Are absolute or intensity targets better to curb your carbon footprint?
Should companies consider the bigger climate picture when setting emissions targets, or is it more valuable to compare carbon to economic output?
When it comes to cutting carbon emissions, people frequently ask me which is better: setting an absolute emission reduction target or an intensity reduction target?
Absolute reduction refers to the total quantity of greenhouse gas emissions being emitted, whereas intensity compares the amount of emissions to some unit of economic output.
People tend to either firmly believe that absolute is the way to go, or that intensity is what actually makes sense from a business perspective.
I’m not able to say which side wins this vote, but for businesses looking to find the balance between what their company needs and what the planet needs, I believe both approaches should be considered.
What does the planet need?
One thing the planet needs for sure is an absolute reduction of greenhouse gas emissions. Full stop.
The IPCC — the world’s foremost experts on climate science — have confirmed that in order to contain global warming to below 2 degree Celsius, we need to restrain our CO2 emissions to no more than 1000 GtCO2. This implies severe cuts to current emission levels — a 41 percent to 72 percent reduction by 2050.
That, in turn, demands absolute emission reductions by the vast majority of companies.
So there you are. Absolute emission targets are surely the way to go when talking about setting corporate targets, right? Well, maybe. The answer is more complex.
The right path to sustainability
In CDP’s recent report, "Mind the Science," I had the opportunity to look at the emissions pathways of many energy-intensive companies. Among them was an electricity company that consistently had been decreasing its absolute emissions this decade.
But when I looked deeper, I saw that while its emissions had been decreasing, the carbon intensity of the company's electricity use had slightly increased — meaning its production decreased faster than its emissions. Could this company therefore be considered on a sustainable path?
It may be that the production of this company is decreasing because its share of production is being displaced by more efficient and sustainable production elsewhere. In this way, it could be viewed as contributing to overall sustainability.
However, we must recognize that if a company’s positive contribution to the climate challenge is to go out of business, it is not, by definition, a sustainable company.
Balancing energy demands with cutting emissions
Electricity is fundamental to our standard of living and will play a defining role in the transition to a low-carbon economy. That's especially important because global electricity demand is expected to continue to grow, likely proving pivotal in the development and quality of life for millions around the world.
The International Energy Agency (IEA) has developed a scenario that models what our energy system needs to look like in order to have a strong chance of limiting global warming to below 2 C. This scenario allows for continuous growth in tandem with a deep decarbonization of electricity production.
According to the IEA, we must decarbonize electricity production by 95 percent between 2011 and 2050 in order to stay below 2 C. This is a challenge, but the good news is that we already know how to produce low-carbon electricity.
Therefore a company producing a lot less electricity with only a bit fewer carbon emissions cannot be seen as a business on the right track to a low-carbon economy. We always will need to meet a certain volume of electricity, but in parallel we need to ensure that the carbon intensity is decreased.
This is why I believe setting a meaningful emission reduction target requires taking into account and communicating how these two relevant and largely complementary dimensions of a target will vary in the future: your absolute emissions and some meaningful physical indicator of your carbon efficiency.
Embrace your vision of a better future
How a company needs to act relative to climate change strongly depends on what it thinks the future will look like, and how the organization conceives of its role in this society.
In so many areas of our economy, we seem to be locked into structural, unsustainable trends. Crucially, some companies recognize these challenges and have the leadership to reinvent themselves to address the challenge of operating as part of a low-carbon economy. Take the examples of NRG and CLP Holdings.
NRG Energy is the largest independent power producer in the USA, and the owner of 48.2 GW of fossil fuel-fired power production. But despite this substantial legacy, its strategy is firmly focused on a low-carbon future and a commitment to cut its greenhouse gas emissions by 90 percent by 2050 — an absolute emissions target.
The company embarked in 2013 upon a major review of its approach to sustainability, which yielded a three-pronged business strategy: "growing green," deploying low-carbon energy solutions across the value chain; "expanding retail," adding clean energy retail offerings; and "enhancing generation" by modernizing its generation fleet to reduce CO2 emissions.
This approach aligns the company’s sustainability and growth strategies NRG sees the potential for significant value creation in transforming its business model to a low-carbon one.
Hong Kong-based CLP, meanwhile, is one of the largest investor-owned utilities in the Asia Pacific region, where considerable growth in demand is expected. Of its 18.9 GW of generating capacity, 66 percent is coal-fired and 17 percent consists of other fossil fuel generation.
In 2007, the company set a goal of reducing its emissions intensity to 0.2 kg CO2/kWh by 2050 — representing a 75 percent reduction from 2007 levels — with interim carbon intensity goals for 2020 and 2035. The company also has an interim goal of increasing its non-carbon generating capacity to 30 percent of the total by 2020.
CLP's intensity pathway is ambitious in comparison with other companies in the sector and its region, and roughly aligned with the climate science-based targets approach (PDF) created by the Science Based Targets Initiative. The relevant aspect of CLP’s strategy is that it sets a long-term vision and clearly commits to decarbonizing its generation mix.
The company thus has established the necessary framework to plan the long-term investments needed to align itself with a low-carbon economy.
The ways companies consider contributing to a sustainable future are immensely diverse. It is hoped we will see a cross-sector flourishing of new technologies and business models emerging — ones we cannot yet fully envision — that help us tackle the climate change.
Sustainability leaders might as well want to express their visions in ways that the simple absolute or intensity targets might not be able to fully capture, despite their relevance to a low-carbon future.
For those creative leaders, we would encourage them to provide alternative ways of expressing their impact through stories and figures, while always complementing those elements with what it all means for the planet — that is, in terms of absolute emission reductions.
That's because no matter how the distribution of decarbonization imperatives comes about, we know that in the end, absolute emissions do need to zero out by the end of this century.