Navigant Research Blog

“Basing” Corporate Emissions Targets

— February 6, 2018

Global Emissions Goalposts Are Captivating C-Suites and Gaining Velocity in Corporations Around the World

In boardrooms worldwide, an interesting discussion is occurring as iconic brands and corporate titans reform their journeys to cut greenhouse gas (GHG) emissions, as well as their strategies for protecting the climate. Mindsets were rebooted by the 3% Solution and the Science Based Targets Initiative, and were energized by the global Paris Agreement, leading to waves of bold pledges from corporations. What are factors that make these concepts concrete for executives deciding on goals?

Putting the “Based” in Science-Based

Dating back to the mid-1990s, businesses developed emissions goals with arbitrary reduction numbers, intending to one-up a competitor or tag to a year with marketable slogans like “15% by 2015.” So why are science-based targets (SBTs) suddenly resonating as executives deliberate long-term objectives? Well, it looks like it’s more about the “based” than it is about the “science.” It’s not that science is uninteresting to corporations, it just isn’t the only impetus for speed and adoption of the SBT approach to target setting. On topics of environmental protection, businesses often make a public case for certainty or a level playing field. Internal specialists tasked with emissions now have a tool that provides both of these even without a domestic compliance and regulatory framework in place to address GHGs. Many corporate anecdotes suggest that revising the terminology is also key to promoting the SBT concept, and although different terms are used (context-based, evidence-based, responsibility-based, even value-based targets), they appear to achieve the same outcome.

“Based” targets are winning out in a marketplace of climate goal concepts that is sometimes confusing; it’s about time there is one dominant framework. There’s carbon neutral, climate neutrality, net-zero, net-positive, and even drawdown. Some have fallen out of favor because they require too much explanation while others signal new frontiers. “Based” targets are here to stay, and their current traction is similar to previous standards and certifications, such as the Forest Stewardship Council and the Marine Stewardship Council. The way it plays out, industry leaders or first movers set a target based on the sector’s emissions budget and others follow suit, either exceeding the leader, or chasing that level of ambition. There are now 339 multinational companies committed to setting a target that follows the pathway to 2°. More of those companies are from the US than from any other nation in the world.

So What?

More than anything else, this concept helps internal discussions with the C-suite when a specialist can tell leadership that, by setting an SBT, the company is identifying its share of reductions in relation to the global emissions challenge and that cuts its footprint within the emissions budget for the sector and industry. Putting an emissions goal into a global context makes sense to internal stakeholders in a way that definitively makes a case for “how do we do our share?” It also makes sense to external investors and advocacy stakeholders that are starting to ask companies when they will have a science-based target—or why they haven’t set one yet.

Basing targets on global data is here to stay. Executives like the linearity of setting targets; 89 companies had them approved by the SBT Initiative in 2017. How can you take the next steps? 2018 is the year!

If you are looking at what paths to take, contact Matthew Banks for information on the projects and services Navigant’s Sustainability Team can offer as a strategy partner.

 

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.

 

Federal Carbon Regulation Likely Dissolves, but Some States Fill the Void

— January 13, 2017

Cyber Security MonitoringA version of this article was originally published on Energy Central.

After months of litigation, a decision by the DC Circuit Court on the future of the Clean Power Plan (CPP) is expected to be announced early this year. Congressional Republicans and incoming president Donald Trump were both critical of the CPP on the campaign trail during the 2016 election, so the outlook for the CPP is bleak. The demise of the plan seems likely, though it will not be quick, however, as states that support the rule have promised to fight to protect it. New York, California, and other states are stepping up to fill the CPP’s void and continue to work toward decarbonization.

States Stepping Up

Continued progress is expected in greenhouse gas emissions reductions in New York as the state has implemented the Clean Energy Standard (CES), Reforming the Energy Vision (REV), and other emissions-related initiatives. The CES targets the use of renewables for 50% of electricity consumption by 2030. Navigant’s 2017 outlook for New York shows significant increases in energy efficiency, wind, and solar over previous cases without the CES. Some of these additions are already happening around the state, and growth is expected to continue through at least 2030. Additional initiatives at the state level that put an emphasis on distributed energy lead us to forecast that nearly half of all the solar capacity added in the state through 2040 will be distributed solar. New York is a member of the Northeast’s Regional Greenhouse Gas Initiative (RGGI) along with states from New England and PJM. As New York increases its deployment of energy efficiency and renewables, CO2 prices on the RGGI market will be driven down and other states in the market will be affected. This would also otherwise affect energy efficiency and renewable development in other RGGI states, except that these are mostly driven by other state imperatives.

California has also been a leader in decarbonization efforts for many years, and it is not expected that leadership from California will taper off anytime soon. California’s cap-and-trade market for CO2 is linked to Quebec, with plans to link with other Canadian provinces in the near future. The state is also on track to meet its aggressive Renewable Portfolio Standard (RPS) targets of 33% by 2020 and 50% by 2030.

Higher Emissions

Even though state policies are expected to continue to push the grid toward decarbonization, without a federal regulation on carbon, overall emissions from the industry will be higher. Without the CPP in place, MISO and other areas are expected to see less coal capacity retire. However, the economics of some older coal plants and even a few nuclear plants make it unlikely they will continue to operate through 2040.

Uncertainty in the industry will likely continue, and can make planning for the future difficult, particularly in a sector where planning is so important and highly regulated. Navigant’s 2017 Integrated Energy Market Outlook and Industry Trends webinar on January 25 will analyze how fundamental policy shifts are expected to impact coal retirements, energy, capacity, and prices as well as the potential impacts regarding supply and transmission expansion for gas and power over the next 25 years.

 

Giving to the Environment This Holiday Season

— December 5, 2016

LEDsThe moment Halloween was over, or in some cases before, holiday decorations were already on sale in major retail stores. With the holiday season comes added expenses—from gifts to parties to additional travel. Reducing energy consumption allows consumers to save money on their utility bills while also contributing less greenhouse gas (GHG) emissions. By selecting certain types of gifts, it’s easy to help reduce waste and environmental impact during the holiday season.

Lower Energy Consumption

Holiday lights for both the commercial and residential sectors are already an added expense this time of year. Using LED holiday lights can greatly lower utility bills. Even with the additional upfront costs compared with traditional miniature lights, LEDs are a more economical option. While incandescent lights have a lifespan of roughly 2,000 hours, LED holiday lights have a projected lifespan of upwards of 20,000 hours. In addition to their extended lifespan, LEDs use considerably less energy and thus cost less over the same operating hours as traditional lights. Although LEDs consume substantially less energy than incandescents, reducing overall operating hours will decrease energy consumption even more. One simple way to reduce operating hours is to turn off lights when no one is in a particular room or area.

Reduce, Reuse, Recycle

Many gifts for the holidays are made from recycled materials, such as recycled tires, plastic bottles, reclaimed wood, and repurposed clothes or fabrics. These types of gifts reduce environmental impact over gifts made only with new, non-recycled materials.

Reusing items comes in many forms. Purchasing rechargeable batteries eliminates waste for gifts and home electronics that require batteries. Reusing newspaper, paper bags, maps, scarves, or other fabric as wrapping is an environmentally friendly alternative to purchasing wrapping paper, which not only reduces waste, but also cuts overall holiday shopping costs. For the crafty types, holiday decorations can be made by reusing household items, such as jars, cardboard, strings, and paper.

With the increase in wrapping paper, holiday cards, cans, and bottles, it is important to recycle as many items as possible. As Navigant Research discusses in its Smart Waste Collection report, the collection of smart waste is a growing market and is expected to grow from $57.6 million in 2016 to $223.6 million in 2025. While many recycling programs could improve upon efficiency, they will accept the above listed items, making it easy to recycle instead of throwing these items in the trash. For other things such as electronics, there are often special recycling options for these items or many places that will accept them as donations.

From Thanksgiving to New Year’s Day, household waste increases by more than 25%. Reducing, reusing, and recycling can significantly decrease the amount of waste around the holidays and help form habits to continue waste reduction throughout the year.

 

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