Supply Chain Frontiers Issue #24. Read All Articles In This Issue
The carbon footprint of a product is the carbon dioxide emitted across the supply chain for a single unit of that product. Carbon labels indicate how much carbon is used over the life cycle of a product; information that can help consumers to manage their own carbon footprints by making more informed buying decisions. But what information will be carried on these labels, where will it come from, and how will it be verified? The answers have important implications for supply chain management. MIT-CTL’s Carbon-Efficient Supply Chains research team has looked for pointers in the history of labeling and come up with some recommendations.
Product labeling initiatives provide information that helps consumers choose the products they buy. The first labeling initiatives in the United States were launched around the turn of the 20th century. But consumers are not the only beneficiaries of these systems. Labels can also make it easier for marketers to obtain detailed feedback on how products can be improved. A summary of the key benefits of product labeling for the three main stakeholders is shown in Figure 1.
[
]
Figure 1: Summary of key product labeling benefits for stakeholders.
Helping consumers select “green” products is not a new idea. Eco-labels have been around for some time and are defined as labels that identify the overall environmental preference of a product within a product category. The information provided is often based on life cycle considerations. Eco-labels are usually awarded by an impartial third party as opposed to self claims made by manufacturers.
Products can be labeled in accordance with a wide range of environmental considerations, such as recycled content, biodegradability, toxic emissions, waste generation, harm to wildlife, etc. Eco-labels promote consumer demand for environmentally friendly products, thereby nudging markets towards continuous environmental improvement.
Carbon labels represent the next step in eco-labeling. Various surveys have shown that consumers are increasingly concerned about environmental issues, especially global warming. This growing concern is stoking demand for some form of system that describes products in terms of the impact on atmospheric pollution levels.
A number of organizations such as the Carbon Trust - a UK government funded independent company - are actively developing such labeling systems. The Trust concluded in a recent report that all emissions across the economy are generated to meet the needs of the end consumer. It follows that measuring and publishing the life cycle carbon emissions of different products can affect the way consumers make decisions, and empower them to mitigate climate change.
Carbon Trust has introduced its version of a carbon reduction label. The organization aims to provide a clear indication of a business’s commitment to reduce the carbon footprint of its products. An important feature of the label is a requirement that the business commits to a “reduce or lose” policy, whereby failure to reduce the carbon footprint of a product over a two-year period will result in the label being withdrawn by the Carbon Trust. The organization has also developed a methodology to quantify the total emission of greenhouse gases (GHG) from a product across its lifecycle from the raw material production, manufacturing and distribution to disposal, excluding emissions from use of the product.
Other labeling groups include The Climate Conservancy (TCC), a non-profit organization founded by scientists at Stanford University. Its primary focus is the advancement of a carbon label on consumer packaged goods that will score products based on their GHG intensity (the grams of CO2-equivalent emissions per dollar of product). TCC believes that such a system will provide consumers with a convenient and meaningful basis for comparing products. TCC is currently engaged with the Carbon Trust, Defra, British Standards Institution, World Resources Institute and many other stakeholders in discussing the development of an international standard for product-level GHG inventories.
Where does this work leave carbon labeling in terms of its introduction to the marketplace? Comparing its progress to that of established labels provides a good indication. For example, the Nutrition Labeling and Education Act was passed in 1990 and created the low-fat and fat-free food markets. MIT-CTL’s Carbon-Efficient Supply Chain research team has devised a four-stage model of the stakeholders involved in the labeling process based on the events that led to the nutrition labeling legislation (see Figure 2).
[]
Figure 2: System Model of Events leading up to Mandatory Nutritional Labeling
Carbon labels are currently in the Corporate Response phase. Consumers are increasingly aware of the challenge of climate change, and corporations are looking to exploit this interest commercially to improve their social standing and to develop new markets.
The biggest issue hindering carbon labels is how to determine an accurate and meaningful value to associate with an individual product. More specifically, how to allocate shared carbon emissions across many different products is a thorny issue. For example, how should the carbon emissions of a warehouse be split among all the products stored inside of it? This can also be extended to how the emissions are divided between relevant transportation. More complicated allocation problems include how carbon emissions should be split among animal products. For example, the products of a cow include beef and milk for consumption as well as leather for clothing. Should the animal’s life cycle emissions be divided on the basis of economic value, mass, or some other factor? If a product is shipped and sold at various destinations should each product location have its own associated carbon emissions or should this be standardized?
These are important questions that have to be resolved before any useful carbon labeling can be introduced. Various organizations and research institutes are looking at these issues, but it will take time for a viable consensus to emerge. Even then there are a number of important decisions that will have to be made before carbon labeling can enter into commercial use.
What type of label?
What label type would be best suited for carbon labels? While mandatory labels would have more impact and be the most pervasive, enacting government legislation is often a lengthy and tedious process. It is easier for individual organizations to introduce their own initiatives to test the response of consumer markets.
The various organizations and institutes working on carbon labels need to continue to improve on their methods and to test the impact of these labels on a voluntary basis first. Once these methodologies have been refined and are ready for commercial application, the government can study the benefits of making carbon labeling mandatory.
How many attributes?
The Environmental Protection Agency (EPA) describes five types of labels. Seal of approval programs generally evaluate multiple attributes and use some form of life cycle assessment to evaluate the environmental impacts of a product. Single attribute programs, in contrast, only analyze a single product attribute and award a label certifying the environmental impact of that attribute. Report cards are voluntary programs that present a neutral summary of an established set of environmental attributes. Information disclosure programs are similar but are rendered mandatory by government regulation.
Should a carbon label be a single-attribute type or should it cover a number of categories? It is difficult to justify the carbon emissions of a product as the main or only environmental impact it has. On the other hand, including too many categories and environmental qualities would only serve to confuse consumers.
Focusing on a single attribute – carbon emissions for now – is the recommended route. Seal of approval and single attribute labels have proven to be the most successful systems so far. Any attempt to solve multiple environmental issues with a single label would be confusing and defeat the purpose of such a system.
How Authoritative?
Should a carbon label be a positive seal of approval or just an information disclosure label that states as a matter of fact what the carbon emissions are without giving any recommendations? Seal of approval programs include the Energy Star label, which was introduced by the EPA in 1992. It is a voluntary labeling program designed to identify and promote energy-efficient products for consumers to save money and protect the environment. The system is simple and convenient for consumers.
However, information disclosure programs such as nutritional labels can have a similar impact as long as consumers are familiar with the numbers listed. Also, these label types have the advantage of being objective, and as yet it is unclear whether products should be compared across different categories or competitors.
Considering the amount of media attention now being devoted to the environmental responsibility of individuals, it is likely that consumers would be able to associate with the value of a product’s carbon footprint. Until a clear standard and consensus on how a seal of approval label is awarded, information disclosure labels are the recommended choice.
Which Product Categories?
Which product categories should be covered by carbon labels? Part of Energy Star’s success is that it focused initially on computer monitors before expanding to include other office and electrical appliances. A key question is what is the main purpose of carbon labeling? Is the goal to persuade consumers to switch to more sustainable products? Or is the aim to encourage consumers to reduce the number of products they purchase after realizing the environmental impact of these items? Simply raising awareness about the issue of carbon emissions and climate change is another possible objective.
Answering these questions would clarify which products and categories are most suitable for achieving the goals of carbon label system. Labeling every single product and category would be too resource-intensive and of little use. Perhaps the focus should be on products that are consumed regularly, since consumers are more likely to consider the environmental impact of these items. Similarly, such labels might be more relevant for commodity goods rather than luxury goods that have fewer substitutes.
The bottom line: More research is needed to identify which products would benefit the most from a carbon labeling system.
This article is based on a research paper written by Kwan Tan, a researcher with the MIT-CTL Carbon Efficient Supply Chain initiative. For more information on MIT-CTL’s carbon-efficient supply chain research work please contact Edgar Blanco. Energy and the environment is one of the sessions that will be feature in MIT-CTL’s Crossroads 2008 – Ten Years Ahead conference, Cambridge, MA, March 27, 2008.