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The growing exigency to take measures to combat climate change is a global issue that we must all address on the regional or local level. The pace and scale of the changes to our energy consumption that we must implement in the coming decades will require a massive, coordinated effort across countries, public institutions, and industries. When it comes to the private sector, the need for significant change is widely recognised but how to make that change is cause for uncertainty.
There is, in effect, a consistent gap in the private sector between intent and action, particularly in the complex Asia-Pacific (APAC) region. It starts with the fundamental uncertainty about gathering the information needed to calculate one’s carbon footprint. In this sense, the adage still holds; one cannot manage what one cannot measure. The first step to any sustainable transformation is therefore knowing how to calculate one’s footprint.
The next hurdle is the fact that the diversity of market conditions and local policies varies widely from country to country, making the energy landscape hard to navigate. This complexity has slowed the adoption of renewables in the region, but we expect to see tremendous growth in decarbonisation opportunities in the coming decade. It is critical that companies equip themselves now with a clear and forward-looking strategy that will put them in the position to reap greater long-term benefits.
Yet even with an action plan in place, it is common that the gap to implementation is not bridged. Organisations need a roadmap to help them navigate each stage of their journey, starting with a guiding vision that flows throughout the company like a tide that lifts all boats. At issue is a full-scale transformation—not just in how and what energy is consumed, but first and foremost in the way businesses govern their decision-making process regarding sustainability.
The assertion about the general lack of preparedness to reach decarbonisation targets is borne out by the findings from ENGIE Impact’s Net Zero Corporate Readiness Survey, which revealed that while corporations are optimistic about their ability to decarbonise, the operational fundamentals needed to enable the Net Zero transformation are not yet in place. Amongst the many findings, the report highlights a lack of confidence among business leaders regarding their company’s decarbonisation technologies as they move from planning to execution. (See Figure 1).
While more organisations have a high-level understanding of available methods for decarbonisation, fewer have contextualised it to their business and developed a robust decarbonisation strategy.
The rhetoric around emissions reductions and decarbonisation has reached fever pitch, with most large corporate headquarters announcing Net Zero targets. But the fact that a strategy is being driven from the top doesn’t necessarily mean it is being executed. The lack of confidence expressed by the surveyed business leaders suggests that corporate-level ambitions are not cascading throughout companies, whereas an effective decarbonisation transformation requires the activation of an entire organisation, from manufacturing sites to sales operations, business units and support functions. If we then look beyond the organisational level to the country-specific complexities of operating in the APAC region, the challenges to successful decarbonisation appear myriad.
Nonetheless, it is imperative that companies navigate and address the barriers impeding their journey to Net Zero. Doing so means first being aware of the sustainability maturity of the various markets, the availability of green solutions and the policies that will either help accelerate or hinder the transition.
The increase in availability of funding for climate change initiatives has led to the adoption of more specific national climate goals in developed as well as emerging APAC markets. And while all countries in APAC are committed to the Paris Agreement, their pursuit of specific sustainability targets and the maturity level of those efforts vary significantly.
To help meet these commitments, most countries are now pursuing measures on multiple fronts, including but not limited to setting targets for renewable energy, electric vehicles, green energy-efficient buildings, and implementing policies such as carbon pricing mechanisms. It can be a challenge for a multinational with a footprint in several countries to navigate the diverse policies and availability of green solutions. The three illustrations below demonstrate the regional fragmentation through the lens of energy sources, availability of renewable energy market options and carbon pricing mechanisms.
Over the past decade, most markets have increased their generation of electricity from low-carbon energy sources including renewable sources, but the dependence on fossil fuels continues to be high.
The production of low-carbon energy has an impact on the availability of renewable energy procurement models. As we see below, many renewable procurement models are available in emerging as well as developed APAC markets, although renewable procurement through retail choice or off-site PPAs are in shorter supply in the emerging markets.
Across emerging as well as developed markets, market-based tools for emission reduction are currently lacking, though a few countries have implemented a carbon tax (direct tax per tonne of CO2 emissions) and policy makers are showing interest in emissions trading systems (cap and trade).
Given the region’s complexity and diversity, an APAC-wide playbook does not provide sufficient clarity and nuance for companies looking to decarbonise their assets and operations. Those looking to decarbonise must take a granular approach, understanding country-specific market dynamics and examining the likelihood that a specific technology will gain commercial success, or a particular policy will accelerate the adoption of green solutions in a particular geographic area.
A June 2020 survey of business executives in the APAC region conducted by Eco-Business and ENGIE Impact found that 60% of companies in the region had not set decarbonisation targets, and those that had faced a range of obstacles to meeting them. Of the 40% of companies that had set decarbonisation goals, only 28% of them were on track to hit their targets.
1. Uncertainty About How to Get Started and Which Technologies to Use
Different solutions are needed for the different countries, and it is often not possible to find a set of solutions appropriate to a site in one country that can be applied like a template to a site operating in a neighbouring country. Understanding the synergies between the various levers, knowing which solutions to adopt and when to implement them are complex problems that are exacerbated by the widespread challenge of aligning decisions at the site level and the corporate level.
2. Limited Renewable Sourcing Options and High Costs in a Fragmented and Immature Market
The APAC region is still largely dependent on coal and other fossil fuels, and there is a persistent issue of regulatory complexity across the region. Further, compared to Europe and the Americas, APAC markets for renewable energy procurement, such as power purchase agreements (PPA), are much less developed.
3. Justifying the Investment
In a region where the obstacles and costs are high and buy-in currently lags behind other regions, securing funding for large scale decarbonisation efforts and justifying the long-term investment to various stakeholders can be problematic.
4. Uncertainty Regarding Innovative Solutions
Some of the most promising long-term energy solutions have yet to be adopted at scale. Companies are hesitant to invest in innovative technologies due to high initial capital expenditure and concerns that there may not be enough demand to ensure those solutions are viable in the long term. Meanwhile, developing the applications that would increase the demand for innovative solutions and guarantee their continued availability tends to stall due to the very uncertainty regarding their staying power. This chicken/egg situation creates a cycle of hesitation that needs to be broken.
5. Finding the Right Offsetting Projects
Carbon offsets help soften the hard edges of the transition to low or zero-carbon ways of working, producing and transporting. They enable companies to contribute to climate goals quickly. But are they credible? Standards are continuously updated to ensure credits are legitimate and ‘additional’ to a business-as-usual scenario. However, not all standards or developers are created equal, making it difficult to navigate these evolving markets.
Starting out down the road to decarbonisation and choosing the right carbon mitigation strategies and technologies might seem overwhelming, but despite these challenges, many companies in the region— propelled by a clear desire to reduce their emissions and gain new competitive advantage—have shown that with the right strategy, roadmap and motivation, the obstacles to successful decarbonisation are by no means insurmountable.
Setting and achieving decarbonisation goals requires a customised, whole-system approach to create an optimal pathway for a business to transform and realise long-lasting benefits. While the emissions, mitigation hierarchy is a good rule of thumb to progress on a decarbonisation agenda, companies must create a roadmap to understand the synergies, as well as the timeframes, between the implementation of different solutions to accelerate their Net Zero transformation.
Another key question that needs to be addressed is how to balance local versus central initiatives. Companies often take an isolated approach to emissions reduction, resulting in investment decisions that lead to incremental cost savings, inefficient processes, the loss of the potential for economies of scale, and which do not achieve long-term decarbonisation goals. Companies should pursue a cost-optimal emissions roadmap using advanced scenario analysis to ensure that all internal stakeholders are aligned on the mission. Companies in the region have started doing this at the asset level as well as the organisational level. PT. Wijaya Karya (Persero) tbk (WIKA), an Indonesian conglomerate in the integrated construction sector, is one such company that has used this approach to enable them to accelerate their Net Zero by 2030 goal.
To accelerate the pace and scale of decarbonisation for its entities, WIKA started by considering the bottom-up decarbonisation opportunities for five of its key entities, including more than 20 facilities. By analysing each site’s data, emissions profiles and future emissions growth projections, WIKA was able to identify emissions hotspots for potential on-site emission-reducing opportunities, such as rooftop solar and biodiesel. They assessed these options for operational feasibility and market maturity, including local availability of solutions, and integrated them into a roadmap for implementation.
The roadmap is projected to reduce the emissions of the five key entities by 50%. WIKA also evaluated offsite decarbonisation solutions, such as Renewable Energy Certificates (RECs) and offsets, to account for the remaining emissions to achieve their Net Zero objective. To decrease the upfront capital burden and build a business case, green financing solutions were also included in the final roadmap, as were alternative leasing arrangements. This reduced the CAPEX for WIKA by more than 50%.
Policy and market fragmentation across a region or even within provinces and states in a country constrains finance and investment in renewable energy projects. This fragmentation can favour fossil-fuel incumbency in the power sector and increase the cost of further integration of renewables, just when an increase in the scale and pace of climate change mitigation efforts is needed to successfully implement the Paris Agreement and related targets.
Since 2015, the number of companies joining the RE100 Initiative and pledging to achieve 100% renewable energy by 2050 have increased by 412%. The participation of companies based in APAC has also steadily increased, with 42% of new RE100 members in 2020 based in the region. Companies must develop a flexible strategy by familiarising themselves with details of the country’s policies and be open to innovative solutions. The technology sector plays an outsized role in the transition to clean energy in the region. Below is an example of how a technology company is working to overcome market constraints.
This global leader in personal computers, network servers, data storage solutions and software has committed to using 75% renewable energy (RE) by 2030 and 100% by 2040. However, achieving this bold target in APAC is difficult due to the lack of RE options in many of these territories. The company’s relatively low energy-consumption volumes and the fact that its dealers are often located in multi-tenanted buildings makes it harder adopt RE in their energy mix.
The company has therefore undertaken a RE market study in key markets and assessed the green energy options based on key criteria—chiefly cost effectiveness, additionality/quality and deal complexity. To meet its 2030 RE target, the company prioritised the available green energy solutions in the market with the view to building a transformative RE roadmap.
An additional challenge businesses face is building a business case for securing funding for sustainable technologies and justifying the investment to stakeholders. Decarbonisation solutions often compete with business operations for available funding and are often judged according to the same standards—quick returns, which are atypical of many sustainable solutions. Companies must fundamentally shift the way they think about their path to Net Zero and how to finance it: from approaching investments according to traditional capital allocation guidelines that prioritise short-term gains and return on investment, to convincing stakeholders of the economic benefits of a long-term investment framework.
A company in the logistics real estate sector across the APAC region was looking to raise funding for a green data centre to be established across APAC. With the main investors located outside of APAC, the company needed to help the investors understand the macro-environment they were operating in, including the limitations and developments of the specific markets that would impact the future decarbonisation trajectory of the data centres.
Articulating the vision and translating it into tangible metrics was key step to secure funding. To smooth the path to funding acquisition, the company developed a sustainability charter by benchmarking where they should position themselves in the competitive landscape. They identified and prioritized implementation of sustainability levers such as energy efficiency technologies, water management opportunities and renewable energy solutions available in the market in the short, medium and long term, developing clear KPIs in alignment with investor expectations and defining renewable energy roadmaps within the respective countries to achieve stated targets.
As highlighted above, ENGIE Impact’s 2021 Net Zero Corporate Readiness Survey revealed that few (38%) business leaders are confident in their organisation’s understanding of decarbonisation technologies and even fewer (14%) are confident that their companies know how to combine evolving solutions into their decarbonisation plans. Nonetheless, isolated decisions about asset investments are often made in the attempt to further decarbonisation progress. But siloed implementation tends not to consider the emergence of future technologies, so a quick decision about an asset may lock in its emissions long-term. There is a better way. In an increasingly complex energy system with multiple conversions between energy vectors, having integrated solutions—leveraging synergies between different technologies—helps avoid making short-sighted investments that may reduce the capacity to adapt to technological advances.
Yara, a Norwegian chemical company and one of the world’s largest ammonia producers, was looking to develop an optimised decarbonisation strategy for its Pilbara facility in Western Australia. Not only were they looking for the most cost-optimal way to convert the existing facility to a fully renewable facility by 2030, Yara was also working on a decarbonisation strategy to consider projected increases in the facility’s throughput and minimise operational disruptions.
Yara Pilbara’s decarbonisation strategy was centred on producing green hydrogen via renewable energy-powered (specifically, solar PV) electrolysis to be used as a feedstock for ammonia production. To deliver on the strategy, an assessment was conducted on the feasibility of developing and operating a solar PV and green hydrogen production plant within the boundaries of the Pilbara facility. Following that assessment, various pathways to achieve zero-carbon at the Pilbara facility were identified and assessed by evaluating possible trade-offs between energy and carbon savings, capital and operational expenditures and return on investment.
The development of a decarbonisation strategy allowed Yara to identify a phased and ambitious, but achievable pathway to transform the ammonia plant from its current state into a zero-carbon ammonia production facility. The multi-stage project will ultimately culminate in the development of the “Pilbara Hydrogen Hub”, which, in addition to producing clean ammonia, could potentially inject and blend hydrogen into natural gas pipelines via the nearby Dampier Bunbury pipeline, supply clean hydrogen fuel for local road transportation such as mining trucks, and export liquefied hydrogen via the Dampier port to Japan and broader Asia.
The roadmap was leveraged in a successful application to The Australian Renewable Energy Agency (ARENA) in which $42.5 million was awarded to execute Phase 0.
Carbon offsetting is sometimes viewed with scepticism as a way to claim environmental responsibility without reducing one’s own carbon emissions, yet when deployed to complement an ambitious operational decarbonisation programme, it is a valid tool for companies to accelerate their transition to Net Zero. The key is to use high-quality carbon offsets. The challenge is to find quality offsets at sufficient volumes whilst managing price risk.
The organisation in this case study made community equity a priority, such that their program would not just benefit an intermediary or developer but would provide lasting benefit to livelihoods in the communities where their projects are located, effectively raising the bar for corporate offsetting programs.
This regulated institution is committed to combatting climate change. Their goal was to construct a market-leading offsetting program to deliver on their Net Zero promises. Like many corporates, when looking at the voluntary carbon market they found significant disruption, price evolution and a shortage of high-quality credits necessary to underpin a credible offset claim. In short, they faced the triple challenge of price, supply and quality, but were determined to find a solution.
The solution was to develop their own portfolio of carbon credits targeting projects that met specific criteria. They compared the case for buying offsets on the spot market to putting their own capital at risk in return for a guaranteed supply of carbon credits from projects they believed in. It turned out that the economics of supporting projects from inception is preferable because the cost of developing a carbon credit is significantly lower than the projected market prices on the spot market.
Multiple advantages accrue to this strategy. First, it eliminates credibility risk. The already-burgeoning voluntary carbon market is expected to undergo considerable further disruption with some fearing a sort of ‘wild west’ scenario of dubious players offering lower-quality offsets to meet a forecast huge growth in demand. With price evolution and quality supply already an issue, waiting to purchase offsets will leave companies at the mercy of a volatile market. By financing new projects at inception, however, our client not only locks in the price it is paying for its offsets but also strengthens its additionality claim as it brings new removal capacity in the global ecosystem.
The institution has set a science-based target and a Net Zero objective. Offsetting will be an important lever in this process, complementing their core approach of driving down organisational emissions. In close collaboration with ENGIE Impact, their due diligence process has been completed, the projects selected and the final step of agreeing commercial and contractual terms is underway.
The above case studies illustrate how various APAC businesses have addressed regionally specific challenges by availing of the locally available technologies and energy options, while maintaining flexibility for emerging technologies and regulatory uncertainties.
The process by which they initiated their decarbonisation transformation and launched it on a path to success differs significantly from the common tendency to undertake siloed, individual projects that address low-hanging fruit like a one-off energy efficiency fix. They recognised the need for more coordinated, structural changes that demand greater stakeholder alignment, the lack of which may delay decision-making and lead to inaction.
Inaction, however, is no longer an option. Remaining competitive, resilient and relevant in the future requires building consensus today on the need for structural change, which is the first step in any transformative process. The companies that understand this are already working to secure buy-in from diverse internal stakeholders, each with their own priorities, as this is what it takes to ensure that investment decisions will have the desired impact. Companies should not delay their efforts to build a common understanding and define a shared purpose, from the corporate leadership to the site managers, and then act in pursuit of that common objective.
Net Zero will never be achieved through half measures.
The authors would like to acknowledge the contributions of Ivan Li, Alaine Mahieu, Amelia Lim and Deepti Pathak.
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