Engineering in, Net Zero out

There has been significant pressure on organizations over the past couple of years to develop and publish Science Based Targets (SBTs) for their owned and operated sites as well as their wider supply chain. SBTs are inherently a top-down process. The resulting targets are not necessarily cognizant of a given value network’s unique technological or energy mix. As a result, many organizations will not have visibility of the engineering and associated financial challenges meeting their published SBTs will eventuate. Decarbonization is an engineering problem. Ultimately a knowledge of an organizations processes and assets is required before a coherent net zero plan can be developed.

Many organizations are relying on internal carbon pricing to drive the necessary operational and process changes to meet their SBTs. Carbon pricing pathways have been suggested by respected groups such as WBCSD and the High-Level Commission on Carbon Pricing. However, the financial parameters used in developing these carbon prices are very different to those applied by commercial organizations, particularly with regards to deprecation and taxation treatments.

Using externally created carbon pricing pathways will see necessary carbon abatement projects fail to navigate the capital budgeting process. These failures will pose a risk to achieving published SBTs, which will not become obvious until towards the end of the targeting period near 2030. Significant additional cost may be incurred if organizations need to accelerate project identification and implementation to meet published targets.

The potential introduction of Carbon Border Adjustment Taxes in the European Union and the United States represents an additional cost and compliance risk for organizations with international suppliers and clients.

To manage such risks, a bottom-up process, assessing consumption and decarbonization opportunities using frameworks such as ISO 50002 and EN16247 is essential. Such an approach would provide visibility on the internal carbon price necessary to achieve published targets, as well as provide a pipeline of implementable projects for the Capital Budgeting process. Supply chain members applying a similar approach will enhance the organization’s ability to manage and support the achievement of SBTs and provide visibility on the potential impact of local and international carbon taxes and tariffs.