Standards, trust, and decarbonization

  • Missing standards in decarbonization are preventing companies to adapt fast
  • 21st century and real time data is still far away
  • Digitalization is a prerequisite to meet the Paris agreement

On December 12, 2015 history was written at the United Nations Climate Change Conference near Paris, as an unprecedented agreement to stop climate change was signed by 196 parties. Since then, a lot happened. Many other policies were put in place by different countries and regions, with Europe leading the way. While our world needs help and actions on many flanks, decarbonization certainly is one of the most pressing challenges to be solved.

While decarbonisation is the leading topic in sustainability action plans, the United Nations predict Green House Gas emissions will continue to increase, before it falls significantly. In the EU Environmental Eco-Innovation Action Plan, China alone, as worlds biggest CO2e emitter, is about to double the emissions by 2030.

While such predictions sound rather demotivating, the progress being made in the present seems at least a bit promising. The EU Emissions Trading Scheme [ETS] was known as the world’s biggest market for Carbon Trading, until China introduced its ETS in 2021. More than 2.400 energy producing companies fall under the policy, emitting ca. 40% of China’s overall emissions. This is more than the whole European Union combined!

Several additional industries are planned to be regulated as well. Other countries and regions are preparing to give carbon a price. But having a price on carbon alone will solve just a part of the problem. The other side of the problem is known to all of us, from very different aspects of our daily life – standards. Approximately 70 ETS worldwide, each one with its own specifics, and more than 40 national and subnational regulations, show very clear how views differ when it comes to global warming. The lack of standards and regulations is always a challenge. In context of decarbonization, it easily turns an action scene into slow motion.

Without regulations companies struggle to invest in desperately needed energy transitions. If companies however invest, the missing standards make it very hard for companies to turn their investment into profit, as customers and suppliers might not accept the selected standard. And then there are the shareholders and investors.

How to break the cycle?

Let’s assume for a moment regulation and standards would be in place. Would things run smoother? Potentially smoother, but still far away from smooth. Four main challenges must be considered and tackled by businesses in their strategies, to meet the climate targets.

  1. Energy transition
  2. Digitalization
  3. Sustainability
  4. Political agendas

What sound so easy, in fact is not. Energy transition has received a lot of attention and investment in the past months. Moving away from fossil fuels into hydrogen is on everybody’s lips. As always, good ideas typically bear risks. More than 350 new projects worth $500 billion have been announced, according to the Hydrogen Council. The demand could increase sixfold in the next 25 years. One of the severe challenges with hydrogen is leakage. The hydrogen molecule is so small, that it becomes very difficult to be contained. Once it is released into the atmosphere, it binds other Greenhouse Gases [GHGs] such as carbon dioxide, methane, and others. Methane is known to be 25 times more aggressive than carbon dioxide, but it typically does not stay as long as carbon dioxide in the atmosphere [12 years instead of >100]. This is changing with the effect caused by leaking hydrogen. With doubling the concentration of hydrogen in the atmosphere, methane stays 1 year longer. Shifting to hydrogen is not only a matter of investment, it requires the foresight of interdependencies and the caution not to create the next peril.

Next is digitalization, a prerequisite for sustainability. In a hyperconnected world of business networks, it is imperative to calculate, measure, exchange, and report data. Remember when digitalization became the trend setter back in 2014? Plenty of bold initiatives and organizations where born. Chief Digital Officers became the Chief Information Officer’s best friend – or not. And yet, six years later, fax machines are still in action. It seems a world without spreadsheets cannot be imagined. Huge attachments are sent via eMail, redundant and sensitive to errors. In a world, where data is generated in sheer unimaginable amounts, digitalization cannot be wishful thinking, it needs to be a rock-solid standard to provide the needed information in real time. Reacting fast on carbon markets is a matter of billions of dollars for a large company. It was said for a long time data would be the new gold, here we are.

Data generation needs to happen per design to be provided along supply chains in a way, that data can be trusted, verified, and built on. This requires standardization. Globally, we are not there yet, as supply chains are way more complex as many assume. But also, the data needed for reporting often can only be guessed or derived from best practices.

Conclusion

The political agendas of this world bring us back to standards and regulations. At the Conference of Partieslast year in 2021, the price for one ton of carbon became poplar again, as Canada, the United States, and others pushed the discussion.

Certainly, there are movements. To shift gears, governments, alliances, and businesses need to need to work in eco-systems, speaking one language and building mutual understanding on the challenge ahead. This is not a question of tools and hope, this is a question of change and adaption.

Not one company, not one government can solve the climate crisis. All companies, and all governments must work hand in hand, with a minimum of standards, purpose, and commitment.