The effect on the consumer is not that great, once you trace costs through the entire supply chain.
Good morning.
As more and more companies adopt “net zero” climate commitments, it’s worth contemplating what such programs could ultimately cost consumers. No question the answer is “more”—this is the equivalent of a climate tax. But how much more? How big is the tax?
In a piece published this week in Fortune, Boston Consulting Group CEO Rich Lesser builds on research his company has done that offers an intriguing answer: Not nearly as much as you might think.
BCG modeled costs throughout the supply chains of multiple products, and came up with some surprising results. Yes, there’s a high cost for converting upstream production of things like cement and steel to net zero—as Bill Gates laid out in a piece for Fortune in February. But if you trace those costs through the entire supply chain, you find the effect on the consumer is not that great. According to BCG’s calculations, it would only add around $600 to the price of a car, $3 to the price of a smartphone, or $1 to a pair of jeans. That’s a small price to pay for preventing climate catastrophe.
“Decarbonization adds only modest costs to the end of any value chain,” he writes, and that fact “presents the biggest opportunity for business to make a real mark in the battle against climate change.”
The challenge is to put the processes in place to track and manage emissions across entire supply chains. That’s not easy, but it’s starting to happen. At the Fortune Global Forum last week, Søren Skou, CEO of the giant shipping firm A.P. Møller-Maersk, said he’s facing increased demands from customers who want him to remove the carbon from their shipping costs, to help meet their net-zero commitments. That has led him to partner with Danish energy firm Orsted to work on emissions-free hydrogen fuels made using offshore wind power.
Much more is needed. “To get on track for a Paris Agreement-compliant world, we need to see collaboration across supply chains at a huge scale,” Lesser writes. “I urge my fellow CEOs to seize the supply chain opportunity.”
BCG is partnering with Fortune this year in an effort to help companies forge the path to a “net zero” future. You can check out our “Path to Zero” hub here. We’ll also be convening CEOs later in the year to focus more directly on the challenge of making and meeting net zero commitments. And we’ll be launching a podcast to track the most important breakthroughs in climate innovation.
As I have written here before, 2021 is shaping up to be an inflection point for business action on climate. Stay tuned, and we will keep you informed.
News below.
Alan Murray
@alansmurray
alan.murray@fortune.com
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This edition of CEO Daily was edited by David Meyer.
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