Posted: August 11, 2023

A Framework for Internal Abatement

on the Path to Net Zero

We strongly believe in a ‘yes, and’ approach to fighting climate change — where emission reductions are paired with removals, as both are critical to curbing global warming.

The consensus amongst the smartest minds in the industry is to follow what’s referred to as the ‘mitigation hierarchy’ — that is, to follow these steps in order:

  1. First, measure emissions;
  2. Second, reduce emissions to the extent possible (aka, ‘internal abatement’);
  3. Finally, compensate for any remaining residual emissions with carbon assets, such as high-quality carbon credits.

But the conversation around internal abatement expectations often ends there — leaving many companies confused about what exactly they’re supposed to do.


What the Current Conversation Around Abatement Is Missing

One crucial aspect missing from the current discourse on abatement is a clear understanding of what it means to "abate as much as you can." This concept is often presented as a vague principle, and fails to provide businesses with concrete guidance.

For instance, suppose a company considers transitioning its fleet to electric vehicles (EVs), but decides against it because it’s deemed too cost prohibitive to be financially viable. What do they do, then? Has that company really abated as much as they can?

We think there’s a better way of answering these types of questions.


An Underlying Framework for Internal Abatement Decision-making  

Any framework of internal abatement will likely involve the following four steps:

  1. Analyze your operations and develop a full accounting of your current emissions.
  2. Create a list of actions you can take to reduce your emissions based on that analysis.
  3. Complete an economic analysis of each option.
  4. Put those actions on a marginal abatement cost curve (MACC). MACCs show the amount of money it costs a company to reduce one tonne of CO2e for each option.

The company should then prioritize those actions which have the lowest MACC, as they’re most cost-effective to implement. In fact, a business may find that certain options have a negative MACC, which actually makes them profitable business decisions.

The question then becomes: where do you draw the line and stop implementing these options to reduce your footprint?

Rob Lee, Catona Climate’s Chief Carbon Officer, proposes two potential frameworks companies could use to answer these sorts of questions and make better mitigation decisions.


1. Use SBTi Targets to Determine A Specific Amount of Emissions Reductions to Implement, Regardless of Cost

An effective approach to guide emission reduction efforts is to adopt Science-Based Targets Initiative (SBTi) targets, which outline a glidepath towards achieving net-zero targets based on an emissions reductions strategy. This involves implementing a predetermined amount of emissions reductions over time, up until they have achieved their required reductions (as determined by the SBTs).

These reductions serve as the foundation of the company’s abatement strategy, which can then be supplemented by the purchase of carbon assets to bridge the remaining emissions gap and achieve net-zero status.

Contrary to popular belief, SBTi actually supports the use of offsets to support emission reduction efforts. While offsets do not directly help companies achieve their science-based target, SBTi recognizes the value of offsetting and advocates for value-chain mitigation strategies, including the use of offsets, to enhance overall emission reduction outcomes.


2. Set an Internal Cost of Carbon to Guide Abatement Decisions, And Enact Projects that Meet this Hurdle Rate

The other approach involves setting an internal cost of carbon, which serves as a financial framework to guide your abatement decisions. By imposing a self-imposed carbon tax, you can determine a threshold cost that informs your investment choices.

For instance, if your internal cost of carbon is set at $51 per ton, any emission reduction option or high-quality offsets available at a cost below this threshold should be pursued, as they are now internally classified as economical.

The potential limitation of this option is that, depending on where a firm internally pegs their price of carbon, they may not find enough opportunities to reduce emissions to actually achieve SBTs should they have them. But it will at least give the firm a set of options to start with.

Not sure what to use as your internal cost of carbon? In 2021, the Biden administration released updated guidance pegging the Social Cost of Carbon at $51 per ton. This is a useful framework as it accounts for both environmental and social costs of emitting CO2 globally.


The bottom line

A clear framework for internal abatement is essential for businesses aiming to achieve net-zero goals. By adopting Science-Based Targets Initiative (SBTi) targets and/or setting an internal cost of carbon, companies can strategically prioritize emissions reductions and make informed decisions. These frameworks provide guidance on the path to net zero, ensuring effective emission reduction strategies while considering financial viability. By implementing these frameworks, businesses can drive meaningful change and contribute to a sustainable future.

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