Delivering and decarbonising assets for industry

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13 April 2023 | 7 min | Featured article

Having significantly contributed to Australia’s and New Zealand’s economic prosperity for many decades, the resources and industrial markets now face a significant challenge to continue to do so as both countries focus on decarbonising in alignment with net-zero commitments.

It is transforming the operating landscape for both markets as, worldwide, the energy transition is gaining momentum. This is placing pressure on organisations to progress carbon emissions reductions beyond solely setting targets.

This is in addition to pressures from customers, investors and supply chain participants to deliver clear pathways to net-zero with transparent reporting on action. To successfully decarbonise, organisations must rebalance commercial objectives with mastering the science of achieving emission reductions of their operations along the value chain. This process should also incorporate the wider principles of environmental, social, governance (ESG), and align operations to a sustainable future for employees, communities and the planet.

The sustainable future has commenced

Current rates of change linked to climate mitigation mean that the cycles of innovation, reform and stakeholder expectations are becoming increasingly tight with little time between successive increases in expectations for climate action.

Barristers Noel Hutley SC and Sebastian Hartford Davis, known internationally for their legal opinion on climate-related challenges for boards and businesses, noted this factor in their 2021 opinion piece on climate change and Directors’ duties. They note: "It is no longer safe to assume that directors adequately discharge their duties simply by considering and disclosing climate-related trends and risks. In relevant sectors, directors of listed companies must also take reasonable steps to see that positive action is being taken"^[1]

"It is no longer safe to assume that directors adequately discharge their duties simply by considering and disclosing climate-related trends and risks."
Noel Hutley SC and Sebastian Hartford Davis

The challenge hurtling towards the leaders of resources and industrial market organisations is how to strategically navigate the pain points between maintaining business continuity and introducing initiatives that meaningfully decarbonise operations (Figure 1). Whether their operations are global or local, it is one of their biggest dilemmas.

Figure 1: Decarbonisation flow strategy for operations.

An organisation's net-zero commitment impacts all areas from strategy to physical operations. It’s a factor in every decision across their value chain.

The question when connecting strategy and operations is how to address the risks that come with supply chain vulnerabilities, and then convert those risks into opportunity; at an asset level, site level, company-wide level, and global marketplace level?

Has your organisation tailored its strategy to consider the transitional impacts of climate change with specific planning to manage emissions reform and operations?

CASE STUDY

Energy Efficiency and Conservation Authority (EECA), Aotearoa New Zealand

Process heat makes up approximately one-third of New Zealand's overall energy use, and 60 per cent of process heat is fossil-fuelled, mainly by gas and coal.

In 2020, the EECA announced a new Energy Transition Accelerator (ETA) programme. It provides critical support to New Zealand’s largest energy users to identify a technically viable pathway to undertake the energy transition to a low carbon future.

For New Zealand manufacturing companies planning to transition to a low carbon future, the first step is to develop a clear pathway to achieve energy transition using currently available and developing technology. This is followed by applications for funding and business cases to support project decision making, together with detailed design and delivery.

As part of this process, Aurecon is providing both technical, financial, carbon and risk related expertise and decision-making support to enable energy users to make the best strategic decisions.

Strategic targets convert to strategic intent

A common myth at the core of the net-zero carbon emissions challenge is that a tonne of CO₂ is merely a tonne of CO₂, and therefore replaceable directly by something else. But a tonne of CO₂ is inextricably linked to technical, social and economic factors that are distinctive, such as methods of production, asset utilisation and performance, real-time energy system data, systemic connection to other emissions, as well as environmental and political interests.

Strategic targets converted to actions deliver on strategic intent while linking both asset investment and operational outcomes.

Once the merit of options is understood, and the capital investment is calculated, organisations can accurately measure, monitor, and work towards decarbonising operations and their respective value chains (upstream and downstream).

When everything is changing, how do you stay balanced? Let us help you rebalance your priorities.

CASE STUDY

Reducing carbon emissions in rail and vehicle fleet for global miner, Australia

Aurecon is working in partnership with a global miner to identify and assess options to reduce the greenhouse gas emissions of its mining fleet, rail operations and power generation.

Considering all opportunities to reduce rail operation emissions, Aurecon identified a significant opportunity to reduce diesel consumption by hybridising the diesel-electric locomotive fleet. The trial of locomotives is now underway. The client has estimated that a full transition to battery-electric locomotives may reduce its diesel-related carbon emissions by up to 30 per cent.

To understand possible pathway options to achieve net-zero carbon emissions in the global vehicle fleet, scenario-analysis and value-risk modelling outlined optimal technologies and investments.

The goal is to capture the benefits from renewable energy in terms of cost and emissions reductions, especially by addressing the ever-present risk of climate change.

Exploration to inevitability

Asset owners in the resource and industrial markets are at different points on the pathway to net-zero carbon emissions, with a variety of different initiatives underway. In some ways, this is not surprising. Viably transitioning to net-zero emissions and reducing carbon emissions in operations is the end goal, including Scope 1, 2 and 3 emissions.

For companies with hard-to-abate operations, their transition is most likely to be more transformative than others. There is more involved which will take planning, investment decision-making and commitment over the short-, medium- and long-term.

That said, there is a growing number of opportunities for organisations to capitalise on the transition and secure their future.

New technologies

Diversifying activities into low-carbon products such as green hydrogen
Electrification of transport fleets
Adopting of cleaner technology processes
Evaluating and influencing both direct and indirect emissions (along the value chain)

Deploying changes that transition operations

Building capabilities
Taking advantage of options for co-benefits to avoid carbon-intensive operations and higher expenses
Establishing the right incentives and behaviours to address the influences of macro environmental factors
Ensuring that decarbonisation contributes to overarching economic development and social licence to operate
Activating engagement of the workforce with a forward-looking future vision for the asset
Unlocking value and moving up the merit order in the competitive market by identifying which assets become more, or less, competitive as a result of decarbonisation

CASE STUDY

Fonterra’s new biomass boiler at Waitoa, New Zealand

Fonterra’s new 30 MW biomass boiler will be fired using a state-of-the-art bubbling fluidised bed combustion system, more efficient than three of its existing coal fuelled boilers combined.

This is another step in its low carbon transition at the Waitoa site, a programme that Aurecon has supported over a 20-year period as its engineering partner for energy recovery and energy savings projects.

The new boiler will reduce the site’s annual emissions by 48,000 tonnes of CO²e, the equivalent of taking 20,000 cars from New Zealand’s roads. It also boosts the local wood biomass industry.

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A business case for a transformative future

Asset owners that fail to act on climate change will risk having to address unprecedented declines in demand for products in the future. This may strand assets and operations, potentially rendering current business models obsolete. Their future depends on being able to remain competitive, together with pursuing decarbonised operations with a combination of technological innovation, socially responsible development and effective environmental stewardship.

One thing is certain, the business case for investment will vary for each site—and for each asset owner.

By performing an end-to-end examination of business transition risks that climate change poses to assets, asset owners will know which assets to protect from transition risk and which stand to gain, or lose, from decarbonisation, and where to prioritise investment.

References

[1] Davis, S.H. and Hutley SC, N., The Centre for Policy Development, 23 April 2021, Climate Change and Directors’ Duties, accessed 16 February 2023.

Contributing author & reviewer: Belinda Wade, Industry Professor, University of Queensland.