Randall M. Overbey, president of Alcoa Primary Metals Development, made a startling statement toward the end of a presentation given this past week at The Conference Board's 2005 Business and Sustainability Conference in New York:
We believe that, within the critical transportation sector, the [aluminum] industry can become “climate neutral” by 2020. In such a state, the global warming impacts of aluminum production will be fully offset by the CO2 emissions saved by its use, on a run-rate basis.
Overbey continued:
Aluminum saves fuel and recycles like few other materials do. I am aware of no other metal that can support a vision like this. We believe that it can happen, if we in the industry work together. If the vision is shared by our customers, consumers and communities, we may be able to realize it even sooner.
(The full text and Powerpoint slides of Overbey's presentation are available online.)
What, exactly, does this mean? As the accompanying chart from Overbey's presentation suggests, using more aluminum in place of steel or other metals in vehicles would make them lighter and, therefore, more fuel-efficient -- so much so, he says, that the carbon dioxide emissions reductions (the pink line) would be equal to the emissions created in manufacturing aluminum (the blue line).
And that, he seems to be saying, would render the entire aluminum industry “climate neutral.”
Now, I’ve been a student of "climate neutral" claims for more than a decade, and know just enough about that term to be dangerous. I know, for instance, that counting climate emissions is a tricky and complex business. Among other things, you have to figure out where to draw the boundaries. Example: In determining the carbon footprint for a pair of shoes, should you include the gas that went into the chainsaw that cut down the tree to produce the shoebox? Or is that chainsaw gas someone else’s “problem”?
Entire consulting businesses are built upon such conundrums.
So, Overbey’s statement made me curious: Should Alcoa get credit for all of the carbon reductions resulting from its use in cars to make them lighter, and for the resulting fuel and carbon savings?
For answers, I turned to Sue Hall, founder and executive director of the Climate Neutral Network, which administers the ClimateCool certification label for companies and products that meet its standards. Its standards resulted from a broad stakeholder process that included companies, activist groups, academics, scientists, and others -- a process funded in part by the U.S. Environmental Protection Agency. (Disclosure: I was part of that stakeholder process in the mid 1990s.)
My conversation with Hall illuminated the complexities involved here -- and the challenges companies like Alcoa face in making, and living up to, “climate neutral” claims.
Hall began by explaining that Overbey’s optimism was well-founded, given the potential for supply-chain collaboration to achieve sizeable greenhouse gas reductions:
A lot of companies have been focusing on reducing greenhouse gas emissions in their own operations -- their own direct emissions. But most supply chains have some really colossal greenhouse gas reductions that can be achieved, but only if all of the companies collaborate. And aluminum and autos is one of those supply chains.
The problem, she said, is figuring out how to measure the reductions -- and who gets to claim credit for them. That is, if Ford were to use more aluminum and less steel to make a car, does Alcoa get to claim the emissions reductions, or does Ford? And what about the person who purchases the car -- the one responsible for buying and burning the gasoline? Wouldn’t she get some credit?
The answers to such questions could have significant impacts. In a world in which greenhouse gas emissions reductions are becoming a tradable commodity, ownership of a carbon credit is far more than an intellectual exercise. U.S. greenhouse gas emissions totaled more than 5.8 billion metric tons of CO2 equivalent in 2003, 95% from the burning of fossil fuels, according to U.S. EPA data. With carbon currently trading on the Chicago Climate Exchange for about $1.75 per metric ton, we’re talking about -- well, potentially a helluva lot of money.
So, figuring out who “owns” an emissions reduction is no small matter. Said Hall:
Ownership of carbon doesn’t always neatly fit into one simple box, where one decision gets made and the greenhouse gas reduction occurs inside that box. Those are the simple ones. But many of the really huge greenhouse gas reduction opportunities that we face don’t behave in that convenient, all-in-one-box style. And so, from a carbon perspective, supply chains and products and services very often exhibit a high degree of interdependence.
I asked Hall who should get credit for the carbon reductions in the hypothetical example of Alcoa selling aluminum to Ford? The answer, as I expected, was complex. For starters, it has to do with whether a company is doing something beyond “business as usual” -- a key determinant for whether a greenhouse gas reduction even exists in a voluntary carbon offset market. I suggested that in this case, ownership of the carbon reductions should go to Ford, because making an aluminum car body would be something beyond “business as usual” for Ford. Alcoa would merely be selling more aluminum -- something it does every day.
It’s not that simple, said Hall.
If you look at how aluminum gets spec’ed into automobiles, you’ve got quality issues, tolerance ratings, and other factors. Car companies for decades have been trying to lightweight their cars, and they work extremely closely with the aluminum companies and other suppliers to figure out how to do that. It’s not simply, “I decided to buy apples today rather than pears.” There’s a huge amount of collaboration taking place between the partners at that development stage. From the discussions that we’ve had with some of the leading automobile manufacturers and aluminum producers, the impression I get is that there is a fair amount of interdependence as these kinds of decisions get made.
So, how are we ever going to create a rational economic system with so many open questions? In a voluntary market for carbon, explained Hall, most of these ownership decisions get established through contracts.
"What you're saying," I offered, "is that if Alcoa sells aluminum to Ford, their contract theoretically should proscribe how any carbon reductions be allocated and owned across all three parties -- Alcoa, Ford, and Ford’s customers."
Right. Companies essentially would look to incorporate the question of carbon ownership, if there are credits to be established, into the contracts between them. What complicates matters is that if you’ve got recycled aluminum, then a lot of the carbon reductions predominantly fit towards the aluminum company end, if you substitute recycled aluminum for primary metals.
Ah, more complications. And, it turns out, recycled aluminum isn’t the end of it. For example, there are regulatory issues, like federal fuel economy standards, that raise yet more questions: Should an automaker’s use of aluminum should be considered to be beyond “business as usual” if it is required by law to find ways to improve fuel economy? And all this assumes that there is general agreement on what the carbon footprint of aluminum is in the first place. For example, in making his climate-neutral statement, was Overbey including the energy and emissions related to mining bauxite, the main source of aluminum? We don't really know.
Hall grokked my confusion -- and frustration.
There’s a lot of complexities in there. But that doesn’t mean to say that when industries recognize that there are some really significant drivers they can bring to bear to reduce greenhouse gas emissions, that they should throw their hands up and say, “We can’t go there.” Because the goal is to get the reductions down. And we’ve got to use all the levers big and small, but particularly the big ones, to drive greenhouse gas reductions down as fast as we can. If that means we’ve got ownership questions we need to address, then let’s do that. We have to look at the big, hairy, audacious goals, because we’re not going to get there otherwise.
In the end, it may be the last part of Randall Overbey’s recent statement that is most telling: that climate neutrality is achievable if “we in the industry work together.” As Hall put it:
Driving down these emissions means we’ll have to collaborate up and down the supply chain. And yes, it’s more complicated. It’s about finding interdependencies. It’s not all about stovepipes, where we manage our own greenhouse gas emissions and that’s all we need to look at.
And, with more than a little understatement, she added:
Carbon isn’t nice and neat and well behaved. I wish it was; it would be so much easier.
While it is true that there are complexities in the emerging realm of carbon "ownership" I think your article actually helps to show that it may not be as complicated as it seems.
The issue of who gets the carbon credit for the use of aluminum in the production of cars identifies just how simple the issue really is. The person who buys the car that burns less fuel should get the credit. Any additional cost to produce that car would be passed on to the buyer, but offset through reduced fuel costs, and perhaps someday, carbon credits – just as the cost of hybrid cars and any savings in fuel falls to the car buyer. Ford or Toyota or Honda should not claim carbon reductions realized buy the driver of their cars. But they will get the increased sales of their fuel-efficient, carbon-reducing products consumers want.
So, Alcoa gets the benefit of sellinng more aluminum to Ford because Ford is able to sell more cars to people who want to drive cars that burn less fuel.
Kraft can't lose weight by selling low-fat foods, but it can sell more product to people willing to pay for the benefit of consuming lower-fat food.
Architects, engineers and construction companies can't claim credit for designing and building fuel-reducing buildings, but they can make money delivering those kind of structures to the buyer/occupant who then can enjoy the carbon reduction credits and energy cost savings.
Whoever actually directly reduces carbon gets the credit. The supply-chain entity gets the benefit of supplying more of what is needed to deliver the reduction to the entitiy that emits the carbon.
Posted by: Roger Weller | June 27, 2005 at 08:46 AM
I can't believe this discussion.
First point: To manufacture a car produces nearly as much carbon dioxide as use in terms of quantities of oil used.
Second: The whole supply chain manages to exist by, at each step, externalising (not paying for) costs like those of increased Co2 emissions.
That there is no charge for releasing CO2 into the atmosphere is for me a real problem, to "credit" someone for releasing less is a joke.
Finally, all supply chains function on those pieces of paper or digital info we call invoices. It would be great to see something like: delivery 34 widgets: in producing these widgets we released 3.4 metric tonnes of Carbon dioxide into the atmosphere, and for every 100grams of product we dumped 300 grams into landfill.
For this we have been charged X 000s of dollars, passed onto you with a 10% handling fee.
Posted by: Steve Hinton | July 05, 2005 at 06:52 AM
I can understand why Alcoa is looking toward "picking up" CO2 credits from selling lighter aluminum and creating efficiencies in supply chains, given the massive energy use associated with the refining of aluminum. Alcoa can rightly claim part of the energy savings through the recylcing of aluminum, but this is old news. The trend towards lighter, stronger, more efficient materials in manufacture is on the whole good for both the environment and the economy. However, I am more than a little dubious of the logic behind Overbey's claims. My skeptical side sees this as a ploy by an industry with a high fixed emission rate to "green" up its image by pulling CO2 credits from the supply chain and customers. On the other hand, I would rather run the risk of believing a little greenwashing than facing an industrial sector that doesn't even care. I couldn't agree with Hall more: We need to use all the levers that we have.
Posted by: Bruce Kiesling | July 06, 2005 at 07:29 AM
I can understand why Alcoa is looking toward "picking up" CO2 credits from selling lighter aluminum and creating efficiencies in supply chains, given the massive energy use associated with the refining of aluminum. Alcoa can rightly claim part of the energy savings through the recylcing of aluminum, but this is old news. The trend towards lighter, stronger, more efficient materials in manufacture is on the whole good for both the environment and the economy. However, I am more than a little dubious of the logic behind Overbey's claims. My skeptical side sees this as a ploy by an industry with a high fixed emission rate to "green" up its image by pulling CO2 credits from the supply chain and customers. On the other hand, I would rather run the risk of believing a little greenwashing than facing an industrial sector that doesn't even care. I couldn't agree with Hall more: We need to use all the levers that we have.
Posted by: Bruce Kiesling | July 06, 2005 at 07:32 AM
I think Roger Weller's comments makes the most sense.
In addition, the Alcoa president's graph appears to be just a politically correct pitch to sell more aluminum. The real culprit is the "burning" of fossil fuels - 95% as you report above from the EPA. Even if vehicles are made out of something even lighter than aluminum, the main GHG culprit is the ubiquitous steam-age propulsion system we know as the internal combustion engine.
Posted by: Craig Whan | July 06, 2005 at 09:08 AM