Amazon — Decarbonization Opportunity
One recent statistic that caught my eye is Amazon’s shipping cost. In 2019, it was $37.9B and has been growing at ~30% y/y. According to Morgan Stanley, it is projected to be a whopping $151B by 2027.
While the absolute dollar figure is huge, and I got intrigued to get a first order impact on carbon footprint because of this. While this cost includes various modes of transportation, including air, long-distance trucks, and last mile delivery vehicles; for the purpose of this exercise, I’ve assumed a passenger car equivalent, an assumption that’s conservative.
Transportation costs for personal cars are currently at $0.7 per mile, which with automation is expected to come down to $0.25 per mile; possibly also resulting in increased miles traveled — high consumption due to lower prices. This implies that in 2019, there were almost 54B miles that Amazon vehicle’s traveled to get the boxes at our doorsteps.
While the carbon footprint of trucks is significantly higher than passenger cars, which still results in ~0.4 kg of CO2 emissions per mile. In essence, we’re throwing almost a pound of trash on the roads, in our atmosphere for every mile we’re traveling! As a result, in 2019, the CO2 emissions due to Amazon’s shipping is about 22 million tons. This is roughly 10% of the CO2 emissions from the entire commercial aviation fleet in the US. With the status quo, the CO2 emissions from shipping are projected to increase ~5x by 2027, to ~90 million tons.
Of late, we’ve seen several regulatory moves e.g. California is planning to ban fossil fuel based trucks by 2045, or even country level pledges e.g. China is committing to be carbon neutral by 2060. While there is no widely adopted price on carbon, yet, there are multiple indicators. From the 45Q incentive for carbon capture, with price up to $50 per ton, to Stripe’s recent commitment on carbon negative purchases, with prices from $75 — $775 per ton. Practically, all of the carbon negative technologies are nascent today, and with scale, we can expect the prices to reduce.
Assuming a carbon price of $100 per ton, the CO2 emissions from Amazon’s shipping would be ~$2B in (carbon) liability in 2019 and ~$9B by 2027, with no changes. These are likely conservative numbers. The overall carbon footprint for a company like Amazon will also include buildings, data centers, Scope 2 and 3 across the global supply chain; to name a few.
Having recently finished reading Invent & Wander, it’s clear that Jeff and the team at Amazon are already living at least a couple of years out and planning for this opportunity to decarbonize. Some of the recent announcements indicate that too. Whether it’s investment in Rivian and goal to buy 100,000 vehicles, commitment to be net zero by 2040 across its businesses, or announcing a $2B Climate Pledge Fund; which Microsoft recently joined as well. I think these are few of the tools in the toolkit to capture the decarbonization opportunity and would expect other tools e.g. hydrogen for transportation, renewables PPAs, energy efficiency, building electrification to become increasingly important as well. A look at cost line items will be a good place to start.