The same old process, but much cleaner: International Paper
The production of paper is a practice that has existed for almost 2,000 years. How must a company in an industry this established address the effects of climate change? Perhaps surprising is the extent to which the companies themselves are contributors to the phenomenon, and thus the need for a company such as International Paper to improve existing operations to reduce emissions and carbon footprint.
International Paper is the largest producer of packaging, paper, and pulp. It has three business lines: industrial packaging (65% of revenue), which includes producing containerboard and corrugated packaging; consumer packaging (13%), which includes producing paper cups, containers, and lids; and paper and pulp (22%), which includes producing paper for printing and imaging. Part of the company is vertically integrated. For production, International Paper operates 24 pulp, paper and packaging mills, and 188 plants for converting, packaging, recycling, and bags. For raw materials, International Paper owns or manages approximately 335,000 acres of forestland in Brazil and has harvesting rights Russian forestlands .
Paper production accounts for 40% of industrial wood harvesting . It’s effect on the environment is doubly deleterious: not only is deforestation responsible for 15% of CO₂ emissions , but deforestation robs Earth of the very trees that take CO₂ out of the atmosphere. Furthermore, part of the paper production process is chemical. Chemicals are used to remove the lignin, which binds the fibers in wood together, and then the fibers are dissolved in vast quantities of water before it is dried and rolled. The industry is the fourth largest source of greenhouse gas emissions (GHGs) in the United States , and International Paper is the largest pulp and paper company in the US.
Given that International Paper’s operations contribute to climate change, it will first think about approaches to reduce its carbon footprint, from the procurement of wood to the manufacturing of paper and packaging. Strategies to reduce its footprint include reducing GHG emissions, improving manufacturing efficiency, and/or changing production to reduce reliance on specific raw materials. Mechanical grinding, for example, is an alternative to chemical pulping. Adaptation tactics appear limited given the necessity of wood as a raw material, but alternate production methods include the use of recycled products, or producing wood-free paper from different raw materials .
Growing concerns over deforestation, clear cutting, and other unsustainable practices by pulpwood plantations may inhibit the supply of acceptable wood. Fiber can be certified by a series of third-party organizations, such as the Forest Stewardship Council (FSC) and the SFI (Sustainable Forestry Initiative) in the US or Certificacão Florestal (CERFLOR) in Brazil . Certification is important because it designates that the source of wood fiber is sustainable and maintains the supply of global forestland.
In an attempt to promote mitigation tactics more broadly by the industry, the national trade association, American Forest & Paper Association (AF&PA), set six goals to address the issues the industry faces regarding sustainability and climate change . Similarly, International Paper published a vision for the company to hit certain climate change goals by the year 2020 . A comparison of select goals is in the table below.
Fig 1. Comparison of select AF&PA’s and International Paper’s sustainability goals
It is promising that International Paper is more aggressive than the industry standard when its comes to GHG emissions and purchased energy efficiency . This has been mostly been done by reducing combined heat and power (CHP) emissions . Example of this include transitioning from coal power to natural gas as a way to power the pulp and paper mills , or by using larger trucks to minimize the number of trips that need to be taken from the mill to warehousing . However, there remain opportunities for International Paper lead the industry in addressing climate change.
Reduction in water use from mills remains an additional goal. While the AF&PA seek a 12% reduction, International Paper’s stated goal is merely to “map water usage […] by 2013; develop site-specific plans by 2015 to reduce use […] by 2020”. A reduction in water usage would help International Paper reduce raw material usage, and in turn its carbon footprint.
An additional opportunity for International Paper is better handling production waste. One of its goals is to “reduce manufacturing waste to landfills 30% by 2020”. However, there is an opportunity to change this “cradle to grave” mentality and invest in technologies that can convert waste to biomass energy , which is renewable and carbon-neutral.
Lastly, it is worth nothing the effects that competition may have on International Paper, particular on its supply chain. A majority of the forecasted growth in paper production is going to occur in China . This could present a challenge not only to International Paper, but the entire pulp and paper industry in the United States, because most pulp and paper companies in China remain state-owned and are subject to lax emissions standards . International Paper will have to balance between achieving its goals to ameliorate climate change while staying competitive in a price-sensitive commodity industry.
Fig. 2. The Rise of Paper Comsumption.
Student comments on The same old process, but much cleaner: International Paper
I agree that International Paper has a large opportunity to impact climate change given its position in the industry. My skepticism however is whether the company will be able to reduce its carbon footprint while maintaining its current prices. Surely there is a subset of the company’s customers who care about their suppliers’ sustainability measures, but it is unclear whether those customers would be willing to pay premium prices compared to the prices they are currently paying for those sustainability measures. Furthermore, as China increases its production of paper, this price gap between International Paper’s products and the cheaper Chinese paper products will continue to get larger, so I am not sure the company can afford to invest in technologies that convert waste into biomass energy. Are there other ways that IP can reduce its environmental impact without causing an increase in prices?
You mentioned that International Paper is looking to reduce its reliance on specific raw materials. They should look at a Chinese company called Nine Paper Dragons, the world’s largest manufacturer of environmentally-friendly recovered paper, to consider incorporating some of their processes and increasing the proportion of recycled paper into IP’s products. Since one of the concerns was how IP could stay competitive in a price-sensitive market particularly from Chinese producers, it would be interesting to find out how Nine Paper Dragons has been able to win business and stay profitable ($290M net profit in 2014).
IP will indeed play a leading role in influencing how the paper industry responds to sustainability challenges. Growing up with my dad working as a paper salesman for an IP competitor, I heard often about how customers bought almost solely based on price, and convincing customers to make sustainable purchases was and will continue be a challenge. Recycled paper is a good option, and something that clients often request. However, there is only so much recycling that can be done of paper. I would be interested to know if your research illuminated any maximum points for how much of the world’s paper could come from recycled paper as a percentage?
I’m surprised by the per capita consumption of papers in Europe and N.America. Paper making is bad for environment mainly due to high water consumption and chemical pollutions. Having toured in an paper plant, my understanding is that water saving is quiet hard as existing manufacturing process and equipment are built to industry standard, water saving methods adopted by each plant does little to help. Until any technology advancement challenges the current process, it will likely continuo to be high energy consumption industry. However, government can take actions for example impose regulations, taxes, etc to push energy saving initiatives, and in the end consumers will pay the bill. However, thinking about just how much paper we received in mailbox in a day, I sometimes hope it’s a bit more expensive for companies to pay for paper commercials.
Great topic – Can’t think of many businesses that have to deal with climate change than a paper company.
Some of the comments so far have addressed it, but I’m very curious as to the potential for reducing the need for ‘virgin’ paper. While clearly constrained by the supply side, it would be interesting to know how much of their paper production they could augment with recycled paper. Is it on the order of magnitude of 1-2%? 10%?
The most challenging thing, for me is that, as you point out, the use of trees makes the production of paper doubly impactful on the environment. Is it a stretch to say the paper industry is inherently at odds with sustainability? This is not a critique of your post as much as a comment on the paper industry overall.
Thank you for sharing rigorous analyses on the impact of climate change on paper business. When I was serving for a IP competitor in a consulting project, there was a decreasing demand of paper products (especially for copy paper) due to concerns on sustainability. Many companies (especially in developed countries) started a “paper-less” practice and the consumption has been decreasing. I think this will give paper manufacturers such as IP a difficult challenge to handle – how to continue selling paper products while advocating sustainability as a socially-responsible company?
Enjoyed the article! I thought CPC has some really good points related to pricing in the comments above. I looked at a couple of paper and plastic companies when I worked in private equity, and everyone would always say that the most important driver for moving into post-consumer recyclables was the spread between original (virgin) material and recycled material. The really savvy companies would hedge and arbitrage this spread in order to protect their margins and pricing. The other big trend that I noticed, was a shift into higher end packaging to make products more experiential. It was unclear whether you could achieve the same high end look and feel that consumers wanted while still using recycled materials. Perhaps regulatory incentives can affect the supply / demand equation to nudge consumers and producers to more ecologically friendly alternatives. It looks like the Environmental Paper Network is starting to try to do some of this: https://s3.amazonaws.com/EPNPaperCalc/documents/Paperwork.pdf