WalMart announced today that they will seek to reduce their greenhouse gas emissions by 20 million metric tons by the end of 2015 (See NY Times, 2/25/2010 or WalMart). This is equivalent to the carbon emmissions from 3.8 million vehicles (based on assuptions of average mileage driven and emmissions per mile). The plan has three main components:
- Selection – WalMart will focus on product categories that have the highest total “life cycle GHG emissions”.
- Action – “Walmart must demonstrate it had direct influence on the reduction and show how that reduction would not have occurred without Walmart’s participation.”
- Assessment – Independent verification of claims by ClearCarbon and PricewaterhouseCoopers.
It is important to note that while there is an emphasis placed on the impact this initiative would have on its immediate upstream suppliers, WalMart is taking the complete supply chain perspective – from raw materials to end consumer use.
Why is WalMart taking this initiative? According to Michael Duke, WalMart’s president and chief executive, “We know we need to be ready for a world in which energy will only be more expensive.” Given the possibility of higher energy costs, it is prudent for an organization to better understand how energy costs influence their own costs and demand. For example, through an initiative like this, WalMart can better answer the followiing important question – “If carbon costs increase to $50 per ton, what does that do to my own costs and demand?”.
What is not included in the announcement is a current assessment of WalMart’s carbon footprint. So we don’t know how much of an overall reduction this represents. But it is revealed that this is half of the expected increase in their carbon footprint. Consequently, even if WalMart succeeds in this initiative, its overall carbon footprint is expected to increase. In fairness to them, this may still reduce their carbon footprint per employee, per customer and/or per $ sold because they will also be a larger company by 2015 (at least that is the plan).
There is no also indication of which types of projects will generate the saving. For example, WalMart continously purchases and replaces trucks in its fleet. To the extent that new vehicles are more efficient, they will earn some reduction in GHG emmissions “automatically”. And there is no indication of whether WalMart will sacrifice profit to achieve this goal. For example, will they stop selling a popular product that has high emmissions?
Thus, there are many open questions. But it is clear that this initiative, coming from such a high profile retailer, will continue to have impact on supply chain design.