Carbon Confusion

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CEO Leahy plans to put carbon labels on all products in Tesco's stores Daniel Lynch/Financial Times Pictures

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A BEWILDERING MAZE

Tesco CEO Sir Terry Leahy pushed carbon labels into the public spotlight in January, 2007, when he talked about labeling everything sold in its Wal-Mart (WMT)-like stores, from bags of parsley to flat-panel TVs. "Customers tell us they want our help to do more in the fight against climate change," Leahy said in a speech announcing the plan. The idea was that the solitary numbers on the labels would make it easy for shoppers to compare products. In fact, each number represents a bewildering maze of "inputs," such as how much fertilizer must be produced and spread to grow a bunch of parsley, how much gasoline is used to transport it from the farm, and the electricity required to make the plastic packages. Companies have different ideas about how to present this information. Walkers, a unit of PepsiCo (PEP), took an approach similar to Tesco's. Acting on its own, it put a simple label on its 35-gram bags of cheese and onion potato chips that says "75 grams of CO₂." Boots, Britain's largest pharmacy chain, took a different tack last summer. Experimenting with labels on its Botanics shampoo, it used signs in its stores to provide the explanation—much as Timberland relies on fact sheets in the shoe box.

Pioneers like Tesco and Boots understand they're in the midst of a Europewide crackdown on greenhouse gas emissions, and that if they don't act on reducing carbon, they could get slammed with punitive regulations. Since 2005 major carbon emitters such as power plants and oil refineries within the European Union have been forced to curtail greenhouse gases. This summer a climate change bill is expected to be signed into law, making Britain the first country in the world to introduce legally binding CO₂ reduction targets. The new law, aimed at lowering Britain's emissions 20% by 2010, will extend the cap on carbon to large, non-energy-intensive businesses such as retailers, hotel chains, and banks. Retailer Marks & Spencer, for one, has an ambitious plan to become carbon-neutral and send zero waste to landfills by 2012.

Carbon labels were a logical outgrowth of the crackdown on greenhouse gases, which is also playing out in Washington and many state capitals. Timberland, for example, is pushing other shoemakers to agree on an industry standard. But companies heading down this path might learn from the challenges encountered by the pioneers.

The highest hurdle is simply obtaining an accurate carbon count on different goods, a laborious process that may initially cost $10,000 or more per item. In most countries, each manufacturer figures out for itself how to gather the data that become the number on the label. Britain is trying to hash out a national standard for measuring the greenhouse gas associated with each product and service, working with the Carbon Trust, a government-funded nonprofit. That should bring down the cost of counting carbon over time; the standard should be ready by June.

Even with a standard, counting can involve mind-boggling complexity. Unilever, a top supplier of household products to Tesco, operates 260 factories in 70 countries and works with more than 10,000 subcontractors. With a supply chain like that, even labeling a line of packaged noodles is a chore. Say Unilever decides to shift production of the noodles from Poland to South Wales to save money. Because of fuel consumption and other factors, that change has a big impact on the carbon tally, even though the same recipe is used. Unilever worries that Tesco may ask it to recalculate the carbon footprint for such products each time it moves production, which might be as often as once a week. If asked, "we couldn't do it," says Gavin Neath, Unilever's senior vice-president for global corporate responsibility. "Our supply chain is constantly changing." Tesco admits there are difficulties to work out. Says David North, Tesco's director of government affairs: "We have to bring suppliers with us on this journey. It is early days."

Once the labels are in place, companies find, it's hard to tell if consumers get the point. In a survey PepsiCo's Walkers commissioned from researchers Populus, half of the 1,000 people interviewed said they were more likely to buy a product with a carbon label. But such numbers, while well-intended, may not convey much. "What does it mean to say a bag of chips contains 75 grams of carbon?" asks Steve Howard, CEO of the Climate Group in London. "I have a PhD in environmental physics, and it doesn't mean a thing to me."