Tesco’s growing pains on the road to zero-carbon

The ENDS Report’s James Richens explores how Tesco is trying to meet its pledge to become zero-carbon by 2050 while continuing to grow

Tesco's zero carbon store in Ramsey, CambridgeshireIn October 2009, Tesco chief execut­ive Sir Terry Leahy announced the ambitious commitment that the retail chain would become net zero-carbon with regard to its global operational emissions by 2050 ­– setting the most ambitious greenhouse gas emissions reduction target in the supermarket sector.

But the company is not yet on the right path for achieving this target. Its total carbon emissions are increasing year on year as its business continues to grow rapidly, especially overseas.

Tesco is the UK’s tenth largest company by market value and the world’s fourth largest grocery retailer by revenue. In 2009/10, it had more than 4,800 stores in 14 countries, 472,000 employees and group sales of £62.5bn. In the UK, it had 2,482 stores, more than 287,000 employees and sales of almost £38.6bn. A recent benchmarking survey of environmental performance in the supermarket sector by analysts ENDS Carbon (ENDS Report 412, pp 4–5), also found that Tesco leads the field in terms of the ambition of its targets.

The emissions reduction target applies to Tesco’s global business and covers emissions from stores, distribution and business travel, but not from the use or manufacture of the products it sells. It aims to achieve the goal by reducing its operational emissions as much as possible through efficiency measures and renewable energy. It will then balance out any remaining emissions by generating additional zero-carbon electricity for export to the grid, and perhaps some heat too, rather than by buying offsets.

Underpinning its net zero-carbon goal are three existing greenhouse gas (CO2 equivalent) targets: to halve absolute emissions from existing stores and distribution centres (including stores in buildings not built but acquired by Tesco) by 2020 compared with 2006; to halve the average emissions intensity of newly built stores per unit area of floorspace by 2020 compared with 2006; and to halve the emissions intensity of transporting a standard case or crate of goods by 2012, compared with 2006. The company has yet to set targets for the period between 2020 and 2050.

The key issue is whether the annual savings achieved by Tesco’s combination of targets are enough to keep up with the growth in the group’s retail space and volume of goods sold. Tesco has certainly been growing rapidly – its total retail floorspace more than tripled from 2.6 million square metres in 2000/01 to 8.7 million square metres in 2009/10. Group sales increased from £22.8bn to £62.5bn over the same period.

Most of the growth in new stores has taken place outside the UK. Today, 65% of the chain’s retail space is overseas. In 2009/10, Tesco opened 0.5 million square metres of new floorspace, equating to 324 stores. In 2010/11, it intends to open 0.8 million m2 of floor space, in addition to nine shopping malls in China.

An example of the challenges presented by this growth can be seen by considering Tesco’s 2020 target to halve emissions per unit area of floorspace in new stores, equating to an annual reduction of some 5%. This is unlikely to be fast enough to keep up with the growth in Tesco’s global floorspace, leading to an overall increase in emissions from new stores. Yet set against this will be the absolute reductions in emissions from existing stores.

Making sense of Tesco’s emissions reduction strategy and its progress is made even more difficult given ENDS’ doubts about the first of Tesco’s targets – for the ‘absolute’ reduction of emissions for existing stores and the complexity of adding acquired stores’ emissions to this baseline. Tesco measures and reports progress towards this target as CO2e per unit area of floorspace, suggesting that it is actually an intensity target. ENDS repeatedly asked Tesco to prove that this is an absolute target by disclosing absolute emissions data for existing stores. Tesco consistently declined. Will this complex interaction of absolute and intensity emission targets and business growth deliver cuts in Tesco’s total greenhouse gas output? So far it has not.

Ruth Girardet, Tesco’s corporate responsibility director, says: “Our targets are very clear up to 2020. Beyond that, we have a good sense of what needs to be achieved. We have made great strides on energy efficiency, but there is always scope for more as technology advances. We’ll develop renewable energy so that we are self-sufficient before 2050; over time we will eliminate the use of hydrofluorocarbon (HFC) refrigerant gas, for which the technology already exists. The more difficult areas based on current technology are around transport, particularly heavy goods vehicles. We are aiming to halve the emissions per crate by 2012, but there is not yet a clear pathway to zero-carbon in this area.”

Tesco’s latest published emissions data, with assurance by consultants ERM, sounds quite impressive. Tesco had reduced emissions from its existing, pre-2006 stores and distribution centres by 7.8% per unit area by 2009/10. It also cut the emissions per unit area from its new stores by 4.7% over the same period. Both compare well to the 5% annual rate implied by its targets. Taken together, this means its overall emissions per unit area across its entire stock of stores and distribution centres improved by 3.6% in 2009/10.

Breakdown of Tesco's greenhouse gas emissionsEven so, Tesco’s total carbon emissions rose by 3.7% to 5.17Mt of CO2e in 2009/10 as a result of business growth (see Figure 1). This is not simply a one-year blip in the data. Since 2006/07, Tesco has cut the emissions intensity of its retail space by 16%, but total emissions have risen more than 17%.

Ms Girardet concedes: “At the moment we are not on a trajectory that will automatically get us to being a zero-carbon business. We are very clear that to achieve our target ... we need to reduce absolute emissions over time. This is not easy for a growing business. And there is nothing wrong with growth if it means low-carbon businesses growing at the expense of high-carbon ones.” She adds that Tesco had actually reduced its UK-only absolute emissions by 2% in 2009/10 to 2.6MtCO2e, notwithstanding its continued growth in Britain.

Limited UK expansion

ENDS Carbon has analysed carbon management in the supermarket sector, and technical director Craig Mackenzie says Tesco should be able to cut the carbon intensity of new stores in the UK faster than it opens them because there is limited room for expansion. But he thinks this will not be the case overseas: “It’s unrealistic to expect absolute reductions globally over the period to 2020 if Tesco are going to expand fast into new markets.”

In the UK, however: “If we decarbonise the [electricity] grid and transport goes electric, pretty much every non-industrial company in the UK will be approaching zero-carbon by 2050 without lifting a finger ... In a sense Sir Terry Leahy’s zero-carbon policy is just a brilliant statement of the obvious,” he added.

More than 60% of Tesco’s greenhouse gas emissions come from electricity used in stores for air conditioning and lighting. A further 20% is from HFC gases used in refrigeration systems (see Figure 1). These have a global warming potential of up to 3,800 times greater than CO2.

Tesco’s flagship initiative is to cut emissions by building new stores with a reduced environmental impact. In February 2010, it opened what it says is the world’s first zero-carbon supermarket in the village of Ramsey in Cambridgeshire. The company says it is ten years ahead of the government’s target for all new commercial buildings to achieve this level of performance.

The Ramsey store has a large roof and front windows to maximise natural light, creating a much more pleasant interior space. The roof windows contain a gel that helps keep the store warm in winter and cool in summer. Electric lighting uses light-emitting diodes (LEDs) that are more efficient than conventional fluorescent lights. Sensors automatically adjust the LEDs to the amount of natural light available.

Refrigerators use CO2 rather than HFCs as coolant and all units are fitted with doors to prevent the loss of cold air. The air conditioning system uses hydrocarbons, which have a global warming potential of just three times that of CO2. Wooden beams were used for the building rather than steel, to reduce its embedded carbon, while rainwater is collected from the roof for use in the toilets and carwash.

Energy is supplied by a 250-kilowatt combined heat and power (CHP) plant fuelled with waste vegetable oil. Tesco will export any spare electricity from the unit to the National Grid. It could also export spare heat to a potential housing development nearby. Tesco has now installed more than 100 CHP units at UK stores, most of which are gas-fired although 13 use biofuel. The chain has also installed a number of store-based wind turbines and solar panels and  there are bigger projects in the pipeline.

Overseas, Tesco has solar installations at stores in the Czech Republic, Hungary, South Korea, Malaysia, Thailand, Turkey and the US. The roof-top solar installation at its Fresh & Easy store in Riverside, California, is one of the largest in North America and  produces 2.6 million kilowatt hours of electricity each year.

Tesco’s strategy of installing on-site renewable energy in the UK has not been affected by the former Labour government’s decision against allowing organisations to claim emission reductions from renewables under the Carbon Reduction Commitment or voluntary greenhouse gas reporting guidelines. Some companies such as BT had claimed that the decision would hamstring investment in renewables.

Tesco says investing in renewables still makes sense. It reduces energy bills and helps protect against volatile energy prices. Opening the Ramsey store, Sir Terry Leahy said Tesco’s environmental initiatives had saved the company £100m per year, for instance, through reduced energy costs. Yet although the Ramsey store is a big improvement, it is by no means the end of the journey. Tesco itself says the technology used in the store is not innovative; however, using it in a supermarket is.

Roger Courtney, a research fellow at Manchester University’s Sustainable Con­sumption Institute, says the future challenge is to greatly reduce stores’ energy use, not just carbon emissions. Without wanting to detract from Tesco’s achievement, he says any big store could be made zero-carbon by fitting a large biofuel CHP plant.

Professor Courtney explains that a typical supermarket store uses about 800kWh/m2 a year. Tesco’s Ramsey store uses about 400kWh/m2 a year. He estimates that this could be halved again using a combination of photovoltaic cells, a hydrogen fuel cell, an integrated air conditioning and refrigeration system and reactive window glazing.

Moreover, the Ramsey store is only zero-carbon in terms of its operational emissions, not its embedded emissions or the energy used by people travelling to the store. Because it is located at an out-of-town brownfield site, most customers have little choice but to drive there. It does feature an electric car charging point, although the small number of plug-in electric cars on the road are concentrated in big cities rather than in places such as Ramsey.

Although Tesco is installing CO2 refrigeration in new stores, it has yet to set a target to entirely replace HFC refrigeration in existing stores. In contrast, Waitrose, Sainsbury’s and Marks and Spencer have all committed to phase-out dates. However, the latest survey of supermarket refrigeration by the Environmental Inves­tigation Agency ranks Tesco second out of 11 companies assessed, saying the chain has ambitious near-term plans to cut HFC leakage and introduce HFC-free systems in 150 stores by 2012 (ENDS Report 421, p 30).

Tesco says it is also committed to helping customers and suppliers cut emissions. It asked ERM to estimate the total carbon emissions from the manufacture and use of products it sells, plus those from customers driving to its stores. The figure is 43MtCO2e – almost nine times Tesco’s operational emissions. Underpinning the aim to cut such emissions are two targets, also announced by Sir Terry Leahy last October: to help cut its customers’ carbon footprint by 50% by 2020 and to help cut its suppliers’ footprint by 30%, both from a 2009 baseline.

Sir Terry believes that changing consumer behaviour is the key to preventing climate change. Announcing the targets, he told the Sustainable Consumption Institute that a more sustainable world will not be created “by some great invention, or a grand act of Parliament, but through the millions of choices made by consumers, every day, all over the world”. He argued that consumption is a force for good and should not be a dirty word, despite a global recession fuelled in part by excess personal debt.

He continued: “People will always seek a better life. We now know that a better life must mean a low-carbon life. So we must take that universal desire for a better life and that awareness of climate change and build on the immense power of both. We must decouple economic growth from emissions growth by creating a second consumer revolution: by building and fulfilling a desire to live a low-carbon life.”

But the message that we can shop our way to a more sustainable world is questioned by the Sustainable Development Commission, the government’s green watchdog. In a recent report, the Commission argues that endless economic growth – even ultra-efficient, low-carbon growth – is impossible in a world with finite resources to share between a global population forecast to rise to nine billion by 2050.

Measures to achieve Tesco’s target to halve customers’ carbon footprint include trying to influence customer behaviour through using its loyalty card to reward customers who make greener choices. Those who use their own shopping bags instead of disposable plastic ones, recycle at in-store facilities and fit home insulation earn Tesco clubcard points that can be spent in store.

Ruth Girardet says: “Our philosophy has always been that in order to achieve long-term behaviour change you need to take people with you, and the best way to do this is to incentivise the right behaviour.” She argues that punishing consumers, for instance by charging for plastic bags, is less effective because consumers simply accept the small extra cost. It could also give the impression that being green always costs more.

Home insulation

Tesco has also introduced a home insulation service offering customers discounted loft and cavity wall products. So far, 16,000 installations have been completed. It also halved the cost of energy-efficient compact fluorescent light bulbs, greatly boosting sales. The discounts are funded by the Carbon Emissions Reduction Target scheme – a legal requirement that energy suppliers promote efficiency. Tesco makes a profit by helping suppliers meet their obligations.

Tesco is also leading the charge on carbon labelling, which tells customers how much greenhouse gas was released in creating, say, a litre of milk or orange juice. It aims to label all 70,000 of its own-brand products. Ruth Girardet says assessing the carbon footprint of a product is an “expensive and laborious process”. To date, it has assessed the footprint for more than 500 of its products. “We recognise that it’s a very small-scale thing at the moment but it’s really gathering steam”, she says. During 2010/11, it plans to get 500 products with a carbon label on to its shelves, up from 120 in the UK at present.

At its current rate of progress, it will take centuries for Tesco to achieve its goal. Moreover, there is little convincing evidence that carbon labelling influences consumer behaviour. The main benefit comes from assessing a product’s life-cycle carbon, which generates useful data to inform emissions reduction efforts for growers, manufacturers and distributors.

To help deliver its target to cut suppliers’ carbon footprints, Tesco is focusing initially on beef and dairy, both of which are carbon-intensive foods. It has set up a sustainable dairy group for the 750 dairy farmers that supply its own-brand milk. The group is informed by research at a ‘centre of excellence’ farm run by Liverpool University and supported by Tesco.

Researchers are currently installing a heat exchange system at the dairy that uses waste energy from milk coolers to heat water for cleaning. Tesco expects its milk suppliers to start using the technology by the end of the year. The researchers are also conducting trials this year into optimising cattle feed to cut methane emissions. Tesco will incorporate the costs of making these improvements into its payments for dairy farmers.

The challenge now is for Tesco to translate the leadership it has demonstrated in setting ambitious carbon emissions reduction targets into actual progress. Peter Madden, chief executive of sustainability consultants Forum for the Future that advise Tesco, is impressed by the supermarket’s willingness to set tough targets without necessarily knowing how it is going to meet them, taking the attitude ‘We’re Tesco – we’ll find a way to do it.’ But he adds: “If Tesco is to truly ‘lead by example’ on climate change, it must reduce its own absolute emissions year on year.”

Biography: James Richens is carbon and energy efficiency editor on the ENDS Report

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