April 25, 2022
While carbon accounting and setting corporate decarbonization targets is a key component of a decarbonization strategy, ultimately, decarbonization means reducing and removing carbon from a corporations value chain by deploying carbon reduction projects.
The key differentiator of an advanced decarbonization strategy involves a structured approach which identifies, assesses, and prioritizes mitigation options and their deployment within an organization. Today, many mitigation options are available in almost all sectors offering substantial potential to reduce greenhouse gas (GHG) emissions, however the applicability of a mitigation option will vary between organizations due to technical, financial, or geographic constraints.
To ensure the most appropriate decarbonization strategy is acted upon, databases of mitigation options should be reviewed and narrowed down by sector, climate change, and technology subject matter experts leveraging financial, strategy, sales and operations teams to define a short list of relevant mitigation options for a business. Many intergovernmental climate change organizations, sector specific associations, and private companies have published resources defining mitigation options, and these can be used as a starting point in this exercise.
One of the most widely referenced mitigation option databases are those published by the International Energy Agency (IEA). The IEA’s Energy Technology Perspectives (ETP) Clean Technology Guide provides a framework that contains information for over 400 mitigation options for Buildings, Energy Transformation, Transport, CO2 Infrastructure, and Industrial sectors that can contribute to achieving the goal of net-zero emissions. Within this database technology descriptions, level of maturity, and cost and performance improvement targets can be found. In addition to the ETP Clean Technology Guide, sector-specific databases can be found such as the Iron and Steel Technology Roadmap, or the Cement Technology Roadmap, as well as low carbon technology report such as the recent technology report on Direct Air Capture.
On April 4th, 2022, the IPCC finalized the third part of the Sixth Assessment Report, Climate Change 2022: Mitigation of Climate Change, which provides developments in emission reduction and mitigation efforts, assessing the impact of national climate pledges in relation to long-term emissions goals. The graph below from the report provides an overview of mitigation options and their estimated ranges of cost and GHG abatement potentials in 2030. The GHG abatement potential of each mitigation option is the quantity of emission reductions that can be achieved relative to a specified baseline, and the cost of each mitigation option were obtained from recent studies or databases (2015-2020). The error bars on the graph displays a range for the total mitigation potential, and sources of uncertainty for both the abatement potential and cost assumptions include assumptions on the rate of technological advancement, regional differences, and economies of scale, among others.
A key takeaway from the graph shows that in many cases, large variability and uncertainty exists in the expected costs and abatement potential of low carbon technologies. The uncertainty in data published by the IPCC is representative of many other publicly available mitigation option databases, making it very difficult for companies to develop and plan appropriately for their transition to net zero.
To reduce uncertainty throughout this process, modeling mitigation options considering facility specific emissions baselines and financial data should be carried out. A marginal abatement cost (MAC) curve is an appropriate tool for determining the most cost effective and highest GHG abatement mitigation options for a business. The marginal abatement cost calculation considers an assets specific financial assumptions and emissions profile resulting in the most accurate cost (USD/tCO2e) of the mitigation option for an individual business. When reviewing the results of the MAC in conjunction with qualitative metrics such as technological maturity, or social, environmental, and policy barriers and enablers, asset specific prioritization of mitigation options can commence with the knowledge that the most appropriate mitigation options for the business are being pursued for deployment.
Current data in SINAI’s Low Carbon Scenarios platform shows that companies, on average, require more than 50 M USD in capital expenditure to deploy selected carbon reduction projects. However, the average NPV of these mitigation options is 9 M USD per company, suggesting decarbonization is a profitable exercise when the appropriate mitigation options are selected for a business.
One final consideration is that as a mitigation options level of project definition improves, more accurate cost and abatement estimates will be available, and therefore continuous re-evaluation and prioritization of mitigation options is required, particularly for far-out solutions. It is quite possible prioritized mitigation options today may make less sense in 5 years time, therefore corporations should re-evaluate their GHG emission reduction plan on an annual basis to continue to be confident that the most appropriate mitigation options are prioritized. Regional or corporate specific policies, incentives, geographic location, access to capital, and a businesses comfort for assuming technological risk, all play a role in determining the appropriate decarbonization roadmap. There is no one size fits all solution for an entire industry to adopt, and management tools must be utilized to continuously evaluate and monitor the applicability of mitigation options to an individual facility.