Navigant Research Blog

Finding a Cost-Effective Path to Climate Leadership

— January 9, 2018

A new wave of climate change regulations is coming, and this time to all corners of the world. Following the Paris Agreement, more than 80% of countries have already drawn up plans on how to contribute to the low carbon transition. Some have realised plans that put a price on greenhouse gas (GHG) emissions. While the majority still have to translate those into concrete regulations, the uncertain timing and cost effects of these regulations create risks for businesses.

Internal carbon pricing (ICP) can help companies navigate the tentative regulatory waters. Assigning an internal price to their carbon footprint enables companies to translate future effects of climate change regulations into a monetary metric. This allows decision makers to compare climate measures on equal financial terms and implement the most cost-effective ones. Already, almost 1,400 companies—including more than 100 Fortune Global 500 companies, representing about $7 trillion in annual revenue—have reported to CDP that they are using an ICP, or plan to do so in the coming 2 years. Most companies use ICP to manage exposure to climate-related risks, while a smaller subset uses it for scenario analysis of these risks, as recommended by the Financial Stability Board Taskforce on Climate-related Financial Disclosures. Only a few progressive companies try to utilise the full potential of ICP to find the cheapest measures to prepare for regulatory risks, discover new revenue opportunities, and reduce their carbon footprints.

Framework for Best Practice ICP

Source: Ecofys, a Navigant Company

Ecofys, a Navigant company, The Generation Foundation, and CDP developed a new 4D framework to help companies find the most cost-effective way forward in the low carbon transition as follows:

  • Have a carbon price level capable of affecting decisions (Height). Saint-Gobain uses two carbon prices, one for capital expenditure decisions and a higher price to stimulate R&D in disruptive low carbon technology.
  • Cover the GHG emissions hotspots in the value chain that can be influenced (Width). Carrefour decided to use ICP on GHG emissions related to energy use from its stores, which covers 90% of emissions it could directly influence.
  • Integrate it into business decisions (Depth). DSM has integrated ICP in existing business processes and has made it a mandatory factor in the financials for large investment decisions.
  • Evaluate regularly in line with business strategy (Time). Danone updated its ICP in 2016 to align it with its target to achieve carbon neutrality by 2050.

Three Success Factors to Setting Up an ICP Approach

With each dimension affecting the next, companies will have to decide between tradeoffs of acceptability, accuracy, administrative burden, and effect. Optimal combinations of model will vary depending on goals, GHG emissions profiles, influence in the value chain, and company culture. Nonetheless, three overarching success factors were identified for setting up a best practice ICP approach:

1. Obtain board-level support early on. The CFO and other strategy directors are especially important because well implemented ICP will influence financial decisions.

2. Engage the organisation from the start. Take the affected teams on board to create a sense of ownership and improve internal buy-in.

3.Start simple and learn by doing. Try embedding it in daily decisions. Over time, you can gradually increase the effect of ICP in the decision-making process.

Building on industry interviews and public consultation, Ecofys, a Navigant company, the Generation Foundation, and CDP published a guide detailing a four-step approach to establish a best practice ICP. Accompanied by a C-suite guide for executives, it allows companies to identify the most promising ICP approach for their organisation. Using ICP in a best practice way helps to actually ride the wave of new climate change regulations, not be overwhelmed by them.

 

Costa Rica Plans for Sustainable EV Future

— January 4, 2018

Up until now, plug-in EVs (PEVs) have been about as popular as snowshoes in Latin America due to the higher cost of the vehicles and lack of governmental focus on reducing transportation carbon emissions. However, in Costa Rica, government agencies are developing policies and infrastructure to lure automakers to send PEVs and to get consumers excited about the technology.

A Small but Ambitious Market

Costa Rica may not seem like the ideal location to grow a PEV market. The country has a gross national income per capita of just over $10,000 per year (as of 2015, per World Bank statistics), whereas most PEVs cost north of $40,000 and would be out of realistic reach for most consumers. The vehicle market is also small (just 154,000 vehicles sold annually), so it is not a top priority market for automakers to support PEV sales.

Nevertheless, with tourism to its sandy beaches and internationally renowned rain forest contributing 5% of Costa Rica’s gross domestic product, the government wants the country to project an eco-friendly image and participate in global efforts to combat climate change.

The country has set a goal of getting 37,000 PEVs on the road by 2022. On December 15, 2017, Costa Rica passed its first incentives for EV purchases, which include exemptions on the sales, consumption, and customs import taxes. According to a report from Nacion.com, this would reduce the final cost of a PEV by about 24%.

Growing Support for PEVs

Federal organizations in Costa Rica are also planning support for PEVs. The state-run utility led by Grupo ICE and Costa Rica’s integrated ministry of energy and environment (MINAE) both shared steps they are taking to promote EVs at the Third Annual Latin America Clean Transport Forum, which was held in San Jose, Costa Rica on September 20, 2017.

ICE said that with 76.6% of its power generation coming from renewables, the carbon savings of switching transportation from liquid fuels to electricity can be significant. Since 92% of residents live in private homes, pervasive access to home EV charging should smooth the introduction to PEVs. Also, the mild climate (an average temperature of 25°C) would enable PEV batteries to provide greater range and durability than in places with harsher weather. The utility is now investigating the barriers to PEV adoption and infrastructure requirements (such as charging levels and standards for collecting data) to prepare for their introduction.

EV Policy Development and Logistical Challenges

MINAE is developing a national policy for transportation electrification that will be released as part of the annual Oficializado Plan Nacional de Energía, which was due at the end of 2017 but does not appear to have been published yet. The national EV policy will set achievable goals for reducing emissions in transportation, including light and commercial vehicles as well as mass transit. These goals will align with the country’s overall climate change targets.

Despite these efforts, getting automakers’ attention to prioritize Costa Rica and other Latin American nations as PEV markets will be a challenge. With no local manufacturing plants, PEVs currently have to be imported into Latin America, and the higher cost of shipping the vehicles will need to be offset by local incentives. Consumer education in places where PEVs are rarely seen will require concerted effort from both the public and private sectors. Importing used PEVs, which have low resale values and could be used in fleets, is an effective method of introducing target customers to the capabilities of PEVs and building buzz around the technology.

 

Indirect Land Use Change from Biofuels Explained

— December 27, 2017

Full decarbonisation of transport will be hard without biofuels, but sustainability concerns have made policymakers weary of stimulating crop-based biofuels. The debate on the indirect impacts from biofuels in particular has increased recently. For example, on December 2, 2017, a group of Dutch scientists called on the Dutch cabinet to stop the use of food crops for biofuels. The lead argument refers to the GLOBIOM report, though it mainly follows the interpretation by the non-governmental organization Transport & Environment.

What Is ILUC?

Indirect land use change, or ILUC, is the rippling effect that an increasing demand for biofuels feedstock can have on global agriculture. This could lead to land expansion and deforestation elsewhere, with the subsequent effect of increased CO2 emissions.

ILUC is not measurable, as it takes place via complex economic interactions and is manifested only in small variations in the large dynamics of the global agriculture system. It can only be analysed through detailed modelling. In 2015 and 2016, the European Commission contracted Ecofys, a Navigant company, and the International Legal Alliance Summit & Awards (IIASA) to assess ILUC with the GLOBIOM model.

What Do We Know About ILUC?

From this study, we see that ILUC effects depends on the type of biofuels crop, among other factors:

  • ILUC impacts from sugar- and starch-based ethanol are small. The contribution of these types of biofuels can be increased without ILUC risks.
  • The same holds for wood- and straw-based biofuels.
  • Higher ILUC values are found for European oil crop-based biofuels, but ILUC is paid back within a few years by the savings resulting from replacing fossil fuels.
  • ILUC emissions are very large for soybean and palm oil. It is advised to decrease the volumes of biofuels based on these crops unless they are produced (certified) without ILUC.

It is crucial to be aware of the ultimate sources of ILUC emissions in tropical countries: mainly deforestation and peatland drainage caused by sectors that are not held accountable to EU biofuels standards. Top policy priority should therefore be to stop deforestation (globally) and agricultural expansion into peatland (mainly in Indonesia).

How to Avoid ILUC

From the biofuels production perspective, ILUC can be avoided in several practical ways:

  • Produce additional crops on abandoned agricultural or degraded land so that it does not interfere with normal crop production.
  • Use investments in biofuels to innovate in agriculture, to sustainably increase EU yields, and to bridge yield gaps in developing countries.
  • Produce additional crops within the current agricultural land; for example, through sequential cropping.

What Does This Mean for Biofuels in General?

It is important to remember that crop-based biofuels can contribute to the greening of transport in a sustainable way. The ILUC concept should not be used to categorically decrease their contribution. Other aspects should be considered in addition to ILUC. Specific considerations can put impacts in perspective and certain solutions can make the challenges manageable. This does not mean we should give carte blanche to increasing the levels of any and all biofuels. But it is possible to govern the sustainability performance and limit the ILUC impact. A generic call for the phaseout of all crop-based biofuels is ultimately counterproductive in the fight against climate change.

 

New Analytics Solutions Give Consumers More Energy Choice

— July 13, 2017

Residential consumers are becoming increasingly aware of their energy consumption and are interested in how they can reduce their use, save money on energy bills, and become more environmentally conscious. More and more customers are receiving home energy reports, which detail energy consumed and compare usage to that of neighbors. Opower (Oracle) achieved more than 11 TWh of energy reduction across 100 utility partners with these types of reports. Consumers are also logging into mobile apps that disaggregate devices to help them make smarter choices about where to target energy saving efforts.

Despite increasing efforts and awareness about energy, many consumers still do not know where their energy actually comes from. Most people may have a vague sense of their country’s energy mix and imports, such as the US energy mix depicted in the figure below, or that the UK imports 60% of its electricity-generating fuel. However, when a consumer flips a light switch, turns on their TV, or adjusts their thermostat, the energy that powers those actions is coming from whatever power plant is turned on to meet that incremental demand. This means the energy your light bulb is using could be drawing power from a coal plant, a natural gas facility, or a solar panel.

US Energy Mix: 2016

(Source: US Energy Information Administration)

New Technology Helps Track Generation Sources

In the past, there hasn’t been a method for determining the generation source that is meeting demand in real time. However, a non-profit called WattTime has developed a data analytics software that solves this problem. The software, which was the brainchild of a hackathon event in 2013, detects where the electricity powering the grid is coming from and the actual emissions impacts of people and companies using electricity. Not only does it detect this information, but it can also automatically power devices when energy sources are the cleanest. It can be installed in any Internet-connected device, making it flexible and easy to implement. This tool empowers customers to have a choice in the type of energy they are using and how much they are emitting when they consume electricity. WattTime’s software is gaining traction, having partnered with companies like Microsoft, Energate, and most recently, the Rocky Mountain Institute (RMI). WattTime has joined RMI as a subsidiary organization to foster the transition to a cleaner, more decentralized grid.

Looking Forward to a Cleaner Energy Future

Data analytics solutions like these are empowering consumers to make smarter energy choices, facilitating the transition to a cleaner, more decentralized and optimized grid, and solving challenges associated with reducing carbon emissions. Currently, emissions are calculated based on average factors, not based on the actual emissions that are generated depending on the source providing the next kilowatt-hour of power. As countries and organizations around the world move forward with reducing greenhouse gases, real, data-based information on emissions can help consumers understand how their actions directly affect greenhouse gas emissions and contribute to the overall goal of a cleaner, greener world.

 

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