CARBON FOOTPRINT

FLIP the CARBON SCRIPT

Chris Meilak, economist and Associate Partner, and Maria Giulia Pace, economist and Senior, at EY Malta, address how disruptive climate change underscores the urgency of limiting and capturing carbon and turning it into a valuable source.

In the 2016 Paris Climate Agreement, Malta committed itself to the ambitious but necessary target of significantly reducing greenhouse gas emissions. Countries around Europe and the world embarked on similar pledges, signalling a global shift towards developing greener, more sustainable economies that protect the planet we all inhabit. Achieving this was never going to be easy, but few would have predicted the hurdle that 2020 would bring.

The COVID-19 pandemic strained health care systems all over the world to breaking point. The economy was put on an indefinite hiatus, and societal norms and interactions were almost instantly radically reshaped.

Developments that seemed far off arrived immediately, undermining common assumptions and placing leaders in unusual situations requiring unique solutions.

Disruption does not come from technologies and business models alone. It can occur through elections, climate disruption or, in this case, a pandemic. The crisis has accelerated transformation and thrust the entire global economy onto a new S-curve pattern—this is when a model or technology is at first adopted somewhat gradually, then rapidly, before slowing again as the model matures and delivers diminishing returns— one focused on using innovation to create a better world.

We have been on the last curve for decades, arguably built on increasingly unsustainable societal, environmental and business outcomes. The next S-curve has been visible for a while now, and while it does not have a name yet, it is essentially the future. A new renaissance, making possible what was once unthinkable, is underway right now. Changes that had been sporadic or resisted, such as remote working, have been implemented by necessity, suddenly proving more effective and sustainable.

Interestingly, the crisis is providing a new perspective on what a low-carbon future could look like. As the world recovers and vaccines are rolled out, we are now challenged with whether we should revert to the old habits or otherwise.

The science is clear

The Paris Climate Agreement goal is to limit global warming to well below 2, preferably to 1.5°C, compared to pre-industrial levels. In 2018, the Intergovernmental Panel on Climate Change (IPCC) released a special report (www.ipcc.ch/sr15/) on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways. The report identified the human factors behind climate change and mapped out the likely trajectories of increasing temperatures and their impact on our planet’s health. It concluded that we should aim for temperature increases in line with 1.5°C.

Failure will result in wide-reaching social and economic disruptions. Success depends on decarbonising the global economy—an economic transformation on the fossil fuel-driven First Industrial Revolution scale. Bold action by countries and leading global companies is what it will take to avoid catastrophe.

Getting to net-zero In 2020, The EY Malta Attractiveness Survey found that 53% of investors here believe the focus on sustainability and climate change will accelerate over the next three years due to COVID-19. Additionally, per the EY Generate Survey, Gen-Z, the largest generational cohort with rapidly growing influence, expects to see bold action on environmental issues.

The initial targets of reducing carbon have now been amplified to neutrality. Net-zero targets are an essential step on the path to decarbonisation. Still, given the nature of some organisations and the technology available, it might be some time until countries and companies can achieve it. Notwithstanding these limitations, longerterm targets do little to drive the urgent action needed now. It means that some organisations will need to do even more by becoming carbon negative to protect and restore the planet as soon as possible.

Corporations and their CEOs must lead on global challenges. At the end of 2020, EY— an organisation that spans more than 150 countries and includes 300,000 employees— became carbon neutral. EY achieved this by focusing on reducing travel emissions, sustainable procurement practices and purchasing more renewable energy to power EY offices. We began removing and offsetting emissions equivalent to our carbon footprint each year.

OUR MOST SIGNIFICANT IMPACT ON THE ENVIRONMENT WILL BE MADE BY HELPING EACH OTHER DECARBONISE AND CREATE VALUE FROM SUSTAINABILITY

In 2021, we announced an ambition to be carbon negative (reducing more carbon than emitted), by setting targets to significantly reduce absolute emissions and removing and offsetting more carbon than we produce.

By 2025, we aim to reach net-zero—the point at which an organisation has achieved its 1.5˚C science-based target (producing only unavoidable or residual emissions) while removing the equivalent amount of emissions from the atmosphere.

Indeed, EY’s emissions aren’t as high as those generated by other types of economic activities. However, it’s still essential that we do everything we can to minimise our impact on the climate. Not only is it the right thing to do, but it will also help inspire others to do the same. Our most significant impact on the environment will be made by helping each other decarbonise and create value from sustainability.

Flip the script by capturing and turning carbon into a source of value New carbon removal solutions are emerging for decarbonising business models, driving long-term value and demonstrating climate leadership. The main forces behind this transformation are cost-competitive renewables, the “electrification of everything” with clean energy (transportation, heating, industrial operations, etc.), digitally optimised efficiency and the adoption of decentralised energy generation, particularly by corporates.

An emerging suite of carbon capture and sequestration solutions allow companies to change these fundamental forces to not only avoid emissions but reverse them. These can be split into two categories: engineered carbon removal solutions, such as direct air capture, conversion of waste gases and sequestration in the built environment (construction); and natural solutions, such as soil sequestration, reforestation and afforestation. Every one flip the script on carbon, capturing it and turning it into a valuable source.

These sequestration and reuse solutions provide another tool to accelerate the drive to carbon neutrality for the heaviest emitters. But for many global companies, the ability to capture and revalue carbon opens the path to going carbon-negative, removing more CO2 than they emit or cause to be emitted.

In our climate emergency, the ambition of neutrality—doing no climate harm— is insufficient when there is a way to do climate good.

Chris is an economist and Associate Partner at EY Malta, leading the Valuation, Modelling and Economics sub-service line.

Maria is an economist and Senior at EY Malta.