Navigant Research Blog

The Positive Side of Negative Emissions

— February 15, 2018

In recent years, awareness has grown on the need for CO2 removal to avoid dangerous levels of climate change, and companies are increasingly looking to include negative emissions in corporate climate strategies. As a part of Navigant, Ecofys finds that sufficient scalable and affordable options for negative emissions exist, and that instead of being a burden, they carry many environmental and social co-benefits.

The Need for CO2 Removal

A key element of Paris-consistent scenarios are technologies that enable the removal of CO2 (greenhouse gases [GHG]) from the atmosphere, which need to absorb up to 3 GtCO2 per year as soon as 2030 to meet the “well below 2˚C target.” This is comparable in scale to roughly all of the European Union’s current annual CO2 emissions. The rationale of engaging in CO2 removal (CDR) is threefold:

  1. Even the most ambitious mitigation strategies will see residual emissions in hard-to-abate sectors, such as aviation or agriculture, and in order to reach net-zero emissions around mid-century, compensation with CDR is essential.
  2. The speed at which global emissions are reduced is limited because of inertia in the global energy system, but with CDR this process can be accelerated. An immediate, steep downward trajectory is needed to avoid overshooting climate targets and to avoid more negative emissions later this century—CDR can support such a trajectory.
  3. CDR puts a cap to the cost of emissions reductions, thereby improving the cost-efficiency and feasibility of achieving carbon budgets.

This makes CDR especially relevant for organisations that will play a key role in the transition to a zero-carbon economy, such as energy-intensive industries, agriculture and food companies, and governments. Through studies for the UN Environment Programme and the UK Committee on Climate Change (amongst others), Ecofys, a Navigant company, is at the forefront of developments in this field. The team observed that these projects often carry more benefits than their potential to draw carbon from the atmosphere.

A Worthwhile Investment

Methods for GHG removal are incredibly diverse, and some options are already being deployed at limited scale, while others are facing obstacles or may appear futuristic, such as bioenergy with carbon capture and storage, or the direct capture of carbon from the atmosphere. Given the multiple co-benefits CDR can deliver, some of the more developed methods are frequently referred to as no-regret options and reflect the social, environmental, and financial ROI that may result from their application. Such options are illustrated in the figure below.

Environmental Benefits of CO2 Removal Options

(Source: Ecofys, a Navigant Company)

Looking at opportunities with investment costs <$20/tCO­2, the global potential for these methods is estimated at 4.1 GtCO2/yr in 2030, which indicates that a significant share of the 3 GtCO2/year removal needed by 2030 to meet the well below 2˚C target could be achieved through the discussed methods. The examples provided illustrate that, while beneficial to the environment and people, CDR can make economic sense as well. However, it should be noted that business cases may differ strongly between regions and policy context, meaning that opportunities for negative emissions should be identified on a case-by-case basis—first within the scope of existing business activities and lastly by looking outward for other low-hanging fruits.

Get in touch with one of our experts to discover the potential options for CO­2 removal related to your business supply chains.

 

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.

 

Two Issues That May Derail Global Sustainability Efforts

— November 9, 2017

Most nations around the world are committed to reducing carbon emissions and energy consumption. This is evidenced by the near complete global membership of 197 parties in the United Nations Framework Convention on Climate Change (UNFCC), with 168 members currently having ratified their commitment to the Paris Agreement. However, two global issues may affect the long-term success of the Paris Agreement and other national or regional sustainability goals and targets.

A Vicious Cycle

The first is the increasing demand for residential air conditioners in areas that have previously had low usage rates overall. This is most noticeable and prevalent in the Asia Pacific region, where many countries are in tropical or subtropical climate zones. Developed countries around the world have higher historical demand and usage of air conditioners, but increasingly, developing countries in warmer climates are escalating their desire for these systems. Several factors contribute to this increase of use, including general warming of the climate, increased urbanization and the localized hotspots urbanization creates, and the availability of a wider variety of affordable air conditioners.

Today’s air conditioners are much more energy efficient than their predecessors, but they can still be the single largest energy consumer in a commercial or residential building. Additionally, the industry has largely eliminated, reduced, or restricted the use of ozone depleting chemicals such as chlorofluorocarbons and hydrochlorofluorocarbons, but many of the newer refrigerants can have thousands of times more global warming potential than CO2. It is easy to see how increased uptake of air conditioners in areas of lower historical use can derail the intent and goals of sustainability efforts such as the Paris Agreement.

Miss-Measured Returns

The second issue is the miscalculation by governing bodies and sustainability related organizations of the persistence of energy conservation measures (ECMs). For example, the European Union recently proposed a new Clean Energy for All Europeans package with a goal to extend its current sustainability targets to 2030 and beyond. One important feature not included in this legislation is the requirement of ECMs persisting from one period to the next. Essentially, this may give many participating countries an out. The Coalition for Energy Savings, a European organization that promotes energy efficiency, estimates that the energy savings from measures implemented before 2020 will be lost by about 18% by 2030, and about 70% by 2040. Additionally, measures taken to correct these losses can be counted as efficiencies gained during the new period—essentially double counting a single solution. No matter how stringent the goals, if persistence is not required and double counting of ECMs is not eliminated the ultimate goals will not be reached.

Countries around the world are doing an admirable job committing to global sustainability. But commitment alone is not going to provide results if the actuals aren’t measured accurately or don’t match the targets. A key takeaway is that efficiency and sustainability goals cannot be removed from real-world dynamics, such as existing or emerging market forces (e.g., demand for air conditioners in the Asia Pacific region) or the reality of energy efficiency project measurement lives. US utilities, for example, include degradation rates on energy efficiency projects included in their generation capacity credits. This is essential for the utility to meet its generation capacity requirements for large customer bases. Global sustainability goals and targets need to include this type of consistency and accountability in order to be effective in the long term.

 

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