A Profitable Decarbonisation Strategy: What Is It and How Do We Achieve It?

A profitable decarbonization strategy is now at the core of transitioning to the sustainable growth of any company. To stay competitive in the sustainable economy, setting transparent targets and realizing them in the long run must be at the forefront.

Where there were hurdles in the past, technology has made a way to overcome many of them. Where collecting data was difficult and expensive to measure, we now have AI that can automate that process in real-time with the integration of climate technology connected to ERP systems in the value chain.

In this week's edition of our newsletter, we'll show you why implementing a decarbonisation strategy is profitable and how to achieve it.

What does decarbonisation mean?

Decarbonization is the process of reducing carbon dioxide (CO2) emissions that result from human activities, such as the burning of fossil fuels like coal, oil, and natural gas for energy and transportation. Decarbonization minimizes the impact on climate change by reducing the concentration of CO2 in the atmosphere.?

Decarbonization is a critical component of global efforts to combat climate change, as outlined in international agreements like the Paris Agreement, where countries have committed to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. Achieving decarbonization requires coordinated action across all sectors of the economy, significant investment in clean technologies, and supportive policies and regulations to facilitate the transition to a low-carbon future.

What is profitable decarbonisation?

Profitable decarbonisation refers to the process of reducing carbon dioxide (CO2) and other greenhouse gas (GHG) emissions in a way that is economically beneficial or profitable for businesses and economies. This concept is increasingly important in the context of climate change, as companies, governments, and other organizations seek ways to meet environmental targets while also ensuring economic growth or financial viability.

Profitable decarbonisation can be achieved through various means, including but not limited to the following scenarios:

Energy efficiency improvements: Implementing more efficient technologies and processes that reduce energy consumption and emissions while lowering operational costs.

Renewable energy adoption: Shifting from fossil fuels to renewable energy sources (such as wind, solar, and hydroelectric power) which, in many cases, can offer lower long-term costs due to decreasing technology prices and the avoidance of carbon pricing or emissions regulations. The energy transition in Europe is said to cause 6 million job losses but 11 million job transitions by 2050, according to McKinsey Sustainability. Proving that decarbonisation strategies are profitable for the planet and employment.

Government incentives and carbon pricing: Leveraging subsidies, tax credits, and carbon pricing mechanisms that financially support businesses in their transition to low-carbon operations. These incentives reduce the initial cost of adopting green technologies and practices, while carbon taxes encourage more efficient energy use, making decarbonization both financially feasible and profitable.

Innovative business models: Developing new business models that reduce emissions and generate new revenue streams, such as circular economy practices that design out waste and pollution, keep products and materials in use, and regenerate natural systems.This approach is profitable because it transforms waste into resources, extends product life cycles, and opens up new markets by aligning economic incentives with sustainable practices, thereby reducing costs and generating additional revenue streams.

Carbon capture and utilization: Investing in technologies that capture CO2 emissions from sources like power plants and industrial processes, and either storing it underground - carbon capture and storage (CCS), or using it to create valuable products - carbon capture and utilization (CCU). This approach reduces atmospheric CO2 and transforms a potential cost into a profit center by enabling the sale of captured carbon, thus making decarbonization economically advantageous.

Green product and service development: Creating products and services that have a lower carbon footprint and meeting consumer demand for sustainable options. This method aligns with increasing environmental regulations and attracts eco-conscious consumers, enhancing brand reputation and driving profitability through premium pricing and market differentiation.

Regulatory compliance and carbon trading: Capitalizing on carbon trading schemes and regulatory compliance to generate profits from emissions reductions, such as selling carbon credits in markets where emissions are capped. This is not a means to emit more carbon elsewhere. They are to be used in areas where companies are decreasing over time and can be used to preserve carbon sinks.

Preserving carbon sinks: Natural land, blue carbon water ecosystems, and resources that provide carbon sinks are profitable; they are not wasted land or space. While direct air capture (DAC) and carbon removal systems are fantastic for the current damage and also profitable in the long-term, we must see that the carbon sinks are providing the storage that would have been natural if they weren't destroyed.

The goal of profitable decarbonization is not only to contribute to the global effort to combat climate change but also to ensure that this transition supports economic development, job creation, and competitive advantage in a shifting global market increasingly focused on sustainability.

What is a decarbonisation strategy for companies?

Businesses nowadays are commonly pursuing decarbonisation strategies to achieve net zero. The strategy relies on several levers including increasing the use of renewable energy to develop new products, relocating facilities, investing in carbon capture, and optimizing tax credits.

This is why decarbonisation can now be considered profitable. In addition to making positive changes to the environment, there is access to financial capital and consumers prefer climate-friendly brands. This is important to investors who are going in the direction of ESG investments, which are trending up.

Decarbonisation is now simple to do with AI emissions management software. It streamlines the data collection, calculation, and measurement process, so decarbonisation strategies can be implemented by companies with clear data and a clear overall vision.

According to Optima ECM Consulting, only 20% of supply chains have ERP systems integrated into external systems and partners. Starting with clear data collection, benchmarking your current position and making progress over time by achieving targets is the best way to start.

What are the four pillars of decarbonisation?

The key pillars for decarbonising the economy in the U.S. are energy efficiency, industry electrification, low-emission fuels feedstocks and energy resources, and storing and capturing carbon.

The Department of Energy in America is seeing this as an opportunity to create more jobs in industries that account for 30% of the emissions in the U.S. Profitable decarbonisation doesn't only come from investors or consumers, but the ability to grow businesses and supply chains with the mindset of expanding the need for more human capital to shift from something like coal mining where workers are afraid of losing jobs, but realizing that there are new options now and people can be doing different jobs within the sustainable economy. This is proven true for white and blue collar workers. This means it's not only profitable for the company and its value chain, but also for the individuals involved in the processes.

Why should companies implement a decarbonisation strategy?

Decarbonisation is an urgent need for all governments, businesses and society to tackle the global climate. Although some of them declared carbon free by 2030, many estimates from the UN suggest the United Nations has not met its Paris goals yet. Furthermore, decarbonisation strategies are capable of unlocking many opportunities.

Adopting a thorough and dynamic strategy encompassing various aspects to reach net zero will encourage employees and stakeholders looking forward to the green transition. Speeding up efforts against climate change by engaging your entire organization, thereby fostering and expediting transformation is key for moving forward. Resilience and reduction of the impact of climate-related threats that affect policies, technological advancements, and your supply chain can now be mitigated or removed from processes.

Furthermore, companies with profitable decarbonisation strategies will enjoy decreased energy costs, proven sustainability targets achieved hence earning their green labels, fewer costs from internal waste, greater supply chain efficiency boosting revenue and decreasing wasted time and human capital, and with carbon management software, time is reduced calculating, measuring, and reporting on emissions while seeing the decarbonisation strategy get realized in real-time.

Understanding ongoing sustainability performance

Sustainability teams face many challenges in implementing an effective decarbonised plan if they do not understand their sustainability metrics. To overcome the challenge, sustainability leaders should perform periodic sustainability assessments in order to maintain an effective organizational value chain. Businesses that provide robust sustainability performance data are capable of pinpointing the requirements that need to meet them by analyzing and implementing the data.

According to Pigment, 89% of investors don't have clear or complete data that they need to make decisions. Making clear decisions within the supply chain, or as an outside investor, cannot be done without proper data and tracking that data over time. Now that so many government regulations have been put in place such as the SEC Climate Disclosure, the Streamlined Energy and Carbon Regulation of the UK, and the EU's CSRD, amongst others, we are coming up on a time that data doesn't only have to be disclosed, but must be done so properly and with a plan in place to align themselves with the Paris Agreement.

Set targets for short- and long-term decarbonisation goals

Decarbonisation targets are crucial for climate change and decarbonisation plans. Companies must align specific emissions reduction goals to a global minimum 1.5 °C limit, in accordance with Paris agreements. To achieve these targets companies must record up to a year's data gathering to identify the base year of emissions.

Establishing a distinct direction towards your net zero objectives and securing support from your organization's top leaders should be at the core of setting goals. Formulate a framework and identify the financial needs as well to efficiently manage your path to net zero. Profitable decarbonisation comes from various sources and encouragement will be necessary in teams and within supply chains.

What are the risks of avoiding decarbonisation?

• Firstly, at the rate we are going, we're sure to far exceed the 2C increase that is not in alignment with the Paris Agreement, which has thousands of effects on the environment and climate that are apparent now more than ever and getting increasingly worse.
• Secondly, consumers are demanding low to no carbon emissions and other environmentally friendly products and services. Greenwashing scandals are destroying reputations and it is costly and embarrassing for companies.
• Third, government compliance is taking it's hold. In 2024, the world is beginning its shift to sustainability reporting and in the following years, medium and small companies will have to get on board as well. Now that we have the technology to fill the demand, there are no more excuses.
• Next, ESG investors are on the rise. Without a profitable decarbonisation strategy in order, being overlooked for capital is a risk. It's not only a choice at this point, but companies that do not involve themselves in ESG reporting don't have access to finance. It's a risk for investors and they will make decisions to go elsewhere.

How can Net0 help with your decarbonisation strategy?

Net0 provides advanced, AI-driven solutions that simplify the decarbonization process, making it accessible and aligning it with your profitability goals. Here are three essential decarbonisation tools among others that Net0 offers:

Net0 Initiative Finder

The Net0 Initiative Finder is an AI-first tool designed to streamline your search for decarbonization initiatives. It utilizes a comprehensive database of global and local projects to tailor solutions specifically for your business. This tool allows you to identify and implement the most relevant and impactful strategies efficiently, aligning perfectly with your unique operational needs and corporate sustainability goals.

Scenario Simulator

The Scenario Simulator is a powerful Net0 tool that enables your business to create, model, and test various decarbonization scenarios. This functionality helps you understand which strategies will effectively meet your goals and how they will impact your specific business context. By simulating different scenarios, you can visually discern between less effective approaches and those that yield optimal outcomes, allowing you to select the most promising strategies for implementation.

MAC Curve

The Marginal Abatement Cost (MAC) Curve is an essential tool once you have your scenarios defined. It helps compare the effectiveness of each scenario in terms of carbon reduction impact and associated costs. The MAC Curve provides a visual representation that plots the carbon reduction potential against financial expenditure. This visual aid is crucial for businesses committed to decarbonization but wary of the potential for negative ROI. By using the MAC Curve, your company can prioritize initiatives that offer significant environmental impact while maintaining or enhancing financial performance.

If you're excited about embarking on your decarbonisation strategy and need to know where to start, book a demo with Net0 and speak with one of our experts to experience how our solutions will lead you on your net zero journey.