WHITE PAPER RE-ENGINEERING THE CARBON SUPPLY CHAIN WITH BLOCKCHAIN TECHNOLOGY Abstract The effect of greenhouse gas emissions across the globe is forcing countries as well as companies to redesign their manufacturing processes and reduce their carbon footprint. However, despite international agreements, there is a lack of global and standardized system to measure carbon emissions and track where it is generated across the supply chain. Without such a system, sustainable strategies will have only a limited impact. This paper explains how blockchain technology can be used to measure carbon, calculate carbon credit, standardize emissions, and ensure fair carbon credit pricing through an integrated and standardized platform. It also discusses the current challenges in the carbon supply chain and how blockchain can address these. Introduction Across the globe, citizens are becoming across the globe which is similar to any are several companies/authorities such as increasingly aware of and concerned financial transaction. This carbon trade CarbonNeutral®, Bonsucro, carboNZero, about the impact of human activities on allows parties that emit higher amounts of Climate Registered, EarthCheck, etc., the environment. Recently, there have carbon than permissible limits to purchase that inform customers about the carbon been numerous initiatives that encourage or exchange credits from parties that have footprint of various products4. companies as well as countries to reduce lowered their carbon emissions than the Fuelled by the need to spread awareness of the emission of carbon and greenhouse permissible limits, thereby balancing out eco-friendly practices, many manufacturers gases across the entire supply chain. the amount of greenhouse gases emitted and retailers are taking active steps to One such key initiative accepted by 197 into the atmosphere. The World Bank reduce their carbon emissions and inform countries is the Paris Agreement. estimates that the carbon credit market, customers of the same. For instance, which is valued at less than US $50 billion The Paris Agreement or the Paris Climate Coca-Cola is implementing a strategy to today, will grow to US $185 billion by Accord has established a mechanism drive sustainability throughout its supply 20303,. of measuring and controlling carbon chain and reduce the carbon footprint of emissions by setting emission standards The effort for carbon credit system or ‘the drink in your hand’ by 25% by 20205. for every country or nationally determined. carbon trade has two fold values, first Casino, a French retail chain, displays The Paris accord by its framework it makes the planet a better place to the carbon labels of all its own products. establishes every country to have its own live (and for future generations) and Another French retailer, E. Leclerc, displays nationally determined contributions second it brings value to customers. The carbon labels on store shelves indicating aligned to their national growth objective. value of such systems is driven more for the carbon emissions per kilogram of The Kyoto Protocol of 1997 ratified the individual customers than just countries produce along with the price tag6. carbon credit system1. Both Kyoto protocol or companies. Today customers desirous It is important to note that the carbon and Paris accord paves way for a global of purchasing eco-friendly products trading system and carbon emission label acceptance and transaction of carbon have limited access to emission labels. are two independent initiatives. While credit system. The carbon credit systems This brings the focus on having relevant they each have their own challenges, awards credits to countries or companies information about the carbon footprint of manufacturers and governments (entities, in case of Group Company) each product through the means of carbon seeking to amplify impact need a unified that exceed the nationally determined emission label. The carbon emission label system that integrates the advantages emission quota standards by reducing or carbon label provides information on of both these systems. Here, blockchain their carbon emissions2. Currently, 1 carbon the amount of carbon dioxide produced technology can be a useful tool to unify credit is awarded to any group/ company during the process of manufacturing, these systems while reengineering supply that reduces their carbon emission by transporting, stocking, and delivering chain processes to effectively reduce equivalent of 10 tons of carbon di oxide a product to the consumer. The lower carbon emissions. or its equivalent gases. The carbon credit the value on the carbon label, the more system has paved way for the carbon trade eco-friendly is the product. In fact, there External Document © 2018 Infosys Limited External Document © 2018 Infosys Limited II. Example: Reducing the carbon footprint of every phone Usually, smartphones have 5 main Now, this entire cycle involves multiple who embark on initiatives to reduce their components namely, the circuit board, parties and processes and at each step carbon footprint. LCD panel, battery, memory chip, and the there is a certain amount of carbon dioxide Let us say the circuit board, LCD panel and mobile case7. Each component is produced being produced. However, without a battery manufacturers were able to reduce using raw materials. Often, components are centralized system, there is no way for their carbon emissions beyond the preset produced by independent manufacturers manufacturers to identify and measure standard earning them carbon credits. (known as component manufacturers) who these different sources of carbon emissions However, the memory, mobile case and then supply these to a final equipment in order to calculate the total carbon final manufacturers were unable to do manufacturer like Samsung or LG. footprint of the final product. Further, third so. The second set of manufacturers can This manufacturer then assembles the parties such as component manufacturers, buy the carbon credit generated and sold components, adds its unique value, loads suppliers, distributors, and retailers may by the first set to offset their emissions, the requisite software, and ships it to not have a sustainable strategy in place thereby reducing the overall carbon distributors. The product may then travel to reduce their carbon footprint by re- footprint of the product. to various international, national, regional, engineering their manufacturing and and local distributors or service providers business processes or regulating sourcing. before being bought by a consumer. Such insight is crucial for manufacturers Fig 1: How the carbon credit system works for a mobile manufacturer Thus, it becomes important to build electricity used in its Mexican factories Clearly, carbon labeling and carbon synergies across the supply chain from wind farms and used spent coffee credit are two sides of the same coin. and create a unified process whereby grounds as a supplementary fuel in While accurate carbon measurement and manufacturers share information across all more than 22 of its factories5. According labeling will encourage companies to make their partners and vendors. This visibility to the Paris Agreement, each of these use of carbon credits, standardization will will help manufacturers leverage the measures generates a higher number of change the way carbon credits are used carbon trading system to share carbon carbon credits, which can then be sold or across the supply chain. As it becomes credits and lower their carbon label. For exchanged with other partners who are more institutionalized the carbon credits example, in 2014, Nestlé replaced 92% of unable to reduce their carbon emissions, can change the way we perceive things. its industrial refrigerants with eco-friendly thereby lowering the carbon footprint of natural refrigerants, sourced 85% of the Nestlé’s products. External Document © 2018 Infosys Limited External Document © 2018 Infosys Limited III. Challenges in implementing low-carbon supply chains Carbon measurement and carbon credit generated by wind farms in India can investments and poor visibility, sharing and usage face certain challenges vary significantly from the price of compromising widespread adoption by such as: carbon credits earned from afforested companies land in Denmark or the reduction • Effort spent in tracking carbon The above challenges are universal across of carbon dioxide emissions from a emissions – Calculating the carbon countries as well products. For instance, chemical plant in China. Thus, pricing label of a product is complex and costly. Tesco shelved a proposed project to standardization becomes critical to Besides needing product provenance, label all in-store products with their achieve international acceptance of it also requires tracing each ingredient carbon footprints owing to the need for carbon credit and its price or component of the product from the extensive effort as well as lack of support beginning of their respective supply • Need for a single regulatory body from other supermarkets. However, such chains and across their manufacturing – The success of the carbon credit challenges are outside the scope of this processes to calculate the associated system depends on the establishment paper. Thus, the lack of transparency emissions. It requires various methods, of a single regulatory body that among partners, the absence of a universal technologies, personnel and is can standardize measure, price and ledger and the inability to