Climate change is among the greatest challenges facing the world today. It is a global issue that demands a global response, with all countries and their citizens as part of the solution.
This, of course, includes businesses, which must do all they can to minimise carbon emissions from manufacturing and operations throughout the associated supply chains. The business world is under pressure to play a leading role in tackling the challenge. If companies act now, they will contribute to significant efficiency gains and cost savings as well as environmental benefits.
There is no doubt that man-made climate change is now recognised by all developed and many developing nations and is being increasingly incorporated into policy and legislation.
The scale of the problem can be illustrated by some key statistics. Some 26.4 billion tonnes of CO2 were emitted globally each year over the period 2000-2005, mostly from burning coal, oil, gas and petrochemicals for energy. In 2006 US$29.8 billion was traded in carbon emissions markets – and this is forecast to rise to $2 trillion by 2025, while the market for low-carbon energy products is likely to be worth $500 billion per year by 2050.
In some instances procurement and supply chain professionals are already making purchasing decisions based on the carbon content of certain products and/or acting as intermediaries with their suppliers to stimulate innovation in low carbon technology. This often gives companies a longer term competitive advantage.
So what is being done at government level? In the US, President Obama plans to implement some kind of cap and trade scheme for businesses, and has indicted that a carbon budget including a personal allowance for individuals is also a potential measure. In the coming years, increases in landfill tax, fines for greenhouse gas (GHG) pollution and general price increases in fossil fuels will all motivate the move towards a new, low carbon economy.
On the world stage the Kyoto Protocol, first adopted in 1997, is an international agreement that sets targets for industrialised nations to cut their GHG emissions. Those countries that have signed up to the agreement met at a conference in Copenhagen last year and made a legally binding commitment to improve their original target of reducing emissions to below 1990 levels.Under the Protocol, for instance, the European Union (EU) and its member states initially agreed a joint target of an 8% cut in GHG emissions by 2012. This has now been updated to 20-30% by 2020. The so-called 'bubble' arrangement allows the EU's target to be redistributed between member states to reflect national circumstances such as requirements for economic growth and the scope for further emissions reductions.
Emissions from international shipping and aviation are not subject to the Kyoto reduction commitments. The UN Framework Convention on Climate Change (UNFCCC) states that they should be calculated as part of national GHG inventories but excluded from national totals and reported separately.
Some countries are already implementing legislation to put mechanisms in place that report and deliver the agreed targets. Examples include a carbon reduction commitment (CRC) scheme being launched in the UK, which is a world pacemaker on climate change initiatives.
In 2008 a survey among UK business leaders by consultants KPMG revealed that 85% of respondents think climate change is a significant business issue, with 77% expecting its significance to increase in the future. However, 83% did not have a strategy to address the issue, although 40% had a good understanding of it and were developing a plan. Many have only just started to think through the corporate implications of climate change and most say they would welcome better guidance.
Working through the EU, G8 and UNFCCC processes, the UK is trying to find ways to reach global agreement on action to avert catastrophic climate change.
The ultimate goal is to stabilise GHG levels to avoid dangerous change. Where this is not achievable, the aim is to adapt to any unavoidable climate change, which seems to be the way the world at large is going. To avoid the danger mark, the UK and the EU consider that global warming must be limited to no more than a 2°C temperature rise above 1990 levels.
The CRC Energy Efficiency Scheme - formerly known as the Carbon Reduction Commitment - is the UK's mandatory climate change and energy saving flagship. It has just begun its three-year introductory phase in what has been termed the ‘footprint year’.
As a mandatory ‘cap and trade scheme, the CRC aims to deliver cost-effective carbon emissions reduction together with cost savings in the services sector, public sector and other less energy-intensive industries – covering up to 5,000 large organisations such as supermarket and hotel chains, office-based corporations, government departments and large local authorities.
The CRC will apply to all organisations whose electricity consumption through half hourly meters is greater than 6,000MWh/yr – equivalent to an annual electricity bill of £500k. All energy other than transport fuels will be covered, such as electricity, gas, fuel and oil.
Participants may choose to reduce their own emissions or buy allowances giving them the right to emit, making it possible for emissions cuts to be made where it is most cost-effective to do so. There will be a limit on the number of allowances available which will, in effect, set a cap on emissions from these organisations. It is anticipated that the scheme will cut carbon emissions by 1.2 million tonnes per year by 2020.
During the footprint year, all allowances will be sold at a fixed price. From then on allowances are to be auctioned, with all the income being recycled back to participants as an emissions reduction bonus currently set at £12 per tonne of CO2. Increased emissions will attract penalties.
Among other steps, the UK has announced a climate change levy chargeable on industry and commerce for taxable lighting, heating and power commodities including electricity, natural gas and solid fuels.
The platform for such measures was signalled under the Climate Change Act 2008, UK-only legislation which introduced the world’s first long-term legally binding framework for tackling the dangers of climate change.
In one of the Act’s key provisions, the government undertook to include shipping and aviation emissions – or explain why it could not – by the end of 2012.
Against a background of growing legislation, greater corporate social responsibility and plain commercial advantage, it is becoming vital for organisations in the UK and beyond to calculate and record their carbon footprint.
Completing this process will highlight - in many cases for the first time - where and how emissions are produced within the organisation and thereby stimulate not only thought but also concrete action on how they can be reduced.
Since being founded in the UK in 1932, CIPS has developed a worldwide network of offices, grown to 60,000 members in 150 countries and has established the world standard code of conduct on procurement and supply management. Visit www.cips.org or call +44 (0)1780 756777 for details of membership, services and business solutions