Decarbonisation and the role of businesses

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The Intergovernmental Panel on Climate Change (IPCC) recently released the 6th assessment report highlighting the urgent need for action to address climate change. Based on an extensive review by scientists and governments, the report indicates that our current efforts to limit global emissions and achieve net-zero by 2050 are falling short. While the assessment report may paint a gloomy picture, it also serves as a call to action. Governments, businesses, communities, and individuals must collectively commit to addressing climate change by implementing effective strategies and solutions.

Role of firms

In the realm of climate change, Earth stands as a vast nation, where every activity is ultimately meant to address the needs of its citizens. Consequently, it is the citizens, the ultimate consumers, who bear responsibility for all human-induced alterations to the climate. While individuals are growing increasingly aware of the perils posed by climate change, they have limited control over the methods of production. The onus predominantly falls upon governments; which shape policies, and businesses; that oversee production and supply chains. Governments worldwide have shown determination by setting ambitious objectives and crafting policies to attain them.

“While individuals are growing increasingly aware of the perils posed by climate change, they have limited control over the methods of production”

Such endeavours propel us toward the climatic finish line. However, it’s an impossible conquest without the active involvement of enterprises. As per the IPCC, approximately 79% of all greenhouse gas emissions derive from fossil fuels, directly or indirectly. Whereas, the remaining originate from agriculture, forestry, and land use change (AFOLU). The lower 50% of households (in terms of income) contribute a mere 13% to 15% of all GHG emissions, whereas the top 10% account for 34% to 45% of GHG emissions. It is undeniable that a significant portion of the excess emissions stemming from affluent and middle-income households arises from the products and services provided by various businesses. Consequently, the onus lies on the firms to form focused strategies to address these emissions, on time.

Key actions required by firms

With energy-related activities being the primary drivers behind greenhouse gas emissions, it becomes imperative to prioritize efforts in reducing such emissions. Fortunately, businesses today are in a favourable position to tackle these energy-related challenges effectively. Few focus areas:

Energy efficiency

The International Energy Agency (IEA) highlights the significant potential of improving energy efficiency in achieving greenhouse gas (GHG) emissions reductions necessary to meet the goals of the Paris Agreement. By prioritizing energy efficiency measures, businesses can contribute up to 40% of the required emissions abatement.

To make manufacturing processes more energy efficient, businesses should focus on conserving energy at every step. This can involve implementing energy-saving technologies, optimizing production lines, and educating employees about energy conservation practices. Remember, saving energy is equivalent to generating clean energy, as it reduces the need for additional energy production.

Renewable Energy

Another avenue to explore is generating energy on-site using available space within the premises. This can include installing solar panels, wind turbines, or other renewable energy systems. Furthermore, it is crucial to source energy from clean sources. By procuring electricity from renewable energy providers or participating in green energy programs, businesses can ensure that the energy they consume is derived from sustainable sources. This choice contributes to reducing emissions associated with energy consumption.

“Investing in credible green projects that have a demonstrated impact on reducing emissions can offset the carbon footprint of the organization.”

By offsetting emissions

In addition to energy efficiency and clean energy generation, businesses can also consider offsetting their remaining emissions. Investing in credible green projects that have a demonstrated impact on reducing emissions can offset the carbon footprint of the organization. However, it is crucial to select offset projects that provide real additionality, meaning they go beyond business-as-usual practices and truly contribute to reducing emissions.

Buildings

Constructing sustainable buildings is crucial due to their significant investment and long-term impact. Buildings consume energy throughout their lifecycle, from construction to operation and disposal. To mitigate their environmental footprint, careful consideration must be given to the use of local resources with low environmental impact. By sourcing materials locally, transportation emissions can be minimized while supporting the local economy. Additionally, integrating green building designs is essential. This involves incorporating energy-efficient features, such as insulation, efficient heating/cooling systems, and renewable energy technologies

Focus on the supply chains

The environmental impact of products extends beyond their visible emissions, encompassing their entire lifecycle. While some products may seem low in emissions during use, their embodied emissions, accounting for production-related activities like mining, transportation, and processing, can far exceed direct emissions. Firms must be mindful of their supply chain sources, prioritizing sustainable and low-emission inputs. Similarly, attention should be given to the journey of products to end customers, favouring local options. Businesses must also ensure the waste generated is handled optimally. Considering product end-of-life, emphasis on recycling and adopting circular economy practices becomes crucial to reduce waste and maximize resource reuse.

Cost-effectiveness of the decarbonisation

Achieving sustainability requires consideration of cost-effectiveness, as it is essential for practices and solutions to be economically viable. However, for comparison, it is crucial to take into account the full spectrum of costs associated with traditional methods and raw materials. The conventional sources appear cheap because we only pay the cost of processing. The raw material is mined freely and the cost of environmental damage is never accounted for.

However, for businesses to stay competitive and profitable, two aspects must be addressed: cost-effectiveness compared to competitors and affordability for consumers. One approach to address cost-effectiveness is the establishment of strict and compulsory regulations applicable to all businesses. By ensuring a level playing field, these regulations encourage the adoption of sustainable practices across industries. However, even in the absence of mandates, early adopters of sustainability can gain long-term advantages, including enhanced brand reputation, customer loyalty, and operational efficiencies. To overcome cost challenges, governments can provide support through subsidies, tax cuts, and other financial incentives.

By striking a balance between sustainability and profitability through regulations, incentives, and innovative financial mechanisms, businesses can create a sustainable future while remaining economically competitive.

Arun Dwivedi, research fellow, Energy Centre, National Institute of Technology

About the Author: Arun is an Indian Navy veteran. Presently, he is working as a research fellow at the Energy Centre, National Institute of Technology, Bhopal, India. His interests include Renewable Energy, Climate Change, and Sustainability.

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