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Food Supply Chain Leverages Carbon Credits to Shrink Footprint
Grocers face significant challenges in decarbonizing their supply chains due to high costs and thin profit margins, but startup Therm Solutions is helping them tackle these barriers through carbon credit financing.
5 Min Read
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Grocers say they want to decarbonize their supply chain, but it’s a massive and expensive undertaking, and these businesses tend to run on thin profit margins. To cut their emissions at scale they need backing, especially small to midsized companies.
With that thought, startup Therm Solutions hung its shingle, aiming to help both grocers and food distributors adopt cleaner practices and technologies through carbon credit financing. It’s a fairly nascent concept, especially for this industry, but this funding model is starting to catch on. The young company has 1,900 projects underway where food supply chain players cut their carbon footprint in two areas: food diversion and refrigeration.
Therm calculates credits accumulated through grocers’ decarbonization work using methodologies developed by voluntary carbon credit registries based on ISO standards. Hard-to-abate industries buy the credits to offset emissions they generate while supporting another sector’s more attainable outcomes. Credit revenues go to the grocers and food distribution centers so they can take their carbon-shrinking work further.
Businesses use this new funding stream to upgrade or replace refrigeration that runs on hydrofluorocarbon gases— super pollutants that leak from these systems at about 25 percent, estimates the U.S. Environmental Protection Agency (EPA). Research shows hydrofluorocarbons have up to 400 times the global warming potential as methane.
Grocers’ second investment option is in alternatives to landfilling what they cannot sell. They donate food that has passed its expiration date but is still perfectly good. Or they send what’s not fit for human consumption for animal feed or food additives for cattle.
Donation is a top choice on the EPA Food Recovery Hierarchy. But many grocers bypass this route because of the logistics involved in handling, distributing, packaging, and temperature control. All of these factors make giving away food more expensive than throwing it away, so most of the massive surplus rots on landfills.
These drawbacks are in part to blame for a statistic that tells of a far-reaching system problem.
“Only 1.9 percent of surplus food gets into the mouths of the food insecure (according to ReFED). That should be alarming to anyone,” says Fritz Troller, CEO and co-founder of Therm Solutions.
“[Grocers] want to do the right thing both on a climate and humanitarian basis, and carbon credits enable them to.”
Adoption of sustainable refrigeration alternatives also faces barriers, and for similar reasons. The technology switch can cost $1 million to $2 million. Today, these systems are scarce, with 3 or 4 percent market penetration in the U.S., Troller says.
“We need to change that. That’s why we are working to help accelerate adoption of these systems and food diversion [practices] by making them more affordable.”
Therm advisor Aaron Daly is co-founder of the Refrigerant Emissions Elimination Forum (REEF), an NGO working to drive businesses to cut Scope 1 refrigerant emissions. He was formerly global director of energy management for Whole Foods Market.
Over the years he has seen few grocers make meaningful progress on decarbonization.
“There are a number of standout cases such as Aldi’s efforts to accelerate a phase out of their reliance on hydrofluorocarbon refrigerants, or Target’s efforts to procure renewable energy. But given the scale of carbon emissions associated with the food supply chain, little has been done.”
Retailers have traditionally allocated funds for projects with high returns such as energy efficiency but have struggled to justify their investment in larger or more speculative projects.
Daly sees carbon credits as part of the solution on the decarbonization front.
“These credits are a flexible instrument that can work effectively alongside solutions such as utility incentives or tax credits. The cost of decarbonization strategies, particularly at an early stage, are high, and instruments such as carbon credits can unlock projects that would otherwise be uneconomic for retailers to pursue.”
Carbon credits can be a strong motivator for reducing food waste and loss, confers Ignacio Gavilán, senior director, Food Systems Partnerships, The Global FoodBanking Network.
But he also points to ways governments can catalyze this work –measures from the tax incentives for donations that Gavilán references to public recognition or certifications.
“With a third of all food produced in the world being lost or wasted, we need an all-in approach to incentivize companies to reduce their food waste,” Gavilán says.
In an earlier life, Troller and his co-founders ran a company that supported grocers and food warehouses in reducing energy usage— a company they went on to sell to electric utility giant EDF.
It was over the next few years that the customer base they had been working with began talking about decarbonizing refrigeration, driven by a new EPA rule requiring them to reduce their production and use of hydrofluorocarbons.
Financing refrigeration system change outs was the first chapter of the Therm story. Food diversion from landfill was a natural succession; it was a hopeful next step for many of those same businesses.
Carbon offset takers are swelling in number, with Fortune 500s like Microsoft, Google, Netflix, and JP MorganChase among the estimated 7,000 active buyers globally.
As companies meet intensifying pressure to align with global emissions targets, Troller believes the market has more room to grow. Already he has seen tremendous momentum since launching the energy savings company in 2005.
“Back then almost no one was talking about climate change or decarbonization. And we successfully built that business and made an impact.
“Now Therm is growing exponentially yearly, and that speaks to the interest in climate action. That is a market indicator from the buyers’ standpoint that this work is perceived as important.”
He envisions someday taking carbon credits to other niches where, like the food supply chain, which generates a third of global emissions, there is opportunity to make the most difference.
“We are environmental optimists and think we can make an impact. We did it with energy efficiency when it was not popular,” Troller says.
“We believe with scale we can at least bend the climate curve. If we can’t eliminate it altogether, we will bend the hell out of it.”
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