Decarbonisation: a pathway to transition to future net-zero emissions

Thinking

What we can learn from the industries most exposed in the transition to net zero emissions

Decarbonising economies to combat the negative impacts of climate change is a complex journey. Many governments around the world have set a net zero target by 2050, with some setting their target to achieve net zero emissions even faster.

To transition to net zero, global economies will need to navigate away from how they currently operate industrially, towards a net zero model. Economies will have to challenge energy, process, material and mobility decisions across every industry.

For industries without a target, plan or pathway to net zero, there will be increasing opposition, not only on environmental grounds, but also on whether their economic or business model will be viable going forward.

How are governments and industries positioned to chart their course in transitioning to net zero emissions? How are they responding to the impact of changing social values and stakeholder expectations? How will finance and investment decisions respond to this transition?

These questions are explored in this thinking paper and include five case studies that consider the learnings from the industries most exposed to the transition to net zero emissions.

Net zero emissions commitments will determine finance and investment

It is increasingly clear that finance and investment will flow more readily to businesses and projects which align with a net zero 2050 commitment, or better. Changes in social values, and investor and stakeholder expectations, are key drivers of transition risks linked to the transformation towards a net zero emissions future.

Over the past decade, energy transition has emerged as a top business risk. Organisations have had to navigate rising energy prices, disruptive market and policy forces, along with the challenges of renewable energy uptake and a consumer-driven desire to lower carbon emissions.

Similarly, the resources industry has faced increasing activism and resistance to mining operations and expansion plans for decades. More recently, demands from the investors and customers of businesses to reduce emissions is being seen across the world.

It is in the interests of all governments and industries to see the resource industry decarbonise, as the infrastructure and equipment required to decarbonise the rest of our economies (wind turbines, solar panels, batteries, electric vehicles, etc) requires the raw materials that the resources industry produces.

In 2020, Blackrock, the world’s largest fund manager, announced a change to sustainable investing. With a total of A$7 trillion in assets, its investment risks presented by climate change are set to accelerate a significant reallocation of capital, which in turn will have a profound impact on the pricing of risk and the value of assets.

Some publicly listed organisations have already started voluntarily reporting their climate change risk management in line with global recommendations from the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. Their decision comes in preparation for regulatory changes that will likely require mandatory disclosure of climate-related financial risks.

We also need to consider non-financial disclosures relating to environmental and social materiality, for the audience of consumers, society and employees, as well as investors.

Energy and resources industries face accelerated risk to decarbonise

The energy and resources industries are heavy carbon emitters with the greatest exposure to the transition towards a net zero future.

Energy consumption is the biggest source of human-caused greenhouse gas emissions, responsible for 73 percent worldwide – but we still demand it to live our lives. This includes burning fossil fuels for electricity, heat and transportation.

As an individual, there are many ways to reduce the carbon footprint — reduce, reuse, and recycle, choose clean energy, conserve water and electricity. There’s a theory that if an individual committed to 20 percent of these practices, they may reduce their carbon footprint by 80 percent. It’s known as the Pareto Principle.

Pareto Principle

Aurecon-Decarbonisation:Pareto Principle

20 percent of the input (time, resources, effort) accounts for 80 percent of the output (results, rewards)

The same principle applies to businesses. Just 100 companies of the millions across the globe contribute to 71 percent of all greenhouse gas emissions. Heavy carbon emitters have the opportunity to impact climate change, not just its effects. Today, there’s the chance to mitigate against climate change that may occur in the future, and this has a bulk effect for other businesses, and other industries.

The pressure to decarbonise the energy and resource industries also comes from the end users of the energy and the resource, for example the demand for more sustainable buildings is helping create the pull for zero carbon steel and concrete. Not just zero carbon extraction of the resource from the earth, but a net zero industrial process to convert iron ore into steel (as an example).

At some point in the future the world will achieve 100 percent net zero emissions. The challenge is to map the fastest viable transition path. Once that path is set, we need to remember that every asset and person in the energy ecosystem is playing a vital role in the transition regardless of whether they are leveraging new or legacy technology.

While the path ahead will not be easy, the acceptance that we need to decarbonise as rapidly as possible is necessary to mitigate the transition risks associated with climate change. The transition and choices available will be different for each organisation.

A transition to a net zero emissions future can strand assets and operations and render business models obsolete, significantly impacting revenue and investment. Increasingly, future economic success and performance will have direct links to the response made to the risks and opportunities presented by climate change.

The transport industry’s role in reducing emissions

Closely following electricity and heating as carbon intensive services is transport. Transport equates to more than 17 percent of total greenhouse gas emissions, in Australia. This includes freight and logistics, mass passenger transit, and personal transport. Of this figure, cars, 4x4s, SUVs and small commercial vehicles, up to 3.5 tonnes, account for 10 percent of greenhouse gas emissions in Australia.

As decarbonisation has created both challenges and opportunities for the resources industry, it will similarly become a challenge and opportunity for the transport industry for both governments and private transport operators.

Decarbonisation of transport requires significant transformations and companies around the world are competing to develop electric vehicles, hydrogen-powered fleets, or exploring fossil fuel replacements, like biofuel or synthetic gas. It is not just how the transport system is powered that is important, but also how it is used.

Shifting from private vehicles to public transport, or moving to active modes like cycling and walking, have been shown to have a huge effect on carbon emissions. These sorts of behavioural changes are a feature of many carbon reductions programs worldwide.

COVID-19 has shown the size of the impact on carbon emissions when travel patterns change. The speed with which the impacts of COVID-19 were felt by the transport industry was significant, with aviation, road, rail and bus systems experiencing rapid declines in customer numbers. A study from Nature found that, in April 2020, when significant portions of the world went into lockdown, global emissions dropped by 17 percent.

Recovery has been varied across different transport modes. Many who could, shifted to cycling, walking and micro mobility options, while others shunned public transport, turning to their cars. Aurecon’s research unveiled that many people who previously commuted on mass transit or bus were considering driving instead, which has the potential to reverse the gains made to promote public transport over private vehicle travel.

Another side effect of COVID-19 is the potential impact when we alter where people work and when. There is evidence for this in groups that are exploring the impact of four-day work weeks, which found that one of the biggest impacts on emissions for the average worker is their commute to work.

Should these work patterns, alongside other demand management options, change permanently it will accelerate one of the potential decarbonisation pathways, assuming we see a return to public transport use.

While governments tackle ways to decarbonise fleets, whether through electrification of modes and new transport energy infrastructure, batteries and hydrogen, one other pathway to reshaping transit systems could be private sector financing of mass transit projects in greenfield programmes. This is based on the willingness of the private sector to fund new transport infrastructure for the benefit of the environment and global citizens.

In the aviation sector, the decarbonisation of air travel itself is technically challenging and has become a key focus of the industry. Of course, greenhouse gas emissions are also produced on the ground, through airport operations.

Ground operations are highly addressable and could be at the front of the queue for decarbonisation. What if an airport could become an energy ecosystem? Pivoting to a future where they could be sustainable but also make additional revenue.

Navigating transition risks: a pathway to decarbonisation

The successful transformation towards a net zero emissions economy requires a robust strategy, as well as engagement and trust from stakeholders and the community. Given the size of the challenge, energy, resource and transport industries transitioning to net zero emissions have a significant impact to make.

This paper considers five case studies where organisations around the world are reducing greenhouse gas emissions:

Scenario planning is particularly powerful for asset intensive industries transitioning to net zero emissions. This planning informs large project, or programme, investments with a myriad of stakeholders and investors.

Powerlink in Queensland has responsibility primarily for providing a secure electricity service for four million Queenslanders and to connect Queensland’s loads and generators into the National Electricity Market. Anticipating and navigating the challenges of the energy market, it released its 30-year Network Vision, identifying a range of uncertainties, drivers and opportunities to shape their future.

In partnership with Aurecon, Powerlink explored the political, economic, social, technology, legal and environmental trends affecting its business. A series of scenarios were developed to inform the Network Vision identifying how external trends might affect Powerlink’s network and customers.

The scenarios were an exploratory tool for the possible range of services that Powerlink’s customers may need over the next 30 years, and the resilience of the business to varied possible futures. With a long-term strategic plan, the business is well equipped to identify new opportunities, manage future risks and generate strategic responses to possible future disruptions.

Case study Powerlink uses scenario planning to set their long-term vision

Decarbonise and transition to a net-zero emissions future

There is a lot of complexity to understand when developing a low or net zero carbon strategy and plan to more actively manage energy risks whether these are associated with the decreasing reliability of supply, increasing energy costs or perceptions about energy and carbon footprint.

The Government of South Australia is pursuing plans to meet system security challenges, including projects that are transforming Australia’s energy supply mix and grid security.

The energy landscape is being fundamentally altered, as well as the conventional thinking underpinning network planning, taking responsibility for enabling a sustainable future.

In recent years the Government has implemented a complex programme of works spanning a range of interventions in the state’s energy infrastructure to improve energy security and grid strength, including:

  • The world’s largest 100 MW battery
  • Government electricity supply procurement
  • Renewable Technology Fund to catalyse private sector investment in new renewables and storage technologies including Hydrogen
  • Grid Scale Storage Fund to address emerging network challenges through storage technologies such as battery and pumped hydro
  • Home Battery Scheme, promoting uptake of residential battery storage
  • Virtual Power Plant, using distributed battery storage
  • Hydrogen bus trials

Case study South Australia develops a strategy for transitioning towards a low-carbon future

Decarbonise and transition to a net-zero emissions future

Today, customers, shareholders, partners, investors and employees expect data and information on an organisation’s commitment to a net zero emissions future.

The University of Queensland is an organisation committed to responding to the expectations of its student body and faculty. It has become the first university in the world to offset 100 percent of its electricity requirements from its own renewable energy asset, delivering a project that is a meaningful investment in creating a self-sufficient sustainable energy future for the university.

The Warwick Solar Farm it built, and owns, in regional Queensland, secures its usage of renewable energy and reduces greenhouse gas emissions. It’s shown students, staff and industry that it has a strong commitment to emissions reduction and a net zero emissions future.

As well as becoming a centrepiece of the University’s education and research into renewables for its undergraduate and postgraduate students across a range of academic disciplines, the Warwick Solar Farm also brings economic benefits to the regional area Queensland. An information centre has been built for the public and visiting research and industry associations.

Case study The University of Queensland identifies meaningful investment to achieve targets and goals

Decarbonise and transition to a net-zero emissions future

Hydrogen has the potential to be the net zero emission alternative to diesel and other transport fuels around the world. Some countries also have the potential to build a hydrogen export industry, under the right conditions.

The success of a hydrogen economy for Australia was modelled by Aurecon in its Hydrogen for Transport report, for the National Hydrogen Strategy Taskforce (Department of Industry, Innovation and Science).

The report was referenced in Australia’s National Hydrogen Roadmap as an opportunity to take a systems approach, or whole supply chain thinking, to embrace and develop hydrogen as a fuel. Recognising the importance of an integrated supply chain approach, Aurecon’s report identified four concepts that maximise multi-modal outcomes:

  1. A hydrogen highway that shares refuelling infrastructure along a highly-utilised route, resulting in the decarbonisation of long-distance transport along the route
  2. A vertically-integrated hydrogen ecosystem, particularly applicable for mining and heavy industry where hydrogen infrastructure could be utilised across multiple use cases, clustered in a single region
  3. The urban integration of hydrogen technology including buses and fleet mobility to incentivise the uptake of hydrogen as a low-emission technology within high-population centres
  4. A hydrogen-powered supply chain, focusing on end-to-end logistics, from material handling for manufacture, through to transportation

A system thinking approach is pertinent to the hydrogen for transport opportunity. In progressing any pilot or trials, a parallel investigation of long-term benefits to the broader transport system is required to fully understand the potential in growth for the domestic hydrogen economy.

Case study Hydrogen for Transport report for Australian Government recommends taking a systems approach

Decarbonise and transition to a net-zero emissions future

Fuel sources and technologies, such as hydrogen, battery or direct electric, biofuels or synthetic fuels, are contributors to a net zero emissions future. There are examples of organisations on the pathway to a net zero emissions model.

A company in the mining industry recently committed to implementing its decarbonisation strategy. Aurecon assessed the net zero pathway options for its vehicle fleets across its global mining operations.

The focus was on comparisons of diesel and alternative energy platforms for haul trucks, to determine the economics and performance of alternative approaches. For each alternative, the drivers for cost and performance, over time, were assessed along with the required supporting infrastructure and operational interactions.

When there’s a commitment to net zero emissions, early adopters are the ones leading the pack. Accelerating the adoption of these technologies will lower carbon emissions and improve sustainability over time.

Case study Modelling technology pathways in mining industry

Decarbonise and transition to a net-zero emissions future

Charting a way forward

Transition risks can strand assets and operations. Navigating the risks unveils the strategic, operational and project opportunities available to businesses on a journey to a net zero emissions future.

A switch to net zero emissions is essential – to tackle climate change, so all governments businesses and individuals need to be looking for decarbonisation pathways.

Dedication, collaboration and commitment is required across all industries and economies. At some point in the future, the world will be 100 percent net zero emissions, this is the opportunity we should all plan for.

It’s not yet out of reach. It can be achieved using technologies and innovations available and within our grasp.

We are embarking on the largest all-industry task in history. It’s a challenge and an opportunity. The reforms and investments will be unprecedented in their scale and complexity. We are fortunate to already have the energy and resources to impact climate change and mitigate against its effects in the future as we propel towards carbon neutrality.


About the Author

Paul Gleeson, Aurecon Board Sustainability Committee advisor and Managing Director, Energy, Resources & Water – Australia and New Zealand, helps organisations to be at the forefront of the transition to a low carbon future.

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