Not All Emission Reductions are Created Equal

Kumar Venkat Guest Author

by | Jan 9, 2023

This article is included in these additional categories:

If you are concerned about your carbon footprint, your options for reducing your carbon emissions could range from energy efficiency and electrification to cutting down on air travel and meat consumption. But not all emission reductions are created equal, and this has serious implications for how we address climate change through consumer choices and corporate actions.

A ton of carbon dioxide equivalents reduced through lower energy use or switching to electric heating and transportation can have a nearly immediate impact. But the same emissions “reduced” by foregoing a trip to Europe or eating red meat less frequently is just a signal to the market to produce less of those high-emission goods and services and more of climate-friendly ones. There are no immediate, measurable reductions in the latter case.

Energy efficiency can lead to an immediate reduction in emissions because you are burning less fuel in your home or car. Or you may be consuming less electricity, which can translate in almost real-time to less fossil fuel burnt at power plants. Electrifying your building or driving an electric vehicle would increase the amount of fuel used by power plants but reduce your direct fuel consumption. On balance, electrification generally (though not always) leads to more efficient use of energy and lower emissions. With the increasing share of renewables in the fuel mix used to generate electricity, electrification is set to produce even lower emissions in the coming years.

Outside of direct fuel and electricity use, most behavioral changes can at best nudge the market towards more sustainable production. If you forego a travel opportunity on carbon emission grounds, that airplane is still going to fly and the remaining passengers will all have to bear a slightly higher carbon footprint because of the empty seat. If a sufficiently large number of passengers begin to cut down on air travel, that could ultimately reduce the number of flights offered by airlines and the resulting carbon emissions. We haven’t seen that yet – passenger miles for US air carriers have increased steadily over the last two decades except during economic downturns.

Similarly, reduced meat consumption requires many consumers to make the same choice and move the market as a result. Per-capita meat consumption in the US has steadily increased over the last decade except when there has been a supply constraint, suggesting that not enough consumers have aligned on this dietary change for the climate or other reasons.

The same logic applies to many other consumer and business choices that are seen as more sustainable or climate-friendly, such as products made with recycled or other lower-emissions materials. Whether it is travel, food, or other products, the goods and services have already been produced (or scheduled in the case of services like flights) and the resulting emissions are already baked in.

In the short term, the primary effect of a small number of consumers and businesses changing their purchasing choices is to reallocate a fixed emissions pie across all market participants. If some consumers or businesses reduce their carbon footprints, then others will be saddled with higher footprints. Many purchasers acting in concert, however, could change the future production decisions of companies and potentially reduce the size of the total emissions pie down the road.

While carbon footprints are useful but not critical information for consumers, they are increasingly important information that corporations must disclose to regulatory agencies and investors. More than a third of the world’s largest companies now have net-zero targets, which means they have all committed to driving their net emissions to zero by 2050. This generally implies achieving a reduction of 20-40% in the next decade.

The true climate impacts of these actions will depend on whether the reductions are immediate or potentially in the future. But the standards used for corporate emissions accounting do not address the immediacy of the various emission reduction actions, so a company could take credit for a reduction that may have no climate impact for years to come.

One such case recently reported by Bloomberg involves how major US corporations are claiming deep emission cuts based on the purchase of renewable energy certificates that were previously created as a byproduct of renewable electricity. The energy in these cases has already been sold into the electric grid, so the size of the total emissions pie is fixed. As with many other goods and services, the purchase of these stand-alone certificates does not result in any additional emission reductions in the short term but could help increase the future share of renewables in power generation.

As the SEC works to finalize a climate rule requiring large companies to disclose their emissions and investors increasingly use a company’s annual emissions to evaluate climate risk, the question of whether a particular climate action results in an immediate emission reduction or not should be of paramount importance. Without this level of integrity in the emissions reporting process, corporations run the risk of misdirecting their climate actions as well as unintentionally misleading investors and other stakeholders.

Kumar Venkat

Company websiteKumar Venkat

Blog 

LinkedIn

Twitter

Company LinkedIn 

 

Guest Author Program
The E+E Leader Guest Author Program is an opportunity for Industry Experts & C-Suite Executives to share their views, opinions, experience, and best practices with an audience of countless C&I professionals. Content should be vendor neutral and align with the editorial focus of the quarter. Email Jessica Hunt to secure a publication date and topic approval.

Additional articles you will be interested in.

Stay Informed

Get E+E Leader Articles delivered via Newsletter right to your inbox!

This field is for validation purposes and should be left unchanged.
Share This