Working together on global supply chains can help prevent climate disaster

Working together on global supply chains can help prevent climate disaster

Global production networks provide us with a range of opportunities to accelerate transitioning to a net-zero world.

02 Jun 2022

Versión en español

By Gerd Müller

The science is clear: to prevent a global climate disaster, we have to reduce greenhouse gas emissions by 45 per cent relative to 2010 levels by 2030. We also need to reach net-zero by 2050.

Transitioning to a net-zero world is one of the greatest challenges humankind has ever faced. It calls for a complete transformation of how we produce, consume and move around. 

The new system will need to tackle the triple planetary crisis of climate change, pollution and biodiversity loss. Decoupling growth from environmental impact will need innovative solutions supported by global partnerships, with public and private sectors both pulling in the same direction and with urgency.

Transitioning to a net-zero world calls for a complete transformation of how we produce, consume and move around.

The industrial sector is an essential component of a healthy economy, but also a major source of emissions. Industry therefore needs to lead in these efforts. Global supply chains (GSCs) provide us with a range of opportunities to accelerate this green transition. 

As much as 80 per cent of world trade involves global supply chains. They underpin almost every aspect of modern industrial production. They offer solutions through financing, innovation and multilateral support, alliances and frameworks. In this article, I outline three of the key areas where greater multilateral efforts on GSCs can help us effectively address the climate crisis. 

Clean energy, circular economy

Transitioning to clean energy sources, such as green hydrogen, will be key to advancing industrial decarbonization and ensuring green(er) GSCs. This makes UNIDO’s new Global Partnership on Green Hydrogen in Industry especially important.

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However, achieving the energy transition at the necessary scale will be challenging for many industries. Replacing assets and infrastructure—often before the end of its productive life—means substantial costs. Policymakers will have to actively promote and de-risk investment in green energy sources and equipment. We also need industrial policy to encourage energy efficiency in the interim while firms build up capacity for a full energy transition. 

Improved resource efficiency is another priority. Moving to a circular economy is a way to tackle structural inefficiencies across supply chains. So far, 16 countries have joined theGlobal Alliance on Circular Economy and Resource Efficiency (GACERE). Together with the EU and UNEP, UNIDO is bringing governments and relevant networks and organizations together to provide a global impetus for initiatives on the circular economy transition.

Innovation and technology transfer

New designs, new processes, new technologies and new skills – we need all these to be shared to enable the green transition. 

GSCs cooperate through global networks of local partners. The globalization of production has created a system where firms often cooperate to share know-how and technologies. They provide information and capacity-building training to others along their supply chains. GSCs can be the means to move innovations across the world. 

UNIDO is ready to partner with public and private actors on innovation and technology transfer. My motto is ‘Progress by innovation’. We must share the knowledge we have for the benefit of all.

My motto is ‘Progress by innovation’, we must share the knowledge we have for the benefit of all.

Regulation and standards

Climate change is a global problem that needs global solutions. It is not just about implementing environmental and climate policies in developed countries. We have to be aware of the risk that companies in these countries could move carbon-intensive production to countries with a less strict approach. 

For decarbonization to be effective, we need a regulatory regime that sets appropriate standards, tracks progress and performance against those standards, and establishes a transparent mechanism for reporting emissions and avoiding “greenwashing”. 

An example of such a regulation is the European Union’s proposed Carbon Border Adjustment Mechanism (CBAM). This would require exporters to declare the carbon emissions embodied in any goods they sell in the European Union market. Carbon emissions could not be simply ‘exported’ to somewhere else.

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Measuring, monitoring and documenting greenhouse gas emissions along a GSC can be technically challenging, time-consuming and expensive. Nevertheless, manufacturers will have to comply with international standards in order to operate or sell abroad. This is much more challenging for developing country producers. They will need support to build capacities and institutions in both the public and private sectors to remain competitive. 

The different standards that currently exist across many jurisdictions may make compliance even more complicated. Harmonizing global standards will reduce uncertainty and allow firms to plan for the long term. Sound long-term planning unlocks investment for sustainable business practices. We can only achieve this through multilateral cooperation.

Multilateral partnerships 

Climate change is a global challenge and needs to be tackled from all angles now. Ensuring the creation of a sustainable industrial sector requires the support of decision-makers, international organizations, private companies and industry bodies. It will depend on investment, capacity-building, innovation and regulation. 

The most pressing priorities for GSCs are the transition to renewable energy and adopting circular economy production methods to decarbonize and improve resource efficiency. UNIDO’s Industrial Deep Decarbonization Initiative (IDDI) promotes efficiency and clean energy together with the development and harmonization of standards to support all stages of GSCs.

We need to make use the connections that already exist in GSCs to bring about more international standards and the transfer of technology, skills and capabilities. In this way, we can accelerate the achievement of “net zero” across supply chains. 

UNIDO calls for more international, and especially multilateral, cooperation and investments to make sure that everyone plays their part and can benefit from the energy transition. Through our partnership platform, we stand ready to champion international cooperation to promote progress by innovation, ensuring that everyone contributes to creating a healthy and prosperous planet for all.

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Gerd Müller is Director General of the United Nations Industrial Development Organization (UNIDO).

Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

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Originally published on UNIDO’s Industrial Analytics Platform.