Decarbonization, simplified

More than a third of the world’s largest publicly traded companies now have net zero targets, but 65% of the targets do not even meet minimal reporting standards. A recent analysis by Just Food shows that the world’s largest food companies have actually gone backwards on net zero with a 7% increase in emissions in the most recent reporting year, largely due to the difficulties in limiting their scope 3 emissions. In the meantime, Bloomberg reports that several tech companies with large scope 2 emissions have simply purchased non-additional renewable energy certificates (which do nothing to cut emissions) to show huge emission reductions on paper.

Science-based targets are all the rage in the world of carbon management, but target-setting shouldn’t be confused with progress. Considering that we need a 45% cut in emissions by 2030 (from 2010 levels) for a 1.5 °C temperature rise, we haven’t seen many examples of large companies (other than a few tech companies like Google) on a clear path to hit this target, or even the lesser 2 °C target. There are no corporate emission reduction success stories that can be replicated at scale.

So, what can an ambitious, well-meaning company do to help secure the planet’s climate while growing its business? Here’s a simplified decarbonization roadmap for companies willing to put in the work and invest the dollars.

Focus on energy use rather than materials at every stage in the supply chain

So much of a corporate GHG inventory revolves around purchased materials. But the primary leverage point for emission reduction at every stage in the supply chain is the energy used to process or manufacture something. In principle, this energy can be made carbon-free, all the way back to the so-called “cradle” where raw materials are extracted from the earth. Keeping the focus on energy, rather than the materials, will be a helpful shift in perspective.

Max out on electrification and energy efficiencies

Electrification and other direct energy savings lead to immediate decarbonization as opposed to weaker methods that only send a signal to the market. Over 73% of global GHG emissions come from energy use (i.e., from energy used in industry, transport, buildings, and agriculture) and from energy production itself. While certain other emissions might be unavoidable and may need to be offset or captured, energy-related emissions can actually be reduced by electrifying just about everything. Electric motors are more energy efficient than direct combustion of fossil fuels in many applications such as HVAC and transportation, and will get even better on the carbon front as electric grids become cleaner in the next 5–10 years.

Purchase renewable electricity, but without using unbundled RECs

As renewables become the dominant source of electricity, there will hopefully be less of a need for companies to specifically “purchase” renewable electricity in the long run. In the next decade though, companies will still need to figure out how to buy renewable electricity with the right amount of climate impact. This means entering into power purchase agreements (PPAs) rather than purchasing unbundled renewable energy certificates (RECs). PPAs require expertise and scale to successfully negotiate and implement. One way to move forward is through emission reduction pools in which groups of companies work collaboratively in order to increase their negotiating power and creditworthiness. An alternative to PPAs is on-site solar generation.

Understand that supply-chain decarbonization is hard, so focus on tier 1 suppliers

We hear a lot about supply-chain decarbonization, but this is easier to talk about than to do. For starters, it is generally an uphill task to get primary data from a company’s direct (tier 1) suppliers, let alone from the further upstream stages in the chain. Primary data is required for analyzing a supplier’s emission sources and designing emission-reduction solutions. Large companies with leverage could conceivably get some insights into the operations of their tier 1 suppliers — such as the manufacturers of packaged goods for a large retailer, or the supplier of processed ingredients for a major food brand. Focusing on tier 1 suppliers is the best way to make some progress.

Help suppliers with electrification, efficiencies, and renewables

For supply-chain decarbonization, it is again best to keep the focus on energy and steer the suppliers toward electrification and renewables. Large companies can use their in-house expertise to move their suppliers forward on the emission reductions path. One recent example of this is Walmart’s Gigaton PPA which uses aggregated PPAs for providing access to renewable electricity to Walmart’s suppliers.

Decarbonization is not free, so budget for it

Decarbonization will require significant investments in electrification, renewable power generation, process and building efficiencies, and supplier engagement. There will be a return on this investment by way of reduced operating expenses, increased sales and customer loyalty, and reduced future regulatory risk. But decarbonization might not be the best use of capital on a purely financial basis and companies should be prepared to accept this as the cost of doing business in a planet-friendly way. One way to quantify this is by using the cost of offsetting the emissions as a lower bound for the cost of net zero — this works out to 0.5 to 3% of gross revenue for companies in consumer sectors such as food, clothing, and personal care products.

Understand the limitations of “science-based” targets

Setting a 1.5 °C or 2 °C target is appropriate both globally and at country levels where there may potentially be many different emission reduction pathways. Policies and incentives can play a big role in accelerating progress as we are already seeing on the renewable electricity front. But most companies, including some major brands, are way too small to be able to set and meet emission reduction targets aligned with specific temperature goals. The biggest issues are the intractability of reducing scope 3 emissions and the sizable investments needed for any reduction — neither of these issues has been adequately addressed to date. Even if companies do most everything we have talked about here, they still might not be able meet the entirety of the “science-based” targets they may have set. But they can still make plenty of climate progress — and tell their customers about it — without meeting contrived targets.