What challenges do companies face on the road to carbon reduction?

4 May 2022

Dominic Ward. Image: Verne Global

Verne Global’s Dominic Ward outlines some of the most pressing challenges businesses face when it comes to sustainability, from greenwashing to carbon offsetting.

Last month, the UN’s Intergovernmental Panel on Climate Change stated there must be “rapid, deep and immediate” cuts in carbon dioxide emissions in order to stave off the worst impacts of the climate crisis.

As it stands, if all governmental policies to cut carbon that were put in place by the end of 2020 were fully implemented, the world would still warm by 3.2 degrees Celsius, which is well above our target of 1.5 degrees.

It has never been more important for businesses to play their part in carbon reduction and helping to keep the rise in global temperature down. The good news is that the union between environmental sustainability and economic good sense is becoming stronger.

But like every relationship, it has its issues. Balancing traditional priorities, such as revenue, cost reduction and profitability, with truly sustainable practices isn’t without its challenges.

The importance of Scope 3 emissions

When it comes to finding ways to make operations more sustainable, at first glance it likely seems best to look at cutting emissions that are under a business’s direct control, such as reducing on-site electricity use or making equipment more efficient.

However, thinking about the emissions a business might be generating outside its four walls is crucial when it comes to calculating how much progress a company has made in terms of reducing its impact on the environment.

One high-profile but in no way unusual example is Google, which has been carbon-neutral since 2007. Yet its calculation doesn’t include indirect emissions – or Scope 3 emissions – which may amount to about 60pc of its overall emissions.

In fact, more than 90pc of emissions can occur outside of a company’s direct operations. For this reason, it’s critically important to take them into account. But while the majority of companies will have by now introduced laudable targets for becoming carbon neutral or at least cutting emissions, their supply chains are so complex that their best efforts might fall short.

Scope 3 emissions are undoubtedly hard to calculate but, by overlooking them, businesses could be inadvertently overstating their green efforts.

Carbon offsetting: An imperfect solution

Carbon offsetting, which enables organisations to counteract their impact on the environment, is a particularly popular option for companies eager to showcase their green credentials.

2021 was another record-breaking year for power purchasing agreements (PPAs) – long-term contracts to purchase energy from renewable sources, which corporations put in place to offset carbon emissions – with the amount agreed smashing 2020’s previous record by 24pc.

Carbon offsetting is certainly better than taking no action to mitigate the effects of energy use on the climate crisis and offsets do have their place in global sustainability initiatives.

The issue is that common carbon offsetting projects, such as planting trees to promote carbon capture or restoring ecosystems, allow companies to claim they are carbon-free even when their operations are still running on fossil fuels and releasing harmful emissions into the atmosphere.

What’s more, offsets don’t always cancel out the emissions to which they are specifically linked. Trees, for example, take many years to grow – sometimes taking decades to capture the fraction of carbon promised by an offset scheme. Yet, in the meantime, companies continue to power their operations as before with no actual change in their carbon emissions.

There is also an issue of impermanence with many of these schemes, especially nature-based solutions. To continue with the example of trees, not all will survive and once they are burned, cut down or even die of old age, they will release carbon back into the atmosphere.

Offsetting schemes don’t always take these factors into consideration.

How to avoid greenwashing

Organisations that are using offsetting schemes or that are merely reporting on their direct emissions may not be as green as they appear at first glance.

For example, a 2022 NewClimate Institute and Carbon Market Watch study looked at 25 of the world’s largest corporations, all of which have some kind of 100pc carbon-neutral pledge in place.

Far from being carbon neutral, the report found that, on average, these companies had achieved only a 40pc cut. In some cases, actual cuts were as low as 15pc, meaning the vast majority of some companies’ harmful emissions were still being released into the environment.

Greenwashing – whether deliberate or unintentional – makes it difficult for consumers and businesses to make informed purchasing decisions, as it’s hard to distinguish between truly environmentally conscious solutions and marketing slogans.

Companies that are guilty of greenwashing risk both their reputations and the environment. Meanwhile, those with truly sustainable practices find it hard to differentiate.

To their credit, many organisations are looking for alternative, more effective solutions to mitigate their impact on their environment. Looking once again at Google, it said it is moving to 24/7 carbon-free power through methods outside PPAs, which is a step in the right direction.

While some PPAs and other offsetting projects are opaque and don’t provide a clear perspective of where the energy is coming from and how green it is, matching electricity consumption with carbon-free energy generation from resources on the same local and regional grids at every hour of the day can result in a fully decarbonised electricity system.

This method of decarbonisation recognises that with renewable energy, it matters where and when a company consumes that energy. Having said this, it’s still very difficult to source 100pc renewable energy 24 hours a day. The route to true net-zero therefore hinges on locating energy-intensive operations somewhere they can be reliably powered by 100pc renewable energy.

This is especially true for organisations that need to consume power all day every day, such as the data centre industry and cloud services providers, which play an increasingly large role in most organisations’ supply chains and should be included in Scope 3 emission calculations and reporting.

If businesses continue to measure only a small proportion of their emissions or rely on imperfect carbon offsetting schemes and PPAs to call themselves carbon neutral, the only thing that is guaranteed to be cut as we try to lessen our negative impact on the environment is corners.

By Dominic Ward

Dominic Ward is the CEO of Verne Global, a UK-headquartered data centre operator with a data centre campus in Iceland.

10 things you need to know direct to your inbox every weekday. Sign up for the Daily Brief, Silicon Republic’s digest of essential sci-tech news.