Tackling the reduction of carbon emissions is becoming one of this generation’s biggest engineering challenges. Over the past decade, corporations have developed an array of strategies that seek to identify the biggest sources of emissions within their industrial operations and are developing solutions that target those sources. While this is a logical approach to emissions reductions, there may be limitations on how much impact can ultimately be achieved under current business models.
Looking for emissions reductions based upon existing sources establishes an unnecessary constraint on the search for improvement. Imagine if the speed of transportation in the days of horse drawn carriage were limited to merely improving the performance of horses and carriages. We never would have seen the development of the car – a mode of transport that is superior in more than just speed, but distance, comfort, and utility.
If we seek to transform businesses and supply chains such that they achieve – and ultimately exceed – Net Zero, we must look beyond evolutionary changes in existing models toward revolutionary changes that challenge our understanding of the value chain.
Many of the Net Zero strategies that are being developed today are aimed at 2030, 2040 and 2050. In those time horizons, there is no reason to believe that production technologies, products, or business models will resemble what exists now. As such, emissions strategies should be more ambitious, seeking more than mere improvements in energy efficiency or transitions to renewable energy sources.
What we need is a more comprehensive approach to Net Zero strategy development, one that balances short-term emissions reductions and long-term disruptive innovations. Developing more ambitious strategies must be a collaborative effort in which we engage more than business strategists and sustainability leaders. We need to also tap the creativity of a broader segment of our business innovators including those in operations, sourcing, facilities, product design, R&D, and engineering.
Some of the best strategic opportunities for emissions reductions may even come from outside of our organizations, through engagement of suppliers and customers.
One way to encourage this shift in thinking is to recognize the relative, potential impact on emissions from different activities in the manufacturing value chain. Many of the near-term actions being incorporated into Net Zero strategies require little transformation of an operation, product design or business model. For instance, incorporating renewable sources of electricity or making changes to existing machinery to achieve energy efficiency can occur with little disruption to operations. More significant impact is available by changing materials within a product design or introducing completely new manufacturing technologies that avoid fossil fuel use altogether.
“There should be a part of every Net Zero strategy that focuses on making improvements to existing systems.”
The following Net Zero Impact Model shows the relative value of various business activities in achieving significant emissions reductions.
The Bottom Tier – Strategy Without Change
At the lowest tier, companies transfer their obligation to achieve emissions reductions through offsets. In this way, they make progress toward carbon neutrality, but they make no direct progress within their supply chain and create no value for their own business in terms of reduced risks, lower costs, or new revenue streams.
Moreover, offsets are a more controversial element of emissions strategies, as a lack of regulation and standardization has led to a lack of clarity on whether funds from these financial instruments are achieving the intended carbon reductions.
Middle-Tiers - Evolutionary Changes Within Existing Systems
There should be a part of every Net Zero strategy that focuses on making improvements to existing systems. Typically, these improvements can be planned and executed within a few years. Priority should be given to those improvements that offer both environmental and financial impact.
At the second tier, renewable energy sources offer gains in Scope 2 emissions but require very little change in how a factory operates and drives marginal progress toward Net Zero. Energy efficiency improvements are a common target for most companies seeking emissions improvement. It is at the third tier because, after addressing low hanging fruit, many energy efficiency opportunities are economically unjustifiable. An often-overlooked opportunity for emissions reduction is tier four, improvements in operations. Higher quality, throughput and uptime drive better utilization of energy resources, hence an inherently better emissions profile.
Top Tiers – Transformational Opportunities
While significant emissions reductions can be achieved at the lower tiers of the Net Zero Impact Model, the most impactful strategies must consider the top three tiers. By looking at trends in technology, consumer preferences, and markets, companies can identify opportunities to rethink how processes and products are designed and how participants behave within the value chain – including suppliers and customers – to drive large-scale emissions reductions and position their businesses for resiliency and long-term growth.
Process changes, at tier 5, offer the potential of eliminating fossil fuel consumption or reducing the number of production steps, each of which impacts emissions. Even more impactful are changes in product design where opportunities exist for eliminating materials that drive emissions throughout the value chain or driving higher recycling by consumers.
The top tier involves changes to business models. A good example of a change in business model is Caterpillar Reman where customers are incentivized to purchase remanufactured heavy equipment, cascading emissions reduction through the entire value chain, from raw material through product use.
Our Call to Action
Net Zero strategy development can’t be just focused on evolutionary change, nor can it be only about revolution. There must be a methodical approach to address both business needs. Emissions reduction goals must be addressed in concert with financial objectives.
Data on energy and material consumption continues to trend upward and put pressure on companies to take more aggressive action on reducing emissions and waste generation. A sustainability strategy that focuses only on near term, evolutionary improvements is likely to position a company behind the competition as customers and regulators drive for more sustainable operations in the future.
We are at the very early stage of tackling carbon emissions, and we need better strategies if we are to effectively spend the billions of dollars investors have already targeted toward solving the Net Zero challenge.