Introduction
The COP28 summoned experts, leaders and various personalities from all over the world in order to discuss the roadmap that we should follow in order to mitigate the negative impact of human activity on the environment.
The negotiations, although fruitful in some respects, revealed the great differences that exist between the specific contexts of each country. Nevertheless, the vast majority of the participants agreed on the urgency of offsetting our carbon footprint in order to achieve the 1.5-degree Celsius target, which implies the decarbonization of the economy. What is clear is that the global agreement reached at COP 28 appears to mark the beginning of the end for fossil fuels. It is quoted verbatim: “Initiate a transition to phase out fossil fuels in an orderly and equitable manner, accelerating action in this critical decade, in order to achieve the goal of net zero emissions by 2050, in accordance with science.” Will we be on time?
Carbon footprint: meaning
“Carbon footprint” refers to the total volume of GHGs (greenhouse gases) that all industries, companies, individuals, etc., emit due to their daily activity, both directly and indirectly.
If an organization wants to know how to measure carbon footprint, it has to take into account all GHGs, among which we could pinpoint hydrofluorocarbons, nitrogen oxide, perfluorocarbons and, above all, methane and CO2.
However, this calculation does not depend only on the type of gas produced, so there are a series of common guidelines for European countries on how to measure a business carbon footprint. These are explained below.
How to measure carbon footprint?
As a result of the efforts made by the international community to reduce the damage caused to the environment by human activity, companies are increasingly interested in being able to calculate their contribution to this degradation.
The UNE EN 14067 standard, later modified by UNE-EN ISO 14064-1:2019, establishes guidelines for the calculation of a business carbon footprint. Among the most important factors is the classification of carbon footprints into: product’s carbon footprint, corporative carbon footprint and event’s carbon footprint.
- A product’s carbon footprint is similar to the concept of “life cycle costing” in that it also takes into account all aspects linked to a particular product, which includes, in the case of the carbon footprint measurement, the emissions produced during the extraction of materials, the production phase, the use of the product, and during its transformation into a residue.
- An event’s carbon footprint is understood as the compendium of all the emissions derived from the organization and celebration of concerts, exhibitions, etc.
- The corporative carbon footprint estimates all GHG emissions associated with a company’s activity.
How is a company’s carbon footprint reduced?
Thanks to the concepts that we have explained, the organization is able to properly asses its impact on the environment; nonetheless, once this calculation has been made, it is necessary to consider how to reduce its carbon footprint.
On the one hand, it is possible to diminish the carbon footprint by using methods such as:
- Increasing energy efficiency
- Promoting the usage of renewable sources of energy
- Raising awareness of the importance of energy efficiency among the workforce
- Investing in eco-friendly projects and/or hiring suppliers that are committed to the preservation of the environment
- Buying CO2 on the carbon market
However, in the long term, this series of proposals will not be enough. In order to avoid jeopardizing their viability, industries will be obliged to cooperate with all the public and private organizations that are already committed to the decarbonization of the economy.
Decarbonized economy: definition
Decarbonization is the reduction of polluting carbon emissions (such as CO2) derived from all human activities by the transformation of our economy model into a sustainable, efficient and green one. In spite of requiring a strong initial investment, this process has already provided with significant economic and social benefits. In fact, the Spanish government estimates that, thanks to the collaboration between private and public institutions, 500 thousand decarbonization-related jobs will be created.
In this regard, Europe is the region that has advanced the most in the transformation of its economy. Its strategy has been creating legislation (such as the European Green Deal) and establishing objectives (such as those proposed at the Glasgow Summit) that are common to all the EU. A good example of this is Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality, which sets 2050 as the deadline for the achievement of carbon neutrality. This, in turn, provoked that the 2030 target be more ambitious (I.e., reducing emissions in a 55%).
However, as mentioned above, these profound transformations of the productive fabric will not occur without sufficient financial resources. An example of this is the Next Generation EU funds, since, although they are designed to help countries emerge from the crisis caused by COVID-19, their receipt has been conditional on MS presenting innovative projects, which have to strengthen the decarbonization process.
Therefore, the private sector must bear in mind that, from now on, regulations and plans related to decarbonization will be integrated into other key policies.
The “Fit for 55 package” and the Long-Term Strategy for a Modern, Competitive and Climate Neutral Spanish Economy in 2050 (ELP 2050) perfectly illustrate this multiperspectivity. The former consists of a set of ideas to boost the reduction of net GHG emissions by at least 55% by 2030, but it complements energy, land use, climate, transport and tax policies with, for example, binding targets for the number of charging points for electric vehicles and hydrogen stations.
Industrial decarbonization
Decarbonization is a process in which both individual and collective responsibility come into play. However, industrial decarbonization is, undoubtedly, one of the cornerstones in the advance towards a greener economy.
Among its wide range of activities, however, there are some sectors that are decisive in this effort to ensure the viability of the planet, and, consequently, they will have to make greater efforts to achieve their decarbonization. Examples of this are electricity generation and the automotive, steel and cement industries.
Electricity generation is key, as it affects both the domestic and industrial spheres. Moreover, in the latter, energy production has an impact on the product, but also on the industrial activity itself.
Consequently, one of the fundamental steps towards industrial decarbonization is energy transition, I.e., changing the energy production systems we have for others that do not emit carbon. In this sense, renewable energies such as solar and wind already offer sufficiently high productivity levels and, as a result, we can progressively eliminate more polluting energy sources from the mix.
So much so that, during the first ten months of 2021, renewable energies have maintained their upward trend, producing 47.2% of electrical energy in Spain. By 2050, this percentage is expected to increase to 85%, so, by 2030, it should have already augmented to 65%. If the world’s major economies were to invest in renewable energies, the pace of decarbonization would increase substantially.
Notwithstanding, this acceleration will not occur unless this investment is accompanied by equally significant innovations. In particular, it is crucial to make further progress in the infrastructure’s digitalization and to pass legislation that provide with stability. In addition to that, it is fundamental ensuring that the associated taxation be equal and penalize the organizations that pollute the most.
The automotive sector is one of the fastest evolving in recent years. Thanks to electrification, it is undergoing an unprecedented transformation that led experts to predict that sales of electric vehicles will exceed 10 million by 2025, which will result in the emission of 121 g CO2/km by 2030.
Despite this, not all countries have made the same progress. In Spain, 226.8% more non-fossil fuel vehicles were sold in June 2021 (in comparison with the same period of 2020), but they only accounted for 2.6% of total car sales, according to ANFAC.
However, the development of hydrogen-related technologies is very promising and it could help to overcome this gap, as hydrogen engines are expected to offer longer ranges at a lower cost, both for the vehicle owner and for the environment.
Decarbonization in the steel industry is more complicated. The necessary technological development will only be achieved with large-scale investments and, as a result, the reduction in CO2 emissions will only accelerate from 2030 onwards. Other measures to support decarbonization include the use of renewable energy sources, carbon capture and the prioritization of cleaner manufacturing options, among others.
Equally (or more) difficult will be to achieve net zero emissions in the cement industry. As in the previous case, the use of carbon capture, use and storage technology (CCUS) is being considered, but, in order to be viable, they need to be perfectioned. Consequently, the reduction of emissions to 482g CO2/tonne depends, to a larger extent, on the use of alternative fuels and raw materials.
Apart from these industries, there is one sector that, like power generation, is set to be one of the main drivers of the economy’s decarbonization: banking.
The role of the banking sector in decarbonization has two facets, and the world’s leading financial institutions have already started to work in them. On the one hand, banking businesses celebrate events, sell products and need a workforce, which contribute to the pollution of the planet; on the other hand, the scope of action of financial institutions is transversal with respect to other businesses, as they provide many of the projects and enterprises in other productive sectors with the economic resources needed.
Through this financing, banks acquire power over the businesses they help, which enables them to make their aid conditional on compliance with environmental requirements. Thanks to this relationship the banking sector can reinforce a company’s commitment to decarbonization through energy optimization and the transformation of their mode of production.
Another transversal sector is transport and shipping, which is still awaiting deep structural transformations. As we have mentioned, there are cases in which electrification is relatively simple, but in maritime and air transport we do not have the technology to bring about substantial changes yet. For this reason, it is key to understand the production and transportation chain as a whole. In fact, both the World Economic Forum and the United Nations aim to implement measures to achieve the goal of zero net emissions by acting on “global value chains”, while NGOs argue that the environmental costs (carbon emissions) of the product’s value chain must be reflected in its price.
Finally, we cannot overlook the importance of improving the construction and insulation of industrial infrastructure and residential buildings. Energy efficiency, as we have mentioned in several of our posts, has a major impact on the resources consumed and, therefore, on the business’ carbon footprint.
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