How The Textile Supply Chain Can Save The Planet

Sunday, May 29, 2016

Change can be difficult. It can also be disruptive. Take climate change, for example. Representatives from 192 countries recently penned the Global Climate Treaty in Paris. Although far from a comprehensive solution to the challenges of climate change, the treaty is a good start and does provide a basis for further action.

A major shortcoming of the agreement, however, is that it is so broad. Signatory countries pledged to cut carbon emissions over time, but the management of such reductions was discretionary. Further, it was unclear from the agreement text how manufacturing industries should reduce their carbon footprint over time.

But this vagueness could encourage companies, if not whole industries, to find a better way. Which brings me to our industry.

There are dozens of environmental initiatives in the global textile and apparel industry, all well-meaning and managed by determined leaders to lessen the supply chain’s environmental footprint. Taken together, the aggregate impact of these various programs falls short, pieces of an incomplete puzzle. Moreover, some of these programs are little more than marketing window dressing for consumers to feel good about their purchases and for manufacturers to bury the truth behind their business practices.

Take a look at the current state of the industry: it’s a significant polluter. For instance, a virtual plastic island floats in the Pacific, much of which is the result of product lost from container ships at sea. Moreover, those same container ships consume fossil fuels like never before; the longer the supply chains, the more fuel consumed. And there are those awful landfills, packed with endless tons of discarded clothing. There many may other examples, too. It’s not a pleasant picture.



Cap-and-Trade.

The industry doesn’t need one more feel-good program to save the planet. What it needs is something with substance, a novel approach that encourages environmental efficacy by rewarding those who are the most efficient. It’s time for the industry to establish a Cap-and-Trade exchange.

Indeed, if the industry were truly prepared to support the environment, it would come together and create an industrywide program, a mechanism whereby companies would be financially incentivized to limit their carbon emissions. I may be idealistic, but I’m not naïve enough to assume such a program would be easy to design, nor would it be easy to implement and manage. However, the industry’s current piecemeal approach has failed to cut back on industry pollutants in a comprehensive manner.

Cap-and-Trade isn’t a new idea. For some, it may be an appealing concept; for others, practicalities will be daunting. Although there are problems that will need to be solved, they are not insurmountable. Of course getting all of the interested parties together in one room would be next to impossible. It’s unprecedented. Also, there would be wide disagreement over the effectiveness and viability of a cap and trade solution. Even so it would bring the trade closer together and reward efficiency.

Industrial Efficiency.

Efficiency. It’s the single word that describes our industry. Globalization has brought about many benefits to the textile and apparel industries, typified by intricate supply chains wrapping around the globe. In fact, these supply chains represent the creativity and efficiencies of the industry. Despite these efficiencies, though, the environment has suffered, a problem that is not going away anytime soon.

Perhaps it is time for the industry to consider supporting the establishment of a Cap-and-Trade exchange to address the environmental impact of globalized production. So how would a Cap-And-Trade exchange work? Let’s take a look by first defining “cap” and “trade.”

An annual “cap” would establish a limit on carbon emissions, but over time, the level would be lowered to lessen pollutants released into the environment. In turn, the “trade” could create a market for carbon allowances, helping companies innovate to meet, or come in under, their allocated limit. The less they emit, the less they pay, so it is in their economic incentive to pollute less.

Moreover, a cap would set a maximum allowable level of pollution, penalizing companies that exceed their emission allowance. The cap would be designed to limit emissions industry-wide, covering, for instance, electric power generation, natural gas, transportation, and large manufacturers.

Under cap and trade, as a result, emitters could release only limited amount of pollution. Permits or “allowances” would be distributed or auctioned to polluting entities: one allowance per ton of carbon dioxide, or CO2 equivalent heat-trapping gas, for example. The total amount of these permits would equal the cap. A company could only emit as much carbon as it has permits.

However, the industry could plan ahead. Each year, the cap would be ratcheted down on a gradual and predictable schedule. Companies could plan well in advance to be allowed fewer and fewer permits – less global warming pollution – each year.

Inevitably, some companies would find it easy to reduce their pollution to match their number of permits, while others would find it more difficult. Even so, trading lets companies buy and sell allowances, leading to more cost-effective pollution cuts, and incentive to invest in cleaner technology.

Further, companies could turn pollution cuts into revenue as businesses can slash their pollution quickly and cheaply -- hence ending up with extra allowances. It can then sell its extra allowances to other companies, much like a cotton futures exchange can trade contracts, providing a powerful incentive for creativity, energy conservation, and investment. In effect, companies can turn pollution cuts into dollars.

The option to buy allowances gives companies flexibility. On the other hand, some companies might have trouble reducing their emissions, or want to make longer-term investments instead of quick changes. Trading allowances give these companies another option for how to meet each year’s cap. While companies may exchange permits with each other, the total number of these allowances remains the same and the hard limit on pollution remain set every year.*

All of this may sound fine on paper. As there are many environmental initiatives already underway in the industry, how could the industry come together to establish such an exchange?

An Industry Marketplace.

For sure, many companies already support environmental initiatives, but many more companies are fixated on merely surviving in an increasingly competitive business environment. Although many acknowledge the impact of global supply chains on the environment, the challenge for the industry remains how to carve out profits while at the same time respect the costs of a degraded environment. Cap-and-trade is one way by which the demands of environmentalism and economic expediency may be efficiently balanced.

Sure, this all sounds great: establish a new market exchange whereby carbon credits are traded much like commodity contracts. If it was only so easy. First, someone would have to step forward to provide the infrastructure necessary for such an exchange. For sure, it’s much easier today to set up trading exchanges thanks to technology, but the start-up costs remain substantial, the risks very evident.

Next, there’s the problem of gaining buy-in from the various companies in our already highly segmented, fiercely competitive industry. Perhaps many large manufacturers, brands, and retailers already find merit in supporting a cap-and-trade program, but large firms do not make up the totality of the marketplace. What about all of the small companies in our industry? Someone would have to bear the financial costs at the outset. Although cap-and-trade would recoup those expenses over time, it’s a burden many small firms would find difficult to manage. Without the participation of the vast majority of companies, cap-and-trade would never prove to be effective.

So there’s the dilemma for our industry. There will be costs to establish a marketplace designed to lower our industry’s environmental footprint. But there’s more: some critics suggest energy prices will go up under cap-and-trade. If that’s true, the cost of goods would increase proportionately and would ultimately have to be paid by someone. To my experience, when people talk about raising input costs, that’s when the conversation ends abruptly.

I often hear about sustainable programs claiming to be cost-neutral. Perhaps they are, but our industry is terribly cost-sensitive; it’s always been that way. The same holds true for environmental initiatives. Many consumers like to hear about sustainable initiatives, but are they prepared to pay for them? Many in our industry would say no, as it is already so difficult to pass higher prices onto consumers.

Moreover, cap-and-trade could result in higher costs at a time when many consumers resist higher prices. For these consumers, environmentalism may be a luxury that is hard to afford and remains a challenge for environmentalists and industry leaders alike. Many people agree that concrete steps need to be taken to address climate change. But many more say that they’re not prepared to pay for it. It’s a tough sell, in any case.

Does the industry wish to alienate part of its customer base? No. I think that will always be the overriding consideration. As much as I’d like to see our industry take the lead in environmental solutions, I find it unlikely that the industry will ever do much more than it already has. So, the patchwork of current initiatives will be about all environmentalists can aspire to maintain. Perhaps that may change in the future, but for now, with today’s market, it looks unlikely.



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* To learn more, go to the Environmental Defense Fund website (www.edf.org), from which I paraphrased the description of a Cap-and-Trade program above.



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