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Paris Agreement: Supply Chain Implications

The Paris Agreement (L’accord de Paris) on climate change was held in Paris, France in December 2015. The agreement, which will be open for signatures at the United Nations in New York on April 22nd, 2016, is due to enter in force in 2020 and requires countries to focus on how to reduce carbon emissions throughout 2025 to 2030. The 195 participating nations are required to set a goal of cutting emissions in half the levels that the agreement require to prevent the worst effects of global warming.

Participants also agreed to reconvene every five years with updated plans on how they will tighten their emissions cuts and to legally start to publicly report on their achievements in cutting carbon emissions in comparison to their plans starting in 2023. A legal monitoring and reporting on emissions and reductions will use a universal accounting system. 

Implications for global supply chains operations

Given the importance of supply chains operations in the global economy and considering their carbon emissions, the Paris Agreement brings huge implications for the industry. One of the most significant opportunities will be the creation of new jobs and source of future revenue for supply chains.

Moving the global supply chain to a low-carbon supply chain should provide confidence to businesses and investors. Investing in low-carbon technologies will unlock a massive capital for clean energy. According to John Kerry, the US Secretary of State, the shift toward a low carbon economy has been one of the “greatest economic opportunities the world has ever seen.”

Where supply chains should start: Improved emissions across the board

Developed and launched in England, UK, the international  Carbon Trust Standard for Supply Chains is the world's first independent certification for organizations that are measuring, managing, and reducing greenhouse gas (CO2e) emissions in their supply chains. OEMs should focus in lowering their CO2e more than ever in accordance to the Paris Agreement and seek certification. 

Darran Messem, carbon trust certification and director, International believes that the Paris Agreement will create both opportunities and risks for businesses, as the global economy becomes more closely aligned with what is required to deliver a sustainable, low-carbon future. Messem told EBN that this has underlined the medium and long-term need for many governments and large organizations to undergo radical or transformative change.

On implications, opportunities, risks, & the need to change

According to Messem, transport of all kinds represents around 20% of global emissions. That it is even more if you consider the emissions from the manufacture of the capital assets that underpin and operate transport systems. “Government is the principle specifier and operator of the transport system,” he added. 

“Technology change in vehicle fleets will have to be more closely managed than ever before, and the range of risk and opportunities will drive evolution in business models for fleet ownership and operation,” Messem told EBN.

In the medium term, in supply chain management, we can expect:

  • A greater diversity in vehicle drivetrain technology
  • Increased complexity of energy and system options
  • Increased package and virtual distribution
  • Greater pressure to understand and manage environmental impacts alongside costs and profits

 While helping create larger markets for low-carbon technologies and services, the Paris Agreement will impact the opportunities available for supply chain and logistics operations. “This affects companies' direct activities, as well as the goods and services they distribute,” said Messem, “but it will also help create risk for organizations that don't change.”

Change is what has been a constant in global supply chains recently and will not stop any time soon. What's more, this is just the beginning of new re-designed supply chains. One thing we may also see is “the knock-on effects of technology change in other industries,” says Messem. For example, “new materials or 3D printing could result in more distributed or localized supply chains reducing the need for long-haul logistics.”

Great change is anticipated in supply chains. Being ready is what will determine success. Are you ready for the change?

1 comment on “Paris Agreement: Supply Chain Implications

  1. Sandy Montalbano
    February 9, 2016

    The impact of offshoring on the U.S. economy and the environment has been significant. Jobs offshored have negatively impacted the environment through higher carbon emissions and other pollution from some developing countries and from long distance transport.

    According to a PwC CEO Survey, 87% of industrial manufacturing CEOs say it is important for their company to measure and try to reduce their environmental footprint. Reshoring provides a way to advance company sustainability efforts.

    The planet will benefit from more production occurring in the more environmentally responsible locations, and by a dramatic reduction in global freight.  Furthermore, the less environmentally responsible locations will have added incentive to achieve higher environmental standards sooner. 

    The not-for-profit Reshoring Initiative can help.

    The not-for-profit Reshoring Initiative's free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases, companies find that, although the production cost is lower offshore, the total cost is higher, making it a good economic decision to reshore manufacturing back to the U.S. The free TCO estimator can be found on the ReshoreNow dot org website.

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