This Green Chain focus proudly sponsored by Evergreen Line.
The greening of the supply chain is essential if the world is to achieve the limit of 1.5-degree C, necessary to counter the impacts of global warming. With time running short, can the supply chain go green?
The Human Condition. Over 180 years ago, future President of the United States Abraham Lincoln remarked in a speech to the Illinois State Legislature, “Leave nothing for tomorrow which can be done today.” While his words weren’t intended as such, they’re prescient for addressing the challenges of climate change and global warming.
And in large measure that means tackling the immense task of decarbonizing the global supply chain – and building a Green Chain. How much does the global supply chain contribute to global warming? It depends on how we define the global supply chain. If we talk about a product’s entire life cycle, the contribution is often said to be in the 80%-90% range to greenhouse gas (GHG) emissions – a prime contributor to global warming. But the estimates are imprecise, as the global supply chain is a nebulous entity. Simply stated, there are few human activities more ubiquitous than trade.
And global warming is directly linked to people. As the National Aeronautics and Space Administration (NASA) unambiguously spells out in the introduction to their online tracking of global warming, “There is unequivocal evidence that Earth is warming at an unprecedented rate. Human activity is the principal cause.”
Welcome to the Party: COP27
When the COP27 was held in Sharm el-Sheikh, Egypt on November 16-18, it was as the name implies the 27th such gathering to address climate change. The “COP” is an abbreviation for “Conference of the Parties” which refers to the committee created after an international treaty is signed that undertakes the duties and decisions associated with implementing the treaty. While “COP” is a generic term in international parlance, it has become synonymous with the committee created after the signing of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992. Subsequently, meetings were usually held annually to further discuss climate change directives. In 1995 the Kyoto Protocols were adopted which significantly upped the ante. Under the Protocols, signatory developing countries were legally bound to emission reduction targets. There are 197 Parties [generally countries] to the initial convention and 192 Parties to the Kyoto Protocol.
Another step in addressing climate change was taken with the Paris Agreement, adopted on December 15th, 2015. The primary objective of the Paris Agreement was to set the stage for action to keep the global temperature rise in this century well below 2 degrees Celsius above pre-industrial levels and to endeavor to limit temperature increase even further to 1.5 degrees Celsius. By benchmarking the planetary goals, programs to achieve environmental objectives at the ground level could be constructed to help achieve the larger ambition of limiting temperature increase to 1.5 Celsius.
Over the years the COP meetings have singularly become the most important meeting in the world on climate change. The measuring stick by which the world’s progress on climate change is measured. COP27 reportedly drew over 50,000 people. It is now a truly “global” event like the World Cup – a global gathering on climate change without equivalents.
Aside from the pure spectacle, what happened at COP27?
U.S. State Department, Assistant Secretary Monica Medina, in the December 6th briefing of the COP27 meeting wrote, “At COP27, we engaged the world through an “Implementation Plus” approach, emphasizing that avoiding the worst impacts of climate change requires not only implementing the commitments and goals countries have already made, but also enhancing commitment where they are insufficient.”
Although there was considerable engagement among the Parties, how much actually got done is a matter of conjecture. A Brookings Brief from December 14th in summing up the meeting succinctly wrote, “If you ask people who paid attention only to the formal negotiations, the answer is not much.”
There was as Medina mentioned in her brief, an initiative to set up a new funding system to compensate developing countries for “loss and damage” caused by climate change – although exactly how the initiative will be funded and what it will be spent on is still a mystery to be revisited at COP28…and beyond.
Even on some of the fundamental issues there was little consensus. For example, on mitigation, only 30 nations agreed to update their commitments to cut emissions. And COP27 avoided including any plan to phase out coal or fossil fuels – a key element in limiting warming to 1.5 Celsius.
This isn’t to say that COP27 was a failure. Far from it. Rather that COP27’s overarching endeavor of implementation is more about getting the participants to agree to march in step – it is more about being a clearing house for new ideas on how to limit global warming than a regulatory body. Within that context, COP27 was a resounding success.
First Link in the Green Chain
Intertwined within many of the COP27 discussions and proposed initiatives is the question of how to build an environmentally responsible global supply chain. That’s not surprising. In January of 2021, the World Economic Forum in collaboration with the Boston Consulting Group released a report, “Supply Chains as a Game-Changer in the Fight Against Climate Change” which noted, “Eight global supply chains account for more than 50% of annual greenhouse gas emissions. Only a small proportion of these emissions are produced during final manufacturing. Most are embedded in the supply chain—in base materials, agriculture, and the freight transport needed to move goods around the world.”
And according to the Organization for Economic Co-operation and Development (OECD) shipping alone represents 2.9% of total GHG emissions. For this reason, much of the focus on greening the global supply chain begins with ocean transport – ships and ports.
Special Presidential Envoy John Kerry, in his post-meeting highlights, noted the U.S. and Norway had announced the launching of the “Green Shipping Challenge with 40 major announcements from countries, ports and companies on the actions to help align the shipping sector with goals to limit global temperature rise 1.5 degrees Celsius.”
Undoubtedly, a transformation of ocean transport and indeed within every component of the supply chain is underway. But there is still great debate on what is the best path forward, and who takes (and often pays) for the first steps.
For example, effective January 1st, 2023, under the International Maritime Organization’s (IMO) protocols it will be mandatory for all ships to calculate their attained Energy Existing Ship Index (EEXI) to measure their energy efficiency for reporting their annual operational carbon intensity indicator (CII) and CII rating. The impending application has triggered a strong pushback from containership operators. The Alphaliner [November 11-15, 2022] newsletter in a detailed article delving into the controversial IMO rating system, wrote, “…MSC, Maersk and Hapag-Lloyd individually criticized the IMO’s approach to calculating the CII, claiming the rules were ‘not sensible’ or even counterproductive.” Adding, “MSC stated that enforcing the CII could reduce effective container vessel capacity by up to 10%, because it will force some less efficient ships to reduce sailings speed in order to remain compliant.”
For many shipowners the trouble with CII is that the rating is vessel specific rather than applied to the fleet as a whole – it is not averaging out the fleet and thus the shipowner can’t balance out an inefficient ship with a newer efficient one. This debate is being played out against a backdrop of new technologies, new fuels and power plants handling fuels such as LNG and methanol and an orderbook with very much larger vessels – upwards to over 23,000 TEUs coming down the slipways.
Undoubtedly, the debate over decarbonizing ocean carriage is really in its infancy with new technologies and a new regulatory environment framing a transformation to a different, environmentally sound future. And as Lincoln wisely pointed out, “The best way to predict your future is to create it.”