Implementing the E-Liability Approach for Sustainable Tire Manufacturing

Author – Aigerim Berzinya Climate change recognition has extended to the tire manufacturing sector with the concept of E-Liability. The concept is based on the principle that each company is to be held responsible for its emission levels and the emissions embedded in its purchased inputs. François Petiot, who is the Director of Quality Assurance […]Author – Aigerim Berzinya Climate change recognition has extended to the tire manufacturing sector with the concept of E-Liability. The concept is based on the principle that each company is to be held responsible for its emission levels and the emissions embedded in its purchased inputs. François Petiot, who is the Director of Quality Assurance of the global tire manufacturer Giti Tire Corporation, caught wind of the E-Liability method from an article and decided that Giti’s Indonesian tire manufacturer and partner, PTGT (PT Gajah Tunggal Tbk) needs to implement it. Giti Tire and PTGT were the first to pilot the E-liability approach. The concept of Environmental Liability or ‘E-liability’ approach was first introduced in the November 2021 issue of the Harvard Business Review. It offers a solution by tracking emissions at the product level, leveraging blockchain technology to capture their transfer via value chains. By doing so, it provides an auditable and accurate measurement of the total amount of greenhouse gas emissions produced. Difficulties in Emissions Measurement in Tire Industry Giti Tire is a global tire manufacturer with revenues exceeding $2.5 billion. Its Indonesian affiliate and tire supplier, PTGT is one of the largest tire manufacturers in Southeast Asia. Both companies recognized the need to address emissions in the industry. Given the significant carbon footprint produced in tire production and use, the tire manufacturing industry is already under a lot of pressure to decrease its environmental impact. With one estimate declaring that the annual global tire waste would reach 1.2 billion tons by the end of the 2030s, the external pressure on this industry is justified. So Giti Tire started taking steps to reduce emissions. It ensured that all its factories had the required environmental certifications and applied forest conservation to reduce the impact of its coal and freshwater consumption. The current carbon-accounting standard called the ‘GHG protocol’ classifies carbon emissions into three categories – Scope 1 measures direct emissions Scope 2 measures upstream emissions associated with purchased electricity Scope 3 accounts for all other upstream as well as downstream emissions Of these, measuring Scope 3 emissions is the most challenging. The existing protocol requires companies to provide emissions data from customers as well as suppliers. Due to a lack of transparency and information, companies can only report a limited set of emissions or use industry averages. Implementing the E-Liability Approach Petiot decided to launch the pilot project at PTGT in an effort to calculate the emissions of PTGT’s standard passenger tire, which represents about 30% of PTGT’s total tire production. Petiot and three other members are part of the pilot team, which focuses on four key areas – synthetic rubber, natural rubber, steel and carbon black. The team reached out to suppliers to request emissions data and found that suppliers engaged in efforts to reduce their environmental impact cannot provide sufficient data. While some suppliers provided emission factors, others simply used publicly available data on emissions. The pilot team then combined the supplier data with their own site emissions to calculate the exact emissions per tire. While focusing on PTGT, they discovered that the tire manufacturer used “dirty” electricity and carbon black from fossil fuels, which caused higher CO2 emissions in their tires. Armed with this real-time emissions data from the E-Liability process, the team explored possible solutions and contacted suppliers to identify lower-emission alternatives. In the course of their research, they also found that instead of grid electricity for manufacturing, PTGT could reduce emissions by 18% if a part of the electricity was substituted with on-site solar power. Scope 1 emissions could also be reduced by 6% only by using newer, more energy-efficient natural gas boilers. The E-Liability method encouraged PTGT and its suppliers to take steps to reduce their carbon footprint. The team then looked at the amount of carbon emitted by PTGT when manufacturing the passenger tire. Petiot and his team prepared an easy flowchart to identify emission sources in the production line, simplifying the inspection process. They focused on two of the most energy-intensive processes in the production process – The heat used in compounding and tire curing. They also calculated direct and Scope 2 emissions of these processes. Finally, the acquired supplier emissions and the uncured site emissions were allocated to the standard passenger tire. This resulted in emissions per tire being transferred to PTGT’s own customers when sold to them. The entire tire-specific emissions data process, which Petiot expected to be a challenge, took just about two months. Findings from the Pilot Project After working closely with suppliers and adjusting internal processes, Petiot and his team identified several opportunities to reduce the emissions of passenger tires by 22% or more. In an effort to find further savings, the team used new inflowing data to reassess their materials and processes. They started gathering emissions data on bread, nylon, polyester, certain chemicals and other raw materials, which allowed them to improve their emissions calculations from 86% to 95%. After four months of running the pilot, PTGT collaborated with one of its steel suppliers to get high-durability, low-emission steel cords to control fossil-fuel usage on vehicles. While the manufacturer had a clear understanding of per-tire emissions, it was still searching for a way to turn this into a competitive advantage. Switching to lower-emission alternatives undoubtedly increased the production cost of a tire in the short term. However, the pilot found that certain customers were willing to spend extra to get more sustainable tires. For instance, a luxury car manufacturer, which is one of Giti’s clients, started to consider using lower-emission tires. Conclusion This PTGT pilot project demonstrated the potential of the E-liability approach to provide accurate emissions tracking and reduction. It highlights the importance of collaborations between companies and suppliers to achieve sustainability goals. It is expected to lay the foundation for the broader adoption of this approach in the tire industry.