Scenarios, signposting and predicting the rate of decarbonisation.

The world must decarbonise, but how quickly does each company need to? That’s the part that has left many of us scratching our heads.

What if we could signpost the future to predict the rate at which we should decarbonise? How can scenario planning with signposting turn us into predictors of possible futures rather than solvers of the past?

When it comes to decarbonisation, the future is uncertain for many reasons. These uncertainties range from intergovernmental alignment, energy economics, technical innovation, critical mineral supply, stakeholder pressures – the list goes on.?Then, there are associated risks such as:

• Transition risks e.g., reputation, market & product, regulatory, technology
• Physical risks e.g., natural disasters, drying climate, temperature rises etc.
• Availability of metals and minerals and mining capacity for the new decarbonised economy

We also have the added complication of the cost of decarbonisation. Will the cost that is associated with net zero slow down the change?

There is no single methodology to manage uncertainties. Uncertainties are interrelated and interdependent in ways that are almost unpredictable, and local events can cause ripples that expand globally. Take, for example, the war in Ukraine and the resulting inflation of gas and oil prices. This is causing an unprecedented flood of interest in electric vehicles and renewables. The cost of consumables is also going up due to higher transport and energy costs.

With all the uncertainties surrounding decarbonisation, traditional forecasting doesn’t cut it. What does this mean for forecasting the ‘how’ and the ‘when’ for decarbonising?

To gain insights into the importance of these uncertainties, new modelling approaches can be developed.

Scenario planning with a wide range of possible operational, financial and social outcomes, and a system of “signposting” the scenarios to see which one is more likely to unfold.

Signposts are a way of helping us get to a destination. They tell us a path to take when we hit a particular fork in the road; Scenario planning combined with signposts can create higher levels of confidence in an uncertain environment.

Consider an example that uses the uptake of elective vehicles (EVs)

Let’s say at the moment we have 5% EVs on the road and 95% regular, internal combustion vehicles. At some point in time in the future, we are likely to have 100% electric autonomous vehicles on the road. That may be 10, 20 or 30 years away or more. So how might we get an idea of when this will be? If we mapped out signposts, such as the manufacturing capacity of EVs by key car companies, then this is likely to give us an indication of the rate of decarbonisation of the vehicle fleet.

For us in the mining industry, this could be a good indicator for predicting future volume demand for Lithium. And so, we can go on.

Why scenario planning and not forecasting?

Put simply, forecasting offers one possible future, whereas scenarios offer a number of possible futures. Or, as Bloomberg Chief Economist and Author, Seb Henbest said, “A forecast is a prediction; we’re saying what we think will happen. A scenario is different…it generally looks much further out and is trying to build a picture of the future in extreme uncertainty.”

What can you do?

• Businesses will need a clear path and agenda to decarbonise their operations. Scenarios with signposts should be used to predict this.
• Understand this is not business as usual and adapting your thinking and planning to accommodate this.
• Be agile enough to shift strategy as events develop. Seeing and acting on inflection points.

The road to net‐zero emissions is filled with uncertainties. We don’t have a crystal ball that will tell us how economic conditions will change, how society will adapt to necessary behavioural changes, how technologies will evolve and which government policies will be most effective.

However, with scenario planning and signposting we can put some predictability on the unpredictable.

Choosing the right partner, with the right skills, for this journey will be key in reaching net-zero.