The following chart represent a methodology for approaching net zero and decarbonisation of energy intensive sites. It is presented in a reverse pyramid given the order of implementation is important, where prior action flows down and influence subsequent steps.
This creates compounding strategic benefits, saving time and avoiding common management and technical mistakes. It is focused on getting the foundations correct from the start of the sustainability journey so that the organisation can move from compliance to performance and deliver on the promise of net zero via energy management, energy efficiency and renewables.
The steps are explained below:
Step 1 – Executive commitment to energy management comes first!
From a director’s perspective – Directors need to set the correct tone from the top and manage risk / opportunity associated with ESG. Sustainability targets must sit beyond general intent and consider varied stakeholders needs. Legally a director has “due care and diligence” obligations under the Corporations Act 2001 which may include updating ESG into board processes i.e. emissions target delivery and greenwash risks within board risk registers. ESG should be part the director’s mindset for consideration and oversight (as a category of long-term existential risk), similar to cybersecurity, artificial intelligence and other disruptive trends.
From a manager’s perspective – Without an executive commitment to ESG, upward management of possible projects wastes time in exploring options that are not aligned. By setting emissions targets subject to specific investment hurdle rates and annual budgets, management can develop aligned projects with confidence, saving the organisation time and effort by simply utilising existing approaches to capital budgeting. This means ESG is simply efficient capital rationing, focused on reducing energy wastage.
Step 2 – Data management systems
Data management systems are the foundation of ESG. Sustainability is data driven. Irrespective of the depth or ambition of the organisation, establishing the simple initial foundations for correctly managing energy, gas, water and other “sustainability data” will assist all future steps. This typically gets funded by the IT budget as it is an information systems issue that is often overlooked.
Step 3 – Examine the Efficiency Frontier
Evaluating at a high-level the opportunity, design thinking methodologies ensure rapid iteration and immediate insights to inform the potential depth of emissions reduction possible (in weeks), before jumping into technical reports, audits and engineering projects (taking months of years).
Step 4 – Energy Procurement
This is the first action where the rubber meets the road. Understanding future energy costs influences the financial analysis of energy cost reduction projects. Once you have obtained least cost energy and understand the future energy price path, the return on investment metrics for other projects is not biased and representative.
Step 5 – Metering and Monitoring
This is a relevant initial investment based on energy spend and data availability. Replacement of engineering time in the following steps can be achieved from installing permanent or temporary energy meters and data loggers (to capture relevant data around key equipment, systems, and processes). These investments in smart metering, data loggers and obtaining data can start small and scale over time.
Step 6 – Energy Efficiency
Eliminating unnecessary wastage upfront makes sense. It helps adjust energy load profiles and reduces the amount of capital required to be spent on renewable energy (meaning the order of implementation is important). Energy efficiency comes in the form of optimising equipment (no cost) and also modifications (low cost) or replacement (positive NPV switch out projects)
Step 7 – Fuel Switching
Fuel switching allows for electrification and decarbonisation. Incorporation of electricity, gas and fuel cost and carbon emission trade-offs is an important consideration. By electrifying, gas and fuel price volatility is addressed and changes to site energy tariffs and renewable energy load profiles can be addressed upfront (to create the least cost in regards to total energy spend).
Step 8 – Renewables
Renewable energy powering an efficient and electrified site creates the best financial return long-term. Creating best practice efficiency first then allows for correct analysis and engineering of renewable energy opportunities that have positive financial returns. Overcapitalisation is avoided and the correct system sizing is achieved without costly mistakes by addressing this step after efficiency and fuel switching.
Step 9 – Offsets
Carbon offsets are deliberately last. Given the ACCC guidance on greenwashing, there is no free lunch and simply offsetting emissions and not doing the work above is a material risk. Stakeholders increasingly see offsetting as greenwash (reputational risk). The path to net zero can be achieved via well considered and intelligent investments in energy management, energy efficiency and renewables (with offsets last).