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Business guide to decarbonisation

in Europe April 2020

1 Business guide to decarbonisation in Europe

DEEDS

Dialogue on European Decarbonisation Pathways

GA No. 776646

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mailto:[email protected]

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Deliverable No. D 3.2

Deliverable Title Business guide to decarbonisation in Europe

Dissemination level Public

Lead participant World Business Council for Sustainable Development

Written by Victor Caritte (WBCSD) 25/03/2020

Reviewed by

Erwan Saouter (WBCSD), Karl Vella (WBCSD), Mariana Heinrich (WBCSD), Sophie Hall (WBCSD), Neil Strachan (UCL), Arne Lorenz (Innoenergy), Elena Beianu (Innoenergy)

15/04/2020

Acknowledgement

Luca de Giovanetti (WBCSD), Roland Huzinker (WBCSD), Alain Vidal (WBCSD), Manuel Quijano Ruiz (Iberdrola), Mariano Morazzo (ENEL), Ann-Cathrin Vaage (Equinor)

15/04/2020

Status Final 30/04/2020

This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 776646. The sole responsibility for the content of this document lies with the DEEDS

project and does not necessarily reflect the opinion of the European Union.

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Contents

1. Foreword ......................................................................................................................................... 4

2. Introduction ................................................................................................................................... 6

3. Europe’s fast-moving energy policy, technology and societal landscape ............ 6

4. Business actions to develop and implement a science-based decarbonisation strategy .............................................................................................................. 9

5. Pathways for European decarbonisation by sector ................................................... 22

5.1 Energy sector ............................................................................................................... 22

5.2 Transport and mobility sector .............................................................................. 24

5.3 Agriculture, forestry and other land-use ......................................................... 26

5.4 Industry sector ............................................................................................................ 28

5.5 Buildings ........................................................................................................................ 29

6. High-level policy recommendations ................................................................................. 31

7. Next steps to achieve decarbonisation ........................................................................... 32

Endnotes ............................................................................................................................................ 34

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1. Foreword

Adriaan Slob, Coordinator DEEDS Consortium

Climate change is one of the 21st century’s most important challenges, and in response Europe continues to play a globally leading role. To achieve the EU’s world leading commitments under the 2015 Paris Agreement – which aims to limit global

temperature increases to well below 2°C, the EU set out the European Green Deal in 2019. This transformative plan details the EU’s roadmap to climate neutrality by 2050, to boost economic growth which is decoupled from emissions, to improve resource efficiency, and to ensure that no parts of society are left behind.

In such a transformation of our economy and its sectors, government can play a leading role; setting the policy and legal framework, and investing public funds in research and development. However business is a critical and equal partner. Climate neutrality and the drive to net zero CO2 emissions is a game changer as it means all firms – large or small, in energy intensive or less intensive sectors, located across all member states – must respond to this challenge.

European firms will be the engine room that develops innovative new products, invests huge amounts of capital, employs millions of highly skilled workers, and launches new business models. Companies are also the key partner of citizens – as consumers, shareholders and social innovators. Harnessing this unique position will allow EU companies to thrive in this new decarbonised economy; making new technologies, providing new services, and exporting this know-how to enable all countries to successfully decarbonise.

This Business Guide sets out practical and comprehensive advice to all EU firms to not only respond to the challenges of decarbonisation but to thrive in this new environment. I would encourage you to utilise this guide’s 12-point plan covering planning, internal tools, practical actions and supply chain engagement. And in doing so ensure that decarbonisation becomes a central feature of your strategy, operations and reputation.

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María Mendiluce, Managing Director Climate & Energy, Cities & Mobility and Circular Economy at WBCSD

The IPCC’s 2018 Special Report on Global warming of 1.5°C has given us a new ultimatum; we can transform our systems now – at scale – to achieve net-zero emissions before 2050 or

face irreversible, dangerous climate change with devastating consequences for human health, livelihoods and the natural world. The 2020 COVID-19 pandemic is a stark reminder of our vulnerability to systemic shocks and the speed at which our business-as-usual model can become obsolete overnight if we fail to act. But the current crisis also shows our enormous capacity to rethink our systems and transform ways of working when lives are at stake.

The European Commission’s new Green Deal and focus to manage industrial challenges such as digitalisation, competitiveness and inequality in parallel to its climate mandate is a very positive sign; it shows systems transformation is well underway and we can expect demand for green products and services to continue to rise spurring clean jobs, circular business models and greener value chains across Europe – and other parts of the world.

While we look to governments to follow suit and set their own decarbonisation policies, transition plans and pledge resources to green our economy, business has an equally vital role to play in realizing the EU’s climate commitments. Business alone has the resources, capacity and people across sectors, value chains and geographies to achieve the scale of decarbonisation we need to align with the 1.5 °C target. Businesses that succeed in tomorrow’s economy will be those today investing to bring their employees, customers and shareholders through the transition: reskilling employees, investing in innovative low-carbon technologies and driving their own energy transitions. The transition to a decarbonised economy is an opportunity for all businesses to achieve their own decarbonisation goals and lead their industries towards a safer, more resilient economy for all.

This guide for business provides an overview of the European policy, energy and technology developments and gives recommendations for businesses of all sizes to decarbonise, covering everything from business strategy and governance to recruitment and knowledge-building to drive a profitable transition to a zero-carbon economy. The guide highlights the opportunities for all businesses to secure their license to operate by putting climate action at the core of their business models.

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2. Introduction

This business guide summarises the fast-moving energy policy, technology and societal landscape in Europe.

Recognizing that businesses have different resource and maturity levels to commit to their decarbonisation journey, this guide provides an overview of 12 actions any business can implement to accelerate their energy transformation. We developed this section with contributions from WBCSD members, who collectively represent the leading experience in and strategy design for how companies can respond and adapt to the energy transition.

Because businesses urgently need to think through their contributions to (and place in) a decarbonised Europe, the guide also provides a high-level overview of the decarbonisation pathways foreseen in five sectors.

The guide concludes with a call to policy-makers and businesses to move decarbonisation strategies from words to reality.

3. Europe’s fast-moving energy policy, technology and societal landscape

Climate emergency: time for systemic transformation

The European Union (EU) has made economic growth a priority since its creation, aiming to guarantee a high standard of living for the majority of the population by fostering economic and social cooperation between EU Member States.

Recognition that climate change is an emergency with increasingly severe impacts on the economy and society has shifted the EU’s decarbonisation priorities. The Paris Agreement’s ratification in 2015 marked a critical step in the global commitment to respond to and mitigate climate change, with the EU committing to playing a central role in reducing greenhouse gas (GHG) emissions.

For Europe, the climate change debate since the Paris Agreement has also signaled an important step towards greater ambitions in the fight against climate change and the integration of climate action more deeply with economic strategy. The EU’s critical policy concerns include ensuring a competitive economy and building resilience for societies to withstand climate change impacts. The EU’s most ambitious climate goal so far – the commitment to be the world’s first climate-neutral continent by 2050 – reinforces this milestone.

The European Green Deal announced by the new European Commission in 2019 defines the roadmap and key actions the EU must implement to achieve its climate-neutral objective. Deep decarbonisation involves huge changes for the economy and society. In Europe – and globally – political and corporate leaders agree that it is necessary to

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transform economic systems and the production and use of energy, resources, products and services to be sustainable in the long-term. To respect planetary boundaries while maximizing financial and economic viability, all actors need to commit to deploying circular and resource-efficient economies.

Research and innovation (R&I) will play major roles in the transition to a low-carbon economy, allowing for the rapid and effective deployment of low- and zero-carbon solutions that are cost efficient, high performing, economy-wide and supported by climate policy.

Although the EU is a leader in clean energy and GHG emissions reduction efforts, a full transformation of the energy, buildings, transport, industry and agriculture sectors is necessary to align with the EU’s ambition of achieving climate neutrality by 2050 and its 2030 target under its nationally determined contribution to the United Nations Framework Convention on Climate Change (UNFCCC).1 Meanwhile, the United Nations has estimated that in order to stay within the 1.5°C limit, it is necessary to reduce emissions globally by 7.6% every year; any further delay in taking action means more extreme and more expensive emissions cuts (figure 1).

Figure 1: Global GHG emissions scenarios until 2050

Source: United Nations Environment Programme (2019). Emissions Gap Report 2019.

Leaders now broadly accept social innovation and consumer behaviour change as complementary and necessary ways forward

Technological and policy measures alone will not suffice to reach the Paris Agreement targets.2 It is also necessary to provide consumers with incentives to adopt a more

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sustainable lifestyle by influencing their consumption habits. With their global reach and in-depth knowledge of consumers, companies are well placed to inspire and enable this change.

Some trends demonstrate that consumers are increasingly willing to embrace lower carbon lifestyles. For example, a survey conducted by the European Commission in 2019 showed that, overall, 93% of EU citizens see climate change as a serious problem, with 79% seeing it as a very serious problem; in addition, personal action on climate change is increasing, since 60% of respondents stated they have personally taken action to fight climate change in the past six months.3 Similarly, the 2019 European Investment Bank (EIB) climate survey4 found that a high percentage of the European population is willing to change consumer habits in response to the climate emergency. Climate movements are also emerging, with younger generations demanding political and business support for a low-carbon economy, which will directly impact voter and consumer choices in the near future.

Political and legal frameworks ensure European leadership on climate solutions

Building on such favorable public opinion for a greener political agenda, European policy-makers have announced groundbreaking decarbonisation plans that span all European countries. Economy-wide strategies such as the European Green Deal urge Europe to achieve climate neutrality by 2050 while also preserving biodiversity, fostering clean technologies and striving for a just and inclusive transition. With scientific research as a reminder that carbon budgets are diminishing rapidly (see figure 1), these plans fit the need for European political leaders to implement more ambitious measures to set strong policies that encourage business action through incentives and regulations.

The European Commission (EC) has also stated its objective to maintain and guarantee Europe’s leadership on climate-related action and the transition to sustainability, in part through increased investments in research and innovation. The EC is set on helping to boost investor confidence in low- and zero-carbon commitments and technologies.5 For example, climate objectives are one of the EC framework program’s priorities for Horizon Europe research and innovation between 2021 and 2027, with at least 35% of funding allocated for climate objectives.6

Businesses should transform rapidly in the race to the top

Many companies have implemented ambitious plans and/or have indicated their commitment to reducing emissions across their operations and supply chains to meet net-zero emissions by 2050. However, in the climate emergency, efforts to address the climate challenge must accelerate significantly across all areas of government, business and society.

Companies that lead on climate action by aligning their goals to the 1.5°C pathway set an example in their sectors and are likely to gain competitivity as they embark on this

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journey. Among these pioneers, notable examples include Microsoft, who announced its goal to be carbon negative by 2030 and the further ambition to remove all the GHG emitted since it was founded by 2050.7 BP has also pledged to achieve net-zero emissions across all its operations and upstream production by 2050.8 Danone has committed to net-zero carbon emissions across its full value chain by 2050 and is further proposing to adjust its share price to reflect the inclusion of the price of the carbon emissions.9

“The direction is set. We are heading for net zero. There is no turning back” (Bernard Looney, CEO of BP,

announcing the company’s purpose of reimagining energy for people and our planet, 20 February 2020.10)

In addition, financial actors are accelerating their engagement in climate change action by putting pressure on companies to reduce emissions, improve governance and strengthen climate-related disclosure. For example, Norway’s government pension fund, the largest sovereign wealth fund in the world, has already divested from 11 companies (six of which were palm oil companies) due to their role in deforestation.11 Other global asset managers have announced that they will consider climate-related commitments and monitor progress on sustainability-related disclosures and business practices when deciding to invest in companies.

Finally, to accelerate the transition to public policy for a low-carbon economy, financial markets and companies need to work closely together. Through strong and consistent policy and collaboration, governments and businesses can help create opportunities for investments and support the large-scale deployment of low-carbon models and solutions.

4. Business actions to develop and implement a science-based decarbonisation strategy

Corporate decarbonisation strategies are critical to curbing climate change

According to the Intergovernmental Panel on Climate Change (IPCC), global GHG emissions must go down rapidly and reach net-zero by 2050 to stay within the global carbon budget available for a 1.5°C global warming limit. Achieving this goal requires international cooperation between governments, companies and other stakeholders (consumers, researchers and civil society).

The role of business in setting corporate strategies to lower emissions is critical to decarbonizing the economy at the scale and pace needed. Decarbonisation strategies help foster innovation, competitiveness and cost-savings and increase credibility and

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trust among consumers, investors and policy-makers. A recent YouGov survey12 has even found that more than half of participating executives expect to offer low-carbon options for more than 50% of their products and services by 2028.

The most efficient way to start this journey is to align carbon reduction strategies with Paris Agreement 1.5°C goals.

The following 12 actions could support business in accelerating a decarbonisation transition (figure 2). We invite companies to apply these recommendations in the order they see fit, customised to their own circumstances (company size, sector(s) where they operate, etc.). What matters are actions, not necessarily perfection.

Figure 2: Actions for businesses to accelerate their decarbonisation

1.1 Rethink the purpose of your business

It is essential to reassess your company’s commercial offering and strive to deliver products and services that are compatible with a low-carbon economy. Businesses that fully integrate climate strategies within their core strategies are the most successful in delivering both value for the business and shareholders and contributing to achieving the Paris Agreement.

These transformations represent business opportunities by diversifying core activities and developing low-carbon activities that generate sustained growth. Yet, assessing the business contribution to the biosphere and society is more challenging than monitoring financial gains. The Sustainable Development Goals (SDGs) may inspire organisations to begin this reflection, as laid out by the Stockholm Resilience Centre (figure 3).

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Figure 3: Sustainable Development Goals connected to biosphere, society and the economy

Source: Stockholm Resilience Centre (2016). “Contributions to Agenda 2030”. Available at https://www.stockholmresilience.org/policy--practice/contributions-to-the-agenda-2030.html.

Redefining a corporation’s purpose involves adapting the business strategy to a more holistic vision of a company’s role. This new purpose should put increased importance on sustainability goals and greater effort on mitigating emissions and environmental impact.

1.2 Transform business strategy and embrace low-carbon models

Defining an innovative sustainability vision for a company requires the mapping of both customer and broader stakeholder expectations and existing initiatives. Business leaders can set new environmental, social and financial objectives.

“We are convinced that there is an urgent and significant opportunity to put climate actions even more at the core of our business model.” (Emmanuel Faber, CEO

of Danone, announcing the company’s 2019 results and a USD $2.2 billion (EUR €2 billion) climate acceleration plan for

climate resilient growth models, 26 February 2020.13)

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Companies can consider shifting to circular business models as part of their transformation. These encourage customers to reduce their consumption of material resources and help lower industrial emissions. There are several ways to rethink business models that unlock future growth without compromising a low-carbon path, for example:

• Accessing low-carbon energy sources, including renewable energy sources, waste-to-energy;

• Closed and open-loop recycling; • Reusing and recovering materials in production and distribution processes; • Promoting industrial symbiosis (using waste from one industry as a resource for

another, located nearby); • Extending product life cycles through repair, refurbishing or remanufacturing; • Offering material products, energy, mobility on a service-basis; • Co-owning, licensing and sharing products within or across organisations; • Sourcing locally where relevant; • Optimising supply chains to achieve low-carbon performance.

1.3 Set an action plan supported by good governance

Successful implementation of low-carbon business strategies depends on setting realistic action plans, supported by good governance structures.

Companies should not underestimate this challenging step. Extensive work on this action will bring valuable insights into the barriers to implementation. We suggest that companies consider the following questions during this step:

Which resources and capabilities do we need? • Which specific capabilities do we require to tap into opportunities? • Which financial resources, skills and abilities are essential, individually and

collectively, to create impact?

Which organisational journey should we draw? • What are the strategic priorities and roadmap? • Which organisational structure, elements and core functions are preferable? • Who “owns” and is accountable for decarbonisation priorities? • How should the company communicate and engage with stakeholders?

Addressing these questions will lead to the following outcomes:

• An action plan with a clear timeline, milestones, targets and progress monitoring; • An organisational structure with assigned responsibilities for dedicated “climate

teams”, such as a board-level steering committee responsible for validating

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transition plans, monitoring decarbonisation achievements and managing climate risks;

• Management incentives to drive decarbonisation efforts.

Companies should implement these conclusions simultaneously and make them part of an iterative process as illustrated below (figure 4). Figure 4: Strategic cascade embedding decarbonisation

1.4 Set robust carbon accounting and analysis for decision-making

Accurate and reliable GHG accounting is essential to implementing and monitoring the impact of an ambitious decarbonisation strategy. Companies should record carbon emissions and environmental data with the same level of precision and importance as financial data. Robust standardised methodologies exist to support companies in their emissions accounting – such as the GHG Protocol14 co-developed by the World Resources Institute and WBCSD. Seeking expertise from external specialists could also accelerate the internal learning curve; external audits are useful in improving data reliability and getting financial teams on board.

Convincing the board to engage in thorough monitoring can be an obstacle, as they are time consuming and resource heavy. The following arguments can attract senior management interest in carbon emissions reporting and, in doing so, secure resources:

• Analyzing GHG data can support data-driven decision-making, which will feed into the overall decarbonisation strategy and identify opportunities (action 7);

• GHG data accounting represents the backbone of climate strategy as it serves as a basis for setting action plans and incentives (action 3), defining emissions targets (action 5) and implementing an internal price for carbon (action 6);

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• Reliable carbon reporting procedures and governance improve stakeholder perception and relations, whether it be consumers, authorities or investors, by showing credible, evidence-based progress.

1.5 Set carbon emissions targets and roadmaps

Setting ambitious science-based targets presents companies with multifaceted benefits. By aligning with a long-term low-carbon economy vision, a business can increase resilience and competitiveness, reduce risks and costs related to energy and manufacturing processes, and identify technological and financial solutions. As a result, companies gain credibility among investors, consumers and employees and are in a better position to adapt to shifting climate change regulations. The Science-Based Target initiative15 helps the corporate sector set GHG emissions reduction targets that are consistent with the 1.5°C ambition. Although some sectoral guidelines are not final, the initiative already offers different methods that allow companies to set targets in relation to the best available climate science.

Many companies are embarking on long-term, ambitious decarbonisation journeys; they should be careful to also set relevant interim targets and milestones. These mid-term objectives will ensure better corporate executive accountability for carbon performance within companies.

1.6 Fix an internal carbon price

Voluntarily putting an internal price on carbon within companies helps to account for the negative externalities of carbon emissions and anticipate potential carbon pricing advanced by governments through climate policies. Although carbon pricing can have its limitations (for example if not applied globally or not accurately priced), it still represents an effective instrument for companies to factor their emissions into their strategic planning.

Internal carbon pricing refers to two types of instruments that aim to monetise the negative externalities of emissions in company decisions: a shadow price and an internal tax (or fee).

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Shadow price Internal carbon tax (or fee)

A price that integrates the carbon value set by the company into

investment decisions and low-carbon R&D solutions.

The aim is to assess whether the investment would remain profitable if

the company has to apply an externally imposed carbon tax to the

GHG emissions generated by the project. It can modify investment decisions or adapt the project to

comply with the company climate policy.

Tax applied voluntarily to operations and charged to business units, based

on their emissions.

The company collects fees in a fund that invests in projects that the

company chooses, such as focused on emissions reduction projects (energy

efficiency, renewable energy) or carbon offsets.

It allows for more investment in innovative technologies, rewards internal projects and brings about

behaviour change.

Shadow prices can help companies assess climate change risks and opportunities at different levels: establishing carbon reduction targets, mitigating risk by complying with future carbon pricing systems set by governments, reducing transitionary risks in project financing, and identifying the best investments for new clean technologies and new markets. Through these calculations, companies can better understand the “real” cost of carbon-intensive projects and lower the costs of such projects in their investment portfolios. This can lead to a decrease in carbon-intensive projects and help to drive a low-carbon economy.

The internal carbon tax provides both an incentive and a support system (via financing carbon reduction and innovation). It creates a virtuous emissions reduction circle and can lead to significant savings.

1.1 Implement actual decarbonisation projects

Decarbonisation is a global challenge that transcends economic, social and environmental spheres. Companies should implement multiple solutions to make sure they take all aspects of this problem into account (figure 5). The portfolio of actions advanced by business leaders will vary depending on the sector, the company, the resources available and geographic differences. Approaching emissions reductions through a mix of solutions is the most promising line of action for any company.

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Figure 5: Decarbonisation hierarchy for business

For companies to rapidly and effectively decarbonise, they should invest in mitigation solutions to reduce emissions in absolute terms and finance removal and offsetting actions. Furthermore, the financial and human resources devoted to decarbonizing should reflect this prioritisation.

Supporting natural climate solutions globally is a positive step in achieving net-zero emissions. However, a company that only invests in offsetting actions, without trying to reduce excessive emissions within its own value chain, risks losing credibility. In fact, carbon removal actions alone are not sufficient to transform business activities to a low-carbon model.

1.1 Decrease emissions throughout the value chain

For many companies, the majority of their carbon footprint lies outside their own operations. The first step a company can take to reduce its carbon footprint in the supply chain is to collect data and calculate its own carbon footprint and that of its suppliers (scope 3). Once collected, the company can then use the information to identify pathways for improvement.

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Among the solutions a company can use to encourage suppliers to embark on a similar journey, we include co-investing in low-carbon technologies, offering a pre-selected set of proven solutions to suppliers and assisting in their deployment, developing new business models, and providing incentives (e.g., financial) for suppliers to set and achieve decarbonisation goals.

To share the financial burden of these solutions, companies should partner with their industrial peers and suppliers, engage in collective efforts and share their emissions measurement tools and carbon reduction methodologies. A collaborative approach can also allow companies to mitigate risk and enhance the emergence of innovative ideas.

1.2 Invest in near zero carbon research and innovation

Innovation can decrease long-term business risk and improve bottom-line growth. Triggers can come from a variety of sources, from technological developments (technology push) to the anticipation of trends in legislation, finance and customer needs (market pull). To counter the heavy financial implications of investing in research and innovation, open innovation in the public sector can be a promising approach.

The open innovation concept is the sourcing of knowledge and information – typically of a disruptive nature – from outside the company. Companies can rely on traditional innovation partners (e.g., universities and research centres) and less obvious external stakeholders, such as customers, suppliers, local innovation ecosystems or even competitors.

By participating in these innovation ecosystems, companies can tap into new sources of ideas that they may not develop internally due to the inherently risky and long-term investments required for research and innovation. By leveraging the results available in the market or in pre-commercial phases, companies can partially outsource the cost of development and simultaneously benefit from accelerated time to market for novel and sustainable products and services.

Corporate venture capital is a means to manage company investments, through an independent vehicle, in ideas that an (early) organisational structure already supports and a team of entrepreneurs is already pursuing. Through this solution, companies encourage innovations aligned with the long-term corporate business strategy, without compromising short-term financial considerations. It can also reduce risk by creating a bridge between the proven venture capital model and corporate strategy.

Syndication, meaning co-investments with private, public or public-private partnership investors, can also be a promising option to look into. On the public side, the European Commission is providing new instruments and initiatives to lower barriers for companies to co-invest in carbon neutrality, such as by hedging investment risks related to technology. Lately, it has been complementing the traditional grant and loan schemes by blended finance (grants combined with equity). At the same time, public banks such as the EIB are embracing equity investments (EIB’s venture debt).

Disruptive innovation links to emerging or even non-existent markets by default and hence corresponding market risk. In that light, teaming up with competitors (through coopetition) can be worthwhile in order to build a market for decarbonisation, for

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instance through demand or supply aggregation (e.g., for value chains, see case study below), thereby reaching critical volumes or promoting demands to policy-makers.

Companies should investigate these possibilities and align them with their different appetites for risk.

Case study – The European Battery Alliance The European Battery Alliance (EBA) is an example of the challenges in investing in innovation. What started with a generally pessimistic attitude based on Europe having lost the cell manufacturing battle (sticking to low added-value cell assembly only) has turned into a massive push to capture the added value from cell production in Europe. EBA started with a group of initiators from policy, industry and public-private partnerships that built the business case by rallying the full value chain, from mining right down to cell manufacturing, and closing the loop through recycling. In the meantime, concrete results are visible in the European budget and regulations and in business investments, where Volkswagen recently announced investments of USD $1.1 billion (EUR €1 billion) in cell manufacturing in Bitterfeld, Germany, having already invested substantially in industrial unicorn NorthVolt.

1.1 Adapt to human capital transformation

Decarbonisation is a systemic challenge that comes with uncertainty. Businesses also reflect this uncertainty and require staff to have the aptitude and attitude to deal with today’s unpredictability. Solutions will almost certainly be multifaceted and include technology, innovation, regulation, economic and societal aspects. This calls for investment in human capital, in particular multidisciplinary teams and systemic approaches.

At the same time, European companies will need to fill hundreds of thousands of new jobs by 2030 to meet energy demand and reduce emissions to achieve targets put in place by the EU Green Deal.

Companies should consider the following aspects when engaging in this transformation:

• To attract and retain change-driving talent, companies need to adapt their corporate culture, strategy and actions to the new generation of employees and their expectations as they are willing to align careers goals with sustainability consciousness.

• Graduates and young professionals are drivers of change in companies; they are more likely to push models with a reduced carbon footprint and a positive environmental and social impact.

• Companies can promote diversity and inclusion by recruiting employees from various backgrounds with different skillsets and a knowledge-sharing attitude.

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• Companies can invest in training programs to develop employees’ technical knowledge and soft skills with regards to sustainable practices and the environment; companies can also rethink career development initiatives to include extended networks (e.g., including start-ups), which help to retain knowledge.

• Effective internal communication on climate and environmental changes and the ways in which these impact the business is important; adaptation to continuously improve management and leadership models is also critical to securing greater employee engagement.

• Partnerships with educational institutions (universities or other), such as in training programs, is state of the art; learning spaces, which create an environment where learners learn in real contexts, with a particular purpose in mind and out of their normal comfort zone, can be a step beyond that; at their core, learning spaces are rooted in a concrete decarbonisation challenge, to address thematically or at a system level, but always in a multidisciplinary fashion; digital learning is a means to reach scale but the application of the new knowledge to the real world would complement it (for instance through pop-up classes and campuses or at companies).

1.7 Shift demand to low-carbon products and services

Behavioural and lifestyle changes must be at the core of decarbonisation to meet Paris Agreement temperature targets.16 However, they are notoriously difficult to tackle, despite many attempts by researchers, policy-makers and consumer-facing businesses, such as those in the building renovation sector. Disruption-focused R&I, social innovation hubs, nudging and game playing are some of the latest initiatives to bridge this divide.

Raising awareness among consumers on the impact of their consumption habits is not yet a priority for companies, but it represents great potential in the transition to a low-carbon economy. Companies that have been successful in creating and satisfying consumer needs over the years can use their marketing experience and expertise to encourage larger uptake of lower-carbon consumer patterns. Companies need to encourage proactive involvement from their consumers and stakeholders through more responsible messaging and more effective marketing of low-carbon options.

Synergies through partnerships with public and private sector actors can be more effective than having companies act alone. This is particularly the case where some departments in a company may have conflicting ambitions for decarbonisation strategies, so this outsourcing can reduce potential conflicts in objectives.

1.8 Design and implement a credible communication and advocacy strategy

Engaging stakeholders is most effective when companies use a credible and harmonised communication strategy that presents climate ambitions and performance. The following criteria can provide insights into achieving compelling and persuasive external communication:

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• Setting an emissions scope should be consistent with the stakes of the business. Including value chain emissions (scope 3) adds weight to company commitments and communication.

• Keep proportionality in mind to ensure communication is responsive to climate issues. For example, avoid focusing communication only on a company’s positive yet negligible actions when compared to the company’s overall climate stake.

• A climate strategy is more credible if the company communicates it with a detailed plan, milestones and quantified targets that a third party has preferably verified and certified.

• “Absolute emissions” are preferred to “intensity emissions reduction targets”. In fact, intensity key performance indicators (KPI) and targets are interesting for analysis purposes but companies should not use them alone, since absolute emissions are the only relevant parameters to use when measuring climate action.

• Favor a realistic and transparent approach by disclosing uncertainties and ambitious decisions made by a company to achieve decarbonisation targets.

• Highlight any external audits conducted and reference existing initiatives and frameworks adopted (e.g., Science Based Target initiative,17 Task Force on Climate-related Disclosure,18 the Australian Capital Territory (ACT) climate change strategy19).

Case study – KLM Fly Responsibly program

In July 2019, KLM launched its Fly Responsibly program, showcasing the company’s efforts to increase the fuel efficiency of its flights as part of a technology-oriented discourse. It intrinsically recognises that technology alone will not be sufficient and calls for behaviour changes from its customers, placing them at the forefront of the program by asking “What you can do?” KLM invites its customers to:

• Reconsider whether meeting face to face is a necessity and prioritise teleconferencing;

• Assess if other modes of transport, such as rail, could be an option.

This kind of approach highlights how companies can embrace behaviour changes even if it means reducing the size of their main business in order to answer the climate emergency.

Airline business models could evolve to become players in multimodal mobility by offering a mix of both air and rail routes.

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Case study – Microsoft Committing to carbon neutrality with carbon removal outside of business operations, as announced by Microsoft, should not replace mitigation measures (see figure 4). However, disclosing GHG emissions history and projections helps bring transparency to the company’s mitigation track record and ambition.20

Figure 6: Microsoft’s pathway to become carbon negative by 2030

Source: Smith, B. (2020). “Microsoft will be carbon negative by 2030”, Microsoft. Available at https://blogs.microsoft.com/blog/2020/01/16/microsoft-will-be-carbon-negative-by-2030/.

Companies can widely influence market climate policies, competitors and peers by raising their voices, which in turn can create momentum to change. By using the power of their brand and market position, businesses can engage in meaningful climate advocacy and accelerate the transition to a net-zero economy. When implementing an ambitious advocacy strategy, the internal and external message will be more impactful if it is clear. It is important that all stakeholders in charge of communications, deployment and public relations align and support a harmonised and consistent message.

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5. Pathways for European decarbonisation by sector

Because businesses urgently need to place their contributions within the overall decarbonised economy, we provide a high-level overview of European decarbonisation pathways foreseen in five sectors. Figure 7 gives an overview of EU GHG emissions compatible with limiting global climate change to a 1.5°C temperature increase.

Figure 7: GHG emissions trajectory in a 1.5°C scenario

Source: European Commission (2018). A European strategic long-term vision for a prosperous, modern, competitive and climate neutral economy. Available at https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:52018DC0773&from=EN.

5.1 Energy sector21

Context

In 2017, energy was responsible for almost 75% of GHG emissions in the EU. The energy supply sector, which includes activities such as electricity generation and oil refining, was the single largest contributor (28%).22 Driven by policy and falling costs, companies are increasingly deploying low-carbon energy solutions, contributing to reductions in the emissions intensity of Europe’s energy system. Investments in clean energy innovations across Europe have forged trends including greater energy efficiency, new governance structures, digitalisation and active consumers (prosumers23).

Social innovation and behaviour change throughout the value chain

One of the key levers to decarbonizing the energy sector is reducing end-user energy demand through energy efficiency improvements. R&I funding to develop more efficient

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https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018DC0773&from=EN

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018DC0773&from=EN


technologies could enable this. In addition, encouraging social, innovation and behaviour changes will help reduce energy demand and limit rebound effects.

The ever-changing technology landscape, currently shaped by digitalisation and smart solutions has opened new opportunities for costumer's behaviour and has led businesses to adopt a customer-in mindset, shifting focus from selling a product to develop a customer relationship. Digitisation and smart solutions can introduce interesting dynamics into consumer behaviour.

Encouraging the emergence of prosumers requires the development of distributed energy technologies, the provision of incentives and the creation of the appropriate regulatory and governance frameworks. This development would have multiple benefits, including better use of local energy sources and stimulating economic activity in local communities.

These trends favor the rise of disruptive business models, while also creating new job profiles and skill requirements.

Technological opportunities

It is possible to make significant progress in decarbonizing the energy system with existing technologies while using R&I to bring the technologies needed for the full, long-term decarbonisation of the energy system to the point of commercialisation. The implementation of low-carbon energy technologies can bring sizeable societal benefits and cost-savings.

The primary levers to decarbonizing the power sector are expanding zero-carbon generation and phasing out unabated fossil fuel-based generation. Scaling up renewable-based electricity is crucial, especially related to generation from solar and wind technologies. The costs of solar and wind technologies have fallen substantially, making them competitive with fossil fuel-based generation. In addition to renewable energy, some countries may opt for nuclear power or carbon capture and storage for use in their energy transition. The transformation of the power sector also contribute substantially to the decarbonisation of transport, buildings and industry as these energy end-uses become increasingly electrified.

Rapid cost reductions have made renewable energies the most competitive choice for new generation capacity. Solar PV costs have decreased by more than 80%, onshore wind has seen costs fall by over 35%, and offshore wind has seen a reduction of 20%, from 2010-2018, and this trend is expected to continue24

Alongside changing the power generation mix, electricity grids and markets also need to evolve. In particular, digitalisation of the power sector, including the deployment of smart grid technologies, will improve supply- and demand-side efficiency and will be crucial to network management and monitoring. At the same time, power systems will need greater flexibility to integrate increasing shares of variable renewable energy. Utility-scale batteries for short-term storage, for example, increasingly complement traditional forms of flexibility, such as thermal generation and hydropower. Smart grid technologies enable the provision of flexibility services to the grid from distributed energy resources (DERs). Examples of DERs include behind-the-meter battery storage, distributed renewable generation and electric technologies – in particular in the passenger transport and

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buildings sectors – which can provide demand response and thermal or electric storage. Virtual power plants, which aggregate DERs, will be important to facilitating participation in electricity and balancing markets.

Energy efficiency is a key lever in reducing CO2 emissions in all energy-demand sectors – transport, buildings and industry. It is a particularly important near-term action in energy uses where fuels and technologies for full decarbonisation are not yet commercially available. These include aviation, shipping, trucking and medium- to high-temperature heat in industry. Due to the higher efficiency of electric technologies such as heat pumps and battery electric vehicles compared to their fossil fuel-based counterparts, electrification can also help to improve energy efficiency. Further improvements in energy efficiency are nonetheless important for electric technologies to reduce emissions from a power sector that is gradually decarbonizing and to reduce the volume of additional investments in electricity capacity needed to meet demand.

In addition to these existing technologies, the EU’s long-term climate-neutral strategy25 also considers low-carbon solutions that are currently not commercially feasible, including carbon capture and storage or use (CCS and CCU), green hydrogen and electrofuels.

Overall, political measures and R&I should look to overcome technical and non-technical barriers while acknowledging regional and national differences in policy, demographics and economic development.

Risks and opportunities for business

The large-scale nature of energy system transformation poses business risks and opportunities. In particular, to manage the transition risks of the EU’s target of climate neutrality by mid-century, energy investments need to shift away from carbon-intensive assets to low-carbon or even negative emissions assets.

Some major players26 in the energy industry are already announcing their commitments to shifting their strategy and operations to reach carbon neutrality. These announcements could deliver benefits including an improved ability to manage regulation risks, reputation benefits, and talent attraction and retention.

5.2 Transport and mobility sector

Context

The EU transport sector (including aviation and freight) represents about 31% of total GHG emissions. Most of these emissions come from short-distance transport; 82% of national emissions are attributable to road transport.27

The transport sector’s level of CO2 emissions reduction is unsatisfactory, with significant negative impacts on the environment and human health due to pollutant emissions (such as NOx, SOx and particulate matter). Reversing the trajectory and boosting the development and large-scale adoption of low-carbon alternative transport technologies and consumer behaviour requires substantial bold regulatory changes.

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Transport sector transformation requires a systemic approach, including interdependencies with the power generation and mobility infrastructure.


To reach significant emissions reductions in transport requires a change in mobility demand patterns. Europeans appear to be ready: according to the EIB climate survey, 64% of Europeans are willing to choose public transport over driving and 75% are prepared to fly less to fight climate change.28

Innovation can focus on many available and emerging options, such as:

• Increasing business models centred on connectivity and autonomous driving, more concretely illustrated by mobility-as-a-service, e-hailing, peer-to-peer car rental, etc.;

• Promoting collaborative logistics (cooperation of competitors to service a common customer or bundling services from competing suppliers);

• Reducing commuting by developing local co-working hubs, incentivizing employees to shift from an individual car to shared mobility or micro-mobility (such as cycling);

• Demand management (logistics efficiency and modal shift to rail/shipping); • Optimisation (of routes, of vehicles, of driving techniques).

Reducing emissions from aviation requires options beyond technology changes, including behavioural measures that address demand such as “carbon budgets” for travel as well as taxation schemes offering additional incentives. In addition, a modal shift to high-speed rail could be a valid option in many European countries.


Land-based transport: Transition to low- and zero-emission vehicles (battery electric, plug-in hybrid electric and fuel-cell vehicles) powered by low-carbon electricity generation seems to be a default option. Battery electric and hydrogen fuel-cell vehicles, in particular for the heavy-duty vehicle segment, accompanied by low-carbon hydrogen production, such as electrolysis from renewable or nuclear power or through alternative hydrogen production processes (e.g., biomass gasification and carbon capture and storage or use or thermochemical water splitting) are possible developments. The hybridisation of powertrains is a viable interim option on the way to full electrification interim option on the way to full electrification.

The transport sector is experiencing its own cost revolution as a steep decline in battery costs will make light and short range electric vehicles cheaper than their combustion peers by 2024, leading to a fast and cost effective decarbonisation of most transport modes in the coming decades.29

Aviation: The increasing availability and competitivity of alternative sustainable fuels appears to be the main opportunity to decarbonise the aviation sector. However, a substantial shift from conventional to alternative fuels faces challenges related to biofuel production involving land-use change, which can then result in adverse environmental

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effects. Other opportunities for improvement include more efficient aircraft and engine design, air traffic management, ground-level operations and cruising speed reductions.

Freight: Shipping relies mostly on carbon-intensive and polluting fuels such as heavy oil. One of the most effective short-term measures for emissions reductions appears to be reducing the speed of ship transport; other emissions mitigation options include propulsion efficiency improvements, alternative propulsion system development, vessel/airframe design improvements to increase energy efficiency, and the use of alternative low-carbon synthetic fuels.


The transport sector requires a combination of increased logistics efficiency and modal shifts to reduce emissions. In heavy road transport and short-distance shipping, battery or fuel-cell electric vehicles are most likely to dominate the transition, whereas aviation is likely to rely on bio or synthetic fuels.30

Decarbonizing transport services can help boost business competitiveness and job creation (especially when manufacturing parts and vehicles in the EU) and reduces pollutant emissions, offering a range of environmental co-benefits.

Developments in the transport sector require alignment and coordination with low-carbon power generation efforts, increased renewable energy penetration and cross-sector links (electricity infrastructure and transport).

5.3 Agriculture, forestry and other land-use

Context

The agriculture, forestry and other land-use (AFOLU) sector is doubly connected with climate change: it has a high volume of emissions linked to its activities, yet the natural system it is based on also sequesters carbon. Today, the AFOLU sector represents almost a quarter of global GHG emissions, with Europe responsible for 12% of these emissions.31 However, better management of agricultural resources can improve their carbon sink effect and potentially decrease carbon to a negative level.

The double role this sector plays in climate change mitigation means that solutions can take two approaches: reducing GHG emissions per unit of output or regenerating and protecting vegetation and soils to amplify their carbon stocking potential. European businesses should act on these simultaneously by collaborating with suppliers (including farmers), while also taking responsibility for educating consumers in healthier and more sustainable food consumption and promoting healthier and more environmentally friendly diets and food waste reduction.

Social innovation and behaviour change throughout value chain

One of the most impactful ways of reducing carbon emissions in the AFOLU sector is influencing consumer habits.32 Transforming food systems and sectors to enable the shift

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to healthier and more sustainable diets, such as one with less protein intake and a heavier plant-based focus, can significantly decrease sector emissions. Limiting food waste, in accordance with the waste prevention hierarchy,33 is another huge challenge to address throughout the entire value chain since it could mean lower emissions across production and value chains. It could also represent reductions in methane emissions from rotting food in landfills.


Although technology can hasten the results of some decarbonisation actions, many of the most compelling solutions are low-tech and represent nature-based solutions.34 AFOLU actors should prioritise forest, grassland and wetland protection and conservation by making sure they are not destroyed for cultivation, while also optimising their ability to store carbon. Various actions can help protect biodiversity, for example stopping deforestation; optimising fertiliser use (limiting pesticides and reducing or increasing fertiliser use when relevant), improving manure management and livestock feeding.

Other actions can enhance the carbon stocking qualities of the biodiversity, such as: extending harvest rotations, reducing tillage, improving pasture management and grazing to increase carbon storage in soils, agroforestry (adding trees to croplands), afforestation (planting trees in an area that previously did not have trees), reforestation and peatland restoration.

Improving the efficiency of farmland – and the quality of outputs – and thus increasing the supply of nutritious food for consumers should be the first goal of agri-businesses. Moreover, businesses should adopt virtuous circular economy models that include food-waste management, compost and sustainable agriculture and exploit above-ground biomass to produce bio-based products and bioenergy.

Technological investments can also be important to improving the management of land and oceans for farmers through data collection and increased weather and crop health visibility. For example, it is possible to program decision tools such as drones, artificial intelligence and connected weather stations to check the moisture of plants and help better target the dissemination of seeds and pesticides. Companies (and particularly technology companies) should take this opportunity to invest in improving the accessibility and dissemination of this type of information.


Agri-food manufacturers, retailers and food services could face less resilient crops if they do not anticipate climate change effects or ecosystem losses, as well as economic risks with the changes in diet habits and legislation constraints. However, because these transitions have serious social implications throughout the value chain, companies should consider a realistic and holistic approach when advancing these solutions. Policy-makers and corporate leaders alike must support the AFOLU industry and be conscious of the time it takes to achieve change.

Some AFOLU actors have already taken advantage of the growing trend in plant-based meals. In the United Kingdom, 28% of meat eaters have reduced meat consumption, around 60% of people in the United States are cutting back on meat-based products, and

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China set targets to halve meat consumption by 2030.35 Some businesses have already anticipated demand and sell plant-based meat substitute products, which could generate 90% fewer greenhouse gas emissions if produced under conditions that do not release carbon elsewhere (e.g., ensuring that plant-based protein production does not lead to further land degradation and deforestation).

5.4 Industry sector

Context

According to the UNFCCC inventory, in 2016, industry represented 21% of the EU’s total GHG emissions from direct and indirect sources.36

It is particularly challenging to drive transformation within the industry sector due to its vulnerability to economic uncertainty, its tendency to have unemployment issues (due to deindustrialisation), and its important social responsibilities within Europe. This is a central issue for the EU which has put at the forefront its concern to ensure a just transition that will create opportunities for all and considers other SDGs.

Social innovation and behaviour change throughout value chain

Industry sector businesses should prioritise adopting innovative, circular business models based on the recycling and reuse of materials and industrial waste and the recovery of energy within and among industrial sectors. A circular economy could cut cumulative emissions from heavy industry by 56% by 2050 in the EU and 45% of cumulative emissions from the steel, cement, plastic and aluminum products globally.37

Transforming these long-standing assets can be challenging and take time, yet the emissions-reduction potential of these evolutions is very powerful. Eco-design and zero-carbon design, which depend on circular economy concepts, are crucial to saving and optimising materials and energy. Companies must design products with disassembly and recycling in mind, through a conscious selection of materials and purpose. The circular economy must also enable end-consumers by facilitating the use of products as services, sharing platforms and the reselling and buying back of products, as well as making it easier to repair products, for example as reinforced by recent “right to repair” rules adopted by the EU.


Energy efficiency actions and deep electrification are two priorities to implement quickly through the accelerated deployment of previously developed low-carbon technology and artificial intelligence techniques. As an example, waste-heat recovery, coke dry quenching and combustion system improvements are all promising technologies on the market. Digital tools can also improve energy storage, automation and better selection of materials.

Energy efficiency and electrification of industrial heat and steam production are the low hanging fruits for reducing energy related industrial emissions, and they will lead to a

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reduction of of total industry emissions by approximately one third before 2030 (0,6 tCO2/toe), giving time to prepare and explore the techniques and strategies that should be put in place to abate the rest of the emissions by 2050.

In parallel, developing zero-carbon technologies that could permit a more radical decrease in emissions requires continuous investments in research and innovation. This funding is especially crucial for certain industries (e.g., chemicals, steel and cement) that have few low-carbon technologies and limited options for a short- or mid-term decarbonisation. However, some longer-term opportunities have started to emerge for these sectors, such as green hydrogen for steelmaking and ammonia production and refining, and need more financial commitments for their deployment.


In addition to environmental benefits, the circular economy also gives manufacturing companies economic advantages and cost reduction opportunities. Furthermore, a number of governments are drafting legislation to ensure that industrial actors take these types of solutions seriously. For example, the new circular economy law in France targets the limiting and reuse of construction waste, among other actions. Finally, EU actors need to make further financing efforts to ensure first-mover benefits and raise greater awareness of the long-term benefits of a circular transition.

5.5 Buildings

Context

The building and construction system needs to achieve net-zero GHG emissions across its life cycle by 2050. It can achieve this by committing to all new buildings operating at net-zero emissions at the latest by 2030 and all buildings operating at net-zero by 2050, and ensuring reductions in embodied carbon in building materials by at least 40% by 2030 and to net-zero by 2050. It can achieve this by developing and implementing roadmaps for the entire building system in line with these 2030 and 2050 net-zero goals. High carbon footprints are unsurprisingly dense in affluent cities due to the concentration of populations in these areas. Around 75% of the EU population lives in urban areas, which can present a sizeable opportunity for positive change.38 Adopting near-zero carbon policies for existing and new buildings can be effective in reducing emissions. The construction of buildings and the different stages that this entails (production of materials, transport, logistics and demolition) are important when assessing the carbon impact of buildings. A full life-cycle approach integrating aspects such as the reduction of embodied carbon, material efficiency and circularity/urban mining, energy efficiency, and the use of renewable energy is also a key driver in moving to low-carbon building. The EU has put forward energy efficiency of buildings as a priority in its environmental policies.

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Reducing the need for space is one of the most effective ways of dealing with the decarbonisation of buildings. From changing the way customers buy products and services, to encouraging employees to engage in “hot-desking” (multiple employees using a single physical work station during different time periods) and giving them the opportunity to work remotely, companies have a number of options to choose from. In fact, some industries, such as banks, post offices and retail stores, have already moved to online activities that require less physical space. Other businesses have already implemented solutions such as efficiently using space with flexible seating in offices and increasing the number of residents in buildings.

As consumers shift their habits to less carbon heavy activities, it can also be a great opportunity for businesses to cut their costs. Companies should highlight these energy efficiency and cost reduction options when providing services to their customers and lead them to becoming prosumers through their energy purchasing. In fact, individuals can even produce part of their renewable energy consumption themselves through building-integrated solar systems.


In the buildings sector the most relevant triggers to decarbonisation are energy efficiency and electrification of heat, mainly with heat pumps. Heat pumps performance are, depending on the climate region, three to five times more energy efficient than modern gas boilers. Insulation of existing buildings, LED lighting, eco-design regulations, building renovation, smart-metering and digitation will also be essential tools to reduce the energy demand of the sector, bringing economic and livelihood improvements.

Climate-smart solutions that rely on digitalisation, artificial intelligence and internet-of-things (connected smart appliances) can also amplify energy efficiency in buildings. Through connected equipment, buildings now feature self-regulated heating and cooling, better control over the use of energy and improved heating storage. Introducing LED lighting, optimised insulation and ventilation and smart windows are also potential energy-saving ideas. Furthermore, the ease of integrating renewable energy technologies into buildings has improved, creating new sources of energy, such as: solar thermal, photovoltaic, small-scale wind turbines and waste-generated bioenergy. Finally, setting up standardised and streamlined retrofitting in existing buildings provides considerable potential for further efficiencies and reductions in emissions, especially given the long life-span of buildings.

Near-zero carbon construction and refurbishment are alternative vectors for improvement that could have huge impacts on decarbonisation and are still early in their deployment. In fact, these solutions need more resources in order to be an integral part of all construction projects. Applying circularity principles can also provide a good framework for the reuse of older and abandoned buildings, the recycling of materials, the selection of more durable materials and transportation means and finally the eco-design of spaces. Improving materials processing with the development of new high-performance materials and the maturing of manufacturing and construction techniques that reduce waste still require further technological innovation.

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Regulations will require that companies provide new ways of optimising buildings through the development of smart solutions and eco-design. New public procurement policies should spur life-cycle efficient buildings and renewable energy production and storage.

6. High-level policy recommendations

To fulfill the commitment to make the EU climate neutral by 2050 to achieve the main milestones of the Green Deal and create the conditions for European businesses in all sectors to support the transition to a decarbonised European economy, policy-makers must propose bold and comprehensive solutions to accelerate the transition in consultation with all relevant European stakeholders.

The following priority areas will require ambitious policy objectives and plans:

High-level European policy framework:

• Agree on EU-wide decarbonisation targets and strategies aligned with a 1.5°C temperature increase and the objective to become carbon neutral by 2050.

• Integrate the EU’s climate neutrality objective across all European policy and legislation to work to achieve a common goal.

• Ensure strong industrial policy aligned with circular economy principles, making the European Green Deal a new growth strategy with the carbon neutrality objective at its core.

• Facilitate the large-scale implementation of deep decarbonisation efforts by business and help improve cost and material/resource efficiencies.

• Create a regulatory environment facilitating and orienting investment for a decarbonised economy and support moving to a sustainable financial system.

• Provide coherent policies and multi-sector approaches as well as more effective review and enforcement mechanisms.

Economic tools and instruments:

• Align the EU Emissions Trading System (ETS) with the net-zero trajectory, which will deliver a meaningful carbon price across the entire EU economy.

• Make the EU energy taxation system more consistent with EU energy and climate objectives. Tax reform at European level, based on the ‘polluter pays’ principle to enable the internalisation of the environmental cost associated with each energy product (generation and consumption).

• Develop legislation requiring the mandatory disclosure of climate-related financial risks (e.g., through the implementation of the Task Force on Climate-related Disclosures recommendations).

• Develop sector-specific financial incentives, such as reducing taxes on, charges from and levies on low-carbon power sources and eliminating subsidies and any form of financial support for fossil fuels; revise agriculture subsidies; simplify EU

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funding programs dedicated to decarbonisation and backing the net-zero target and communicate them more efficiently to different sectors and companies in view of increasing their attractiveness for these companies.

• Focus European funding in the short term on investments in the improvement and deployment of existing low-carbon technologies and solutions not yet scaled, notably due to market risks. Help EU businesses and public banks (i.e., the European Investment Bank) make decarbonisation investments as low risk as possible.

• Enable low-carbon technology generation, penetration and dissemination through investments in infrastructure (e.g., energy grid, storage capacities, transport infrastructure, carbon removal technology, etc.).

• Develop policy and finance instruments that support a just transition, which is a prerequisite for implementing the European Green Deal; create supporting mechanisms and employment opportunities in high-carbon regions and sectors and manage social impacts.

Education and awareness raising:

• Reinforce broad awareness-raising efforts on the climate emergency and provide information to companies and investors about climate risk and about climate policies and legislation.

• Help develop initial education and the skills needed to transition from high-carbon to low-carbon industries and for carbon-intensive regions facing a rapid industrial shift and social impact.

• Promote a shift in society attitudes and resultant consumer behaviour to low-

carbon choices.

7. Next steps to achieve decarbonisation

Decarbonisation is the only way forward. Although many companies have already started the necessary transformation, the entire business sector needs to mobilise in order to guarantee their survival in the long term and open growth opportunities in a low-carbon economy. The net-zero climate neutrality target means ensuring that all businesses play their full part. Driving this change requires integrating decarbonisation strategies into the core of the business and making sure that environmental objectives are as important as financial objectives. Moreover, it is important to dedicate sufficient resources to their implementation, with employees well-informed and involved throughout the process. However, such a transition comes with many challenges; considering the ambitious emissions reductions targets along with other SDGs is crucial.

We encourage business leaders to embark on this journey using this strategic decarbonisation map (Figure 8) with 12 interlinked actions:

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Figure 8: Strategic decarbonisation map based on 12 interlined actions

Very few organisations can claim they have fully embarked on this decarbonisation journey. Implementing these 12 actions is necessary to enable the deep decarbonisation of business and the global economy. We believe that all companies have a key role to play in enabling the widespread scaling up of new technologies, accelerating consumer behaviour changes to adopt lower carbon lifestyles, and advocating for market-wide incentives and regulations to make decarbonisation happen on a level playing field.

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Endnotes

1 Key targets for 2030: at least 40% cuts in greenhouse gas emissions (from 1990 levels), at least 32% share for renewable energy, at least 32.5% improvement in energy efficiency. The commission is revising this target is currently in the context of the discussions to upgrade the EU NDC before the 26th Conference of the Parties (COP26) in 2020. Source: European Commission (n.d.). “2030 climate & energy framework”. Available at https://ec.europa.eu/clima/policies/strategies/2030_en. 2 European Commission (2018). Final Report of the High-Level Panel of the European Decarbonization Pathways Initiative. 3 European Commission (2019). “Special Eurobarometer 490”. Available at https://ec.europa.eu/clima/citizens/support_en. 4 European Investment Bank (EIB) (2019). “EIB climate survey: Assessing citizens’ perception of climate change and their expectations on climate action”. Available at https://www.eib.org/en/surveys/2nd-citizen-survey/index.htm. 5 The European Commission has proposed to raise the share of climate-related expenditure from the current 20% to 25% in the next Multiannual Financial Framework (MFF) 2021-2027. This objective would represent total climate finance worth about USD $350 billion (EUR €320 billion) (current prices) in the next programming period, meaning a more than 50% increase (or USD$ 121 billion/EUR €111 billion) over the estimated climate allocations of the current MFF. Source: European Parliament (2019). Mainstreaming of climate action in the EU budget: Impact of a political objective. Available at

https://www.europarl.europa.eu/RegData/etudes/IDAN/2019/642239/EPRS_IDA(2019)642239_EN.pdf. 6 European Commission (n.d.). Orientations towards the first Strategic Plan for Horizon Europe. Available at https://ec.europa.eu/info/sites/info/files/research_and_innovation/strategy_on_research_and_innovation/documents/ec_rtd_orientations-he-strategic-plan_122019.pdf. 7 Smith, B. (2020). “Microsoft will be carbon negative by 2030”. Microsoft. Available at “https://blogs.microsoft.com/blog/2020/01/16/microsoft-will-be-carbon-negative-by-2030/. 8 Looney, B. (2020). “Reimagining energy, reinventing BP”. BP. Available at https://www.bp.com/en/global/corporate/news-and-insights/speeches/reimagining-energy-reinventing-bp.html. 9 Danone (n.d.). “Towards Carbon Neutrality”. Available at https://www.danone.com/impact/planet/towards-carbon-neutrality.html. 10 Looney, B. (2020). “Reimagining energy, reinventing BP”. BP. Available at https://www.bp.com/en/global/corporate/news-and-insights/speeches/reimagining-energy-reinventing-bp.html. 11 Future Earth and Ericsson (hosts) (2019). “Exponential Roadmap 1.5”. Webinar. September 2019. 12 Science Based Targets (n.d.). “At least half of products and services to be low carbon in ten years, say majority of businesses with Paris-aligned climate commitments” (press release). Available at https://sciencebasedtargets.org/2018/07/10/at-least-half-of-products-and-services-to-be-low-carbon-in-ten-years-say-majority-of-businesses-with-paris-aligned-climate-commitments/. 13 Danone (2020). “Full Year Results”. Available at https://www.danone.com/content/dam/danone-corp/danone-com/medias/medias-en/2020/corporatepressreleases/danone_full_year_2019_results.pdf. 14 See https://ghgprotocol.org for information about the GHG Protocol. 15 See https://sciencebasedtargets.org/ for information about the Science Based Targets initiative. 16 European Commission (2018). Final Report of the High-Level Panel of the European Decarbonization Pathways Initiative. 17 See https://sciencebasedtargets.org for information on the Science Based Target initiative. 18 See https://www.fsb-tcfd.org for information on the Task Force on Climate-related Disclosures.

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https://ec.europa.eu/clima/policies/strategies/2030_en

https://ec.europa.eu/clima/citizens/support_en

https://www.eib.org/en/surveys/2nd-citizen-survey/index.htm

https://www.eib.org/en/surveys/2nd-citizen-survey/index.htm

https://www.europarl.europa.eu/RegData/etudes/IDAN/2019/642239/EPRS_IDA(2019)642239_EN.pdf

https://ec.europa.eu/info/sites/info/files/research_and_innovation/strategy_on_research_and_innovation/documents/ec_rtd_orientations-he-strategic-plan_122019.pdf

https://ec.europa.eu/info/sites/info/files/research_and_innovation/strategy_on_research_and_innovation/documents/ec_rtd_orientations-he-strategic-plan_122019.pdf

https://blogs.microsoft.com/blog/2020/01/16/microsoft-will-be-carbon-negative-by-2030/

https://www.bp.com/en/global/corporate/news-and-insights/speeches/reimagining-energy-reinventing-bp.html


https://www.danone.com/impact/planet/towards-carbon-neutrality.html

https://www.danone.com/impact/planet/towards-carbon-neutrality.html



https://sciencebasedtargets.org/2018/07/10/at-least-half-of-products-and-services-to-be-low-carbon-in-ten-years-say-majority-of-businesses-with-paris-aligned-climate-commitments/

https://sciencebasedtargets.org/2018/07/10/at-least-half-of-products-and-services-to-be-low-carbon-in-ten-years-say-majority-of-businesses-with-paris-aligned-climate-commitments/

https://www.danone.com/content/dam/danone-corp/danone-com/medias/medias-en/2020/corporatepressreleases/danone_full_year_2019_results.pdf

https://www.danone.com/content/dam/danone-corp/danone-com/medias/medias-en/2020/corporatepressreleases/danone_full_year_2019_results.pdf

https://ghgprotocol.org/

https://sciencebasedtargets.org/

https://sciencebasedtargets.org/

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19 See https://www.environment.act.gov.au/cc/act-climate-change-strategy for information on the Australian Capital Territory’s climate change strategy. 20 Smith, B. (2020). “Microsoft will be carbon negative by 2030”, Microsoft. Available at https://blogs.microsoft.com/blog/2020/01/16/microsoft-will-be-carbon-negative-by-2030/. 21 The focus of this section is on decarbonization pathways for the energy supply sector. We cover energy demand sectors (transport, industry and buildings) in subsequent sections. 22 European Environment Agency (2017). “Total greenhouse gas emission trends and projections in Europe”. Available at https://www.eea.europa.eu/data-and-maps/indicators/greenhouse-gas-emission-trends-6/assessment-3. 23 A prosumer is a consumer who not only consumes energy but also contributes to energy production via their own investments or cooperatives. 24 European Commission´s Long Term Strategy (November 2018). 25 European Commission (2018). A clean planet for all: A European long-term strategic vision for a prosperous, modern, competitive and climate neutral economy. Available at https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_support_en_0.pdf. 26 Such as Shell, who in 2019 announced its ambition to become biggest power company within 15 years. 27 European Commission (2018). Final Report of the High-Level Panel of the European Decarbonization Pathways Initiative. And data from the European Commission’s Directorate General for Energy. 28 European Investment Bank (EIB) (2019). “EIB climate survey: Assessing citizens’ perception of climate change and their expectations on climate action”. Section 2/4: Citizens’ commitment to fight climate change in 2020. Available at https://www.eib.org/en/surveys/2nd-citizen-survey/new-years-resolutions.htm. 29 Bloomberg. 30 Energy Transitions Commission (2018). Mission Possible, reaching net-zero carbon emissions from harder-to-abate sectors by mid-century. 31 European Commission (2018). Final Report of the High-Level Panel of the European Decarbonization Pathways Initiative. 32 Intergovernmental Panel on Climate Change (IPCC) (2019). Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems. And Tilman, D. and Clark, M. (2014). “Global diets link environmental sustainability and human health”. Nature 515, p.518. And Willett W. et al. (2019). ”Food in the Anthropocene: the EAT Lancet Commission on healthy diets from sustainable food systems”. Lancet 2019; 393: 447–92. In: Future Earth and Stockholm Resilience Centre (2019). Scaling 36 solutions to halve emissions by 2030. 33 The primary focus of food waste prevention should be to act at source by limiting the generation of surplus food. When food surpluses occur, the best destination, which ensures the highest value use of edible food resources, is to redistribute these for human consumption. Source: EU Platform on Food Losses and Food Waste, European Commission (2019). Recommendations for action. 34 Intergovernmental Panel on Climate Change (IPCC) (2019). Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems. And: Griscom, B.W. et al. (2017). “Natural climate solutions”. Proc Natl Acad Sci USA 2017; 114: 11645–50. In: Future Earth and Stockholm Resilience Centre (2019). Scaling 36 solutions to halve emissions by 2030. 35 Future Earth and Stockholm Resilience Centre (2019). Scaling 36 solutions to halve emissions by 2030. 36 European Commission (2018). Final Report of the High-Level Panel of the European Decarbonization Pathways Initiative. 37 European Commission (2018). Final Report of the High-Level Panel of the European Decarbonization Pathways Initiative.

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https://www.eea.europa.eu/data-and-maps/indicators/greenhouse-gas-emission-trends-6/assessment-3

https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_analysis_in_support_en_0.pdf

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38 Eurostat (2016). “Urban Europe - statistics on cities, towns and suburbs - executive summary”. Available at https://ec.europa.eu/eurostat/statistics-explained/index.php/Urban_Europe_-_statistics_on_cities,_towns_and_suburbs_-_executive_summary.

http://www.deeds.eu




https://ec.europa.eu/eurostat/statistics-explained/index.php/Urban_Europe_-_statistics_on_cities,_towns_and_suburbs_-_executive_summary

https://ec.europa.eu/eurostat/statistics-explained/index.php/Urban_Europe_-_statistics_on_cities,_towns_and_suburbs_-_executive_summary

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