According to the IEA, we must reduce carbon dioxide by 50% by 2050 if we are to avoid the climate destabilising effects of emissions and the dangerous global impacts of climate change. This is an ambitious goal and given the role of carbon to our everyday lives it is easy to lose hope. However, decarbonization is not a new concept, and there are many technologies already available to help us get there. Moreover, decarbonisation is an opportunity for companies to lead and take market share from climate change laggards. Let’s first dive into a quick history of decarbonisation.
Decarbonization is the blanket term for a variety of levers we have, to help us achieve carbon reduction. According to the United Nations, decarbonization is both a method of climate change mitigation and the process of significantly reducing or eliminating carbon dioxide (CO2) and other greenhouse gas (GHG) emissions from the atmosphere.
Although the desire to reduce emissions amazingly goes back to the 19th century, the word decarbonization was first coined a century later in 1989 at the Grand Strategy for Global Warming Conference in Tokyo by scientists Yoichi Kaya and Kenji Yamaji. The word originally was designed to explain the phenomenon of carbon emissions having ‘expanded at a slower pace than primary energy use globally. This is because the carbon intensity of energy today is actually 40% lower (decarbonised) than in the mid-19th Century. This was because in the past many energy sources were constrained by geography and were hence often inefficient or unreliable such as early windmills. The first drop in global carbon intensity of total energy use came with the Steam engine, then the combustion engine and then via electrification. Actual total real world emissions however have jumped dramatically of course, and continue to rise today.
First and foremost, The Paris Agreement is the lynchpin to global action on climate and hence for accelerating decarbonization. The Agreement, adopted in 2015, aims to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. The science is informed by the Intergovernmental Panel on Climate Change (IPCC), which is the leading authority on climate change research and information dissemination. Yet despite climate efforts so far, according to the International Energy Agency (IEA), annual clean energy investment worldwide will need to more than triple by 2030 to around $4 trillion, if we are to reach net zero emissions by 2050.
In 1997 the Kyoto Protocol operationalized the United Nations Framework Convention on Climate Change by committing industrialized countries and economies in transition to limit and reduce greenhouse gases (GHG) emissions in accordance with agreed national targets. These Nationally Defined Contributions (NDCs) are at the heart of meeting the goals of the Paris Agreement. However, according to the ‘Global Industry Classification Standard’ (GICS), investment decisions, such as the decarbonization targets for the finance industry, as one example, are highly complex processes. Meeting NDCs requires a sector-based approach as outlined in the GICS’s four sector emissions pathways to get to 1.5 degrees warming or less. These are:
NDCs are renewed every five years, next in 2025 and later in 2030 and so on up to 2050. For instance, the updated NDC for the UAE aims for a decrease in emissions of 23.5% below business as usual (BAU) in 2030 as part of Industrial Decarbonization Roadmap (in turn part of the UAE Net Zero by 2050 Strategy). This means 2024-25 is a critical period for companies to get on the right path and a key opportunity for forward thinking companies to lead and thrive via decarbonization efforts.
Read more about UAE’s progress on Net Zero here.
According to an IEA report, decarbonization will need to be supported by 7 pillars.
To invest in decarbonization efforts using the pillars, an organization must first understand the sources of its emissions (or Scope).
There are three main ‘Scopes’ according to The Greenhouse Gas Protocol:
To help different companies calculate their emissions and take action, the GHG Protocol publishes both cross-cutting emissions conversion factors and sector-based ones as part of its ‘Corporate Accounting and Reporting Standard.’ Many countries such as the UK have used this to develop their own standards for defining emissions conversion factors, so companies can take an inventory of their GHG emissions and report progress accurately.
Once a company understands its emissions sources, it is then time to set a ‘Baseline’ year for which emissions reduction/decarbonisation progress can be measured against. Once a baseline has been established, companies can assess different decarbonisation pathways and decide on the most feasible plan. It can then set short-, medium- and long-term decarbonisation targets accordingly.
To help companies there are many resources available to help with this task. For instance, Deloitte publishes guidance to high-impact sectors on different pathways they can adopt to decarbonise at different rates. More broadly, the Transition Pathway Initiative publishes its (TPI Sectoral Decarbonisation Pathways) which benchmarks sectors against three IAE Scenarios, covering the majority of lifecycle emissions in each sector with short, medium and long-term horizons.
Read more about Transition Plans and how to leverage them in our dedicated article on Climate Transition Pathways.
Once you have set a baseline, Set your targets and strategies, it’s a good idea to have your efforts assured. According to a recent report by Deloitte the two most popular target validation partners are the Science Based Target Initiative (SBTI), along with many utilising the Carbon Disclosure Project (CDP) standards, and the independent assessment by the Transition Plan Initiative (TPI).
Decarbonization is already fundamentally changing economies and investment flows toward cleaner technologies and away from legacy industries. In fact, according to the University of Oxford, decarbonisation led innovation could save the world $12 Trillion. To benefit from this transition, it’s time to get started and create a decarbonization strategy that can lead your sector and grow with confidence.
