The Seven Steps of Climate-related Scenario Analysis

Planners and decision makers are often required to develop strategies in the face of an uncertain future. Climate change adds an additional (and substantial) layer of uncertainty to the mix.

Scenario analysis is an established method for developing and stress testing management responses under such conditions of deep uncertainty. Effectively a ‘what-if?’ test, each scenario presents a combination of plausible and internally consistent future events to planners and decision makers. A set of scenarios is used to span a range of possible futures that are outside the timespans of day-to-day decision-making.

In June 2017, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (FSB TCFD) suggested that “organizations should use scenario analysis to assess potential business, strategic, and financial implications of climate-related risks and opportunities…”. The FSB followed this with a Technical Supplement on the use of Scenario Analysis.

Point Advisory have found the FSB’s technical supplement to be useful in application. However, we have also found that some organisations have difficulty in translating the FSB’s guidance into tangible steps. To assist, we have developed the following seven-step approach:

  1. Establish the organization’s context: Scenarios should be relevant to the organisation’s environment, including markets and competition, supply chains, etc. The planning horizons will be important in defining scenarios’ own milestones.
  2. Understand current governance: Scenarios will facilitate decision making; scenario development therefore need to be cognisant of how decisions are made.
  3. Assess climate-related risks and opportunities: This step could be the subject of its own article (or text book). Climate related future scenarios will modify these risks, but it is important to have a solid starting point and understand the risk areas to make sure scenarios have a higher level of resolutions within those areas.
  4. Develop the scenario set: This is the crux of the matter. Based on research and consultation, a set of scenarios can be defined. To ensure they are useful all assumptions should be clearly stated and then reviewed by key internal participants. The resulting scenarios should be plausible, internally consistent, relevant and challenging.
  5. Apply the scenarios: The scenarios are but a tool. Planners and decision makers use them to explore the implications of scenarios on decisions, strategies or objectives. This is the “stress test” and the key question to be asked is: How would existing (or proposed) strategies, decisions or actions perform under each scenario?
  6. Use the results of scenario analysis to influence strategic planning or to improve existing management responses. This is best done by embedding insights from the previous steps into processes, policies and the culture of the organization.
  7. Close the governance loop: Monitor, review, document, disclose and repeat as appropriate.

For further information please contact Christophe Brulliard and Ben Sichlau.

Scope 3 emissions and Science-Based Targets

Companies responding to the CDP Climate Change questionnaire are rewarded for setting science-based targets. However, many companies committing to the Science-Based Target initiative (SBTi) are failing to meet the SBTi criteria, and the largest reason for failure is the inability to meet the Scope 3 requirements.

For many global businesses such as BT, Optus and Pfizer, supply chain emissions contribute a significant proportion of their total carbon footprint. In an ideal world, everyone would commit to their fair share of the effort required to keep the world under a 2 degree increase in average temperatures and hence scope 3 emissions would not need to be considered. We are however far from this ideal situation. Therefore, all Science-Based Targets need to include these Scope 3 emissions sources and companies need to work with their upstream and downstream partners to reduce their Scope 3 emission inventory. However, assessing supply chain carbon emissions is typically not an easy task, and the more diversified the supply chain is, the more difficult it becomes. Therefore understanding where greenhouse gas emission ‘hotspots’ are in a company’s supply chain is often the first step in developing a pathway to setting and achieving a Scope 3 SBT.

One way of identifying and quantifying these supply chain emissions is to apply an Economic Input-Output Life Cycle Assessment (EIO-LCA) method to supply chain expenditure. This estimates the materials and energy resources required for, and the greenhouse gas emissions resulting from, activities in the economy, and can be applied to a company’s supply chain, for a first estimate relying on industry averages. The image below shows a high-level overview of Optus’ SBT setting process, which used EEIO methods to identify supply chain emissions, and was integral to their Sustainable Supply Chain Management (SSCM) strategy.

Point Advisory have the capability to assist your business in:

  • Completing a Scope 3 screening exercise in line with the SBTi requirements
  • Identifying primary and secondary data sources for calculating your Scope 3 emissions
  • Developing a Scope 3 supply chain inventory using the latest EEIO models.

Please contact Ben Sichlau or Caoilinn Murphy for further information.

 

Insights from our latest event: Australia’s energy crisis: could energy productivity be the knight in shining armour?

In December, Point Advisory hosted an event to discuss the role of the demand side in helping Australia deal with its ‘energy trilemma’. The event was a lighthearted take on a serious issue, and our three speakers covered some interesting technologies and policy solutions.

First up was Rob Murray-Leach, who managed to weave in several amazing fairy tale analogies to his presentation about the current policy and regulatory landscape – including Audrey Zibelman from AEMO as the Fairy Godmother. We won’t repeat who the Wicked Witch of the West was…

Then Tom Ray from CIM Enviro talked about new technologies in the building fault detection and optimization space. He also drew some interesting comparisons between the energy and water sectors, based on his time at Thames Water in the UK.

Finally, Bruce Thompson from GreenSync spoke about the vast opportunities for more proactive management of the demand side of the market through technologies like demand response, and some of the barriers to achieving these.

Thanks to all our speakers and attendees for a genuinely entertaining and informative evening!

Towards zero emissions by 2050

Towards zero emissions by 2050

At the twenty-first session of the Conference of the Parties (‘COP21’) to the United Nations Framework Convention on Climate Change (‘UNFCCC’) held in Paris, the world agreed to a global goal to hold average temperature increase to well below 2°C and pursue efforts to keep warming below 1.5°C above pre-industrial levels. To achieve the “well below 2°C goal”, the concentration of greenhouse gases (‘GHG’) in the atmosphere need to be kept under control, which means that the world has to operate within a given remaining ‘budget’ of carbon emissions. Currently we have a carbon budget of 850 billion tons of CO2 to have a likely chance (estimated as a 2/3 probability) of staying below 2°C. If we want to stay well below 2°C, we need to do better than that, and do it quickly. In this context, the Paris Agreement highlights the need for Parties to reach net zero emissions by 2050.

Australia ratified the Paris Agreement on 10 November 2016. Our Nationally Determined Contribution (‘NDC’), dated August 2015, sets an economy-wide target to reduce GHG emissions by 26 to 28 per cent below 2005 levels by 2030. This target has been rated as “insufficient, and with a level of ambition that, if followed by all other countries, would lead to global warming of over 2°C and up to 3°C” by the latest Climate Action Tracker assessment.

However, Australian state and local governments are taking further climate action to contribute their fair share to the world’s path to net zero emissions by 2050. Queensland has been the latest state government to announce their climate agenda with its Queensland Climate Transition Strategy, that includes a commitment for 50% renewable energy by 2030, net zero emissions by 2050, and an interim emissions reductions target of at least 30% below 2005 levels by 2030. This positions Queensland alongside South Australia, Australian Capital Territory, Victoria, New South Wales, and Tasmania in setting targets or aspirational goals of net zero emissions by 2050.

State Key commitments
Victoria
  • Net zero greenhouse gas emissions by 2050
  • Requires the government to set five-yearly interim targets for the period 2020 to 2050
  • Reduce Victoria’s emissions by 15-20 per cent below 2005 levels by 2020
  • Reduce emissions from government operations by 30 per cent below 2015 levels by 2020
  • Renewable energy generation targets of 25 per cent by 2020 and 40 per cent by 2025
Australian Capital Territory
  • Net zero carbon emissions by 2050
  • Interim emissions reduction targets
  • Renewable energy target of 100% by 2020
South Australia
  • Net zero emissions by 2050
  • Adelaide to be world’s first carbon neutral city
  • Achieve $10 billion in low carbon investment by 2025
  • Improve energy efficiency of government buildings by 30 per cent by 2020
Queensland
  • Net zero emissions by 2050
  • 50% renewable energy by 2030
  • Interim emissions reductions target of at least 30% below 2005 levels by 2030
New South Wales
  • Aspirational objective of achieving net-zero emissions by 2050
Tasmania
  • Aspirational long-term target to achieve zero net emissions by 2050

At Point Advisory, we have recently completed work for the ACT government to develop their net zero emissions trajectories at the broad sectoral level (stationary energy, waste and land use). We are also working with the Queensland government on their next demand management and energy efficiency strategy.

Local Governments are also making progress in Australia. Some examples of councils´ emissions reduction commitments are as follows:

Additionally, Melbourne and Sydney are part of C40 Cities, a network of 91 cities across the world committed to addressing climate change by reducing emissions and climate risks, while increasing the health, wellbeing and economic opportunities of their citizens. Together C40 member cities combined community emissions represent 2.4 Gt of CO2-e. During COP23, 25 cities, including Melbourne, pledged to develop climate action plans before the end of 2020 to deliver on their share of emissions reductions required to reach net zero emissions by 2050. New York City and Paris have already delivered on this commitment. Melbourne is on track to develop its climate action plan and has also been recognised as a lead of the C40 Low Carbon Districts network, with Fishermans Bend and Arden Macauley as examples of low-carbon, sustainable, and energy efficient neighbourhoods. Point Advisory is currently finishing developing a net zero carbon strategy for the Fishermans Bend Taskforce, which will inform the next stage of work to refine the climate action plan for the district.

Businesses are also stepping up and leading the way to accelerate the transition to a low carbon economy. COP23 witnessed commitments of unprecedented magnitude, such as Microsoft’s pledge to reduce its operational carbon emissions by 75 per cent by 2030, against a 2013 baseline – this has been estimated to avoid 10 million metric tons of carbon per year, which is equivalent to zeroing out the emissions of the City of Rome. Danone also saw its science-based target to become carbon neutral by 2050 getting approved by the Science-Based Targets Initiative (SBTi) during the conference, and so did the Singtel Group, becoming the first company in Asia (excluding Japan) to have its carbon reduction targets approved by the SBTi.

Over 630 companies around the world have made more than 1,000 climate-related commitments through the We Mean Business Coalition’s Take Action campaign. This includes commitments such as adopting science-based emissions reduction targets or joining the Low Carbon Technology Partnerships Initiative to achieve emissions reductions that lead to a net zero emissions economy by 2050.

Whilst setting targets does not directly reduce emissions, businesses’ pledges are sending a clear signal to the market that society is ready to embrace net zero and that regulatory uncertainty needs to be reduced to ensure investment stability and smooth economic growth.

Australian businesses are also playing a role. Point Advisory assisted Westpac to develop emissions reduction targets in line with SBTi criteria. Infigen Energy, Origin Energy, Teachers Mutual Bank, Australian Ethical Investment and Investa have also committed to setting science-based targets. Other Australian companies, such as AGL Energy, Energy Australia, Wesfarmers annd Telstra have shown their support to a 2050 carbon emissions reduction target for Australia that is consistent with the Paris Agreement to aim at net zero carbon emissions by 2050.

As climate action plans and emissions reductions targets get approved and communicated, the focus will shift to whether governments and businesses are in fact delivering on those commitments. To this effect, at COP23, countries agreed on the design of the Talanoa Dialogue, a framework to take stock of the collective progress towards net zero emissions of the Parties to the agreement. This will not only provide insight on the actual tons of emissions that have been removed from the atmosphere so far, but also set the scene for governments to up their NDCs under the Paris Agreement kicking off in 2020. The Australian federal government will then have another chance to truly embrace the challenge of decarbonising Australia’s economy, take on a leading role and unlock the significant economic opportunities the Paris Agreement could offer for Australia.

Report release: EEOB – Transforming the Mid-Tier Sector

Melbourne_cbd_eeob
Point Advisory would like to congratulate Sustainability Victoria on their win in the ‘Best Energy Efficiency Program’ category of the National Energy Efficiency Conference Awards last week for their ‘Energy Efficient Office Buildings’ (EEOB) program. The program demonstrated that energy savings of up to 29% can be achieved across the mid-tier office building sector, via building tuning and cost effective energy efficiency measures.

Point Advisory is proud to have worked with Sustainability Victoria to develop the EEOB – Transforming the Mid-Tier Sector report, released at last week’s conference. The report outlines the energy efficiency-related opportunities and challenges presented by the mid-tier commercial buildings sector. It also highlights to successes of Sustainability Victoria’s EEOB program in addressing the challenges relating to the mid-tier.

Multi-site asset management – a new digital frontier

Multi-site asset management – a new digital frontier

The digital world is having a profound impact on how we manage data and access information across the built environment.

Traditional 2D workflows such as CAD and standalone databases are no longer enough in today’s information rich and data-centric world.

Managing multi-site assets such as universities, shopping centres, franchises, banks and commercial buildings requires the use of smarter – more powerful tools and integrated 3D environments such as:

  • BIM (Building Information Modelling)
  • PIM (Precinct Information Modelling)
  • CIM (City Information Modelling)

Download a full copy of the presentation below or contact Nathan Dale at Point Advisory for further details.

Multi-site Asset Management – Point Advisory

Slide1

 

Carbon neutrality, net zero emissions, science based targets & net positivity

Carbon neutrality, net zero emissions, science based targets & net positivity – How can business take a leadership role in the carbon debate?

Confused? I don’t blame you if you are. With COP21, there has been increased debate on the role and leadership of businesses in limiting global warming.  While climate change policies around the world will progressively get the largest emitters to reduce their emissions, the current policy set up is such that voluntary actions by organisations are definitely required to deliver the speed and scale of emission reductions required to stay below the 2oC threshold, let alone a 1.5 oC.

There are a number of initiatives and programs that businesses around the world can participate in to do their fair share in limiting global warming and there are new ones being announced on a regular basis.  In Australia, voluntary programs include the National Carbon Offset Standard (NCOS) and the Take2 Pledge announced recently by the Victorian Government. Other initiatives include the UN’s Climate Neutral Now and the We Mean Business Coalition initiatives (in collaboration with other organisations) including science based targets, 100% renewables (RE100 Initiative) and energy productivity (EP100) initiatives.

This article provides a brief definition of the different terms used but also some brief thoughts on what business can do to take a leadership role in the carbon debate.

So what does some of these terms mean:

Carbon neutrality refers to a situation where the net emissions associated with an organisation’s activities, product, services or events are equal to zero because the organisation has reduced its emissions, and acquired and cancelled carbon offset units to fully account for its remaining emissions.   This definition is also applicable to the term net zero emissions.  Companies across a wide range of sectors have achieved carbon neutrality, both here in Australia through NCOS or voluntarily or around the globe through other programs and initiatives such as the carbonZero program and the climate neutral now initiative.

A recent initiative called Science based targets (SBTs) is a partnership between CDP, UN Global Compact, WRI and WWF, which helps organisations to determine and communicate carbon emissions targets that are consistent with the level of decarbonisation required to keep global warming to 2°C (or 1.5°C) as described in the Assessment Report of the Intergovernmental Panel on Climate Change (IPCC). There are approximately 168* organisations around the world that have agreed to adopt science based targets.  The SBT Initiative develops tools, guidance and other communications materials to enable sustainability professionals and other stakeholders to calculate and set SBTs.

One of the questions that regularly arises is how are SBTs compatible with carbon neutral commitments.  Setting a robust, science-based target will help align an organisations reduction and emission avoidance efforts with climate science prior to offsetting to achieve carbon neutrality. An SBT will ensure that investment is prioritised towards low carbon technologies and emission reduction opportunities. It will also bring additional credibility to a corporate’s carbon leadership status.

And lastly, being Net Positive means business need to ensure that the the positive impacts outweigh the negative impacts.  The Net Positive initiative launched in 2013 by the Climate Group, Forum for the Future and WWF is still very nascent and it remains to be seen how this approach will be standardised and evaluated.

Organisations have a large role to play in helping to reduce global carbon emission and there are strong reasons to take voluntary actions and go beyond compliance. While the contribution of organisations to this effort will vary including how they manage the associated risks and opportunities. It is evident from studies that those organisations that adapt and mitigate their emissions will increasingly gain competitive advantage in a carbon constrained economy.  The reasons are numerous, reputational benefits, reduction in costs, an engaged workforce and improved productivity.  In addition, there is likely to be profound impacts to company valuations if companies do not address the risks due to climate change such as new regulations, technological changes and shifts in consumer behaviour [1].

Taking a leadership position, does mean taking voluntary action and a commitment to activities beyond compliance.

This should also include engaging in the climate debate to share lessons learnt and build capacity, understanding your organisations risks across your supply chain and realising the associated opportunities.


Neil Salisbury is the Managing Director of Point Advisory a leading sustainability consultancy in Australia and the Founder of CleanTek Market, a global clean technology marketplace. Point Advisory are currently assisting a number of government and corporate clients in developing appropriate climate change strategies to manage risks and identify opportunities.

Emissions Reduction Fund – Third Auction Announced

The Clean Energy Regulator held the second Emissions Reduction Fund auction at the start of November, and has just announced that the third auction…

The Clean Energy Regulator held the second Emissions Reduction Fund auction at the start of November, and has just announced that the third auction will be held in late April 2016.

The key outcomes of the second auction have been extensively documented and analysed, but in summary they were:

  • 131 projects were contracted, totalling over 45 million tonnes of abatement, roughly the same as the first auction.
  • The total amount spent by the Regulator was $557 million, leaving just over half of the allocation of $2.55 billion to be spent in future auctions.
  • The average price per tonne of abatement was $12.25, compared to a price of $13.95 in the first auction.
  • The majority of abatement came from vegetation projects.

The charts below show the change in project mix from the first auction to the second (in tonnes of Co2-e).

The charts reveals some notable differences in the final composition of the two auctions:

  • Waste projects decreased from 36% of total abatement in the first auction down to 8% in the second auction, as the backlog of transitioning CFI waste projects has now been successfully contracted.
  • Savannah burning projects increased from 1% of total abatement in the first auction to 14% in the second auction, as more of these projects have been registered in recent months.
  • Energy efficiency projects increased from 0% to 8%, as the relevant methodologies have been progressively released since the first auction.

A closer analysis of the underlying data reveals:

  • No avoided deforestation projects were successful in the second auction, whereas over 20 million tonnes were contracted under this method in the first auction.
  • At the same time, native forest regeneration projects increased from just under 2 million tonnes in the first auction to over 20 million tonnes in the second auction, which means the broader ‘vegetation’ category actually remained fairly stable across the two auctions.

There are still 269 projects on the ERF register that have not been contracted, and doubtless more projects will register before the next auction. This indicates that there is still a significant supply of abatement on offer. The government has just announced that the third ERF auction will be held on the 27th and 28th of April 2016. With that in mind, Point Advisory’s predictions for the third auction are:

  • The project mix for the next auction will continue to be dominated by vegetation projects, but the number of energy efficiency projects and the corresponding volume of abatement from these projects looks set to increase. Savannah burning projects will again feature strongly.
  • The CER will spend around $600 million on abatement, leaving budget for one final ERF auction, which may possibly take place before the next election (due at the end of next year).
  • Our preliminary analysis indicates that the weighted average auction price is likely to be broadly consistent with the first two auctions. To start the conversation, at this early stage we are anticipating an average price of between $12 and $13 per tonne based on the confluence of the following circumstances (we will expand on these in a future edition of our newsletter):

– The ‘tail’ of cheaper, pre-existing projects has been contracted, driving the future weighted average price up.

– The Regulator can now choose to contract between 50% and 100% of abatement offered below the benchmark price, giving them the ability to drive the average price down.

– Proponents of more expensive projects (>$15 per tonne) are understanding that they need to reduce future bids to have a chance of securing funding, driving prices down.

– The market price is becoming more crystallised with each passing auction, and behavioural economics tells us that where we have a strong price signal, market participants will tend to converge towards that price.

Our advice is consistent with most commentators: the ERF budget is quickly being exhausted and is unlikely to last beyond 2016. Potential project proponents should act fast to ensure they do not miss out.

To discuss any aspect of the ERF, please contact Charlie Knaggs or Neil Salisbury.

Construction BIM Coordination – The New Kid On The Block

BIM is now fast becoming the norm in Australia for new buildings and infrastructure projects over the value of $40 million dollars.

By Nathan Dale, Director – Point Advisory

BIM is now fast becoming the norm in Australia for new buildings and infrastructure projects over the value of $40 million dollars.

As part of this new trend, we are also seeing a change in the way these construction projects are contracted and managed from a BIM perspective. This is especially true for the head contractor’s whose job it is to manage the project from design to final completion.

Traditionally, the lead BIM role has been centralised around an “all-knowing and all-seeing” BIM manager providing a turn-key solution for the project. Larger contractors (Tier 1) would normally have their own ih house BIM manager to manage their requirements, whereas smaller contractors (Tier 2 & 3) would often need to outsource this role to a specialist BIM service provider.

Whilst this approach has worked well in the past, the challenge facing the industry is that BIM is becoming widespread and even more complex, as asset owners are starting to understand the potential benefits (and risks) of using a BIM-centric workflow for their next project.

On a typical construction project, there are several key stakeholders involved, often with different level of BIM expertise. These include the asset owner, head contractor, architect, consultants and sub-contractors, who are all jostling to define (and protect) their own roles and responsibilities in relation to BIM.

Traditional in-house BIM managers (including external service providers) now have trouble keeping up with the ever growing day to day requirements of each individual project as BIM becomes the industry norm. Their role is quickly morphing from a technical one into a more complex project management and data coordination role.

This additional workload is then being further magnified by several other related factors such as:

  • a shortage of experienced BIM managers in the market,
  • new and emerging 4D and 5D BIM requirements,
  • additional data requirements for facility managers, and
  • more complex BIM briefs being tendered by more ambitious asset owners.

Enter the new kid on the block, the external ‘Construction BIM Coordinator’ (CBC).

As opposed to a BIM Manager whose time is best spent focusing on the high value tasks, such as setting the rules (BIM Plan), playing the gatekeeper and monitoring overall progress on the project, the construction BIM coordinator’s role is simply to execute the plan as defined by the BIM manager. This includes tasks such as: managing the federated BIM model centrally, coordinating with the various stakeholders day to day and independently running the clash detection process every 1-2 weeks on behalf of the head contractor.

By externalising this role away from the traditional project team the BIM coordination role remains independent at all times which creates a consistent reporting mechanism for all stakeholders to benchmark against. This is particularly valuable for the head contractor and adds a new level of assurance, thereby reducing overall project risk.

Under this new split-role approach both the BIM Manager and BIM Coordinator report to the Project Manager, often working closely onsite with the Design Manager. On larger projects (in excess of $100m) the contractors BIM team may consist of up to 3-5 people who can be involved in the project for up to 2 years.

By keeping the core BIM activities in-house (management) and outsourcing the non-core activities (coordination), up to 80% of the day to day BIM workload on a construction project can be externalised and, if done efficiently, substantial savings can also be made.

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Point Advisory provides a wide range of services including ‘BIM coordination’ and ‘BIM Overflow’ for the building and construction industry.