The world is facing a serious problem right now, climate change. This problem has been caused by deforestation, burning of fossil fuels, dumping of waste, and just by blatant disregard of the environment. Every person, country, and company on the planet has what is called a carbon footprint. According to the Nature Conservancy, a carbon footprint is “the total amount of greenhouse gases (including carbon dioxide and methane) that are generated by our actions” (What Is). In an attempt to “reduce” their carbon footprint, some companies have pledged to stop producing certain goods, stop manufacturing certain ways, and to stop using fossil fuels. Every country wants to do “their part” to reduce their carbon emissions by enforcing stricter laws in their own country, but this just forces the emissions abroad. In a process called carbon outsourcing wealthy countries “reduce” their carbon emissions “by importing more steel, cement and other goods from factories in China and other places, rather than producing it domestically” (Plumer). This means that countries might not be reducing their carbon emissions after all, they are just pawning their emissions off on other countries. A study by Stanford University, found that “the products imported by the developed countries of Western Europe, Japan and the United States cause substantial emissions in other countries, especially China” (Wealthier). Carbon outsourcing is not just limited to one industry. technology, automobile, and healthcare and some of the industries that have their emissions outsourced. The United States imports these goods from all over the world instead of producing them domestically to try to lower their carbon footprint, but this just makes the problem worse. The countries that are producing the goods for the United States do not have as strict environmental laws, so products can be made any way possible even if it hurts the environment. According to the same New York Times article, “Britain, for instance, slashed domestic emissions within its own borders by one-third between 1990 and 2015” but “if you included all the global emissions produced in the course of making things like the imported steel used in London’s skyscrapers and cars, then Britain’s total carbon footprint has actually increased slightly over that time” (Plumer). Countries are actually having their emissions go up significantly if their imported goods are included in their carbon footprint. In this paper we will discuss carbon outsourcing in the technology, automotive, and healthcare industries.
With technology being one of the fastest growing industries in recent years, it’s no surprise that tech-industry carbon emissions have risen correspondingly. In response, multinational corporations such as Intel and Microsoft are actively working towards achieving their climate change goals by 2030. For both of these companies, outsourcing is one of several international trade activities that impacts carbon emissions.
Intel has long been proud of its roots in Silicon Valley and has largely relied on its manufacturing plants in America. But during an earnings call in 2020, Chief Executive Bob Swan said that Intel may begin to outsource some of their most advanced chips from countries outside the U.S. Following this announcement, the stock (INTC) fell sharply, but has since recovered. Intel’s decision to outsource was mainly due to the growing competitive pressure between Intel and other companies, including AMD and Nvidia. These companies are contracted with chip giants like Taiwan Semiconductor Manufacturing Co. and South Korea’s Samsung Electronics Co. (Fitch). In order to compete with these large foreign companies, Intel chose to lower costs of operations by outsourcing their production, while also investing heavily into their own factories.
According to their official website, Intel has four environmental goals for 2030: (1) achieve a net positive water use, (2) achieve 100% renewable energy use across manufacturing operations, (3) drive a 10% reduction in scope 1 and 2 carbon emissions, and (4) minimize waste. In order to understand goal (3) regarding carbon emissions, it is important to know the three scopes of emissions. Scope 1 carbon emissions refer to those that result from company operations, like delivery trucks. Scope 2 emissions come from the energy that the company buys, such as purchased electricity or heating/cooling. Scope 3 emissions, which Intel does not include in their carbon emissions goal, includes transportation, distribution, and any activities not controlled by the company that indirectly impacts its value chain. In the scope of international finance, this creates “outsourcing of carbon emissions” – by Intel choosing to outsource production, they are effectively reducing domestic emissions, but increasing emissions outside the U.S.
In contrast, Microsoft has addressed the concerns regarding scope 3 emissions and has an ambitious plan to be carbon negative by 2030, meaning that they will remove more carbon than they emit. For many businesses, scope 3 emissions are difficult to track and may account for up to 97% of emissions (Eaglesham). Due to the indirect and difficult-to-measure nature of scope 3 emissions, many businesses don’t calculate scope 3 emissions at all, and those that do generally rely on estimates and assumptions. According to their official blog, Microsoft states that the world will need to reach net-zero, where carbon is removed as much as it is emitted. In addition, Microsoft is very vocal in their beliefs that companies who can afford to move further should also work to become carbon negative. Microsoft’s principled approach to becoming carbon negative is largely based on investing in carbon removal technology, which they plan to spend $1 billion on alone. In the beginning of 2020, Microsoft planned to emit 16 million metric tons of carbon emissions, of which 12 million was scope 3 emissions. By September 2021, they are estimated to have halved their carbon emissions.
However, Microsoft has no plans to discontinue outsourcing manufacturing, information technology, or technical support. Instead, Microsoft states that they plan to work with suppliers “to implement consistent and accurate reporting and pursue effective steps to make progress against scientifically based targets.” Thus, outsourcing of carbon emissions will inevitably continue. Only time will tell if Microsoft’s carbon-removal tactics and public voice will be enough to outpace their emissions due to outsourcing.
The automotive industry has been growing with more demand for power and performance rather than emissions. From the Economic Sector in 2019 from the EPA, Transportation was listed at the highest gas emissions with twenty-nine percent (N/A, 2021). Transportation is coming from vehicles, but it includes fossil fuels from ships, trains, and planes. Primarily, when this paper refers to transportation, it concerns vehicles (cars/trucks). Arguments can be made on all vehicles and everything to go with lithium-ion batteries or other forms of electricity. Let us say, Tesla, for example. They produce four different vehicles that are all battery-powered and are fully electric. The vehicle itself will and does produce far less CO2 emissions than your regular car does. The point that gets missed is the manufacturing process of those sizable lithium-ion batteries that goes into their vehicles. From PolitiFact, one battery used for the Tesla Model 3 vehicle would be about four thousand- five hundred kilograms of CO2 (Nguyen, 2021). This much CO2 emission is equivalent to driving a sedan size vehicle for one and a half years with an average distance of twelve thousand miles. Just merely relying on battery-powered vehicles is not the only solution that we need to rely on.
The first primary step to reduce automotive CO2 emissions is reducing the emissions from the source; the production process is where a lot of the emissions are being produced because of materials and shipping. From the weight of the material needed to build the chassis and the average delivery from the imports and exports the materials are coming from. Volvo has recently launched the world’s first vehicle using fossil-free steel. They produced a load carrier that will be used for mining and quarrying. The green steel collaboration is between Volvo and a Swedish steel producer, SSAB (Larkin, 2021). This is the innovation that is paving the roadway for a new generation of vehicles. Other companies like Scania, Boston Metal, and BMW have all been described as investing in new supply chains and consumer demand (Larkin, 2021). Although production is a concern for CO2 emissions, companies like General Motors (GM) and BMW have already planned to reduce a specific percentage of CO2 emissions by a particular year.
At the start of 2021, General Motors plans to initiate a carbon-neutral operation by 2040. With GM, they have a partnership with the Environmental Defense Fund to eliminate pollution by 2040 (James, 2021). According to a statement from Environmental Defense Fund President Fred Krupp, the partnership wants to achieve three achievements: A science-based approach, electrification, and economic opportunities.
The scientific approach refers to converting their portfolio from gas-powered vehicles to battery-electric ones and other zero-emissions options. These options could be like the ones mentioned before of hydrogen or using some renewable energy as a reserve for vehicles. From the GM corporate newsroom, by 2030, all of GM will have one hundred percent of renewable energy from their US locations and by 2035 have one hundred percent renewable energy from all their global sites. Electrification achievement is a discussion of the manufacturing process of the new battery-powered vehicles that General Motors want to produce. With an investment of twenty-seven billion dollars distributed between the next five years, facilities have been updated into the build of the electric vehicles and global searches for parts. General Motors does not wish to discontinue their gas-powered vehicles merely but merely redesign them. Examples of redesigning would be a Stop/Start function, aerodynamic improvements, lower the boosted engines, increased performance on transmissions, and many more (James, 2021). Economic opportunities discuss the efforts of the supply chain that GM wants to reduce the impact of. As mentioned before, because electric vehicles do not emit any tailpipe emissions, GM wants renewable energy to generate electricity for the facilities. They have discussed opportunities with their suppliers to learn from one another for best practices and new opportunities.
BMW has a similar approach to what General Motors wants to achieve but has envisioned by 2030. This is ten years earlier than GM’s plan for 2040. As stated by Oliver Zipse, Chairman of the Board of Management of BMW AG, the plan is to reduce CO2 per vehicle by 2030 significantly. BMW wants to reduce their emissions from the source, the manufacturing process. Their reduction in CO2 emissions is closely related to the research and development of sustainable materials (Seidel, 2021). They have defined four property groups to set new standards on rethink, recycle, reduce, and reuse.
Like GM on how to redesign (rethink) their gas vehicles, BMW has invested in renewable raw materials that are not only lighter but absorb CO2 and release oxygen during the manufacturing process. The wood interior that most BMWs have is to reduce the foam that is generally used for their plastic covers. Not only is the wood being used a natural fiber that absorbs the CO2, but by 2030 an average of forty percent of the recycled material will be thermoplastics (Seidel, 2021). BMW has been able to reduce its CO2 emissions by a substantial amount by using synthetic leather. They are about using recycled material in the efforts of being able to lower their CO2 emissions with every vehicle produced. With most of the cosmetics being inside the vehicles, a lot was reused from recycled material. BMW is interested in more mono-materials instead of multi-layered or multi-material approaches (Seidel, 2021). Mono-material is making one product but with only one type of material. BMW can only recycle material that is made with the same material to create a new material.
BMW and General Motors have a keen interest in reducing their CO2 emissions. Whether that be from outsourcing from suppliers, whether that be from investing in their research and development program to reduce each vehicle or investing in fully electric and fully renewable energy for their vehicles and facilities. These two companies are paving the way for the automotive industry to make the change needed to reduce CO2 emissions. After that, it is just a matter of waiting for others to join or succeed independently.
It may be surprising to learn that the healthcare sector is also a heavy contributor to carbon emissions in the U.S. Undoubtedly, much of these carbon emissions are a direct result of outsourcing. In fact, the recent outsourcing of Covid-19 vaccines amidst the current pandemic is a perfect example. By the end of 2020, it was announced that high-profile drug companies, including Moderna and Pfizer, will be turning to smaller, lesser-known manufacturers to speed up the production of Covid-19 vaccines.
With dozens of third-party manufacturers now responsible for making vaccine ingredients for more than a billion vaccine doses next year, climbing carbon emissions from transportation and distribution are inevitable. For example, one of Moderna’s outsourced plants for their Covid-19 vaccines is responsible for processing the active ingredient, which is made by a different manufacturer almost 500 miles away (Dalton & Walker). The constant delivery between these two facilities alone is likely responsible for a small bump in carbon emissions. In addition, several of the newly outsourced companies have added more workers and night shifts to keep up with the demand. This only further increases carbon emissions due to the daily commuting of these new employees and the nightly upkeep of production facilities.
However, Moderna states that they strive to mitigate this environmental impact whenever possible. Their official website addresses four areas in which they aim to minimize their carbon emissions: recycling, public transportation, bicycle facilities, and water reclamation. Unlike most environmental goals of other MNC’s, Moderna’s are quite broad and only apply to their physical locations, which is not where the vast majority of their carbon emissions are coming from. For a healthcare company with the current goal of vaccinating everyone, it’s clear that most carbon emissions will be from transportation and distribution, but Moderna fails to publicly acknowledge this. Like many other large corporations, Moderna is pledging to achieve net-zero carbon emissions by 2030, where carbon is removed as much as it is emitted. But unlike the other companies, Moderna has only addressed how they will minimize carbon emissions, not how they plan to remove carbon.
Pfizer, on the other hand, is much more proactive and specific in reducing their carbon emissions. Like Moderna, Pfizer has faced an increase in carbon emissions due to the sharp increase in transportation and distribution of Covid-19 vaccines. On their official website, Pfizer lists their notable actions to meet their climate change commitments, one of which is “Improving scope 3 emission estimates and reducing them”. This “scope 3” refers to transportation and distribution, where the bulk of carbon emissions are coming from. Before attempting to reduce scope 3 emissions, it’s important to be able to estimate them with some level of accuracy. Unlike scope 1 and 2 emissions, scope 3 emissions are notoriously difficult to measure due to the several categories and amount of greenhouse gases that are involved in calculating them. Pfizer has shown a track record of consistently reducing carbon emissions, as well as innovating in the field of sustainable energy.
Overall, Moderna provides less information than Pfizer regarding carbon emissions and how they plan to reduce them. However, Pfizer provides less information regarding their outsourcing of carbon emissions. Because of the sheer number of Pfizer Covid-19 vaccines that have been administered, it’s safe to assume that Pfizer has outsourced production to smaller companies, thus increasing carbon emissions significantly due to distribution. Pfizer keeps their information regarding outsourcing private, so it’s difficult to estimate much carbon they are emitting as a result of outsourcing. Moderna is more open regarding their outsourcing efforts, and thus it is easier to estimate their carbon emissions. Nevertheless, both Pfizer and Moderna are two prime examples of outsourcing of carbon emissions in the healthcare sector.
Focusing again in the Consumer Discretionary sector, this time in the Apparel industry, we have seen many big names innovating their products and moving into sustainability. This has been lucrative for the industry since materials of production are cheaper, and the whole situation brings these companies opportunities to promote themself better. Of course this huge shift cycle comes with certain obstacles, apparel has complicated supply networks, making it difficult to account for all of the emissions produced when a pair of trousers or a new coat is manufactured. Then there’s the question of how the products are carried and disposed of once the purchaser has outgrown it. Natural materials, on the other hand, aren’t always sustainable if they demand a lot of water and shipment. Organic cotton may be preferable for agricultural workers who might be linked to high quantities of chemicals, yet water scarcity still exists.
Limited fabrics, from the other side, are the subject of a lot of innovation. Apparel produced from more environmentally sustainable materials, known as biocouture, is becoming increasingly popular. Textiles made from wood, fruit, and other natural materials are being considered by several companies. Others are experimenting with different dyeing techniques or looking for materials that degrade more quickly once removed. But there are a lot of small factors that can heavily affect carbon emissions and sometimes this issue has to be perfectly managed in order to make a difference, for example the amount of times you wear a piece of clothing has a significant impact on its carbon footprint.”According to researchers at the Chalmers Institute of Technology in Gothenburg, Sweden, a typical cotton t-shirt may release just over 2kg of carbon dioxide equivalent into the atmosphere, whereas a polyester dress could release about 17kg”.
As our planet continues to be affected by climate change, the carbon footprint is a useful tool for quantifying the impact that a business, or a nation, has on the larger climate. If a system of monitoring, reporting, and accountability is not in place, multinational firms like Nike can be major contributors to global carbon emissions. There is also an ethical dilemma where these multinational corporations are affected negatively if consumers become aware that a small shift in decreasing clothing spending can actually bring the same effects to reducing carbon emissions as a multinational corporation making capital intensive changes among the supply chain. This is why these companies are constantly innovating about these issues since they can afford anything but lack of growth and development.
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