Carbon intense businesses faced with challenge

The introduction of carbon budgets means that businesses have no choice but to decarbonise. How is this affecting businesses and what is it likely to mean over the short- and medium-term future?

Setting the target

In April 2022 the Carbon Budget programme was approved by both Houses of the Oireachtas. It comprises three five-year budgets in the period from 2021 to 2035 that are designed to help us reach our targets of a reduction of 51 per cent in greenhouse gas emissions by 2030 and zero emissions by 2050 or sooner. “Plans to achieve these targets are laid out in the annual Government’s Climate Action Plan which also sets out legally binding emissions targets by sector,” says Maria Kelly, head of communications, Climate Ready Academy.

“Each sector must play its part in helping Ireland achieve its ambition to be a climate-resilient, biodiversity-rich, environmentally sustainable and climate neutral economy no later than 2050 and the industry sector has a legally binding target to reduce its emissions by 35 per cent relative to 2018 levels by the year 2030.”

Impact on businesses

The carbon budgets themselves are obligations upon the Government and the country as opposed to being an obligation on businesses, says Stephen Prendiville, EY Ireland Head of Sustainability. “Our country’s decarbonisation efforts, the carbon budgets and climate action plans are all underpinned by legislation (the Climate Action and Low Carbon Development (Amendment) Act 2021). It is clear that this legislation creates an obligation on Government, departments and Ministers to advance in alignment with the Act, however, that obligation does not extend to individual businesses or companies.

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“The carbon budgets have been allocated across various sectors of our economy, however: energy, transport, buildings, transport, agriculture etc. Each sector and subsector within will have decarbonisation targets and roadmaps are being developed. This will create decarbonisation pressures within industries to undertake decarbonisation efforts that align to the sectoral level budgets (labelled sectoral emissions ceilings in the legislation).”

Prendiville says businesses can expect to find themselves considering these decarbonisation initiatives and efforts as part of their industry efforts, and then instigating various changes as a result. “In a very simplified manner, almost all businesses can expect to need to do something across energy, solar and wind generation on-site or through power purchase agreements; transport, transitioning fleets to EVs or low carbon fuels or reducing parking space and increasing active travel and public transport facilitation, building retrofitting and energy efficiency measures.

For businesses that are currently involved in high-carbon-intensity products or services, there are greater challenges. “Here more radical impacts can be expected including dramatic modification to products, processes, supply lines and distribution networks.”

Totting up the budget

Translating the carbon budgets to individual businesses is challenging given the likely cross-sectoral nature of a business’s activities, says Julie Stokes, associate director of sustainable futures at KPMG. “It is up to each business to develop a decarbonisation strategy and implementation plan aligned with key government milestones (eg, 2030 and 2050). Depending on the maturity of the business, the first step will likely be to measure its baseline emissions and identify hotspots to focus decarbonisation efforts on.”

Stokes says the latest 2021 Climate Action Plan plots out a roadmap for Ireland to transition to a climate-neutral economy and meet its carbon budgets, with key actions and supports called out at a sectoral level. For example, for the enterprise sector measures focus on decarbonising heating, decreasing the embodied carbon in construction materials, and phasing out high global warming potential F-gases. The updated Climate Action Plan is expected to provide more clarity as it will reflect the carbon budgets and sectoral emissions ceilings for the relevant sectors and provide a roadmap of actions to ensure compliance.

“Given the transboundary nature of climate change, a siloed approach is not the optimal course of action. Collaboration between businesses and key stakeholders such as government and communities is key to ensure businesses effectively contribute to the successful achievement of our carbon budgets.”

Facing the consequences

To an individual business, nothing directly will happen if they exceed their carbon budget, says Prendiville. “There is no punitive or penalising mechanism in legislation or otherwise for failing to hit a net zero target or a national carbon budget. The ramifications for business extend into items such as access to finance and funding sources (where there is likely to be less avenues in the future), or the exposure of the business to increasing costs of carbon imposed on their business, either via the carbon tax or through obligations on the emission trading system or otherwise, thus making them less competitive with peers.

“Talent acquisition can also be expected to become more challenging, as well as having willing trading partners. These effects are likely to be less under the first carbon budget period but are likely to be stark by 2030 as government positions will be forced to sharpen.”

Offering opportunity

Businesses need to rethink their entire design, manufacturing and sales processes and take a deep look at their value chain. “It requires rethinking everything and shifting customer expectations,” says Kelly. “The transition requires specific skills at all levels of an organisation and employees need to be equipped with the right skills to ensure the company can transition in a way that is meaningful and long-lasting. This point is important as skills shortage can act as a barrier to change.

“The opportunities are significant for people with the right skill set. The European Green Deal is expected to create 2.5 million additional occupations requiring specific competencies. However, the growth in green occupations is currently not equalled by a similar growth in the number of professionals with the requisite green skills. Reskilling, upskilling and acquisition of new skills are necessary to promote a fair and just transition, and to ensure that both the current and future workforce possess the right skills and competencies.”

Kelly says there is a strong argument that embracing the transition will give us a more resilient, innovative, and prosperous future instead of one with escalating risks and natural disasters. “We can have growth that is strong, sustainable, balanced and inclusive.”