Deloitte Africa energy, resources and industrials leader Andrew Lane
While the global shift from fossil fuels to renewables is helping new ecosystems and technologies to emerge, many of the pursued steps towards decarbonisation pose unique challenges.
Many participants in the energy and resources industries have declared an intention to become carbon neutral by 2050, but global professional services firm Deloitte avers that, while the long-term vision is clear, “the more perplexing challenge lies in the immediate future”.
This means that many companies are struggling to understand the material impacts that their stated goals are going to have on their valuations, operations, employees and markets over the next few years.
Deloitte’s newest global report – titled 'The 2030 Decarbonisation Challenge: The Path to the Future of Energy” – explores potential strategies and tactics for how companies in the energy and resources industry, that intend to achieve carbon neutrality by 2050, can accelerate decarbonisation activities and reach meaningful interim targets by 2030.
Deloitte Africa energy, resources and industrials leader Andrew Lane explains that decarbonisation involves “significant investment of time and effort” and that it often requires a transformational shift in the ways that companies operate, engage with stakeholders and interact with the energy and resources business ecosystem.
Some of the top drivers of the decarbonisation journey across sectors include pressure from industry stakeholders and the report examines these drivers and impacts and provides key considerations on how companies can respond.
However, speaking to Engineering News and Mining Weekly, Lane says the drivers for the mining industry, as an example, are “pretty much the same” as the drivers for the other industries in that it has become a consumer issue.
“Society has woken up to the climate change issue and so customers are very aware of the carbon footprint of the products that they consume,” he comments, adding that likewise, a number of investors have identified their intention not to invest in carbon-intensive industries.
With investors reluctant to invest, cost of capital increases, meaning that “there are very real reasons” why it is important for all industries to decarbonise, not to mention that “it’s the right thing to do”.
For mining, however, the challenge is Scope 3 emissions, as Scope 1 and Scope 2 are “reasonably easy to control”, says Lane, who notes that a lot of the mining industry’s product goes into very intensive industries, like steel.
“It becomes a lot more difficult to control, and requires more of an ecosystem approach, and a bit more understanding of what happens up and down your value chain,” he says, noting that the ecosystem should, as a collective, reduce the carbon footprint.
Deloitte’s report offers some comfort in this regard, as it notes that “it is also becoming more feasible to solve the challenges, and public support means that companies will improve their reputation by taking actions that drive climate protection”.
To help companies navigate their way to the future of energy, the report examines the current state, potential pathways, and practical considerations for the decarbonisation process in four energy and resources sectors – chemicals, oil and gas, mining and metals and power, utilities and renewables.
For chemicals, specifically, the report touches on advances in decarbonising chemical production, which could have a profound impact as benefits could “spread beyond the chemical sector”.
This is good timing, and the report discusses how, as strong pressure to change comes from inside and outside companies, the sector is making a commitment to decarbonise by improving resource and energy efficiency through using sustainable waste and avoiding the production of virgin materials.
Oil and gas, meanwhile, has its global market upended as the contraction in global demand caused by the Covid-19 pandemic and excess supply from the oil price war have hit upstream and downstream operations hard.
Here, Deloitte’s report discusses how cutting carbon emissions are a priority for some companies in the short term, and others are likely to articulate decarbonisation pathways and examine different business models as they reshape their business to overcome current market conditions.
Organisations in the power, utilities and renewables sector are moving faster to decarbonise than in many other sectors, mainly owing to economics, and the report looks to discuss how low-cost natural gas has displaced coal, with wind and solar now being among some of the cheapest resources, while battery storage costs have plummeted.
Going forward, Deloitte suggests that these sectors will require a robust ability to manage and derive insights from data as “there will be opportunities to create new business models and revenue streams by applying advanced analytics to retail power, grid transmission and distribution, and power generation”.
Further, electrification and renewables have improved decarbonisation in the mining and metals space, but intense pressure from investors remains, especially around operational emissions.
Because mining companies must navigate an array of different national and local policies, Deloitte’s global report discusses how decarbonisation strategies are being based on the most stringent common denominator.
With mining companies increasingly functioning as an ecosystem, the report says the sector is setting carbon-reduction goals across the entire value chain and that it is using blockchain-enabled tracing methods.
However, as the global economy continues to contract owing to the Covid-19 pandemic, Lane laments that the carbon agenda may “take a backseat” to that of economic growth, as a balance between the two is yet to be found.
Although, Covid-19 has placed a focus on value beyond compliance, which Lane commends, considering that there is “already a massive dependence on the mines” as government continues to struggle with service delivery, particularly in rural areas.
The global pandemic has drawn the mining industry together in terms of its ability to collaborate, which Lane says has helped the industry to position itself as a responsible corporate citizen.
While not a silver bullet, he believes this is a step in the right direction as the world is faced with a “bit of a wake-up call” following the virus outbreak, especially now that people are “starting to absorb [their] role on the planet” and get serious about climate change.