Gaining Competitive Advantage Through Carbon Footprint Modeling

Today, we hear quite a bit about the energy transition and see many global companies resetting their business strategies to incorporate the impending move from oil and gas toward renewable forms of energy. The resetting incorporates anything from ambitious carbon footprint targets to measurable investment into renewables…and varies based on size and scale of the company.

A global standard for carbon footprint is the GHG protocol. It has set a global standard for how to measure, manage, and report greenhouse gas emissions. Within this protocol, companies need to report scope 1 (direct) and scope 2 (indirect) emissions and are coming under increasing pressure to report their scope 3 (indirect) emissions as well. With global companies setting their targets on carbon footprint, so goes the expectation they have on service companies which conduct much of the activity on their behalf. That expectation will translate to successful bids accounting not only for the quality of service or product, but also how it will impact their carbon footprint. And they will not rely on ‘targets’ or ‘missions’ regarding carbon footprint, they are going to want to see tangible actions that distinguish you from your competitors.

To be competitive in the transition to the low-carbon economy, there are a couple fundamental things to consider.

The Carbon Footprint of your Business

Calculating your business’ carbon footprint is becoming more and more of a commonality and there are several companies that do this for you: you provide a bunch of data to them, they input that data into their models, and you have your footprint. The cycle time of this process makes it a very ‘static’ understanding of your footprint, and by no means is real-time. Even more so, it is not very scientific or predictive in regard to your business. We certainly wouldn’t treat our investments in this manner, e.g. spend and wait for the output data to see if it was profitable. No, we have economic models to guide us in that space.

So, how do we become more predictive in our carbon footprint? How do we better predict business outcomes in the fast changing energy transition?

‘True’ Digital Twin of your Business

The model your business operates under today (supply chain, procurement, manufacturing, operation, etc.) impacts your carbon footprint. This seems like an obvious statement, but is often misunderstood. As mentioned, the calculation of carbon footprint today is most often an output of your business model…annually provide the actual operational data (which is based on your business model), crunch the numbers, and voila, there is your carbon footprint. The segregation of the carbon footprint model and your business model in this manner leads to a guaranteed unoptimized outcome (financially, environmentally, etc.).

A true digital twin of your business, one that is capable of optimizing your business outcomes, integrates the carbon footprint model. Treating your entire business as a science incorporates cause and effect relationships across all factors: market, consumer, competitor, economic, environmental, operational, etc. For example, making potential changes to the supply chain of your product can be tangibly (and quickly) used to predict the impact on your carbon footprint (down), the secondary impact on likelihood of being successful on the bid (revenue up), cost of the change (cost up), and therefore the impact on your expected profit. Without this, the financial impact of a lower carbon footprint on the bottom line is unknown and it will certainly not be optimized.

Informational Note

Carbon footprint describe the greenhouse gas emissions associated with an activity, company, household, or nation and are based on a life-cycle perspective, assigning emissions of greenhouse gases to the end user. Carbon footprints are also discussed in connection with responsibility for reducing greenhouse gas emissions. Emissions are broken down into three categories by the Greenhouse Gas Protocol:

 

• Scope 1 – All Direct Emissions from the activities of an organization or under their control. Including fuel combustion on site such as gas boilers, fleet vehicles and air-conditioning leaks.

 

• Scope 2 – Indirect Emissions from electricity purchased and used by the organization. Emissions are created during the production of the energy and eventually used by the organization.

 

• Scope 3 – All Other Indirect Emissions from activities of the organization, occurring from sources that they do not own or control. These are usually the greatest share of the carbon footprint, covering emissions associated with business travel, procurement, waste and water.