Shashi Menon is CEO of Eco-engineersa carbon advisory and consulting firm that helps companies navigate the clean energy landscape.
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What is your carbon intensity score? I think this will be an important question for businesses as carbon intensity (CI) and carbon neutralization create huge business opportunities in the very near future. urged by the Inflation Reduction Act (IRA) recently signed into law.
In the groundbreaking legislation $369 billion will be spent on climate and energy research and development, largely in the form of high-tech solutions to reduce carbon emissions. In addition, it is expanding clean energy tax credits and investing more than $200 billion in clean energy production, energy efficiency and electric vehicle sales.
I see the US economy being profoundly impacted by the Inflation Reduction Act over the next decade and this is supported by the numbers presented in a Credit Suisse report on the IRA. The report notes that the IRA’s total spending is likely to exceed $800 billion, with so many people and businesses expected to use the tax credits.
This is where CI scores come into play. The tax credits proposed in the IRA align payment amounts with carbon reduction by measuring CI scores of fuels and projects. This can be of great value to companies willing to turn risk mitigation into opportunity.
However, none of this will happen overnight, and there are issues with allowing pain points, aging infrastructure, and issues with a low workforce that are likely to slow down the rollout. But no matter where you stand in the global warming debate, the Inflation Reduction Act puts a lot of money on the table; and those who understand the ins and outs of the ever-evolving clean energy space and the language of carbon accounting and carbon markets can make money.
Do you know how to seize the opportunity?
All of us, business leaders as well as average Americans and homeowners across the country, should increase our understanding of green policies, carbon offsets and more. It’s something known as carbon literacy. This is a necessary step to convert the financial risk of climate adaptation or risk mitigation into a neutral or even profitable scenario.
So this begs the next question: where to start?
Management models need to start by recognizing the paradigm shift brought about by the IRA and incorporating some healthy habits that are critical to navigating the energy transition. My experience as a consultant in this space has highlighted six critical things you can do immediately to get started:
1. Stay informed. With so much reported and written information about carbon (often incorrect), you need a reliable source of curated information, along with solid advice, interpretation and predictive modeling to enable you to make informed decisions in time.
2. Measure emissions. Life cycle assessment (LCA) that measures emissions from operations, supply chains, end-of-life disposal and more is critical to the energy transition because you can’t reduce what you don’t measure. You must apply a good methodology to measure emissions, compare them to a baseline, and report in a way that makes sense to the company, regulators and customers.
3. Involve policy. The clean energy market is a fast-moving industry, but regulatory requirements are often unclear. When you actively participate in the regulatory process, you can better understand regulatory risks and better determine the viability of a project. This will usually also lead to better laws and standards being introduced.
4. Plan your future. Create a plan for your business to navigate the energy transition, including taking advantage of available market opportunities. These plans and project execution are complex and often require a solid understanding of regulations, energy markets, technologies, carbon accounting and project management.
5. Measure and report. Measurement, verification and reporting must be transparent to create trust in the market. Identify how and why data represents risk, what data supports the move to mitigation, and who is responsible for closely monitoring this data.
6. Verify claims. The sixth and final healthy practice is to ensure third party verification of all your carbon reduction claims. We live in a fragmented and largely unregulated emissions reduction market, and organizations that adopt clear and transparent measurement, verification and reporting standards will stand out from the pack.
By adopting these habits, your boards of directors and executive teams can protect the financial future of the assets under your control as the pendulum swings from uncontrolled energy consumption to controlled and sustainable development. Measuring your carbon intensity to get a tax break may seem strange and new, just as it was strange and new when Netflix started shipping DVDs or Apple started offering downloadable songs. Today there is a whole generation of people who only know streaming entertainment. Likewise, I believe CI scores will become ubiquitous in the near future and become part of basic labeling.
What is your CI score? If you don’t know, maybe it’s time to find out.
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