Leverage MACCs to Inform Decarbonization Strategy

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    WBCSD Climate Transition Roadmaps Masterclass SeriesWBCSD Climate Transition Roadmaps Masterclass Series

Summary

Decarbonization lever deployment should be prioritized by cost and abatement impact, and non-financial considerations in line with organizational goals.

Key resources


Context

In late March 2024, WBCSD and BCG conducted a masterclass on the topic of Deploying Decarbonization Levers as part of a series of masterclasses. This document summarizes the key learnings that were presented and surfaced via rich discussion among company participants under Chatham House rules. 


Reducing emissions requires a coordinated effort to identify, prioritize, and deploy decarbonization levers. This can be a complex process and is highly dependent on an organization’s emissions drivers and footprint. These are contingent on the company’s unique operations, position within the value chain, supply chain, geography, and industry, among other factors. While a wide range of decarbonization levers exist [see “Decarbonize your own operations” for more details], their relevance will vary by company, and by business unit/function within a company.  

Mounting regulatory, political, investor, and market pressure continues to highlight the need for organizations to take climate action. In this context, organizations must make concerted efforts to reduce their emissions to minimize risk and maximize value-creation opportunities. Optimizing the selection and deployment of decarbonization levers will therefore be essential for lasting success. 


Solution

While various decarbonization levers exist, they vary by abatement potential, cost, and a range of non-financial implications. As such, it is recommended that organizations use the following approach when deciding which levers to deploy [See Figure 1]

Figure 1: Steps for prioritizing the deployment of decarbonization levers 

Step 1: Analyze cost and emissions impact 

Marginal Abatement Cost Curves (or MACCs) are a powerful tool for comparing the potential cost and emissions impact of decarbonization levers. [See Figure 2] 

Figure 2: Marginal Abatement Cost Curve (MACC) [To learn more about MACCs, see “Understand Cost and Impact” in The Climate Drive, powered by WBCSD] 

As seen in the figure above, each lever is graphed as a box on the curve. The x-axis represents annualized emission reduction potential (CO2e) while the y-axis represents annualized marginal abatement cost normalized to carbon abated ($/CO2e).  

Estimating abatement potential  

Analyzing the abatement potential of decarbonization levers is a largely objective exercise. While the granular emissions baseline data required may be difficult to pinpoint, approximations are possible.  

Organizations may consider the following when analyzing abatement potential: 

  • Leverage existing emissions calculators (e.g., Greenhouse Gas Protocol tools) where possible 

  • Engage subject matter experts  

  • Reference reputable publications with reliable insights on the potential of specific levers 

  • Study implementation outcomes in similar contexts 

  • Account for lifecycle (cradle-to-grave) emissions rather than just operational emissions 

Estimating cost    

The cost represented on a MACC curve is the total CapEx and OpEx required to deploy a specific lever over its lifetime compared to the “status quo” (e.g., the cost of installing and operating a heat pump minus the cost of installing and operating a natural gas boiler for the same purpose).   It is important to note that the markets for many decarbonization levers have yet to reach maturity. As such, the cost estimates and projections used to inform MACCs may be subject to variation driven by uncertainty. Organizations may consider the following when estimating CapEx: 

  • Engage suppliers (collect quotes) and compare to publicly available information for similar levers 

  • Account for the cost of financing in CapEx/OpEx but do not double-count 

  • Make sure to account for avoided CapEx i.e., the replacement of existing systems that would have been necessary as a part of normal maintenance cycles (where possible, time the conversion to the low-carbon solutions with the end of the useful life of existing assets to minimize lost asset value) 

Organizations may consider the following when estimating OpEx: 

  • Include operational costs (maintenance, workforce education, etc.) as well as savings (e.g., reduced consumption) 

Consider new revenue streams unlocked (note that it may be difficult to appropriately attribute revenues from lower-carbon products to decarbonization levers) 

General considerations when using MACCs 

As organizations and ecosystems mature, the data required for MACC analysis will become more readily available. Until this occurs, estimates for individual levers may likely have margins of error. Considering strategies in aggregate may provide greater confidence in terms of abatement potential and average cost.  

Once organizations have built the first iteration of their MACC, steps should be taken to refine it. MACC analysis should be re-assessed frequently (e.g., every 2-5 years) given that external cost and abatement drivers are subject to change as markets, technologies, and regulations evolve. Changes to a company’s internal greenhouse gas inventory will also impact abatement potential. 

Step 2: Assess non-financial considerations:   

  • Several other considerations will inform whether an organization should prioritize a particular lever. Organizations should identify any additional considerations relevant to their context.  

Ease of implementation 

  • Dependence on others: within the organization's control vs. reliant on the ecosystem  

  • Non-financial resources: minimal need for additional resources/knowledge vs. significant boost in resources/knowledge required over a sustained period 

  • Supply constraints: commodity/workforce/expertise available at reasonable price vs scarcity in commodity/workforce/expertise leading to long lead times and high costs 

Lever outlook 

  • Timeline to success: implementation possible in the short term vs. only realized over a prolonged period 

  • Ability to scale: highly scalable with relative ease vs. scaling pathway difficult or unclear  

  • Execution risk: low-risk profile, high level of certainty vs. significant risk 

Broader considerations 

  • Brand impact: no discernable change to product and/or user experience vs. radical transformation leading to unclear market acceptance outcomes 

  • Competitive advantage: differentiation/competitive edge vs. no change 

  • Effect on other planetary boundaries: helps manage other planetary stressors (e.g., biodiversity) vs. further exacerbates them  

[See “Read More” for an example comparing levers]  

Step 3: Prioritize assessed levers based on corporate goals 

Once levers have been assessed, their deployment should be sequenced based on the goals that the organization is aiming to achieve. For example, if an organization is determined to meet an interim target, higher costs, more challenging implementation, and potential risks may be overlooked in favor of increased abatement impact, accelerated timeline to success, and ability to scale.  In this vein, several approaches exist for aligning the sequencing of lever deployment with organizational priorities, including (but not limited to): 

  • Lowest cost first: Implement levers starting with the cheapest options/greatest operational savings, up to a defined limit 

  • Based on ease/impact matrix: Implement levers based potential to reduce carbon emissions (impact) relative to resources and effort required [see “Prioritizing and implementing decarbonization levers”] 

  • Up to cost of carbon: Implement a unique combination of levers that fall below the (internal) cost of carbon  

  • To meet interim goal: Implement levers based on cost, ease, etc., to meet interim target; remaining levers to be decided on later 

  • To maximize upside: Implement levers with the most obvious brand/revenue upsides (e.g., gain a competitive edge, reach new audiences, increase resilience, unlock new financing, create new revenue streams, etc.) 

  • Tailored by business unit: Implement levers conducive to certain business units, based on capability, willingness, or positive market potential 

It is important to re-assess prioritization frequently as the main drivers will continue to evolve as technologies, markets, and regulatory landscapes develop.   

Step 4: Translate MACC to budget 

While MACCs are a powerful tool for comparing emission abatement potential and net cost over levers’ lifetime, they do not align with the financial decision-making approaches that most companies already use. Accordingly, translating marginal abatement costs into budgetary implications (near-term capital needs and cash flow mapped out on an annual basis) is key to enabling effective planning, building a business case internally, and engaging with external stakeholders.  Many companies observe that sustainability plans are often held to a higher burden of proof than other financial/business plans, and it is therefore necessary to build rigorous plans backed by robust data. Sustainability practitioners argue that establishing long-term ambition (as laid out in the lifetime assessment that informs MACCs) and developing robust, rolling financial plans (e.g., on a 3-year budgetary timeline) should be sufficient for financial planning and capital allocation purposes.   

Step 5: Build an implementation roadmap  

Like any other major project, the effective deployment of decarbonization levers requires robust implementation planning that outlines timing, roles and responsibilities, financial implications, and metrics for success. This process should be fully integrated into regular company operations.  Organizations should consider the following when building their implementation roadmaps: 

  • Create plan and timeline: Outline which levers will be deployed when detail the execution process, and set incremental milestones for tracking progress 

  • Outline key roles: Assign owners to address emissions reductions across the organization (not just in the sustainability team) and leverage individual, team, and business unit champions 

  • Identify financial implications: Outline personnel requirements and define CapEx and OpEx needs, expected savings, revenue upsides, uncertainties, and risks 

  • Obtain the green light from organizational leadership: Link sustainability efforts to critical decision-making processes in all functions 

  • Implement quick wins & pilots: Redeploy savings generated into future climate projects, and pilot initiatives to build momentum and test feasibility  

  • Track and communicate progress: Establish robust tracking mechanisms as well as internal and external communication channels 

  • Scale actions and revisit roadmap: Scale action as rapidly as possible, review plans every ~2 years, and pivot when necessary 

Building and implementing roadmaps should be underpinned by a feedback loop to drive continued progress. As organizations repeat the iteration cycle, they should: 

  • Compare progress against goals and address challenges/shortfalls of previous iterations 

  • Integrate insights from ongoing climate risk/opportunity assessments 

  • Respond to new climate, policy, technology, and market developments 

Figure 4: Building and revisiting roadmaps 

Once initial decarbonization goals have been met, organizations should set more ambitious targets and revisit the process outlined above as necessary. 


Usage

Mars is a long-standing leader when it comes to climate action. As a result of its efforts so far, Mars has moved beyond peak emissions and decoupled financial growth from its greenhouse gas footprint. The organization plans on continuing this trajectory and has committed to full value chain reductions of 50% by 2030 and net zero by 2050. It has outlined how it will reach these goals in its Net Zero Roadmap, which was informed by an in-depth MACC-based analysis.   Mars’ Net Zero Roadmap lays out the details of how it will reach its 50% reduction by 2030 target. The roadmap is underpinned by a MACC-based analysis of over 500 decarbonization levers. This analysis proved useful in several ways: 

  • Demonstrated that Mars’ 2030 target can be reached affordably, at a cost of approximately 1% of total sales 

  • Validated the fact that 50% absolute greenhouse gas reduction is achievable with existing technologies while maintaining business growth 

  • Revealed the business segments driving reduction potential and highlighted where changes to Mars’ products, production mechanisms, and procurement strategies will be necessary  

  • Provided a more nuanced view than internal carbon pricing, allowing for more informed decisions regarding tradeoffs  

  • Enabled constructive conversations with stakeholders, addressing the feasibility of deploying levers in specific business segments as well as leadership’s responsibility for funding efforts 

Crucially, Mars has built emissions reductions into its broader business planning, and integrated climate efforts into the rolling three-year plans that its business segments ordinarily develop. Mars also integrated sustainability efforts into its broader operational and governance model.  

To read Mars’ Net Zero Roadmap, click here.  


Impact

Climate impact  

Comprehensive MACC-based prioritization of levers provides a view of pathways to net-zero emissions  

Business Impact  

Benefits 

  • MACCs are a powerful tool for comparing the lifetime cost implications and abatement potential of decarbonization levers on a like-for-like basis 

    • Illustrate a pathway to reaching emissions reduction targets that highlight affordability and efficiency, thereby providing the basis for constructive and solution-oriented discussions with corporate leadership  

    • Shed light on the processes and/or functions that drive emission reduction potential and point to required business/operational changes 

    • Allow for the layering in of additional information (e.g., levers can be color-coded by "ease of implementation" scores, or other considerations)  

  • Prioritization of lever deployment enables the initiation of a well-coordinated transition effort resulting in 

    • Improved cross-organizational involvement and buy-in  

    • Improved anticipation of capital requirements 

    • Increased resilience 

    • Increased confidence from external stakeholders including investors and customers 

Costs 

  • Despite upfront capital requirements for decarbonization lever deployment, approximately 50% of emissions reductions, on average, can be reached at net zero cost in key sectors (1) (for some organizations, reaching net zero may only represent a small percentage of annual revenue) 

 [For more details on the climate and business impacts of decarbonization approaches, see “Understand the nine principal emission abatement approaches”]  


Implementation strategies

Key stakeholders   

Internal stakeholders: 

  • Executive Management: Set direction and goals for decarbonization, help make investment decisions, and approve funding 

  • Central Sustainability Team: Assess footprint, identify decarbonization options by asset, and develop business cases for emissions reduction 

  • Operations and Engineering: Work closely with Central Sustainability to identify feasible solutions and work with outside service providers as needed 

  • Finance: Review and approve business cases, and provide access to funding 

  • Human Resources: Make resources available for undertaking new sustainability-focused work and provide necessary upskilling 

  • Procurement: Ensure appropriate goods and services required for executing lever deployment are acquired 

Implementation Tips  

Some decarbonization levers may have a net cost associated with them. Others may yield net savings over time but require upfront capital. In either case, minimizing upfront costs can be instrumental in deploying said levers. An illustrative set of cost-reduction strategies is included below.

Leveraging national and local grant or incentive programs 

  • Hyundai and LG: could benefit from upwards of an estimated $2.1B in local, state-level, and federal subsidies and tax breaks as a result of their planned $7.6B EV and battery plant (2)  

Pursuing joint development to allow for the sharing of resources/expertise, increase efficiency, accelerate development, and reduce risk 

  • The First Movers Coalition: a group of 96 companies leveraging their purchasing power to advance emerging climate technologies (by 2030, it is estimated that their commitments will represent an annual demand of $16B and 31 Mt CO2e in annual emissions reductions) (3)

Exploring options to pass on costs via green premiums 

  • Patagonia: positioned itself as a sustainable, climate-friendly company that produces high-quality products (e.g., 99% of products in its latest collection will be made with preferred materials, including recycled materials (4); this is a core element of their value proposition, for which customers are willing to pay a premium 

Investing in technology for tomorrow allows to capture a competitive advantage by accessing new opportunities, potential incentives, and positioning for future success 

  • Tesla: investing in its “Gigafactories”, some of the world’s highest volume plants for manufacturing energy storage products (5)


Read more

Comparing decarbonization levers (illustrative)

Decarbonization levers can be compared based on cost, abatement potential, and other non-financial considerations. Below is an example from the healthcare industry.

Designing for circularity (designing products to be durable, reusable, and recyclable) and next best materials selection (replacing existing materials with more climate friendly alternatives) are two examples of decarbonization levers. In the healthcare context, they fall on opposite ends of the spectrum when it comes to emissions impact and ease of implementation, as illustrated below.

In the area of secondary packaging and materials selection, switching from solid bleach board (SBB) to folded box board (FBB) for cartons represents low-hanging fruit for decarbonization in the pharmaceutical industry. Doing so has a ~25% relative abatement potential, partially due to the use of recycled pulp middle layer of FBB as opposed to the virgin middle layer in SBB. While this is a scalable lever, and can be applied to all carton box use, it is worth noting that packaging accounts for a relatively small proportion of emissions from the pharmaceutical industry. That said, making the switch can result in savings of ~$110/tCO2e as well as absolute savings of ~$40/t of material, making it a win-win in terms of cost and emissions reductions. It’s a quick, low risk move as the technology is mature and there are minimal regulatory implications (which is a significant consideration in the pharmaceutical industry).

Conversely, designing for circularity by replacing single-use med-tech devices with reusable alternatives has higher emissions reduction potential, but requires large-scale process change and innovation. Analysis suggests that this lever could be cost neutral and result in a ~25% emission reduction for the producer. Longer development timelines, the need for process innovation, and potential regulatory implications necessitate thorough planning. If implemented effectively, it has the potential to reduce waste by ~40% and enhance value proposition by aligning to growing customer demand.