Chain of events: a blog of Food Chain Intelligence

The details of the carbon tax have been revealed now. Road transport will be affected from 2014, with all heavy vehicles transporting above 4.5 tonnes to see a reduction in fuel tax credits equivalent to a carbon price of $23 (plus an increase of 5% by 2014 plus inflation).

This is my take on how the carbon tax would affect transportation (and only transportation) costs for the companies engaging in transportation of fresh fruit and vegetables in Victoria. The accuracy of these calculations is just as good as the source of the information (see below) and as good as my brain can work numbers out in these early days, so use these estimates with caution (see my disclaimer about this blog’s contents).

Based on the results reported in the CSIRO/FCI/VEIL report, I calculated the following increase per tonne of fresh produce only transported in Victoria (see report for details, specifically Table 6.3). The 1st column is the estimated emissions in kg CO2-e per tonne of product transported in Victoria during the commercial part of the supply chain; the 2nd column is the extra cost added in Australian dollars per tonne of produce transported at a carbon price of $23 per tonne CO2-e:

Therefore, if we take mandarins (the fruit that has the most emissions-intensive commercial transportation), a tax that prices carbon at $23 will add an extra $2.24 per tonne transported, which translates into an extra 0.22 cents per each kg of mandarins. Just looking at the Woolworths website, I gather that the price per kg is about $1.70. Therefore, the carbon tax increase represents only 0.13% of the price per kg. I think that increases in price due to changes in packaging format introduce a much more higher cost to the chain players.

Looking at the carbon emissions produced by transportation of fruit and vegetables by the major supermarkets and greengrocers in Victoria (and only from farm to store), the VEIL report estimates that this activity leads to between 51,500 to 155,777 tonnes of CO2-e per year (see page 92 in the report). This translates into an extra cost (or liability) that ranges from $1.2 million to $3.6 million. Note that these values consider a mix of type of vehicles, including light commercial vehicles (see page 74). LCVs carry only a small proportion (i.e. 3.5%) of the total freight and this author estimates that they contribute to less than 0.5% of the emissions, so the effect of including emissions from LCVs in this carbon accounting calculation is minimal.

This cost is to be split among the various players that pay any transport segment in the chain: if the grower pays the transportation from farm to store, the shipper/3rd party logistics (3PL) provider that is liable to the carbon tax (or its equivalent in loss of fuel tax credit) will pass on this cost to the farmer. If the supermarket is in charge of logistics, they will pay the extra cost.

If someone was to be accountable for the store-to-home CO2 emissions, we would see a doubling of all the numbers above, i.e. an extra cost ranging from $2.2 million to $7.2 million). Given that petrol for domestic transport is excluded from the carbon tax, the CO2 produced during consumer travel to and from shops (which is 50% of the total supply chain transport emissions from fruit and vegetable consumption) remains untouched in this first iteration of the tax.

According to the Carbon Disclosure Project (CDP), there are three types of GHG emissions businesses have to account for:

Scope 1 emissions. These are direct emissions from sources owned or controlled by the reporting organisation.

Scope 2 emissions. These are emissions that physically occur outside the organisation’s reporting boundary and are therefore ‘indirect’ emissions. Examples include electricity, heat, cooling or steam production.

Scope 3 emissions. An organisation’s indirect emissions other than those covered in Scope 2. They are from sources that are not owned or controlled by an organisation, but which occur as a result of its activities. Emissions considered by the CDP Supply Chain Information Request are produced by business travel, distribution and logistics, use and disposal of a company’s products, and other supply chain emissions.

For many companies working in food supply chains, Scope 3 activities are normally the largest component of their carbon footprint. For example, Wal-Mart estimates that their Scope 3 emissions are at least 100 times greater than their total Scope 1 and 2 emissions (Wal-Mart Stores, 2009); Woolworths estimates that about 96.5% of its annual emissions are created by their suppliers (PricewaterhouseCoopers, 2009).

This is further illustrated in the following bubble chart, which shows the relationship between 2009 annual revenues (in US$ billion), the sum of Scope 1 + 2 emissions, and Scope 3 emissions of 15 companies involved in food manufacturing/ marketing/ transport. The size of the bubble represents the magnitude of Scope 3 emissions. . The cumulative annual carbon footprint of the 13 food retailers and manufacturers represented in this sample -that is, excluding Maersk numbers- was 245 Mt CO2-e, of which Scope 3 emissions represent 86% of this total. In six of these companies, Scope 3 emissions outweigh Scope 1+2 emissions. If we take Unilever as an example, Scope 3 emissions are forty times larger than the sum of 1 & 2 emissions.

The problem is: not many companies know the magnitude of their Scope 3 emissions. Only 18 from a sample of 36 companies involved in food supply chains declared Scope 3 emissions in the CDP report of 2009. Further, some disclosures indicate significant gaps of information in their declaration of Scope 3 emissions. For instance, Wal-Mart did not disclose the contribution of distribution and logistics undertaken by 3PLs.

A key difference between Scope 1, 2 and 3 data is that the latter information relies on suppliers (e.g. raw materials, transport, packaging) sharing data with their buyers. Remember our previous papers and posts discussing the importance of transparency in the supply chain? The disclosure of Scope 3 activities is considered sensitive information, as data disclosed can be converted into financial indicators, just in the same way that financial values can be converted into GHG emissions, through a financial hybrid lifecycle analysis. Therefore, trust and transparency between food supply chain players are essential to assess Scope 3 emissions in an accurate manner.