How Manufacturing Companies Can Chart a Path to Net Zero

At a Glance

• Operational and financial targets, in addition to emission reduction, are necessary considerations in order to build and implement facility roadmaps.
• Multiple considerations exist, including asset optimization, emerging technology opportunities, cost-competitiveness, market factors and sourcing requirements.
• There are tried-and-true ways to weigh various perspectives and priorities in order to gain alignment from diverse groups of internal stakeholders.

Designing a Least-cost Pathway to Decarbonization by 2030

Companies need a whole-system approach to decarbonization to reverse the current emissions trends across the manufacturing and industrial sectors.

Decades of steadily increasing wealth in emerging markets have created a rising tide of manufacturing, resulting in a rapid increase in energy demand by the sector. With the manufacturing and industrial sectors’ greenhouse gas emissions (GHGs) already substantial, growing demand in the region will only intensify the pressure businesses are under to sustainably manage resources and optimize the efficiency of their projects.

This scenario is particularly true in the Asia-Pacific region, where the manufacturing sector accounts for an estimated 40% of all GHGs. To keep within the carbon budget to limit global warming to 1.5°C, sector emissions in Asia-Pacific (APAC) would need to decline by ~4-6%/year by 2030, reversing the 1.8% annual increase seen between 2010 and 2019. Major changes will be required to make this happen, and companies will have to step up with achievable plans to significantly reduce their carbon emissions.

Manufacturing & Construction CO₂ Emissions From Fuel Combustion

ENGIE Impact has been employing a Net Zero Factory approach to help clients across the region overcome the shortcomings that lead to a gap between their decarbonization ambitions and implementation. In doing so, we can meaningfully help them reduce their carbon footprints across manufacturing sites.

Shortcomings in Manufacturers’ Approach to Decarbonization

There is no lack of awareness about the need to reduce emissions in the manufacturing sector, nor is there a lack of ambition on the part of corporations. However, companies in the APAC region often apply an insufficiently holistic approach to emissions reduction at the site level, resulting in investment decisions that lead to incremental cost or energy savings but do not solve long-term decarbonization issues.

The Net Zero Factory approach is designed to ameliorate three identifiable shortcomings of manufacturing companies in the region:

• Lack of expertise: Sustainability transformation is complex. Many operators may not have a thorough understanding of the various decarbonization levers and pathways, nor the resources to evaluate alternative technologies, weigh tradeoffs, de-risk projects, reduce capital expenses and effectively implement the transformation. As a result, they do not take a holistic view that links each initiative back to its carbon impact.
• Short-term, siloed approach: Decarbonization projects are often implemented as cost-saving measures by individual departments and are thus generally siloed and progress independently. As a result, evolution to a long-term view of the business or the impact of other initiatives may be overlooked. Suppose, for instance, a facility has signed a power purchase agreement (PPA) to procure 100% renewable energy, but later upgrades the efficiencies of its chillers to reduce electricity consumption, putting the facility at risk of take-or-pay penalties.
• Constrained financing: The siloed approach leads to a failure to consider alternative green financing solutions or leasing arrangements that can help reduce the costs of transformation. According to ENGIE Impact’s Net Zero Corporate Readiness Report, nearly 70% of companies surveyed say they do not use sustainable frameworks to guide capital allocation for decarbonization projects. They therefore miss opportunities to lower their expenditures and may take decisions driven by budget constraints and return on investment rather than their long-term targets and total cost of ownership.

Net Zero Factory Approach Accelerates Transformation

Setting and achieving decarbonization goals requires a customized, whole-system approach for entire organizations, as well as a site-by-site approach, to create an optimal pathway to transformation and long-lasting benefits. ENGIE Impact’s Net Zero Factory is helping manufacturing companies move from a siloed to a holistic approach that enables them to account for synergies and interdependencies between distinct decarbonization opportunities, as well as for technology evolution, market dynamics and business expansion. More specifically, it enables them to:

1. Implement a cost-optimal emissions roadmap: the approach involves technology-agnostic optimization to develop a least-cost pathway to emissions reduction using advanced scenario analysis that addresses operational constraints, factors in potential regulatory and policy evolution, and minimizes the total cost of ownership.

2. Create a roadmap ready for implementation: the approach ensures that all stakeholders from various commercial and technical departments are aligned throughout the journey to Net Zero. The resulting roadmap is thus congruent with long-term operational and business objectives—and includes clear steps and milestones for easy implementation.  

3. Scale-up from the factory to the corporation: the approach allows firms to customize decarbonization solutions at a facility level and consider specific operational issues through techno-economic optimization. Taking this bottom-up approach, organizations can scale up from the factory floor to the strategic level of the organization, focusing the corporate-level view on required investments, costs and emissions abatement. 

We turn to a case study about PT. Wijaya Karya (Persero) tbk (WIKA), an Indonesian conglomerate in the integrated construction sector, to see this approach in action. WIKA has an ambitious sustainability vision and has engaged ENGIE Impact as the partner to help define its decarbonization strategy. WIKA’s objective is to achieve Net Zero by 2030 while taking a least-cost pathway to emissions reduction.

ENGIE Impact started by considering the bottom-up decarbonization opportunities for five of WIKA’s key entities, including more than 20 facilities. The first step was to work with stakeholders of each site to conduct a deep analysis of the data and build emissions profiles for each of its 20+ facilities, projecting future emissions growth and breaking them down into key processes and equipment.

ENGIE Impact then focused on major emissions hotspots to identify potential on-site opportunities to reduce emissions, such as rooftop solar in the short-term or biodiesel for the second half of the decade. These opportunities were assessed for operational feasibility (such as the impact on existing operations and compatibility with current equipment) and market maturity (local availability of solutions).

In all, working together with the WIKA teams from each entity, nine clusters of on-site opportunities were validated and prioritized for implementation.

These recommended solutions are projected to reduce the emissions of the five key entities by 50%. Offsite decarbonization solutions, such as Renewable Energy Certificates (RECs) and offsets, were evaluated to account for the remaining emissions for WIKA to achieve their Net Zero objective.

Emissions Abatement Contribution Pathway in ktCO₂e

The Net Zero Factory approach ensures from the start that all stakeholders are aligned on the ambition and strategy so that once the site assessments have been conducted, members of the commercial and technical departments will also be aligned on the solution charting the way forward.

In WIKA’s case, ENGIE Impact combined the decarbonization solutions identified across the entities to design scenarios specifying the emissions abatement and cost profile of each pathway. The scenarios were modelled with consideration for Indonesian market conditions and policies, as well as their potential evolution. ENGIE Impact compared the cost of the various scenarios to the business-as-usual baseline to estimate the financial resources required.

The last step was to ensure the solutions were workable financially. Green financing solutions were included in the final roadmap, as were alternative leasing arrangements to decrease the upfront capital burden. This reduced the CAPEX for WIKA by more than 50%.

The resulting roadmap to Net Zero for the five entities is congruent with WIKA’s long-term operational and business goals and includes clear steps and milestones for achievable implementation.

Manufacturing companies must include efforts to decarbonize operations as integral to their strategy for staying competitive. In recent years, as the effects of climate change have become increasingly visible, demands for action—by the public, by governments, and by leading companies—have taken center stage. By acting at the asset/site level, companies can ensure the soundest pathway is taken as they move from intent to action.

The authors would like to thank Hubert Yan and Tan Kim Yee for their invaluable support in the development of this article.