Deep and Shallow Decarbonization in Supply Chains

Overview & Synopsis

This paper examines how climate commitments propagate through global supply chains. Using supplier-customer relationships matched to firm-level emissions, Science Based Targets initiative (SBTi) approvals, and project-level carbon offset retirements, we study how suppliers respond when major customers obtain externally validated climate targets. Suppliers adopt climate targets of their own, reduce emission intensity, and increase their use of carbon offsets. These responses are highly heterogeneous. High-emission suppliers reduce emission intensity by approximately 12%, indicating meaningful operational decarbonization, whereas low-emission suppliers predominantly expand their use of carbon offsets. Similar patterns emerge across measures capturing the cost and feasibility of operational decarbonization, including distance from the within-industry emissions frontier, hard-to-abate sector status, and financial flexibility. We further show that customer scrutiny shapes both emission reductions, and the quantity and quality of offset use. The results identify supply chains as an important channel through which climate commitments diffuse across firms and highlight the role of downstream accountability in shaping supplier decarbonization strategies.