Thursday, April 11, 2024

Science Based Targets: the thorny issue of Scope 3 emissions and the supply chain

Solon Mardapittas, CEO at Powerstar

Science Based Targets have become the gold standard for global businesses looking to address their role in climate change.  Solon Mardapittas, CEO at Powerstar, looks at Scope 3 emissions, the impact on the supply chain, and some practical steps British companies can take to demonstrate their own commitment to Net Zero.

The UK government is legally committed to achieving Net Zero by 2050, yet there is a lack of clarity on government support for the businesses who must implement this commitment and drive the necessary changes – with the High Court deciding last year that the UK’s Net Zero Strategy was unlawful.  As late as this March, on “energy security day”, the government admitted that there was “a judgement to be made whether the policies identified at this stage are sufficient”[1], much to the concern of Net Zero experts and energy specialists.  UK companies, along with corporations worldwide, are leading the uptake of committing to emission reduction through the adoption of Science Based Targets – those which are in line with the latest climate science’s determinations on what is needed to meet the goals of the Paris Agreement. 

Notably, Science Based Targets – defined and validated by the Science Based Target Initiative (SBTi) – have shifted the focus from potential reduction in greenhouse Gas (GHG) emissions to the actual level required: from what is possible to what is necessary.  This change of emphasis echoes the responsibility that businesses are taking on themselves in setting targets and managing their own Net Zero strategies.

Although the process for setting Science Based Targets involves resource commitment, there are clear business drivers for companies to engage with SBTi.  As Net Zero transforms the way business is done, spearheading innovation, companies signal their own position and can make the most of opportunities while also keeping ahead of regulatory requirements.  A focus on emission reduction makes for greater competitiveness in being a part of the Net Zero innovation conversation and in reducing energy costs.  Stakeholders – whether investors, board members, customers, or employees – increasingly demand a commitment to Net Zero, signalling the reputational benefits of a structured, Science Based, approach. 

Considering the different emission sources – Scope 1, 2, and 3 – SBTi admit that Scope 3, indirect value chain, emissions are both the hardest to quantify and the greatest source of emissions for most companies[2].  Where companies set science-based targets, emissions must include Scope 1 and 2, and where Scope 3 represent more than 40% of a company’s overall emissions, the target must include these, also.  Given the prevalence of Scope 3 emissions, currently around 96% of companies with approved targets include Scope 3.  Indeed, a recent SBTi survey into Scope 3 emissions[3] found that Scope 3 emissions represent more than 70% of GHG inventories.

Prevailing thought on tackling Scope 3 emissions, from sources including PwC, Deloitte, and McKinsey, highlights the importance of collaborating with suppliers, incentivising them to decarbonise their own organisations, and making supply chain decarbonisation a key factor in procurement.  As one example, PwC list four strategies to engage suppliers: leveraging procurement; building capability; rewarding progress and enforcing performance.[4]

For companies supplying to businesses already working to SBTi targets, the incentives to tackle their own emissions are clear.  Looking to energy management as a quantifiable opportunity to decarbonise, there are a range of options, including some quick wins. Readily available data on energy consumption can also be used to demonstrate both progress and commitment.

As a supplier, investing in renewables is an obvious way to tackle your own emissions, as is switching to an Electric Vehicle (EV) fleet.  Although these won’t reduce your own Scope 3 emissions, they will clearly impact on your customers.  However, implementing these changes may well affect your own business. On-site renewables are by their nature inflexible, reliant on weather conditions. Sometimes, those weather conditions won’t be optimal, and your on-site generation may not meet site demand. Alternatively, generation could be much higher than the site requires. While this can be solved by buying and selling energy from the grid to make up the differences, this runs the risk of undermining carbon reductions efforts.

smart microgrid

To ensure that reliable power is there when business process and production demands, a Battery Energy Storage System (BESS) is a vital addition to energy infrastructure, storing renewable energy as generated for use when needed.  Unlike traditional Uninterruptible Power Supply (UPS) systems that companies have generally relied on to protect specific essential equipment in the event of power disruption, a BESS offers site-wide protection with 95% lower losses.  The flexibility of a BESS in managing renewable / grid supply, together with its capability to buffer large loads – particularly relevant for EV charging – raises it above the level of a sunk cost (as is a traditional UPS) transforming it into a valuable asset.

Switching to an EV fleet presents significant challenges for any organisation, given the potential to overburden the network, and constraints on capacity are a real issue when negotiating with a Distribution Network Operator (DNO).  Rapid EV charging is reliant on a power supply that can support a sudden load – between 50 and 300kW.  Analysis from Deloitte[5] indicates that the installation of Rapid chargers will overtake Fast charging by 2030, leading to significant infrastructure and grid constraint issues and they cite the Climate Change Committee’s predictions on the investment level needed, while also pointing to the role that battery storage will play in the UK’s journey to Net Zero,

“The CCC estimates that new investment needed in the distribution network for both EVs and electrified heat would require up to £50 billion by 2035, or about £1.8 billion per year.  This is about four percent of the total cost of the electricity system…  The deployment of key technologies – for demand management and battery storage – can create flexibility within the system, which could reduce the investment required for these reinforcements by around 10 percent to 2035.”

Where a company has its own BESS, this can charge slowly from the grid or from on-site renewables to then discharge that energy for EV charging.  This can play a major role in making the switch to an EV fleet feasible, most notably where an application to the DNO for a larger grid connection may be rejected outright if it is deemed to impact on overall grid supply, or where it may be prohibitively expensive.  Even where companies’ applications to the DNO are not refused, the current waiting times may well impact on implementation timescale.

Where a BESS is part of a smart microgrid, it can provide both greater efficiencies as well as vital data for customers focused on Scope 3 emissions.  Energy management and monitoring software makes real-time decisions to predict trends and manage energy on-site while providing detailed site, grid, and asset information.  Improving energy security – being able to operate in isolation from the grid – a microgrid’s control system optimises the use of available energy resources to ensure the best use of renewable assets, leading to both cost savings and carbon emission reduction. 

Ultimately, the calculation and elimination of Scope 3 emissions is, undoubtedly, challenging.  However, for suppliers looking to enhance their reputation with customers, there are technologies that signal their own commitment to Net Zero while offering significant benefits for energy security, affordability, and sustainability.

To find out how Powerstar can help you on the path to Net Zero, please contact us:

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