Leveraging Technology for Sustainable Supply Chains

As we stand at the tipping point of a climate crisis, organizations are under pressure to ideate and implement appropriate decarbonization strategies. Global agreements such as the Paris Agreement have resulted in new regulations, new reporting standards, and changing xpectations from both shareholders and the public in general. Forward-looking organizations are increasingly shifting from prioritizing only Profits to prioritizing People, Planet, and Profits equally with renewed focus on Sustainability. The chemical industry, a significant contributor to total Green House Gas (GHG) emissions, is an important sector for achieving overall GHG reduction targets. This article by Raghavendra Pai, India Sustainable Sourcing Lead, Syngenta, and Dr. Amgad Salah Moussa, Syngenta, Basel, Switzerland, discusses some concepts and methodologies to help the organizations and their suppliers to select right technologies that will eventually help in reducing Scope 3 emissions.

In the backdrop of rapidly evolving technologies, organizations are faced with the challenge of evaluating and selection of right technologies and formulate an appropriate decarbonization roadmap. This white paper discusses the challenges, opportunities, and methodologies that can help chemical industries to identify and deploy the right decarbonization technologies.

Climate change due to global warming is an existential threat to humanity. It has rightfully taken centerstage for discussions and deliberations amongst scientists, policy makers, and international think tanks, among others. Fortunately, there is consensus amongst nations, as demonstrated by the overwhelming endorsement of targets set by the Conference of Parties (COP) to limit average global warming to 1.5°C. As a sector, while the chemical industry is a significant contributor to the Green House Gas (GHG) emissions it is also important contributor to the economy. Therefore, decarbonization in the chemical sector is important to achieve overall GHG reduction targets.

PROBLEM STATEMENT: CHOOSING APPROPRIATE TECHNOLOGIES FOR GHG REDUCTION

The Paris Agreement has obligated member countries to commit to Nationally Determined Contributions (NDC), share of efforts to reduce GHG. Governments are amending and introducing new regulations to deliver the commitment. Further, measures such as Carbon Border Adjustment Mechanisms (CBAM) is forcing organizations to adopt sustainable practices to access such markets. Forward looking organizations have already started working on their decarbonization plans and decarbonization is increasingly gaining attention of the senior management.

SUPPLY CHAIN SCENARIO OF CHEMICAL INDUSTRIES

Factors such as consolidation amongst major players, the shift of manufacturing to the east etc., have shaped the supply chains of chemical industries that we see today. It is common to see the basic raw materials getting converted to commodity chemicals which are processed into intermediate products, in several stages, at different manufacturing facilities, before transforming into final products.

SCOPING OF GREEN HOUSE GAS EMISSION

GHG is quantified by equivalent tons of Carbon dioxide (eCO2), which is a measure of impact on global warming potential due to emission of one ton of carbon di oxide. In the context of GHG emission, Scope 1 refers to the direct emission in the premises, Scope 2 to indirect emissions due to the purchased utilities and Scope 3, emissions embedded in inputs materials, infrastructure, transportation etc.

SCOPE 3 REDUCTION CHALLENGE IN CHEMICAL INDUSTRY

As Scope 3 is the primary subject under discussion, it is important to understand Scope 3 emissions in detail. GHG protocol provides detailed classification within Scope 3. This includes purchased goods and services, capital goods, transportation, fuel- and energy-related activities, distribution, waste generated in operations among others.

Given the nature of supply chain of chemical manufacture as explained in sub section above, Scope 3 emissions account for 70% to 90% of the total product carbon footprint. Of the Scope 3 emission, significant contribution is attributed to emissions embedded in raw materials and intermediates sourced from other manufacturers. Although activities such as transportation of material, employee commute, contribute to scope 3 emissions, in most cases, energy required for processing, at preceding stages, is the largest contributor. Therefore, to achieve substantial reduction in Scope 3 emissions, it is imperative that organizations engage suppliers of major input materials.

INTRODUCTION TO ABATEMENT COST

It is important to recognize the varying levels of maturity and commercialization of different technologies. Abatement costs refer to the costs required to reduce one ton emission reduction of eCO2 using a particular technology. This is a good guide to understand readiness and attractiveness of a particular technology.

Exhibit 1 - Abatement Cost Curve, 2010) provides a general idea about the concept.

Abatement costs provide a good direction in identification of relevant technologies. However as getting accurate values is a challenge, this cannot be a tool by itself to identify workable technologies. In the next section, a methodology to help organizations to identify and select appropriate technologies for decarbonization is discussed.

METHODOLOGY FOR GHG REDUCTION TECHNOLOGY SELECTION

In this section, a methodology for selection of right decarbonization technologies, based on Onion model and multicriteria technology selection is proposed and discussed. Organizations are increasingly involving their key suppliers to reduce their carbon footprints and achieve targets. The proposed methodology can be applied both by the primary organization and its suppliers to screen and select appropriate technologies. Further, it is assumed that the primary organization has already taken the suppliers on board and a collaborative relation already exists.

ONION MODEL AND MULTICRITERIA TECHNOLOGY SELECTION METHODOLOGY

Balancing capital expenditure on modern technologies against the expected benefits is a challenge for organizations. In the context of GHG abatement technologies, there are several innovative technologies at various stages of development and commercialization. Global warming crisis has accelerated the development of new green energy as demonstrated by falling prices of solar and wind power. Technologies such as Solar thermal power, Green Hydrogen, CO2 sequestration are examples for supply side decarbonization. On the demand side, efficiency improvement measures like Energy Management Systems, high efficiency equipment & systems, process improvements are good examples.

Figure below depicts the layers of chemicals manufacturing according to the modified nested multilayer “onion” model.

The color code is indicative of the ease of change for a typical chemical manufacturer. This model is useful in setting a hierarchy of areas considered while formulating a decarbonization road map.

The multicriteria methodology described below is to help select and prioritize options based on multiple criteria listed in the Table 1 below. Each criterion is scored on a scale of 1 to 10, 1 being the least favorable to 10 being the most favorable. The ranking criteria is indicative and can be changed based on requirements of the organization.

APPLICATION OF ONION MODEL AND MULTICRITERIA TECHNOLOGY SELECTION METHODOLOGY

The first step is to establish the minimum qualifying score for each of the criterion. The ranking will vary from one organization to the other depending on the kind of decarbonization trajectory. This in turn would depend on factors such as the markets served, regulatory environment, shareholder sentiments, etc. The zone denoting the qualifying zone in the spider diagram would form the basis for making the go / no-go decision.

In the following sections, the methodology is applied to three different popular technologies. The first two can be implemented by the primary organization and third one can be implemented at upstream supplier’s site that has significant consumption of electrical energy based on fossil fuel.

DIGITIZATION AND ELECTRIFICATION OF TRANSPORTATION AND WAREHOUSING

The proposal comprises of relook at the current modes of transportation, increasing share of electrical mobility, Decarbonization of warehousing using solar power and most importantly digital tools to track and report transportation and warehousing related carbon footprint.

Conclusion and Recommendation: This is a low risk, low impact but a viable proposition. It is recommended to draw a stage wise program and implement.

PURCHASE OF CHEMICALS FROM GREEN HYDROGEN 

Sourcing basic commodity input chemicals is an emerging opportunity to decarbonize Scope 3 emissions.

Technologies for Green Hydrogen are gaining popularity and is under rapid development. Due to requirement across sectors, Green Hydrogen, or carriers such as Ammonia, Methanol etc. have ready market. Based on the Onion model, this lever belongs to the Process Technology area, which could have barriers. Scores for this technology are given in table below.

Conclusion and Recommendation: Sourcing chemicals from green feedstocks can make an enormous impact on the product carbon footprints. Considering the current maturity of technology, it is recommended to track the progress and actively pursue.

USE OF LOW CARBON ELECTRICITY

This is one of the emerging routes for decarbonization in India. Corporates are allowed to invest in green hybrid power projects entering into a power purchase agreement with the promoter and taking wheeled power into the grid. Based on the Onion model, this belongs to Site Infrastructure and External Supply zone, feasible zone. Further the assigned score for this technology is given in the table along with the rationale.

Conclusion and Recommendation: This decarbonization lever is a good example where the primary organizations can influence their suppliers to take up and implement. As there is a good payback for the consumer investing in green power projects, suppliers are expected to respond favorably to this suggestion.

CONCLUSION

In the context of chemical industry, given the intricate nature of supply chains, scope 3 reduction plans must include reductions of carbon footprint of input materials from the suppliers. Many of the technology levers are applicable at multiple places and it is in the interest of the primary organizations to make sure that the suppliers are onboarded, supported, and provided necessary handholding in the decarbonization journey.

A good plan will have both strategic components, such as understanding of technologies under development, policy and regulatory framework changes, and medium-term tactical considerations such as budget allocation, enhancement of competency, tools, and prioritization of immediate actions. The methodology explained in the white paper above covers most of these considerations. Simplicity, scalability, and flexibility of the proposed methodologies should make it easily for organizations to adopt and deploy.