Three New Business Models to Achieve Carbon Reduction Targets

Three New Business Models to Achieve Carbon Reduction Targets

NORTHAMPTON, MA / ACCESSWIRE / September 23, 2022 / Tetra Tech: Tetra Tech’s Rodrigo Chaparro, senior climate consultant, looks at three Collaborative Approaches as a market-based path towards net zero ahead of the 2022 United Nations Climate Change Conference (COP27).

This is the second in a three-part series examining how Article 6 of the Paris Agreement can spur the clean energy transition.

The latest report from the Intergovernmental Panel on Climate Change (IPCC) shows that about 2,400 gigatons (Gt) of net CO2 Emissions were generated worldwide from 1850 to 2019. More than 1,000 Gt (42 percent) occurred in the last 30 years.

We can only afford another 500 Gt over the next 80 years if we want to limit global warming to 1.5 °C by 2100. This target seems unlikely given the emission reduction commitments set out in Contributions National Determinations (NDCs).

“We have the best hope for deep emissions reductions by the energy sector. A Collaborative Approach provides a market-based way forward.”

Our best hope is for deep emissions reductions by the energy sector. Countries must cut or eliminate fossil fuels, use low-emission technologies, switch to alternative energy sources, and prioritize energy efficiency. They will also need new business models that support CO2 reductions, such as the Cooperation Approaches defined at the 2021 United Nations Conference on Climate Change (COP26) in Article 6, paragraph 2 of the Paris Agreement.

Developed countries are interested in using the Cooperative Approaches to obtain supplementary CO2 emissions reductions. Developing countries can benefit from receiving technical assistance and the transfer of expensive advanced technologies that will help them achieve the conditional targets defined in their NDCs. Collaborative Approaches provide a market-based way forward and can take many forms, including the three models outlined below.

Model 1-Joint Accreditation Mechanism

Japan set up the Joint Accreditation Mechanism (JCM), a pioneering project-based option under Article 6 to cooperate with developing countries on greenhouse gas (GHG) reductions and sustainable development. Japan works with 17 partner countries under the JCM to facilitate the adoption of cutting-edge low-carbon technologies. Each project’s emissions reduction is assessed as a contribution by both the partner country and Japan and produces a tradable credit.

Each country is committed to maintaining a registry, issuing credits in a timely manner, and refraining from using JCM mitigation projects for any other international climate mitigation mechanisms to avoid double counting. The goal of the JCM is to achieve a cumulative GHG emission reduction of 100 million tonnes of CO.2e by 2030.

Through the JCM, the Thai company, SNC Former Public Company Limited, installed 3.4 megawatts of rooftop solar at six factories that produce air conditioning components. The project uses high-durability crystalline silicon photovoltaic modules produced by Sharp Energy Solutions, a Japanese corporation with stricter standards than those of the International Electrotechnical Commission. Solar power displaces electricity generated by fossil fuel power plants, thereby contributing to reductions in GHG emissions. The participants compose the distribution of the verified credits generated by the project and may allocate part of the credits to their respective countries.

In this case the project was partially supported by the Japanese Ministry of Environment, with the aim of understanding the operational aspects of the mechanism, obtaining JCM credits towards Japan’s NDCs, and promoting the transfer of low-carbon technologies. Both the Japanese technology manufacturer and the Thai company benefit, creating net reductions in GHG emissions.

The majority of JCM projects are related to renewable energy and energy efficiency, but there are also some waste-to-energy and transportation projects. As more countries adopt a Collaborative Approach, the variety of projects, types of support, and partnership models could expand to areas such as electromobility, green hydrogen, and advanced technologies where utilities can play an important role. The current phase is crucial to build the necessary infrastructure in developing countries so that the Collaborative Approach can work smoothly.

Model 2-Utility-Transport Partnerships

Companies such as Enel X are leading partnerships using models that offer financing, smart charging solutions, and green certifications. Enel X’s achievements include the delivery of six electric terminals and 401 electric buses in Bogota, Colombia, and 11 electric terminals, 40 smart bus stops, and 245 chargers in Santiago, Chile.

Global utilities could use the carbon market mechanism under Article 6 to develop an entirely new business model that links power utility know-how with local public transport operators and companies operating electric transport fleets.

The scheme can be used on a global or regional scale as it is structured to promote South-South cooperation as well. For example, a foreign or regional utility could contract with a local bus concessionaire to build or finance a renewable energy plant that delivers clean electricity and the necessary charging infrastructure. In exchange, the utility could receive a share of the CO2 emission reductions associated with the project, which can be used by the country of that utility to achieve NDC targets. This type of agreement also helps to distribute the risks of the project, facilitating access to finance.

Model 3-Utility-Green Hydrogen Partnerships

The hydrogen supply chain is critical for developed economies to achieve decarbonization goals, especially given the expected steady increase in carbon taxes. Among the growth drivers in the green hydrogen market are concerns related to the certainty of fossil fuel supply, the reduction in renewable energy costs, and the ability of hydrogen to increase flexibility of demand through storage applications. The market is predicted to reach $417.5 million by 2028 from an estimated $223 million in 2022.

In advanced economies, green hydrogen can play a role in the clean energy transition as an enabler to integrate higher shares of renewable energy into the power sector. It also supports sectors struggling to decarbonize, such as trucking, aviation, shipping, heating, and other energy-intensive industries. In most developing countries, green hydrogen is not seen as a competitive energy source in the short term, but it is certainly a valuable export.

“A Collaborative Approach could be used to facilitate the international use of technology, to provide concessionary climate finance to investors, and to structure the exchange of carbon credits.”

Utilities are also exploring new international routes to green hydrogen. The Haru Oni ​​pilot project in Chile will harness the strong winds of Chile’s Magallanes region to produce green hydrogen that will be used to create synthetic fuel for export. The project combines the experience of an Italian utility subsidiary of Siemens, a petroleum company, and German car manufacturer Porsche, which will use the fuel in its motorsport fleet. A Collaborative Approach could be used to facilitate the international use of technology produced in Germany, to provide concessional climate finance to investors, and to structure the exchange of carbon credits.

Most of the CO2 emissions reductions would be transferred to Germany. Chile would benefit not only from exporting hydrogen but also from bringing more renewable energy into the grid.

Inventing new models for the new normal

As decarbonization leaders, many power and utility companies are trying to reinvent themselves, experimenting with new business models that serve the energy transition and the bottom line. Although the details of the partnerships between sectors and countries vary, there is common thread planning, innovation and international collaboration. The Collaborative Approaches can play a central role in these initiatives by facilitating access to new technologies, climate finance and carbon trading.

How can Tetra Tech help clients use a Collaborative Approach?

Tetra Tech’s energy consulting and technical implementation experts can support governments and private sector clients in the following areas.

Deploying new carbon markets

  • Advising governments on regulations for energy projects under the Cooperative Approach and the Sustainable Development Mechanism (SDM) (eg, project eligibility, compensation mechanisms, financing, monitoring and verification, legal advice)

  • Build clean energy portfolios with carbon offsets that can be traded internationally through the Collaborative Approaches and SDM markets

  • Ensure compliance with the carbon market and maximize the potential to reduce emission abatement costs

Design and implement decarbonisation pathways for utilities and private corporations

  • Analyze the market and identify low carbon financing and investment opportunities

  • Use the technology needed to implement decarbonisation strategies

  • Assessing quality offsets that can supplement emissions targets, with services including screening projects, conducting financial and commercial due diligence, and negotiating with project developers

Read more from Rodrigo about how Article 6 of the Paris Agreement can spur the clean energy transition:

Tetra Tech, Friday, September 23, 2022, Picture press release

Tetra Tech, Friday, September 23, 2022, Picture press release

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Contact information:

Spokesperson: Tetra Tech

SOURCE: Tetra Tech

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