What is the carbon intensity of your supply chain?

Many Australian companies are unaware that they have highly carbon-intensive supply chains and could be exposed to a future cost of carbon.

Most of the discussion about carbon emissions in Australia has focused on Scope 1 emissions (from the burning of gas or fuel on site and from company-owned vehicles) and Scope 2 emissions (from electricity use). However, apart from large industrial companies, most Australian companies only have a relatively small Scope 1 and 2 carbon footprint. The majority of their emissions are Scope 3 emissions that arise in the supply chain, embodied in the goods and services that they purchase.

In the past, measuring Scope 3 emissions was very difficult. It would normally require firms to survey their entire supply chains, and the supply chains of their suppliers - a complex, expensive and virtually impossible task for most organisations. Greenice provides a solution for the measurement of Scope 3 (supply chain) emissions that overcomes the complexity and cost of auditing supply chains. This approach also solves the common problem of double counting of supply chain emissions. Double counting arises because it is likely that at least some of the emissions have already been captured in someone else’s reporting as Scope 1 or 2 emissions.

Greenice uses carbon accounting methods developed by the Centre of Integrated Sustainability Analysis (ISA) at The University of Sydney. This approach uses Input-output analysis - a Nobel Prize-winning macroeconomic theory. It is a pain-free and scientifically rigorous way of analysing Scope 3 carbon emissions. The model is based on the national accounts published by the Australian Bureau of Statistics. The analysis uses a firm’s expenditure and revenue (sales) data and on-site data for consumption of fuels such as LPG, petrol/diesel to calculate a comprehensive Scope 1, 2 and 3 carbon footprint. To put it simply, the model works out the amount of carbon emissions ‘embodied’ in the $ value of purchases plus carbon emissions that come from burning of fuels on site (this includes fuel in company-owned vehicles).

Input-output analysis may be used to measure carbon emissions for a firm, a department, a factory, a product or a project. The methodology is fully scalable, all that is needed is suitable financial and energy/fuel data (it’s even been used to calculate the footprint of the UK!).

The total footprint analysis provides a comprehensive carbon inventory that shows the sources of on-site emissions and where they arise in the supply chain. Figure 1 shows an example of a carbon inventory for a pharmaceutical importer. The analysis clearly identifies the emissions from fuel (Scope 1), electricity (Scope 2) and emissions embodied in the goods and services purchased by the firm. In this case, the carbon footprint is dominated by carbon emissions embodied in imported pharmaceutical products.

The results of a full Scope 3 carbon footprint analysis can be surprising. This is illustrated in Figure 2 for four firms in different industry sectors - the pharmaceutical importer, the food processing company, a printer and a training firm (services sector). In most cases, the total carbon footprint is dominated by Scope 3 emissions that arise in the supply chain (over 90% of total emissions for the printer). For the printing firm, the carbon footprint is dominated by emissions embodied in the paper it purchases; for the food processor, the emissions are embodied in the raw materials like meat, vegetables and grain it uses to manufacture food products. The total carbon footprint analysis shows the extent to which these firms could be exposed to a future cost of carbon as the impact of the carbon price cascades through the whole economy, the supply chain and to the firm’s bottom line.

Written by Dr Michael du Plessis, Greenice Pty Ltd