outline and indicatively quantify the mainopportunities for decarbonization within end-toend supply chains.Finally, we identify specific actions logistics andtransport executives can take to most effectivelydecarbonise supply chains: within their businessoperations, in collaboration with shippers andthrough engagement with policy makers.Supply Chain DecarbonizationApproachIn the development of the report, we have workedclosely with the corporate social responsibility(CSR) and strategy leads of major logistics andtransport firms. We have also been assisted byrepresentatives from NGOs, particularly theCarbon Trust and World Business Council forSustainable Development – for which we are verygrateful.The materials presented in this report aretherefore built on two forms of data and analysis.Firstly, we have used data from official sources,particularly OECD, IPCC and governmentstatistics organisations to understand and beginto size specific decarbonization opportunities.Secondly, we have put those opportunities intocontext, outlining which may be viable, throughqualitative research and interviews withcolleagues from industry and NGOs.From an initial outline of around 75 potentialtopics, we have slimmed this down to 13opportunities which are of most relevance to thesupply chain sector. These have been validatedwith our key stakeholders and advisors. Thenature of the topic means that a very substantialdegree of uncertainty and estimation remains,although we have sought to validate ourassumptions and estimates at each stage.There is a clear need to move beyond corporateand geographic barriers in addressing supplychain carbon emissions. Tactical approaches(using specific technologies to meet the needs ofa particular situation) and even sectoralapproaches (whereby initiatives are implementedwithin the boundaries of the logistics andtransport sector) do not meet the requirement todecarbonise end-to-end supply chains as awhole.In fact, tactical approaches can serve to shiftcarbon emissions between different parts of thesupply chain, rather than boosting overallefficiency.We have taken a strategic approach to the endto-end supply chain, looking at opportunities toaddress carbon emissions across the productlifecycle. The opportunities we outline areintended to be transformational and, in somecases, are unashamedly ambitious.Nevertheless, we have sought to make theoutcomes commercially relevant to supply chainorganisations and achievable under currentcircumstances. We have not, for example,assumed the adoption of any technologies whichare not already commercially available.7

FindingsOur high level findings are structured as follows:freight is considerably more carbon intensive thanroad. Overall, the most carbon efficient modesare rail and ocean freight. Carbon intensity ofboth modes is quoted by UK Defra as beingaround one sixth of that of road freight – or onehundredth of that of airfreight4.Logistics and Transport Sector CarbonFootprintTotal Supply Chain Carbon FootprintPressures for a Shift to DecarbonizationSupply Chain DecarbonizationTransportation ModeAir - Short HaulLogistics and Transport SectorCarbon FootprintFigure 2: Emission Efficiency per Transport ModeEurostat road freight data suggests that acrossthe EU and Norway “crude and manufacturedminerals, building materials” make up 17% of alltonne-km moved, with “foodstuff and animalfodder” being a further 16%5.In the USA, looking across all modes, coal makesup 17.6% of all ton-miles moved, with cerealgrains accounting for a further 8.2% of volumes6.Taken together, these calculations allow us toidentify the key characteristics of carbonemissions in the freight sector:Road freight is the principle contributor tofreight transport emissions globallyAir freight is an highly carbon intensivemodeOcean and rail freight are the mostcarbon efficient modesMinerals and food products are majorsources of transport emissionsLogisticsBuildingsRail FreightOcean Air FreightFreightTotal Mobility Emissions: 2,500 Mega Tonnes CO2e2,000RoadFreight1,5001,000500RailSea - Short Haul0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4Emissions Factors in CO2e kg / tonne-kmOverall, we estimate that the logistics andtransport sector has a carbon footprint of around2,800 mega-tonnes. In absolute terms, roadfreight is the greatest part, at around 57% of thetotal, with ocean freight some way behind at17%.GHG Emissions (mega-tonnes CO2e per year)Supply Chain DecarbonizationUsing OECD emissions data, combined withGHG Protocol emissions factors and other datapoints, we have estimated the size of the logisticsand transport sector‟s carbon footprint. Usingsource data for transport emissions, we excludedpassenger transport emissions and then soughtto build in emissions from warehouses andsortation facilities.2,500Road - AllRoad - Long HaulSea - Long HaulKey findings:The logistics and Transport Sector has acarbon footprint of around 2,800 megatonnes CO2eRoad freight is a major element of thisfootprintMinerals and food transportation are thelargest contributors by product category3,000Air - Long HaulRoad - Light CapacityThe current trend is for freight transport carbonemissions to grow over coming years. In theOECD countries, freight transport tonne-km grewby an average of 3% per year from 1990 to 2004 7.The continuing shift to more globalised supplychains, combined with the underlying economicgrowth is likely to continue – an assumptionwhich is confirmed by the available country-leveldata after 20048.0Logistics and Transport ActivityFigure 1: Emissions Share per Logistics ActivityOf course, this does not imply that road transportis the least efficient mode however. Assessed interms of emissions intensity per tonne-km, air45678Defra emissions factors, April 2008Road Freight Transport by Type of Goods, 2006, Eurostathttp://www.bts.gov/programs/freight transportation/,extracted 9/11/08WEF analysis, using OECD dataOECD Environment Data, 2006,20078

In India, diesel fuel consumption in the transportsector grew by 1.5% per year from 1990 to 2006 9.In China, the number of tonne-km of freightmoved by road increased by a massive 14% peryear over the same period10.Total Supply Chain CarbonFootprintKey finding:Logistics and transport emissions are 5 to15% of product lifecycle emissionsThere are a number of approaches which look atcarbon emissions across the entire supply chain.Methodologies are not yet sufficiently advancedto draw emissions profiles for the entire industry,but we can draw some initial insights.ProcurementProductionan initial look at the lifecycle emissions of theirproducts, particularly as major retailersincreasingly stipulate carbon reduction targets intheir suppliers‟ contracts.Economic Input Output Life Cycle Assessment(EIO-LCA) approaches provide an approximateidea of the carbon footprint of more products, withknown accuracy limitations. We have used theCarnegie Mellon University Green DesignInstitute model13 to look at logistics and transportwithin the lifecycle emissions of products.One limitation of the EIO-LCA model is that theuse and disposal phases of the product lifecycleare out of scope. Logistics and transport iscommonly found to be a 5-15% of the emissionsof each product – around 9% for telephonemanufacturing and 10% for sugar manufacturingin the following examples.Transport andDistributionMobile Phone ManufacturingGreenhouse Warming Potential per Activity9%6%4%Power generation and supply4%4%Recycling3%33%DisposalConsumptionWaste management andremediation servicesTruck transportation2%Semiconductors and relateddevice manufacturingIron and steel mills2%Industrial gas manufacturing2%Air transportationRetailTelephone apparatusmanufacturingWholesale trade31%Paper and paperboard millsOther sectorsSugar ManufacturingGreenhouse Warming Potential per ActivitySupply Chain DecarbonizationWaste15%Figure 3: End-to-End Supply Chain ProcessUsing the product-level carbon emissionscalculation methodologies developed by theCarbon Trust, firms have been able to build ameaningful picture of the total product lifecycleemissions of individual products.9%21%5%12%Sugar manufacturing2%2%1%1%1%Sugarcane and sugar beetfarmingPower generation andsupplyTruck transportationNitrogenous fertilizermanufacturingOil and gas extractionWaste management andremediation servicesPipeline transportationPetroleum refineriesAn early application of this approach led to thecarbon labels on bags of Walkers Crisps11. Laterprojects have looked at other consumer products,including T-shirts, light bulbs, orange juice andpotatoes12. The number of detailed studiescompleted at product level remains small. Theyare, however, likely to prompt more firms to take9101112WEF analysis, using Indian Ministry of Petroleum and GasdataWEF analysis, using National Bureau of Statistics ofChina datahttp://www.pepsico.co.uk/carbonlabel, extracted 9/11/08http://www.carbon-label.com/product.html, extracted9/11/0831%Natural gas distributionOther sectorsFigure 4: Share of Emission per Product TypeClearly it is important that the logistics andtransport sector works internally to slow and thenreverse the rate of growth in its emissions. Thereis, however, an equally valuable role for the13Carnegie Mellon University Green Design Institute. (2008)Economic Input-Output Life Cycle Assessment (EIOLCA), US 1997 Industry Benchmark model [Internet],Available from : http://www.eiolca.net Accessed 12October, 2008.9

sector to play in enabling emissions reductions inother parts of the product lifecycle.Pressures for a Shift toDecarbonizationKey findings:The main commercial determinants of supplychain decarbonization will be:Carbon regulationFuel price volatilityConsumer carbon awarenessDecarbonization pressures from policy makerswill not go away during a recession, with thecontinued development of carbon tradingschemes being evidenced. A significant amountof the cost of energy is already tax take for manyparts of the supply chain. Further fiscaldisincentives to emit carbon – such as limit-basedapproaches and tariff-based schemes – couldintroduce markets to address environmentalexternalities from supply chain activities.Reducing fossil fuel consumption in supply chainsis the single most important lever to cut carbonemissions. It also substantially reduces operatingexpenses in a sector where energy purchasescan range from 5 to 35% of the total cost base14.In the decade from 1991 to 2001, energy marketssaw a period of low and stable prices. In the tenyears to October 2001, the average price of abarrel of crude was US 21. Furthermore, therange from maximum to minimum price was onlyUS 27 over the whole period15.Implementing decarbonization also reducesbusiness exposure to energy cost volatility,helping to de-risk the cost base. The era of lowand stable energy costs ended in 2001, perhapslinked to growing scarcity and uncertainty ofsupply. Through 2008, businesses experiencedthe effects of fuel price volatility and exposure. Inthe two years from October 2006 to October2008, oil prices averaged US 86 / barrel. Thelowest spot price of a barrel in that period was US15 50; the highest was US 144 in July 2008 .Supply Chain DecarbonizationEU ETS will be extended to the aviation sector in2012 and there are some discussions aboutextension to ocean freight. There is currently littleor no discussion about direct extension into theroad transportation sector. This is due to preexisting fuel taxes. However; feed-through effectsfrom changes in manufacturing strategy in energyintensive industries could be expected.A carbon price applied at the current market ratesfor EU ETS credits would add a further 5% to16% to today‟s prices of crude-based fuels.Carbon PriceDistributionVATProductDutyCarbon PriceDistributionTaxesRefiningCrude 6040200Diesel FuelUKCarbon PriceCurrent PriceDiesel FuelUSJet FuelSpot Price (WTI Crude, Cushing) in US / BBLDaily Evolution in Oil Prices (1986 to Date)The major precedent has been the introduction ofEU ETS to heavily polluting industries in the EU.While the first phase of EU ETS was hit by oversupply, it is expected that this will be addressedin future phases.140120Oil PriceOil Price adjusted for inflation100806040200Figure 6: Fuel Price EvolutionMany businesses in the supply chain, bothlogistics operators and more widely, wereseriously impacted when oil prices spiralled up ashigh as US 144 / barrel in July 2008. Yet others,for example those who hedged at the time ofpeak prices and were unable to unwind theirpositions, lost out as prices fell back.Additional pressure to reduce emissions comesfrom de facto standards which are not directlylegislated. These are driven in large part byNGOs, think tanks and public policyorganisations. Attention here is increasinglyfocussed on the supply chain:14Figure 5: Effect of Potential Carbon Price Additionto Fuel at EU-ETS Market Rates16015Accenture analysisAccenture analysis, using US Energy InformationAdministration data on Cushing, OK spot prices10

The Carbon Disclosure Project launcheda supply chain programme in 2007.Requests for information were sent toover 2,000 firms16The Greenhouse Gas Protocol created ade facto standard for emissions reporting.Specific supply chain guidance comesfrom the Logistics and Transportsupplement of the Global ReportingInitiative17Recent initiatives have moved towards thecalculation of the carbon footprint of a productthrough its entire lifecycle. Standards here aregenerally still in development, but the CarbonTrust was instrumental in the October 2008launch of the PAS 2050 methodology18, while asimilar scheme has been launched in Japan19. Itseems likely that initial frameworks such as thesewill form the basis of later ISO standards.Nevertheless, consumers have becomeincreasingly carbon-aware: research by theCarbon Trust23 found that 64% of consumers inthe UK are more likely to use a businessmarketing itself as low-carbon. 67% of consumersin the UK were likely to buy a low-carbon product,and similar trends are seen across much of theEU. In the USA, the data is less compelling, withretailers focussing on price-driven marketing,although the cost-carbon linkage remainsrelevant24.Looking again at analysis from the CarnegieMellon University‟s Green Design Institute model,it is evident that the carbon footprint of productsvaries significantly in dollar value terms. For basicindustrial commodities, such as iron and steel,emissions are three to four tonnes of CO2e perUS 1,000 of value. For consumer electronicslike laptops and phones, the figure isconsiderably less than half a tonne.Metric Tonnes of GHG Emissionsin CO2e per 1,000 of TradeOn the demand side, consumers still want tobecome „greener‟, with carbon on top of theirminds. 85% of consumers in a recent worldwidesurvey were either „extremely‟ or „somewhat‟concerned by climate change, and 81% thought itwould directly impact their lives 20. And, as SirTerry Leahy, CEO of Tesco plc, commented, thecurrent economic situation means that “we needto ensure that green products are not luxuryitems, but can be bought by those on a tightbudget”21, further fuelling pressures to cut bothcost and carbon.Supply Chain Decarbonization16171819202122Carbon Disclosure Project, Supply Chain Brochure ork/SectorSupplements/LogisticsAndTransportation/ Dec 2008Carbon Trust website, extracted 10/11/08AFP, “Japan to label goods' carbon footprints: official”,Aug 19, 2008Accenture End Consumer Survey on Climate Change,2007Sir Terry Leahy, speech to British Council of ShoppingCentres annual conference, 11 Nov 2008Review of Food Miles Carbon and African Horticulture:Environmental and Developmental Issues, COLEACPEmissions from Transportation3.02.01.00.0In the short term, consumers are hampered intheir direct response by the limited availability ofinformation; few products are carbon labelled andthere is not yet a global labelling standard.Consumers instead respond to proxy indicators ofcarbon emissions, with a degree of inaccuracy.One obvious example has been the dialogueabout air miles22 for supermarket groceries.Consumer awareness campaigns have not, bycontrast, focussed on the emissions impact ofmanufacturing location, though this is likely tohave a larger impact on product lifecycle22emissions .4.0Figure 7: Lifecycle Emissions in Dollar-ValueTerms with Transport HighlightedIt is possible that changing consumer awarenessaround carbon emissions will impact on demandfor products in different ways, particularly ifcarbon calculation and labelling schemes bringfootprint information to the fore. The effects ofchanging consumer demands, combined with asupporting response from the large globalretaile

for supply chain decarbonization remain valid. Understanding Supply Chain Decarbonization This report is constructed from the viewpoint of the world‟s largest logistics and transport firms, the heart of supply chain decarbonization efforts. provide both a contextual and an initial decarbonization challenge. It looks at likely , purposefully .