supply chain carbon footprint_milano 2009

Glenn MilanoMcLean Virginia

September, 2209

Discussion Document

How Big is Your Carbon Footprint?Understanding carbon emissions in order to build a sustainable supply chain

This document is confidential and is intended solely for the use and information of the client to whom it is addressed.

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Presentation Overview

Sustainable Supply Chains

Calculating Your Carbon Footprint

Beverage Industry Case Studies

Integrating Sustainability Into Your Supply Chain

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The movement towards green supply chain management is rooted in the concept of sustainability

“Sustainability is closely aligned with the concept of “triple bottom line” – expanding traditional reporting frameworks to take into account environmental and social performance in addition to financial performance – 1994, John Elkington

There is now abundant scientific evidence that humanity is living unsustainably. Returning human use of natural resources to within sustainable limits will require a major collective effort.

One major driver of human impact on Earth systems is the consumption of biophysical resources. The world population is projected to reach 7 billion early in 2012 (right)*.

Triple Bottom Line

People

Sustainability

ProfitPlanet

*Official United Nations Population Estimate


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Four primary factors drive business interest in being sustainable

Growing interest as business face continuous margin erosion, and energy prices remain volitile

A growing segment of customers favor companies that credibly demonstrate they are reducing carbon impact

Through trading permits, mandated caps, and other means, governments will increasingly press businesses to limit the amount of greenhouse gasses they release

The efficiencies that a company like Wal-Mart or Toyota can put in place to reduce emissions can reduce other costs and improve operations as well, increasing the competitiveness or their extended supply chain

Desire to Cut Energy Costs

Concerns About

Regulation

Customer Pressure

Productivity Improvement


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The traditional tools and concepts of supply chain management are augmented with new “green” tools

Network ModelingAnd Optimization

Capacity Planning

Sales & Operations Planning

Performance Management

Lean 6 Sigma

Inventory Planning and Optimization

Strategic SourcingCost and Performance Supply Chain tools and

methodologies

Green Supply Chain tools and methodologies

Lifecycle Analysis Green Procurement Carbon Footprinting

Carbon ModelingAnd Simulation

Alternative fuel vehicles

Recycling and Remanufacture

Sustainable Design


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Measuring the carbon footprint of your supply chain is an important first step in reducing your emissions and complying with forthcoming regulations

A carbon footprint is "the total set of GHG (greenhouse gas) emissions caused directly and indirectly by an individual, organization, event or product" (UK Carbon Trust 2008).

Measuring your carbon footprint is an essential step in preparing for US Cap and Trade regulations

The American Clean Energy and Security Act of 2009 established a variant of a cap-and-trade plan. This will likely be passed into legislation in 2010.

– Of note, the "Cash for Clunkers" program was an amendment under this Act

Large emitters of GHGs will be directly influenced by a mandatory cap through requirements to reduce emission, buy carbon offsetting credits

Small emitters will be influenced by the cap indirectly through increases in energy costs

Emissions trading markets do exist in the USA but it is currently voluntary

The more efficient supply chain will be at a advantage once this legislation passes


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The process for measuring your carbon footprint in its current state


MappingMapping Segmentation Segmentation Articulation Articulation Calculation CalculationSteps

Activity Details

Objectives

- Map all of the products, processes, transportation and processing associated with your business.

- Mapping ensures that all basic process, products and product flows are captured correctly. This is the highest level activity in the carbon footprinting process

- Separate all processes and flows into three categories: Upstream – products you receive as raw material, Entity - value and non value added business activities and Downstream – all activities that occur once the product has left the manufacturing phase

- Segmentation further defines the map by drawing lines around what occurs prior to, during and after your business has control of materials and processes

- Articulation is the detailed work all inputs/values for Production and Transportation for each segment of your supply chain.

- Articulation provides the details required to calculate the emissions for the supply chain

- Calculate the emissions for each variable- Calculate to the product or unit level- Example: Transportation of wood used in pallet making that transports your product is 0.18 MT CO2e per ton of wood. The product occupies 0.28% of the pallet.

- Calculation includes calculating the emissions for each step in the supply chain. - The sum of this is the carbon footprint

1. 2. 3. 4.

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The supply chain process map: example for a carbonated drinks manufacturer

Raw Materials Manufacture Distribution Use Disposal

Retailer Purchase

Pack

Consume

Refrigerate

Transport

Transport Recycling

Landfill

Vending machine

Transport

Transport

Wholesaler warehousing

Transport

RDCTransport

LabelBottling

Blending / processing

Bottle blowingTransport

Landfill

Transport

Pre-form productionPlastic

Paper PrinterTransport

Transport

Cardboard

Printer / cutterTransport

Transport

Water

CO2

Carbonate

Sugar

Additives / flavourings etc

Transport

Transport

Transport

Transport

Was

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pa

cka

gin

gB

oxes

Labe

ls

Bottles

Carbonated water

Pa

cka

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pro

duct

Useful data sources for constructingthe supply chain map include: Manufacturer’s sources Supply chain partners' sources Industry association sources

Example of Supply Chain Map for Carbonated Drinks ManufacturerILLUSTRATIVE


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Case Study # 1: The Carbon Footprint of Fat Tire Amber Ale


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Case Study # 1: The Carbon Footprint of Fat Tire Amber Ale The New Belgium Brewing Company (NBB) was concerned with their carbon emissions and

decided that the best place to begin their reduction efforts was to understand their current carbon footprint.

Their goal was to reduce emissions and save money.

They conducted a product level life-cycle assessment which included:

– the production of all raw and manufactured materials,

– conversion of those materials into finished products and co-products,

– processing of waste,

– product packaging,

– storage and transportation during distribution and retail,

– in-use emissions,

– disposal or recycling of the product,

– as well as immediate offset projects and any other innovative solutions.

Source: The carbon fooptrint of Fat Tire Amber Ale


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To begin, NBB segmented the Upstream, Entity and Downstream activities

Packaging and Non-Consumable Materials

– Glass (Production and Transportation)

– Paper (Production and Transportation)

– Cardboard (Production and Transportation)

– Steel (Production and Transportation)

– Wood (Production and Transportation)

– Adhesive (Production and Transportation)

– Plastic (Production and Transportation)

Consumable Materials

– Malt and Barley Agriculture

– Barley Production and Transportation

– Malt Production and Transport

– Hops Agriculture

– Hops (Production and Transportation)

– Water (Production and Transportation)

– Carbon Dioxide (Production and Transportation)


Emissions assessed in the Upstream section are associated with the acquisition of raw materials and any pre-processing of those materials prior to their delivery at the brewery


Upstream Emissions Categories

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Emissions assessed in the Entity are associated with the manufacture and marketing. Downstream emissions are associated with distribution, use and final disposal of Fat Tire Amber Ale

Brewing Operations

– Electricity

– Natural Gas

– Fugitive Refrigerants

– Manufacturing Waste Disposal

Distribution

– Transportation

– Storage during distribution

Retail

– Electricity and Natural Gas




Corporate Behavior

– Flights

– Fleet

– Refrigerants from Fleet

– Employee Commuting

Use

– Electricity


Waste Disposal

– Landfilling

– Recycling

Entity Emissions Categories

Downstream Emissions Categories

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They then Articulate and Calculate carbon dioxide equivalent values for each segment (Upstream, Entity and Downstream)

Example: Transportation of Glass:

– Twelve ounce brown glass bottles are deliver to NBB from Windsor, Colorado, a distance of 16 miles.

– These bottles are shipped by OTR truck.

– Class 8 tractor-trailer with an average fuel efficiency of 6.3 mpg, a max cargo weight of 20,000kg and using standard diesel fuel.

– The 16 mile trip requires 2.54 gallons of diesel fuel.

– The production and transportation of a gallon diesel fuel contributes 11.8 kg of Co2 to the environment (West and Marland, 2002).

– The entire trip then emits 29.96 kg of CO2.

– Allocating this CO2e per 6-pack results in a total mount for the transportation of bottles of 1.8 g of CO2(CO2e Carbon dioxide equivalent. A unit of GHG emissions including non-CO2 gases that have been converted to an equivalent mass of CO2 according to their global warming potentials)



Glass

Barley

Malt

PaperMfg. CO2Cardboard All other

sources

Major sources of upstream GHG emissions by percentage of total upstream emissions

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NBB then summed all emissions for the entire supply chain

The boundaries of the carbon footprint analysis encompassed the entire supply chain

– Acquisition and transport of raw materials, brewing operations, business travel, employee commuting, transport and storage during distribution and retail, use and disposal of waste.

This analysis goes beyond the regulatory requirements but positions them well for the future.

The largest line item in the tally of GHG emissions is the electricity used for refrigeration at retail.

The next largest sources are production of glass and malt (including barley).

These three sources account for 68.4% of all emissions embodied in a 6-pack of FT.

The carbon footprint of a 6-pack of Fat Tire® Amber Ale (FT) is 3,188.8 grams of CO2 equivalents (g CO2e).



Retail

Glass

Barley

Malt

Distribution

Use

Brewing OpsPaper and CO2

All other sources

Carbon Footprint of Fat Tire Ale showing major sources of GHG emissions by percent of total emissions

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Fat Tire Conclusions and Next Steps


Supply Chain Element

Result from Carbon Footprint Next Steps

Overall The business of creating any beer is linked inextricably to GHG emissions and many of the emissions are today unavoidable.

Set a goal of reducing emissions by 25% by 2015

Raw material production

Raw material production accounts for only 18.6% of emissions but is an area NBB can control better

Switch to organic barley (or barley fertilized from organic sources)

Work with suppliers to reduce emissions during the production phase

Demand planning and fulfillment

Electricity used for refrigeration at retail is the largest single source of emissions.

NBB has little influence over the design of the refrigerators employed by retail centers but they can reduce the emissions by minimizing stock time at retail or the removal of some portion of product from refrigerated section altogether.


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Case Study # 2: The Carbon Footprint of Tropicana Orange Juice

Source: The New York Times, How Green Is My Orange? January 22, 2009


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Case Study # 2: The Carbon Footprint of Tropicana Orange Juice

PepsiCo, owners of Tropicana Orange Juice, wanted to answer how much does a glass of their OJ contribute to global warming.

They measured the emissions from such energy-intensive tasks as running a factory and transporting heavy juice cartons.

The largest single source of emissions was simply growing oranges.

Citrus groves use a lot of nitrogen fertilizer, which requires natural gas to make and can turn into a potent greenhouse gas when it is spread on fields

PepsiCo found the equivalent of 3.75 pounds of carbon dioxide are emitted to the atmosphere for each half-gallon carton of orange juice.



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The Carbon Footprint of Tropicana Orange Juice

Juice production accounts for 60% of all emissions in Orange Juice production

PepsiCo plans to work with their growers and with researchers to find ways to grow oranges using less carbon

They are planning to publish carbon-footprint numbers for products including Pepsi, Diet Pepsi and Gatorade

Next steps include exploring greener:

– Agricultural practices

– Packaging material, quantity and re-use

– Sourcing locations

– Thermal and electrical efficiencies

– Transportation methods to market



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Case Study # 3: The Carbon Footprint of Bottled Water



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Case Study # 3: The Carbon Footprint of Bottled Water

Published in the February 2009 edition of the peer-reviewed journal Environmental Research Letters, the Pacific Institute conducted analyses of the energy requirements for various stages in bottled water production

– This including the energy to manufacture the plastic bottles, process the water and the bottles, and transport and cool the final product.

This was the first peer-reviewed analysis of its kind.

They also apply these inputs to three site-specific examples of the energy required from production to the point of use:

1. Local bottled water produced and used in Los Angeles

2. Water bottled in the South Pacific and shipped by cargo ship to Los Angeles

3. Water bottled in France and shipped in various ways to Los Angeles

Source: Environmental Research Letters, Energy Implications of Bottled Water, 19 February 2009


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Flow diagram of energy requirements of bottled water supply chain

Figure 1. Flow diagram showing examples of where energy is required during bottled water manufacturing, use, and disposal.

They evaluate the energy required in the first four stages, including transportation (colored orange) between them.

Energy is embodied in PET material itself, and additional energy is required to turn PET into bottles.

– This energy is typically supplied by natural gas and petroleum, along with electricity from the local electricity grid.


Figure 1.

1. 2.

4.3.

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Comparison of the transportation phase of 3 bottled water supply chains

ScenarioMedium truck

(km)Heavy truck

(km)Rail (km) Cargo ship (km)

Total Energy Cost (MJ 1-1 )*

Local Production

200 (local delivery)

0 0 0 1.4

Spring water from Fiji


0 0 8900 (Fiji to Long Beach CA)

4.0

Spring water from France


600 (Evian to Le Havre)

3950 (NY to LA)

5670 (Le Havre to NY)

5.8

Transportation scenarios for bottled water consumed in LA Metropolitan region with distances by mode of transport. (Note: heavy trucks are used for long-distance and inter-city freight transport. Medium trucks are used for intra-city freight delivery.)


Note: MJ is the symbol for millijoule - a unit of energy measurement. (1 MJ = 948 BTUs)


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The largest contributors to CO2 emissions and energy use in bottled water is the bottle and transportation

Most energy requirements for locally bottled water are found in the bottle

Long-distance transport can lead to energy costs comparable to, or even larger than, the energy to produce the bottle.

Far less energy is needed for processing and treating the water, and cooling bottles for retail sale.

Gleick and Cooley find bottled water is up to 2000 times more energy-intensive than tap water.


Total energy requirements for producing bottled water

Bottled water requiring long-distance transport is far more energy-intensive than bottled water produced and distributed locally.

The bottom line:

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New Tradeoff Scenario

ServiceC

ost

Traditional Cost vs. Service Tradeoff

Optimal Position

Supply chain planning has increased in complexity. In addition to cost and service, planning for the environment and supply chain resilience is necessary.

Cost

Service

Sustainability Resilience

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Tools, such as carbon footprint modeling software, can help supply chain managers manage this increased complexity

Supply chain optimization tools can now account for emissions and energy consumption and help companies understand the impact of their supply chain decisions on their carbon footprint.

These tools can be used several ways:

Reporting As a Constraint Cap and Trade

Enter the factors used to calculate CO2 emissions associated with supply chain activities

Enter the factors used to calculate CO2 emissions associated with supply chain activities.

Enter the factors used to calculate CO2 emissions associated with supply chain activities.

For network design and planning optimizes the supply chain for lowest total cost, or maximum total profit.

Enter the maximum total carbon footprint (in metric tons) the supply chain is not to exceed.

Enter the maximum total carbon footprint (in metric tons) the supply chain is not to exceed. Enter carbon credit purchase/sale price used if the cap the footprint is under/over the cap.

Reports the total carbon footprint to be used as an additional factor in decision making.

Optimizes the supply chain for lowest total cost or maximum total profit, while adhering to the constraints on the carbon footprint.

Optimizes the supply chain for maximum total profit, including the purchase or sale of carbon credits.

Integrating Sustainability into Your Supply Chain

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Tools, such as carbon footprint modeling software, can help supply chain managers manage this increased complexity

Supply chain optimization tools can now account for emissions and energy consumption and help companies understand the impact of their supply chain decisions on their carbon footprint.

These tools can be used several ways:


ReportingReporting







As a ConstraintAs a Constraint

Determine the maximum total carbon footprint (in metric tons) the supply chain is not to exceed.


Determine the maximum total carbon footprint (in metric tons) the supply chain is not to exceed.


Cap and TradeCap and Trade


Optimize the supply chain for maximum total profit, including the purchase or sale of carbon credits..


Optimize the supply chain for maximum total profit, including the purchase or sale of carbon credits..

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Benefits of using carbon footprint optimization software

Optimization programs can incorporates standard (default) data on carbon emissions in plants, warehouses and various modes of transportation.

– This enables supply chain managers to more quickly calculate the carbon footprint, saving time and money.

Compares carbon emission levels of different supply chain configurations.

Defines the tradeoffs between various production and distribution facility options, as well as transportation modes in particular.

Tests assumptions through “what if” scenarios to achieve an ideal combination of cost, service and energy consumption.

Helps develop strategies for compliance prior to enforcement.

Graphic Source: IBM ILOG LogicNet Plus Carbon Footprint Extension


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Conclusions

The traditional trade offs of cost and service now include sustainability and resilience

Emissions caps may be mandatory in 2010 and will influence your supply chain either directly or indirectly through increased energy prices

Being proactive in reducing your emissions is and will continue to be a competitive advantage

Sustainability is complex but there things that can be done today

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Thank You!

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Contact Info

Booz Allen Hamilton Inc.8283 Greensboro Drive

Mclean, VA 22102Tel (703) 377-1260

[email protected]

Glenn MilanoAssociate

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Definition of Terms

Carbon Footprint The carbon footprint, or embodied carbon, of a product or service is the total amount of GHGs emitted across the life cycle of a product. Though there are non-CO2 GHGs that are included in the carbon footprint, the term arises from the most significant GHG: CO2 (carbon dioxide).

CO2e Carbon dioxide equivalent. A unit of GHG emissions including non-CO2 gases that have been converted to an equivalent mass of CO2 according to their global warming potentials

GHGs Greenhouse Gases. TCC’s assessment tracks the six “Kyoto” gases regarded as most significant in terms of their climate impact: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

LCA Life Cycle Assessment. An academic field concerned with the accounting of material and energy flows involved in the life cycle of a product or service, and the assessment of associated environmental impacts. TCC’s Climate Conscious Assessment is an LCA of GHGs.

Offsets GHGs removed from the atmosphere (e.g. by growing trees) or prevented from escaping to the atmosphere (e.g. by capturing exhaust from power plants or gases released from landfills) have been commoditized by companies and organizations which market them as a means of “offsetting” comparable masses of greenhouse gases emitted elsewhere. Purchasers of offsets often seek to obtain amounts sufficient to compensate for all their direct emissions, thus making their product/service/activity “carbon neutral.” TCC’s assessment does not consider offsets, since we are seeking to quantify the GHGs emissions immediately related to the production system.

supply chain carbon footprint_milano 2009

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