Supply Chain and Cap and Trade, Carbon Footprint Reduction

As carbon emission rates steadily increase each year, environmental initiatives are starting to make good business sense. Now more than ever, companies should optimize effective and sustainable “green” supply chains by reevaluating their supply chain. In 2006, California legislature passed AB-32, the Global Warming Solutions Act, which sets the 2020 green house gases (GHG) emission reductions by law. Consequently, this could affect suppliers throughout North America. Emission reduction policies are here to stay, and supply chain emissions will only continue to be regulated. With that thought in mind, how does this affect supply chain management (SCM)?

What is Cap and Trade?

First, some background information. Cap and trade is a bit more complex than carbon taxation, as it focuses on the quantity of carbon emissions. The government provides economic incentives for GHG reductions and sets a maximum for allowable emissions. In theory, emissions should decrease over time. Unlike carbon taxation, companies have flexibility how to comply with cap measurements. Through the passage of AB-32 in California, all companies must purchase a carbon permit if they begin to approach or exceed the approved limit cap. Indeed, overall effectiveness will ultimately be determined by a) how aggressive caps are phased in, and b) how permits are created and distributed. According to the EPA website, “Successful cap and trade programs reward innovation, efficiency, and early action and provide strict environmental accountability without inhibiting economic growth.”

Movement, Space and Material

Now to answer our original question: how does this affect SCM? Visibility. In order to prove that a company has reduced emissions, company leaders must track all actions through their supply chain.

Initially, the company should first measure the carbon footprint of their supply chain as it currently stands. When that is achieved, the company should focus on supply chain movement like the shipment of raw materials and parts. Companies should focus on how operating equipment can run more efficiently, ways to reroute fleet vehicles, maximize truck loads, and start importing zero emission trucks, buses and port equipment. Determining how frequently supply deliveries are made is just as crucial to emission reduction as making vehicles more energy efficient. According to the World Economic Forum Report, Supply Chain Decarbonization,“optimising the network‟s nodal points, hierarchy and inter-related transport flows can bring significant reductions in both cost and carbon.”

Next is space targeting. Companies should look towards making their bigger facilities a place for renewable energy exploration. Making the switch could offer advantages from utilities which possess the capability for clean energy infrastructure, at a reasonable price.

Lastly, material measurements. By focusing on increasing recycling and reducing the use of packaging materials by facilities, return on investment (ROI) will increase. And by purchasing energy in bulk, money can be re-allocated to additional renewable resources and energy.

Clearly, linking emission reduction goals to SCM reduces carbon footprints and saves the company money.

Ownership and Accountability

Successful supply chains are determined by strategic, logical practices working alongside company’s core values, processes and long-term goals. Customer consciousness towards providing green supply chains has drastically changed, so long-term company goals should also match. Having a sustainable supply chain promotes company understanding, while also adopting government cap and trade regulations. “Green” SCM reflects law compliance through rigorous social, environmental, and energy efficient mandates. Likewise, building sustainability across company job functions provides employee accountability, in which, small changes will add up in a huge cost-effective way.

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