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Low carbon | Cost equation

Carbon jpg

Cutting carbon saves cost. Five years after publication of the Infrastructure Carbon Review, the evidence is compelling.

For every 2% of carbon saved, there’s a corresponding 1% reduction in cost. This has been National Grid’s experience since 2015. It has cut its capital carbon emissions by 10% year on year, across a £1bn annual capital investment programme. It has been a similar story for Anglian Water, which is on course to achieve a 60% reduction in capital carbon emissions across its 2015 to 2020 investment programme (see graph below).

Carbon 1

Capital carbon refers to emissions associated with creating an asset – adding together the emissions arising from materials extraction and processing; and component manufacturing; transport and construction. Emissions from operation and maintenance activities are described as operational carbon.

As a rule of thumb, the 2:1 carbon saving to cost reduction ratio appears to hold for other organisations too. But the number of infrastructure clients that are driving ambitious carbon reductions remains bafflingly small.

On 25 November it was five years since the government’s Infrastructure Carbon Review (ICR) was published.

After more than 100 interviews with senior infrastructure owners, operators, contractors, suppliers and consultants, and a review of some 200 documents, in November 2013 the ICR’s authors estimated that if the whole of the infrastructure industry adopted the low carbon strategies of leading practitioners, it would benefit by about £1.5bn per year.

That is a useful amount of cash.

Conservative estimate

But five years after the sum was done, it looks conservative. Leading “decarbonisers” have outperformed the expectations of the government-sponsored Green Construction Board, which commissioned the ICR.

Anglian Water is on track to achieve a 60% saving on capital carbon relative to a 2010 baseline by 2020, and is pushing for an extra 10% saving. National Grid expects to hit 50% carbon savings against its 2015 benchmark by 2020/21.

Anglian Water head of carbon and energy David Riley, and National Grid carbon specialist Alison Fulford both see the virtuous relationship between carbon and cost holding good at least to that level of reduction.

Water regulator Ofwat has pushed water companies to address carbon in the current asset management period, which ends in 2020.

Carbon 2

But in energy, National Grid stands alone. Fulford struggles to understand why. “We all face the same challenges, but we’re the only energy company looking at carbon in the way we do,” she says.

There is wide variation among contractors too. “Management teams have had their eyes on things such as margins, skills and the collapse of Carillion, which  has meant they haven’t been able to focus on the environment, climate and carbon as much as they should,” says Skanska environment director Adam Crossley.

“If all tier one contractors were taking carbon seriously, they’d have short, medium and long-term reduction targets,” Crossley comments.

“They would certainly be doing more than just thinking about their own direct emissions – they would be leading the charge and driving innovation for the benefit of the UK economy; looking at the supply chain and helping others to drive their own reduction agendas.”

Today’s low carbon leaders were early adopters of the ICR’s recommendations for making sense of carbon, and establishing the leadership, governance and culture to achieve valuable reductions (see box).

They have applied the principles set out in the world’s first standard for managing infrastructure carbon, PAS 2080. They have also recognised the cause-effect relationship between carbon emissions and the more severe and frequent weather events resulting from climate change, and treat carbon reduction as a fundamental duty of care.

Financial agenda

If improving bottom-line performance is not incentive enough to embark on an aggressive programme of decarbonisation, a new agenda being set by the financial sector ought to be. Investors, banks, insurers and credit rating agencies view climate-related financial risks as a major threat to capital and profit.

Some are already constraining and withdrawing financial services from carbon intensive businesses: £3.85trillion was divested from fossil fuels in 2016 and £4.24trillion in 2017. Infrastructure accounts for 70% of UK carbon emissions now and is heading for 80% by 2030, as renewables displace fossil fuel power generation. At a New Civil Engineer round table event hosted by consultant Mott MacDonald in April, Aviva Investors head of infrastructure debt Darryl Murphy said: “we’ll vote with our feet”, penalising firms that fail to manage their low carbon transition and physical resilience risks effectively, and favouring those that do.

This attitude is being informed by the Taskforce on Climate-related Financial Disclosure (TCFD), established by the G20’s Financial Stability Board in 2015. TCFD supporters control more than £64trillion of assets – 30% of total global wealth.

TCFD supporters want to see risks actively managed in two related areas.

  • Carbon risk: Exposure to tightening emissions regulation and legislation; litigation; reputational harm; reduced market share; loss of access to capital; and loss of share price
  • Physical risk resulting from climate change: Damage to assets and harm to employees and third parties; legal action; harm to supply and distribution chains; lost productivity; loss of insurance facilities; and disruption or loss of markets.

National Grid has set up a working group to study the implications of TCFD. “We’d done a piece of work before TCFD came on the scene to map our climate risks,” says Fulford, “but TCFD has given us an official reason to address them. When you have your financial director talking about carbon as a business risk it adds extra weight.”

While the TCFD agenda appears to be aimed at the private investment sector, it will inevitably impact on infrastructure as a whole – whether it is public or private sector funded, warns Mott MacDonald head of climate resilience Ian Allison.

“Any organisation that borrows money either directly or from the capital bond market, or requires insurance, will find itself caught in the TCFD net,” says Allison.

Five years on from the launch of the ICR the business case is stronger than ever. Cutting carbon saves cost. Failing to do so will be expensive.

Carbon champions

The consultant

Mark enzer cropped

Mark Enzer, chief technical officer, Mott Macdonald

“The formula for cutting carbon is out there for anyone to use. The rewards are proven. It’s easy in principle and takes effort in practice. People just need to get on with it.

“Doing only a bit of carbon reduction isn’t enough, though. In a little over 30 years, emissions need to be net zero to prevent climate change from running away.

“We’ll get closer to zero as physical assets become enhanced with digital technology, creating ‘smart infrastructure’. It will give us better insight into the performance of our assets and asset systems – a better understanding of user behaviour, demand, performance and efficiency. That will in many instances reveal latent capacity, meaning there’s no need to build new assets. In other cases, it will show where targeted enhancement of existing assets can meet needs.

“It also enables us to think much more intelligently about the adaptation of assets over time in response to changing social and economic needs, or new technologies. Smart infrastructure plus building information modelling design and modular construction (assisted by design for manufacture and assembly) create the possibility that whole life carbon, cost and value can be pushed.

“And with better digital cataloguing of new and existing infrastructure, we’re not far off being able to track individual products and components embedded within infrastructure. Once that’s possible we can turn the concept of the circular economy into reality.”

 The contractor

Adam crossley crop

 Adam Crossley, director of environment, Skanska UK

 “The industry’s overall response has been poor. It’s a missed opportunity to improve productivity and show great corporate responsibility.

“Partly, that’s because the industry is squeezed by short-term challenges, with climate change seen as being ‘in the future’.

“To take carbon seriously, there are three things tier one contractors should do.

l Set better reduction targets that reflect what the next 30 years will be like, rather than the minimum that won’t have a big enough impact on climate change. Commercially, you think about margin, revenue, cash and other factors. It’s the same with carbon. Contractors also need carbon intensity targets (the ratio between revenue and emissions).

l Report emissions using Encord. The Encord CO2e protocol has been developed specially for construction companies (available on the Greenhouse Gas Protocol website). Most tier one contractors only report direct emissions and a few other areas. With Encord, you have to include the supply chain. That’s hard.

l Become PAS2080 certified. PAS2080 is a carbon management specification for infrastructure. Better whole-life asset management can lead to lower costs and carbon. This is where the link between carbon and cost is strongest. It’s a great opportunity to show how we can help customers build carbon-efficient assets. And maybe negotiate a slice of the savings. Currently, Skanska is the only contractor certified to PAS2080. Why aren’t others?”

The client #1

 Alison Fulford, carbon specialist, National Grid

Alison fulford crop

 “Since 2015 we’ve given carbon a weighting of 5% to 10% in all of our tenders. Our main delivery partners are closely matched on price and cost, and carbon introduces a new area for competition and differentiation.

“It allows them to show us ways they can innovate and add value.

“And it signals to them that we’re 100% serious about it.

“My challenge to others in the industry is to take this seriously too. Understand the impacts of your business operations.

“When it comes to construction, there’s the logic that lower carbon equals lower cost, but there’s more to it – air quality, conservation of natural resources, climate change… It’s about social responsibility.

“The key factor in getting our decarbonisation programme started was having informed and ambitious leaders, who helped get the right people in places at the right time.

“At the moment there’s a really strong relationship between carbon and cost. That will take you a long way – to at least 50% capital carbon reduction, in our case – but beyond a certain point you’ll end up paying for reduction.

“We’ve started to discuss offsetting, to understand our options.”

The client #2

David riley crop

David Riley, head of carbon and energy, Anglian Water

“Our targets are based on business efficiency and backed by climate science, with reductions planned to achieve zero emissions by mid-century – in line with the Paris Agreement less than 2°C pathway, and anticipating that the government will commit to zero carbon.

“We’ll be pushing from 60% capital carbon reduction in this asset management period (AMP6, 2015-20) to 70% by 2030, and we’ll be doing that across the largest totex (total capital and operational expenditure) programme we’ve ever had.

“The only way we can do that in an affordable way is to reduce materials, and digital design, and delivery will play a major part in that. We’re looking for transferable efficiencies gained in other industries like automotive.

“We expect 3D printing to prove itself, particularly for components like valves and couplings. Digital design and delivery enable you to look at assets as composites. Some parts will last generations. Other parts will wear and need replacement.

“Anglian Water has plotted the carbon and cost performance of projects over the current 2015-2020 investment cycle. Averaged, the company is on track to achieve reductions of 60% carbon, measured against a 2010 baseline. Cost savings won’t be finalised until the end of the current investment period in 2020.

“Reducing carbon is not just about building new assets in a more intelligent way – it’s about demanding better performance from what you already have, and challenging the root causes of the need.”

The contractor #2

Male silhouette

Male silhouette

Source: Freepik

Declined to be named, head of sustainability, tier one contractor

To make a significant dent in carbon you need to set the requirement, challenge the supply chain to deliver, and be open-minded about the solutions you’ll get. Some of our clients do that well, but there is a more that could be done across the sector.

We’ve taken huge steps to address our own business impact, especially in energy use, as we have complete control over that. But that is only part of the puzzle. We’ve got the skills and the desire. Whether carbon is addressed on a project entirely depends on the client and often it is difficult to make meaningful impacts if the right work hasn’t been done upfront.

There are people in most organisations who are informed and passionate, but too often they can’t pull the right strings. More leadership would make a big impact.

Asking the value chain to report on carbon doesn’t mean they’ll get reduction – just a report! What’s ideal is the client asking their designers and suppliers: what 10-15 things can you do to make the biggest difference? And asking that question early enough. When everyone’s around the table from the outset, you’ve got the best chance of doing something great.

The scientist

Jannick giesekam cropped

Dr Jannik Giesekam, research fellow in energy, materials and climate policy, University of Leeds

The UK’s decision to sign up to the Paris Agreement changed the carbon reduction game for infrastructure investment, design and construction. Stopping the global temperature from rising more than 2°C’ above the pre-industrial average saw targets for an 80% reduction in carbon emissions by 2050 supplemented by a determination that the UK will be a net zero emissions nation shortly after the middle of the century.

For the infrastructure industry, this means that assets in planning now have to be designed to operate in a net zero emissions future. Decisions made by today’s infrastructure professionals will fundamentally determine the viability of our national and global targets.

It is no longer a distant problem. We all need to ask ourselves: Where does my current project fit on this roadmap to zero emissions? Are the assets I’m designing now fit to operate in a net zero economy? Any emissions not designed out now will have to be offset in future with expensive – and unproven at scale – ‘negative emissions technologies’ such as biomass energy with carbon capture and storage.

The specialist

Craig jones

Craig jones

Craig Jones, author of the Inventory of Carbon and Energy (ICE) Database

Before the Infrastructure Carbon Review there were pieces of small scale measurement work, but now large organisations are measuring carbon across their projects and activities – organisations like the Rail Safety & Standards Board and the Environment Agency.

It’s really important that big organisations lead this, as they have such influence. The trickle-down effect throughout the supply chain from clients with large portfolios or projects is significant.

In the last five years the number of construction products with verified BS EN 15804 environmental product declarations (EPD) has grown tenfold, to more than 5000, but there’s still quite some way to go, considering how many thousands of products there are. EPDs make comparisons and decision-making easier.

Consideration of capital and operational carbon needs to become more joined-up. Lowest capital carbon is not always lowest whole-life, particularly when taking end-of-life into account. It’s also important to look at the bigger picture and challenge assumptions. That’s something we’re addressing in the next edition of the ICE Database, out in Q1 next year.

Limiting climate change

The 197 signatories of the Paris Agreement committed to curb greenhouse gas emissions to prevent global temperature exceeding the pre-industrial average by more than 2°C.

Since the agreement was signed in December 2015, every signatory has ratified it into law and some 1,500 pieces of legislation have been enacted to drive compliance.

Three years ago, climate science indicated that beyond 2°C there was increasing risk of passing “tipping point”’, where feedback loops within the climate system will propel runaway change.

But in October the Intergovernmental Panel on Climate Change (IPCC) reported its findings from a three-year study comparing the impacts of climate change if limited to 1.5°C, compared to 2°C. It drew on 6,000 scientific contributions and 42,000 expert and government opinions. Halting global temperature rise at 1.5°C above preindustrial levels would bring major benefits for the environment, society and economy, the report says. It warns that the global impacts of climate change will be much more severe under a 2°C scenario than previously estimated.

The report highlights the need to adopt the 1.5°C threshold to prevent “dangerous climate change”.

The IPCC emphasises that the global temperature is already 1°C above the pre-industrial average.

 

Infrastructure Carbon Review: How to reduce carbon in your organisation and supply chain

Leadership

  • Vision: Provide the highest level sponsorship and commitment
  • Values: Embed carbon reduction in your organisation’s DNA
  • Policy: Deliver clear and consistent policies on carbon reduction

Culture and communication

  • Behaviour: Be clear what carbon behaviours are wanted and reward them
  • Communication: Share carbon knowledge effectively within your organisation, your supply chain and the wider industry
  • Skills: Develop carbon skills through training at all levels

 Metrics and governance

  • Baseline: Establish your starting point and measure performance
  • Targets: Set stretching carbon targets and strive to beat them
  • Tools: Give carbon modelling tools to those that need them
  • Visibility: Shine a light on carbon performance
  • Governance: Build carbon control into the delivery process

 Innovation and standards

  • Innovation: Demand, enable, incentivise and reward innovation across the supply chain
  • Standards: Enable existing standards and specifications to be challenged and set new standards for carbon best practice

Commercial solutions

  • Procurement: Embed carbon in contractual solutions
  • Reward: Align supply chain objectives with cutting carbon, provide long-term incentives, share risks and rewards equitably
  • Integration: Remove blockers in the supply chain

 

Six tips for low carbon success

  • Set ambitious targets. Demanding the extraordinary requires innovation spanning the use, reuse and operation of existing assets, user behaviours, resource management, commercial arrangements, management processes, and technical solutions.
  • Specify the outcomes you want to achieve, not outputs and processes. The best innovation will come from within your supply chain, so give manufacturers, specialists and contractors the opportunity to play to their strengths instead of following a prescribed path.
  • Engage your supply chain before you’ve taken the important decisions. Begin the process of meeting your needs with an open mind, empowering your staff and suppliers to bring new thinking to the table.
  • Encourage competition. Incentivise your suppliers to find the lowest whole-life carbon and cost solutions. Reward successes.
  • Pursue co-benefits and efficiencies of scale. Solutions that are low carbon and cost are typically safer and more technically straightforward. There is usually opportunity to standardise solutions across large projects or programmes of work.
  • Be a committed and belligerent low carbon leader. Even in organisations where carbon reduction is ‘business as usual’ there will be many who aren’t engaged, or even detract. Progress requires ongoing advocacy, support and ‘belief’ from leaders and champions across your organisation.

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