If energy-intensive industries were to get together and make joint climate pledges, how could they determine what would be a fair and significant contribution for each company? There are new tools available for this, including so-called Science Based Targets used by organisations like WWF, the Carbon Disclosure Project (CDP) and the World Resources Institute (WRI), writes Rolf de Vos in a new post on the Ecofys Paris Climate blog hosted by Energy Post. According to De Vos, these tools now make it possible for industries to make climate commitments that won’t hurt their competitiveness.
In my previous blog post, I suggested that industrial sectors should follow the example of countries and come up with Intended Sectorally Determined Contributions (ISDCs), as a variation on nations’ Intended Nationally Determined Contributions (INDCs).
This would be particularly useful for energy-intensive sectors. Energy-intensive companies – think of refineries, cement, steel, aluminium, chemicals, paper, glass – are among the largest greenhouse gas emitters, yet for policymakers they are the most difficult group to target. When confronted with climate measures, they always claim – with some justification – that this would hurt their international competitiveness. National policymakers simply cannot afford to ignore this argument.
The SDA method determines for each individual company what its emissions target should be to comply with the 2°threshold
This problem could be overcome, I wrote, if sectors could agree at an international level on sectoral reduction pledges, the ISDCs. But how could companies decide among each other what would be fair contributions from each of them? Some new methods have recently become available for this.
We could define ‘fair’ as: not more than the competition, or not more than other sectors. But not less either. In the last couple of years a lot of progress has been made in developing approaches that provide foundations to calculate fair contributions from a wide variety of actors. These are based on successive scientific foundations as developed by the IPCC and other institutions.
Temperature Firstly, as countries in the world now agree that global warming should not exceed an average temperature increase of 2°C, most sector initiatives have chosen the same foundation.
GHG concentration pathways Next agreement should be on the evolvement of global greenhouse gas concentrations and emissions that would meet such a concrete goal. Luckily, such scientific models already exist, and are generally acknowledged as a common ground as well. The IPCC RCP2.6 (Representative Concentration Pathway) is one pathway that translates the 2°C threshold into the evolution of greenhouse concentrations in the atmosphere.
GHG emission pathways Subsequently, the corresponding global emissions can be modelled.
Technology roadmaps The next step is modelling how low-carbon (energy) technologies should be developed and implemented to follow the lower-than-2°C track. These calculations have been performed by the International Energy Agency in its Energy Technology Perspectives that are now published annually. They contain outlooks for all relevant energy generating technologies and how they would fit to different sectors. Crucial elements in this modelling are the learning curves of technologies (represented as decreasing costs per tonne of abated CO2 over the years) and the assumed development in CO2-pricing. With these two elements, so-called Marginal Abatement Cost Curves per sector can be detailed, showing at what CO2 prices certain low-carbon technologies in the sector become profitable.
Sectoral Decarbonisation Approach
Company targets And finally, individual companies can set their own targets, and make their ICCs (Individual Company Contributions) known, as part of the sectoral contributions in ISDCs.
A number of different tools exist to assist in this. One very basic method for setting targets is the 3% solution. In 2013, WWF and the Carbon Disclosure Project (CDP) campaigned for this method. It assumes that an annual 3% emission reduction across all US companies would represent their fair share in helping to stay below 2°C.
However, the 3% method is regarded by many as too crude to determine fair individual contributions. For this reason more detailed methods have been developed, following the subsequent steps described above. One is the Sectoral Decarbonisation Approach (SDA), recently published in the scientific magazine Nature Climate Change.
Based on the methodologies described above, the SDA method determines for each individual company what its emissions target should be to comply with the 2°threshold. This results in so-called ‘Science Based Targets’, developed by Ecofys, which are already used by organisations like WWF, CDP, World Resources Institute (WRI) and UN Global Compact to help and stimulate companies to align their targets to the climate science.
Given these tools exist to define common ground and come to individual targets, companies have no excuses anymore for not establishing shared climate initiatives in their sector
The SDA methodology works as follows. Based on IEA sector scenarios that comply with the 2° threshold (and take into account growth and mitigation potential), SDA allocates a budget of greenhouse gas that each sector is allowed to emit up to 2050. Subsequently, it calculates an emission pathway for sectoral emissions over this period. Dividing the total budget of a sector in any given year by the total projected activity in the same year provides the desired 2°C-compatible carbon intensity for each sector.
The emission pathway of a company is set relative to the sector pathway. Frontrunners have to do less to follow the sector target, whereas companies that still have a high carbon intensity will need to do more. But assuming that all companies in a sector in the world will have the same carbon intensity by 2050, a carbon intensity pathway can be drafted for the sector and for each company. This could then be the basis of sector pledges, e.g. ISDCs for 2030.
Given these tools exist to define common ground and come to individual targets, companies have no excuses anymore for not establishing shared climate initiatives in their sector. The argument from a level playing field can be turned around: if you have a problem with competitiveness, you can try to overcome it by seeking international cooperation.
Indeed, a considerable number of sector initiatives have already been started up. Recently the University of Cambridge Institute for Sustainable Leadership and Ecofys published an assessment of five such corporate initiatives (cement, lighting, WWF Climate Savers, refrigerants, tropical forests), adding up to at least 200 million tonnes of emissions reductions by 2020 if ambitions are realised, or even 500 million tonnes if all companies reach the carbon-intensity level of the frontrunners in their initiative. That may be just 1% of the total global emissions now, but since only one of these five sectoral initiatives concerns an energy-intensive industry (the Cement Sustainability Initiative), the potential of this kind of business initiatives is much bigger.
Many organisations are now advocating to explore this bigger potential, which could lead to energy-intensive industries establishing ISDCs. In this regard the Low Carbon Technology Partnership initiatives (LCPTi) of the World Business Council for Sustainable Development are a very relevant initiative. They aim for a series of concrete action plans to be presented at COP21 for the large-scale development and deployment of low-carbon technologies. The Science Based Targets mentioned above are also important.
None of this means that we should not continue to develop carbon pricing in the world. Putting a price on carbon emissions remains an essential tool to trigger investment in decarbonisation. It should be seen as complementary to the sectoral initiatives, which are after all voluntary. And many companies are asking for it.
But carbon pricing mechanisms are far from easy or straightforward, particularly if they need to be differentiated across regions or even across sectors. I will have more on this in my next blog post.
This is the fifth post in Rolf de Vos’s Ecofys Paris Climate Blog, which has the aim to “bridge the gas between business and policy” ahead of the Paris climate conference.