Decarbonisation Technology - August 2024 Issue

evaluate (SCORE) and deliver an effective decarbonisation pathway that meets each business’s needs ( Wood, 2023 ). The method can be implemented into single or multiple assets, to a client’s full asset portfolio, or across a specific geography or region using an evaluation assessment of opportunities. This means that no matter what stage a company is at, there is always a pathway forward to reduce its carbon footprint. The pathway to successfully decarbonising is not linear and will vary from one company to the next; therefore, taking early action will be key to implementing a sustainable strategy and not falling at the first hurdle. How can a carbon market encourage decarbonisation? Most nations across the globe have adopted carbon legislation in the hope of significantly diminishing their carbon footprint. According to climate scientists, global carbon dioxide (CO₂) emissions must be cut by as much as 85% by 2050 to stop a temperature increase of 2˚C above pre-industrial levels ( IPCC, 2018 ). The World Bank estimates that carbon pricing schemes now cover about half of the emissions for regions that use such mechanisms ( World Bank, 2023) . Designed as an instrument that captures the external costs of greenhouse gas (GHG) emissions – the costs of emissions that the public pays for, such as damage to crops, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise – and ties them to their sources through a price, usually in the form of a price on the CO₂ emitted. Emissions do and will continue to increasingly impact the balance sheet with the growing development of carbon pricing, whether through emissions trading systems or carbon taxes. The objective here is to shift the burden onto emitting operators and developers. A carbon price also stimulates clean technology and market innovation, fuelling new, low-carbon drivers of economic growth. Therefore, carbon markets, designed as systems for buying and selling carbon credits or permits, are expected to play a critical role in creating economic incentives for reducing emissions and promoting the adoption of low-

carbon technologies. The global landscape of policy development supporting carbon reduction and storage technologies such as carbon capture utilisation and storage (CCUS) is as diverse as it is complex. Initiatives such as the Inflation Reduction Act (IRA) in the US and the European Union Emissions Trading System (EUETS) are beginning to offer tax incentives and generate carbon credits that broadly incentivise decarbonisation investments. These policies are crucial as they set the stage for a more proactive approach to decarbonisation. What do we mean by ‘tracking emissions’? The GHG Protocol provides the most widely recognised accounting standards for GHS and categorises GHG emissions into three scopes. Scopes 1, 2, and 3 are the accounting standards most companies and governmental bodies use to measure direct and indirect carbon emissions. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the purchase and use of electricity, steam, heating, and cooling. Using the energy, an organisation is indirectly responsible for releasing these GHG emissions. Scope 3 includes all other indirect emissions that occur in the upstream and downstream activities of an organisation. Accurately reporting these emissions has become a legal requirement in some countries, such as the UK, where the largest companies must include data for Scopes 1 and 2 in their annual reports. Scope 3 emissions are typically when most organisations lose track of their carbon impact; however, accurately tracking this data is critical for precisely measuring a company’s carbon footprint. Despite the complexity of cutting Scope 3 emissions, more companies are promising to do so. Nearly 240 companies have signed up for the Science Based Targets initiative – an independent organisation promoting climate action in the private sector ( Science Based Targets, 2023 ). Ninety-four per cent of these companies say they will reduce emissions linked to their customers and suppliers ( McKinsey & Co, 2021 ). However, despite the enthusiasm of these companies to keep track of Scope 3 emissions, this task is easier said than done. Ensuring the correct mechanisms are in place to collate this data