How to Start Net Zero Implementation

Although I have wrote a few articles related to Net Zero recently, I still noticed a general sense of brain fog when it comes to the implementation of ESG and Net Zero. I will try to make it clear with this article, starting with this statement.

“Net Zero is the Environment in ESG.”

Net Zero by 2050 will give an opportunity for our climate to stabilize. This is linked to all other environmental issues, such as wildlife above and below water, drought, flood, fire, poverty eradication, etc. Stabilizing our climate with Net Zero must be our No. 1 priority in ESG.

It does seem like a fashion show lately with many organizations walking down the aisle pledging their commitment to ESG and Net Zero, strutting their hips left and right. Many have engaged highly paid ESG consultants, drafted visions and policies, made public declarations, and even launched ESG events. Despite such fanfare, implementation is still sorely lacking. There is clearly a gap between an organization policy on ESG and the implementation of it.

This gap is a kind of brain fog. Many of us are still unable to visualize what we need to do to achieve Net Zero. The myriad of technologies and terminologies related to ESG and Net Zero made the brain fog worse. Environmental talks on energy efficiency, renewable energy, hydrogen economy, carbon capture, fusion energy, energy storage, tree planting, urban farming, permaculture, and more, is not making ESG easier for us.

So please let me try to break it all down for the layperson among us. Although some have claimed that carbon capture or fusion energy can be our silver bullet to go carbon neutral by 2050, ?I share no such lofty dream. The most likely scenario of Net Zero World by 2050 is a mix of technologies. Energy efficiency has the potential to be the biggest contributor but requires a lot of effort. Renewable energy is easier to implement and will be a big contributor but requires energy storage technologies to complement it at some point. Finally, there will be a small number of processes that still emits carbon (cement industry and industry processes that still require oil and gas) by 2050; this is where carbon offset via nature-based carbon sink or carbon capture is needed to balance the emitted carbon, to achieve Net Zero.

For the most of us (who are not in the energy, cement, or carbon industry), there are only three major pathways for us to go Net Zero. Energy efficiency, renewable energy, and carbon offset. The rest of it, such as bio-composting, urban farming, circular economy, water efficiency, etc. will contribute to carbon reduction but it will not be significant.

Energy efficiency has the highest rate of return (best bang for our buck), but it does require efforts. Do this well, it will increase our national competitiveness, because we needed less input for our outputs. Products and services from Malaysia will be more cost competitive due to energy efficiency. From a national perspective, 50% energy reduction in Malaysia is equivalent to hundreds of billions in RM saved annually. Just imagine hundreds of billions reinvested back into Malaysian economy instead of burning it on fossil fuel.

In buildings there is a possibility of reducing 80% carbon emission via energy efficiency (World Energy Outlook 2012, IEA.). Although marginally lower, industrial sector also has similar potential as buildings, but it does require more effort. But the point to note is this, we do not need to be Net Zero tomorrow, we need to be Net Zero by 2050. In addition, no equipment can last forever. All existing equipment will fail at least once from now until 2050. The big question is… is it cheaper to replace a failed equipment when its breakdown, one to one, causing disruption to our production, or have a planned upgrading work towards Net Zero, with the opportunity to downsize equipment due to efficiency improvements?

Net Zero require us to rethink efficiency from first principle, because it will be too expensive to rely on carbon offset (more on this later). For example, if an industry requires an oven, instead of just improving the heating element, we may also investigate improved insulation and heat distribution within the oven. Such work will lead to a reduction of heating capacity, reducing replacement cost of heating element. In an industry that use lots of motors, there may be opportunities for weight and friction reduction across the entire system, allowing a smaller motor with much higher efficiency to be used as replacement. There are hosts of opportunities for improvement everywhere if first principle is applied and being able to ‘see and track’ energy transformation from one form to another.

The same concept can be applied to buildings and township planning. We just need to be able to track where and how energy is used, as electricity is converted into kinetic energy, potential energy, heat energy, frictional loses, noise, or light. We will have an opportunity to make it more efficient at every step. If we save 1% at each step, 50 steps will get us 50% energy reduction. And there are hundreds of such opportunities in buildings, township, and factories.

This is also why energy efficiency is difficult, we must address 50 items (sometimes more) to achieve 50% energy reduction. Meanwhile, if we have a roof large enough, a solar photovoltaic solution could have achieved the same 50% energy reduction. Moreover, in Malaysia, there is no maintenance required on our photovoltaic panels if the slope is good enough for the rain to wash off the accumulated dirt and dust. Renewable energy is just easier and simpler to implement than energy efficiency.

In terms of payback and rate of return, I have showed repeatedly that energy efficiency often has negative payback, while renewable energy today has a rate of return up to 26% (in Malaysia). In short, energy efficiency reduces our capital cost and operational cost, while renewable energy has a better rate of returns than most financial-based investment available today.

Unfortunately, in a high-rise tower or a high energy intensity facility (hospital, metal processing, etc.), it is likely not possible achieve zero carbon emission using on-site strategies only. Off-site strategies are needed. The easiest off-site strategy is to buy carbon offset.

Carbon offset is paying someone else to do the carbon emission reduction, while you stake a claim on the reduction achieved. It is an audited process so that the person selling it cannot sell the same carbon reduction more than once. They cannot even claim it for themselves once they sold it to us. More importantly, it is extremely easy to buy carbon offsets. Go online and there are plenty of options there. We can even choose what form of carbon offset we want to purchase. It can be a solar photovoltaic farm, or a forest as a carbon sink, ?or a capture carbon system, etc.

Carbon offset is also relatively cheap. As a rule of thumb, it is approximately the same price we are paying for energy in Malaysia. Services industry (occupying buildings) typically pays 1-2% of their operating cost on energy. Industrial pays more on energy, typically around 10%, but can go as high as 20%. Paying 1-2% more for carbon offset is affordable to many businesses to go Net Zero but it is painful for industry to pay up to 20% of their current operational cost. Carbon offset is also paid annually, and it is paid on top of our existing high energy usage. The more energy we consume, the more we pay for carbon offset. Finally, carbon offset is a carbon tax that have no payback or return.

I recommend buying carbon offset as absolutely the last option to achieve Net Zero. If we jump straight into carbon offset without addressing energy efficiency and renewable energy on-site, we are not really reducing carbon emission, are we? We are still spilling carbon into the atmosphere if we do nothing to reduce it in our own premise. Moreover, we risk a public outcry of greenwashing. The reputation damage affects 100% of our sales (turnover), just because we choose to ignore the 1-2% cost of energy consumption. It is just not worth it, especially when energy efficiency can save us capital cost and generate operational savings.

If Malaysian are early in addressing Net Zero via the right approach, we can provide to the world Zero Carbon products that are lower in cost than business as usual products. Cheaper and better. Net Zero is an opportunity for us to get our act together quickly and be among the first to offer Zero Carbon products and services to the world.

In summary, Net Zero is energy efficiency first, renewable energy second and carbon offset as the last mile solution. Organizations must go beyond talks, policies, and event launches. We must act on energy efficiency today for an opportunity to be among the first to offer products and services at a lower price and with zero embodied carbon.

Feel free to contact me if you need help with implementation of energy efficiency and Net Zero in your organization.