The Decarbonization Handbook

How to navigate in the world of “green” terms and regulations related to climate?

Regulations – the word probably creates tension in much of the business. And when it comes to “green” regulations, which are now developed every year, it becomes even more complicated. 

Companies have just gotten used to the basic environmental terminology, but it turned out that this was just the tip of the iceberg. Decarbonization, carbon neutrality, and climate reporting… are just some of the new terms that businesses are trying to understand. It seems that big companies, the first targets of regulations, are adjusting to the fact that climate is part of running a business. However, the process is developing at a fast pace which brings changes for the entire business. 

How to navigate in the sea of “green” terms and regulations? We asked the veterans in the industry, denkstatt Bulgaria, who have been helping companies to successfully go through the entire spectrum of sustainability for the past 15 years. We start with what’s sitting behind the complex words and how they affect us.

Let’s take the simplest example, the term at the heart of climate change – greenhouse gas (GHG) emissions. From a scientific and chemical point of view, greenhouse gases are all gaseous compounds capable of absorbing radiation emitted by the Earth. This way, they do not allow it to leave the atmosphere and therefore it warms up the planet. This is the so-called greenhouse effect. Examples of these compounds are carbon dioxide (CO2), methane (CH4), as well as a wide range of substances used as refrigerants. 

This is where regulations come in. The industry standard for corporate emissions (the Greenhouse Gas Protocol, which is based on the practices developed by Intergovernmental Panel on Climate Change – IPCC), looks at 6 groups of chemical substances that directly cause climate change – CO2, CH4, nitrous oxide (N2O), hydro- and perfluorocarbons (HFCs and PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3). Sulfur oxides (SOx), nitrogen oxides (NOx), albedo, and other factors contribute indirectly to global warming.

In short, some consequences must be limited. There are different ways to do so using different tools. There is a specific strategy for every business. This is how the different terms that describe specific problems appear. This exact terminology will become more common over time, so understanding the basics is a crucial starting point for any business. 

Decarbonization and its process in Bulgaria

At denkstatt, we’ve helped dozens of companies get on the path of decarbonization. Speaking from experience, we know that this process can happen smoothly and easily. Decarbonization is like a continuation of the greenhouse gases topic. We proceed from the fact that the European Commission has set the goal of reducing emissions by at least 55% by 2030. This is possible by increasing the share of renewable energy, improving energy efficiency, and a technological change in major economic sectors. Decarbonization is the process of reducing carbon emissions in the atmosphere, especially carbon dioxide. It is the main tool to limit the increase in global temperature to 1.5 degrees, an important goal of the Paris Agreement of 2015.

The decarbonization process usually starts by calculating the amount of greenhouse gas emissions of each company. The sources of these emissions are divided into direct and indirect. Let’s explain this with an example – every activity related to production results in emissions, which are your direct responsibility. Your suppliers, partners, and even the fuels you use for transportation also have a footprint on nature. Those indirect emissions are also your concern because your product would not exist without them.

Let’s assume that you have already calculated the volume of greenhouse gas emissions, generated by your business. The next step is developing a decarbonization strategy. There are two ways – either reduce your direct impact on the ecosystem or mitigate external factors. This can be achieved by making changes among those you work with or asking them to make those changes. But one of the main questions to ask is how much exactly the company should reduce their emissions.

We hold the solution– at denkstatt we use the internationally recognized approach to setting an emission reduction target, developed by the Science Based Targets initiative (SBTi). Prior SBTi, there was no clear standard for whether a target is sufficient or not. Today, we have standardized approaches, specifically developed for different sectors. Setting a target following SBTi is a good way to demonstrate your company’s commitment to climate change.

One of the core principles of SBTi is that companies should prioritize implementing measures to reduce their absolute emissions over residual emissions. There is no one-size-fits-all solution for everyone but usually, potential measures include improving energy efficiency and purchasing energy from renewable sources. The solution often involves a mix of different measures along the value chain, related to goods and services purchased or the use of your sold products. Only after depleting the options to reduce emissions, the company can go after the residual emissions. 

Climate-neutral or carbon-neutral?

Practically both. If we refer to the IPCC experts, climate or carbon neutrality is a state in which human activity has no direct effect on the environment. This includes processes such as changes in the Earth’s albedo, along with greenhouse gas emissions. Here’s another new term – albedo. It is the surface’s ability to reflect solar radiation. For example, snow reflects much more light than soil, which absorbs it. This directly affects the climate and the entire eco chain. 

Carbon neutrality is often confused with achieving net-zero emissions. The former is a combination of reducing emissions to some extent and compensating the rest through somebody else’s initiatives. Net zero emissions means that the business no longer releases any kind of emissions. In addition, carbon neutrality often includes only carbon dioxide emissions and excludes all other greenhouse gases. Although it is the main greenhouse gas, other gases are equally to blame for global warming. For example, 1 kg of methane has the same effect on climate change as 25 kg of carbon dioxide. For nitrous oxide, the equivalent is 298 kg. Businesses must handle the new climate terms carefully to avoid misdirecting their decarbonization efforts.

What does net zero mean?

Net zero is the final stage of carbon neutrality. It is the act of organizing your business in such a way that you completely limit direct effects on the climate. There are businesses and industries which take this as an impossible task. 

Based on the SBTi emission reduction approach, most sectors need to halve their emissions by 2030, and approximately 90% of emissions should be avoided by 2050. This is what needs to be achieved according to the Paris Agreement of 2015. Achieving net zero is hard; if the company succeeds to limit their direct emissions they must go to the next level and reduce or neutralize residual indirect emissions. Therefore, we rather consider “net zero” more as a goal; a balance between the company’s activity and greenhouse emissions. 

Regardless of the term, at denkstatt we always apply the following principle: first focus on reducing direct or indirect emissions and only then on neutralizing residual emissions.

Is it possible for every business to achieve 100% carbon neutrality?

If we are talking about immediately – no. But that has been given some great thought too. It will appear as the term compensation, offset, or removal of carbon emissions.  

Currently, there are many factories where residual emissions can hardly be limited due to technological reasons. Achieving balance can be done through various initiatives, part of the company’s corporate activities, or outside them. An offset can be achieved with the help of third parties, which have projects to limit their emissions. In other words, once the emission reduction target is met, residual emissions (typically no more than 10%, compared to the base year, as required by SBTi) must be neutralized by carbon sequestration. Neutralization is the final step in denkstatt mitigation hierarchy, and it is often solutions based on nature. Afforestation, improving soil, and forest management are all examples. 

Why is it crucial for businesses to keep up with terminology and regulations?

Regulations are a factor that everyone must consider, but they are not as important in this case. Companies must be aware of policies and requirements related to climate change so that they are not rejected and are even more so well-accepted. This is part of the image, added value, and vision of every company. Achieving a climate-related goal is a great marketing tool, but the inaccurate use of terminology can lead to fallacious statements, negative public perception, and even litigations.

Climate change literacy increases the accuracy, reliability, and transparency of the company. It is crucial to use the right terminology when choosing a goal based on environmental, social, and governance (ESG) indicators. The world is already talking about greenwashing. Greenwashing Is when companies use green policies only for their image, without understanding the essence. That easily shows. Understanding green terminology is the beginning of a long journey to transparency. Most importantly you have to truly believe in the principles behind those terms and you will see it pay off.

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