A court in the Netherlands has ruled in a landmark case that the oil giant Shell must reduce its carbon emissions. By 2030, Shell must cut its CO2 emissions by 45% compared to 2019 levels. In similar news, Exxon Mobil Corp had at least three board members uprooted in a bid to force the company to more aggressively address climate change. (source: https://www.wsj.com/articles/shell-ordered-by-dutch-court-to-cut-carbon-emissions-11622038961)
At the heart of these efforts is the buzzword “net zero.” Net zero refers to the balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. So, net zero does not mean that producers cannot produce greenhouse gasses. It means whatever they produce must also be removed (or disincentivized).
These big plays seem so esoteric and don’t convey any immediate need to act. What do they mean to you? What will a middle market business have to do to be Net Zero if needed, and what will it cost?
It’s no surprise that production methods that emit large amounts of greenhouse gasses will be “regulated or taxed.” The cost structures for owning and operating legacy power generation sources will be more expensive, making them less competitive in the open market. The Green House Gas Reporting Program (GHGRP) already requires reporting of greenhouse gas (GHG) data and other relevant information from large GHG emission sources, fuel and industrial gas suppliers, and CO2 injection sites in the United States (source: https://www.epa.gov/ghgreporting). Think about the transition from coal fired generation plants that have been dramatically retired. We will see this same type of regulatory cascade happen across the energy landscape. Some of our most resilient power sources will be phased out.
The need for energy is increasing with the introduction of crypto (bitcoin consumes more electricity than Argentina: https://www.bbc.com/news/technology-56012952), E/V charging, large data centers, and the general electrification of most motors. We will face supply challenges as utility scale renewable energy resources comprise more of the base load energy supply mix.
The future will surely add new technologies that help capture carbon (state of carbon capture:
https://www.cnbc.com/2021/01/31/carbon-capture-technology.html), store energy for on-demand use, and lower consumption with efficiency improvements. But we aren’t there yet.
It will become more common for companies to generate their own energy, on-site, in order to better match their individual demand profile and offset their draw on the utility grid (US DERs are expected to double: https://www.
must become more energy resilient as older generation sources are phased out. Micro-grids and distributed energy resources will become necessary for middle market business to maintain lower energy costs and reliable energy supply. During this transformation, more emphasis will be placed on a business’s role in generating its own power, controlling its demand, and perhaps, selling excess energy to the grid.
The winners and losers will be the companies that can take advantage of incentives (examples:
https://www.eia.gov/energyexplained/renewable-sources/incentives.php) to join the party and avoid regulations
that stifle business.
If your business produces too many greenhouse emissions, regulations will surely hit your pocketbook. We already see pushes for people to “buy” carbon offsets to lower carbon footprints (Global banks launch carbon offset platform: https://www.reuters.com/business/sustainable-business/global-banks-launch-voluntary-carbon-offset-market-
platform-2021-07-07/). Becoming efficient and implementing best practices in energy management will help you avoid and/or manage future regulations that are surely on the way.
Right now, in the beginning of the transition ramp-up, incentives will be employed to help lower the cost threshold of becoming less reliant on carbon emitting energy sources. For example, businesses can already lower their consumption with upgrades like LED lighting that reduce energy use by 50% to 75% (source:
https://www.energy.gov/energysaver/save-electricity-and-fuel/lighting-choices-save-you-money/how-energy-efficient-light), HVAC monitoring and controls, and by installing or sourcing renewable energy with the help of Local, Regional, State and Federal incentives.
Self or On-Site Generation through microgrids is also lowering the strain on the grid and helping companies to produce their own energy (source: https://www.powermag.com/why-microgrids-are-the-key-to-our-carbon-neutral-future/). They increase resilience, lower peak load, and drive down energy consumption associated with the utility grid. Companies that take advantage of these incentives will be the winners during the energy transformation.
You can’t improve performance unless you understand and respond to the metrics. Many companies’ only barometer for energy usage is the utility bill. Tracking usage, understanding consumption spikes, eliminating poor performers, and predicting future outcomes are part of the demand side energy management landscape. (eReveal energy management software: https://www.efficientpowertech.com/ereveal/)
How can you improve and avoid regulation, cost variance, and profitability drains without seeing your energy usage profile? Tools that track and report on your energy burden will help you to navigate the energy transformation. How will you get to “net zero” if you don’t even know your current “score?”
In addition, automating the control of your energy landscape is going to change from a “cool new thing” to a “business critical tool.” The penalties for lack of energy efficiency will be too costly to not have automated and remote operated tools that control your energy assets. Companies will need to begin intelligently auditing and controlling their energy consumption (necessity of building automation: https://www.influencive.com/building-automation-how-to-get-smart-profitable-and-sustainable/).
Your next objective is to pay attention to the regulatory and market signals that seem so esoteric and 10,000 foot – right now. The emphasis on energy consumption and the production of greenhouse gas emissions will no longer let you sit on the sidelines effectively. It’s probably a great idea to partner with experts in the energy space to have you prepared to take advantage of incentives, energy management tools, and demand side energy efficiency assets.
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