Analysis of 10,000 decarbonization projects

Here’s a note from Nawar Alsaddi:

This academic paper analyzing close to 10000 decarbonization projects by 455 US publicly traded companies reveal the characteristics of decarbonization projects undertaken by these companies between 2011 and 2022. Here are some of the key findings:

– The majority of decarbonization projects are small scale projects ($127K median investment) with a 3-year payback, saving 4300t in total lifetime emissions
– 76% of projects have a positive NPV. Short term projects are 40% less likely to have a negative NPV
– Short term projects have 11.5% higher emissions savings per year, but 25% less total emissions saved over their lifetime. 48-52% split between short and long term decarbonization projects have the highest total emissions reduction impact.
– Companies spend $1.1m on average in the first year, this amount doubles the second year, until eventually reaching $5.5m by year 8 to 10.
– 74% projects focus on energy savings (building and process efficiency). A minority focus on low emissions generation or low carbon fuels (9%)
– Companies invest 0.5% of annual their capex and 0.2% earning into decarbonization projects on average
– Larger companies invest 10-12% less in short term projects

Implications, my take:

The above clearly affirms the fact that companies favor economically advantageous decarbonization projects. And the majority of companies only dedicate a very small amount of their capex to decarbonization (This affirms why indicator 6, capital alignment is the worst performing indicator for CA100+ target companies – https://shorturl.at/KVKud). These findings have implications for investors, policymakers, and solution providers:

1. Implications for investors:

– Engagement: Ask companies to explain the balance between short and long term decarbonization as well elucidate the economic criteria utilized to prioritize projects. Work to balance short and long term projects.
– Investment opportunity: short-term impact climate solutions have a larger total market. Efficiency solutions are in high demand, invest accordingly

2. Implications for policy makers:

– Policy makers need to design policy that incentivize maximum total decarbonization by increasing the economic benefits of long term decarbonization projects (tax breaks or accelerated deprecation … etc. ).

3. Implications for climate solutions providers:

– Demonstrate the NPV benefits of your solution. Emphasize solutions with 3-years or less payback, especially when approaching smaller firms
– Companies early in their decarbonization journey spend the least on decarbonization. Price your solutions to them accordingly. Up sell as they increase their spending
– Decarbonization software providers should develop integrated decarbonization and project management solutions, enabling companies to optimize impact and returns