Implementing Carbon Pricing at AkzoNobel
At the Paris Climate Conference in 2015 (COP 21), most countries agreed to reach net zero greenhouse emissions by the second half of this century. It is an ambitious, but achievable target. It also represents an opportunity for businesses to prepare for a low carbon future with simple determination, and by leveraging their innovation and expertise.
Preparing for the Future
Here at AkzoNobel, we have been at the forefront of sustainability and emission reduction for years and have been able to reduce our carbon emissions by 19% since 2012. Recently, we announced our 2050 target to deliver zero emissions from our own operations by 2050.
While we are not sure what the future will hold and at what speed a low-carbon world will develop in each region, we believe it is very likely that a carbon tax will be levied by governments in the future, supported by carbon trading mechanisms.
In light of that, we have been working on future-proofing our business portfolio. We have been reviewing additional measures we can take to drive an improved carbon footprint. We studied the possibility of Carbon Pricing since last summer and decided to implement it in early 2017.
As the head of Corporate Strategy, I feel proud to be the sponsor of this work, which has been done in close co-operation with my colleagues in Sustainability, Finance and the businesses. I know we have the knowledge, commitment and innovation capabilities to decouple AkzoNobel’s business growth from carbon footprint increases.
What is Carbon Pricing?
So what does Carbon Pricing mean? It simply means that for certain, larger investment decisions we will include a virtual cost of carbon in the investment economics. For these investment decisions, we have been calculating the carbon footprint already for years, but now we translate this into a financial cost. This means that projects with a larger carbon footprint will look less attractive than those with a lower carbon footprint.
This transparency on carbon impact enables us to optimize our decision making process and ask ourselves the question ahead of agreeing to an investment: “what (other) choices can we make to reduce the carbon impact?” For instance, it could allow for improved engineering to mitigate emissions, the exploration of innovative technologies, or consideration of alternate feedstock and raw material sources, and even plant locations.
Ultimately, we want to drive awareness of carbon impact on business and society and make smart choices for a low carbon world. If we do this well, we will have an optimised business portfolio that is less carbon intensive than our competitors’ and therefore should deliver more long-term value.
The carbon price that we will be using is set at €50 per ton/CO2, which reflects broadly public studies on anticipated future carbon market prices. We will, of course, continue to monitor relevant developments and may adjust this price in the future.
Leading the Way
We are not the first company to introduce Carbon Pricing; sources quote that more than 1,200 companies do so. But when we researched this more deeply as part of our preparatory work, we found that some companies apply it in a very light touch way, or only for very large investments or new manufacturing locations. At AkzoNobel, as leaders in sustainability, we want Carbon Pricing to apply very broadly and give it some teeth. We want it to trigger solid conversations about the choices we make for future generations.
With this approach, we will proactively change the mindset within the company and also with partners up and down the value chain. It will be a new and important part of delivering on our company sustainability targets, and will help us mitigate future risk by creating a more robust asset portfolio.
Seizing the Opportunity
It is no longer an option to ignore the real carbon costs on our world – most countries have united in acknowledging that fact. Businesses, like AkzoNobel, that respond quickly and incorporate sustainability into their decision-making processes will be placing themselves in an advantageous and differentiating position. Please join me in making that our reality!
