Reducing Scope 3 emissions is the force multiplier for decarbonization. Companies who can cascade one good solution through their supply chain will bend the emissions curve and position themselves to compete in the transition to a net-zero economy. Product Carbon Footprints (PCFs) are a powerful tool to achieve Scope 3 reduction targets. They offer a practical measurement approach that differentiate low-carbon suppliers at a product level. PCFs also empower sustainability teams to communicate in the language of procurement, mobilizing suppliers to act at speed and scale.
Now, Terralytiq has integrated data from Climate TRACE to further differentiate PCFs based on facility-level, supplier-specific data. This collaboration will help companies leverage the power of AI and satellite/remotely sensed data to pinpoint the hotspots of emissions and take decisive action to cut carbon. In this article, we assess the product carbon footprint for a common aluminum part made from 5 different smelters, and discuss practical approaches to use facility-level, supplier-specific data in your Scope 3 footprint to make better sustainable procurement decisions.
Product Carbon Footprints: The Unit Price of Sustainability
PCFs are to sustainability what unit prices are to procurement: they help buyers communicate their tolerance for embodied emissions in the products they buy from suppliers. Very simply, PCFs are a carbon intensity score for purchased parts. PCFs use the weight and material of parts to measure emissions, overcoming the pitfalls of traditional Scope 3 accounting based on spend-based emission factors and “fair-share” allocation of corporate footprints.
As buyers roll out their Scope 3 decarbonization targets to suppliers, the programs that rely on spend-based accounting grind to a halt. The only way to reduce spend-based emissions is to spend less. The way to reduce product carbon footprints is to manufacture better.
In contrast, supplier decarbonization programs built on PCFs speak the language of procurement. Buyers and suppliers finally have a communication channel to get on with implementation. They can benchmark suppliers based on their carbon performance, communicate targets, exchange primary data, and on decarbonization glidepaths. Consider the category manager who can say “I’m interested in shifting my business to suppliers who can provide aluminum parts with a PCF below 8 kg CO2e/kg - how can we get there?”. That is a much more practical conversation than “Our sustainability team needs all suppliers to complete a survey about the accuracy of your spend-based emission factors”.
Exhibit 1. A diagram of Terralytiq's value chain models, used to calculate PCFs at each step of the supply chain. The PCF includes the emissions of manufacturing at each step and the transportation between. The models use energy and material consumption inputs to calculate emissions and production cost. Facility-specific primary data from Climate TRACE was entered into these models to produce supplier-specific PCFs.
Still, PCFs need to be done well to maximize impact. A good PCF pinpoints the supply chain hotspots by breaking down the total emissions into each component, and each component into the major steps of the supply chain (Exhibit 1). For these hotspots, buyers can then prioritize their efforts to collect supplier-specific and region-specific data, as needed. Today, the availability of highly granular, facility-specific data is better than ever. Terralytiq used Climate TRACE’s open global emissions dataset to illustrate how this approach overcomes common barriers to sustainable procurement decisions.
Primary Data Without Supplier Engagement
Many companies are stuck in a cycle of carbon accounting without a clear path to act, because they do not have conviction in the accuracy of the emissions footprint without supplier data. As the mantra “don’t let perfect be the enemy of good” rings throughout the hallways, most sustainability leaders are still hesitant to engage suppliers without further refining their emissions measurement. Enter “primary data”, emissions calculated with data from suppliers. As companies rush to send waves of supplier surveys requesting primary data, there is growing exhaustion in the process.
The issues compound. While well-intentioned, gathering supplier primary data can overlook the fact that Tier 1 suppliers are rarely where the carbon hotspots reside. Many Tier 1 suppliers rely on secondary data for much of their product footprint since the emissions often come from upstream facilities like smelters or refineries. For instance, there are fewer than 300 primary aluminum smelters in existence, meaning that Tier 1 suppliers are frequently sourcing from the same primary aluminum supplier. Obtaining primary data from one smelter is much more effective than surveying each of the top 50 Tier 1 suppliers in your network who all source from the same smelter to do their individual estimate. Instead of kicking the can of primary data down the supply chain, there are solutions in the market today that shortcut directly to the hotspots.
Climate TRACE offers an innovative solution to this problem. By using satellite data, Climate TRACE provides objective, facility-level emissions reporting, allowing companies to gather reliable data from supply chain hotspots without engaging every supplier individually. Climate TRACE uses satellite imagery and remote sensing to observe emissions-causing activities, combined with ground truth, to produce actionable independent emissions estimates with facility-level granularity.
Terralytiq integrated this data to demonstrate the impact that primary data has on PCFs and the efficiency of market-leading data sources. In this analysis, we show that a standard aluminum housing, purchased by hundreds of companies across industries, could have a PCF between 7.8 to 14.1 kg CO2e/kg depending on where the same Tier 1 supplier sources their primary aluminum. The smelter is the hotspot of aluminum value chains, contributing 35-60% to the total PCF. Smelters in countries with electricity grids powered by coal, such as China and India, contribute 7-8 kg CO2e to the total PCF, almost 3 times more than the ~2.7 kg CO2e of emissions from smelters located in countries with abundant hydropower, such as Canada and Brazil. The variance in the hotspot alone can result in a PCF almost 2 times higher.
Exhibit 2. The PCF of an aluminum housing, commonly found in industrial equipment such as cars, compressors, chillers, and home appliances. The chart displays the PCF for the same 30 kg housing made of 100% primary aluminum, produced from 5 of the world’s largest smelters (x-axis). The PCFs covers 7 tiers of the supply chain from the bauxite mine through the final extrusion of aluminum. Facility-specific data and electricity grid emissions from Climate TRACE are used for the smelter. The location of other tiers are predicted with AI from Terralytiq’s value chain library and populated with country-specific industry data.
As Exhibit 2 highlights, asking a Tier 1 supplier of aluminum parts for a complete PCF only results in 7-13% primary data (their share of the total) and punts the job of estimating the remaining 87-94% (likely with the same estimation method the buyer would have used). Alternatively, determining which of the 300 smelters is the source of primary aluminum and using primary data to update the PCFs for all 50 Tier 1s can save thousands of hours in surveys and supplier engagement.
"Climate TRACE aims to make meaningful climate action faster and easier. By integrating Climate TRACE's publicly available data, Terralytiq is unlocking new decision-making tools that will allow procurement teams and suppliers to better align around sustainability targets and the most effective actions to exceed them," said David Younan-Montgomery, Director of Partnerships at WattTime on behalf of the Climate TRACE Coalition.
From Measurement to Action with Category Glidepaths
With a PCF in hand, procurement category managers can craft an actionable roadmap, or glidepath, from today’s footprint to tomorrow’s targets. This glidepath is only effective if tied to tangible, high-impact initiatives.
In most sectors, transitioning to renewable electricity is the top lever to hit 2030 emissions targets. Getting all the way there may require further initiatives (Exhibit 3). In the case of aluminum, the solution space may include increasing the share of scrap aluminum of recycled materials, electrifying the digestion process in the alumina refinery, and replacing carbon anodes with inert materials.
Exhibit 3. An illustrative glidepath for aluminum, produced with Terralytiq’s bank of initiatives that quantify the cost and carbon impact of decarbonization action on suppliers’ emissions baseline.
Communicating PCF thresholds, such as below 7 kgCO2e/kg, helps suppliers identify the best mix of initiatives to meet buyers’ targets. Balancing specific targets, such as renewable energy adoption, with broader PCF targets can drive both innovation and implementation in the supply base, accelerating progress towards Scope 3 reduction goals.
To make progress on these initiatives, decision makers must understand the business case for decarbonization. Glidepaths equip category managers with the fact base to make tradeoffs between cost and carbon when engaging with suppliers. Knowing what percent decarbonization is possible at what percent cost impact is critical to translate emissions plans into results. This insight helps companies avoid overpaying the green premium, while also providing sufficient incentive for suppliers to decarbonize facilities.
"Terralytiq is helping manufacturers and their suppliers hit their Scope 3 targets and exchange product carbon footprints. Working with Climate TRACE data improves the speed and accuracy of primary data for the hotspots that matter. We’re excited to bring the business case for decarbonization and work with sustainability leaders to move their business to low-carbon supply chains," said Will Glazener, co-founder of Terralytiq.
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This article was written by Terralytiq with input from Climate TRACE, and reflects a shared interest in helping manufacturers reduce Scope 3 supply chain emissions and accelerate climate action through data-driven insights and advanced technology solutions.
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Terralytiq is a software platform for manufacturers to decarbonize their supply chain by engaging with suppliers on product carbon footprints and decarbonization initiatives. More info at terralytiq.com
Climate TRACE is a nonprofit that makes climate action faster and easier by mobilizing the global tech community to track greenhouse gas (GHG) emissions. More info at climatetrace.org
