Hot Air, Hard Data

COP 26 is taking place next week in the UK. The leaders of the world will be in attendance (most of them at least – the Russian and Chinese presidents aren’t turning up) along with around 30,000 others – from negotiators and journalists to lobbyists, NGOs, businesses and even protesters – from 200 or so countries.

They will review progress against the targets that have been agreed for greenhouse gas emissions and seek a pathway to a net zero world.

There is a certain irony about all these people flying around the world to attend a summit dedicated, amongst other things, to measures restricting people from flying around the world.

There is an even bigger irony in the fact that COP 26 takes place during of one of the worst energy crises in recent history. A combination of surging demand as economies start bouncing back from the pandemic, major supply chain issues and countries starting to dismantle the infrastructure for traditional (fossil) fuels without having put in place effective alternatives, have resulted in the shortages that are leading to soaring prices. The consequences of prioritising a green future in energy terms over the needs of the here and now is becoming all too uncomfortably apparent.

Whatever these current consequences, the green agenda is marching on, and against this background, the newly published special report ‘Cash: a Roadmap to Sustainability’ lays out what the cash industry has done to date to reduce its impact on the environment - not by government diktat or regulation (yet), but because it is choosing to do so.

Of course, the question on everyone's lips is ‘how does cash compare with digital payments?’ As the summary of the report points out, this is an impossible task.

The closest there is to answering this question is the DNB study which is heavily referenced in this report. Digital payments are made on the internet using a computer or mobile device or at the point-of-sale (POS) using a card or a mobile wallet. Digital payments have a physical and an electronic component.

The physical is the plastic card, and the elaborate processes for getting those cards to the consumer and getting them authenticated, and the POS terminals used to take payments. Again, those POS terminals have to be made and consumer electricity. Measuring the physical is a similar task to that of measuring cash.

The electronic component is where the problem comes. How do you allocate the resources used to manufacture computers and mobile devices between payments and all their other uses? How do you measure the electricity consumed? The communication and computing ‘bill’ sits across whole data system – data centres, cloud computing, mobile networks etc. Add in that a mobile device uses considerably more energy and resource than a computer. Add in that the number of process steps in making a payment is not consistent around the world.

The DNB report uses the Roos Lindgreen paper 1 ‘Evaluating the environmental impact of debit card payments’ to make its comparison, and this remains the most focused and thorough source document available. The DNB compared its cash findings with those of Lindgreen and concluded that the environmental impact of cash payments was more than, but of the same magnitude as, debit cards. The good news is that payments represent a low share of an economy’s emissions. ‘Good news’ because unless we return to barter, there is no route to net zero payments.

Both papers were published in 2018 based on earlier data. Since then payments have changed, with cash usage in the Netherlands dropping and card payments rising enormously. A number of central banks are re-working their life cycle analysis, including the DNB, and it will be interesting to see how their findings change. We hope they are doing thorough comparisons with digital payments.

Sustainability is not, of course, just about emissions, resources and pollution. The UN Sustainability Goals go much further with inclusion, equality and community resilience all relevant to payments. Here cash scores particularly highly.

Whatever hot air is generated in Glasgow over the two weeks of COP, the world is going to have to get its act together on the environment. Cash is already under threat – some solid collective and aggregated data on its footprint will not only help those in the industry focus and double down on their efforts to cut emissions, raw material, energy consumption and pollutants. It will also help cash endure in a future, net- zero world.

1 - Roos Lindgreen E, Van Schendel M, Jonker N, Kloek J, De Graaf L, Davidson M (2018). Evaluating the environmental impact of debit card payments, The International Journal of Life Cycle Assessment 23(9), 1847 – 1861.