Background / problem statement
Many companies/countries provide long-term targets on GHG reduction or off-sets to appear green and sustainable.
Many of these companies do not commit or take too little action to change their carbon footprint in the next 5-10 years.
These communication strategies can be very confusing and prevent the public and policymakers from understanding the real efforts and progress made on the energy transition and Climate Change mitigation.
Each time we delay effective action and postpone GHG emission reduction, we must accelerate further our societies’ decarbonization to keep them in line with the Paris Agreement’s goals.
Why a Net Present CO2 Saving concept?
The financial world used Net Present Value to indicate an investment’s current value based on its future cash flows.
The discount rate used reflects the opportunity cost associated with this investment. It is also a way to manage the risks/uncertainties associated with cashflows forecasted in the future.
A similar concept can be applied to the Carbon flow resulting from green initiatives. In other words, a carbon saving secured in the future won’t be worth as much as one secured in the present.
The proposed discount rate is the current yearly targeted emission reduction rate up to 2050 to reach the Paris Agreement. The discount rate shall be revised every year based on the progress we made toward the Paris agreement. If countries don’t reduce emissions by at least 7.6% year-on-year, this number will increase in the following years.
Let’s play with the concept of Net Present CO2 Savings.
Let’s use Net Present CO2 savings and calculate the current climate value or benefit of a green initiative.
In this exercise, we calculate the Net present CO2 savings in 2021 for 1 ‘bullet’ GigaTon of Targeted Carbon emission reduction depending on the year of occurrence. By ‘Bullet’, we mean a one-shot saving that occurs in a single year. Let’s say a company says it will reduce its emissions by 1GigaTon in 2050. We consider that the statement applies 1GigaTon reduction in the year 2050
We then calculate the Net Present CO2 saving for this GigaTon saved in 2050.
The outcome of the calculation can be summarised as follow:
- The 2021 Net Present CO2 Saving of 1GigaTon saved in 2050 is 111 MegaTons.
- The 2021 Net Present CO2 Saving of 1GigaTon saved in 2040 is 231 MegaTons.
- The 2021 Net Present CO2 Saving of 1GigaTon saved in 2030 is 480 MegaTon.
The Net Present CO2 saving, we calculate, is for an “equivalent bullet saving” happening in a single year between now and 2050.
Taking actions to reduce GHG emissions by 1 Ton in 2021 is equivalent to claiming a 8.3 Tons reduction in 2050, 4 Tons in 2040, or 1.93 Tons in 2030.
We can also refine the calculation assuming an “equivalent perpetual saving.” i.e., a saving that occurs every year from a given year until 2050.
Taking actions to reduce GHG emissions by 1 Ton per year from 2021 is equivalent to claiming a 8.75 Tons per year permanent reduction from 2050, 4.1 Tons per year from 2040, or 1.95 Tons per year from 2030.
It shows that big numbers and announcements are not always translating into big ambitions!
We need CLIMATE ACTION NOW, and I see clear value in companies and countries putting targets for themself with a 5 to 10 years horizon. It also shows that to address Climate Change, we need to scale the solution we have on our hands today and work on alternative and more long-term solutions in parallel.
We should not bet on solutions with potential GHG emission reductions scheduled only in 2035 and beyond to address the current CLIMATE EMERGENCY.
Note: I use this worksheet for the calculation. It is a work in progress, and I am interested in getting feedback and suggestions on this tool/concept.
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