Consumers have woken up to the ills of climate change and are demanding that companies take stock of how they use natural resources, map the carbon footprint of their operations, and find better, more sustainable ways to keep production going.
Twenty-seven years ago, in 1995, the motion among consumers prompted members of the United Nations (UN) to hold an annual climate change conference – known as the conference of partners (COP). This year’s event (COP26) concluded last week and some of the dialogue was focused on the fact that the US and Canada are the only two G7 countries where carbon emissions rose between 2016 and 2019.
If you’re wondering, the COP only talked about 2019 data this year because the event was canceled for the first time in 2020 on account of Covid-19.
If you take a step back and think about North America in the grand scheme of things, you’ll realize two things. First, the region is still largely dependent on fossil fuels which is one part of the problem. The other is that the shift towards manufacturing in cheaper economies and shipping those products over to the region has added significantly to carbon emissions.
Since moving away from fossil fuels can’t be an overnight change, regulators, experts, academicians – and consumers – are talking about bringing making production more sustainable and prioritizing the planet and its people over profit.
If you’re wondering how much of a difference that will make, take a look at this graph below which shows Carbon dioxide (CO₂) emissions embedded in trade, measured as the net import-export balance in tons of CO₂ per year. Positive values (red) represent net importers of CO₂ (i.e. "100 million" would mean a country was a net importer of 100 million tons of CO₂ in a given year). Negative values (blue) represent net exporters of CO₂.
If we look at the data behind the map, it reveals that the US was a net importer of 369.97 million tons of CO₂ emissions in 2019. Germany, Italy, France were net importers of 113.31 million tons, 110.37 million tons, and 106.27 million tons respectively. China, on the other hand, was a net exporter of 1.05 billion tons.
While the quantum of the total CO₂ emissions imported by Germany, Italy, and France is just slightly below the US, if we consider all of the European Union (EU) countries, the numbers do add up. It’s why the EU has proposed a carbon border tax.
An article in the Nikkei Asia explains the purpose of this well and shows why countries such as China might be worried about the proposal:
“The mechanism is intended as a way of mitigating the competitive disadvantage suffered by European industries as a result of the EU's bold green policies by taxing the carbon content of imports into the EU, making them equivalent to goods produced in the EU in terms of carbon pricing. In other words, non-EU companies exporting to Europe will need to pay the same price for their carbon footprint in Europe as European companies.”
What can companies do – what are the easy first steps?
The EU carbon border tax will of course impact the sale of exports in the US – given their reliance on fossil fuels and imported parts, but it’s also serves as a wakeup call to many manufacturers in North America and encourages them to think long and hard about whether they want to continue contributing to the region’s increasing import of emissions by way of trade.
The simple answer is to stop and find alternatives.
But it’s important to remember that this is not about moving production back home. It’s about moving production [and assembly] closer to where you sell the bulk of your goods.
If you’re a toy maker in North America, finding a partner within the region to help you produce some or all of the parts you use will cut down your carbon footprint significantly. Injection molding is a common process used in the toys industry and plenty of North American partners, including Advantage Engineering, can deliver high quality parts quickly.
What’s interesting is that while those importing their parts from China feel they’re getting a huge discount, the reality is quite different. When you add up the shipping and logistics costs, consider the cost of managing the project on the other side of the world, and factor in the lead times and its financial impact on your inventory needs and your working capital, the discounts suddenly don’t look all that attractive. In fact, if managed well, working with a North American partner in today’s competitive market, can yield a higher margin overall.
Procurement specialists at some of the largest North American manufacturing/assembly sites are beginning to look into the real cost of their operations – especially with a view to reducing their carbon footprint and using natural resources more responsibly. Their partnership with finance, engineering, and logistics teams in the business is helping them achieve great results.
In the coming months, we expect to see some shifts among manufacturers in this region as a result, looking for ways to move closer to carbon-neutral operations. Once they set out to look for alternatives, meeting their goal and delivering on expectations will be easy.
If you’re thinking about moving production closer to North America, get in touch with Advantage Engineering. We’ve got nearly three decades of experience and can help you with a wide range of solutions that are as attractive financially as they are feasible technically. Check out our capabilities here or drop our team a line here.
