Today, customers of the pallet industry are much more aware of topics like sustainability and how their operations affect the environment. Within those operations, their supply chains are often identified as a primary source of elements like greenhouse gases (GHG) which have a detrimental effect and contribute to climate change and global warming.
Sustainability has become a hot topic in the pallet industry. Industry leaders are analyzing their environmental performance and finding ways to market their achievements as well as learning how they can improve. By developing resources like Nature’s Packaging and the Wood Pallet Environmental Product Declaration (EPD), the industry is continuously exploring its environmental impact. These resources communicate how carbon is sequestered in wood and demonstrate what activities in the normal course of business are net positive in their environmental impact.
Some pallet companies have already incorporated the results of these processes in their messaging by providing reports and tools, like green scorecards and carbon emission calculators, that determine how many GHGs are saved by recycling wood pallets and re-using them again. These resources validate the willingness as a supply chain partner to be a part of the solution.
Customers are also taking steps to curb their GHG emissions and are making those sustainability initiatives a centerpiece of their corporate missions and values. They are setting verifiable goals that rely on measurement to achieve them. One common instrument that is utilized is the carbon credit. This article explores carbon credits and how they relate to the wood pallet industry.
First, it is necessary to dive into the science a little bit and build a foundation by approaching the subject moderately and defining terms. There are a number of greenhouse gases that contribute to global warming and climate change. Of those gases, carbon is by far the largest percentage as it accounts for roughly 76% of all greenhouse gases currently generated globally and 80% in the United States.
Overall, GHGs are derived from a combination of industries and activities involved in energy production, agriculture, transportation and manufacturing among other things. As outputs, GHGs are measured in metric tons and quantified as MTCO2e (metric tons of carbon dioxide equivalent). This CO2e unit serves as the standardized amount of a GHG where the effect is equal to that of one metric ton of carbon dioxide (CO2). This is based on the global warming potential (GWP) of greenhouse gas.
The GWP defines the ability of that metric ton of gas emission to trap heat in the atmosphere over a certain timeframe. The key takeaway is that CO2 is the most prevalent greenhouse gas, and a metric ton of CO2 will serve as the baseline to help in our understanding of carbon credits.
There is an old business axiom that states, “Only what gets measured, can be managed.” This remains true in the realm of sustainability initiatives used to meet sustainability goals. As part of the process, companies submit to verified audits by accredited third party firms that specialize in these audit services. This measurement and verification process is known as carbon accounting.
In some instances, carbon accounting is a requirement due to government regulations like a cap and trade system. California has implemented such a system. In other cases, the audits and accounting are purely voluntary and derived from a company’s willingness to lower the amount of their GHGs emissions as mandated by a new sustainability mission and values.
Companies in cap and trade systems or the voluntary market can buy or sell a unitized asset known as carbon credits to help them meet their sustainability goals. These carbon credits equate to one metric ton of carbon dioxide (equivalent) that can be bought, traded, sold, or retired as an asset.
In a cap and trade system, a company will be assigned a certain number of credits on an annual basis that they will apply toward their cap. If that company utilizes fewer credits through a reduction in their emissions, then they can sell them via the cap and trade system to another company that needs them. If they generate more GHG emissions, they will purchase carbon credits in the system to offset those emissions. Those results bring emissions in line with their cap goal.
Some readers may have heard the term carbon offset and wondered what it is in comparison to a carbon credit. A carbon offset is generated by a reduction of GHG emissions through independent projects that earn certification. That certification is only received after it is demonstrated that the project does, in fact, remove more carbon from the atmosphere than a traditional alternative. Examples include sequestering carbon through preserving certain segments of forest land or building a wind turbine farm in place of a fossil fuel-based power plant. The projects can also be more sustainable farming methods or the use of electric instead of gas-powered vehicles.
Projects like these are certified through a carbon accounting process that includes specific planning, documentation and verification to measure the amount of carbon saved from release. The certifications are produced by government agencies or independent non-governmental certification bodies.
Once quantified, the offsets produced by these projects generate the same carbon credit mentioned above. They can then be traded, bought and sold the same as any other carbon credit. However, the credits certified by government agencies are usually input into a cap and trade system, and independent certifications are traded in the voluntary markets.
Like any market, carbon credit pricing in the voluntary market is subject to the forces of supply and demand and can fluctuate dramatically. The general consensus is that they will increase in value in the future as more is needed to offset the increases in emissions caused by supply chains and other business operations.
The wood pallet industry is focused on the sustainability of its products and how recycling can help customers reach their sustainability goals. There have been independent academic studies conducted that demonstrate the repair of wooden pallets has a net positive impact on GHG emissions. The EPD and Life Cycle Assessment are also a testament to this commitment.
As an industry, the initial research and documentation that has been produced warrants further investigation into whether the processes, that are normal operations for a pallet company (ie: recycling), generate verifiable carbon credits that can be traded like any other. This requires a member of the industry to follow through and conduct a carbon accounting study with an independent agency advising on the proper guidance and protocols to complete it.
Once this next step is taken, then it must be untangled as to how to fully measure the recycling process at a component level and who will actually get the use of the credit as a tradeable asset. Will it be the pallet company or the customer? Or will it be a shared arrangement made between these two partners? Also, there is a need to understand how different wood pallet supply mechanisms, like pallet rental vs pallet buying, factor into the generation and claiming of credits.
These are important questions for the future. Positive results could have a huge impact, putting the wood pallet industry squarely in the middle of helping to solve some critical environmental issues.
