Chemical companies now have the tools to disclose their carbon footprint following the publication of two major international standards by the World Resources Institute (WRI) and the World Business Council on Sustainable Development (WBCSD) in late 2011. Known as GHG Protocol (GHGP)standards, they cover areas that have previously eluded emissions hunters: the value chain – upstream and downstream activities, known as scope 3 emissions – and individual product footprints.
The publication of the standards is a significant milestone first, because it allows companies to measure and question their customers’ and suppliers’ greenhouse gas emissions for the first time rather than simply monitoring energy consumption at their own premises, known as scope 1 and 2. Secondly, it reduces potential inconsistencies in emissions’ reports, allowing analysts to compare different companies through the same lens.
Those few chemicals companies that have tried up until now to measure scope 3 carbon emissions have found it difficult, especially as it means extracting information, not just from direct suppliers, but from those suppliers’ suppliers. Or does it? The few who have addressed this problem using lifecycle analysis have disagreed for years and produced emissions figures that suited them – so avoiding comparison with competitors. Mostly, chemical companies have avoided the problem.
‘There’s not been much reporting of scope 3 emissions, or most people have been focusing on the easy things up until now,’ comments Cynthia Cummis, senior associate at WRI, a US environmental thinktank in Washington DC.
Previous attempts took broad estimates, for instance, calculating emissions using a rule of thumb of 80% of procurement spend. Instead, the whole value chain must now be disclosed and any exclusion justified. The GHGP scope 3 is ambitious: value chain activities include, among 15 categories, purchased goods and services, capital goods, investments, franchises, leased assets, transport and distribution, employee commuting, end-of-life treatment and the use and processing of sold products. Many controversies about how to measure scope 3 have been laid to rest.
One of these is what type of supplier should be included. Some previous efforts to measure the footprint excluded tier two suppliers – companies that supply their suppliers. However, these have now been included. ‘The bigger impacts could be in tier two rather than tier one [direct suppliers to the company],’ points out Cummis.
Reaching a consensus among the scores of standard road testers involved is to be applauded. But the practicalities of assessing emissions are another matter. So far, no chemical company has mastered scope 3 emissions, but those giving it their best shot include Akzo Nobel and BASF, who number among several companies engaged in creating WBCSD chemical sector guidelines for the standard – which cuts across all industries – and were also among its road testers. One problem facing chemicals companies aiming to adopt the standard is the need to address emissions arising from purchased goods and services, often for the first time.
At Akzo Nobel, managers are in no doubt as to the severity of that challenge. Commenting on the practicalities of measuring and monitoring supply chain data, climate change manager Karin Sanne asserts: ‘We do not have and will never have specific data for all our direct suppliers. That is simply impossible. We mainly use master data from recognised databases, [which are] public and which we are licensed to use. Some data for raw materials are aggregated cradle-to-gate data and with some data we build in different layers.’
The difficulty of the task will, of course, vary according to the company and sector; basic chemical producers may find it easier. BASF, with an annual procurement budget of €30bn, is probably closer to the source of major emissions than some companies focused exclusively on speciality chemicals and has estimated after a three- year project that 50% of CO2 emissions in its supply chain relate to only about a dozen raw materials, such as naphtha. This may make the management and data collection process easier.
But for Akzo’s coatings and any other speciality chemicals businesses, the prospect of this is daunting. ‘We have thousands of suppliers worldwide so it is not really do-able to contact all our suppliers; also we have indirect suppliers,’ states Sanne.
‘The company has found that 70% of emissions in its speciality chemicals businesses are upstream. Downstream, Sanne notes ‘a huge difference in applications and how people use the chemicals so how do you allocate them back to your product?’
That is where the WBCSD comes in. The sector group, whose special guidelines are to be published in June 2012, will thrash out some of these kinds of problems in order to come up with a consistent approach to data collection and disclosure. ‘We will find out the way to most accurately portray emissions,’ explains Andrea Brown, programme manager at the WBCSD, referring, in particular, to speciality chemicals. For example, the group will decide whether to allocate emissions by spend, mass or volume. Any previous attempts have been dogged by inconsistency. ‘Companies had the option to cherry pick the dataset they liked best,’ says Brown.
Despite the problems, Akzo Nobel is committed to the project. ‘During this year, Akzo Nobel will investigate how we will implement the GHGP scope 3 standard,’ says Karin Sanne, indicating that road testing the standard has been a valuable exercise: ‘we did not find any surprises, but it is a good analysis to go through at least once to determine what your major emission categories are. Doing the different calculations provides a lot of insight and helps determine where to put efforts and resources to have the biggest impact,’ she says.
For BASF, the process has been useful in several ways, not least in helping the firm get to know better the company’s 6000 suppliers and working out what are the highest sources of emissions. ‘We found out the greatest cost products go with the greatest emissions,’ says procurement manager Eike Messow. BASF’s closer proximity in many of its product lines to raw materials might also suggest a greater capacity to influence suppliers. But according to Messow, the company has relatively little room for manoeuvre.
‘We do think about switching products, but it’s not easy to go for renewables like palm oil which, including transport, are not necessarily more environmentally friendly,’ he states. Instead, his team try to work more closely with suppliers on equipment. ‘We can sit with suppliers and ask if technology innovations in future could save some emissions,’ he says.
Some marketing benefits can be derived from measuring scope 3. Emissions from the use of sold products – one of the GHGP’s 15 categories – is one of the nightmare issues, though one can come up with ‘rule of thumb’ estimates, but smart companies may turn that particular problem on its head by product innovation. Maarten Neelis, an industrial energy efficiency specialist at environmental consultancy Ecofys, points to the significance of what he terms scope 4 emissions – those arising from consumer use.
‘One thing that is important for a chemicals plant is scope 4 ...some chemicals industry studies have found that reducing customer emissions has more of an impact than reducing on-site emissions,’ he points out. For some companies, this provides an opportunity for product development and top end product positioning, as with Akzo Nobel with its eco-premium product range.
Neelis suggests scope 3 is not the chemicals sector’s most pressing concern. ‘Scope 3 for this very energy intensive sector is quite minor in importance, compared with scope 1 and 2, though it is still important,’ he states. Of course, one company’s scope 3 is another company’s scope 1 and 2 – and that fact is perhaps one of the potentially powerful aspects of the new standards.
As Brown remarks: ‘Not everyone is doing scope 1 and 2 and that won’t happen until laws and policy drive it. But there’s a level of sophistication among the leading companies tackling scope 1 and 2 – an interest in moving to the next step.’ This could, of course, drive supplier emissions disclosure.
The sector has been quite far ahead on the issue, according to Hannes Partl, a PE International consultant. ‘The size of these very big chemicals corporations makes them more aware than others. The sector is maybe not number one in this area but is right up there.’