How companies are managing their energy transition and reducing of carbon emissions
We spoke to Marco Fanti, Senior Consultant at EFESO Consulting, to understand the challenges companies are facing and the strategic steps they are taking to reduce their impact on climate change.
Looking at things from a geopolitical, technological, and institutional perspective, how can we, and why should we, act now?
Marco Fanti: If we look at the geopolitical situation in Ukraine and what this has done to the price of raw materials, it has resulted in some businesses suggesting we go back to carbon. If we were to do this, it could only be a short-term solution.
What this situation has revealed is not that we should go back to carbon, but rather that we should have acted sooner. If we had already lowered our dependency on carbon, we wouldn’t have ended up with people paying more than €2 for a liter of gas.
The technology to support energy transition is also progressing all the time. For example, the rate of development in solar has been so great that costs have fallen 30%-40%. We are seeing a similar story in storage, where the cost of battery cells is dropping – driven by greater adoption of this technology.
This progression is not going to stop. Look at hydrogen, for example. This might be a more long-term solution, but the investment going into this is funding R&D which is improving the technology. This is a virtuous cycle – things will only get better from here.
When it comes to the impact institutions are having, there is a lot of movement happening. Several governments have made commitments to raise taxes in relation to carbon emissions, and we are already seeing these coming into force. Those changes will have a significant impact.
But companies are also making their own investments. We are seeing the businesses that are closest to their customers – those that are most reliant on marketing – moving first. They are going first because there is competitive advantage to be gained here.
The big challenge for companies, however, is the supply chain. Suppliers can contribute 80%-85% of a business’s total carbon footprint. That is why we are now seeing companies like Philip Morris setting goals for their suppliers.
This is an important step as it can move the entire value chain. And, while local legislation coming from governmental institutions can affect regional markets, when companies set targets for their global suppliers, the affect can be international.”
What levers can businesses pull in the short term and how should they be strategically implemented?
MF: There is a whole host of product levers that can help us to diminish the impact we are having. Can our products be recycled? Can the carbon cost of the assembly process be lowered? Can we design machines, so they lower the impact they are having? For example, we now see automobile engines switching themselves off when they come to a stop – this is to reduce consumption.
While there is a lot that can be done, there will still be companies generating carbon. For them, there is the option to offset that impact. Companies can look to deploy carbon capture technology or plant trees. And there is also the carbon market.
“There are companies that are taking carbon out of the air, and they can sell carbon credits to carbon producing companies.
Before companies look to implement changes, however, they will need to think strategically and consider four key elements. First, companies will want to benchmark and align themselves with other companies in their industry. But to give themselves an edge, they should also look at other industries too, and transfer capabilities where they can to the industry they work in.
Secondly, they should look at the technological solutions and green energy alternatives, such as solar and biomass. The third element will be to explore how they can leverage digital tools – to manage consumption and develop solutions, such as the start/stop feature in automobiles mentioned earlier.
And finally, and to quote Andrea Montermini, VP and co-lead of the sustainability practice at EEFSO:‘Companies need to turn this into a business problem. They need to do their research and build a business case – one that is still about generating value.’
An example of this is a company we work with that is taking plastic from the ocean, recycling it, and then turning it into products. They are gaining additional marketing value together with operational efficiency allowing them to sell their products 60%-70% below the market price.”
How are leaders moving their plans for zero emissions forward?
MF: Leaders are moving forward in several different ways, often depending on the industry they operate in. For example, in the automotive sector, the move toward electric vehicles is creating many challenges – with the switch to batteries resulting in huge changes to assembly lines. This is requiring new manufacturing plants, new machinery, and the development of new infrastructure – this is needed to support vehicles on the road and meet the need for charging points.
Automotive companies also have a lot of work to do with their supply base. For instance, tires can be very polluting at the end of life. Finding solutions to these types of problems can require huge investments over a long period of time.
Then there is also the need to manage volatility and scarcity of raw materials. While the auto market is not expected to grow, everything to do with electrification is exploding right now. This is increasing demand for lithium, and it could impact the stability and security of supply. We are already seeing companies like Tesla responding to this by buying lithium in the US. We’re also seeing a growth in joint ventures, with companies like VW investing in solid-state battery cells with QuantumScape.
It is not all about access to resources, however. We’re also seeing companies looking at their people – as they may need a different set of skills in place to manage the change. For example, it is interesting to note that Ferrari has appointed a new CEO who has a strong background in microelectronics.”
Can you highlight some of the solutions companies are looking to deploy as they transition to low carbon sources of energy?
MF: The solutions companies deploy will depend on where they are based. One source of energy may work better in one region than another. For example, solar has become a cheaper option but then you need you need the sun to shine and the space to install the panels. Wind or geothermal are also options that depend on location – they will work well for some but not so well for others. There is always the option of biomass, or even hydrogen, but in the end, the final solution will probably be a mixture of many solutions.
As we move forward it is highly likely that companies will opt to work with a technical partner to manage this transition. While companies can create their own strategy, build a roadmap, and roll out a change management program, there will always be a need for support around technical management.
Working with a technical expert will allow companies to capitalize on the expertise, data, and experience that specialists have built up. Also, it is better if a supplier has gone through the learning process first – exploring what works and discovering what doesn’t work. They can then supply that learning to clients in the form of a service. This is a good model which will prove popular with many companies going forward.