Understanding the True Cost of Carbon Neutrality

As Hitech manufacturing finance managers and site leaders across Ireland and the wider UK work toward their commitments to carbon-neutral operations by 2030, unpacking the true costs associated with meeting these goals is ever more relevant.

Almost 40 major companies in this region alone have signed on to become carbon neutral by 2030, with more committing to a date somewhere between then and 2050. On a global scale, net-zero targets cover at least 826 cities, 103 regions, and 1,565 companies across all continents as of October 2020. These numbers represent a total of over 880 million residents, 24.9 million employees, and 10 gigatonnes of greenhouse gas emissions.

At the highest level, approaches for net-zero targets can be broadly categorised according to whether they target the direct reduction of emissions, claim neutralisation of emissions through offsetting, or support carbon dioxide removal.

In the UK and Ireland, many Tier 1 large manufacturing companies such as Johnson and Johnson have announced their intention to achieve carbon neutrality in across all global operations.  The implications of delivering on this corporate commitment represents some unique challenges for the leadership teams in high energy-consuming facilities.

Irish and other UK facilities are no strangers to pushing to make manufacturing less carbon intensive. Over the last decade, many manufacturing companies have delivered significant reductions of both gas and electricity from the demand side of the equation, resulting in the energy intensity of each unit produced becoming far less than it used to be.  However, as production volumes increase, so too will the carbon footprint of the company, with the net result being the problem ultimately growing rather than reducing.      

The electricity challenges

Some companies have procured 100% renewable electricity through Power Purchase Agreements (PPAs). With the Irish Government's "Climate Action Plan" setting a target of 15% of all electricity demand to be met by renewable generators contracted under Corporate PPAs by 2030, they’re tipped to increase significantly in the coming years.

PPAs are complex financial instruments, and it is vital buyers understand all the risks. PPAs need to be certified to ensure that they are valid offsets. Secondly, unlike buying certified offsets directly, a PPA also exposes the buyer to wholesale energy price risks; as these energy markets are extremely volatile, companies need to appreciate what may make for a great deal now may be very expensive in five years.

Another challenge multi-national corporations face with PPA’S is proving they as a company drive additionality – a term adopted by the renewable energy industry to describe when a PPA has the direct effect of adding new renewable energy generation to the grid. Essentially, they need to show without their involvement via the PPA, the clean energy project would not have happened. Failing to do so will likely incur accusations of ‘green washing.’

The New Climate Institute additionally note actively or inadvertently green-washing has further implications in itself with respect to the carbon reductions ultimately achieved. They note misleading customers, consumers and investors about the environmental impact associated with a product or service can lead to decisions and behaviour that cause an increase in emissions.

Thermal energy provides additional challenges  

Hitech manufacturing depends heavily on thermal energy for steam, hot water and drying, as examples.  The gas generating this energy is not easy to decarbonise.   Unfortunately, more carbon friendly alternatives such as Biogas do not have sufficient production volumes to meet the needs of industrial users, leaving manufacturing companies to work on electrifying their thermal loads. This leaves electricity to fuel many process – for example, generating steam. This is an expensive, time-consuming process and unfortunately, there is no alternative.

How can building data analytics help?

As Irish and UK leadership teams know the pace of carbon reduction needs to increase, they are implementing multifaceted programs which include improving operational efficiency through data analytics. These include upgrading plant and equipment, incorporating energy efficiency at design stage, building onsite generation from wind and solar and driving energy management programs on their sites.

Ensuring large plant and equipment is running optimally is difficult without building analytics. Relying on manual data collection from equipment to verify performance is slow and resource-dependent (read not cost or value effective.) Conversely, ingesting data directly from large energy consuming plant and equipment  into a building analytics platform means being able to actively  control key parameters in real-time to ensure equipment is running at its peak performance and assist in optimising site performance.  

Optimising carbon reductions relies on not taking a ‘fix and forget’ approach to operational changes. CIM’s PEAK platform additionally verifies savings are achieved and ensures they do not degrade over time.

What becoming carbon neutral looks like in action

To illustrate what the costs of becoming carbon neutral may look like in practice, let’s take the example of a site with an annual carbon footprint (scope 1 + 2) of 100,000MT year that have publicly committed to becoming carbon neutral by 2030.  For reference, Scope 1 emissions are direct emissions produced by sources controlled or owned by an organization, while Scope 2 emissions are indirect emissions associated with the purchase of electricity, steam, heat, or cooling.

In our example, the company is implementing building data analytics to deliver operational improvement across heating, ventilation, and air conditioning (HVAC.) They have also secured capital for several equipment upgrades including new HVAC equipment, LEDs, and solar PV arrays.  

It is estimated that these initiatives will reduce their carbon footprint by 74% (of which today’s value can be determined by the NPV of the saved cost of offsets in the future). The remaining 26% will need to be secured by buying carbon offsets, with the projection for the cost of carbon in Europe by 2030  estimated by Reuters to be €60. This means the 26,000MT will cost the company €1.6M a year, every year.

This illustrates why the net present value of these data analytics led initiatives can be incredibly attractive, as they will save operational costs in the short term and have a huge cost avoidance impact in the long run.

The complications in becoming carbon neutral

Significantly lowering the cost of carbon emissions for the environment is inarguably a priority on a global level – one under increasing scrutiny from governments, businesses, and end-users alike. This doesn’t mean; however, it is without serious costs challenges for hi-tech companies and their clients - large and small.  One such challenge lies in that meeting these targets is unavoidably increasing the cost of doing business in Ireland and the UK, which is eroding competitiveness.

For some companies, they simply do not have the capital available to carry out equipment upgrades or replacements. The impacts of COVID may have made this an even more present issue for some companies. Likewise, any disruptions to sites while undertaking upgrades will realistically hit the bottom line further - another cost that needs to be factored in.  Costs are further compounded and cumulating with rising energy prices coupled with the cost of buying carbon offsets to support sustainability targets set to increase also.  

Building analytics has an important role to play in maximising the value in investments in emission reducing processes, practices, and equipment. The route forward for manufacturers is to optimise the energy intensive equipment they already have on-site by applying intelligence to identify operational inefficiencies. Not only will this detail what is being consumed, but also which areas of a site are inefficient and can be identified for improvement. While companies need to invest to aggressively reduce their C02 emissions, Building Analytics can have an immediate and enormous impact by identifying and resolving multiple gains. An improvement in energy efficiency, delivered by Building Analytics, is a sure-fire and cost-effective way for Manufacturers to manage their emissions.

We have further information on how CIM’s PEAK Platform can support the Manufacturing sector in the drive to Carbon Neutrality in our factsheets.

Get a demo today and see how we can help improve your operational efficiency and achieve your sustainability goals.

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CIM's PEAK Platform is a best-in-class building analytics and property operations software, improving efficiency, sustainability, and tenant comfort across property portfolios. Discover more by watching a demo.