Is the Supply Shed Here to Last?

Is the Supply Shed Here to Last?

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The term "supply shed" is becoming the cornerstone for tracking value chain interventions, but what exactly does it mean?

Here’s my take in ~200 words:

• 𝗦𝘂𝗺𝗺𝗮𝗿𝘆: A supply shed is a concept (developed by the Value Change Initiative) to define supplier zones where you have imperfect data.
• 𝗣𝗿𝗼𝗯𝗹𝗲𝗺: The current problem is that tracking the origin of products through complex supply chains is often impossible due to the limited visibility of individual farms and suppliers e.g., you’re not going to know every single coffee bean producer.
• 𝗦𝗼𝗹𝘂𝘁𝗶𝗼𝗻: The supply shed concept aims to solve this by providing guardrails for geographic approximation, enabling companies to identify regions where their products likely originate without precise supplier data.
• 𝗘𝘅𝗮𝗺𝗽𝗹𝗲: You’re making oat milk. You’re buying oats from a mill and behind that mill is a set of farms supplying the mill. You want to work with the mill to reduce the emissions of the farms it buys from, but you don’t have a way to link the impact on a specific farm to the product you’re buying from the mill - but you can link the impact to the set of farms (i.e., the ‘supply shed’). This allows you to claim credit for the reduction without ensuring material isolation at all steps of the supply chain.
• 𝗪𝗮𝘁𝗰𝗵 𝗼𝘂𝘁𝘀: You can only outright claim a reduction in a supply shed if:
• 𝗧𝗵𝗲 𝗸𝗲𝘆: To make the supply shed concept work, balancing primary data (from known sources) with secondary data (estimates and models) is key. E.g., apply the supply shed logic from farm to processor level. From the processor onwards aim for primary data.

By Saif Hameed, CEO of Altruistiq

Policy Pulse: EU-Deforestation Regulation Explained

The EU, UK and US are all introducing laws to prevent deforestation. This is largely by putting the obligation on companies to conduct due diligence in their supply chains to prove there is no risk of deforestation.

Looking at each law:

• EU - Deforestation Regulation (EUDR): outlaws any deforestation in the supply chains of 7 key commodities, obliging companies to prove this with their own due diligence. This was passed into law in June 2023.
• UK - Environment Act: this is set to require similar due diligence by companies into supply chains but is set to only focus on stopping illegal deforestation, and the exact details are to be confirmed in upcoming secondary legislation.
• US - FOREST ACT: this sets similar due diligence requirements on companies on stopping illegal deforestation, but has further provisions to fund countries conservation efforts with a $20M fund. This has been introduced to Congress, and its provisions likely to be picked up in a future act.

Who’s impacted by the laws?

The deforestation laws target all companies that sell any of the affected commodities, or any derived products of them. The EU regulation covers palm oil, soy, wood, cattle, cocoa, coffee and rubber - which the US and UK versions are likely to follow.

This casts a wide net, with the commodity list meaning that affected business will sit across sectors such as food, beauty, consumer goods, paper and furniture. Further, there are no size requirements which means all companies dealing with the covered commodities will be obliged to conduct due diligence.

What are the important things to know

The EU legislation is the most ambitious in the world and the only one that has been passed so far. This is all about stopping forests from being converted into agricultural land. It does this by effectively outlawing the sale of any covered commodity which cannot prove it is deforestation-free.

Key things to note here are:

• Each product needs to have a due diligence statement submitted - its the responsibility of producers and traders to conduct due diligence, and submit a statement that a product has passed. This statement will be electronic on a platform the EU is creating.
• Non-compliance is punished heavily - any product that doesn’t pass a risk assessment cannot be sold in the EU. Any sold good that are found to be linked to deforestation will be withdrawn and revenues from sales confiscated. This can then be punished with a fine of up to 4% of EU annual revenue administered, and a 12 month ban from selling other products.

What businesses need to do

The EU legislation effectively asks companies to do two things:

• Collect data - for each affected product data on the commodity quantity (in kg net mass) and origin country. Most interestingly, they also ask for geo-tagged location data tying the commodity to its exact production area and production timeframe.
• Conduct risk assessment - this is to show there is negligible risk of deforestation by assessing a host of country and commodity risk factors, and to apply a risk mitigation plan if not.

The hard bit here is having enough supply chain traceability for data collection. This can get especially difficult in complex supply chains where aggregation and mixed sourcing can make it near impossible to trace back to the original small-scale farmer.

This will apply to companies from 30 December 2024, so the best place for businesses to start is working with their supply chain to collect this sourcing data.

What to expect going forward

The exciting (and difficult!) part of deforestation regulation is that it puts the onus for data collection and supply chain traceability on those businesses bringing products to market. How easy this is will be affected by a couple of developments:

• Alignment with other regulation - There are other due diligence regulations with similar requirements, such as the EU’s CSDDD for modern slavery and environmental impacts. Companies will find this easiest if they have strong relationships with their suppliers, and combine all of their supply chain data requests together.
• Wider deforestation scope - The EU is planning a review to consider also outlawing land conversion from wetlands, peatlands and grasslands as habitats. The commodity list may also expand, with other commodities that could be covered including maize and other biofuels.
• The role of certification schemes - The EUDR does not allow certification schemes to stand instead of due diligence requirements. Even so, schemes can help by providing the data for company checks and making the risk assessment easier. Schemes such as RSPO and FSC can help by building the data infrastructure for supply chain traceability.

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Ask an Expert

Question:

I keep hearing the phrase ‘composite’ or ‘hybrid’ emissions factors (EF). I know many of our suppliers are not yet at the stage where they can provide a complete EF from LCA driven primary data but some do have elements of this.

Is it possible to mix primary data, let’s say electricity or land use change data, with an existing secondary data EF? Secondly, what data is needed for a supplier specific EF?

Answer:

A composite emission factor is made up of different data sources, this could be one of two things:

• Mix of products: For example, you have 60% recycled glass but separate emission factors for virgin and 100% recycled glass. Combining these creates a more accurate factor for the 60% recycled material.
• Mix of primary and secondary data: For instance, using secondary data for cocoa but replacing the land-use change portion with more accurate primary data from farmers.

In both cases, the main points to consider are consistency and quality.

For consistency, there needs to be a like-for-like match in the data types. Are the glass emission factors from the same source? Do they cover the same emission lifecycle stages? Similarly, does the primary cocoa data align with the secondary factor in terms of geography and time period? Can you match your farmers' land use change data with the portion of the secondary emission factor you’re replacing?

For quality, ask yourself if combining data actually improves the accuracy of your emissions calculations. A data change only makes sense if it enhances precision, especially when introducing new activity data. Consider whether the data was comprehensively collected (e.g., across a full farm estate), if the primary data is specific to your case (does it cover more farm products than just the one of interest?), and whether the primary data has been verified.

So while composite emission factors can improve accuracy using available data, they may reduce consistency. Complete primary data product carbon footprints will provide better overall quality.

Answered by Dan Enzer, Senior Sustainability Researcher

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Other News

• 🤸♀️ EU Transition Minister Appointment (Politico): Teresa Ribera, Spain’s ecological transition minister, was appointed as EU commissioner Ursula von der Leyen's second-in-command, with a “vast portfolio”, including climate and competition.
• 🧑🌾 UK Farm Austerity (Guardian). The UK government is planning to cut England’s “nature-friendly farming budget” by £100m to plug a gap in public finances. The cut “would mean at least 239,000 fewer hectares of nature-friendly farmland (RSPB). Nature groups and farmers have called this a ‘big mistake’, saying it jeopardised the government’s legally binding targets to improve nature.
• ❌ Fossil Fuels Ads Ban (Guardian): The Hague in the Netherlands became the first city in the world to pass a law banning advertisements promoting fossil-fuel products.
• 🌳 Amazon Drought (BBC): The Brazilian Geological Service says water levels in many rivers in the Amazon basin have reached record-low levels amid a continuing drought. The drought is being touted as “the most intense and widespread” that has ever been recorded. The Amazon basin is receiving less rainfall than usual, while hotter temperatures are causing water to evaporate more quickly. Deforestation is another factor contributing to the droughts. This is going to have huge knock on impacts to the local biodiversity.

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Learn more

• European Parliament - The EUDR regulation
• Carbon Brief - What does the EU’s new deforestation law mean for climate and biodiversity?
• Global Citizen - Introduction to the FOREST Act
• WWF - Due diligence in the UK
• Trase - a data platform for deforestation risk

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