Imagine a company considering a few different ways of reducing its greenhouse gas emissions: increasing energy efficiency within the company boundaries, purchasing green power from the local utility, and replacing virgin raw materials with recycled materials. How should the company prioritize these solutions to maximize the immediate climate impact of its actions?
All of the steps under consideration might result in similar emission reductions at the company level, but not all of them will produce the same climate impact in the short term. Some reduction methods will have a direct and immediate effect, while others will require many other companies to make the same choice in order to shift the market toward lower emission intensities. Ultimately the solutions might differ not only in their timeliness but also in terms of the certainty of emission reductions.
Scope 1 emissions provide the best opportunity for immediate climate impact
Scope 1 emissions originate from sources directly owned or controlled by the company, and reductions in these emissions provide the best opportunity for companies to have an immediate climate impact.
Emissions from fuel combustion in buildings and vehicles are typically a significant part of Scope 1 emissions for most companies. Any efficiency improvements that lead to lower fuel combustion — such as upgraded building insulation and more efficient vehicles — will result in immediate emission reductions without any reliance on markets and the choices that other companies make (assuming a minimal rebound effect).
Electrification of heating and transportation could be another option to reduce Scope 1 emissions immediately, provided that the resulting increase in Scope 2 and Scope 3 emissions is less than the savings in Scope 1. Process improvements that reduce direct GHG emissions from manufacturing and agricultural operations also fall in the category of immediate reductions.
Scope 2 emissions are more complicated but offer pathways to immediate climate impact
Scope 2 emissions are indirect emissions from purchased energy such as electricity. As with Scope 1, efficiency improvements are the first steps to reducing Scope 2 emissions. Lower electricity use can begin to reduce emissions almost immediately because of the way electric grids are managed. In addition to improving energy efficiencies in buildings, options for manufacturing companies include upgrading to more efficient electric motors which account for more than 85% of industrial electricity use.
Reducing or eliminating Scope 2 emissions by switching to electricity generated from renewable sources is more complicated. Green power products offered by utilities, which bundle the underlying electricity with renewable energy certificates (RECs), utilize renewable electricity that would have been generated anyway by existing projects regardless of a company’s decision to purchase the energy. The purchase decision does not lead to an immediate decrease in the total grid emissions — in the language of carbon offsets, there is no additional emission reduction in the short term.
However, as more companies make the same purchase decision, additional renewable energy projects could be funded by investors to meet the increased market demand and overall emissions could decline over time (which may be on the order of at least a few years). The same requirements of scale and market alignment apply to the purchase of stand-alone RECs that are not bundled with electricity.
On-site renewable electricity production using solar panels or wind turbines directly reduces the energy drawn from the grid and therefore reduces emissions immediately. A physical or virtual power purchase agreement (PPA) to procure both green power and RECs from a specific renewable energy project decreases the use of grid energy and could result in immediate emission reductions assuming the project would not have happened without the participation of one or more purchasers.
Scope 3 emissions generally require scale and market alignment to produce climate impact
Scope 3 emissions come from both upstream and downstream activities that are outside of a company’s ownership or control and make up the vast majority of corporate emissions in many cases. The largest source of these emissions for most companies that produce physical products is from purchased materials, components, or ingredients. These purchased goods are supplied by other companies that are often located in different parts of the world.
The most direct way to reduce upstream supplier emissions is by helping existing suppliers reduce their Scope 1 and Scope 2 emissions. Companies can fund insetting projects that are implemented by suppliers and could include everything from on-site renewable electricity generation and energy efficiencies to carbon sequestration in soils and trees. These steps, of course, take time to implement and are only possible for the larger companies that have the ability to work directly with their suppliers on sustainability targets.
It is more common for companies across the size spectrum to take other actions such as adding more recycled content to purchased materials, replacing some materials with others that have a similar functionality but lower emission intensities, and choosing suppliers that have better sustainability credentials. In most cases, the replacement materials are already being produced and the purchase decision does not lead to any additional emission reductions in the short term.
However, the market could shift to more sustainable materials over time (again on the order of a few years at a minimum) as more companies make similar purchasing decisions, resulting in actual emission reductions. As with parts of the renewable energy market, scale and market alignment are needed to produce a meaningful climate impact.
What should companies do
It is clear that energy efficiencies are among the most effective ways achieve immediate climate impact. Other steps in rough order of importance are process improvements that reduce direct emissions, electrification of heating and transportation, producing green power through on-site generation or PPAs, funding insetting projects in the value chain, purchasing green power from local utilities, and switching to more sustainable materials or ingredients.
Every emission reduction step that a company can take is potentially important, and companies should leave no viable options on the table. The key is to prioritize these steps in order to maximize the company’s immediate climate impact and minimize any uncertainties in the outcomes.