Ground zero

Net zero carbon emissions may be the most confounding issue of our times. The race to a 2050 target has fired imaginations and inspired action more readily than the grave findings of the Intergovernmental Panel on Climate Change (IPCC) and the 2015 Paris Agreement with its nebulous message to keep global warming temperatures well below pre-industrial levels. Vital as they have been, neither came with readymade action points for a visionary way forward.

The net-zero goal, however, seems more tangible and it is driving momentum rapidly. At country and corporation levels, pledges are proliferating — along with expectations.

64 carbon pricing initiatives implemented

45 national jurisdictions are covered by the initiatives selected

Source: World Bank Carbon Pricing Dashboard

Larry Fink, enduring CEO of the world’s largest asset manager, BlackRock, demanded direct action from clients earlier this year: “We are asking companies to disclose a plan for how their business model will be compatible with a net-zero economy... how this plan is incorporated into your long-term strategy and reviewed by your board of directors.”

Ambitious businesses are advancing net zero by 2050 deadlines, with some boldly aiming for 2030 or 2040. A vast majority are yet to commit to the mid-century date, although many are aspirants. Holding them back is uncertainty over how to achieve net-zero emissions with no line of sight to the outcomes of proven or yet-to-be-invented technologies, unpredictable changes in customer demands and markets, potential supply chain risks and regulatory flux.

What does the way ahead look like? How can organisations in different sectors find the right path? Where can they confidently invest now?

“Everyone has been shocked by the scale of what’s involved, and yet lots of people were committing to net zero before the study came out.” Dr Chris Greig, Princeton Andlinger Center for Energy and the Environment

Net-zero America

Researchers at Princeton University in the US presciently identified this historical inflection point two and a half years ago when they embarked on the Net-Zero America project to define five distinctly different decarbonisation pathways for the US. Their work detailed what’s required for a 100 per cent renewable energy scenario vs a more constrained setting for renewables, high vs lower electrification, and a scenario for less electrification and high biomass, to achieve a net zero nation by 2050. The Net-Zero Australia (NZAu) project is now underway.

Net-Zero America’s first report, released in December, showed the massive scale and pace of change that will characterise the US economy’s transition across sectors, and the implications for infrastructure, employment, land use, existing energy industries and human health. Big-ticket items flagged a US$10 trillion supply side spend, and pluses from reduced air pollution and, consequently, reduced health spending.

“Everyone has been shocked by the scale of what’s involved, and yet lots of people were committing to net zero before the study came out,” notes Dr Chris Greig, senior research scientist at Princeton’s Andlinger Center for Energy and the Environment, who co-led the project.

The study maps tens of thousands of low-carbon energy and infrastructure assets to show how such transitions would evolve “on the ground”. It applied algorithms to develop data sets that organisations can tap into to find when and where infrastructure and other assets need to be located and what demand will be. And it provides insights into social/environmental impacts and investment challenges.

The work has grabbed the attention of governments, policymakers and organisational leaders because, as Greig says, “It gives them a line on what they need to do. Essentially, it’s a roadmap for how to get to net zero, deciding where to invest first, and what moves to make. If you don’t understand the scope of the challenge ahead then you have no capacity to execute. Our purpose was to clearly focus minds on just how large and rapid this transition has to be so people stop putting it on the backburner and waiting to be a follower.”

A broad misconception is that the transition is all about technology, says Greig. “A lot of it is about social, economic and political drivers, and that’s part of the uncertainty.”

He’s unable to predict which pathway will be taken. Options must be kept open. “But the information is there to help people to pivot, adapt and navigate through the roadblocks and bottlenecks they will encounter.”

Greig formerly ran the Dow Centre for Sustainable Engineering Innovation at the University of Queensland (UQ). He has assembled a local research team — in partnership with UQ, the University of Melbourne and the Nous Group — to use refined methodologies for the Net-Zero Australia Study, expected to be completed by the end of 2022. While the outcome can’t be pre-empted, Greig says Australian findings will be very different due to its substantial energy exports, which significantly multiply the challenge.

How feasible is net zero for business?

Will better defined pathways make achieving net zero by 2050 or sooner more plausible for businesses? Greig surmises corporates “who are talking about Scope 1, and 2 emissions, probably have a comparatively light load to deliver commitments around a 2030 target. “Big energy and carbon-intensive sectors, especially exporters, have their work cut out for them. They may know how to get started, but most don’t know what the second half of that transition looks like. A lot relies on mobilising the innovative and intellectual capacity of companies, suppliers and customers to push ahead.”

In the absence of clear pathways, a common sticking point for organisations in making a 2050 net-zero commitment has been determining when to make the call, observes Wei Sue, system lead — sustainable corporates at independent advisory ClimateWorks Australia.

Front of mind for many is: “What actions and investments can we make today?” says Sue. “Some companies aren’t ready to make a commitment because they haven’t figured out how to get there, but others are comfortable making long- term commitments as they figure out solutions to reach net zero. While some technologies are clear — like renewable energy and energy efficiency — electrifying certain processes and equipment, long-life assets and larger investments present a challenge.”

Some are also hesitating to consider organisational structures, accountabilities and incentive structures for environmental sustainability objectives. “Which ones set you up for success? There’s no clear guidance on what ‘good’ looks like out there,” Sue says.

ClimateWorks Australia has been tracking the progress of targets, sector by sector (eight to date) and holding companies accountable via its Net Zero Momentum Tracker, which rates the alignment of corporate commitments to reaching the goal by 2050. Out of the 160 companies evaluated over the past 18 months, the number with net zero commitments has nudged from 27 to 33.

Anecdotally, a much larger number now plan to adopt a target, insists Sue. Momentum is building.

And it will need to, with the UN calling for a five- fold increase in action over the next decade. More recently, world energy watchdog, the International Energy Agency (IEA) in its recent (May) Net Zero by 2050 report provided clear parameters ahead of the UN’s COP26 in November, including an immediate stop to new coal, oil and gas projects, rapid acceleration of renewables, and sales of combustion engine cars to cease by 2035. Agency executive director Fatih Birol called for short-term actions to be put against the big goal and emphasised innovation. “In 2050, almost half the reductions come from technologies that are currently at the demonstration or prototype phase.

In finding their way to net zero, organisations are at varying stages of progress. For starters, ClimateWorks looks to four principles:

  • Emissions reduction, including energy efficiency which Sue explains is often “a no brainer because it delivers cost savings”
  • Switching to renewable energy from the grid or investing in renewable energy assets onsite
  • Electrification of vehicle fleets and processes
  • Carbon offsets for the residuals.

While businesses face unique challenges and opportunities that demand nuanced approaches, experts are spotting rising challenges for directors.

Keep options open

After working through scenarios for the Princeton study, Greig believes what’s paramount for organisations in the coming decades to not close off their options. “Organisations need to be adaptable and keep in mind there are a number of ways to get there, each with its own set of challenges and trade-offs,” he says. “They need to be investing in the pathways most likely, but ensuring they have the capacity to pivot as challenges emerge.”

In tandem with this is keeping a weather eye out for supply chain risks in transition and shoring up supply chains — by diversifying or investing in long- term contracts — to avoid bottlenecks.

Backcasting is important because it takes away incremental thinking and allows for more transformative thinking.” Wei Sue, ClimateWorks

Grapple with Scope 3 emissions

While many on the way to net zero now account for Scopes 1 and 2 emissions, understanding, measuring and disclosing Scope 3 emissions — both upstream from suppliers and downstream from customers — is the next challenging frontier. “It has become quite apparent that many corporates don’t understand the full extent of Scope 3 emissions,” says Sue.

To date, of the six organisations that have achieved a fully aligned rating that includes Scope 3 emissions, on ClimateWorks Net Zero Momentum tracker, five are superannuation funds. The other is Lendlease Group.

Notably, the multinational construction, property and infrastructure group has made a commitment to achieve net zero by 2040, despite substantial emissions coming through its supply chains from building materials and products to emissions from occupants in their buildings, Sue points out.

Start backcasting

Committing to a long-term goal is widely recognised to send a strong signal internally and externally. For companies with targets for which no end is yet in sight, ClimateWorks points to the virtues of “backcasting”, working backwards from a preferred goal. “Backcasting is important because it takes away incremental thinking and allows for more transformative thinking,” says Sue. “It encourages strategy and planning over the long term rather than planning over a short three-to-five-year horizon. Some technologies may only be available later on... you don’t want to lock yourself in to old technology and lock out the new.”

Collaborate

It’s no coincidence that momentum in net-zero commitments is accompanied by sudden growth in the numbers of alliances and coalitions with a multitude of differing objectives. For instance, RE100 has a specific focus on renewable energy, while EP100 is about energy productivity. Some bring supply chains or companies in similar sectors together to learn and share knowledge, and to avoid making mistakes others have already made.

ClimateWorks has convened the Australian Industry Energy Transition Initiative to work collaboratively through specific challenges of heavy emitters and hard-to-abate companies.

Such platforms recognise that transition won’t happen alone. “Co-investment in developing an emerging technology might share potential disadvantage or great benefits,” explains Sue. “Steelmakers, for example, need suppliers to produce solutions to make green steel — and customers willing to pay a premium.”

Net zero on tap at Lion

Beverage company Lion, producer of two of Australia’s biggest beer brands, Tooheys and XXXX Gold, has been making large strides towards “carbon neutrality” since 2016, and with its 2020 certification through the Australian government-backed Climate Active initiative, the company says it has — at least internally — kicked a net-zero goal.

Some 70 per cent of its emissions mitigation is derived from offsets, the approach recommended by Climate Active. The rest result from Lion’s operational efforts. The company sought the Climate Active certification to recognise its substantial mitigation work and to glean further guidance on how to close in on further targets, such as 100 per cent renewable energy by 2025, says Libby Davidson, Lion group general counsel and external relations director.

“As a consumer goods company, we’re responding to the evolving noise, the pull from customers for branded beverage companies to do more, and consumers looking for environmental credentials.”

From 2015–21, Lion has seen a 36 per cent reduction in direct emissions. This is largely due to its “whole- of-brewery” approach — including generation of solar power, use of biomass to produce biogas to power production processes, and a renewables power purchase agreement (PPA) covering its NSW operations.

Davidson attributes its success to the coalescence of a top-down approach from the executive team, led for the past eight years by outgoing CEO Stuart Irvine, and grassroots action at operational levels.

The breweries review energy performance daily using a management tool that delivers a red alert if preset energy efficiency levels are not met. Employees take pride in ensuring it happens, says Davidson.

Lion is yet to set a target for Scope 3 emissions, but has identified three key material areas — packaging, ingredients and logistics. The company is fortunate in having just a handful of big locally based suppliers to work with closely, says Justin Merrell, Lion’s group environment director.

And, what of its investment in carbon offsets? Neither Merrell nor Davidson buy the notion that the global supply of carbon offsets or credits will be exhausted as operations en masse target net zero. Davidson expects investors will spy an opportunity and offset projects will abound. Merrell sees strength in carbon credits and legitimate offsets from nature-based solutions, pointing to “the work that’s putting carbon back into the soil, that’s regenerating agriculture, improving drought tolerance and the yield and quality of crops”.

“It’s the co-benefits and shared value that lie behind some offset projects where we’re focusing,” he says.

Ramp up stakeholder engagement

Community and stakeholder engagement will need to happen on a scale we’ve never seen before. “Progress to net zero will fundamentally change the way we engage with communities,” predicts Greig, referencing the map of renewable energy deployments needed to transition the US economy created for Net-Zero America.

“The traditional project-by-project approach of developers going out, finding a site, getting community acceptance and then building it — when you see the cumulative impact of these projects, both for transmission and renewables — that may not work,” he says. “You’re going to lose your social licence pretty quickly if you can’t bring the community along with the grand plan.”

The last word on carbon offsets

To decarbonise the planet, every country and firm will have to get itself to net zero, concludes Greig. He’s questioning heavy reliance on carbon offsets after analysing the natural land sink and non-CO2 emissions in the US between now and 2050.

“There’s still net positive greenhouse gas emissions from cattle and those emissions are larger than is covered by actual land sinks,” he says. “Our scenarios show the whole industry sector has to go negative. I don’t believe there are enough offsets to go around, the world will run out of them. From deforestation to bushfires, there’s an abundance of areas where offsets are needed to counter natural emissions. We’ll have to use natural offsets around the world to deal with some of those residual pieces that will always be there.”

An NFP acts while heavy emitters go slow

The Australian Red Cross(ARC) has no income to allocate to its emissions reduction challenge. Undaunted, it’s in the process of gathering and analysing data across the large, highly dispersed organisation and auditing its emissions measurement.

ARC director of international and movement relations Michael Annear aspires to go public with a target for reduced emissions later this year. However, ARC has managed significant advances, including lowering emissions from its vehicle fleet and participating in a hybrid vehicle pilot with Hyundai, along with switching to LED lighting in 167 retail stores across Australia. Plans are underway to upgrade air-conditioning in its Melbourne HQ.

“You’re going to lose your social licence pretty quickly if you can’t bring the community along with the grand plan.” Dr Chris Greig, Andlinger Center for Energy and the Environment

Off the back of such moves, Annear reports ARC recorded year-on-year 29 per cent reductions in GHG emissions between Q1 2018 and Q2 2019, the year it’s using as a baseline.

But Scope 3 emissions are posing challenges. For goods provided in relief activities, the organisation has been working with multiple suppliers and manufacturers on eliminating plastic packaging and reducing emissions in production processes for blankets, tarpaulins, and hygiene items. Comparisons are also made between air or sea freight for delivery.

“The humanitarian imperative to save lives drives that decision, but we also put a lens over the environmental impact,” says Annear. “We’re now looking locally for goods in countries experiencing disaster events.”

Scope 3 emissions raise many questions, says Annear. For instance, who’s responsible when unsuitable goods are donated to the charity? “Are donated items part of the value chain for our business?” he asks.

The International Energy Agency says the energy sector holds the key to counteracting climate change and sights are set on the decarbonisation efforts of energy companies globally — but Australia’s electricity generators and energy retailers aren’t moving fast enough.

ClimateWorks’ analysed the 20 highest-emitting electricity generators, and electricity and gas retailers in late May. None had fully committed to net zero by 2050 for direct and indirect emissions. Three of the largest, AGL, EnergyAustralia and Origin, had made net zero commitments. Origin had set interim reduction targets for its scope 1, 2 and 3 emissions to meet a 2050 goal. AGL and EnergyAustralia had committed to net zero operational (scopes 1 and 2) emissions by 2050, but had no interim commitments.

The resource sector appears more proactive. In late 2020, ClimateWorks and the Monash Sustainable Development Institute analysed 22 companies involved in coal mining, oil/gas exploration/ refining, and the mining/ manufacture of metal.

All were taking steps to decarbonise, but action to reduce their most significant emissions from customer use of products and procurement of goods and services by resources companies under Scope 3 fell well short of 2050 Paris Agreement goals. Only one company, Glencore had set a 2050 aspiration to reach net zero for emissions from downstream use of its products.

But many resource companies are actively showing inclinations to pivot from fossil fuels, with mining companies eyeing the lithium and rare earths boom.