In the past few years, more attention has been focused on the concept of Blockchain technology. The main goal of the initiative is to develop and use a ledger system as a platform for economic activity in the supply chain. The development takes place by the adoption of technological solutions that facilitate carbon accounting, quality management and other important activities related to supply chain management.
Carbon Tracing
As part of the effort, Carbon Trading was launched in May of this year. The company is a pioneer in the use of blockchain technology as a strategic solution for reducing carbon footprints in the supply chain. The idea is to enable a distributed ledger to work in a manner that makes economic activity transparent – able to provide real-time information on the carbon footprint in real time from every participant in the chain. The company is currently working with four international partners to achieve this goal.
Supply Chain Networks
However, the use of Blockchains for sustainable supply chain doesn’t end there. To be successful, the system must be integrated into supply chain networks. This means that decisions made within the ledger must be transmitted through the ledger to all participants in the chain, including the end users. This helps make it possible for organizations to determine their carbon footprint and improve their overall efficiency. If you think about it, this sounds like a simple idea. But in reality, implementing a carbon trading system requires a lot more than just standardization of the technology itself.
When the system is implemented, participants must also be able to change their behaviour in order to reduce their carbon footprint. This comes in the form of having incentives that encourage them to behave differently. For example, a bonus might be offered to those who buy products from their local stores. This incentive could then be converted into payments that are sent to the participants of the chain. Another incentive could be to send regular messages to other participants, reminding them about their carbon footprint. This, too, would be converted into a payment which could be made to the participants of the chain.
Challenges
A major difficulty associated with the ledger concept is that it’s currently very difficult to gather and evaluate the true cost of the activities of all participants in the chain. As mentioned, the ledger is distributed across the participants in the chain, making it difficult to obtain a true picture of the true cost of the carbon emissions being released. This leads to a vicious cycle, whereby those responsible for emitting carbon fail to make any changes, which in turn allows even more carbon to be emitted. One way of solving the problem of gathering accurate data on the true costs of emissions is to develop a pricing mechanism based on carbon intensity. This pricing mechanism should be able to provide a way of comparing emissions of a particular business over a given period of time with the price of producing that same product elsewhere.
Another major problem facing businesses wishing to implement a ledger based sustainable supply chain is scalability. Unlike traditional ledgers, the distributed ledger does not allow for the easily adding or removing of transaction details from it. This makes it very difficult to incorporate incremental change, such as the addition of a supplier or the reduction of a manufacturing unit. Another problem facing many businesses trying to use a ledger based sustainable supply chain is that they tend to focus on the monetary value of their transactions rather than the human value of the actions. This approach can lead to poor decision making processes, reduced productivity, and a loss of profit.
Advantages
A key advantage that the ledger has over traditional ledgers is the ability to use real-time pricing information. By allowing users to instantly see the impact of their actions on the carbon cycle, the ledger can give users a clear picture of the state of their business. While users will initially have an easier time adjusting to a new sustainable supply chain system when it’s based on real-time pricing data, it will in the long run allow a business to more easily align its carbon emissions with its carbon budgeting.
By using a ledger based sustainable supply chain methodology, businesses are able to integrate elements of business strategy into its operations. A good example of this is Chainlink, a software tool that allows a business to integrate the performance of its various supply chains. The ability to measure the performance of each chain is essential for a business to be able to establish its carbon footprint, which the ledger provides.