Get ready to cut down on carbon

Next month, representatives of major world governments will gather at the Climate Control Conference in Copenhagen, Denmark, in what some see as a "make or break" attempt to negotiate a global climate treaty. They will discuss ways to advance the Kyoto Protocol, a treaty to curb emissions of greenhouse gases, a treaty that has been signed by more than 180 nations (although the United States isn't one of them), a treaty that runs out in 2012.

Although the upcoming summit has dominated the headlines, it's just one of many looming eco-initiatives that could change the way distribution executives do their jobs. Regardless of what happens in Copenhagen, it's likely that U.S. companies next year will face some type of legislative or industry mandate to begin reducing emissions of a key greenhouse gas—carbon dioxide (CO₂)—in their distribution operations. (Distribution operations are liable to be targeted because supply chains account for an estimated 30 percent of those emissions in the United States.)

What should distribution managers keep an eye out for? First, there's the legislative push in the current Congress to adopt a "cap and trade" system much like the one many European nations have already put in place to comply with the Kyoto Protocol. Under cap and trade, a company or industry is given a permit to give off a quota of carbon dioxide. If it stays below its quota, a company can sell its unused allowances to a company that's exceeding its quota, enabling it to avoid fines.

Back in June, the U.S. House of Representatives narrowly passed the American Clean Energy and Security Act of 2009—legislation that would not only establish a cap-and-trade program but would also mandate that by 2020, the United States must reduce the amount of CO₂ in the nation's atmosphere by 17 percent from 2005 levels. Action on a companion bill awaits in the Senate.

Since industry and conservative groups have raised objections to the legislation (including the fact that the other top producers of greenhouse gases, China and India, have not yet committed to reducing their own emissions), the bill's fate is uncertain. However, there will be a push for federal regulatory action, since the U.S. Supreme Court two years ago ruled that the Environmental Protection Agency (EPA) has the authority to regulate greenhouse gases under the Clean Air Act. This fall, the EPA proposed greenhouse gas rules for factories, oil refineries, and power plants. Many Washington observers expect the agency to put forward similar CO₂ emissions rules for trucks and automobiles in 2010.

Sizing the carbon footprint
But it isn't just the federal government that's pushing for restrictions on carbon dioxide emissions. There's also a private initiative under way by Wal-Mart Stores Inc. that would force suppliers to clean up their act.

This past summer, the retail giant announced that it would begin developing a sustainability index, with the eventual goal of creating environmental labels for all products sold in its stores. The index would measure a product's carbon footprint along with a number of other environmental attributes like the amount of water used to create it and the volume of solid waste generated in its production. The retailer plans to fund a university consortium to develop the label along with related metrics (although when it comes to measuring the carbon generated during manufacturing and distribution, it plans to piggyback on work already being done in the United Kingdom by the Carbon Trust). As a first step, this fall Wal-Mart surveyed its top 100,000 suppliers to find out whether they had instituted reduction targets for greenhouse gases. If your company is a supplier to Wal-Mart, you'll likely be mandated at some point to show you're doing something to combat global warming.

Although the details regarding compliance—whether with federal laws, federal regulations, or an industry mandate—are still being worked out, it's virtually certain that transportation will be targeted for greenhouse gas reductions. Some clues as to what managers might eventually be required to do can be gleaned from the experience of yogurt maker Stonyfield Farm of Londonderry, N.H.

Putting CO₂ out to pasture
An organic foods producer with a longstanding commitment to sustainable practices, Stonyfield Farm hasn't been waiting around for government or industry mandates. It has already launched a companywide initiative to reduce its carbon footprint. In the area of finished-goods transportation, for example, Stonyfield Farm has set an ambitious goal of cutting greenhouse gas emissions to 40 percent of its 2006 baseline by the year 2014. In the first year of its program, the company achieved a significant reduction in CO₂ emissions just by managing its private fleet and for-hire carriers more efficiently. Through better planning and equipment utilization, it was able to reduce both the number of trips made and miles traveled, with a corresponding reduction in emissions.

More recently, the company has been looking at shifting freight from road to rail and at incorporating more-efficient equipment into its private fleet. But even that may not be enough. Although these initiatives are producing measurable savings, Stonyfield Farm believes it will have to do still more if it expects to reach its long-term goals. The company is now preparing to take a hard look at its entire supply chain network, modeling the location of plants and distribution centers with the aim of minimizing shipping distances.

Stonyfield Farm's experience suggests that other companies too will have to step back and evaluate their entire supply chain operation in order to achieve meaningful reductions in CO₂ emissions. Actions like buying hybrid-diesel engine trucks will help, but most businesses won't reach exacting targets without a holistic network approach.

Given the current concern about global warming, distribution managers need to start thinking about how they can reduce greenhouse gas emissions associated with inbound and outbound transportation. In the past, companies optimized their distribution operations around cost and service. Now, however, the optimization equation will require a third variable: carbon dioxide emissions.

Distribution managers can expect "carbon mapping" exercises to become a routine part of their job—just like freight bill auditing or issuing requests for proposals. With more and more folks concerned about what's blowing in the wind, both here and around the world, next year will be the year in which managers are asked to do their part to cut back on CO₂.