Dong Wang, School of Management Fudan University Winner of the 2022 CoBS student CSR article competition, looks into a dovetailed solution of benefits for stakeholders involved in the quest to reduce carbon emissions.
Low-Carbon New Value: Customers, Products and Enterprise Operations by Dong Wang.
Nowadays, it is generally accepted that human excess will lead to climate change. Global warming has been an indisputable fact as a result of greenhouse gases directly or indirectly produced by human life and economic activities. With the emission of greenhouse gases, the impact on the earth’s climate system has brought disasters, including glacier melting, rising sea-levels and frequent extreme climate events. Consequently, the world has been actively making suggestions for cooling the earth and trying to find “meaningful and effective” measures to save it. Emission reduction has become a responsibility and obligation that each of us and every enterprise should take the initiative to undertake.
In spite of the fact that many enterprises have also begun to join global climate governance, participate in low-carbon practice and start the journey of carbon neutralization, it is still a very important topic regarding if or how low-carbon practice can make more profits or bring new value-added effects for enterprises, as enterprises are created to seek profit. According to experts’ judgment and relevant data, the value of low-carbon practice is mainly embodied in three aspects: customer-oriented, enterprise-based, and product-centric, which can be elaborated as follows.
Customer-oriented to improve low-carbon experience and create a new low-carbon life
Low carbon experiences enhance low-carbon demand and drive the sales of low-carbon products
Responsibility and sustainability are increasingly accepted by the public. Everyone has tried to integrate low-carbon life and participate in the new low-carbon life more and more actively, hence making low carbon products increasingly welcoming. For example, more and more residents begin to travel by public transport and use new energy vehicles, recyclable or degradable fast-food boxes.
These new low-carbon activities and new experiences mentioned above can trigger new market demands, such as the promotion to the development of the new-energy vehicle industry, and to the research and development of degradable materials, and so on. In this scenario, enterprises can actively try to add low-carbon elements to the customer experience, improve the sense of low-carbon experience, and create a new low-carbon life with consumers, which will bring more low-carbon business opportunities to enterprises.
Promote carbon inclusion and achieve common prosperity
While consumers improve low-carbon awareness and actively promote low-carbon behavior, the international community is also generally implementing the carbon inclusive system to encourage and orderly allocate resources through the scientific planning of “whoever reduces carbon will benefit”. In this process, the volume of low-carbon behavior of a single consumer is too small. Therefore, the interaction between enterprises and consumers can form a converging influence. In addition to spiritual recognition, low-carbon behavior can also bring tangible benefits so as to achieve common prosperity.
Taking automobile manufacturing enterprises as an example, based on the American ZEV (Zero Emission Vehicle) act, automobile manufacturers are required to produce a certain number of zero emission vehicles every year to obtain ZEV credit points. Therefore, for Tesla, the financial report data in recent seven years show that Tesla’s revenue- from carbon credits business has reached US $3.834 billion, and its revenue from selling carbon credits in 2020 is US $1.58 billion, while the annual net profit of that year is US $721 million, and the carbon credits revenue is more than twice the annual net profit [1].
Take “enterprise as the foundation”, reduce consumption and emission, and increase enterprise profits
In the course of low-carbon practice, an enterprise will not only bear social and environmental responsibility, but also consider the rate of return on investment. Therefore, from the perspective of the enterprise itself, low-carbon practice will create value in two aspects:
> Starting from the corporate brand, perform responsibilities through ESG, undertake social responsibilities and improve the brand image
ESG (Environment, Social & Governance), a value concept that pays attention to the performance of environment, society and corporate governance, is a key factor in measuring the sustainability and moral impact in the investment strategy of enterprises or companies. It can build social capital and trust for enterprises and enhance their ability to resist market shocks and environmental disasters.
Especially at present, the pandemic has brought challenges to global economic development. Enterprises can achieve sustainable growth of performance through ESG, improve brand strength and maintain the continuous leadership of the global market. In short, it is an effective way to improve sustainable income.
> Starting from the enterprise operation, the production cost is reduced through energy conservation and consumption reduction
In the process of low-carbon practice, enterprises mainly consider the integration of industrial productivity and ecological productivity, rather than offset each other. Therefore, two aspects can be taken into consideration: one is the impact of consumption on cost, and the other is the impact of consumption on the environment. Around these two impacts, the new value created by an enterprise’s low-carbon practice is mainly reflected in the following two aspects:
> Improving energy efficiency and reducing decarbonization costs
In terms of enterprise production, if energy efficiency can be improved, energy consumption will be reduced from the consumption side. Promoting the recycling and comprehensive utilization of energy is an effective way to improve energy efficiency. Using waste resources to create new value or realizing “one energy for multiple uses” has become the focus of energy conservation and consumption reduction of many energy and manufacturing companies.
Cogeneration is an important starting point for improving energy efficiency and saving energy. Shell generates electricity through cogeneration, and the waste heat from the Pernis Refinery in Rotterdam, the Netherlands, and heats 16,000 households [2]. Its Apomatox platform in the Gulf of Mexico has reduced fuel consumption by about 40% and carbon emissions by about 20% ~ 25% through combined thermal power generation.
Since ExxonMobil launched the “global energy management system” in 2000, the energy efficiency of the company’s refineries and chemical plants has increased by 15% ~ 20%. Taking the above data of Shell as an example, according to the relevant data and based on the energy price in February 2022, it has been calculated that the electricity charge of Netherlands residents is € 0.35/ kWh, and the annual heating consumption of Netherlands households 8,000 kWh. And based on the data of Germany in 2019, the average emission of carbon dioxide is 401g/kWh [3]. So heating 16,000 homes a year can bring:
- Economic benefit: 16,000 * 8,000 * 0.35 = € 44.8 million
- Emission reduction: (16,000 * 8,000 * 401) / (1,000 * 1,000) = 51,328 t.
Therefore, when improving energy efficiency, the demand for energy consumption will be smaller than the original demand, the cost of energy consumption will be reduced, and emissions will be reduced accordingly.
Use of renewable energy to reduce energy costs and reduce emissions
According to data on global power plants thermal power generation, especially coal-fired power, is one of the main sources of carbon emissions. The international power industry is also vigorously advocating the adjustment of energy structure, promoting the use of renewable energy, and increasing the rate of industrial electricity.
From the current global application, wind and photovoltaic energies are more effective in renewable energy power generation, especially photovoltaic power generation, which has a good application effect in the world. Moreover, distributed photovoltaic technology is becoming more and more mature.
Taking Chinese industrial enterprises as an example, it is assumed that 10,000 square meters of rooftop photovoltaic power stations are being built (the actual inclination, obstacles, shadows, etc.) and that if all power generation is used for self-use, the power generation cost shall be￥0.4. The peak electricity price of municipal power is more than ￥1, and the normal electricity price is ￥0.5, which is calculated according to the average ￥0.8/kWh. And according to CLCD (China life cycle basic database), 1 kWh of mains power is generated, accompanied by 960 g of CO2.
According to empirical calculation, 1.5-MW photovoltaic power generation can be created. The following benefits will be generated within one year:
- The power generated will be: 1,500*3.9 (effective sunshine hours) *0.8 (system efficiency) *320 days (it is expected that there will be sunnier days) ≈ 1.5 million kWh.
- Economic benefits obtained will be: 150 * (0.8-0.4) = ￥600,000.
- Reduced carbon emissions: (150 * 10,000 * 960) / (1,000 * 1,000) = 1,440t.
The data of reduced carbon emissions is consistent when the calculation is applied to European countries, but the economic benefits will be more objective. Therefore, the use of renewable energy can effectively reduce the cost of energy consumption and reduce carbon emissions.
Promote green supply chains with “products as the core”
With the popularity of low-carbon products, green products are increasingly accepted by the people. Taking products as the core and the whole life cycle, building a green supply chain from supply, logistics, consumption, data as well as recycling effectively improves environmental performance, makes resource utilization efficient and minimizes environmental impact. This enhances the green image of the enterprise, wins the favor of customers and enhances the premium ability of products. At the same time, we can reduce carbon from the supply side through green products and contribute to the continuous cooling of the earth.
To sum up, carbon neutralization and low-carbon practices are no longer multiple-choice questions, but blank filling questions faced by enterprises. In the face of the continuous global warming problem, it is incumbent upon everyone to bear social and environmental responsibility. Moreover, through effective low-carbon activities endorsed by enterprises, we can create new value for society, companies and consumers.
- Tesla Annual Report, https://ir.tesla.com/#tab-quarterly-disclosure
- Improving energy efficiency will become a new blue ocean of value for energy enterprises, http://news.cnpc.com.cn/epaper/zgsyb/20210302/0314743006.htm
- https://strom-report.de/download/co2-emissionen-stromerzeugung.
Useful links:
- Read a related article: Getting net zero right
- Discover and apply for studies at School of Management Fudan University.
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