One of the cornerstones of the EU’s plans for future economic prosperity and competitiveness is to improve and protect the state of the environment. In pursuit of this goal, the European Green Deal has triggered significant company and government commitments towards sustainability targets, with a reduction in greenhouse-gas (GHG) emissions by the year 2030 as a first binding milestone.
To gain greater clarity on what is feasible today and how to translate these environmental ambitions into practice, we systematically analyzed a wide variety of everyday products, exploring how GHG emissions get “wrapped up” in these items. We then looked at how to “unbundle” the emissions, in order to make these products “green” (that is, “net zero”) using today’s processes and technologies (see sidebar “Our methodology”). This analysis served as the jumping-off point to evaluate various scenarios so as to understand what the shift to greener products could entail for industry, consumers, and other stakeholders.
Green products: Feasible, “just” not yet scalable
Green shoes deep dive
Taking a pair of shoes as an example, the impact of “greening” these everyday items was broken down into three component questions.
- Can green products today be produced using existing technologies and materials? Yes, they can. Let’s take the example of a representative pair of shoes, assuming a GHG footprint of six to seven kilograms of CO2e. About 30 percent of this GHG footprint is generated when the shoe itself is manufactured (key abatement lever: switching to renewable energy) and another 10 percent is due to packaging and logistics. The majority (about 60 percent of the GHG footprint) comes from the raw materials used (Exhibit 1). Tearing down the shoe reveals that these emissions are “hidden” in more than 50 distinct steps to produce the six most relevant raw materials that are ultimately used to make the shoe. Thus, on average, each step contributes about 1 percent to the total GHG emissions of the shoe and each step needs to be addressed to make a “net zero” shoe.1
Despite this enormous complexity, GHG emissions for each of these steps can be brought down to net zero (and beyond) using technologies available today, with cost per ton of abated emissions ranging from little more than zero to several hundred euros. These levers include improving heat efficiency, deploying renewable energy, abating direct process emissions via alternative or optimized routes, and deploying bio- or recycled feedstock. Moreover, getting the shoes down to net zero doesn’t actually require pulling all the levers available and—ideally—there would be a focus on the most cost-effective ones (Exhibit 2).
- What would be the cost of emissions abatement? This is relatively incremental, assuming today’s costs. For a pair of shoes priced at €100 today, combinations of abatement levers for reaching net zero would push up the retail price by 1 to 3 percent, assuming the 2021 cost of producing the green raw materials. However, the relative cost increase for the raw materials will be much higher (30 to 40 percent for the shoe), which is why materials providers are skeptical about customer willingness to pay for such a cost increase and why they are hesitant to act.
- What are the rate-limiting steps? While the toolbox for a greener shoe exists on paper, the hypothesis would need to be applied to the manufacturing process in reality and then scaled across the physical product flows among more than 50 value-chain steps. Taking MDI (methylene diphenyl diisocyanate) as an example, this means starting with the green upstream material (second-generation bionaphtha in this case) and then pushing this exact material into a sequence of green processing steps (involving several other green materials, green energy, and green conversion technologies) with various companies involved until ending up with a net-zero MDI as one of the raw materials for the green shoe (Exhibit 3). This could be done by any of the players along the value chain or an independent party with the required know-how and data regarding CO2e footprints, abatement levers, and their cost.
Our research identified four related questions that are central to delivering feasible and scalable green products. (For examples of the potential practicalities, see sidebar “Green shoes deep dive”). These are:
- Can’t green products be produced today using existing technologies and materials? The short answer is, yes, they can, since manufacturers could—to a very large extent—rely on the existing toolbox of substances, but “in green”.
- What would the cost of emissions abatement be? This is relatively incremental; assuming today’s prices, our analysis indicates this could generate only slightly higher costs, averaging 5 to 10 percent (Exhibit 1).
- What are the rate-limiting steps? The ultimate rate-limiting step towards greener products will be scaling, especially on the renewable feedstock side. While the EU’s binding 2030 renewables target for energy is 40 percent (we are now at 20 to 25 percent), recycled feedstock currently covers less than 0.1 percent of global feedstock demand and will likely not reach more than 5 percent by 2030 (and with a maximum theoretical recycling volume of about 45 percent). Today’s rate-limiting step is more straightforward, however: lack of understanding and orchestration of the (generally very long) value chains (Exhibit 2). A solution would principally require reliable data on GHG emissions and know-how on the feasibility, impact, and cost of the various GHG abatement levers, end to end along each value chain. Currently, each value-chain player only owns and understands a fraction of the solution and tends to wait for others to visibly move and take the lead—by designing and offering net-zero products, investing in required raw-materials assets at scale, or manufacturing higher-cost, net-zero intermediates. Breakthroughs are needed if unmet and latent demand signals are to penetrate the value chain.
- What are the implications for the various players along the value chains? Significant supply-and-demand imbalances by 2030—at the very latest—are almost inevitable. While redesigning the current toolbox of chemical substances “in green” is technically feasible, it is currently anything but scalable, especially when it comes to renewable feedstocks. Comparing 2030 targets and commitments for greener products (whether from governments or companies) with current and planned supply of renewable feedstocks highlights the potential for a massive supply-demand imbalance. Targets outlined in the European Green Deal, plus various company commitments, trigger an extra 30 to 40 percent in demand requiring renewable energy or sustainable feedstocks by 2030 versus 2019 (or 55 percent versus 1990), with current supply announcements and plans covering just a fraction of demand. This would lead to a price increase—or even a price fly-up—for many green(er) products and raw materials in this case. The cost-based 5 to 10 percent average premium mentioned above would grow by a multiple for the consumer (and would need to be balanced alongside cost-of-living pressures), while providing extremely attractive value pools for companies owning the toolbox “in green”. For some substances price premiums have already started to become a reality (Exhibit 3).
Overcoming the scarcity of green materials
While “greenification” of everyday products is no easy task, with many production processes needing to be redesigned with novel technologies and then scaled, it is nevertheless feasible without totally reinventing the world of products. As discussed, manufacturers could mostly build on their established toolbox of materials and substances but in a green version. Additional cost would be relatively small if green energy and materials were available at scale (which they are not yet), while regulation and incentives based on transparent GHG footprints for each product appear relatively straightforward.
Scaling and securing access to green feedstocks will likely be a key success factor for European companies (and Europe’s economy overall) to achieve their green goals. Companies will need to start preparing—some have already. However, privileged low-cost positions for accessing scarce green materials will be very limited. Identifying and taking these positions (at or at least close to today’s costs) will ensure disproportionate profitability in the medium term and will likely be the critical success factor. With the race for these positions already underway, a (virtual) backward integration is becoming apparent: automotive OEMs into (green) steel, retailers and brand owners into chemical assets (for recycling), and various players into renewable energy beyond power purchase agreements (PPAs)—to give just a few examples. Latecomers will likely need to absorb the price premiums on green raw materials in short supply, potentially for the next decade or even beyond, before supply and demand for green products again come into equilibrium.
Inevitably, achieving Europe’s ambitions for greener products will have to rely on a substantial cross-industry effort. Since chemicals account for over two-thirds of the substances in our everyday products, the chemicals industry will be a vital enabler for any “greenification” efforts. We estimate that redesigning and innovating the chemicals and their production processes involved in the manufacture of everyday products will require the European chemicals industry alone to invest at least an amount equivalent to its annual GVA of about €230 billion in 2021.
Beyond the bottle: Solutions for recycling challenging plastics
Regulatory considerations
Overall, the catalyst for accelerating the shift to greener products will be improved orchestration of the (generally very long) value chains based on consistent GHG emissions data, improved know-how regarding GHG abatement levers, and a reliable framework ensuring the required incentives (for instance, via accounting standards or a border-adjustment mechanism). A practical way to help create more momentum could be to label end products with their CO2e footprint (as has happened with the automotive industry). This could serve as a forcing device for value chains to measure and reduce GHG emissions consistently end to end.
That said, some challenges remain, making players hesitant to act and invest at scale:
Lack of clarity around the accounting of abatement levers. Two aspects are potentially preventing players from acting even more quickly. First, a decision regarding the role of renewable raw materials and circular solutions is needed. If bio-based and/or recycled materials are required as part of the solution for greener products, these must be credited appropriately in the CO2e footprints of products. This will need to take into account actual differences (for example, the difference between first-generation and second-generation bio feedstocks should be accounted for as is already common practice in biofuels)—thus adding them to the pool of GHG abatement levers in a meaningful way. Otherwise, the necessary investments will continue to stall.
Second, a mechanism for addressing the “handprint” of a product (that is, reduced GHG emissions enabled by a product further down the value chain) is needed. The most pragmatic option for dealing with this would be for the GHG emissions reduction enabled by a product only to be accounted for at the value-chain step where the emissions actually get reduced. Consequently, the manufacturer of a product enabling the reduction would not be able to claim the GHG emissions reduction (but would also not be penalized) for its own GHG emissions balance, and would need to capture the value purely commercially (via appropriate pricing that reflects the value added). This would mean, for instance, that marketing a recyclable product would not be equivalent to reducing that product’s own footprint and could not be an excuse for failing to do so.
Continuous enforcement (globally). Clear signals would help emphasize the seriousness attached to GHG emissions-reduction targets in Europe, and their enforcement (including intermediate targets and checkpoints prior to 2030). The same applies to the path forward in other parts of the world, especially in the shorter term (that is, by 2030).
Reliable border-adjustment mechanism. A mechanism will be needed to create a level playing field across regions, since actual at-border “testing” of products for their “real” GHG content is essentially impossible. Thus, ensuring that the CO2e footprint of a product from outside the EU is reliably documented and comparable to products produced inside the EU will be a key requirement for the pragmatic execution of such a mechanism.
Conclusion
Looking ahead, speed will be of the essence—not only to meet ambitious timelines but also for companies to gain competitive advantage in an environment in which demand for green materials will (by default) soon outstrip supply by a very significant margin if companies (and governments) are to meet their stated commitments. As a prerequisite, a deep and nuanced end-to-end understanding of the relevant value chains will be essential, along with the ability to orchestrate the transition specifically for each everyday product. On the regulatory side, one practical way to generate more momentum could be to introduce a CO2e footprint label for each product. This would help to drive momentum in three ways: 1) By providing a buying criterion for consumers, 2) By serving as a forcing device to (consistently) measure GHG emissions end to end, and 3) By offering companies the opportunity for positive differentiation, so “rewarding” them for action in a simple and visible way that would create value both for the individual company and for Europe’s environment.
