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Net-Zero Navigation: Embracing Challenges as Opportunities for Corporate Decarbonisation


Introduction


Achieving the goal of limiting global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit), requires a substantial reduction in global greenhouse gas (GHG) emissions, with emissions needing to decrease by almost half by 2030 and ultimately reaching net zero.


In response to this pressing need, an increasing number of national governments, local authorities, and business leaders are pledging to achieve net-zero emissions within their respective domains or operations. Presently, more than 90 countries have declared their intentions to pursue such "net-zero targets," including major emitters like China, the United States, and India. Additionally, countless regions, cities, and corporations have established their ambitious targets.


However, what exactly does a net-zero target entail, and what scientific principles underlie the concept of net zero? Furthermore, which countries have already committed to this goal?

 

In this article, I navigate into these questions, offering clarity on the significance and implications of net-zero commitments.

 

 

What is Meant by Net-Zero Emissions?

 

The concept of net-zero emissions involves reducing greenhouse gas (GHGs) emissions (such as carbon dioxide, methane, nitrous oxide, and other hydrofluorocarbons) to the lowest possible level, with any remaining emissions offset by absorption from natural sinks such as oceans and forests. It goes beyond the removal of just carbon emissions as it requires the neutralization of all greenhouse gases, not only carbon alone, as carbon neutral means.

 

To provide further scientific clarity, the IPCC defines net-zero emissions as the equilibrium between anthropogenic removals and emissions of greenhouse gases into the atmosphere over a specified timeframe. The quantification of net-zero emissions varies depending on the chosen climate metric for comparing different gases’ emissions (such as global warming potential or global temperature change potential) and the selected time horizon.

 


What is Required to Achieve Net-Zero Emissions?


Achieving net zero requires a dual approach: Firstly, human-caused emissions, such as those from vehicles and factories, should be minimised as much as possible. Any remaining emissions must then be offset by an equivalent amount of GHG’s emissions removal, which can occur through natural means like reforestation or through technologies such as direct air capture and storage (DACS), which extract carbon directly from the air.

 

Achieving net-zero emissions demands a swift and comprehensive transformation across global systems — from energy production to transportation and agricultural practices to accommodate a growing population.

 

For instance, in scenarios targeting a 1.5-degree Celsius limit, renewable energy sources must provide 98% to 100% of electricity by 2050. Efforts to reduce transportation emissions hinge on enhancing energy efficiency and transitioning to alternative fuels. Similarly, optimizing food production, altering dietary habits, restoring degraded lands, and minimizing food loss and waste offer substantial opportunities to curb emissions.

 

Reaching net-zero emissions requires a transformation of the global economy. The question is: what are going to be the consequences of that transformation?

 

 

What are the Consequences of Transition Toward a Net-Zero Economy?

 

Reaching net zero entails a profound overhaul of the global economy, necessitating substantial alterations across seven key sectors responsible for emissions: power generation, industrial processes, transportation, building infrastructure, agriculture, forestry and land management, and waste management. Achieving this transformation requires meeting nine critical prerequisites, spanning physical infrastructure, economic and societal adaptations, and governance structures, all while navigating numerous economic and political hurdles.

 

A disorderly transition could disrupt energy supply chains, impacting access and affordability, particularly for marginalized communities and regions. Such disruptions may reverberate across the economy and society at large, potentially triggering resistance that hampers the pace of the transition.

 

The transition toward a net-zero economy undoubtedly carries economic and social costs, but the extent and distribution of these costs vary depending on several factors, including the strategies adopted, the pace of implementation, and the degree of coordination among stakeholders.

 

Economically, transitioning to a net-zero economy necessitates substantial investments in renewable energy infrastructure, energy-efficient technologies, and GHG-neutral transportation systems. These investments require significant capital outlays, potentially straining government budgets and private sector resources. Additionally, industries reliant on fossil fuels have to face disruptions, requiring restructuring and retraining programs to mitigate job losses and support workforce transitions.

 

Socially, the transition poses challenges for communities dependent on high-carbon industries for employment and economic stability. Displaced workers and communities may experience hardship if adequate support mechanisms are not in place to facilitate their transition to new livelihoods and industries. Moreover, vulnerable populations, including low-income households and marginalized communities, may bear a disproportionate burden of the transition's costs if adequate social safety nets and equity measures are not implemented.

 

Despite these challenges, there are opportunities to minimize the economic and social costs of transitioning to a net-zero economy. Strategic investments in renewable energy and sustainable infrastructure can create new employment opportunities and spur economic growth but also implicate tax increases. Additionally, policies that prioritize equity and social inclusion can ensure that the benefits of the transition are shared equitably across society.

Ultimately, the economic and social costs of transitioning to a net-zero economy must be weighed against the long-term benefits of mitigating climate change and achieving a sustainable future for current and future generations. By proactively addressing these challenges and leveraging opportunities for innovation and collaboration, societies can navigate the transition toward a net-zero economy in a manner that maximizes economic prosperity and social well-being.

 

Companies can play a crucial role in accelerating the transition toward a net-zero economy, contributing to emissions reduction efforts, and driving sustainable practices across industries.

 

 

What are the Key-Ways to Which Companies Can Contribute to a Net-Zero Economy?

 

Many companies compensate for their GHG by seeking to prevent the production of emissions they are responsible for by investing in an outside organization. These organizations are often committed to reducing emissions, sourcing renewable energy, or placing importance on assisting developing countries to work towards a net-zero transition.

 

Companies can efficiently contribute to the transition towards a net-zero economy by:

 

  • Setting Ambitious Emission Reduction Targets: Companies can demonstrate commitment by setting ambitious targets to reduce their greenhouse gas emissions. These targets should be aligned with the Paris Agreement's goal of limiting global warming to well below 2 degrees Celsius, preferably to 1.5 degrees Celsius.


  • Investing in Renewable Energy and Technologies: Companies can procure renewable energy for their operations, invest in energy-efficient equipment and processes, and explore innovative technologies such as carbon capture and storage.


  • Adopting Sustainable Practices Across Operations: Companies can reduce their GHG emissions footprint by adopting sustainable practices across their operations, including optimising energy usage, reducing waste, and minimising water consumption.


  • Engaging with Supply Chain Partners: Companies can work with their suppliers to reduce emissions throughout the supply chain. This can involve collaborating on emission reduction initiatives, promoting sustainability criteria in procurement decisions, and providing support and incentives for suppliers to improve their environmental performance.


  • Advocating for Policy Support: Companies can advocate for supportive policies and regulations that facilitate the transition to a net-zero economy. This may include supporting carbon pricing mechanisms, renewable energy incentives, and regulations that promote energy efficiency and emissions reductions.


  • Transparent Reporting and Accountability: Companies should regularly report their emissions data, set clear targets, and provide stakeholders with transparent and accurate information about their sustainability efforts.


  • Innovating and Collaborating: Companies can collaborate with industry peers, research institutions, and other stakeholders to develop and scale innovative solutions for emissions reduction and sustainable development.

 


How to Become a Company that Contributes to a Net-Zero Economy?

 

More and more companies are taking the road to help achieve net-zero at the global scale. The way to do this is defined by each company, according to their own business needs, their market, and their possibilities, through the development of a net-zero roadmap that is aligned with the overall company’s strategy and vision.

 

This roadmap might consist of the following milestones:

 

1.     Carry out a GHG footprint assessment (emissions across the scope 1, 2, and 3) to measure the company’s emissions and target the most emitting activities.

 

2.     Define scientifically based goals by taking a look at science-based targets, which show companies how much and how quickly they need to reduce their GHG emissions.

 

3.     Develop an effective emissions reduction strategy by setting ambitious but achievable targets for the next 5-10 years.

 

4.     Improve your products and/or services or your company’s business model.

 

5.     Focus on value chain mitigation by carrying out a deep analysis of your company’s suppliers’ environmental impact.

 

6.     Offset unavoidable emissions by financing offsetting projects.

 

7.     Measure performance on an ongoing basis.

 

 

What are the Challenges Faced by Companies in Their Efforts to Achieve a Net-Zero Economy?

 

Companies in their efforts to achieve net-zero emissions might face several challenges, namely:

 

  • Technological Limitations — Transitioning to net-zero emissions often requires deploying new technologies or upgrading existing infrastructure. However, some sectors, such as heavy industry or aviation, may lack commercially viable low-carbon alternatives, making it challenging to decarbonize completely.


  • Cost Concerns — Implementing emission reduction measures and transitioning to cleaner technologies can entail significant upfront costs. Companies may face financial challenges in securing the necessary investments, especially if they operate in competitive industries with thin profit margins. As shown through the McKinsey report (McKinsey, 2022), the economic transformation required to achieve net-zero emissions by 2050, will be massive in scale and complex in execution as it is very expensive.


  • Supply Chain Complexity — Companies often have complex global supply chains, making it difficult to track and reduce emissions across their entire value chain. Limited visibility into suppliers' operations and emissions can hinder efforts to achieve net-zero goals.


  • Regulatory Uncertainty — The regulatory landscape around climate change is evolving rapidly, with new laws and policies being introduced at the national and international levels. Companies may struggle to navigate this complex regulatory environment and adapt their strategies accordingly.


  • Stakeholder Expectations — Stakeholders, including customers, investors, and employees, increasingly expect companies to demonstrate a commitment to sustainability and climate action. Meeting these expectations while maintaining profitability and competitiveness can be challenging for businesses.


  • Transitioning Workforce — Shifting to net-zero emissions may require changes in business operations, potentially affecting job roles and skill requirements. Companies need to invest in reskilling and upskilling their workforce to ensure a smooth transition and minimise negative impacts on employees.


  • Access to Finance: Access to finance is crucial for implementing emission reduction measures and investing in clean technologies. However, securing funding for sustainability initiatives, particularly for small and medium-sized enterprises (SMEs), can be challenging, as financial institutions may perceive such investments as risky or lack appropriate financing mechanisms.

 

Addressing these challenges requires companies to adopt a systemic approach to sustainability and climate action, integrating emission reduction strategies into their core business operations and collaborating with stakeholders across their value chain. Additionally, governments, financial institutions, and other stakeholders play a crucial role in providing support, incentives, and regulatory frameworks to facilitate the transition to a net-zero economy.


 

What Opportunities Can Companies Explore in Their Efforts to Achieve a Net-Zero Economy?

 

Despite the challenges, the strategies aimed at achieving net-zero ambitions could offer substantial opportunities for companies across diverse sectors. Here's how:

 

  • Innovation and Differentiation — Embracing net-zero strategies encourages innovation within companies. Developing and implementing sustainable technologies, processes, and products can differentiate businesses in the marketplace and attract environmentally conscious consumers.


  • Cost Savings and Efficiency — Transitioning to renewable energy sources and improving energy efficiency not only reduces carbon emissions but also lowers operational costs in the long run. Investments in energy-saving technologies and practices often lead to reduced energy bills and increased operational efficiency.


  • Market Access and Expansion — As governments and regulatory bodies worldwide push for stricter emission regulations and sustainability standards, companies with net-zero strategies can gain preferential treatment and easier access to markets with stringent environmental requirements.


  • Risk Mitigation and Resilience — Companies that proactively address climate-related risks and transition to sustainable practices are better positioned to mitigate risks associated with regulatory changes, resource scarcity, and climate-related disasters. This resilience ensures business continuity and protects against potential financial losses.


  • Enhanced Reputation and Brand Value — Demonstrating a commitment to sustainability and achieving net-zero emissions can enhance a company's reputation and brand value. Consumers, investors, and stakeholders increasingly favour businesses that prioritise environmental responsibility, leading to increased customer loyalty and investor confidence.


  • Access to Capital and Investment Opportunities — Investors are increasingly considering environmental, social, and governance (ESG) factors when making investment decisions. Companies with robust net-zero strategies are more likely to attract sustainable investment capital and access a broader range of funding opportunities.


  • Supply Chain Optimisation — Collaborating with suppliers to adopt sustainable practices and reduce emissions throughout the supply chain can lead to operational efficiencies, cost savings, and improved supplier relationships. Optimising the supply chain for sustainability enhances resilience and reduces environmental impact.

 

Overall, embracing strategies to achieve net-zero ambitions offers companies numerous opportunities for growth, innovation, resilience, and enhanced reputation. By aligning with global sustainability goals and proactively addressing climate-related challenges, business cases thrive in a rapidly evolving business landscape while contributing to a more sustainable future.

 


Conclusion


In conclusion, the path to achieving net-zero emissions demands not only understanding the meaning of net-zero emissions but also concerted action from all sectors of society, from a systemic approach that has a better understanding of all pros and cons regarding economic, social, and environmental impact.

 

Is your company struggling with net-zero emissions policies and regulations?

 

We at AMARNA Vida stand ready to assist you on your journey towards your company’s beyond-sustainability journey. Get in touch to find out how to achieve net-zero emissions in your business operations.

 


References


McKinsey & Company (2022). The Net-Zero Transition Report - What it would cost, what it would bring. McKinsey Global Institute in collaboration with McKinsey Sustainability and McKinsey’s Global Energy & Materials and Advanced Industries Practices.

 

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