Baking a better cake – unpacking and tackling CO2e in supply chains

The most recent assessment for 2020/21 calculated that the purchased goods and services (inc. works) we buy accounted for 87% of the Welsh Public Sector’s carbon footprint.

In this sense we are no different from most businesses with purchased goods and services typically ranging from 70-90% of a business’s carbon footprint.

The reason we struggle to deal with these emissions is because of where they arise and how we have to calculate them.

They are caused by the demand we create for purchased goods and services and are emitted in the supply chain activities that we do not ‘directly’ own or control, referred to as Scope 3 ‘indirect emissions’ in the jargon.

Because we lack a clear understanding of the complexities of the raw material extraction, production and delivery processes we approximate the emissions based on a macro-economic input output model.

This model crunches the end-to-end processes from raw materials to consumption into a cost for the end user / consumer using an estimated weight in kilograms of CO2e per £ spent in a given category using a high level generic Standard Industrial Classification (SIC) codes.

Understanding the problem – A three-part conundrum

If we picture the 87% of our carbon footprint as the purchased goods and services ‘cake’, we can see the size and shape of the cake and the slices that make up the goods, services and works.

What we can’t see though are the emissions generating activities required to form those purchased goods and services, the ‘ingredients.’

To bake a better cake we need to know what the current ingredients are and their relative weights and which of those ingredients are better or worse for us, so we can bake a lighter cake with the best ingredients.

The ingredients

Firstly we don’t buy the ingredients, we buy the finished products or pay for services, the purchased goods and services, that deliver what we need.

We are pretty good at counting the purchased goods and services but currently have no clear understanding of where, how or how much of one of the key ingredients, our carbon emissions, are added along the way.

A big part of the problem is that these emissions are classified as ‘indirect emissions’ for which we don’t own or control the means of production, distribution or delivery.

What we do know and do control though, is our demand for those purchased goods and services.

This demand causes raw materials to be extracted or harvested, put through manufacturing, distribution or delivery processes on our behalf. We also know the suppliers, contractors and service providers we choose to deliver those purchased goods and services to us.

For their part, our suppliers, contractors and service providers know what needs to be done to deliver the purchased goods and services we specify in our contracts. They know the ingredients.

Weighing the ingredients

Our second problem is in the way we currently calculate our purchased goods and services emissions.

For the most part we still do not concern ourselves with the specific carbon emission ‘ingredients’ but work out their costs by simply multiplying what we spend on the whole finished products or services that contain those ingredients (£) by indicative factors (kg of CO2e) for SIC codes. Consequently, at best this calculation can only produce crude indicative estimates of emissions.

For example £1 spent in the Agriculture, Forestry and Fishing SIC code is calculated to generate 2.189 kg/CO2e. But, no one buys Agriculture, Forestry and Fishing – we buy specific goods or services made of a wide range of raw materials that are packaged and delivered in very diverse ways to meet our needs.

In the absence of that specific knowledge, we have to group expenditure on these specific things into the bucket marked Agriculture, Forestry and Fishing or at best one of its 40 sub-categories. This blunt instrument is referred to as a Tier 1 data methodology.

Baking a lighter cake with better ingredients

Part 3 of the problem is in two parts.

Do you already have a baker working for you who is interested in improving their recipe or at the very least is willing to start to tell you how much each ingredient weighs and is willing to work with you to change those ingredients to bake you a lighter cake?

Or are you in the market for a new baker? How do you select one who is already seeking out a recipe for a lighter cake, using the best ingredients and who will be able to tell you what their particular method requires, can list each of the ingredients for you and tell you what each ingredient weighs?

Ideally, you will find a baker who works from individual ingredients who can provide data on each element and who is willing to work with you to improve both the ingredients and the method of producing your cake. This specific, actual activity information is what we need and is referred to as Tier 3 data.

Advice on the ‘bake’!

WPPN 12/21 Decarbonisation through procurement: Addressing CO2e in supply chains

Advice on how to take steps to better understand your organisation’s Scope 3 purchased goods and services emissions and how to work with current suppliers can be found in WPPN 12/21 Decarbonisation through procurement: Addressing CO2e in supply chains. It also includes information about how to plan upcoming contracts to start to take the actions we need to address emissions in our supply chains.

 Want to find out more?

WPPN 06/21 Decarbonisation through procurement: Taking account of Carbon Reduction Plans.

You can find information about how we can begin to improve the selection of our suppliers, identifying those ready to join us on the journey to net zero in WPPN 06/21.