Catalysts: What can accelerate adoption of low-carbon initiatives?
Reagents are accelerated by taking innovative steps in the form of catalysts. Successful innovation is largely driven from within, and it’s rooted in engaging the organization to make sure everyone feels they are contributing and helping to incorporate new ways of working that drive behavioral change.
Step 1: Create a carbon green fund.
Finding and nurturing new ideas is a real challenge, and an internal carbon green fund for eliciting, evaluating and investing in new technologies and innovative projects can accelerate the decarbonization journey. Funds can be centrally managed by finance teams in collaboration with safety and organizational groups to improve effectiveness and efficiency. Creating workflows around this process can enhance the process of capturing new initiatives, analyzing their potential, measuring potential savings, and, ultimately, approving the funds.
Step 2: Levy internal carbon prices.
Many energy companies (and companies in other sectors) use “internal carbon pricing” – making carbon dioxide emissions an explicit cost so they can see the impact of emissions on financial and investment decisions. In 2017, around 1,4006companies actively used internal carbon pricing – and that number is growing. Government initiatives have played a role in driving this as well; Mexico, Sweden, and British Columbia have levied carbon taxes, while several European countries and the state of California have instituted cap-and-trade programs. These geo-level initiatives provide a model and framework which can be adopted and suitably modified for creating smaller scale internal carbon pricing initiatives within organizations.
Internal carbon pricing can help in multiple areas:
- Capital investment decisions
- Risk management
- Strategy formulation
- Enforcing behaviors
- Encouraging businesses to go for low carbon investments
The price of carbon depends upon the industry, the geography of operations, and a company’s objectives. Some companies also put a real price on carbon so that teams are encouraged to take necessary steps to reduce emissions. The funds collected by internal carbon pricing can be used to fund low-carbon initiatives.
Microsoft became carbon neutral in 2012 by levying a carbon price (ranging from $5 to $10/ton7) and holding businesses accountable for emissions across Scopes 1, 2, and 32. The money collected went toward various efficiency-improvement and emission-reduction initiatives.
The key challenge lies in structuring and tracking the pricing mechanism. This needs to be monitored in near-real time and bounded by automated or manual just-in-time interventions. This ensures that pricing mechanisms and their use reflect the organization’s business priorities, instead of devolving onto another business unit. It’s essential that projects are centrally managed and benchmarked in accordance to the function and organization performance.
Successfully executed programs need a mix of domain consultants and organization champions. The domain consultants (internal or external) bring experience of external carbon prices and an understanding of the local and global policy regimes. The organization champions are the company’s voice for contextualising what works best for their existing supply chain and operations.
Step 3: Trade carbon internally.
Building on the basics of carbon pricing, organizations can also mimic the cap-and-trade framework internally with their own trading (or even gamified) platform to aggressively reduce their carbon footprint and achieve substantial emission reductions. Many countries/regions, including Europe, have successfully implemented Emissions Trading Schemes (ETS), which are similar to internal carbon pricing. Organizations can adopt ETS frameworks to implement internal carbon trading mechanisms.
A robust interal carbon-trading mechanism will showcase the below elements in one or the other form:
- Identify an emission reduction target.
- Establish a timeframe to achieve the targets.
- Sell carbon credits to the functions in the organization.
- Allow those functions to trade carbon credits.
- Reduce carbon credits each year to make the process competitive.