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Cracked supply chain

Supply Chain Transparency With a Blockchain-Based Digital Product Passport

Dec. 13, 2022
Delve into the logic behind tracing products using a digital product passport—and how this will change the supply chain.

In February of 2022, Europeans received a wake-up call in the form of Russia’s invasion of Ukraine—an event that brought war back to Western Europe for the first time since World War II. Russia happens to be the world’s fourth largest oil producer, but is also one of the top producers of other natural resources essential to the modern global economy, including nickel, copper and silicon. 

Supply chains, already under strain thanks to COVID-19, were disrupted not only by the fighting but threats of escalation. European industry shuddered, factories closed and global inflation soared, hitting decades-old records in Germany, the UK, and the United States, among other places.

It’s no accident that a month after the launch of what Russia still terms a “special military operation,” the European Union rolled out its Sustainable Products Initiative (SPI), a package of legislative measures closely linked to the so-called European Green Deal and the Circular Economy Action Plan (CEAP). These initiatives ultimately contemplate that most physical goods in the EU will become part of a near zero-waste “circular economy,” in which products are far more recyclable, thus requiring fewer natural resources.

Taken together, they will dramatically reduce the trading bloc’s carbon footprint and its reliance on natural resources—and Russia. Europe’s government envisages a host of new products that are more energy-efficient, sustainable and transparent, but this will require that a huge amount of data be collected and shared throughout the global supply chain.

Enter the “digital product passport,” or DPP: a unique technological solution that will trace nearly every product manufactured in the EU, providing its sustainability information to consumers and its product specifications to recycling companies.

Successful technological integration of DPPs into the supply chain has the potential to bring about radical process improvements, as well as end-to-end transparency through robust data collection and smart data analytics, but only if the data can be accessed securely, in real time and transparently enough to win over companies and consumers alike. In theory, DPPs will provide far more information than a typical passport, such as a product’s complete history, authenticated sustainability and ESG certifications, and comprehensive supplier profiles. They may even link to additional third-party data such as lab test results and carbon footprint information.

The end result should be an authenticated, product-specific report that is linked to the physical product via a unique digital code. While we already have plenty of experience collecting and tabulating product specifications and histories, the public dissemination of this data requires employing a newer technology—specifically the decentralized, encrypted ledger, familiarly known as blockchain. Blockchain is, in fact, an ideal technology to trace products’ sustainability from design to end-of-use in real time while ensuring security and transparency both.

The Digital Product Passport (DPP)

For centuries, products have been traced by paper bills of lading and their transport has been tracked only by shippers and receivers, and perhaps a customs authority if crossing country borders. This system has worked fine under our current “take-make-dispose” model, where goods are simply consumed and then quickly disposed of in a landfill or otherwise. 

As we move to a sustainable, circular economy, however, narrow tracking will simply not be enough. We need a new mechanism that:

  1. Allows consumers to identify the most sustainable and ethical products before purchase so they can make the best decisions; 
  2. Tracks products through their end-of use, and; 
  3. Identifies the most efficient processes to recycle them into new, usable products, as well as to prevent unsold consumer products from being destroyed.

Needless to say, this mechanism also needs to integrate seamlessly with global supply chains, lest it create the kinds of disruptions that we witnessed during the pandemic over the last several years, or which we are now experiencing due to the war in Ukraine. Taken together, all of these requirements form the digital product passport’s purpose. And in the next several years, we will begin to see the results, though many details remain to be worked out. 

Transparency

Of utmost importance is that the DPP ecosystem be a transparent one. What is needed first is a unique product identifier that works globally and quickly. QR codes—square, matrix barcodes invented in 1994—were common before COVID (in China, particularly, they have been used in place of debit and credit cards for years) and have become ubiquitous ever since. They are capable of linking instantaneously to a great deal of data and, therefore, would be ideal as the data portion of the DPP. Integrating these codes with blockchain technologies would complete the picture by making them accessible on a transparent, decentralized and secure network.

Here’s how it would work: By scanning the QR code, anyone—from producers to regulators to consumers to recyclers—could immediately access any product’s relevant information. This could include, for example, sustainability data, recycling instructions and even instructions on how to fix or upgrade used devices, such as laptops or cellphones. 

Indeed, the EU’s Proposal for Ecodesign for Sustainable Products Regulation already requires such information to be digitally “attached” to products until they are ready for recycling. The DPP could go a step further by providing the full history of the product, much like an insurance report on a vehicle.

Data-Driven

The devils, as always, are in the details. In this case, the details are data. Thankfully, EU regulations already outline the general requirements for creating, accessing and sharing digital product passports. These include a stipulation that DPPs be based on open standards, be developed with an interoperable format and be both machine-readable and searchable. The product’s model, batch and/or item numbers must also be included in its passport

More specifically, the EU would like the DPP to contain information on a product’s durability, reusability, upgradability, reparability, maintenance and refurbishment, as well as the presence of “substances of concern” and the product’s expected generation of waste materials. This may seem like a great deal of data, but when reduced to a searchable, digital record accessible via QR code, the DPP would actually be far more efficient than either paper records or product specifications distributed across manufacturers’ websites.

Thankfully, there is already a template because DPPs are in use for batteries; by 2026, every industrial and electric vehicle battery in the EU must come with one. The battery passports contain links to safety information as well as targets for recycled content, a huge issue as EVs continue to gain market share. The EU also mandated that battery passports contain information on material sourcing, carbon footprint and durability, as well as repurposing and recycling guidelines.

One issue of concern is that including too much data might compromise companies’ trade secrets. But this will undoubtedly be worked out on a case-by-case basis until some consensus is reached regarding what amount of data is considered to be enough, but not too much.

Next Stop: Blockchain

Batteries may be the test case, but DPPs have already been officially contemplated for use in other major industries across the EU, particularly textiles (the waste created by so-called “fast fashion” being a big impetus) and construction products. Unlike Europe, the United States did not pass its “Green New Deal” legislation.

And while it’s too soon to tell exactly what the consequences of the EU’s approach will be globally, Apple—which is the world’s largest smartphone maker and second largest company by market capitalization—announced last year that it will make its phones more repairable going forward.

As corporations take the lead on sustainability in America, blockchain and non-fungible tokens (NFTs) in particular are transforming the way that many global organizations work, including governments. In Estonia, for example, blockchain was used to conduct its most recent presidential election. Indeed, the migration to blockchain may ultimately be bigger and more profound than the recent migration from proprietary servers to the cloud.

The use cases are nearly infinite, but in order to create meaningful adoption of blockchain technology in sustainability, businesses will need to understand why they should be more transparent. Moreover, they must be convinced that DPPs will not create huge new burdens in terms of regulation and/or operating costs.

Furthermore, environmentalists will need assurance that DPPs do not become self-defeating, which could easily happen if the blockchains they use are based on protocols that use huge amounts of energy—or “gas,” in the industry parlance. Therefore, DPPs will need to utilize low-energy protocols such as “proof of stake” and others now being developed.

But these are engineering issues, which can and will be addressed by engineers. The reward will be a circular and sustainable economy less susceptible to supply chain shocks like COVID and the war in Ukraine, which will ultimately make it well worth the effort.

This article was submitted by Edward Routh, co-founder, Relloe.

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