Costing the Earth

An observation

When you purchase an item in a shop you pay the price that is shown on the price tag. This price represents the accumulated costs accrued by the item during its journey from raw materials to saleable goods. Everything from the cost of mining ores and processing them, through to the cardboard box it is packaged in, costs money and therefore adds a small amount to the price you pay.

However, there is another price that must be paid when manufacturing goods. This is the energy expended to create it and more importantly the CO2 and other greenhouse gases (collectively referred to by CO2e from hereon– see inset for more detail) produced and released into the atmosphere by the processes involved. Just as there is an accumulating set of monetary costs created by designing and manufacturing products, there is also a trail of CO2e produced. Generally, this CO2e production associated with the manufacturing of a product is known as “embedded” or “embodied” CO2e and, very often, it is ignored.

There is clearly a parallel between accounting for the costs associated with a product and accounting for the CO2e emitted during its creation. Every successful business completes the monetary accountancy for their products and succeeds in placing a price on their goods which correctly includes the total cost of manufacturing and running the business (and hopefully a little profit on top). However, in most cases businesses do not account for the CO2e emissions they are responsible for. Possibly they cannot because the data needed to do so is fragmented and regularly unavailable.

The difficulty in accounting for the total embedded CO2e is due to the lack of a common currency, accounting process, and method to expose the individual elemental additions of CO2e emission involved with producing the product. For monetary accounting each part purchased and each process step performed carries its own price tag and is simply added to the total cost of the product. What is needed for embedded CO2e is a similar common currency, pricing, and accountancy model.

An idea

Let us imagine a scenario where the price attached to every item offered for sale displays two prices instead of just one. One price in pounds and pence, the other in “emits” (unit Ѻ) a new currency of embedded CO2e. Wherever there is a monetary price stated there is an embedded CO2e price alongside it – the two are a pair.

Leave aside for a moment the exact definition of what Ѻ1 is. Instead let’s investigate some of the benefits that could be achieved with such an approach.

The benefits

As with all problems, including tackling CO2e emissions, it is always easier to find solutions when you have some quantitative numbers that capture the problem rather than incomparable descriptions. Even an approximate number, giving only an order of magnitude, is much more powerful than qualitative statements such as “a lot”, “some”, or “vast quantities”.

Introducing a standardised currency for embedded CO2e would allow comparisons to be performed easily. Look at the examples below. Which loaf is more “climate friendly”? Can you still justify buying a new car? Are you going to book a flight, drive or arrange a video call?

Table 1: Examples of pricing including emits

With monetary and emit prices always being documented as a pair, analysis and identification of high CO2e emitting manufacturing processes or components could easily be seen in a company’s product accounting. As such, opportunities to reduce emissions could clearly be identified and addressed.

Table 2: Example of process accounts including emits

Possibly there is need for improvement and innovation in this process step

Having to clearly advertise both the monetary price and the embedded CO2e price for a product on the shop-floor would focus companies and their suppliers on reducing both their products pound-price and emit-price. New attention would be given to manufacturing emissions to avoid poor media coverage due to high emit prices and the opportunity to benefit from positive stories when world-leading emit prices are achieved.

Projected costs and budgets for large investments could also be calculated in both pounds and emits. Large construction and infrastructure projects would then be assessed to ensure they are both cost effective and worth the associated emissions. Visibility of such projections would highlight options for reducing the emit spent before the project is started, possibly changing the concepts and approaches that are selected. Also, similar to the contractual obligations placed on firms to deliver projects for an agreed monetary price, contracts could state a maximum allowed emit spend.

Effective legislation could be generated if a clear and fair method of comparing the CO2e emitted when making certain products was used; thus allowing governments to identify key sources of CO2e and force or incentivise change and innovation in specific markets and processes. Instead of blanket statements about “reducing CO2 emissions from industry”, targeted and achievable policies could be created such as:

“By 2025 sales of T-shirts with an emit price of more than Ѻ6 will not be permitted”

Or

“CO2e emissions associated with the production of glass window panes is too high, £15 million pounds will be spent over the next parliament to reduce the average emit price of 6mm thick glass window panes to be below Ѻ18/m2”

One day maybe a person’s monthly credit card bill could show both the monetary balance that requires paying but also the total Ѻ spend over that month. Further still in this future, if the need to restrict CO2e emissions is dire, you may not be able to make purchases unless your bank account has both sufficient funds of both £’s and Ѻ’s.

The challenges

But will they not just cheat? Possibly, so regulation will be required. However, in a market where every product carries the emit price the incentive for competitors to expose foul play is high. There is also the unexpected benefit that foul play could lead to competitors undertaking genuine innovation and beat even the falsified numbers of competitors and in doing so benefit us all.

To enforce the provision of emit prices, the correct accounting of their value, and a common framework for fairly calculating the emit-prices, legislation and standards would be required. Already many products are forced to adhere to sets of standards such as the requirement for most products sold into the EU to have a CE mark. Accounting for, calculating and affixing an emit price to a product could be enforced using similar methods. Note that once a situation is reached where all pricing is given in both pounds and emits, the accountancy task will become little more than a spreadsheet to collate and total the emits spent on a product. Defining the exact methods of calculating the emissions and a set of standards to facilitate the fair allocation of shared emissions is left as an exercise to the reader.

To summarise

The above examples are given to show that a common currency used to expose, account for, and discuss the embedded CO2e of products could allow everyone to start to make meaningful decisions and changes to tackle the hidden emissions that lie behind the purchases we make every day. Using the known paradigm of currency and price tags allows all people to instantly understand the currently opaque issue of embedded CO2e.

To answer the question of what Ѻ1 actually is, it is a new unit directly proportional to kilograms of CO2e emitted by all of the processes involved in a product’s manufacture. Using this measure allows activities that emit CO2e to use the same currency. Therefore the “transatlantic flight” and “1 mile driven in a car” mentioned above can be allocated an emit price in a fair and comparable manner. (*)

To have maximum impact and understanding by the general public I would advocate the adoption of this form of embedded CO2e currency. For simplicity I would only ever display it to the public on price tags in integer emits or with two decimal places so that it resembles a monetary price as closely as possible. I would also choose a proportionality to kilograms of emitted CO2e such that common household goods had values that were “manageable numbers”, say in the range Ѻ1 to Ѻ1000. For the approximate example numbers shown above I have chosen Ѻ1 = 1Kg of embedded CO2e. It is important to avoid supermarket situations where one has to decide whether to spend more on a bar of soap that has an embedded CO2e price of Ѻ0.2425615741 than a cheaper one costing Ѻ0.242546545221. That said, even this would be better than the current figures that are given in a confusing mix of scientific units including kilograms of carbon and tonnes of CO2, or, as is most common, no figure being given at all.