Carbon Offsets Should Be Part of a Sustainability Program

When I talk sustainability, either individually or in groups, the same consistent theme comes from middle management:  We will do it if it also makes economic sense (i.e., immediate payback) but we will not do it if it "costs" us.  Very few companies and people today will execute sustainability projects purely because it is the "right" thing to do.

The problem with this however is that it is tough, if not impossible, for the free economic market to put a true cost on environmental issues.  The "cost" is down the road and the "benefit" of destroying the environment is now and that leads to distorted ideas and distorted business decisions.  I heard a person say a the Alternative Clean Transportation (ACT) conference this week that our minds would adjust if we thought:

"Rather than thinking we inherited the earth from our parents, we should think like we are borrowing it from our children."

When you think about borrowing the earth you think about what state it will be when you leave it regardless of whether there is a cost now.  And that leads you to build out a very detailed sustainability practice regardless of the immediate payback.  And this leads us to this great post about carbon offsets.

Yes, as Marc Gunther mentions, carbon offsets are so 2007.  Essentially the idea was you would either voluntarily or involuntarily (through mandatory carbon offset markets) buy into offset projects to help mitigate the long term damage any action you take may have on the long term of the environment.  This led to the EU carbon markets and now the California Carbon Exchange.  The problem right now is the price of a ton of carbon is far too low.

Some point to the fraud which naturally was part of these markets as proof they did not work - kind of like saying because people get murdered in Chicago it is proof the laws against murder are not good for society.  This is a ridiculous argument.  The fact there is fraud says more about the general business community than it does about the markets.

In the end, to build a true sustainability program you have to invest beyond the hear and now from an immediate business case, you have to acknowledge the markets do not properly price issues like carbon emissions, global warming, rise of sea levels etc. etc., and you have to be willing to do something about it.  I am not saying you have to bankrupt your company in the defense of the environment but I am saying you have to realize that the market does not price 400ppm of carbon in the atmosphere properly. The carbon which brought us to 400ppm was catastrophic (see where some say 350ppm was the tipping point) and the marginal cost should have been astronomical. But, alas, it was not; it was essentially free.  That is a market which is not working properly.

Robots and Other Supply Chain Trends - Kevin O'Marah

Believe it or not there is a Kevin O'Marah out there (yes, he spells his name differently than I do) and he is in the supply chain field.  Actually, a very accomplished person in this field.  I have been in a few meetings with him and it is fun to see who the moderator really means to call on (hint: it is usually him).

I write this because I wrote a piece over the weekend entitled "A Drone Delivers Your Package". The article discusses how the use of drones may come to package delivery.  Kevin retweeted this and made a reference to an article he wrote just last week about 5 big supply chain trends.  One of these trends was "Robotics takes off".  While he does not reference drones he clearly articulates, rightfully so, that robotics will take off in the logistics field and the trade off of capital versus labor is starting to favor capital in a big way.

Robots, like the drones I mentioned, are becoming incredibly cheaper at the same time they are also becoming more dexterous and mobile.  Here are the 5 predictions:

1. Amazon stumbles - A bold but insightful prediction and one which is not so much predicated on them failing but on the brick and mortar guys learning to compete very quickly. 
2. Africa Becomes Your Most Important Growth Partner -  It is essentially the "final frontier".
3. The Carbon Tax Happens -  I could not agree more.  A tax, cap and trade or whatever form it takes, we will soon pay for destroying the environment. 
4. Robotics Takes Off - Enough said.
5. CSCO becomes the CEO - While this has already happened the rise of logistics and supply chain as the core differentiator makes those who hold this important position more likely to take over the company (see my article: Logistics Eats Strategy for Lunch).

So, we agree... Great predictions here and they are refreshing because they are bold and not the same old thing just warmed over.  Kevin is someone I have followed from back in his AMR days and I highly encourage you all to do the same.  You can read his writings at his blog: Beyond Supply Chain. 

Kevin's tweet is below:

"RT @logisticsexpert drones and robots in supply chain!!: dld.bz/cd2hg -see 5 predicts tinyurl.com/b2ld7z3
— Kevin O'Marah (@komarah) February 4, 2013"

As a side note this is also why people are guarded about all the optimism on the return of manufacturing to the United States.  One has to ask if it is because labor is getting expensive in China relative to labor in the US (when accounting for transportation costs) or is it because robotics have become so good and cheap that you reshore manufacturing in the US to save logistics costs AND you do not employ many people due to automation.

Paul Krugman is even weighing in on this. 

Blue and Brown Make Green... Sustainability for The Final Mile

I have written before about the complexity of the final mile in the logistics network.  This includes both the final mile of the delivery and also the first mile of the reverse logistics networks created by final mile deliveries (i.e., Customers tend to order one size too big, one too small knowing they can return.. for example).   What I had not thought about was the unique nature of the sustainability challenges of the final mile network.

Thank goodness there are a lot smarter people than me in this world!

The Post Office (USPS) and United Parcel Service (UPS) have partnered together to share information and build out this carbon information for the final mile in the United States.  This is good news and I look forward to seeing more about this in the coming years.  The sheer volume of vehicles possessed by both of these entities and the fact they are working to reduce carbon gives me hope for continued sustainability initiatives.

EU Freezes Carbon Charge on Airlines

Many know the EU was going to charge a carbon emissions charge on any airline flying in the EU airspace - this included foreign airlines.  Of course, this caused a furor in international relations and the US actually passed legislation (prior to the election) preventing US flagged air carriers from implementing this charge.

Now, the EU has agreed to "freeze" this for a year.  This is an interesting development and one which I am sure is designed to bring "peace".  I am just not sure what they are waiting on?  What will really be different next year than this year?

Cap and Trade Launches in California

It is finally here in the United States with California launching their carbon market on November 14th.  On November 14th, California Air Resource Board (CARB) will launch the selling of 21.8 million carbon allowances to be bought by stationary carbon emitters (plants, utilities etc.).  Distributors of transportation fuels and natural gas will come in 2015.  

This offset mechanism is supposed to have the desired effect of putting a market mechanism in place which will allow rules of economics to force companies to either lower their carbon emissions or pay a price.  Presumably, the price will get high enough where there can be business cases made to implement new technologies or new conservation programs which will drive down the emission of green house gases.  The ultimate goal is to get CO2 down to 1990 levels even with presumed growth of the economy.  

To give an idea of the pricing mechanism below is a graph from Point Carbon which reflects the prices, per metric tonne, of CO2 allowances currently trading in the very illiquid California market. 

Source: Point Carbon

You can see the carbon allowances are trading on the low end of the scale.  The point of injecting the allowances by the state is to give a shot of liquidity to the market to get the market functioning better.  Best estimates are they will sell for between $10 - $12 per metric tonne and we will see on November 14th how it all pans out. 

This mechanism is similar to the European market already in place and this will make the California market the 2d largest market in the world. 

Like it or not, I think the evidence is clear:  1) CO2 is causing climate change. 2) Human activity is producing excess CO2 3) We must reduce CO2.   Given all of this using rules of economics to create a market which "prices" bad environmental behavior is the right way to go.  People will either have to pay the price and continue the bad behavior (that money would be used by others to clean up after the bad behavior person) or they will use the economics to create business cases to create projects to fix / lower their carbon emissions.  

The issue here of course is anytime the government creates a "currency" out of thin air their is huge opportunity for abuse.  However, there are mechanisms to solve that abuse potential, or at least make it not in their best interest to execute the potential corruption, and those mechanisms should be researched, implemented then fine tuned before we decide to end what will be a great program. 

Of course, this will come with the obligatory law suits on both sides so we will wait and see how this all turns out.  Bottom Line: If you are a transportation provider or transportation user you should watch this closely because in 2015 it will impact your business.  You will be participating either directly or indirectly.