Nowhere to hide on product emissions as regulators zero in on supply chains

Posted on 2 Nov 2023 by The Manufacturer

Last month, history was made as the world’s first carbon border pricing mechanism came into force. The Carbon Border Adjustment Mechanism (CBAM) is intended to support the European Union (EU) in meeting its net-zero goals, and even out the price of carbon for imported goods and those made in the EU.

The regulation will send shockwaves through global supply chains and trade flows all over the world. In essence, carbon pricing no longer has a border.

It is not just Europe that is zeroing in on product emissions, with nearly a quarter of emissions globally currently covered by carbon pricing schemes. Regulators from the UK to California to Japan are making companies accountable for their climate impact up and down the value chain.

This means that manufacturers everywhere face real regulatory risks and penalties due to the companies they work with and the products and materials they source and produce. Those operating in key sectors, such as metals and mining supply chains, must work quickly to assess how they are implicated and what they’re required to report. This means mapping supply chains and getting accurate carbon accounting in place.

However… that’s easier said than done.

We know that companies struggle to source the data they need to make the right decarbonisation decisions, and that supply chain data is particularly difficult to access. Manufacturers operate global and complex value chains, and often lack visibility of their upstream suppliers or downstream customers, as well as how goods are transported around the world. Many don’t even know who or where all of their suppliers are, let alone their emissions, especially when looking at tier 2 and beyond.

Companies report supplier response rates to us of as little as 15%, so it is no surprise that many end up leaving supply chains out of their calculations, or using more easily available averages and assumptions, rather than asset-level carbon intensity data.

Unfortunately, using broad-based estimates makes it impossible to properly compare suppliers, which is crucial for lowering emissions, complying with regulation and even saving money. For example, under the new CBAM, we estimate that €340 per tonne of imported aluminium could be saved by choosing the right supplier.

Importantly, emerging climate disclosure regulation – while a challenge – is making supply chain data more readily available, and it isn’t just regulators that are demanding this information. Customers are being scrutinised too and want lower carbon suppliers and products to meet their own climate goals.

In this context, carbon price is becoming a significant contributor to total price, and a green premium is gradually emerging.

While there is a significant upside to be gained from acting now, many manufacturers are still stalling.

One issue is that they don’t have enough climate expertise or resources internally to respond to the plethora of requests.

But unfortunately the climate crisis doesn’t wait, and nor will regulatory deadlines – while supplier engagement is crucial, there simply isn’t enough time for many companies to contact all their suppliers and ask what their emissions are. And consultancies are often too expensive.

We believe that it will be technology that unlocks the world’s ability to decarbonise transparently. Big data and AI are now enabling companies to accurately track emissions, and do it quickly.

Forward thinking manufacturers are already tapping into this.

We work with global industrial companies on digital solutions to provide insights into supply chain hotspots and emissions reduction potential, going deep on product carbon footprinting and CBAM reporting. This has enabled a metals producer to offer prospective buyers emissions data to inform their procurement decisions, and provide customers with verifiable carbon footprint reports linked to their purchases.

Companies that don’t step up and provide this level of detail soon risk losing out on business, with a report published last year finding that 1 in 5 retailers are dropping suppliers based on carbon performance.

The reality is: solutions are emerging, manufacturers are innovating, and the laggards must act. Today, it may be hard to meet all of the emerging demands, but making the effort now will help you differentiate, show leadership and secure market share before your competitors catch up. Customers want to know that they can rely on you, not just in the immediate future, but in the net-zero future.

For more guidance on product footprinting, CBAM and scope 3 reporting, download CarbonChain’s guide for manufacturers.

About the author

Adam Hearne, Co-Founder and CEO of CarbonChain

Adam is an expert on the commodity and manufacturing sectors’ transition to a net-zero economy. He is the CEO and co-founder of CarbonChain, providing automated, asset-level carbon accounting for most carbon-intensive supply chains.

Adam’s career spans nearly two decades across supply chain management, extractive commodities, and technology start-ups. He was the senior program manager for 8 countries in Amazon’s European supply chain from 2016 to 2019, and he worked at Rio Tinto for 12 years, increasing productivity of several ore supply chains. Adam holds an MBA from London Business School and an honors degree from Queensland University of Technology in Australia.

At CarbonChain, he helps some of the world’s biggest and most impact-minded commodity companies, traders, manufacturers, financiers and logistics firms accelerate their climate action.