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Leading companies are now targeting their supply chain carbon emissions. Change within operational control is considered basic, but ambition requires looking beyond these boundaries. Consumption-based accounting, an economic model to calculate supply chain carbon emissions, is one way to do this.

Every industry has some form of a supply chain, but these can vary in size and complexity. For example, the supply chain of the manufacturing industry is usually simple. Here ‘simple’ refers to how many ‘tiers’ and ‘pathways’ make up a supply chain. Whereas service industries are far more ‘complicated’ in terms of the number and variety of these ‘pathways’.

A ‘tier’ is a layer of a supplier. For example, Company A purchases catering through Company B, creating one supply chain ‘tier’. Company B buys ingredients for catering from Company C, creating another supply chain tier. However, Company B also buys drinks for from Company D. This does not add another tier, but another ‘pathway’ to the 2nd tier. The possible connections are endless and complex. This makes them very difficult to understand.

The different types of supply chain can host different opportunities if they are understood and managed well.

Supply chain tiers by Elementum

 

EXTRACTION

The environmental impact of extraction industries is clearer than any other industrial category. Despite fairly simple supply chain structures, there are limits to how well we can understand their GHG burdens. This is especially true when you consider the impacts of land use change, an area recently raised for development of a standard by GHG Protocol.

Consumption-based carbon accounting surpasses these limits. Understanding 100% of the carbon footprint gives companies a better chance to make real change.

MANUFACTURING

Construction, fashion and food products industries have had historic supply chain controversies (horsemeat in ready meals, labour violations in construction sites, and animal fur on ‘faux fur’ clothing). Their supply chains also share similar GHG emissions patterns. This provides an opportunity to improve the public view of these industries, and a transparent view of the supply chain will play a key role in this.

Supply chains in manufacturing are critically important. Consumption-based carbon accounting gives insight into the industries companies rely on and the associated carbon emissions. Diversity and improved sustainability in supply chains can protect companies from supply chain risks.

DISTRIBUTION

The complexities of Distribution industries are added to by the greatly increased demand for transport compared to other industries. Burning fossil fuels in lorries, ships and planes is one of the most significant GHG emissions sources at every scale. Distribution sectors will have significant transport burdens across supply chain tiers. New connections between tiers will have heavier burdens too.

With such important environmental impacts, consumption-based carbon accounting can bring a clearer focus to carbon emissions reduction efforts in Distribution industries.

SERVICES

Some of the most complex supply chains are within service industries. Examples of these industries include financial, legal and educational services. It is impossible under current methods, within a reasonable time and cost constraints, to measure the entire supply chain carbon emissions of such companies. However, the supply chain can hold 95% of the burden of service companies. The easiest way to map supply chains is through financial spend.

Using consumption-based carbon accounting, the GHG emissions of all supply chain paths can be included in one model. This also increases transparency in the supply chain, environmentally and financially.

WHAT THIS MEANS

Though discussed individually, the critical complexity is that all industries are linked through supply chains. For example, the Distribution industries that supply the Manufacturers, or the Service industries that support Extraction. Understanding these relationships and how they relate to supply chain carbon emissions helps target reduction actions.

More detailed understanding of these relationships through the consumption-based accounting model can accurately identify hot spots of spend and carbon to help you effectively target your emission-reducing initiatives

What are you talking about?

So what is Consumption -Based GHG Reporting?  ‘Consumption-based’ carbon accounting, as the name suggests, calculates carbon footprints based on your consumption of goods and services. It is based on input-output analysis, a robust method of modelling economies. It maps nationally published data on the flow of money, into, around and out of a country via industry sectors. Originally used to study economics, it can be adapted to environmental needs by assigning ‘environmental burdens’ such as kilograms of carbon emissions to each industry. This gives you a value for kilograms of carbon emitted per pound sterling (or any other currency) spent in any industry or on any product. This can be combined to describe whole companies.

And we don’t do this already?

The method used by the majority of people to calculate carbon emissions at the moment is called ‘process-based’ carbon accounting. It is essentially a shopping list of items and activities which get assigned a carbon factor, combined to find the total carbon footprint. This could describe your energy or waste processes, for example.

There are a number of problems with this method. The data provided is often incomplete leaving gaps and underestimating the footprint, by as much as 87% in some studies. This means your reporting is inaccurate and you cannot reduce your carbon footprint because you can’t see that it’s there. It is also a very time-consuming method with lots of individual calculations that make mistakes easy to make.

How is this new approach any better?

Where ‘process-based’ methods take a long time, varied data, and huge amounts of it, ‘consumption-based’ is much simpler. Once the model is constructed your data is fed into the model and – after some fancy matrix algebra – get your entire carbon footprint. Because it uses both client data and national data sets it always calculates 100% of your carbon footprint

There is also more you can do with an input-output carbon footprint. As well as the usual detail, the final figure can be picked apart to show hot-spots for carbon in your supply chains down through 5 tiers of spending. For complex companies this allows unrivaled access to your carbon burdens and how to mitigate them. It also expands your influence and capacity for change beyond your company, and to top it off tells a great do-good story.

Get in touch

The Acclaro approach is to take its clients on a journey that provides long term solutions and stream lines burden. We have experience of developing long lasting relationships that continues to save clients time and money whilst delivering results. If you are interested in setting up the consumption based model, or hearing how we work, get in contact and we can discuss whether this approach is right for you.

This blog forms part of a series of articles on consumption-based GHG reporting. Stay in touch for further guidance and information.

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