Carbon insetting as a measure to raise supply chain energy efficiency potentials: Opportunities and challenges

Abstract

There is great potential for companies to reduce greenhouse gas emissions (GHGE) by implementing and financing decarbonisation measures in their own value chain. A company's active contribution to reducing GHGE at a stakeholder in its value chain is considered as carbon insetting e.g. financing of energy efficiency measures along the supply chain as one possibility. The implementation of insetting measures by industrial companies is currently only rudimentarily established. Moreover, there are no precise rules on how insetting should be accounted for. However, the resulting GHGE reductions can affect the corporate carbon footprints of several companies. This leads to the question on how insetting could be transparently reported, while still setting incentives for emission reductions along the supply chain. A comparison of literature based carbon insetting concepts are distinguished from each other in regard to local references and accounting approaches. Based on these a case study of the implementation of supply chain energy efficiency measures in the automotive industry to illustrate accounting issues is developed. The case study exemplifies, that a company that finances an energy efficiency measure at a supplier can only report 10% of the reduced GHGE in its carbon footprint. In light of this background, the pillar model for GHGE accounting is adapted to incorporate carbon insetting. In addition to the carbon footprint (pillar A), two other pillars are introduced. In pillar B, the GHGE reductions outside the scopes of the reporting company can be accounted for. Greenhouse gases removed from the atmosphere can be accounted for in pillar C. The novelty of this study is applying the concept of insetting to an industrial case study and the use of the pillar model to enable transparent accounting of insetting measures. It can thereby serve as a basis for industrial reporting of carbon insetting. By addressing methodological challenges the study provides a basis for further discussion on the concept of carbon insetting.