Keagan Rubel has a general business background where he has worked with business development at startup companies to bring them from the ground up. He also worked in the remodeling industry for 6 years in the capacity of business development and strategy. Keagan then moved to China and spent the last 5 years working with Business Process Re-engineering and Research & Development for a corporate training company. Keagan believes that being a generalist helps him to inform people on sustainability, energy efficiency and carbon management decision making.
Keagan recently graduated with an MBA in Strategic Carbon Management from the University of East Anglia which is a carbon management and environmental management research institution. They have been taking the carbon management and sustainability side to help businesses find various win-win situations that are available to them.
Why is carbon management important?
Keagan thinks that the 21st century will demonstrate the human fundamental dependence on nature. This is currently being demonstrated in rising food prices and rising energy prices. We hear various credible predictions of 42 years for the time we have remaining for easily accessing oil. Other energy forms such as coal will be available for roughly 200 years.
It is a matter of management of resources. Supply chains will certainly be affected as the supply of these resources decreases and as the supply of materials for your operation inputs are restricted. The 21st century will be about resource management. In regards to carbon management resource management is exacerbated by the impact carbon is having on our environment. Even the energy resources we have in our ground, as depleted as they are, mankind will not be able to extract and utilize them under the business as usual scenario. This is due to the fact that they are creating an insulative layer in our environment which are impacting the ecosystems on which we really depend.
Therefore, carbon management is important for not only in the macro sense of long term sustainability, but also as various legislation falls in line with science there will also be a micro bottom line effect as well.
What do supply chain managers need to know about the carbon markets?
There are a wide range of carbon markets, from voluntary to compliance.
Compliance markets – In the compliance markets we have a wide range of different markets which have different levels of tightness for their caps which have an impact on prices for the carbon units traded. For example, we can talk about the secondary markets that are traded in the spot and future exchanges for CERs (Certified Emission Reduction) units that are part of the Kyoto Protocol. These are the most commonly traded carbon units at this point, aside from the ERUs, which are part of the European Union Emission Trading Scheme.
When talking about the CERs as they pertain to supply chain management, prices have been extremely depressed. Prices have really collapsed within the last few months. There is a short-term uncertainty about prices. That uncertainty is translated into extremely depressed prices which ultimately will minimize any pricing or cost interference that carbon may potentially have as it relates to material inputs.
Generally carbon markets don’t affect the distribution side of supply chain management. Most of the carbon markets in their current form and their level of maturity don’t cover transportation. As it relates to the distribution of your products it is generally not covered in most carbon markets at the present. It will be covered in the future. The Western Climate Initiative will be covered in the future. Aviation is beginning to be covered in the European Emissions Trading Scheme.
Supply chain managers need to understand that while prices are currently depressed, they are about 4.64 Euros, while historically the price was 12 to 15 Euros, down by about 33%. As demand recovers the price certainly can go back up.
Being aware of the carbon intensity of your supply chain and the relationships which your various supply chain components have to the carbon markets will be important in order to mitigate the potential price impacts.
Who is doing carbon management well?
A lot of people talk about who the winners and losers are of these various systems. There is certainly a range of best case studies. It depends on how you define carbon management. Carbon management can be seen from different angles. From the most literal direct understanding of the term it is about managing your own carbon.
Given carbon dioxide emissions close relation to energy consumption, a lot of times carbon management is associated with energy efficiencies, increased insulation and increased energy utilization. This often means updates or switches for machinery and/or re-engineering the supply chain to cut out more energy intensive steps and really accounting for carbon in your value chain re-engineering.
However, if you look at carbon management from a broader strategic point of view from the company, you are really looking at how you are capitalizing on the threats and opportunities that the carbon markets present.
General Electric has their innovative Ecomagination product line which expands their product portfolio to take advantage of rising energy prices. In a sense they are managing the carbon of their end users by providing highly energy efficient products which is impacting their bottom line. It has been quite a successful program for them.
Other companies have taken a more literal sense of the definition where they are focusing on their internal operations and making them more efficient. Good examples of this include the heavily energy intensive companies such as utilities, metal manufacturers, cement, glass, paper, etc. This is where the low hanging fruit lies in terms of energy efficiencies given the large amount of energy they consume in their operations.
Recommendations for supply chain managers
Keagan’s recommendations for supply chain managers are to engage their supply chain members. Ultimately, as communications and information technology enables greater transparency for various corporate activities, what you will get is special interest groups really taking a more active role in company activity and using the technology to amplify their effects if they see a perceived wrong doing.
If you are a very wasteful company or if some of your supply chain members are very wasteful, it is certainly a risk for your reputation. When addressed it may become a bottom line gain. A lot of carbon issues related to energy. From the surveys Keagan has been a part of they see a lot of missed financial opportunities, not just within the operation but also up and down along the supply chain for energy efficiency gains with a 3 year or less payback period.
It is important to engage your supply chain members and recognize they can be a point of vulnerability. One doesn’t have to look far. For example, Nike’s disaster which happened as a result of employing child labor very far down the supply chain and which is normally out of the scope of direct management of a supply chain manager. Nike learned to really engage their supply chain members more actively and push their values through the supply chain.
Keagan recommends pushing your values all the way through the supply chain to ensure you are not exposing yourself to various risks related to carbon management.
About Keagan Rubel
Carbon Policy/Market Analyst and Engagement Strategy Consultant
Carbon Disclosure Project