Key Steps in the Decarbonisation Journey in Australia: A Guide for Companies
Meeting the Paris Agreement's targets to halve emissions by 2030 and achieve net zero emissions by 2050 is a daunting task for many companies. With mounting pressure to take immediate, meaningful steps to reduce carbon emissions, it can be challenging to know where to start.
In accordance with the Paris Agreement, Australia has pledged to decrease greenhouse gas emissions by 26 to 28% compared to 2005 levels by the year 2030, as outlined in its Nationally Determined Contributions (NDCs). On June 16, 2022, the Australian Government submitted a revised NDC, establishing a more ambitious goal for 2030: a 43% reduction in greenhouse gas emissions from 2005 levels. This target positions the country on a trajectory to meet its net-zero emissions objective by 2050.
This blog provides a concise summary of the crucial steps that companies must take to establish a credible path towards achieving net zero emissions. From developing top-down 1.5°C targets to building decarbonisation pathways and securing support for effective execution, this guide will help your business navigate the decarbonisation journey with more clarity and confidence.
The first step in the decarbonisation journey for large enterprises in Australia is to set a baseline and measure emissions accurately. Companies must undertake a comprehensive emissions inventory, including all direct and indirect emissions across their value chain.
The Greenhouse Gas (GHG) Protocol is a globally recognised framework and accounting standard for measuring, reporting, and managing GHG emissions. It classifies GHG emissions into three types: Scope 1, Scope 2, and Scope 3. The latter are of particular importance, as they typically represent the majority of a company’s total GHG emissions.
For instance, under Australia’s National Greenhouse and Energy Reporting (NGER) Act 2007, affected companies must report their Scope 1 and Scope 2 GHG emissions, energy consumption and production, as well as other relevant information. Both private and public companies are subject to this regulation, and must calculate their GHG emissions in adherence with the NGER (Measurement) Determination 2008.
Set Reference Targets
After measuring emissions, the next step is to set science-based reference targets using a top-down analysis. This entails using a carbon budget approach as an objective way of determining the emissions reductions needed to limit global warming in line with the Paris Agreement, rather than being set by what is achievable by any one company.
Investors and ratings agencies are becoming more discerning about corporate climate targets and plans, and how they align with the Paris Agreement goals. As an example, research-based indexes and analytics provider MSCI uses its Implied Temperature Rise methodology to evaluate the quality of corporate climate plans.
Companies can get ahead of these external judgments by developing top-down reference targets that are consistent with the Paris Agreement’s 1.5°C pathway. The Science-based Targets initiative (SBTi) offers guidance on how companies can set reduction targets that align with the best available science using base-year emissions measurement.
Prioritise Abatement Levers
Once reference targets are set, companies should prioritise abatement levers. These are usually projects, programs, business decisions or other actions that reduce the activities driving emissions, reduce the GHG intensity of those activities, or both. Abatement levers require companies to have prior knowledge of the hotspots across their value chain, so that they can identify key steps in the decarbonisation journey.
To prioritise abatement options, companies should consider a variety of factors such as the potential for emissions reduction, cost-benefit analysis, and feasibility of implementation. A useful framework that companies can leverage when prioritising levers is the mitigation hierarchy. This structured approach emphasises prevention above all else, followed by reduction, and substitution of the sources of emissions. Only after these efforts have been exhausted should remaining emissions be neutralised through biological (e.g., reforestation) or technological (e.g., carbon capture and storage) neutralisation within the value chain. Finally, companies can compensate for any remaining emissions through carbon credit offsets beyond the value chain.
It is crucial for companies to engage with partners along the value chain – both upstream and downstream – to ensure a cohesive and effective approach to emissions reduction. Collaborating with partners helps companies understand the impact of climate plans on their operations and identify areas for improvement.
Develop Decarbonisation Pathways
Following careful identification and prioritisation of abatement levers, companies should develop pathways that outline the collective impact of various reduction strategies and actions on their emissions profile over time. This involves projecting business-as-usual (BAU) emissions because of company growth and simulating different “what-if” reduction scenarios to assess the effectiveness of alternative strategies.
Companies should consider aggregating simulations into a few distinct pathways to allow for comparison against reference targets. They should also strive to incorporate carbon pricing into their analyses for a more comprehensive evaluation.
Report, Disclose, Communicate
Reporting, disclosing, and communicating emission reduction efforts to external stakeholders are essential components in the decarbonisation journey for companies in Australia. Not only do they provide transparency and accountability, but they also establish a roadmap for companies to galvanise action and build support around their decarbonisation efforts.
Reporting involves providing regular updates to investors, board members, regulators, and voluntary standards/bodies on a company's emissions, decarbonisation strategies, and progress towards set targets. For instance, companies can ensure that they are held accountable and demonstrate their commitment to decarbonisation by validating targets with SBTi and reporting to organisations such as the Carbon Disclosure Project (CDP).
Similarly, disclosing information periodically is crucial to ensuring transparency and accountability. Preparing annual reports that align with the Task Force on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI) can help companies report on their environmental impact and how they are managing risks and opportunities. Large, publicly listed companies are increasingly being required by laws around the world to disclose their emissions and climate transition plans.
Finally, companies should communicate their sustainability and decarbonisation initiatives both internally and with the wider public. Corporate communications channels and public relations play a critical role in establishing a clear and consistent understanding about a company’s evidence-based climate transition strategy and plan among internal and external stakeholders. Such communication builds buy-in and credibility, which are crucial to an effective decarbonisation journey. Engaging in joint case studies and thought leadership efforts also help to demonstrate a company’s commitment to decarbonisation.
The final step in how large enterprises in Australia can begin their decarbonisation journey is to secure the support, resources and tools to successfully execute decarbonisation plans. This involves obtaining C-suite approval to ensure adequate financial support and backing for the plan’s implementation. Equally important is embedding the plan into existing business processes, such as budgeting, compensation and bonuses, capital allocation, procurement, and supply chain management. This ensures that all business units are aware of their role in achieving the company's decarbonisation goals and are equipped with the necessary tools and resources to execute the climate transition plan effectively.
The decarbonisation journey for companies is a continuous and iterative process that starts with establishing a baseline of emissions, developing a robust climate strategy and mitigation plan, deciding on company-wide action, and continuous monitoring and reporting. This process requires both a technology platform that helps measure emissions accurately and repeatedly, simulate scenarios, and record progress over time, as well as deep sustainability expertise to help evaluate scenarios, understand abatement options, and plan reductions. Through a combination of SaaS platform, sustainability expertise and an ecosystem of expert partners, Terrascope guides large enterprises on the most impactful actions they can make on their journey to net zero.