Use Marginal Abatement Cost Curves (MACC) in procurement

In November & December 2024, WBCSD conducted a three-part Masterclass Series on Unlocking Supply Chain Decarbonization. In this last session, experts from McKinsey discussed the marginal abatement cost curve as a tool to map supply chain carbonization costs, as well as financing options. This document summarizes the key learnings from the session into one actionable guide.

As organizations intensify efforts to decarbonize supply chains, understanding and mapping supplier decarbonization costs remains a significant challenge.

Some of the common challenges identified are:

• Lack of foundational carbon-accounting practices

• Heavy reliance on secondary data for Scope 3 emissions

• Difficulty accessing supplier finance data and capturing granular insights

• Challenges in identifying cost-effective decarbonization levers and covering cost impacts across the value chain

These obstacles underscore the need for collaborative tools and approaches to create a robust financial and operational framework for supplier decarbonization.

Mapping and calculating the costs

In order to identify costs associated with decarbonization, companies can calculate baseline emissions to quantify the value at stake and identify hotspots, develop a carbon-abatement cost curve to prioritize actions and set targets. These two actions both present opportunities and challenges, as discussed below.

Emission baselines

Emission baselines serve as a foundational metric for understanding a company’s carbon footprint. These baselines establish a reference point by quantifying greenhouse gas (GHG) emissions across different levels of granularity, such as:

• Spend-based baselines: These use general spending data and emission factors to estimate emissions but lack detailed specificity

• Consumption-based baselines: These are more precise, incorporating actual consumption data for key activities or products

• Consumption-based and contract-based baselines: The most granular and accurate method, relying on detailed data provided by suppliers, often tied to contracts or specific production processes. By establishing baselines, organizations can identify emission hotspots within their supply chains, enabling targeted interventions and informed decision-making

Marginal Abatement Cost Curves (MACCs)

MACCs are analytical tools used to identify and prioritize decarbonization actions based on their cost-effectiveness and impact. Each point on a MACC represents a specific decarbonization lever, detailing its:

• Abatement potential: The volume of GHG emissions that can be reduced

• Cost: The financial investment required per metric ton of CO2e reduced. MACCs allow businesses to compare and rank various strategies, such as process improvements, electrification, or switching to alternative fuels, enabling them to focus on high-impact, cost-effective pathways. For example, a pharmaceutical company might use MACCs to determine that switching to green electricity offers greater savings and emissions reductions than implementing carbon capture and storage (CCS) technologies

Use MACCs to identify high-impact, cost-effective decarbonization levers, such as process improvements, electrification, and green electricity sourcing.

Value chain (MACC) costs and implementation costs

Value chain (MACC) costs and implementation costs are two main costs associated with decarbonization pathways. Within the former, Capital Expenditures (CAPEX) and Operational Expenditures (OPEX) of low-carbon technology can be spread over different suppliers throughout the value chain.

Implementation costs are differentiated into three cost buckets depending on the number of levers and category complexity (number of suppliers). The three cost buckets are (1) personnel cost, (2) certification costs and (3) incentives for suppliers.

Common challenges associated with MACCs are significant uncertainty over cost and technical feasibility of carbon-reduction levers.

Financing options

There are different collaboration archetypes to support supply chain decarbonization. Here are some examples:

1. Contract-based models where suppliers commit to low-carbon materials in exchange for guaranteed revenue and support for decarbonization measures

2. Joint ventures and equity investments to deploy decarbonization technologies collaboratively

3. Procurement alliances to achieve economies of scale in acquiring low-carbon technologies

4. Implementing Carbon Capture & Storage (CCS) projects on suppliers’ sites

Tools to finance supply chain decarbonization

Financing options for decarbonization initiatives include:

• ESG loans

• Project financing

• ESG bonds.

These are financing options with KPIs linked to sustainable initiatives and objectives.

Henkel's journey toward Net Zero: Masterclass case study insights

Henkel is committed to achieving Net Zero emissions across Scope 1, 2, and 3 by 2045, targeting a 90% reduction compared to 2021 levels. Central to this ambition is the pivotal role of suppliers, whose decarbonization efforts significantly influence Henkel's own value chain. Recognizing this interdependence, Henkel has intensified its engagement with the upstream value chain, creating a comprehensive net-zero pathway specifically for Scope 3 emissions.

To drive this effort, Henkel employs a collaborative strategy to map supplier decarbonization costs. This includes establishing baseline emissions, quantifying the financial stakes involved, and pinpointing high-impact emission hotspots. Using tools like Marginal Abatement Cost Curves (MACCs), Henkel is able to prioritize decarbonization pathways and set actionable targets, ensuring resources are directed toward the most cost-effective and impactful solutions.

Supplier engagement is further strengthened through initiatives such as the Together for Sustainability (TfS) PCF Guideline and Manufacture 2030. By collecting primary Product Carbon Footprint (PCF) data directly from suppliers and providing extended training opportunities, Henkel enables its partners to implement tangible emission reduction projects. This approach not only fosters collaboration but also supports suppliers in advancing their sustainability capabilities.

By leveraging data-driven insights, Henkel facilitates informed trade-offs between the emission intensities of different suppliers, optimizing the supply chain for sustainability without compromising efficiency. The company’s long-term focus on innovation and transformative technologies not only reinforces its environmental commitments but also strengthens its competitive edge in a rapidly evolving market.

Sustainability Impact

Climate Impact

Scope 3

Efforts to decarbonize supply chains focus on Scope 3 emissions, including purchased goods, upstream transportation, and downstream logistics.

Business Impact

Benefits

• Sustainability measures streamline supply chains

• Improving operational efficiency and optimizing resource allocation

• Adopting green technologies reduces energy consumption and operational costs, while enhancing reputations as leaders in ESG practices, attracting investors and partners

Costs

• Decarbonization involves value chain costs such as CAPEX (Capital Expenditures) and OPEX (Operational Expenditures) for low-carbon technologies, distributed across supply chain stakeholders

• Implementation costs include personnel, certification, and supplier incentives, often partially passed to the organization

• Initial investments in tools like MACCs and financial models typically involve abatement costs of $50 to $150 per metric ton of CO2e, depending on lever complexity. These investments lay the groundwork for long-term financial and operational benefits

Approach

Phased approach

A phased approach is critical for successful decarbonization efforts. First steps include:

Starting with pilot projects allows organizations to test and validate the effectiveness of Marginal Abatement Cost Curves (MACCs) in identifying cost-efficient decarbonization pathways. These initial projects provide valuable insights that can guide broader implementation strategies:

1. Engage finance teams early to align funding with operational goals

2. Foster open communication with suppliers to build trust and transparency

3. Building strong, transparent relationships with suppliers is another cornerstone of success. Open communication fosters trust and ensures suppliers are fully aligned with decarbonization objectives. Early engagement and comprehensive training equip suppliers with the knowledge and tools needed to implement effective emission reduction projects, maximizing the overall impact of the initiative

Real-world examples and best practices:

• One distinct example of application of a MACC is provided by Mars in the Usage section of this Action explained by BCG.. More information can be found in Mars's Net Zero Roadmap.

• Companies in the pharmaceutical sector successfully applied MACCs to assess process improvement and alternative fuel options, achieving significant cost reductions while aligning with Net Zero goals.

• Collaborative financing models have enabled shared investments in green technologies, such as on-site solar installations and carbon capture projects

Stakeholders involved

• Project leads: Oversee the development and implementation of decarbonization strategies

• Suppliers: Provide primary PCF data and engage in reduction projects

• Procurement: Collaborate with suppliers to procure decarbonization technology

Key parameters to consider

• Solution maturity: Availability of established tools and best practices

• Lifetime: Continuous updates as supplier and technology landscapes evolve

• Technical constraints: Need for detailed supplier data and transparency

Sector-specific factors: Variability in costs and decarbonization options across industries. Consideration of carbon-accounting foundations and reliance on primary data for Scope 3 emissions