Investigating the environmental footprint of payment systems
Using Oxford Economics’ new Lifecycle Assessment (LCA) tool to evaluate the carbon emissions of the payment system, and whether digitalisation would reduce environmental impacts.
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Digital payments have become increasingly prevalent, with the number of non-cash payments in the euro area nearly doubling from 21% in 2016 to 41% in 2022. At the same time, individuals, businesses and governments are increasingly concerned with managing environmental impacts to mitigate climate change. Within the payment sector, some evidence suggests that digital payments may have a lower environmental footprint than cash payments. However, due to the lack of comparative assessments between the lifecycles of digital and cash payments, and the significant geographical differences, the actual environmental impact of payment methods at points of sale (POS) in Europe remains unclear.

The Challenge
We were commissioned by the European Digital Payment Industry Alliance (EDPIA) to examine whether paying digitally rather than using cash in shops reduces the negative environmental impact, and identify the areas within the lifecycle of digital payments where environmental effects could be further reduced.
Two areas needed to be considered when undertaking this challenge. First, all elements of the digital and cash payment systems had to be evaluated equally to make them comparable and to allow us to identify the environmental “hotspots” and their respective impacts. Second, these processes also had to be evaluated across countries with varying degrees of digital payment adoption to obtain more comprehensive results.

The Solution
By applying a Lifecycle Assessment (LCA) and following the International Organization for Standardization (ISO) guidelines, we analysed the various processes and operations involved in cash and non-cash payments, from cradle to grave. The LCA, a new method in Oxford Economics’ toolkit, is a holistic approach that appraises environmental impacts across stages of a lifecycle on a variety of categories. Using available data—including figures on raw materials, energy consumption, emissions, and waste—we isolated the impacts of separate processes and determined which lifecycle stages had the greatest negative environmental impact for both cash and digital payments.
Moreover, this comparative tool enabled the evaluation of the environmental impact of a digital payment transaction and compared it to a cash payment equivalent in three countries: Italy, Finland, and Germany. These countries have significantly different adoption rates of digitalisation (with Finland having the highest rate and Italy the lowest) but share the same currency, facilitating cross-country comparisons.

The Result
We found that cash transactions had a larger environmental impact at POS than digital payments in 17 out of the 18 categories examined. For digital payments, the production of terminals and cards had the greatest negative environmental impact. However, the degrees of the impact differed across countries. Over one month, the average person using digital payments saved the equivalent in CO2 emissions of three single-use plastic bags in Italy, four in Germany, and six in Finland.
Our report, bolstered by the critical eye of external reviewers, provided our client with actionable recommendations to reduce its environmental footprint and demonstrated the applicability of our new LCA capability for future analyses. This insight enables policymakers and businesses to make more informed decisions as they strive to meet net zero targets, decarbonise systems, and develop rigorous and evidence-based policies across various geographies and settings.
Click here to read the policy recommendations for the EU and national policymakers developed by EDPIA Members based on this study’s findings.
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