How Organisations can leverage Operational Improvements to achieve Higher levels of Decarbonisation

In the Union Budget of FY 2023-24, unveiled earlier this month, ‘Green Growth’ was defined as one of the seven priorities (Saptarishis). This initiative is focused on encouraging green industrial transition to help achieve India’s ambition of achieving net zero emissions by 2070. Individually, there are increasing regulatory and market pressures on organisations to improve their <b>sustainability performance</b>. Economically, rising fuel and energy prices is impacting the profitability across the industry. Decarbonisation is an important lever which can help in addressing both.

Decarbonisation is especially important for energy and carbon intensive industries, like steel, cement, chemicals, etc. (hard to abate sectors).There are several ways in which private organisations can act on emission reduction, such as process and energy efficiency improvement, supply chain optimisation, investment in new technologies, etc. But for these actions to be effective, a structured approach is required. Organisations should look at decarbonisation in three phases, ‘Understand,’ ‘Reduce’ and ‘Transform.’

‘Understand’ is the base lining phase, whereas ‘Reduce’ and ‘Transform’ refer to the operational/tactical and strategic implementation phases respectively. Let us focus on the first two, which can help organisations get up and running on their decarbonisation journey.

Understand: Before deciding on ‘how’ to decarbonise its operations, an organisation must first aim to understand its carbon footprint – ‘where’ are we generating CO2. Only a clear understanding of its current carbon footprint can help organisations identify the carbon hotspots and ways to reduce emissions in the short term, and to formulate effective long-term strategies to achieve decarbonisation.

Carbon accounting (or Greenhouse Gas Accounting) is the process of quantifying an organisation’s CO2 emissions. There are four basic steps of carbon accounting:

1. Define the organisation boundaries and identify all business operations which are key sources of emissions and energy consumption.

2. Collect data related to these activities, such as raw materials & energy consumed per year, waste generated, operating parameters that impact energy consumption, etc.

3. Convert this data into carbon emissions using established calculation standards

4. Synthesize this data and interpret results to identify potential reduction opportunities

While it might be difficult for most organisations to estimate their indirect emissions (Scope 2 and 3), estimating the direct emissions (Scope 1) is relatively easier. There are several frameworks, such as The Greenhouse Gas Protocol, US EPA’s GHG Inventory Guidance or ISO Standard 14064, which organisations can use to estimate their Scope 1 emissions. More mature organisations should also estimate their scope 2 & 3 emissions.

Reduce: Having identified their carbon hotspots, organisations can then prioritize and select the most optimum levers for reducing these emissions. A few examples are given below:

• Optimizing energy consumption through efficiency improvement and energy management

• Energy transition from using fossil fuel-based systems to renewable power sources.

• Improving process efficiency for optimized consumption of raw material and minimising wastage

• Changing the input materials, resources and processes used for production

• Logistics and supply chain changes, such as route optimization, fleet fuel switching, etc.

• CCUS (Carbon Capture, Utilisation and Storage) of CO2 produced from the manufacturing processes

There are several factors which organisations will have to consider before selecting any of these levers and specific actions under them. Some of these are tactical, requiring some changes in policies and processes. Others are strategic which would require significant capex in new technologies and organisational transformation. The sector, business model & operations, local factors, organisational capability, etc. would also have a strong influence on which ones are to be implemented.

Among the levers mentioned above, optimising energy consumption could prove to be an impactful and cost-effective way for reducing both emissions and costs together. This can be done in two key ways: optimizing the energy production and the energy demand. Focusing on energy production entails analyzing and setting the optimum parameters for the energy carriers, such as temperature and pressure of steam, hot water or compressed air, current and voltage of electricity, and the means of their generation. For example, using residual process heat to generate steam, instead of generating it through a fossil-fuel fired boiler can lead to a significant reduction in energy consumption. Even if steam cannot be substituted, the quantity of steam consumed can be optimised – as seen in four ammonia plants in India, where steam consumption was reduced by up to 10% by reducing the excess steam used in steam reforming process.

Similarly, in energy demand, optimizing operating parameters of processes, improving process efficiency (yield) and proper maintenance & repairs of equipment consuming energy can be simple yet impactful methods of reducing energy consumption, and also possibly increasing throughput due to better availability. Through better condition of equipment, by implementing TPM, an Indian steel manufacturer reduced the energy cost by around 25%. Such solutions generally do not require significant investments, but just require organisations to critically look at their operations and to analyse the data for identifying the improvement opportunities.

Transform: Knowing their carbon hotspots, and the short-term improvements that can be implemented, organisations can look at undertaking large transformation projects in the long-term. These typically require significant effort and investments in R&D, for using alternate materials or processes, or in implementing new technologies, such as green hydrogen, CCUS, energy transition, etc.

Organisations need to proactively work towards reducing their carbon footprint. They can start by understanding their emissions, and reducing them quickly, wherever operational or tactical solutions are applicable. These can help organisations improve their sustainability performance and profitability in the short-term.