Prioritize and implement decarbonization levers

Following a WBCSD and PwC UK Masterclass on “Prioritizing Decarbonization Levers and Driving Implementation”, this document summarizes the key learnings that were presented and surfaced via rich discussion among company participants under Chatham House rules.

Reducing emissions across a business often requires end-to-end transformation. To achieve this businesses need to fully understand what drives their emissions, assess a range of decarbonization levers, and consider their fit against organizational needs and constraints.

At the same time, today’s business leaders face political uncertainty, economic stress, and changing regulatory disclosures which are placing an increased pressure on how businesses invest in decarbonization levers. Margins are getting tighter and the certainty of investment in decarbonization is being challenged. This means that the costs of decarbonization levers, their scaling opportunities, and their commercial value are growing in relative importance.

All of this means that prioritizing levers is vital as organizations have a range of options, each with contrasting impacts on emissions, investment needs, ongoing commercial performance, and the ecosystem around the business.

The lever categories noted in Figure 1 below are broadly applicable across industries. They provide a starting point for considering what a business can do to decarbonize. Each lever has a different relative value to each sector and organization, as their cost, impact, technical feasibility, and timelines will be shaped by specific organizational circumstances.

Figure 1: Decarbonization levers (PwC UK)

Note: This does not represent an exhaustive list of decarbonization levers; High / Medium / Low definitions have been provided on a high-level relative basis given the ranges that underpin them.

The following considerations are important when prioritizing levers:

• Decarbonization potential: How much of an impact a lever will have on your emissions baseline, which requires an understanding of where emissions are concentrated in your value chain. This is achieved by researching - with the input of internal and external sources - the potential volume reduction or activity substitution which a lever could allow for, and overlaying the projected impact on the relevant part of your baseline

• Cost: The dollar investment required per ton of emissions saved by a decarbonization lever is a common metric used as part of assessing the costs, benefits, return on investment and financing requirements over the short and long-term. This is calculated through a market assessment of the different procurement structures that may be available for a given decarbonization lever; modeling the projected investment required and ongoing benefits/costs of operating a lever; and creating a ratio of financial impact to decarbonization potential.

• Feasibility: Assessing the technical interoperability and commercial feasibility of levers requires consideration of the resources, technologies, and public support available to the organization. Feasibility assessments can be best informed through discussions with experts, who could be internal owners of processes, or external technical subject matter leaders, to gauge the infrastructural requirements and complexities of implementation.

• Timeframe: When assessing the impact of a lever consider both the short-term and long-term time horizons against the speed of change needed to reach targets both for the organization and the broader value chain. This can be gauged through discussion with experts for a given decarbonization lever.

When choosing between levers, businesses should consider the factors that are most important to them. The methods described below - a Marginal Abatement Cost Curve (MACC), and an Impact/Effort Matrix - are two ways businesses can then select the optimum set of solutions for them.

1. A Marginal Abatement Cost Curve (MACC) Organizations can use MACC curves to prioritize decarbonization levers by their cost-effectiveness relative to the emissions they abate. The curve plots the relationship between the cost incurred by a lever to save one unit of emissions (on the y axis) and the total emissions which that lever can reduce (on the x axis). Levers are ordered by increasing cost per unit of carbon, so that the lowest cost levers are shown to the left of the curve, and higher costs are shown to the right. This enables organizations to gain an understanding of how they can most cost-efficiently reduce their carbon footprint, and is effective when cost is a key consideration. See the MACC curve below (Figure 2) for a visual representation of the decarbonization measures, their emissions reduction potential (Emission Abatement) and estimated cost (Marginal Abatement Cost).

Figure 2: Illustrative Marginal Abatement Cost Curve (PwC UK)

To develop a MACC, organizations need:

• A reliable emissions baseline based on industry-standard emissions factors, or which ideally has been subject to independent assurance;

• An understanding of the parts of their emissions footprint that a lever can be applied to;

• An estimate of the capital and operating costs of a lever over the intended period of use.

Developing the MACC is done in three steps:

1. Estimate the carbon reduction potential of each lever - by collaborating with operational colleagues, using publicly available data such as industry-standard emission factors, speaking with technical experts, or in-house or cross-sector pilots - and calculate the total emissions it could save from your baseline.

2. Determine the cost associated with each lever by collaborating with Finance colleagues or conducting market assessments to calculate the expected financial costs, benefits and return on investment of a decarbonization lever.

3. Calculate the ratio of carbon savings to total financial cost for each lever and map them between the two axes pictured above, in ascending order of cost.

Following these steps will give you a visual way of identifying the ‘elbow point’ - where the cost per unit of emissions reduction begins to increase more rapidly - which can inform investment decisions to have the maximum impact for a given budget.

2. An Ease/ Impact Matrix

As described in Figure 3 below, companies can alternatively use an Ease/Impact Matrix to prioritize levers based on their potential to reduce carbon emissions (impact) relative to the resources and effort required (ease). The Impact axis (x axis) looks at the volume of emissions a lever can impact. It represents the impact a lever will have on your emissions baseline. The Ease axis (y axis) plots a summarized view of how easy a lever is to implement. The objective of the Matrix is to provide a clear view of ‘no regret’ actions, ‘easy wins’, and ‘high effort but valuable’ opportunities which may require more resources to implement:

• ‘No regret’ actions are shown in the top right quadrant as they are both easy to implement and have the highest impact potential;

• ‘Easy wins’ are shown in the top left quadrant as they can be implemented relatively easily but have limited impact;

• ‘High effort but valuable’ levers are shown in the bottom right quadrant as they are impactful but could be challenging to execute.

To create an Impact/Ease Matrix a business needs to consider the decarbonization potential of levers. As noted before, businesses can draw on operational experiences, industry-standard emission factors, technical experts, or pilots to calculate the total emissions a lever could save.

Figure 3: Illustrative Ease/ Impact Matrix (PwC UK)

Ease is more subjective to assess and there is no one perfect way of measuring it for all organizations. One approach to take, is to:

• Identify the most critical resource constraints for a business, which may include cost, compatibility with existing infrastructure, internal technical capability or capacity for implementing and managing a lever, or regulatory requirements;

• For each critical resource constraint selected, create a consistent scale so that levers can be relatively ordered against each other (this might be as simple as, using cost as an example, a 1-5 scale where 1 represents less than $100k and 5 represents more than $1m);

• Assign each scale a weighting to reflect its relative importance (e.g. cost 40%, infrastructure compatibility 40%, regulatory challenges 20%);

• Score each lever against yours scales and calculate their weighted overall scores;

• Plot levers into the matrix to visually communicate priorities.

Prioritizing levers through either of these approaches allows an organization to:

• Identify the levers of optimal impact for the resource constraints they operate with;

• Maximize the chances of successful implementation by focusing on the most likely levers to have an impact;

• Support clear communication of what needs to be done across an organization and beyond to establish a sense of momentum to support implementation.

Case study: Prioritizing levers at an energy technology company

One example of an organization effectively prioritizing decarbonization initiatives is a global energy technology company with an ambitious target of achieving Net Zero by 2050. Given the scale of transition required, cost is identified as a key factor when considering the steps they take. They are able to prioritize levers according to their relative impact for the cost required to have the optimum balance of impact and financial discipline. The levers identified as top prioritize as a result include:

• Renewable energy: Implementing onsite generation and green PPAs.

• Facility efficiency: The use of biogas instead of hydrocarbon-based gasses, the consolidation of facilities, and increasing building energy efficiency.

• Operational efficiency: Deploying more efficient, less emissions intensive equipment in industrial processes.

• Vehicles: Vehicle electrification for utility vehicles and a focus on vessel fleet.

Figure 4 below visualizes the above prioritized levers across scopes 1 and 2. Each lever has been given estimated emission reduction potential to highlight progress to the Net Zero goal.

Figure 4: Case Study Prioritized levers and reduction waterfall (PwC UK)

These levers were selected as the result of the following prioritization process:

• A long list of potential decarbonization levers was built.

• An assessment of relative Ease/ Impact was collaboratively undertaken with product managers, category leads, operations, and the finance team.

• Analysis of the results to not only identify which levers would be most impactful but which would be most pragmatic to introduce in the short-term.

• Use the results of this prioritization exercise to build a timeline for lever implementation - as illustrated below - that allows for the optimum emissions reduction potential to be delivered manageably.

The organization uses collaborative workshops to identify the cross-functional impacts a lever could have on the organization, and an internal campaign to build stakeholder engagement. This fuels the potential success of lever implementation by enabling stakeholders to feel part of the solution, rather than threatened by it.

The organization’s timeline for implementation is illustrated in Figure 5 below representing a combination of quick wins and longer-term projects. Some can be started immediately whilst others have requirements that need to be met before implementation can begin. The levers are on the left with an indicative bar showing start and end time which lead to a target year.

Figure 5: Timeline of lever implementation

Climate impact 

Targeted emissions sources

Applicable to all scopes (1-3) with the greatest impact depending on the nature of the organization.

Decarbonization impact

The decarbonization impact is relative to each organization’s footprint and the levers that are selected. Organizations have been seen to achieve 80% reduction in targeted carbon emissions from key parts of their baseline as a result of prioritizing the optimum levers.

Business impact 

Benefits

As well as climate benefits this process can deliver:

• Commercial growth through access to emerging markets for low-carbon products and services 

• Increased investor interest surrounding low-carbon businesses 

• Operational efficiencies which can generate cost savings as well as reducing emissions 

• Enhanced employee retention due to an alignment between organizational and personal values; and 

• Improved brand recognition by resonating with the needs of the wider public. 

Costs

These prioritization approaches do require time to be committed in understanding the range of options available and targeting the most significant parts of the emissions baseline. This investment of time should be seen as an investment as it will allow the selection of an optimum set of levers for an organization.

The cost of implementing decarbonization levers is subject to the levers that are chosen, the size of the organization, existing infrastructure in place, upskilling requirements, size of emission reductions required as well as the geographical locations. 

Organizations can undertake research into existing public subsidies that could potentially serve as a means of facilitating financial support for the implementation of levers. 

Benefits of these levers and methodologies are dependent on the organization due to the quality of available inputs (data points), and the way in which the results are interpreted and used. Some levers require significant investment and it is the responsibility of the organization to do independent research into levers, comparing pathways and financing options to make informed decisions. The return on investment will ultimately depend on all of the factors outlined above. 

Key success factors when implementing decarbonization levers include:

• Obtaining organizational buy-in: Given the extent of change required for some decarbonization levers, companies should obtain senior management support by having a clear business case for decarbonization plans, including how they can create or protect value, and the processes to ensure effective management and adoption. This buy-in will allow for a continued, disciplined delivery of levers in the face of future challenges.

• Monitoring regulatory requirements and geographical applicability: Navigating regulatory requirements and standards can create clarity and direction when working across regions as they often vary by country even for the same levers. For example, in the UK, it is comparatively easy to access PPAs but these are not universally available across a global organization’s footprint. Staying up to date through market reports can provide the most secure and advantageous support.

• Engaging the value chain and ecosystem: Engaging the wider value chain and business ecosystem can be highly rewarding. Some global organizations have tens of thousands of suppliers. If they are engaged and understand the impacts of their customers’ decarbonization levers, they can integrate changes into their operations to improve the probability of success. Similarly it can be pivotal to engage customers and other relevant stakeholders on the opportunities available, and enable their action through education, instruction, or incentives to create a critical mass driving for change.

• Foster a culture of change: Decarbonization often requires a cultural shift in behaviors. Dedicated change management programs can help engage employees and align leadership. These can help affected stakeholders to understand why change is needed, what change will be introduced, and just as importantly, what will stay the same through the introduction of decarbonization levers.