Profitable Numbers: 3% Emissions Cut to Keep Below 2 Degree Temperature Rise
In order to keep global warming below 2 degrees Celsius, corporations will have to cut greenhouse gases emissions by more than one gigaton in less than 10 years, which is a 3% annual reduction. Though highly challenging, companies can profit while making big emissions reduction. The thousands of industry and business actions could create US$780 billion in net present value and US$190 billion in savings in 2020, according to the CDP and WWF report, incorporating models by McKinsey. Read more
How to put ‘The 3% solution’ to work for your carbon projects
By Jonathan Bardelline in GreenBiz.com (19 June 2013):
For U.S. corporations to get on track with keeping global warming below 2 degrees Celsius, they’ll need to slash carbon emissions by more than one gigaton in less than 10 years.
Instead of looking at that, which translates into a 3-percent annual reduction, as a daunting task, the CDP and WWF want companies to recognize it is a major chance to make big emissions reductions, profitably.
“This is an opportunity we think has been disguising itself as a crisis,” said Steven Swartz, partner at McKinsey & Co., during a GreenBiz webcast on “The 3% Solution” report by CDP and WWF.
Profit through change
For the report, McKinsey modeled thousands of actions that corporations could take, Swartz said. All together, those actions could create $780 billion in net present value and $190 billion in savings in 2020.
Those savings come from four areas: upgraded technology, combined heat and power, behavioral change and solar PV.
Although upgraded technology — which includes only known, proven technology — provides the biggest impact itself, the grand majority of actions involve energy efficiency and behavioral change, Swartz said.
The report aims to show how U.S. companies can contribute to the worldwide target by the United Nations Framework Convention on Climate Change to keep global temperature from rising more than 2 degrees above pre-industrial levels.
What U.S. companies need to do, Swartz said, is reduce emissions so that they’re 25 percent lower than emissions from 1990. Emissions from U.S. companies were 4 gigatons that year, putting the goal at 3 gigatons for 2020. In 2010, emissions for U.S. companies were at 4.1 gigatons. That all means companies need to aim for reducing emissions 3 percent annually, hence the title of the report.
To get started, Swartz said, companies need to take on four types of actions:
1. Improve energy management and investments. Capital expenditure is needed to meet emissions goals, Swartz said, and to get there you need to articulate that these actions are investments in growth, get management to make them a priority and gather the necessary expertise to handle the hundreds of small projects that will be needed.
2. Increase low-carbon energy supplies. The utility sector is the main player in this step, he said.
3. Develop low-carbon products and supply chains. Companies and utilities can greatly shape consumer carbon reductions through low-emission vehicles, cheaper solar PV, efficient appliances and energy management solutions.
4. Engage with stakeholders and government. “This is going to require more than companies acting alone,” Swartz said, “They’re going to have to work in an ecosystem that includes everybody.”
To help corporations get going, the CDP and WWF put together a calculator that takes a few key inputs about a company and produces an emission reduction target, how much capital you’ll likely spend and expected savings.
More important than those other steps, Swartz said, is setting ambitious targets, pointing to research showing that companies that set targets outperform companies that don’t.
S&P 500 companies that report to the CDP and set greenhouse gas reduction targets saw a return on investment an average of 9 percentage points better than companies without goals, he said.
Not only that, CDP co-founder and CEO Paul Simpson said that companies listed in the Climate Performance Leadership Index — those that have the highest scores based on their actions to mitigate climate change — have had consistently higher financial returns in the past two years than companies on the Global 500, a list of the world’s largest companies by revenue.
“If anyone can do this, I really think U.S. companies can do it,” he said.
Jonathan Bardelline is a regular contributor to GreenBiz.com, where he formerly served as associate editor.