Biofuel Producers Reduce Compliance and Reputational Risks by Monitoring Feedstock Supply Chain Sustainability

Biofuels and bioenergy are poised for expansion as governments encourage their production to reduce greenhouse gas emissions and petroleum prices remain high. According to a report produced by the consulting firm McKinsey in August 2009, “growth in the demand for biomass of more than 8% a year is likely over the next decade.” [“Overview: Biomass, mobilizing a sustainable resource,” in Sustainable Bioenergy, London: Fulton Publishing, 2010, ISBN 978-0-9553720-4-9, p. 13.]

In the United States, a final rule published by the US Environmental Protection Agency (EPA) in February 2010 implements the changes in renewable fuel standards mandated by the 2007 Energy Independence and Security Act. The new “RFS2” regulations extend renewable fuel obligations for the refining industry a decade beyond the 2012 date that was set in previous legislation. European governments also are seeking to increase the role that bioenergy plays in their countries, both by encouraging domestic producers and by seeking to increase imports of feedstocks. Motivations on both sides of the Atlantic Ocean include not only a desire to moderate greenhouse gas emissions but also to improve energy security and independence.

Substantial greenhouse gas emission reductions will come from advanced biofuels, which is produced from ligno-cellulosic biomass, algae and waste oils, rather than fermented from corn starch. While EPA believes that corn-based ethanol reduces lifecycle greenhouse gas emissions by 20% compared to petroleum fuel, the advanced biofuels can meet standards of 50-60%. These numbers may be conservative, as biofuels produced for the aviation industry have claimed lifecycle reductions in the range of 80-84%.

The pulp and paper, food and feed products, and heat and power industries will continue to play an important role in bioenergy markets, along with transportation biofuel providers. Farmers around the world will benefit from increasing demand for biomass.

To achieve the growth forecast in the McKinsey report and by other sources, biofuel producers need to develop their supply chains to obtain predictable and reliable deliveries of feedstocks. Managing sourcing, logistics, quality and reliability poses one set of challenges, but others arise as well. Key among these is ensuring that sustainability criteria are not only met but documented in a verifiable way.

Meeting sustainability criteria are key to the success of biofuels, because a major driver for development of the biofuels industry is the claim that biofuels represent a qualitative improvement relative to continued depletion of fossil fuels. However, this claim can only be sustained if certain criteria are not only met, but also documented. Moreover, the greenhouse gas emission reduction benefits cannot come at the expense of other environmental, social, and economic impacts.

“Sustainable” biofuels reduce greenhouse gas emissions relative to the petroleum based fuels for which they serve as substitutes. In addition, the cultivation of their feedstocks does not exacerbate water scarcity in producing regions, threaten biodiversity, or cause food prices to rise. Farmers and others in the supply chain are compensated fairly for their work and labor standards are adhered to. Operations are planned taking into account environmental and social criteria, and managed in compliance with laws and regulations. In regions of poverty, biofuel operations contribute to social and economic development of local, rural and indigenous people and communities. Technology is managed for production efficiency and social and environmental performance, and any use of genetically modified organisms is disclosed. Land rights and land use rights are respected.

Governments and nongovernmental organizations alike have recognized the need for sustainability criteria for biofuels. In December 2009 the Roundtable on Sustainable Biofuels (RSB) at the Ecole Polytechnique Fédérale de Lausanne published version 1.0 of its “Indicators of Compliance for the RSB Principles and Criteria.” Also in 2009, an initiative to develop an international standard on sustainability criteria in biofuels got underway in ISO Technical Committee 248. And, in the United States, the EPA has made biofuel producers responsible for maintaining records from their feedstock producers that meet the defined sustainability criteria in that regulation.

It is not enough to label biofuels as “sustainable.” The claim must be established and proven. Biofuel producers must manage their supply chains for compliance to criteria that go far beyond the “due diligence” investigations that most supply chain managers now consider normal. Failures in supply chain management can damage a producer’s reputation and may subject it to regulatory enforcement.

Managing the risk of deviation from sustainability criteria is an important consideration for all biofuel producers. Producers should consider options that best fit their supply chain management capabilities. Direct oversight and management of the supply chain can be time and resource intensive. To reduce this burden, producers may wish to outsource second party audits of feedstock producers and processers, or require them to obtain third-party certification to criteria developed by RSB or others. In some cases producers may choose to work through industry consortia to outsource the oversight and certification of feedstock producers and processors in various locations around the world.

Futurepast can assist biofuel producers with the development of a strategy for supply chain management that will support in-house management activities and maximize benefits from outsourcing audits and compliance assurance efforts.

© Futurepast: Inc, 2010

Water Scarcity and Greenhouse Gas Emissions Are Environmental Aspects Worthy of Management System Attention

Two of the most successful International Standards of the last 25 years are ISO 9001 and ISO 14001. ISO 9001, a quality management system standard now used by more than one million organizations, first gave international prominence to the “systems approach” to management. It has become one of the all-time best-selling standards of the International Organization for Standardization (ISO).

Its success helped launch ISO 14001, an environmental management system based on the “plan-do-check-act” virtuous cycle of policy-driven planning, managing to meet objectives, establishing operational control, and monitoring and measuring progress towards meeting identified objectives and targets. Several hundred thousand organizations around the world have adopted ISO 14001, usually as an enhancement of a quality management system which has the goal of managing processes for delivering quality goods and services and satisfying customers.

Fundamental to an environmental management system is the identification of the environmental aspects of an organization. These are the “elements of the organization’s activities, products and services that have or can have an impact on the environment,” whether adverse or beneficial. Identifying environmental aspects is key to the successful implementation of the management system, because it helps organizations proactively manage “those that can have a significant impact on the environment.”

Many early adopters of ISO 14001 environmental management systems reaped major benefits from their efforts. Energy efficiency, waste reduction, prevention of pollution, improved compliance with environmental legal requirements, all paid returns that contributed to the organizations’ bottom line while improving their standing among stakeholders, driving improvements through the supply chain, and augmenting workforce morale. Alas, the more the environmental management system standard became commonplace, the greater was the tendency of some later-adopting organizations to use the system as a regulatory compliance management tool and for little else.

In such cases, the true potential of the environmental management system is shortchanged. Properly implemented, ISO 14001-based systems should identify all environmental aspects that have the potential to create significant environmental impacts, whether they are currently regulated or not. Two prominent issues that fall in this category are water consumption and greenhouse gas emissions.

With the world population approaching seven billion, water scarcity is a growing concern. Organizations fortunate enough to be located in water-rich regions can ill afford to be complacent. Although “water wars” have not broken out recently in the United States, regions not normally considered water constrained have experienced some skirmishes. The contested northern boundary of the state of Georgia comes to mind, where claims of a flawed early nineteenth century survey that demarcated the boundary with Tennessee recently were raised. Why the sudden interest on behalf of the state of Georgia in a small strip of land that for nearly two centuries had been recognized as part of Tennessee? The explanation is access to the Tennessee River, which could have been tapped to relieve a drought that recently afflicted northern Georgia.

Another example is public opposition in Minnesota, the land of ten thousand lakes, to commercial development of the state’s water resources to feed an ever-expanding consumer thirst for bottled water. No thank you, say Minnesotans, who much prefer to keep their water for themselves.

Reducing greenhouse gas emissions is another issue that concerns many stakeholders. Regulation of greenhouse gas emissions is now occurring in California and has become an important consideration for the siting of new power plants across the country. For many companies, however, regulation of carbon dioxide is an issue for some time in the future, not today.

However, US companies ignore greenhouse gases at their peril. Aircraft operators landing in Europe or taking off from there face regulation from 2012 as part of an expanded European Union Emissions Trading System. This includes all US transatlantic carriers, and even some general aviation. France and other EU countries have proposed legislation that would mandate disclosure of the “carbon footprint” of products sold in that country from as early as January 2011. Imports from the US would be affected.

Identifying water consumption and greenhouse gases as potentially significant environmental aspects in an ISO 14001–based management system makes good business sense today, in advance of regulations. Doing so helps organizations take early actions to tackle critical issues before the mandates arrive.

© 2010, Futurepast: Inc.