Germany as an industrialized country has a role model function because industrialized countries create technological developments that set standards worldwide. This must also be used in environmental policy [Angela Merkel, 1996]

The disruptive possibilities of digitalization and its impact on society and the economy are just as much a focal point of discussion in politics and business as climate change and the damage irreversibly inflicted on the environment by society.

The fact that the possibilities of digitization, in particular industrial edge technology with cloud computing and decentralized ledgers, can be used to eliminate economically relevant misallocations through the targeted internalization of external effects is less frequently heard.

The main problem with the internalization of external effects and the associated financial instruments such as eco-taxes or certificate trading is usually the unsatisfactory or incomplete level of information on the quantity and quality of emissions and resources used. Likewise, the issue increases in complexity with an increasing share of parties involved, such as multi-stage and locally distributed manufacturing steps.

The presented concept, which has the potential to show gaplessly the CO2 neutrality of a product or a manufacturing process, links in a clear way CO2 sources (production site) with CO2 sinks (sustainably managed and certified forest areas) efficiently thanks to Industrial Edge, Cloud Platform and Blockchain technology and enables the proof of a certified CO2 neutrality of a product or/ and process, motivates for sustainable management of forests and preservation of other sinks and enables future locally effective CO2 certificate trading via Smart Contracting.

On a further platform, the resulting CO2 values of a product are to be transferred as a so-called “building block” to a “Scope 3 platform” to be developed jointly with the World Economic Forum, whereby this product can be included as a module in the CO2 balance of another product and thus contribute significantly to global transparency and incentivize optimization of the respective module via malus-bonus systems.

The recording of the local and real emitted CO2 values is through an edge based dynamic value stream analysis, which records the use and energy consumption at the source in connection with the produced product in real time. This information is transmitted event-based to the cloud via a platform based on MindSphere that is specifically provided for this purpose and linked to the sinks provided (CO2 certificates or defined certified forest stands) with smart contracting (e.g. blockchain technology).

Fig.1: Digital Dynamic Sustainble Development Concept

An intermediate company can manage and accredit the certificates and enable higher-level trading.

The platform thus brings together the individual players such as companies (CO2 source), forest farmers (CO2 sink), investors and financial companies (traders). The entire approach is to be understood as a digital dynamic sustainable development DDSD (Fig.1).

Sustainable Development

There is no uniform translation of sustainability in the German-speaking world. This term is often used in the context of corporate social responsibility regarding the environment and society.

About the subject presented here, we would equate the term with “future viable development” or “future viability” in accordance with the Wuppertal Institute, as this can thus be associated with Germany in an unbiased manner with “sustainable” and “lasting”. Further we also follow the Brundtland Commission, which defines “sustainable development” as the intersection of the three global imperatives “environmental integrity”, “economic efficiency” and “human welfare”.

Why is “forest” considered as a CO2 sink?

Many ideas exist regarding the connection between trees and carbon dioxide. Most of them are not fundamentally wrong, but they are also not completely correct and could therefore lead to wrong conclusions. For this reason, we should briefly address this issue. What all models have in common is that trees absorb CO2 because they help to mitigate global climatic change, and thus can in some ways compensate for CO2 emissions generated by industry and humans. For example, one model attributes to trees the ability to filter CO2 from the air, which leaves open the question of what happens to the filtered carbon dioxide. Likewise, I think it raises the hope that in the future there could be technical filter systems that would have the same effect as trees.

In another explanation, trees are portrayed as being able to absorb and store CO2, which resembles the image of a sponge. At least it comes somewhat closer to the truth with the statement that CO2 would be stored. In fact, however, a tree does not store CO2 but converts it into other carbon-based components.

Often forests are also called the lungs of the world, although literally understood a lung actually does exactly the opposite. One could understand that carbon dioxide is completely exchanged for oxygen, which is definitely not the case.

However, the fact is that plants convert CO2 and water into sugar, which is nothing other than the principle of photosynthesis. During the formation of sugar, the excess oxygen is released and the sugar with the carbon bound in it serves as food for the plant. This also explains what happens to the carbon and where the oxygen comes from. In addition, other substances such as starch, fats and proteins are formed. A large part of the sugar is converted into lignin and cellulose in trees. These components are collectively referred to as biomass. This biomass consists of CO2-rich components and therefore one can also speak of CO2 sink. This also means that, for example, if combustion or decomposition of the biomass, these carbon-containing components are released again. However, the carbon released is many times less than the carbon absorbed.

It is therefore scientifically acceptable to consider forests, or trees, as CO2 sinks because they contain carbon in one form or another. [1]

However, it should also be noted that trees grown for CO2 compensation as part of sustainable forest management must be replaced as soon as they are felled. Since the absolute amount of reforested trees has to increase permanently, an effective system is required to harmonize CO2 sources and sinks.

Internalization of external effects

„To be sustainable, development must improve economic efficiency, protect and restore ecological systems and enhance the well-being of all people”

[International Institute for Sustainable Development, Winnipeg, Canada]

The optimal use of a renewable natural resource is certainly only given if this precisely does not end in extinction, but moves at a constant level corresponding to the rate of regeneration. This elusive and partly philosophical question can, however, be answered with mathematical methods and evaluated economically, which is what the internalization of external effects deals with and thus also takes up the objective of the field of action described here.

If we consider the environment’s capacity to absorb CO2 and its equivalents as a regenerative resource, we can also assume that this resource can theoretically be increased or completely depleted by taking appropriate measures in the period relevant for human planning. Thus, the relationship between present use and future possibility of use becomes complex.

Renewable resources have received attention from the economy and society mainly because of the problems of overfishing of the oceans and clearing and burning of forests. Society’s task now is to find a socially optimal path of use for these resources.

A distinction is made here between static and dynamic analysis. In the static analysis, the investigations are based on past values, whereas in the dynamic analysis, a temporal preference structure expressed by the discount rate is considered. This takes more account of the intertemporal allocation problem, since the potential uses of the environment’s absorptive capacity in the future depend on its use in the present. Again, consider that the regeneration rate of a renewable resource depends on the initial stock.

The CO2-equivalence balance regarding Scope 1 & 2

Especially in Germany, above all the Siemens Group, understood early on how to use the potential of the Eco-Audit Regulation and ISO 14001 to ultimately shape itself into a sustainable company^[2]. Furthermore, Siemens has also agreed to the goal of being CO2-neutral in terms of direct and indirect emissions by 2030 (Fig.2). This is often referred to as “Scope 1” and “Scope 2” and, in a broader sense, covers the efforts that very many corporations and companies are currently making.

At the same time, the Siemens Performance System, based on the principle of continuous improvement with optimum use of the resources required for production, is practiced in all plants. The classic value stream analysis is primarily used to identify potentials.

Derived from this, a CO2-equivalent value stream analysis was developed, and thus the traditional value stream of a product group and its process steps was extended by the dimension of “sustainability”.

The implementation of processes and methods for the sustainable and responsible use of natural resources is fundamentally one of the important tasks of a plant management.

The application of a CO2-equivalent value stream analysis is a valuable tool to complete existing accounting methods. Based on the dynamic value stream method, the analysis is process-oriented, i.e., the process-related course of the product’s refinement is tracked and digitally recorded in almost real time.

This enables an integrated view of the “added value” of the product through continuous refinement and its ecological contribution through the CO2 equivalents released as a result. This in turn allows the company to evaluate and sustainably optimize individual product lines in terms of value added and CO2 equivalents.

Why are CO2 equivalents important?

In many cases, only CO2 emissions are used to assess climate impact, since CO2 (carbon dioxide) is the most important greenhouse gas. However, emissions of other climate-relevant gases – e.g., methane – can be associated with the use of certain energy sources.

For example, when natural gas is used, methane emissions are possible because of incomplete combustion or escape from leaking conveying systems.

Therefore, for a complete statement on the environmental impact, the balancing with CO2 equivalents makes sense, whereby all emitted greenhouse gases must be considered regarding their climate impact and quantified accordingly as CO2 equivalent values.

To determine the CO2 equivalent values, the individual energy consumption such as electricity and natural gas are converted using CO2 equivalents (see Table 1) [3].

By converting with CO2 equivalents, both direct and indirect emissions are considered. Direct emissions are those that occur at the point of energy conversion. Indirect emissions are emissions that occur through the provision of the energy carrier.

*Tab* 1: CO2 equivalents containing direct and indirect emissions (Germany Energy mix)

[1] R. Philip Bouchard, Trees and Carbon Dioxide: What is the True Connection? Medium

[2] Siemens Press Sustainability

[3] Öko-Institut e. V. Öko-Institut e. V.:

GEMIS Materialien; http://www.oeko.de/service/gemis/files/setup/g46-results_aug2010daten1.xls