Intel’s new manufacturing plant in Leixlip, Ireland, which cost $18.5 billion to build, is replete with technologies touted for conserving energy and water including programmable, all-LED lighting and a water reclamation and filtration system that could save 275 million gallons a year.
One of its more unusual features, however, is an approach that’s often overlooked: capturing heat generated by equipment in the facility and funneling it into production processes rather than expelling it through cooling towers. This was accomplished by the installation of recovery chillers that capture heat created by Intel’s high-temperature manufacturing processes and pipe it in the form of heated water to other places at the facility.
Intel estimates these heat recovery measures will allow it to significantly cut the natural gas it must buy to run operations at the site, Fab 34. It will use nine times as much recovered energy than what is generated by other fuels, the company projects. That so-called “waste heat” can be used for tasks such as preheating the ultra-pure water Intel needs for semiconductor fabrication or keeping buildings at the site warm during cooler weather, said Rich Riley, principal engineer in Intel’s corporate services development group.
“If we didn’t have that heat, we would need that much more gas to facilitate the [heating, ventilation and air-conditioning] operations,” Riley said. “This is an overall reduction of natural gas consumption.”
Over time, Intel’s plan is to build on heat recovery and other energy efficiency measures by updating them with industrial equipment, such as heat pumps, that run on electricity.
Intel’s near-term energy-related sustainability goals include reducing Scope 1 and 2 emissions by 10 percent by 2030 from a 2019 baseline (it has achieved 4 percent as of fiscal year 2022); and conserving up to 4 billion kilowatt-hours cumulatively.
An untapped source of energy efficiency
Intel hasn’t disclosed the potential impact on its carbon emissions this heat recovery at Fab 34 effort could have, but a retrofit using water-to-water heat pumps in Fab 10 (also in Leixlip) will save an estimated 18.3 million kilowatt-hours of electricity annually. It will reduce Scope 1 emissions by about 4,760 metric tons, but Scope 2 emissions will increase by about 1,627 metric tons because of the electricity needed for the heat pumps.
Industrial energy remains a thorny challenge for corporate sustainability teams: An estimated 20 percent to 25 percent of energy consumed globally by industrial sources is still predominantly powered by coal and natural gas, according to the International Energy Agency.
The potential energy cost savings of using recovered waste heat for industrial processes, district heating applications or to generate electricity could reach up to $152.5 billion annually, slightly less than half the value of the natural gas imported by the European Union in 2022, according to a McKinsey report published in November. The analysis estimates the global recoverable heat potential is at least 3,100 terawatt-hours.
“In our view, if you want to decarbonize, heat recovery and waste heat is one of the most economical levers available,” said Ken Somers, a McKinsey partner who was one of the report’s authors. One barrier to adoption has been low natural gas prices, but tariffs and supply shortages have prompted companies to rethink their dependence, he said.
The industrial heat pump technology needed to move heat from where it’s generated to where it’s needed in a production process is also maturing. The potential for manufacturers of chemicals, consumer products, food and pharmaceuticals to use this approach is growing as a precursor to the electrification of production systems, said Patricia Provot, president of thermal production equipment manufacturer Armstrong International.
“If your plan is to fully decarbonize, your first step is to get rid of steam and use hot water, and then try to recover as much of that waste heat as possible and put it back into the system,” Provot said.
For business leaders, environmental, social and governance (ESG) goals are very much front of mind. More than 70 countries, including China, the US and the European Union, now have firm pledges to reach Net Zero, and the UK is committed to hitting this by 2050. Businesses of all sizes are increasingly aware that they have to be part of the solution, rather than add to the problem.
Procurement leaders are uniquely positioned to drive positive change and broader business impacts on ESG goals. While organisational sustainability efforts have historically been grounded in ensuring compliance with regulations, a comprehensive, proactive approach to sustainable procurement can reduce risk exposure (such as reputational, brand safety or regulatory), create savings, and improve brand value for the enterprise.
Procurement departments are certainly aware of the need to thoroughly assess the provenance of the products they purchase. But while this may be possible with core purchases – usually involving large amounts of money where there is a direct relationship with the supplier – it is simply not possible to vet every single product, particularly in categories such as IT purchases, catering items and health products, where the overall spend may be lower but individual purchase volumes are higher.
A trusted smart business buying solution, such as Amazon Business, can help operationalise and scale a responsible purchasing program. As well as other benefits, including access to business-only pricing, a familiar user interface, and Amazon’s reliable delivery network, buyers can select more sustainable products across business-relevant categories, specifying from over 40 certifications covering a wide range of credentials.
This allows businesses to set specific requirements, and even set preferences, ahead of employee product searches. These out-of-the-box buying policies can direct your team to products and sellers that can help satisfy your organisation’s purchasing goals, and would make products with certain sustainability certifications the preferred product in a buyer’s search results.
Clear labelling of products with sustainability certifications frees up time spent finding, validating and growing a base of suppliers that can help you meet your organisation’s responsible purchasing criteria, using an interface with which employees may already be familiar. In turn, business leaders can access pre-built reports (for example, orders, shipments, returns, refunds, reconciliation, related offers and the credentials report which contains product sustainability details), or build custom reports to identify purchasing patterns and track spend toward more sustainable products that meet ESG goals.
One example of a supplier that offer products with sustainability certifications is UK firm Portus Digital, which helps to repurpose or recycle redundant computer equipment. “Our aim is to be a frontrunner in the industry and set an example of how it is possible to combine technology and sustainability,” explains Tash Clementis, Director of Marketing. “People are more likely to choose a greener option when it’s easier and more accessible.”
Amazon Business also works with suppliers to help them become certified, ensuring they can benefit from organisations looking to make more sustainable and responsible purchases. “We launched on Amazon to help more businesses make sustainable IT decisions,” says Rob Judd, Director of Sales at Portus Digital. “We’re pleased by the response we’ve managed to generate so far – it’s exceeded our expectations.”
Research from McKinsey shows that organisations that embrace a comprehensive ESG strategy can enhance investment returns, increase top-line growth and keep and attract quality talent. Further, improvements on reporting can help businesses demonstrate their progress towards ESG goals more broadly, providing specific metrics to proactively measure against social responsibility and sustainability goals.
Amazon Business can also partner with organisations as they look to improve sustainability in other ways. Amazon Business Prime members can choose to consolidate their deliveries using Amazon Day, which gives them the choice of two days each week during which they can receive their orders. On, average, this reduces the number of packages. For larger orders, it’s also possible to receive bulk deliveries by the pallet, meaning organisations can stock up on items while minimising delivery journeys, where available.
Amazon Business, as part of Amazon, is committed to adopting sustainable practises, including reducing packaging and making use of electric delivery vehicles. It has also committed to power its operations with 100 percent renewable energy by 2025.
With sustainability and responsible business rising up the agenda for organisations, investors and consumers, it’s vital companies take steps – and can demonstrate those steps – to source responsibly. This is an issue that all businesses must embrace, and one they cannot afford to ignore.
Hydrogen as a climate solution is generating a lot of excitement right now. Approximately $10 billion worth of hydrogen projects are being announced each month, based on activity over the past six months. Policy packages such as the recent Inflation Reduction Act in the United States and the Green Deal Industrial Plan in Europe support hydrogen production and use. According to McKinsey research, demand is projected to grow four- to sixfold by 2050. Hydrogen has the potential to cut annual global emission2050s by up to 20 percent by 2050.
Today, most hydrogen is produced with fossil fuels. This type is commonly known as grey hydrogen, which is used mostly for oil and gas refining and ammonia production as an input to fertilizer. To maximize hydrogen’s potential as a decarbonization tool, clean hydrogen production must be scaled up. One variety of clean hydrogen is known as green hydrogen, which can be made with renewables instead of fossil fuels. Another variety, often called blue hydrogen, can be produced with fossil fuels combined with measures to significantly lower emissions, such as carbon capture, utilization, and storage. Clean hydrogen has the potential to decarbonize industries including aviation, fertilizer, long-haul trucking, maritime shipping, refining, and steel.
Total planned production for clean hydrogen by 2030 stands at 38 million metric tons annually—a figure that has more than quadrupled since 2020—but there is a long way to go to meet future demand. According to McKinsey analysis, demand for clean hydrogen could grow to between 400 million and 600 million metric tons a year by 2050.
To scale clean hydrogen, three things must happen. First, production costs need to come down so that hydrogen can compete on price with other fuels. One way to keep costs down is by producing hydrogen in locations with abundant, cheaper renewable energy—where the wind blows or the sun shines. While renewables development has accelerated in recent years, a lack of available land could become an issue for the deployment of renewables and could limit location options for green-hydrogen producers. Constructing plants for both renewable generation and green-hydrogen production has become more expensive recently because of increased material and labor costs and constrained supply chains.
“Approximately $10 billion worth of hydrogen projects are being announced each month, based on activity over the past six months.”
Second, building up infrastructure, particularly for transportation of hydrogen, will be key. The most efficient way to transport hydrogen is through pipelines, but these largely need to be built or repurposed from current gas infrastructure. Investment is critical in this and other areas across the value chain, including electrolyzer capacity (electrolyzers use electricity to produce green hydrogen) and hydrogen refueling stations for hydrogen-powered trucks.
Third, more investments will be needed to help advance this solution. Our work with the Hydrogen Council, a CEO-led group with members from more than 140 companies, has shown that achieving a pathway to net zero would require $700 billion in investments by 2030. Despite the recent momentum, McKinsey research last year showed a $460 billion investment gap. Additionally, many announced projects still need to clear key hurdles before they can scale. Producers of clean hydrogen, for example, are looking to address the commercial side of investment risk by solidifying future demand, often in the form of purchase agreements.
A set of actions can help accelerate the hydrogen opportunity, to realize its decarbonization potential and the growth opportunity for businesses. Progress will likely require collaboration among policy makers, industries, and investors. Policy makers can continue supporting the hydrogen economy through measures such as production tax credits or by setting uptake targets. These actions should help boost private investors’ confidence in the future markets for hydrogen and hydrogen-based products. Industry can increase capacities, such as by ramping up production of electrolyzers, and build partnerships through the value chain. Investors can help industry by structuring and financing new ventures, as well as by developing standards for how hydrogen projects can be assessed and how risks can be managed.
As the energy transition unfolds, hydrogen will increasingly be a consideration for both businesses and governments. While the challenges to scaling hydrogen are real, so are the opportunities.
Microsoft and McKinsey are combining their tech and sustainability expertise to help businesses measure and reduce their overall carbon footprint
Microsoft and McKinsey have joined forces to help organisations with a scalable technology solution to help in the fight against climate change.
The integrated solution combines sustainability data intelligence from Microsoft Sustainability Manager with decarbonisation planning and an execution engine using McKinsey Sustainability’s Catalyst Zero.
According to the two companies, this technological collaboration will enhance companies’ sustainability transformations by integrating their data from activities that produce emissions with initiatives to abate them.
“Urgent and decisive action to curtail emissions is needed if we are to reach net zero by 2050. By combining our tech and sustainability expertise and experience, Microsoft and McKinsey will help businesses accurately and swiftly measure and reduce their overall carbon footprint,” says Tomas Nauclér, senior partner at McKinsey and global co-leader of McKinsey Sustainability.
Using sustainability knowledge to meet specific needs
Microsoft Cloud for Sustainability is the company’s first horizontal industry cloud designed to work across multiple industries. Its solutions can be customised to specific industry needs, whether a customer is in retail, energy, manufacturing, or another industry.
The new solution is powered by Microsoft Cloud for Sustainability, and it uses Sustainability Manager to automate and scale the collection of companies’ sustainability-related data and support establishing an emission baseline. Following that, McKinsey’s Catalyst Zero solution, which draws on sustainability expertise and experience, provides a holistic understanding of emissions at company, product and value chain levels, and helps leaders create a detailed decarbonisation plan by leveraging a vast proprietary library of decarbonization levers.
The ongoing data feed between Microsoft’s and McKinsey’s solutions regularly monitors whether the impact forecasted in the decarbonisation plan is happening as planned. The joint solution is powered with tens of thousands of emission factors and decarbonisation levers across 70+ industry sectors to rapidly quantify baseline emissions, generate a company-specific Marginal Abatement Cost Curve (MACC), and also plan and track granular decarbonisation initiatives.
“We are focused on accelerating progress to achieve a more sustainable future, and our collaboration with McKinsey, to deliver innovative Cloud for Sustainability solutions will help customers unify their data intelligence, build robust IT infrastructure and gain insights into their overall carbon footprint in order to help them develop and execute robust decarbonisation strategies to achieve their sustainability goals,” says Elisabeth Brinton, Microsoft Corporate Vice President for Sustainability.
The trading of carbon credits can help companies—and the world—meet ambitious goals for reducing greenhouse-gas emissions. Here is what it would take to strengthen voluntary carbon markets so they can support climate action on a large scale.
More and more companies are pledging to help stop climate change by reducing their own greenhouse-gas emissions as much as they can. Yet many businesses find they cannot fully eliminate their emissions, or even lessen them as quickly as they might like. The challenge is especially tough for organizations that aim to achieve net-zero emissions, which means removing as much greenhouse gas from the air as they put into it. For many, it will be necessary to use carbon credits to offset emissions they can’t get rid of by other means. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM), sponsored by the Institute of International Finance (IIF) with knowledge support from McKinsey, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. Overall, the market for carbon credits could be worth upward of $50 billion in 2030.
The market for carbon credits purchased voluntarily (rather than for compliance purposes) is important for other reasons, too. Voluntary carbon credits direct private financing to climate-action projects that would not otherwise get off the ground. These projects can have additional benefits such as biodiversity protection, pollution prevention, public-health improvements, and job creation. Carbon credits also support investment into the innovation required to lower the cost of emerging climate technologies. And scaled-up voluntary carbon markets would facilitate the mobilization of capital to the Global South, where there is the most potential for economical nature-based emissions-reduction projects.1
Given the demand for carbon credits that could ensue from global efforts to reduce greenhouse-gas emissions, it’s apparent that the world will need a voluntary carbon market that is large, transparent, verifiable, and environmentally robust. Today’s market, though, is fragmented and complex. Some credits have turned out to represent emissions reductions that were questionable at best. Limited pricing data make it challenging for buyers to know whether they are paying a fair price, and for suppliers to manage the risk they take on by financing and working on carbon-reduction projects without knowing how much buyers will ultimately pay for carbon credits. In this article, which is based on McKinsey’s research for a new report by the TSVCM, we look at these issues and how market participants, standard-setting organizations, financial institutions, market-infrastructure providers, and other constituencies might address them to scale up the voluntary carbon market.
Carbon credits can help companies to meet their climate-change goals
Under the 2015 Paris Agreement, nearly 200 countries have endorsed the global goal of limiting the rise in average temperatures to 2.0 degrees Celsius above preindustrial levels, and ideally 1.5 degrees. Reaching the 1.5-degree target would require that global greenhouse-gas emissions are cut by 50 percent of current levels by 2030 and reduced to net zero by 2050. More companies are aligning themselves with this agenda: in less than a year, the number of companies with net-zero pledges doubled, from 500 in 2019 to more than 1,000 in 2020.2
To meet the worldwide net-zero target, companies will need to reduce their own emissions as much as they can (while also measuring and reporting on their progress, to achieve the transparency and accountability that investors and other stakeholders increasingly want). For some companies, however, it’s prohibitively expensive to reduce emissions using today’s technologies, though the costs of those technologies might go down in time. And at some businesses, certain sources of emissions cannot be eliminated. For example, making cement at industrial scale typically involves a chemical reaction, calcination, which accounts for a large share of the cement sector’s carbon emissions. Because of these limitations, the emissions-reduction pathway to a 1.5-degree warming target effectively requires “negative emissions,” which are achieved by removing greenhouse gases from the atmosphere (Exhibit 1).
Exhibit 1
Purchasing carbon credits is one way for a company to address emissions it is unable to eliminate. Carbon credits are certificates representing quantities of greenhouse gases that have been kept out of the air or removed from it. While carbon credits have been in use for decades, the voluntary market for carbon credits has grown significantly in recent years. McKinsey estimates that in 2020, buyers retired carbon credits for some 95 million tons of carbon-dioxide equivalent (MtCO2e), which would be more than twice as much as in 2017.
As efforts to decarbonize the global economy increase, demand for voluntary carbon credits could continue to rise. Based on stated demand for carbon credits, demand projections from experts surveyed by the TSVCM, and the volume of negative emissions needed to reduce emissions in line with the 1.5-degree warming goal, McKinsey estimates that annual global demand for carbon credits could reach up to 1.5 to 2.0 gigatons of carbon dioxide (GtCO2) by 2030 and up to 7 to 13 GtCO2 by 2050 (Exhibit 2). Depending on different price scenarios and their underlying drivers, the market size in 2030 could be between $5 billion and $30 billion at the low end and more than $50 billion at the high end.3
Exhibit 2
While the increase in demand for carbon credits is significant, analysis by McKinsey indicates that demand in 2030 could be matched by the potential annual supply of carbon credits: 8 to 12 GtCO2 per year. These carbon credits would come from four categories: avoided nature loss (including deforestation); nature-based sequestration, such as reforestation; avoidance or reduction of emissions such as methane from landfills; and technology-based removal of carbon dioxide from the atmosphere.
However, several factors could make it challenging to mobilize the entire potential supply and bring it to market. The development of projects would have to ramp up at an unprecedented rate. Most of the potential supply of avoided nature loss and of nature-based sequestration is concentrated in a small number of countries. All projects come with risks, and many types could struggle to attract financing because of the long lag times between the initial investment and the eventual sale of credits. Once these challenges are accounted for, the estimated supply of carbon credits drops to 1 to 5 GtCO2 per year by 2030 (Exhibit 3).
Exhibit 3
These aren’t the only problems facing buyers and sellers of carbon credits, either. High-quality carbon credits are scarce because accounting and verification methodologies vary and because credits’ co-benefits (such as community economic development and biodiversity protection) are seldom well defined. When verifying the quality of new credits—an important step in maintaining the market’s integrity—suppliers endure long lead times. When selling those credits, suppliers face unpredictable demand and can seldom fetch economical prices. Overall, the market is characterized by low liquidity, scarce financing, inadequate risk-management services, and limited data availability.
These challenges are formidable but not insurmountable. Verification methodologies could be strengthened, and verification processes streamlined. Clearer demand signals would help give suppliers more confidence in their project plans and encourage investors and lenders to provide with financing. And all these requirements could be met through the careful development of an effective, large-scale voluntary carbon market.
Scaling up voluntary carbon markets requires a new blueprint for action
Building an effective voluntary carbon market will require concerted effort across a number of fronts. In its report, the TSVCM identified six areas, spanning the carbon-credit value chain, where action can support the scaling up of the voluntary carbon market.
Creating shared principles for defining and verifying carbon credits
Today’s voluntary carbon market lacks the liquidity necessary for efficient trading, in part because carbon credits are highly heterogeneous. Each credit has attributes associated with the underlying project, such as the type of project or the region where it was carried out. These attributes affect the price of the credit, because buyers value additional attributes differently. Overall, the inconsistency among credits means that matching an individual buyer with a corresponding supplier is a time-consuming, inefficient process transacted over the counter.
The matching of buyers and suppliers would be more efficient if all credits could be described through common features. The first set of features has to do with quality. Quality criteria, set out in “core carbon principles,” would provide a basis for verifying that carbon credits represent genuine emissions reductions. The second set of features would cover the additional attributes of the carbon credit. Standardizing those attributes in a common taxonomy would help sellers to market credits and buyers to find credits that meet their needs.
Developing contracts with standardized terms
In the voluntary carbon market, the heterogeneity of carbon credits means that credits of particular types are being traded in volumes too small to generate reliable daily price signals. Making carbon credits more uniform would consolidate trading activity around a few types of credits and also promote liquidity on exchanges.
After the establishment of the core carbon principles and standard attributes described above, exchanges could create “reference contracts” for carbon trading. Reference contracts would combine a core contract, based on the core carbon principles, with additional attributes that are defined according to a standard taxonomy and priced separately. Core contracts would make it easier for companies to do things such as purchasing large quantities of carbon credits at once: they could make bids for credits that meet certain criteria, and the market would aggregate smaller quantities of credits to match their bids.
Another benefit of reference contracts would be the development of a clear daily market price. Even after reference contracts are developed, many parties will continue to make trades over the counter (OTC). Prices for credits traded using reference contracts could establish a starting point for the negotiation of OTC trades, with other attributes priced separately.
Establishing trading and post-trade infrastructure
A resilient, flexible infrastructure would enable the voluntary carbon market to function effectively: to accommodate high-volume listing and trading of reference contracts, as well as contracts reflecting a limited, consistently defined set of additional attributes. This, in turn, would support the creation of structured finance products for project developers.
Post-trade infrastructure, comprising clearinghouses and meta-registries, is also necessary. Clearinghouses would support the development of a futures market and provide counterparty default protection. Meta-registries would provide custodian-like services for buyers and suppliers and enable the creation of standardized issuance numbers for individual projects (similar to the International Securities Identification Number, or ISIN, in capital markets).
In addition, an advanced data infrastructure would promote the transparency of reference and market data. Sophisticated and timely data are essential for all environmental and capital markets. Transparent reference and market data are not readily available now because access to data is limited and the OTC market is difficult to track. Buyers and suppliers would benefit from new reporting and analytics services that consolidate openly accessible reference data from multiple registries, through APIs.
Creating consensus about the proper use of carbon credits
A measure of skepticism attends the use of credits in decarbonization. Some observers question whether companies will extensively reduce their own emissions if they have the option to offset emissions instead. Companies would benefit from clear guidance on what would constitute an environmentally sound offsetting program as part of an overall push toward net-zero emissions. Principles for the use of carbon credits would help ensure that carbon offsetting does not preclude other efforts to mitigate emissions and does result in more carbon reductions than would take place otherwise.
Under such principles, a company would first establish its need for carbon credits by disclosing its greenhouse-gas emissions from all operations, along with its targets and plans for reducing emissions over time. To compensate for emissions from sources that it can eventually eliminate, the company might purchase and “retire” carbon credits (claiming the reductions as their own and taking the credits off the market, so that another organization can’t claim the same reductions). It could also use carbon credits to neutralize the so-called residual emissions that it wouldn’t be able to eliminate in the future.
Installing mechanisms to safeguard the market’s integrity
Concerns about the integrity of the voluntary carbon market impede its growth in several ways. First, the heterogeneous nature of credits creates potential for errors and fraud. The market’s lack of price transparency also creates the potential for money laundering.
One corrective measure would be establishing a digital process by which projects are registered and credits are verified and issued. Verification entities should be able to track a project’s impact at regular intervals, not just at the end. A digital process could lower issuance costs, shorten payment terms, accelerate credit issuance and cash flow for project developers, allow credits to be traced, and improve the credibility of corporate claims related to the use of offsets.
Other improvements would be the implementation of anti-money-laundering and know-your-customer guidelines to stop fraud, and the creation of a governance body to ensure the eligibility of market participants, supervise their conduct, and oversee the market’s functioning.
Transmitting clear signals of demand
Finding effective ways for buyers of carbon credits to signal their future demand would help encourage project developers to increase the supply of carbon credits. Long-term demand signals might arrive in the form of commitments to reduce greenhouse-gas emissions or as up-front agreements with project developers to buy carbon credits from future projects. Medium-term demand might be recorded in a registry of commitments to purchase carbon credits.
Other potential ways to promote demand signals include consistent, widely accepted guidelines for companies on accepted uses of carbon credits to offset emissions; more industry-wide collaboration, whereby consortiums of companies might align their emissions-reduction goals or set out shared goals; and better standards and infrastructure for the development and sale of consumer-oriented carbon credits.
Limiting the rise of global temperatures to 1.5 degrees Celsius will require a rapid, drastic reduction in net greenhouse-gas emissions. While companies and other organizations can achieve much of the necessary reduction by adopting new technologies, energy sources, and operating practices, many will need to use carbon credits to supplement their own abatement efforts to achieve net-zero emissions. A robust, effective voluntary market for carbon credits would make it easier for companies to locate trustworthy sources of carbon credits and complete the transactions for them. Just as important, such a market would be able to transmit signals of buyers’ demand, which would in turn encourage sellers to increase supplies of credits. By enabling more carbon offsetting to take place, a voluntary carbon market would support progress toward a low-carbon future.
