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By Jon Brooks, NZ Country Manager, TradeWindow
Trade, by its very nature, contributes to greenhouse gas emissions. The Global Logistics Emissions Council estimates that in 2015, approximately 2.9 billion tons of CO2e was released into the atmosphere as a result of fuel emissions in the global supply chain, contributing 23 per cent of global greenhouse gas emissions. This is not a negligible figure.
Although goods will ultimately always need to be transported along the supply chain to end consumers, digital trade holds some of the keys to reducing the impact that trade has on the environment. Digitalisation is already bringing many benefits across the entire supply chain for producers, manufacturers, growers, exporters, importers, end consumers and economies as a whole – but what of the specific environmental benefits? What elements do they touch on? And, how large is the potential to reduce harm to the environment?
There are three key areas that digital trade can address to reduce adverse environmental impacts: efficiencies, paper, and sustainability claims.
More efficient conduct of trade
By far the largest potential environmental benefits from digital trade come from efficiency gains along the supply chain, primarily in the form of reduced time and work that must go in to completing each traded transaction.
We are not talking about savings in paper or ink specifically, but the efficiency gains that can be made from handling data digitally instead of through a primarily paper-based system. This leads to a reduction in necessary office space and other resources, such as lighting, air conditioning, and commuting – that all produce emissions. In other words, 85 per cent of estimated emission savings are directly related to a reduction in work hours, according to one United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) working paper.
When we consider the complexities of global supply chains, it’s easy to see where time and money can be lost through paper documentation needing to be prepared, printed, transported, processed, exchanged, passed back and forth, and corrected, ultimately causing delays in the movement of goods and piles of paperwork stacking up along the way.
The United Nations Network of Experts for Paperless Trade and Transport in Asia and the Pacific reports that the implementation of Singapore’s electronic National Single Window for trade declaration in 1989 resulted in the number of documents that were required to be submitted for trade processes being reduced from up to 35 documents to just one, and in 2019, the European Commission calculated that implementation of the proposed Maritime Single Window would save shipping operators 22-25 million staff hours on reporting between 2020 and 2030 – as a direct result of reductions in the number of documents and procedures which must be completed as part of each transaction.
The reduction in hours is made up of the removal of duplicate information, automation of some tasks (such as manual checks of the data), increased ease of data and archived information retrieval, among other factors. This has important environmental consequences: working in an office environment is associated with emissions from heating or air conditioning, the electricity required to operate office equipment and lighting, petrol for employee commutes and garbage disposal.
Paperless trade implementation reduces the amount of these emissions associated with each transaction. Meanwhile, paper-based systems already prepare and store documents on computers, meaning that the nature of those office emissions largely remains unchanged.
Digitalisation in trade processes can expedite transactions, which, in turn, reduces the time that cargo must be stored until the transaction is complete. Storage, again, is associated with several emissions – including lighting, cargo handling and temperature control, where required.
Removal of paper from the supply chain
Although much smaller overall environmental benefits are possible from removing paper from the supply chain than the efficiency savings, ESCAP suggests that the elimination of paper is the next-most important input after reduced work hours, followed by the physical transportation of documents.
A significant source of greenhouse gas emissions come from paper, which can be removed by the complete adoption of digital trade. This also eliminates the fuel emissions that come with needing to physically deliver documents via a range of transportation methods.
ESCAP has estimated that a move to complete paperless trade could remove between 9 and 23 million tons of carbon dioxide equivalent (CO2e) emissions annually for the Asia-Pacific region. On the world stage, estimated emissions savings through paperless trade implementation globally average 36 million tons – which is the equivalent of planting over a billion trees.
To break this down further, a single A4 sheet of unrecycled paper produces approximately 56 grams of CO2e. The average transaction case study used in ESCAP’s research sample involved at least 63 pages of paper. Trade finance alone involves 4 billion documents (not pages) circulating at any one time, with an average of 20 to 30 documents per transaction.
Obviously, making paper documentation redundant for the movement of goods around the world relies on governments moving to paperless trade implementation, which would decrease emissions even further. ESCAP’s estimations suggest that fully digitalising regulatory trade procedures has the potential to save between 32 and 86 kg of CO2 equivalents per end-to-end transaction – potential savings of 13 million tons when scaled to trading volumes in Asia and the Pacific.
Supporting sustainability provenance claims through blockchain and traceability
With publicly listed firms now being required to report on their sustainability claims, digital blockchain solutions to track and trace goods from raw materials right through to the end consumer offer nirvana for those looking to make – and prove – claims on a product’s environmental and social footprint. Firms need to work harder to prove their products’ specific links to sustainable and environmentally friendly practices in order to win sales from increasingly socially-conscious consumers. In an environment where false claims can easily be disproved, with dire consequences, digital trade offers a way for consumers and firms alike to confirm these claims.
Such proof will enable companies on both sides of the import-export divide to unlock significant additional value through trade digitisation, especially because consumers across the globe are increasingly willing to pay a premium for products with strong sustainability credentials and stories.
Blockchain-backed software in particular – unrelated to the types used for bitcoin and other cryptocurrencies – can increase the emphasis on measurability and auditability of carbon performance, creating an audit trail that acts as a single source of truth of the moment of goods, and, hence, carbon impact of such products.
We can only hope that this will lead to an increasing amount of firms establishing and upholding sustainable business practices – ones that are not harmful to the environment – as digital trade offers a way to prove or disprove their adherence.