Jim Crockett, PE
There has recently been an important, but largely underreported, tidal shift in the world of carbon emissions and greenhouse gas reduction. Many of the world’s largest companies have voluntarily set internal energy reduction targets and committed to achieve them. This will send ripples throughout the entire business world. In the near future, a company’s carbon footprint might give it a competitive edge – or might put it out of business.
Science Based Targets
“Science Based Targets” (hereafter: SBT) (https://sciencebasedtargets.org/) is an organization that helps companies set energy reduction targets and records their commitments. From their website, targets are “considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement–limiting global warming to well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C.” Participants can commit to following either trajectory: 1.5°C (aggressive) or 2.0°C (less aggressive).
Large Multi-National Corporate Participation
At the date of this publication, 1,738 companies have signed up with the SBT website, and the number is growing quickly. 152 new companies signed up in June of 2021 alone. Of the companies who have joined, 863 have already established targets, and 732 have opted for the 1.5°C trajectory. [i]
Apple, Dell Technologies, General Motors, and Walmart, for example, are four of the 732 companies that have committed to 1.5°C trajectories. Their commitments from the SBT website are as follows:
- Apple commits to reduce absolute combined scope 1, 2 and 3 GHG emissions 62% by FY2030 from a FY2019 base year. Apple also commits to continue annually sourcing 100% renewable electricity through FY2030.
- Dell Technologies commits to reduce scope 1 and 2 GHG emissions 50% by 2030 from a 2019 base year. Dell Technologies commits to reduce direct material suppliers GHG emissions 60% per revenue over the same time frame. The company also commits to reduce the energy intensity of their product portfolio 80% by 2020, using a 2011 base year.
- Walmart commits to reduce absolute scopes 1 and 2 GHG emissions 35% by 2025 and 65% by 2030 from a 2015 base year. Walmart will also work to reduce CO2e emissions from upstream and downstream scope 3 sources by one billion tons between by 2030 from a 2015 base year.
Given the size of these four companies alone, achieving reduction targets would be a significant achievement. However, the scope of this reduction is even bigger than it seems.
Scope 1, 2, and 3 Targets
To fully understand the impact of these goals, we need to understand what Scopes 1, 2, and 3 represent.[ii]
- Scope 1 refers to emissions generated at the participant’s site(s). Fuel-burning equipment, such as furnaces, water heaters, and ovens, would all fall under Scope 1.
- Scope 2 refers to the emissions generated off-site to create energy that you consume (such as electricity, chilled water, or steam).
- Scope 3 refers to “all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream emissions.”
The Market Impact of Scope 3 Targets
Scope 3 reduction targets completely change the game.
General Motors can’t simply reduce the GHG emissions of their factories alone. They must also reduce the downstream emissions of their products, i.e., their vehicles, by 51% by 2035.
It means that Apple must reduce the GHG emissions of its suppliers by 62% by 2030.
Dell has committed to reduce the emissions of its direct material suppliers by 60% by 2030.
Walmart must reduce the emissions of its suppliers by the equivalent of one billion tons of CO2 by 2030. (One billion tons is roughly the annual carbon footprint of 200 million American homes.)
And those are just 4 companies out of 1,738.
Potential Implications (and Opportunities)
The impact of Scope 3 cannot be overstated. Scope 3 not only requires companies to reduce their own emissions, but to reduce the emissions of their customers and suppliers. Suppliers might find themselves contractually obligated to hit emission reduction targets if they wish to continue doing business with SBT program participants.
This will create emissions reduction pressure for existing suppliers but might also present opportunities for potential suppliers with a better handle on their emissions. Large companies with SBT targets could reduce their Scope 3 emissions by replacing an existing supplier with a supplier with lower GHG emissions.
Energy Industry Is Changing
At ETC Group, we are already seeing a change in the attitudes of our current and potential clients. Historically, most of our customers were primarily interested in saving money; now they’re responding to internal and external pressures due to SBTs.
Some companies have achieved their goals by purchasing Renewable Energy Certificates (RECs). However, the nature of RECs includes inherent market uncertainty and risk. Many corporations have set their sights inward, focusing on energy-saving upgrades to their own facilities, making them more sustainable and energy efficient.
If you are thinking about adopting Science-Based Targets or just want to reduce your energy spend, ETC Group can help. Contact us at email@example.com.
[i] Science-Based Targets, https://sciencebasedtargets.org/
[ii] Scope definitions from: https://www.ghgprotocol.org/sites/default/files/ghgp/public/FAQ.pdf