Energy and process emissions in the manufacturing industry amount to about 30% of global CO₂ emissions—roughly 14 billion tons. By developing a successful transformation strategy to accelerate the decarbonization transformation of manufacturing’s footprint and Scope 1 & 2 emissions, there can be a significant material impact on the growing climate crisis. But it will not be easy.
Indeed, achieving the scale of emissions reductions needed to meet our targets will likely be the largest transformation most companies will ever face—impacting their entire value chain and each of their stakeholders. It will also involve continuous, multi-year engagement and the introduction of innovative technologies, investments and flexible solutions. Companies know they need to act and have set ambitious goals, yet surprisingly few are prepared to deliver their transformation successfully.
As we get started on our journey to tackle the decarbonization transition in manufacturing more effectively, we will focus on four topics that should help companies increase their confidence in their preparedness for a low-carbon future:
From engineering and operations, to finance and procurement functions, many internal stakeholders make independent decarbonization decisions according to differing timelines. Three common pitfalls arise from this method of decision-making:
In an increasingly complex energy system with multiple conversions between energy vectors, having integrated solutions is a better approach—leveraging synergies between different technologies. Such an approach will help avoid making short-sighted investments that may reduce the capacity to adapt to technological advances. Say, as alluded to above, a manufacturing site introduces a new gas boiler, believing that replacing the old one would increase efficiency. That means the carbon-based fuel used for that boiler is locked in for the next 30 years, the lifetime of the boiler, so how does one ever expect to achieve Net Zero?
What we wish to emphasize is that the growing complexity requires a different, portfolio-based approach to solving energy needs that leverages and combines a variety of energy vectors—biomass, solar thermal, heat recovery, green hydrogen, and more—using integrated and dynamic modeling.
For instance, we analyzed a manufacturing site to determine how to best meet steam demand and found the optimal approach to be a combination of three solutions: biomass-fueled combined heat and power (CHP), supplemented by solar PV with a smaller electric steam boiler, and then a biomethane boiler to cover peak demand. The result is a flexible solution delivering the lowest-cost pathway to Net Zero.
There needs to be a fundamental shift in the way companies think about their pathway to Net Zero and how to finance it. Too often, questions about investing in on-site equipment are still made using very traditional capital allocation guidelines that prioritize return on investment (ROI) or a payback cut-off on a relatively short timeframe, without considering a long-term investment framework.
The better approach is to shift from ROI to total cost of ownership (TCO) by building scenarios, incorporating optionality (considering future technologies and sourcing) and performing risk-assessment through sensitivity analysis of key parameters—creating visibility on the full budgetary impact of a long-term strategy.
Instead of calculating which savings and cash flows are generated from a single isolated investment—especially when the onsite energy system of the future will be more complex and dynamic—each investment should be considered as a piece within a dynamic energy system, driving investments of the entire organization. A typical ROI calculation may cover eight to ten years, which makes it difficult to consider technologies that are not commercially mature at present but could play a significant role in future decarbonization efforts (e.g., green hydrogen). The risk of attaching a quick payoff date to an investment is that it will preclude developing a sufficient financial understanding of some key technologies that will emerge, and which might be much more attractive economically. Financial modelling should keep the door open to future decisions –further enabling businesses to streamline equipment decisions, change sourcing options, and account for the risk of inflation.
The best way to visualize the financial impact of a TCO approach is to start with a business-as-usual (baseline) assessment and then model scenarios to think through all the way to the Net Zero end target. Doing so encourages future sourcing of energy to drive economic decisions. What we found is that oftentimes the lowest cost decarbonization scenario is very close to the baseline scenario (continue what’s being done) yet avoids potential risks such as increasing commodity prices and stranded assets.
This third topic mainly concerns how to set up your organization to accelerate the momentum of your transformation. The key question here is how to balance local initiatives versus central initiatives. Many decarbonization efforts are currently site-by-site, bottom-up initiatives without sufficient guidance from a central sustainability program. This brings three challenges along with it.
The recommended practice is thus to implement your transition in a multi-stakeholder setting to build economies of scale and increase low-carbon harmonization across the business. The question is how to put this recommendation into practice.
We recommend a five-step approach for building a multi-site program allowing for standardization and repeatability to accelerate the pace and scale of your decarbonization process at the lowest cost.
Where should companies start their Net Zero transformation? Three considerations:
Starting out on or accelerating the path to achieving Net Zero requires each of us to consider critical questions about the steps we need to take and strategies to apply within our particular contexts. And while many organizations believe they are already on the right path, key findings from ENGIE Impact’s Net Zero Corporate Readiness Report suggest otherwise. Namely, while businesses are upbeat and optimistic about their sustainability programs and abilities, the fundamentals necessary to enable that transformation—the decarbonization enablers—are not yet in place.
ENGIE Impact and WBCSD are helping the manufacturing industry develop decarbonization plans that companies across the world can implement and scale up immediately.
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