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Understanding emissions traceability in the global climate transition

Photographic portrait of Michel Wood
Michel Wood

EY MENA Consulting Services Partner - Sustainability

Exploring the crucial role of emissions traceability in the climate transition and its potential impact on the MENA region's economic position.

In brief

  • The global economy is focusing on reducing greenhouse gas (GHG) emissions, with increasing attention on traceability — understanding the history and characteristics of a product or service.
  • The MENA region is well-positioned to respond to climate change due to its geographical and resource advantages, with traceability being a crucial aspect of its approach.
  • Despite its value, there are several challenges to implementing effective traceability, including commercial sensitivities, technical constraints and varying levels of maturity in emission tracing techniques.

The global economy is entering a climatic turning point, with the climate transition representing a persistent and long-term redirection of capital toward reducing GHG emissions and adapting to a changing climate. Recent announcements at COP281, specifically the explicit reference toward phasing out fossil fuels, have reinforced market signals that the transition will only intensify. Since the establishment of the COPs, the transition to a lower carbon economy has encountered barriers that have hindered climate progress. These barriers range from structural, social, technological, regulatory and commercial issues to more nuanced problems, such as understanding the provenance, history and characteristics of a product or service.

The Climate Policy Initiative (CPI) highlights several issues that influence to “scale the quantity and quality of climate finance.” This includes the need to improve data through increased interoperability between taxonomies or reports, and greater transparency of climate finance data2. While the finance flows are lower than what is required to achieve a less than two-degree future3, pledges to finance adaption and reduce GHG emissions through technology and market intervention remain strong4. Given climate change is a tragedy of the commons5, the issue of emissions traceability is crucial to underpin action and investment. Above all, traceability is about trust.

When it comes to MENA, the region can position itself as a critical player in the global response to climate change. MENA’s geographical access to key markets, its abundant natural resources and capital, coupled with its appetite to deliver large infrastructure at scale, are all key advantages.

Understanding emissions traceability

The United Nations Global Compact defines traceability as “the ability to identify and trace the history, distribution, location and application of products, parts and materials, to ensure the reliability of sustainability claims….”6 This could relate emissions characteristics such as the natural resources consumed in the production process, to environmental claims such as a carbon neutrality statements.

Traceability and its importance

Traceability is about trust. Trust will enable deeper and more meaningful collaboration. Collaboration should enable investment, at the scale required to deliver the desired impact.

Michael Wood

Partner

Emissions traceability can deliver value through:
  • Strengthening transparency, improving monitoring, reporting and verification
  • Supporting the distribution of capital
  • Identifying strategic partnership opportunities with value chain actors
  • Identifying opportunities to reduce environmental impact (e.g., increasing circulatory)
  • Building trust7

While consumers and companies struggle to trace the provenance and production conditions of the products they buy and distribute8, numerous private and public sector entities are responding to market drivers. Here are some of the key emissions traceability drivers, along with context and pertinent questions.

Emissions traceability can be complex and offer low value-add if not designed and executed appropriately. Some underlying challenges make traceability inherently difficult, namely:

  • Commercial sensitivities: Emissions data can include sensitive information about products, technologies or strategic ambitions, creating resistance to share information between third parties.
  • Technical constraints: The ability to trace emissions is limited due to a lack of standardization in emissions tracing techniques.
  • Maturity: Options to trace emissions vary in terms of maturity, practicality and cost.

Given the progression of regulations that require increased emissions transparency (e.g., EU CBAM or other carbon pricing mechanisms), entities exporting products to customers with net-zero ambitions or to jurisdictions with climate-related regulations, will inevitably become beholden to these requirements. As regulatory mechanisms mature and the financial or commercial realities of carbon pricing start to bite, it can be expected that the MENA region will focus on traceability to build trust in global supply chains, consolidate product market share and capitalize on new market opportunities.

Emissions traceability options

At a high-level, there are four emissions traceability categories: physical, chemical, digital, methods. In reality, the most effective traceability option depends on a variety of factors, such as the type of product and service, the level of supply chain sophistication, cost, technological readiness, and value-add. Traceability is not an exact science and will likely involve a hybrid solution that leverages existing processes and technologies while adopting bespoke techniques.

Physical and chemical tracing relate to how the provenance of a product can be traced using physical intervention (e.g., product stamping, physical inspections) and chemical intervention (e.g., chemical dosing, isotope tracing). For the purposes of this article, we have focused on key methods to provide bottom-up traceability estimates along with how technology can play a role to orchestrate disparate and complex data. The table below provides a non-exhaustive overview of emissions traceability options for methods and technology, supported by some examples.

Category
Options (non-exhaustive)
Examples (non-exhaustive)
Methods
  • Life cycle analysis (LCA)
  • Scope 3 emissions calculations
  • Certification and verification
  • Mass-balance
  • ISO 14040 details LCA as comprehensive inventories of the inputs, outputs and the potential environmental impacts of a product throughout its lifecycle13. LCAs can be highly effective to understand and compare products, and to inform strategic interventions to reduce environmental impacts in the value chain. LCAs are increasingly being used to support product claims around comparability to alternatives and may increasingly be used to understand the completeness of traceability claims. A number of property and open source LCA platforms exist, for example, openLCA, GaBi, SimaPro.
  • Scope 3 emission protocols and calculation methods (such as the GHG Protocol), provide methods to determine upstream and downstream emissions across the entirety of a value chain. Scope 3 emissions determination is often the most material emissions source and can be used to identify risks and opportunities, engaging with value chain partners.
Digital
  • Satellite and remote sensing
  • Distributed ledger technology (DLT), including blockchain
  • Artificial Intelligence (AI)
  • Internet of Things (IoT) and sensors for real time monitoring
  • Augmented technology
  • A number of vendors (e.g., SAP Green Token, IBM) provide blockchain technologies to support with emissions traceability. DLT, blockchain and tokenized options have been used in several use cases, from carbon credits, reporting to transactions. In addition, sector specific initiatives are emerging to understand the application of blockchain, for example, The World Economic Forum’s Mining and Metals Blockchain Initiative.
  • Satellites are actively being used for remote sensing to support organizations to monitor and verify carbon sequestration projects, and provide high resolution detection of methane emissions from direct emissions sources (e.g., GHGSat, EnMAP, Carbon Mapper, SBG, CHIME and EMIT and MethaneSAT)14.
  • Climate TRACE, a non-profit coalition, augments satellite data, sensors and uses machine learning and AI algorithms to estimate emissions from over 350 million assets globally. Augmented technology such as Climate TRACE will significantly help entities understand value chain emissions.

How EY can Help

What’s next: further steps and sources for additional information

The most important principle is to design traceability to be adaptable as expectations evolve, determine the key drivers underpinning the need for traceability and share the load with value chain participants. Climate change is a shared responsibility and collaboration will be encouraged by value chain actors that see the strategic value of emissions traceability.

There are several steps for entities to start their emissions traceability journey:

  1. Develop a traceability vision focusing on aspirations, preferred options and outcomes.
  2. Determine value chain emissions using higher order methods, with a view to increase precision and accuracy for emission sources that are material.
  3. Assess value chain actor climate commitments and test for strategic alignment.
  4. Undertake an upside and downside risk assessment.
  5. Enable procurement and marketing/sales functions to engage with vendors and customers regarding strategic emissions management and partnership opportunities.
  6. Determine methods to improve data quality.
  7. Refresh vision with an operational plan to integrate emissions traceability into key functions.

At EY, we have helped our clients on several traceability-related initiatives by integrating risk management, supply chain and sustainability services and leveraging our strategic alliances and technology assets.


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    Summary

    The global climate transition, reinforced by recent COP28 announcements, involves redirecting capital toward reducing emissions and adapting to climate change. Emission traceability, defined as the ability to identify and trace the history and characteristics of products and services, is crucial in maintaining trust and monitoring emission-reducing efforts. Value can be derived through increasing transparency and identifying opportunities for environmental impact reduction. The MENA region, due to is geographical and infrastructural advantages, could play a vital role in this transition. The choice of traceability method depends on factors like product type, supply chain intricacy, cost and technological readiness.

    About this article

    Photographic portrait of Michel Wood
    Michel Wood
    EY MENA Consulting Services Partner - Sustainability
    Deeply passionate about climate change with extensive experience across the energy and resources, industrials, and infrastructure sectors.
    Related topics
    Energy and resources
    Sustainability
    COP
    Climate change and sustainability services

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