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The Environmental Costs of Ecommerce
By Phillip Finnegan, Managing Director Pacific, ACI Worldwide
As consumer habits shift and we see a greater proportion of retail transactions and sales shift online, it is perhaps time to consider the effects that this shift is having on the environment. Research from the Dutch central bank found that card payments were not only more convenient compared to cash, but that it was good for the environment.
Taking into account even finer details like the origin of the cotton used in the production of (Euro) banknotes and the environmental impact of armoured vehicles to transport cash, through to the energy usage of POS card payment terminals in standby mode, it was found that the environmental impact of the average cash transaction is 36 percent higher than the average debit card. While a similar study may not yet have been conducted in Asia, the takeaways from this research are still well worth noting, especially with the digital economy in Southeast Asia alone is expected to reach US $240 billion by 2025, US $40 billion more than previous estimates.
Bitcoin (was) heating things up
While the energy consumption of cash versus card might not exactly be headline news, it’s also worth taking a look at the environmental impact of cryptocurrency; to say that it was a hot topic in 2018 might be an understatement. One of the many criticisms leveled at Bitcoin, as it climbed towards its all-time high of USD $20,000 during the December of 2017, was the unsuitability of it as a payment system based on the vast amounts of energy required to confirm a transaction – through ‘proof of work’ – on the blockchain. One transaction using enough energy to boil 1872 litres of water (nearly 500 gallons) in a kettle, or to run a fridge/freezer for a year – there were no shortage of comparisons that put into perspective the shortcomings of bitcoin as a payment method for that new kettle you need to boil all that water.
Admittedly, as bitcoin prices dropped from those heady heights, the calculated energy consumption per transaction has also declined. But the annual overall energy consumption of the bitcoin network, including mining, is still equivalent to the entire annual electricity usage of Switzerland. Some will make the valid point that this energy consumption is not intrinsically evil: it is a question of how that energy is generated – is it renewable hydro-electricity in Iceland (one crypto mining hotspot) or state-subsidised coal-based energy, as in parts of China (the global leader in bitcoin mining).
What the rise and fall (or rise and rise, I’ll hedge my bets) of bitcoin demonstrated, however, is that issues around energy consumption and the environmental impact of financial systems can enter the public consciousness. And if you’re inclined to take the most recent UN Intergovernmental Panel on Climate Change report seriously (I do), then that’s a good thing.
One transaction using enough energy to boil 1872 litres of water (nearly 500 gallons) in a kettle, or to run a fridge/freezer for a year – there were no shortage of comparisons that put into perspective the shortcomings of bitcoin as a payment method for that new kettle you need to boil all that water
Logistical matters in eCommerce
To be fair, though, the energy consumption and global warming potential of payments systems are rather small in the context of the overall economy – in the case of the Netherlands, the cash payment system contributes only 0.009% to the overall ‘Global Warming Potential’ of the Dutch economy.
To put it another way, swiping (or tapping) your card instead of fumbling for loose change certainly does not offset the environmental impact of that exotic out-of-season fruit that’s been flown halfway around the world. On the other hand, the environmental impact of shipping and fulfillment for goods that are paid for online continues to rise – a logical consequence of the continued growth in eCommerce globally.
Now, I’m not so blinded by nostalgia that I’m advocating a return to the heyday of the suburban mall – nor suggesting to avoid buying things altogether. And in any case, an attempt at a direct comparison between brick-and-mortar and online shopping would be an exercise in futility – there are simply too many variables to generalise about what option is ‘greener.’
What is clear, however, is that the way in which we shop online – driven by a need for instant gratification and increasing expectations around convenience – can make online shopping a much dirtier business than many would like it to be. The culprit most frequently identified is shipping – or to be more precise, the speed of shipping. Next-day delivery that requires air transportation, followed by last-mile delivery in a partly-filled (read: non-optimised) fossil fuel-consuming van, quickly changes the game – making eCommerce potentially less efficient than a solo car trip a physical store 10 miles away.
You can find advice online about how to minimise impact – i.e. reconsidering express shipping, purchasing multiple items from a single merchant, and looking for eco-friendly packaging options – but perhaps eCommerce really is ready for its ‘Slow’ movement? The ‘Slow Food’ movement emerged in the 1980s as a reaction to the rise of ubiquitous fast food, with an emphasis on provenance, local production, and nose-to-tail cooking – not to mention increased attention on ethical consumption. More recently, the ‘Slow Fashion’ movement has arisen based on similar principles – consciousness around a garments’ production, lifecycle, and supply chain, and a reaction to the trend towards fast and disposable fashion.
So, if consumers have a growing awareness of how their food is produced and how their clothes are made, why wouldn’t they want to know about how those things are delivered to their front door? Perhaps we’re not so far away from filling our (online) shopping cart and getting a transparent view of the impact of different shipping options? Or being able to consciously choose a ‘green’ delivery method or pick-up location? It’s already in the interests of logistics and shipping companies to reduce packaging, warehousing and shipping costs – and find the most efficient way to complete the ‘last-mile’ – the logical next step is to marry this to consumers’ desire to better understand the impact of their online activity. Maybe the online checkout page can even indicate the greenest way to pay? (Spoiler alert: It’s probably still not bitcoin).