LLamasoftGHG Modeling Solution

Project Briefing:Date Updated: Dec. 27, 2007

Project Briefing: Topics

• Problem Background and Environment• Supply Chain + Green: definitions and examples• Current Market + Players• Data sources and calculators• Supply Chain Guru GHG Modeling Solution• Marketing Opportunities and Next Steps• References and Links• Supplementary Data

Discussion of Background and

Definitions

Background

• Global consensus has been reached that greenhouse gas emissions due to human activities are having a negative effect on the climate

• Without reducing emissions, the cost of impacts associated with a unit of emission, will increase dramatically1

• Interest in social responsibility is transforming to a customer and regulatory requirement

Background: Crisis and Opportunities

• Consumer awareness, can make conscious choice to purchase products with smaller carbon footprint

• Enable companies to compete on green credentials• Some Products already labeled with their carbon

footprint (UK)– Walkers crisps– Tesco– Timberland

• Many Companies considering labeling (pilot projects):– PepsiCo– Cadbury– Wal-Mart

Background : Bottom Line

• Customers and governments have introduced a new point of differentiation for market players

• There is still a great deal of confusion, uncertainty, and irrationality in this new important issue

• This creates an opportunity for advice, tools, technology, and leadership

Supply Chain + Green, Carbon Footprint Definition

• What does carbon footprinting mean?2

– Common: “Total amount of carbon dioxide (CO2) and other greenhouse gases emitted over the full life cycle of a product or service”

– 1. Direct emissions that result from the activities the organization controls– 2. Emissions from the use of electricity– 3. Indirect emissions from products and services

• Transport and production of raw materials (upstream)• Disposal of products (downstream)

• Decisions to be made:– Include only CO2 vs. all greenhouse gases

• If all, also include non-carbon based ones?– Units: grams of CO2 equivalents vs. area-based unit– Which indirect emissions to include and which to exclude?

• Employee commute to plants, offices• Customer usage of product, e.g. refrigerate or cook product

Supply Chain + Green, Why Calculate the Footprint?

• To manage the footprint and reduce emissions over time

• To report the footprint to a third party– Marketing– Consumers– Government

• In general, an organization should KNOW and QUANTIFY what environmental impact it is having in order to make ANY sound decision (even if that decision is “do nothing”)

Calculating a Carbon Footprint

1. Define the methodology

2. Specify the boundary

3. Collect emissions data and calculate the footprint

4. Verify results

5. Disclose the footprint

Calculating a Carbon Footprint: 1. Define the Methodology

• GHG Protocol: www.ghgprotocol.org• ISO 14064: www.iso.org• Custom (most prevalent)

Calculating a Carbon Footprint: 2. Specify the boundary

• CO2 only or all GHG?• Direct emissions from fuel use onsite and from

transport?• Direct emissions from mfg process onsite?• Emissions from the electricity purchased?• Indirect Emissions from the supply chain?

– Outsourced activities– Manufacture raw materials– Transport of raw materials?– Other?

Calculating a Carbon Footprint: 3. Collect data

• Onsite fuel consumption• Transport utilization• Chemical reactions in mfg processes• Electricity consumption and source of power

(Oil? Gas? Coal? Nuclear? Geothermal?)• Employee travel by air, rail, vehicles not owned

by the organization• Suppliers’ emissions

Calculating a Carbon Footprint: 4, 5: Verify and Disclose Footprint

• Third party verification and audits can improve credibility

• Disclosure should include footprint and how it was calculated (boundary, methodology, etc.)

Definition: Carbon Offsets

• When companies or individuals cannot decrease their own carbon footprint, they can undertake action to mitigate these emissions through:– Tree-planting– Renewable energy– Energy conservation– Methane capture– Purchase of emission trading credits. Companies

need to adhere to the rules of the Clean Development Mechanism11 arrangement under the Kyoto Protocol

Notable Organizations: NGOs

• Carbon Trust, UK– Private company set up by Government. Provides free advice, survey and online

calculators; commercial consulting services.• The Climate Trust

– A non-profit organization, which invests funding from power plants, businesses, organizations and individuals into projects that offset GHG emissions. Also provides free carbon footprint calculator.

• GHG Protocols – Multi-stakeholder partnership of businesses, non-governmental organizations

(NGOs), governments, and others convened by the World Resources Institute (WRI), and the World Business Council for Sustainable Development (WBCSD).

– Mission to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards for business and to promote their broad adoption. The GHG Protocol Initiative comprises two separate but linked standards:

• GHG Protocol Corporate Accounting and Reporting Standard: step-by-step guide for companies to use in quantifying and reporting their GHG emissions

• GHG Protocol Project Quantification Standard: a guide for quantifying reductions from GHG mitigation projects

Current Players: Companies• Infor SCM12

– Consulting and commercial software (previously CAPS Logistics)• Barloworld Optimus13

– Software and consulting services. One of the products is CAST, which was acquired when Barloworld acquired Radical Limited in 2005.

• Supply Chain Consulting14

– Global provider of enterprise software solutions and services, maker of CarbonView for visibility. Claims to have “optimization” but not sellable or demonstratable

• Surya Technologies15

– Small software and consulting firm– Provider of modeling, analysis, optimization and simulation software and

technologies in semiconductor and electronic design automation industries– Shifting focus to apply similar combination of custom software products and

services to solve problems in environmental sustainability, business processes, and public policy.

– Maker of SEAT: desktop tool for carbon modeling and optimization• LLamasoft

– The new leader…

Summary of Commercial Software Tools

• Network Design (Infor SCM): – uses CO2 Social Costs in optimizer – additionally, can minimize emissions– databases used for calculations not defined

• CAST-FE (Barloworld): – add-on to CAST to calculate footprint of previously

determined/optimized network– GHGs not taken into account while optimizing

• Carbon View (Supply Chain Consulting): – minimizes carbon emissions vs. cost– methodology not described

• SEAT (Surya Technologies):– simulation, including carbon emission calculations– need to manually determine where options are to cut emissions and

generate scenarios for comparison

Market

• Every company in the world that sources, manufactures, and/or distributes physical materials has a need

• Companies facing regulatory pressure (UK, EU) have greater urgency

• Companies with global brands or sales direct to consumer will face increasing pressure

Data and Technologies

Technology, databases

• Databases listing carbon emissions– carbon emission factors for fuels (kg C/kWh & kg

CO2/kWh)4

– sector-specific CO2 emissions (GHG Protocols)5

– benchmarks for typical usage for warehouses, offices and retailers (Hawaiian Electric Company, Inc. (HECO))6

– CO2 emissions from fuel combustion (International Energy Agency)7

Sample CO2 Data: Transportation

• Guru calculation example: emissions associated with transportation.

CO2 Emissions From Transportation      

Mode Rate (kg/stm)Short Ton Mile

Travelled CO2 Emissions

Road Freight 0.1033 1000 103

Diesel Train 0.02  1000 20

Electric Train 0.04 1000  40

Coal Train 0.0374  1000 37

Short Air 2.3062  1000 2306

Medium Air 1.1677 1000 1168

Long Air 0.832 1000 832

Inland Ship 0.0511  1000 51

Marine Ship 0.0146  1000 15

   

Rates from GHG protocol spreadsheet, 2003

Sample CO2 Data: Additional Transportation

Benchmarks Non-Freight  

Fuel Type kg CO2/gallon

Gas Auto 9.016627

Diesel Auto 10.39274324

Auto Type miles/gallon

Light Truck Gas 14

Light Truck Diesel 15

Heavy Truck Gas 6

Heavy Truck Diesel 7

Sample CO2 Data: Est. Facility Benchmarks

 Electricity Energy Intensity

Facility Type Avg kWh / sq.ft

10,01 to 100,00 5.8

10,001 to 100,000 5.5

>100,000 10.8

• More precise numbers available based on building date, building materials used

Rates from CBCES, 2003

Sample CO2 Data: Power emission factors

• Calculation of emissions associated with sites, based on kWh usage

• Rate From IEA datasources, 1998

Fuel Type Rate (kg/kwh) kwh Usage CO2 Emmisions

Coal 0.95265 10000 9527

Oil 0.86175  10000 8618

Gas 0.5913 10000 5813

   

Source: http://www.eia.doe.gov/cneaf/electricity/page/co2_report/co2report.html

Supplementary Data, World energy source distribution

• World power usage by energy source

• Source: International Energy Agency (2007)

Source Percent

Oil 37.30%

Coal 25.30%

Gas 23.30%

Nuclear 5.70%

Biomass 3.80%

Hydroelectric 3.20%

Solar heat 0.50%

Wind 0.30%

Geothermal 0.20%

Biofuels 0.20%

Solar PV 0.04%

Supplementary Data, Regional energy source distribution

Source: BP Statistical Review 2007, http://www.bp.com/multipleimagesection.do?categoryId=9017892&contentId=7033503

Supplementary Data,Energy source distribution France

• This data is for Électricité de France (EDF), one of Europe's largest producers of electricity. In 2003, it produced 22% of the European Union’s electricity

Source Percent

Nuclear 74.50%

Hydroelectric 16.20%

Thermal 9.20%

Renewable 0.10%

Source: http://en.wikipedia.org/wiki/%C3%89lectricit%C3%A9_de_France

Supplementary Data,Energy source distribution Czech Republic

• Czech Republic (2005), data from the Austrian Energy Agency

Source Percent

Coal 64.54%

Gas 21.59%

Oil 12.44%

Other 1.43%

Source: http://www.energyagency.at/enercee/cz/supplybycarrier.htm

Supplementary Data,Energy source distribution Ireland

• Data for the Electricity Supply Board (as of Oct. 2006), Ireland, virtually the only electricity provider ESB

Energy Source Percent

oil 32.20%

coal 28.00%

gas 25.50%

peat 7.60%

hydro 6.70%

Source: http://www.esb.ie/main/about_esb/power_stations_intro.jsp

Supplementary Data,Energy source distribution the Netherlands

• 2006 numbers from Foundation Peakoil

Source Percent

Gas 46.90%

Oil 37.80%

Coal 11.70%

Renewable 1.50%

Nuclear 0.50%

Other 1.60%

Source: http://www.peakoil.nl/2006/03/31/energie-overzicht-nl/

Avg Energy Conversion of Various Countries

gCO2 / kWh

0100200300400500600700800900

1000

Austra

lia

Belgium

Brazil

Bulgar

ia

Canad

aChil

e

China

Franc

e

Croat

ia

Czech

Rep

ublic

Germ

any

Hunga

ry

Irelan

dIsr

ael

Italy

Japa

n

Korea

Sloven

ia

Poland

gCO2 / kWh

Technology, calculators

• GHG Protocols5

– Sector-specific Excel spreadsheet calculators – Different worksheets explain methodology and

capture input data– Data used: average default emission factors based on

the extensive data sets available, largely identical to those used by the Intergovernmental Panel on Climate Chage (IPCC)

Technology, calculators

• Carbon Trust8

– Online calculator, registration required– Enter information on fuel usage: fossil fuels, owner of road

vehicles, owner of planes (direct emissions)– Enter information on production and manufacturing: minerals,

chemicals, metals, halocarbon, SF6, waste management (direct emissions)

– Enter information on buying and importing electricity, heat, steam (indirect emissions)

– Information on employee commute to work (indirect emissions) Direct, indirect, and total emission are calculated– Data used: all calculations are based on the 2007 emission

factors published by Defra16

Technology, calculators

• The Climate Trust9

– For use in US, state-specific – Calculator in a pdf-document– Either enter electricity and gas (kWhs/yr and therms/yr) or facility

square footage for facility emission calculations– Enter miles driven by company vehicles plus their efficiencies– Enter hours spent flying or total miles flown by employees – Enter amounts shipped by air freight, maritime freight and heavy

truck freight, plus the miles of these trajectories Infrastructure, transportation, shipping, and total CO2 emissions

are calculated. Cost to offset the emissions will be given also– Sources: US Energy Information Administration, US

Environmental Protection Agency, and other internationally recognized sources

Supply Chain Guru GHG Modeling

Solution

Guru GHG Modeling Solution

• Based on research, benchmarking off of existing (though limited) offerings

• GHG Specification was created in Oct/Nov• Testing continues

Guru GHG Modeling: An Opportunity to Lead

• Guru 4.1 has GHG Modeling completely integrated into tables

• Benchmark data will be distributed• GHG Modeling will be distributed to ALL Guru

customers with current M&S at no additional charge

• Planned marketing and promotional campaign for December/January

Guru GHG Modeling Solution

• Carbon emissions directly incorporated into all major activities– Sourcing– Transportation– Site Facility

• Fully integrated into both Simulation AND Optimization

• Complete Carbon Offset Modeling INCLUDING Offset optimization!

• Table, text, and graphical reporting

Guru GHG Modeling Solution

• All CO2 fields are integrated with other modeling features, and leverages all existing modeling constructs and approaches– Transportation mode specific parameters– Alternative Site configurations– Flow requirements

• A rich set of situations can be modeled

GHG Modeling: 3 types of Analysis

• Carbon Footprinting– Incorporated into simulation AND optimization– Calculation of GHG emissions– Can use network as is, and monitor carbon footprint over time

• GHG Reduction Efforts– Set constraint (limit) on maximum carbon emissions by network– Use optimization to determine the most cost effective network

that will meet the Carbon Footprint constraint

• Carbon Offset Optimization– Incorporate Carbon Offset purchases into cost and footprint

numbers– Carbon Offsets can be a decision variable

Inputs

• Model Properties:– Max Carbon Footprint (number)– Enforce Max Carbon Footprint (yes/no)– Carbon Offset Price (currency)– Carbon Offset Initial Value (currency)– Carbon Offset Minimum (currency)– Carbon Offset Maximum (currency)– Optimize Carbon Offset (yes/no)

• Site Property– Fixed CO2 <Cap, CO2> (text)

• Sourcing Policy (Site-Product-Source) Property– CO2 (number)– CO2 Basis (initially fixed to Cost Basis)

• Transportation Policy (Mode) Property– CO2 (number)

Output statistics

• Simulation:– SimulationOutputNetworkSummary: TotalCO2

– SimulationOutputNetworkSummary: TotalCO2Offsets

– SimulationOutputSiteSummary: TotalCO2

– SimulationOutputNetworkFlows: CO2

• Optimization:– OptimizationOutputNetworkSummary: TotalCO2

– OptimizationOutputNetworkSummary: InitialCarbonOffsets– OptimizationOutputNetworkSummary: OptimizedCarbonOffsets

– OptimizationOutputSiteSummary: TotalCO2

GHG Modeling Demo

Demo Purpose

• Demonstrate Functionality of integrated Carbon Footprint analysis within Supply Chain Guru

• Specifically …– Carbon Output Statistics from Simulation

– Carbon reduction within optimization from site and transportation alternatives

– Carbon Offset analysis

• Discussion of four sample models

Baseline Model Depiction

Customer 1 Customer 2 Customer 3

Warehouse 1 Warehouse 2

Manufacturer

Sample Model 1

• Baseline Simulation Model showing CO2 output based on transportation, warehousing and manufacturing (Carbon_Sim.sgm)

• Features– One Product, One Plant, Multiple Warehouses (2) and Customers (3)– Multiple Transportation modes for each lane

• Manufacturer – Warehouse = Diesel Rail, Freight, Air• Warehouse – Customer = Air or Freight

– Both warehouses source from the manufacturer– All customers can source from either warehouse

• Output Statistics– Total CO2 Output (Over three months): 20,090.12 kg

• CO2 From Transportation - 10,590.12 kg• CO2 From Production - 6,300.00 kg• CO2 form Warehousing - 3,200.00 kg

Sample Model 2

• Optimization model building from Baseline Simulation Model showing implementation of carbon constraints via alternative site selection (Carbon_Opt_Sites.sgm)

• Added alternative manufacturer – Green Manufacturer – Lower CO2, higher cost than Manufacturer– Both warehouses can source from here

• Step 1. Optimize network without carbon constraints (min cost)– Total Cost = $174,113– Total Carbon = 16,555.02 kg– Manufacturer open at level 2, Green Manufacturer not used

• Step 2. Reduce Carbon by 10% -- Set constraint at 15000 kg– Total Cost = $177,080– Total Carbon = 15,000 kg– Manufacturer open at level 1, Green Manufacturer open at level 1

• Reduction in carbon increased costs slightly because of increase in manufacturing cost from Green Facility

Sample Model 3

• Optimization model building from Baseline Simulation Model showing implementation of carbon constraints via alternative transportation mode selection (Carbon_Opt_Sites.sgm)

• Added alternative transportation mode – Green Freight– Lower CO2, higher cost than other available modes– Available between warehouses and customers

• Step 1. Optimize network without carbon constraints (min cost)– Total Cost = $174,113– Total Carbon = 16,555.02 kg– Freight used for all flows between warehouses and customers

• Step 2. Reduce Carbon by 10% -- Set constraint at 15000 kg– Total Cost = $333,679– Total Carbon = 15,000 kg– Green Freight used for most flows, Freight used between warehouse 1 and customer 3

• Reduction in carbon increased costs almost 2X because of increase in transportation costs from Green Freight

Sample Model 4

• Optimization model building from Models 2 and 3 showing implementation of carbon offsets – includes alternative green freight and manufacturing (Carbon_Opt_Offsets.sgm)

• Added Carbon Offset Information– Carbon offset price = $2/kg CO2 (used large to show effect, really about $5.5/ton)– Initial Carbon Offset Quantity = 0– Offset Minimum Quantity = 0, maximum quantity = 5000

• Step 1. Optimize network without carbon constraints (min cost)– Total Cost = $174,113– Total Carbon = 16,555.02 kg– Freight used for all flows between warehouses and customers, only Manufacturer used at

level 2

• Step 2. Reduce Carbon by 20% -- Set constraint at 13500 kg– Total Cost = $178,256– Total Carbon = 14,088.35 kg– Maximized Total Carbon Offset Quantity = 588.35 kg, cost = $1176.7– Both Green Manufacturer and Manufacturer used at level 1, Green Freight not used

Sample Model 4 – Carbon Reduction Vs. Total Cost

Total Cost

% Carbon Reduction

As the constraint on carbon increases, total costs increaseLarge Jump occurs when green transportation is used

Summary of Demo Models• Model 1 – Simulation

– Shows output of carbon based off simulation for transportation, production and warehousing

• Model 2 – Optimization with Source Alternative– Shows tradeoffs between carbon output and costs when total carbon is

constrained– Choice of manufacturing facility based upon carbon output

• Model 3 – Optimization with Mode Alternative– Shows tradeoffs between carbon output and costs when total carbon is

constrained– Choice of transportation mode based upon carbon output

• Model 4 – Optimization with Carbon Offsets– Shows tradeoffs between carbon output, carbon offsets and costs when total

carbon is constrained– Choice of transportation modes, manufacturing sources and carbon offset

quantity based on carbon output– Cheaper to pay for carbon offsets then to use green transportation

References + Links

• 1) “Stern Review on the economics of climate change”, Oct. 2006• 2) ISA-UK Report 07-01, “A definition of carbon footprint”, Thomas Wiedmann, Jan Minx• 3) “Carbon Footprint Measurement Methodology, Version 1.3”, Carbon Trust, E. Murray• 4) “Energy and Carbon Conversions”, Carbon Trust• 5) http://www.ghgprotocol.org/calculation-tools• 6) “Benchmarking: What’s Your Building’s Energy IQ?”, presentation at Sustaining the Future,

2003, HECO (slide 17)• 7) http://www.eia.doe.gov/cneaf/electricity/page/co2_report/co2emiss.pdf • 8) http://www.carbontrust.co.uk/publicsites/CFCalculator/ • 9) http://www.climatetrust.org/content/calculators/Business_&_Org_Calculator.pdf • 10) “Carbon footprints in the supply chain: the next steps for business”, by Carbon Trust• 11) http://cdm.unfccc.int/EB/rules/modproced.html • 12) http://www.infor.com/solutions/scm/strategicnetworkdesign/ • 13) http://www.barloworldoptimus.co.uk/solutions/carbon-emissions-modelling.aspx • 14) http://www.carbon-view.com/ • 15) http://www.suryatech.com/html/___seat.html • 16) http://www.defra.gov.uk/environment/business/envrp/pdf/conversion-factors.pdf

Thank You

LLamasoft, Inc.204 E. Washington

Ann Arbor, MI 48104734.418.3119 734.222.9087

www.LLamasoft.com