Executive Briefings

Supply Chains Will Pay the Price of Going Green

Lawmakers and regulators are aiming to turn the world green. And they've got supply chains squarely within their sights.

Not without reason. Depending on the industry, supply chains account for between 25 and 70 percent of all carbon costs, according to McKinley Addy, program manager with Himoca Consultants. Drill a bit deeper, and you find transportation responsible for 38 percent of greenhouse gas (GHG) emissions in the State of California alone. (Followed by energy generation at 25 percent, and industrial activity at 20 percent.) So anyone thinking that progress toward environmental cleanup will happen without radical changes in supply chain activities is in for a big shock.

Or maybe you'll be shocked anyway. There's a staggering array of new environmental regulations and laws coming down the pike, at the local, state, federal and international levels. And they don't always acknowledge one another's existence. Here's a small sampling, courtesy of a presentation by Addy at eyefortransport's third annual Sustainable Supply Chain Summit in San Francisco (www.eyefortransport.com):

Federal. In the U.S. House of Representatives, the American Energy and Security Act, also known as the Waxman-Markey energy and climate bill. In the Senate, a bill being shepherded by Sens. Kerry and Boxer, calling for carbon-disclosure labeling of all products sold in the U.S. Meanwhile, emboldened by a 2007 U.S. Supreme Court decision giving it jurisdiction in the matter, the Environmental Protection Agency has begun the process of setting targets for GHG emission reductions by power plants, refineries and other large facilities.

Regional. The Western Climate Initiative, covering seven U.S. states and four Canadian provinces, with a goal of cutting carbon dioxide (CO2) emissions to 15 percent of 2005 levels by the year 2020. The Midwest Greenhouse Gas Reduction Accord, covering a number of Midwestern states and Canadian provinces, impacting electricity generation as well as fuels for buildings and transportation. It contemplates a 20-percent cut in CO2 from 2005 levels by 2020, and 80 percent by 2050. And the Regional Greenhouse Gas Initiative, involving 10 Northeastern and mid-Atlantic states, with the first mandatory, market-based cap-and-trade program in the U.S. 

State. Looking only at California, a smattering of legislation and directives on the burner: Assembly Bill 32, capping CO2 emissions in 2020; Executive Order S-03-5, cutting CO2 to 80 percent below 1990 levels in 2050; AB 1007, increasing the use of alternative fuels; AB 1493, regulating vehicle CO2 tailpipe emissions; AB 10, the Carbon Labeling Act, and the still-developing ZEV (Zero-Emission Vehicle) Mandate.

So, is there some august body whose job it is to coordinate all of these efforts, eliminate potential conflicts, promote the smooth flow of commerce across national and international borders? Don't bet on it. "There is some consciousness" of the need for harmonizing environmental policy-making efforts, Addy said. California's Air Resources Board, for one, has had talks with EPA on the topic. And much of what's being done by regulators "is in conversation with people across the country."

None of which eliminates the prospect of companies being forced to deal with multiple regulatory regimes, when moving their goods across the nation and over international borders. Addy believes the private sector should bear at least some of the burden for fashioning a set of harmonized rules. "We're looking to the business community to be engaged," he said.

John Katz, pollution prevention coordinator with EPA, said it's not necessarily a question of states taking notice of federal efforts. "It's sort of the other way around," he said. "We at EPA are making sure that we coordinate with state laws.... We're trying to use thresholds that are very similar to California and other states."

The same goes for pending cap-and-trade legislation. Language in the Boxer-Kerry bill stresses the importance of regulatory consistency, "so that people don't get caught working at cross-purposes," Katz said. "But it really is up to lawmakers at the local level."

Similar conflicts might erupt in the international arena, as each nation draws up its own GHG reduction standards. Richard K. Bank, currently president of Millennium International Consultants (www.millennniuminternationalconsultants.com), has witnessed diplomatic imbroglios over such issues as oil and tanker regulations. The same thing could happen again, he suggested, as environmental laws come into force.

He, too, urged business to provide input to environmental policymakers now, or forever hold their peace. "Industry must participate in preliminary and intermediate steps of setting regulations," he said. "You can't complain later."

States and regions are moving forward on their own in case federal legislators fail to act, Addy said. California, he acknowledged, is well ahead of the curve in this regard. But one way or another, supply chains had better be ready to adjust to the implications of a greener world. Said Addy: "It's coming - the cost. You're going to have to deal with it."

- Robert J. Bowman, SupplyChainBrain

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Lawmakers and regulators are aiming to turn the world green. And they've got supply chains squarely within their sights.

Not without reason. Depending on the industry, supply chains account for between 25 and 70 percent of all carbon costs, according to McKinley Addy, program manager with Himoca Consultants. Drill a bit deeper, and you find transportation responsible for 38 percent of greenhouse gas (GHG) emissions in the State of California alone. (Followed by energy generation at 25 percent, and industrial activity at 20 percent.) So anyone thinking that progress toward environmental cleanup will happen without radical changes in supply chain activities is in for a big shock.

Or maybe you'll be shocked anyway. There's a staggering array of new environmental regulations and laws coming down the pike, at the local, state, federal and international levels. And they don't always acknowledge one another's existence. Here's a small sampling, courtesy of a presentation by Addy at eyefortransport's third annual Sustainable Supply Chain Summit in San Francisco (www.eyefortransport.com):

Federal. In the U.S. House of Representatives, the American Energy and Security Act, also known as the Waxman-Markey energy and climate bill. In the Senate, a bill being shepherded by Sens. Kerry and Boxer, calling for carbon-disclosure labeling of all products sold in the U.S. Meanwhile, emboldened by a 2007 U.S. Supreme Court decision giving it jurisdiction in the matter, the Environmental Protection Agency has begun the process of setting targets for GHG emission reductions by power plants, refineries and other large facilities.

Regional. The Western Climate Initiative, covering seven U.S. states and four Canadian provinces, with a goal of cutting carbon dioxide (CO2) emissions to 15 percent of 2005 levels by the year 2020. The Midwest Greenhouse Gas Reduction Accord, covering a number of Midwestern states and Canadian provinces, impacting electricity generation as well as fuels for buildings and transportation. It contemplates a 20-percent cut in CO2 from 2005 levels by 2020, and 80 percent by 2050. And the Regional Greenhouse Gas Initiative, involving 10 Northeastern and mid-Atlantic states, with the first mandatory, market-based cap-and-trade program in the U.S. 

State. Looking only at California, a smattering of legislation and directives on the burner: Assembly Bill 32, capping CO2 emissions in 2020; Executive Order S-03-5, cutting CO2 to 80 percent below 1990 levels in 2050; AB 1007, increasing the use of alternative fuels; AB 1493, regulating vehicle CO2 tailpipe emissions; AB 10, the Carbon Labeling Act, and the still-developing ZEV (Zero-Emission Vehicle) Mandate.

So, is there some august body whose job it is to coordinate all of these efforts, eliminate potential conflicts, promote the smooth flow of commerce across national and international borders? Don't bet on it. "There is some consciousness" of the need for harmonizing environmental policy-making efforts, Addy said. California's Air Resources Board, for one, has had talks with EPA on the topic. And much of what's being done by regulators "is in conversation with people across the country."

None of which eliminates the prospect of companies being forced to deal with multiple regulatory regimes, when moving their goods across the nation and over international borders. Addy believes the private sector should bear at least some of the burden for fashioning a set of harmonized rules. "We're looking to the business community to be engaged," he said.

John Katz, pollution prevention coordinator with EPA, said it's not necessarily a question of states taking notice of federal efforts. "It's sort of the other way around," he said. "We at EPA are making sure that we coordinate with state laws.... We're trying to use thresholds that are very similar to California and other states."

The same goes for pending cap-and-trade legislation. Language in the Boxer-Kerry bill stresses the importance of regulatory consistency, "so that people don't get caught working at cross-purposes," Katz said. "But it really is up to lawmakers at the local level."

Similar conflicts might erupt in the international arena, as each nation draws up its own GHG reduction standards. Richard K. Bank, currently president of Millennium International Consultants (www.millennniuminternationalconsultants.com), has witnessed diplomatic imbroglios over such issues as oil and tanker regulations. The same thing could happen again, he suggested, as environmental laws come into force.

He, too, urged business to provide input to environmental policymakers now, or forever hold their peace. "Industry must participate in preliminary and intermediate steps of setting regulations," he said. "You can't complain later."

States and regions are moving forward on their own in case federal legislators fail to act, Addy said. California, he acknowledged, is well ahead of the curve in this regard. But one way or another, supply chains had better be ready to adjust to the implications of a greener world. Said Addy: "It's coming - the cost. You're going to have to deal with it."

- Robert J. Bowman, SupplyChainBrain

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