How technology can help energy companies win the race to decarbonise

As momentum to cut carbon emissions gathers pace, new technologies could help energy companies lead the way.

In brief

• Australia’s decarbonisation agenda is progressing as federal and state governments set ambitious goals to cut emissions.
• Energy companies face new pressure to improve how they track, measure and report on scope 1, 2 and 3 emissions.
• New technologies will form part of a holistic strategy to reduce emissions, secure competitive advantage and help shape the future of Australian energy.

Australia is ready to shrug off its reputation as a climate laggard. Across the country, we see a fresh impetus to drive down carbon emissions through more challenging targets and tangible actions. In Queensland, an ambitious goal of achieving 80% renewable energy by 2035 is firing up clean energy investment and set to reduce the state’s long reliance on coal. The Victorian government has vowed to install 6.3GW of energy storage within 13 years — Australia’s biggest ever storage target and sufficient to power half of Victoria’s homes at peak times. In the same state, AGL will close its final coal-fired plant by 2035, a decade early. And New South Wales is set to be the first Australian state to treat carbon dioxide and greenhouse gases as pollutants, putting more pressure on industries to cut emissions.

These changes are notable in themselves but what’s particularly exciting is a sense of genuine coordination across states, the new federal government, industries and investors. Debate may continue around the complexity of achieving these targets and the required investment, but what’s not in question is the need to transition and the clear momentum and political will to reshape the Australian energy market.

For energy companies, the acceleration of the decarbonisation agenda puts their own net-zero goals under scrutiny. Most have set targets to reduce carbon emissions, but progress has been patchy. However, as pressure grows from regulators and investors to do more, companies adopting the right technologies and tools can capture the near-real-time data critical to meeting decarbonisation goals — and securing competitive advantage.

Emissions reduction hindered by data and policy challenges

More than 80% of the world’s greenhouse gas emissions come from transport, agriculture and manufacturing industries, with the energy sector being one of the most significant contributors. Emissions are often divided into three groups:

• Scope 1 emissions: direct emissions from the company’s own assets e.g. fuels, heating and cooling.
• Scope 2 emissions: indirect emissions produced from purchased energy (typically electricity).
• Scope 3 emissions: all indirect emissions not included in scope 2. These upstream and downstream emissions could include, for example, waste transferred offsite, business travel, investments, transport, and customer use of products. Scope 3 emissions account for around 90% of total oil and gas value chain emissions, according to data from 16 major oil and gas companies (although lack of clarity around the framework for measuring scope 3 means that some “double counting” may contribute to such a high figure).

Most energy companies have set targets to reduce scope 1 and 2 emissions, and many are making good progress. For example, BHP is working to reduce scope 2 emissions through renewable energy power purchasing agreements (PPAs). In addition, ArcelorMittal and Maersk are reducing power consumption in offices and manufacturing facilities and ceasing to use of oil in transportation or industrial processes.

Despite this, there is still a maturity gap in many companies’ ability to track scope 1 and 2 emissions with confidence and credibility. In addition, there is a real need for more sophisticated emissions measurements, mainly because of the growing impact of increased OT/IT integration. Better leveraging of near-real-time data, a sharper focus on OT/IT and standard definitions of exactly what we are measuring and tracking could give a more accurate picture of progress.

Addressing scope 3 is far more complex. Less than half of the world’s major energy companies have set scope 3 reduction targets. Moreover, of those few plans in place, most lack detail around how goals will be achieved or look beyond 2030 because of the difficulty of long-term planning.

The challenge is partly because of the nature of these indirect emissions, which are often out of a company’s control. For example, scope 3 emissions could include everything from how employees get to work to how products sold by the company are disposed of at the end of their life. And here lies another challenge. The definition of the integrated upstream and downstream scope 3 emissions is unclear and inconsistent. We urgently need Australia to adopt a consistent industry standard that defines scope 3 emissions and clearly outlines how they must be recorded and reported. To be effective, this standard or framework should be developed in collaboration across industries. Cross-sector support would ensure much-needed transparency and credibility, offer certainty around where companies should focus efforts and help avoid “double counting” and greenwashing.

Which new technologies offer greatest the potential to reduce and report on emissions?

Tackling scope 3 is incredibly difficult but also critical to achieving climate goals. Major economies are pushing energy companies to come up with better solutions through regulatory measures that punish heavy emitters. From January 2023, the EU’s Sustainable Finance Disclosure Regulation (SFDR) will require financial institutions to report scope 3 emissions, which is likely to curtail investments in high-carbon-emitting companies. The US Securities and Exchange Commission is considering a similar directive. This means that energy companies that crack the complexity of scope 3 can seize a relatively untapped opportunity to gain a competitive advantage, not only with investors seeking clean energy targets, but with customers and collaborators.

For most companies, data is a key stumbling block to addressing scope 3. Energy companies must have the ability to capture and use data across their value chain if they are to track, measure and report on scope 3 emissions. What data strategies, tools and technologies can help? We see companies adopting a range of approaches, many in partnership with technology companies. These collaborations give energy companies access to cutting-edge digital innovation, including cloud technologies, blockchain, AI, machine learning and predictive analytics to track, store and report scope 3 data, as well as the capacity to quickly scale and adapt approaches as technology advances and requirements change. For example, Shell and Microsoft have together developed digital tools that reduce their own energy emissions, as well as that of suppliers and customers.

According to the World Economic Forum, digital technology solutions can help reduce energy sector emissions by 8% through improving efficiency, better managing renewable energy output and introducing more carbon-incentive mechanisms. The potential of technology to move the needle on emissions, particularly scope 3, is continuing to increase as more technology providers develop sophisticated digital solutions that give energy companies the tools and insight to measure and mitigate their carbon output. For example:

IBM Envizi: IBM’s subsidiary Envizi offers software that calculates, tracks and report scope 1, 2 and 3 emissions, helping companies set targets and identify areas to focus reduction efforts.

SAP SE: SAP offers multiple carbon mitigation solutions, including a tool which calculates emissions along an entire product lifecycle.

Microsoft: The Microsoft Cloud for Sustainability service helps companies gather and integrate real-time data to measure their scope 1, 2 and 3 carbon emissions based on the organisation’s activities and end-to-end supply chain.

Oracle: Oracle’s Opower energy efficiency product combines behavioural science, disaggregation and AI to help energy companies encourage customers to save energy and adopt energy-efficiency home upgrades and flexibility programs.

Schneider Electric: Schneider Electric’s The Zero Carbon Project aims to partner with the company’s top 1,000 suppliers to reduce scope 1 and scope 2 emissions by 50% by 2025. Schneider’s also working with BP to help decarbonise high-emission clients.

ABB: ABB Continuous Emission Monitoring Systems (CEMS) help organisations measure and regulate carbon emissions from power generators, refineries, processing plants, etc.

How can energy companies maximise their efforts to minimise emissions?

Technology solutions can help energy companies reduce emissions but should form part of a holistic strategy. It’s important to acknowledge that different organisations are at different points in their decarbonisation journeys — and some are more constrained by context or resources in their efforts to benchmark. We believe that setting incremental targets with milestones based on the maturity of each company’s energy supply chain can form the basis of a sustainable plan. However, a sustainable long-term plan is likely to involve a non-incremental change at some point.

This means making the best use of existing capital and collaboration by:

Using digital tools to collect and assess data: Digital tools, such as those offered by Microsoft and SAP, can help companies report and assess emissions. Adopting an incremental maturity approach to measuring, controlling and responding to GHG emissions can enable organisations to build intelligence, responsiveness and flexibility to support respective decarbonisation agendas.

Setting relevant reduction targets: Most companies have set quantitative targets either in absolute terms or in indicative terms. But achieving these targets will require setting a well-defined, measurable roadmap and putting in place the internal systems that will allow for accurate tracking of emissions along the value chain.

Collaborating to measure: Addressing emissions, particularly scope 3, requires collaboration across the value chain. For example, energy companies that engage directly with suppliers and customers can develop more effective strategies to track their footprint and reduce emissions, while ones with high energy consuming products can work to reduce emissions from their activities Fundamentally, it is much more effective to proactively influence the activities that give rise to scope 3 emissions rather than reactively build mitigation strategies for future emissions exposure.

An opportunity to reimagine Australia’s energy future

Net zero is now front and centre for the Australian government and a significant opportunity for businesses that embrace the potential of technology and collaborations to accelerate decarbonisation. Decisions made now will shape the next decade in Australian energy and potentially the entire future of the industry, and our planet. Energy companies that move now to set a concrete plan for emissions reduction, underpinned by a realistic roadmap and supported by the right technology tools, can lead the way.