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The new era of net zero as a service: How the engineering and construction industry can lead it
Dec 01, 2022
The engineering and construction (E&C) industry has a big role to play as we “green up” our infrastructure. Just consider that the built environment accounts for 39% of global CO2 emissions at a time when worldwide construction is poised to accelerate over the next decade.
Indeed, the industry is intensifying efforts to decarbonize assets and make them more resilient by using lower-carbon-content materials, designing for energy efficiency, giving owners optionality with regard to materials, means and methods of construction, and leveraging renewable energy for cleaner power sources.
However, the most profound way E&C firms can help make projects cleaner and more sustainable may be offering net zero as a service (NZaaS) to enable the monitoring and disclosure of greenhouse gas (GHG) emissions (as well as monitoring other emissions, including hydrogen) on projects and portfolios. This includes quantifying emissions produced not only through an asset’s operations, but also those across its life cycle (including embodied carbon of raw materials) from their extraction to an asset’s end of life. PwC believes that such new services are potentially the most important transformation of E&C firms, given the societal and regulatory push to decarbonize, as explored in our recent report on the future of the industry.
Emissions reporting: ready for prime time
Recent initiatives make this an especially timely moment for E&C firms to lead on this front.The US Securities and Exchange Commission issued a proposed rule in March that could require publicly-traded companies to disclose Scope 1, Scope 2 and, in some cases, Scope 3 emissions. In February, the Biden Administration established the Buy Clean Task Force to guide the federal government’s purchasing of low-carbon materials, which will likely be favored by construction projects funded by the 2021 Infrastructure Investment and Jobs Act. The impact of these initiatives is yet to be seen; the rollout of the SEC final climate risk disclosure rules could be delayed until next year, given the challenges surrounding addressing the comments and feedback received from stakeholders on those proposed rules. We see these rules changes as potentially having a ripple effect as companies — as part of calculating their Scope 3 emissions — will increasingly expect and even require suppliers to report their Scope 1 and Scope 2 emissions.
The carbon ledger: The foundation of net zero as a service
Complete, verifiable carbon-ledger data on a project — and the methodology of their calculations — can be provided to the facility’s owner/operator as a service, in the same way E&C firms now provide operations and maintenance manuals and material safety data sheets, or the equivalent of how an owner-controlled insurance program (OCIP) works for insurance, but in this case, an owner-controlled emission reporting program, helps facilitate the delivery of a project with a holistic, accurate and reliable carbon ledger. A core purpose of building carbon ledgers is to track Scope 1, Scope 2 and Scope 3 emissions and help the facility to disclose and report those emissions.
Doing so, however, can be enormously complicated, requiring emissions data from vendors (e.g., suppliers and manufacturers, construction equipment, tasks and logistics) and industry-proxy or estimates for each component of a project’s facility. Carbon ledgers can also identify a broad range of net zero needs including energy efficiency improvements and the integration of cleaner power and fuel and carbon capture and sequestration technologies.
E&C firms can offer carbon ledgers as a stand-alone “net zero as a service” not only for the projects they build, but also for facilities built by others. Net zero services can potentially be expansive and can include carbon footprint reduction alternatives, sustainability tradeoffs and benefits and carbon offset strategies. They can also impact strategic decisions for customers, such as considering climate-risk mitigation plans or “net zero” design alternatives that could help evaluate which projects should move forward and which should be deferred.
Weaving a carbon digital thread throughout operations and procurement
The carbon emissions digital thread can run from the initial carbon-emissions data collection and the analysis of that data at several layers: product, project and carbon emissions. Adopting this digital thread often requires treating the project or asset as a product, including a bill of materials to which carbon-emissions data attributes can be linked.
Scope 3 emissions: Especially tricky for E&C firms’ long, complicated value chains
Measuring and reporting verified Scope 3 emissions of an asset’s entire value chain (i.e., capturing, monitoring and verifying the end-to-end carbon emission footprint of a project — or a resulting product — at each stage of an asset’s life cycle) could prove challenging for most E&C firms. The bulk of E&C firms already report Scope 1 and Scope 2 emissions, yet this often falls short of monitoring an asset’s total value-chain emissions. For E&C firms, estimating Scope 3 emissions can be particularly difficult and demand resources they lack, which can lead to underreporting (or failing to report) these data. This is potentially problematic for many E&C firms, given that Scope 3 emissions can account for the lion’s share of a project’s total emissions.
However, E&C firms that are building the capabilities to successfully support their clients with Scope 3 emissions will likely not only have a competitive advantage, but also could enhance the preparedness of owners and operators as the new era of NZaaS plays out in the near and long term.
Main takeaways
- E&C firms that can offer asset owners verifiable emissions measuring and reporting (carbon ledgers) can unlock new business models and revenue streams while helping lead in the green infrastructure boon.
- E&C firms should incorporate emissions reporting into the processes already in place for financial reporting to help meet investor-grade standards.
- E&C firms should decide on the sources and key metrics for every stage of design development.
- Mastering Scope 3 emissions could be the biggest opportunity for E&C firms to increase competitive advantage as companies will increasingly need that data.
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