Pulp and Paper Industry – heading towards becoming the first ‘Carbon-Negative’ industry

[Written by Atul Shukla, Madoka Shimanuki, Ashima Gupta, Apoorve Khandelwal]

Context

Paper has been around for more than 2000 years and has remained a highly effective and versatile means of communication. Even in today’s digital age with the vast array of alternative media to choose from, paper’s unique aesthetic qualities and practical appeal are unmatched. The paper industry is worth roughly $1200 billion (Euler Hermes), bigger than steel and aerospace. While digitalization has considerably decreased demand for graphic paper, thanks to the surprising resilience of mass retailing and e-commerce, the demand for packaging has consistently increased. Thus, the global gross output of pulp and paper is expected to go up +1.4% in 2017 vs. 2016.

The paper and forestry industry generates ~2% of world trade, employs ~ 800 000 and the investment rate is twice higher than the whole manufacturing industry. But the industry has often been criticised for creating pollution and mismanaging forests. Some of the criticism has been deserved but other comments have been based on the outdated or limited information.

For more details: visit – http://www.twosidesna.org/

Watch: https://www.youtube.com/watch?v=518D1d_MtRU

Watch: https://www.youtube.com/watch?v=oU6-xssFHbU

But are these myth busters enough for us to believe us the otherwise? No, because –

Another side of the story is that there is a disparity among ‘established and high conscious’ (US, Canada, EU, Australian etc.) economies and ‘low conscious, high potential’ (Asian, South American, Russian etc.) economies.
the pulp and paper industry can do much BETTER – it can contribute to NEGATIVE emissions.

This blog explores the latter case and would recommend some ways to achieve ‘Carbon-Negative’ footprint.

Pulp and Papermaking process in nutshell

The main inputs for paper and paperboard are different forms of pulp, which in turn are made from wood or other raw materials containing cellulose fibres, such as straw, hemp, grass, or cotton (BREF, 2013). The pulp for papermaking can be produced from virgin fibre or from re-pulping of recycled paper. To produce virgin pulp, wood logs are first debarked and chipped. Then water and heat are added and by chemical (and/or mechanical) means the wood is separated into individual fibres, which is run through a wire mesh and dried on rotating drums to produce paper reels.

What does it mean to be ‘sustainable’ in the pulp and paper industry?

The industry largely depends on the forest (softwood and hardwood), but this reliance strengthens its interest to keep forests as forests. Without a sustainable source of virgin fibre upon which to rely on, industry`s future would be at risk- like it`s happening in many parts of the Asian markets.

Sustainability is at the heart of the business strategy of the industry. Sustainability governs:

the fibre procurement- the main input material
the energy (electricity and steam) consumption pattern –15-30% of the production cost
talent pool retention and attraction – difficult for a heavy industry in today`s millennial generation
relevance with the consumers and cost-competitiveness with substitutes (plastic, synthetic and more durable products)
protection and in fact support from non-market players- communities, governments, environmental agencies

But just being cognizant and doing the bare minimum (in this ever-demanding manufacturing setting) is not enough – industry needs a proactive approach to achieve to cross that zone of carbon-neutrality and be ‘Carbon-negative’ – because it has the potential to achieve that.

What is ‘negative carbon’ footprint?

Negative carbon means a reduction of the carbon footprint to less than neutral. This means that the industry in net terms removes more carbon dioxide from the atmosphere that adds to the environment. This requires a more aggressive approach than carbon neutrality, (watch: https://www.youtube.com/watch?v=-Gb1hDl8iYc) which merely nullifies the effect that an entity/industry has on the environment.

Negative-carbon status can be achieved by several means:

greater carbon sequestration
obtaining carbon offsets from a third party
engaging in activities that directly reduce that amount of carbon dioxide in the atmosphere.

Point #3, is the most sustainable way (since it`s naturally carbon negative) to achieve ‘negative-carbon’ footprint, which can be accomplished by:

planting more trees than felling – sustainable forestation and planned felling
generating ‘green’ energy – biofuel-based energy generation
improving energy efficiency within the production process and the value chain
adopting ‘3R’ concept – Reduce, Reuse, Recycle – have a circular economy

Is pulp and paper industry in principle carbon-negative?

The easy and correct answer is NO. Sadly, it`s NOT even carbon-neutral, at least not within the current industry landscape. The big scale and state-of-the-art pulp and paper plants, even in the China are not only carbon neutral but they produce excess energy for the community needs. But the industry is plagued by mid and small-size plants for which to remodel their plants to become carbon neutral is not cost effective. To add to the confusion and lack of commitment to achieve full sustainability are the following factors:

Lack of uniform regulations – within EU we have BREF ^[4]which governs the best practices which companies must adhere to. Norms are different in the US, different in Asia and so on. Even these norms are not all-inclusive and don’t include safety of workplace or products or extended value chain.
Lack of long-term commitment of those regulations from regulators – these norms change as per the myopic viewpoint of regulators and even within EU, different members can manipulate the norms. This doesn’t allow companies to commit to long payback (but sustainability-enabling) investments.
Lack of ‘industry enabled’ and ‘universally accepted’ sustainability certifications – we have FSC (forest stewardship council), PEFC™ (Programme for the Endorsement of Forest Certification), EPCI (Environmental Paper Company Index by WWF), Swan label, and so on. This adds to the confusion and frustration of paper companies to adopt certain certification and make it acceptable for its global customer base.
Capital intensive nature of the industry and systematically low margins, paper being a commodity

To put some numbers (2015 data) into perspective (to show the gap that needs to be bridged):

Renewable energy used in pulp and paper mills – 67% (industry average)
Self-generated electricity in pulp and paper mills – 56% (industry average)
Total certified fibre used by pulp and paper mills – 29% (industry average) – Pathetic

But, despite the huge disparity among the various pulp and paper plants (across regions and within regions), certain references which have been able to achieve carbon-neutrality and thus pave the future of achieving total industry-wide ‘carbon-negative’ footprint. How can the industry achieve that? Let`s discuss further.

Roadmap to achieve ‘carbon-negative’ footprint

Only executed actions lead to change, planning is not enough. The pulp and paper industry is facing enormous transformation demands, set by operational requirements, profitability perspective, but also by sustainability targets becoming more demanding and thus needs a holistic blueprint to achieve the sustainability target that the industry has the potential to achieve.

New benchmarking tool

Measuring the sustainability of an industry such as pulp and paper is difficult. Typically, consumption of all utilities (such as electricity, water, and steam) is monitored against production (tons, cubic meters, etc.) to provide easier benchmarking of what is required for the production of a certain amount of product. BREF benchmarking is not all inclusive and thus the new benchmarking model must incorporate all the three pillars of sustainability – Economic, Environmental, and Social.

This underlines the importance to have a ‘common tool box’ for monitoring the efficiency of the industry globally. To provide a more holistic solution for benchmarking, a tool developed by Poyry, called the Green Mill Index™ can be used which evaluates overall sustainability performance, addressing the complexity of multiple attributes for the whole or a part of a production unit from real production data. It certainly would give companies (and industry) a clear sense of direction and set the right targets.

Inclusive approach to capital allocation for new investments and CAPEX

Once the direction has been set and targets defined, now it’s the time to answer the question typically, mill owners throughout the world constantly face: “What investments are needed during the next X years to secure the future operation, improve the competitiveness and fulfil the sustainability targets and how much will that cost?” While quick fixes could be applicable and yield better results in Asian economies, EU and US/Canada etc. need to take a more long-term approach.

On two key components that would provide impetus to ‘carbon-negative’ initiative are: achieving Energy efficiency and ensuring its sustainability.

The TYPICAL IMPROVEMENTS needed in this domain could be:

the advanced commitment of personnel to energy efficiency through improved awareness on details
Replacing old technology with new technology and utilising IT to ensure superior upkeep of the machinery
Resource efficiency (fillers, low grammages, reduced water consumption)
Shifting focus from large investments to smaller actions contributing to stepwise improvement
Advanced recovery of any “waste energy sources” (e.g. recovery and utilisation of secondary heat)

At the same time, it`s also important to be mindful of TYPICAL RESTRICTIONS to proactively mitigate those:

limitations in investment possibilities – can be reduced by making right and long-term choices and using a systematic approach
Lack of technological knowledge – can be reduced by knowledge sharing (digitalization)
Unclear strategic direction – ‘inclusive benchmarking’ – ‘Green Mill index’ can help companies in this direction
Overly conservative approach in enabling new advanced technologies – this need mindset changes which can only be trigged by technology`s early adoption by industry leaders
Laws of nature (e.g. it takes a certain amount of energy to evaporate water)

Measurement of results and continuous improvisations/improvements

While periodic ‘energy audits’ and ‘asset integrity analyses’, provide a superior way to pinpoint the real efficiency restrictions of an operating mill and support the owner in providing a complementary and objective ‘second opinion’ for investment decision making. But once the investments are made, it’s paramount to check achieved improvements against anticipated results and thereafter make necessary adjustments. This endeavour for continuous improvement should become second nature to the industry if sustainability targets are not only to be met but also sustained.

Game changing possibilities – new/improvised business models

Then, how can we change this game? Here are some concepts that are important to reorganise the concept of sustainability.

Circular economy

The circular economy is the idea to use limited resources by reducing the use, reusing, recycling, and refurbishing. Though this has been a well-known norm all over the world, there is much room to be improved. To achieve this norm much more efficiently, it is important to supply recyclable products, educate consumers to recycle those products, sustainably collect the waste and use it to meet the new product demand. Besides creating the eco-system enabling a healthy recyclable rate, the government should set more effective regulations to incentivize industries. The healthy target set by EU is 70% by 2020 (where Germany and many regions in Scandinavia already exceed 70%).

Recarbonization Revolution – Bioeconomy

The concept of “Recarbonization” or “low carbon economy”, refers to the use of biomass in materials and the use of bio carbon to make a sustainable and renewable loop in industries and more biofuel in the fuel mix for producing energy. Carbon is much more sustainable materials comparing to metals or plastics and biocarbon is much more sustainable than fossil carbon. The use of carbon in materials enables to reduce the amount of metals and plastics that goes to landfills.

New business concepts will allow it to use the entire potential of wood and wood fibre to produce products and novel materials for the textile, cosmetics, food, and pharmaceutical industries; bio-based fuels and chemicals; and traditional wood-based products. This will help the paper industry to deliver more value-added value and it would allow them to shift the fuel mix for their own energy needs to more biofuel – thus reduce energy cost and hence use ‘zero’ carbon energy.

To bring some numbers into perspective –

Replace 1% of packaging market from plastic to bio-packaging = 6 billion Euros additional industry turnover
moving 1% from fossil plastics to bioplastics would = 3.5 billion euros of new biobusiness
Substitution of 1% of the global volume of fossil fuels with biomass = 30 billion euros of annual new biobusiness.

A chart to demonstrate potential of bio-carbon replacing some (or all) of potentially non-degradable products –

Industry 4.0

Both market and consumer needs have evolved, while policy pressure and global competition have increased. Industry 4.0 is a logical development in pulp and paper manufacturing, currently being driven by macro-societal trends (such as the increasingly networked economy, shifts in age demographics, demand for individualization, climate change and environmental regulations) underpinned by recent technological developments.

We believe that in the future, the paper industry will be characterised by self-organised intelligent ‘eco-systems’. Instead of isolated processes and functions in individual mills, the players along the entire value chain will build interconnected clusters, continuously sending, and receiving information to and from each other. The main enabler here is digitalisation and IT. Thus, the following would evolve into a cross-linked, agile, and intelligent ecosystem:

Raw material
Suppliers
Logistics
Production + Maintenance
Customers

In our opinion, the opportunities of Industry 4.0 for the pulp, paper, and packaging industry can be divided into five categories:

Improved offerings to the current market
Improved performance of current offerings
Completely new offerings creating new markets
Synergy offering across industries
Improve competitiveness and profitability through better productivity, reduced costs, better market response, agility, and adaptability, and further reduced environmental impacts

Recommendations

Each stakeholder has things they can do for more sustainable paper industries and society.

Paper companies

The first thing is to adopt the roadmap that is suggested in this blog and improvise it for the company`s own peculiarities and externalities.

They should pay attention to all stages of the product life and should be responsible for not only their own firm but also other business partners involved in their products.

Are you choosing a sustainable transportation option? Is that recycling process really doing good than harm to the environment? They should expand the scope of business when it comes to sustainability.

Moreover, they should keep learning and keep developing their business models and technologies to be more sustainable.

Government

First, governments should make sure the commitment to this initiative by industries. To do so, governments and industries should agree on their commitment together. For firms, even though they recognise the importance of changing their business models, changing to costly business models is always recognised as a risk in the competition. The first-mover will have a cost disadvantage comparing to other firms that are not committing. But if government offer a table for more than one firm to agree on their commitment, the game will change. They became less uncomfortable to start changing business models.

Second, governments should offer incentives for industries to promote the initiative. Subsidies for capital expenditure for new devices that can achieve sustainability goal and tax deductions for firms that satisfied the criteria can be incentives for them. Those incentives should be the ones that align with the long-term goal of sustainability.

Third, governments should establish uniform labels that guarantee its sustainability to consumers. Various kinds of labels used by each firm can be confusing and disabled consumers to compare the products.

International Organization

They should do more research on this issue and show the standard to all countries. Double-standards can be confusing and will damage the efficient implementation of sustainable projects.

Then, they should hold workshops and international conferences to share the ideas and examples that are applicable to other firms.

Not only about the manufacturing process, they should also do research on and disclose the effectiveness of ESG investment. It will help investors to increase their investment in firms with sustainable views.

Investors

Investors should incorporate ESG criteria more. The government and international organisations initiative would help them incorporate this criterion more.

Consumers

Their correct recognition about sustainability will lead to much more consumption of sustainable paper products. To achieve this, the simple label, as we mentioned above, and education will be inevitable. As for corporate customers, they can self-regulate by making a criterion to buy truly sustainable paper products.

It’s a long road ahead, but we are optimistic that by taking the comprehensive sustainability approach, incorporating long-term perspective in investment decision making, adopting digitalization, and adopting some of the initiatives mentioned in the blog, the pulp and paper industry can indeed take a leadership position (within manufacturing domain) in achieving Carbon-Negative footprint.

References:

Definition of Carbon-negative

http://whatis.techtarget.com/definition/carbon-negative

Euler Hermes

http://www.eulerhermes.com/economic-research/sector-risks/Global-Paper-Report/Pages/default.aspx

Climate strategies – Sector analysis for the Climate Strategies Project on Inclusion of Consumption in Carbon Pricing https://www.diw.de/documents/dokumentenarchiv/17/diw_01.c.534645.de/cs-pulp-and-paper.pdf
Best Available Techniques (BAT) Reference Document for the Production of Pulp, Paper and Board in EU

http://eippcb.jrc.ec.europa.eu/reference/BREF/PP_revised_BREF_2015.pdf