establishing the business-as-usual scenario if no action is taken will provide a set of boundaries to analyse the financial impact of carbon taxation scenarios. At what carbon tax price does Project A, Project B, and so on need executing? The next section will expand on the optimal scenario to strengthen the pathway to net zero or specific goals. Offsets Most decarbonisation plans leave offsets as the last step to take care of the residual emissions that are left after all other (economic) decarbonisation projects are implemented. Companies should consider incorporating offsets at each point in their decarbonisation journey to increase the certainty that planned future offsets are available and to mitigate potential cost escalation as more economical offsets are purchased by others. Evaluating an entity’s decarbonisation pathway and strategy is a complex exercise that requires multiple levels of the organisation partaking in the process. All these considerations are slowly placing focus on the elements needed to evaluate, while ensuring the robustness of the pathway to net zero. A decarbonisation pathway needs to be resilient to withstand and adapt to changes throughout the journey. To be resilient, it needs to display agility, feasibility, and robustness, as shown in Table 1 and Figure 1 . Scenario analysis At a minimum, any entity embarking on the decarbonisation journey will develop a carbon footprint balance and path towards net zero or a corporate-aligned reduction goal. In today’s environment, it is important to pressure-test the developed pathway while incorporating the sensitivities as outlined within the consideration section. It is important to understand the impacts that each, or a group of, sensitivity(ies) and decisions have on the overall pathway for the next 20-30 years. The following analysis will display the business-as-usual scenario against an aggressive business goal, along with a second scenario that is generated once the elements of agility, feasibility, and robustness have been incorporated into the plan.
Feasible
Net z ero a ction p lan
Robust
Agile
Figure 1 Resiliency elements diagram
understanding the financial risk of investing in a new technology that underperforms or does not deliver is equally important. Is it best to wait for the new technology to be tested and perfected, or do you want to be the leading entity and expert in that technology? Is it best to invest today or tomorrow, and what is the financial impact if technology readiness is delayed? Is it possible to mitigate financial risk with innovative financial services such as performance guarantees or tax credit insurance? Is your investment profile rateable over the plan period, or is it front or back-loaded? Pressure test scenarios It is vital to conduct a series of scenario analyses to better understand the impacts any of these elements will have on carbon reduction commitments. At a minimum,
Resiliency elements
Elements
Displays
Policy and regulation framework Technology growth and financial Technology readiness level Infrastructure and raw materials Expertise Pressure test scenarios
Agility
Feasibility
Robustness
Risk assessment: technical and financial
Table 1
www.decarbonisationtechnology.com
14
Powered by FlippingBook