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Palsgaard, a middle-sized Danish food ingredients producer, has achieved carbon neutrality. But a reliance on controversial offsetting and the lack of a strategy for emissions produced outside its own factories could hamper further progress
DOWN THE LINE
Going carbon neutral is no small undertaking for any company. Trailblazers are managing to cut emissions from their production facilities, but are finding it much more difficult to achieve the same results with suppliers and in transport
OFFSETTING
Companies with factories in countries less focused on the energy transition may find switching to renewables difficult, leaving them little choice but to buy emissions offsets, such as UN certified emission reduction (CER) credits. Whether such schemes help decarbonise the world is questionable
KEY QUOTE
What Palsgaard has obtained is impressive. But the company risks losing momentum. It needs to look at how it will reduce emissions beyond its own production, from customers, business partners and suppliers
Two large companies, Chr Hansen and Novozymes, are the Danish food ingredient businesses best known internationally for their sustainability efforts, but mid-sized Palsgaard is quietly ploughing its own furrow. The company, which produces emulsifiers and stabilisers for cakes and ice cream coatings, became carbon neutral in 2018, two years ahead of target. But this initial success risks being undermined by a dependence on carbon offsetting and an inability to reduce emissions in its supply chains. Going carbon neutral in its six factories, which span Mexico, Malaysia, China and the Netherlands, has enabled the company to reduce emissions from 12,029 tonnes in 2010 to zero in 2018. This reduction has saved 56,175 tonnes of carbon dioxide — equivalent to annual emissions from nearly 5000 average European households. “We made a broad range of efforts and investments in energy efficiency and clean energy to achieve this,” says Jakob Thøisen, Palsgaard’s CEO, who heads a team of 550 employees. “There is no one-size-fits-all or silver bullet technology [to decarbonise],” he adds. The task was particularly challenging as the production of emulsifiers requires very high temperatures, making it energy intensive. The first step was to use less energy. The company invested “in a series of energy optimisation measures” in its processing plants, including heat recovery systems, insulation and intelligent lighting, says Thøisen. “What Palsgaard has obtained is impressive,” says Helene Regnell, co-founder of Lead Sustainability, a Danish sustainability advisory. But she warns the company “risks losing momentum” unless it can find ways to reduce emissions beyond its own production: from customers, business partners and suppliers. Thomas Kræmer Schmidt from Danish engineering consultancy Ramboll concurs. “Palsgaard is in the same situation as many other companies that have high decarbonisation ambitions,” he says. “The next step should be to include all indirect emissions in its carbon calculations, such as emissions from transport. This is crucial to move towards full carbon neutrality.”
FIFTEEN YEAR JOURNEY PAYS OFF Palsgaard’s decarbonisation journey started in 2005, when the EU introduced a carbon cap and trade system with credits for energy-intensive industries. The regulation added DKK 1 million (€0.13 million) a year to the company’s annual expenses, pushing it to examine potential energy savings. Palsgaard decided to construct a straw-fired power plant on 1600 acres of land it owned in rural Jutland to reduce reliance on diesel oil to heat its Danish factory, says Thøisen. The plant, built by a local company, consists of two 800 kilowatt boilers and cost €1 million. It replaced annual oil consumption of 600 tonnes and led to cost savings of €0.66 million a year. The next step was taken in 2009, when Denmark hosted the COP15 climate talks. Palsgaard decided to draw up a strategy to become carbon neutral by 2020. Consultancy firm Deloitte helped measure and map the company’s emissions. “We needed an external body to verify our figures to secure our credibility with our stakeholders,” says Thøisen. Based on this analysis, the company first looked at ways to optimise energy use at its Danish factory, converting boilers from heavy fuel oil to natural gas before concentrating on insulation to lower the amount of gas required for heating production processes. Other changes included installing heat exchangers that boost heat recovery efficiency by 30% and more energy efficient lightning. “The Danish factory became carbon neutral in 2015 and then we wanted the same to happen in our other five factories,” Thøisen says. This goal was largely achieved by investing in energy efficient technologies and buying biogas certificates and green electricity. The company’s production sites in the Netherlands became carbon neutral by installing and operating 840 solar panels and using wind power and biogas. Today Palsgaard is planning to construct a solar plant to power its Danish factory, with purchased wind power filling in on dark winter days. “With the solar park we also want to contribute to the grid with renewable energy,” says Thøisen. Overall the efforts have paid off. “Economically speaking, the decarbonisation project has been an advantage for us, although return on investment took some years,” he states. 
OFFSETS NOT A DURABLE SOLUTION
Not all of Palsgaard’s carbon neutrality has been achieved by a switch to renewable energy or energy optimisation. Emissions from its Malaysian factory and a small part (5%) of emissions from its Mexican factory are compensated through UN certified emission reduction (CER) credits. “These locations do not have the infrastructure yet to facilitate carbon neutrality,” says Thøisen. Research indicates, however, such schemes rarely achieve all of the promised decarbonisation. “UN certified credits are validated, but are not a durable solution in the long term,” says Regnell. “It is a kind of symptomatic treatment.” Brian Vad Mathiesen, energy transition professor at Aalborg University, Denmark, is not convinced either. “There are a number of these schemes where you can question the effect,” he says. Thøisen is aware of the problem: “We have chosen to buy what we believe to be the best certified emissions allowances.” Palsgaard worked with a consulting firm to explore local renewable energy options to achieve carbon neutrality in Malaysia, but the report failed to identify any suitable solutions. That may change as biogas production increases based on the country’s extensive palm oil industry. Palsgaard insists it would use only sustainably farmed palm oil certified by the Roundtable on Sustainable Palm Oil, a not-for-profit organisation.
PALSGAARD’S ROAD TO CARBON NEUTRALITY
2005: Constructs a straw-fired power plant to heat factory in Denmark2009: Converts boilers in Danish factory from heavy fuel oil to natural gas2010: Installs heat exchangers, boosting heat recovery efficiency by 30%2011: Buys certified wind power from EnergiDanmark for Danish factory2013: Invests in smart lighting solutions and LEDs2014: Installs insulation to reduce gas required for heating production processes2015: Converts natural gas to biogas2015: Danish factory becomes CO2 neutral2016: Mexican factory becomes CO2 neutral with 95% solar power and 5% from offsetting2018: Carbon neutral production in all factories; buys UN certified emission reduction (CER) credits to offset emissions from factory in Malaysia
SUPPLY CHAIN EMISSIONS NEXT
Palsgaard, like most other companies, is also struggling with cutting emissions from its supply chains. This is a “difficult and complex” issue, says Kræmer Schmidt. “But something companies have to look into.” Palsgaard plans to do just that in 2020. “We are already in dialogue with our suppliers regarding transportation and working on a strategy to influence them to take climate action,” says Thøisen. Tackling supply chain emissions is particularly challenging for smaller companies, says Regnell. “Walmart and IKEA can do something because they are big enough to make demands on their suppliers, which will deliver solutions accordingly. Palsgaard only has the power of persuasion.” Palsgaard will have to rely on comparing suppliers, announce tenders that catalyse carbon reduction or team up with competitors to speak with a stronger voice, she adds. Palsgaard’s journey is typical of that faced by many green pioneers, says Regnell. “They are doing no harm and have reduced their energy emissions considerably.” But now the company needs to raise its level of ambition, set tougher targets and integrate sustainability into its commercial offering to start “doing good,” she states.
TEXT Anna Fenger