Europe walks a green tightrope

Transitioning to clean energy is a dizzying tightrope walk that demands deft footwork from business leaders while expectant crowds watch their every move. To achieve the right balance on the high wire, they will need to take short steps, keep a clear focus on the challenge ahead — and have nerves of steel. That is because pressure to invest heavily in a low-carbon future is growing, yet many businesses must weigh this against tight budgets in the here and now, exacerbated by the pandemic.

Fortunately, in Europe the stars are aligning to strengthen the case for a swifter green transition — and increasing the rewards of doing so. Companies that get it right will be those combining short-term, no-regret solutions and medium-term next-horizon solutions, striking a smart balance between immediate cost benefits and longer-term value opportunities.

Energy transition

Europe is already ahead of the game, pioneering an unprecedented energy transition based on coordinated and systematic change at the highest levels. Sustainability has risen to the top of the business agenda and more European companies have committed to science-based greenhouse gas (GHG) emissions reduction targets than rivals in America and Asia, backed by hard cash. Crucially, European businesses are starting to recognise the competitive benefits of a twin transformation fusing sustainability with leading-edge technology. And Europe’s green transition is a collaborative effort in which policymakers and industry leaders act in harmony.

Yet vast emissions reduction potential remains untapped — putting resource and energy-intensive industries in the spotlight. Europe’s production of key materials and chemicals — steel, plastics, ammonia and cement — emits 500 million tonnes of CO2 per year, which on current trends could increase if no additional action is taken. This means that if the EU is to retain its prominent role on the global stage, it must maintain the essential industrial base of a modern economy while driving down emissions. Four trends create an imperative for swifter action — and bolster the opportunities of doing so.

First, to meet the ambitions of the Paris Climate Agreement, European companies must double investment in reducing their carbon footprint. Delaying action is not an option.

At the same time, consumers demand results — and favour companies that go green.

Moreover, the business case for an energy transition has never been stronger, with a switch to gas and renewables promising to unlock billions in new value.

And the shift to clean energy in critical industries such as steel, chemicals and cement will have a ripple effect across other sectors, consolidating the EU’s move to a circular economy.

Balancing act

European companies eager to accelerate this transition find themselves on the high wire. Stakeholders want European businesses to power ahead and realise more substantial emissions reductions, yet investments made today to cut emissions may not pay off for years, coffers are tight, and controlling costs is paramount — especially in industries battered by the pandemic. That is why a courageous balancing act is essential.

Businesses must develop a balanced portfolio of emissions reduction investments built on the back of short-term, no-regret solutions and medium-term next-horizon solutions. Making smart moves today will prepare them better for tomorrow, staying viable in uncertain times mindful that ROI is not immediate. In the short term, they should invest in technology and fuel switching, where a positive business case has become the rule rather than the exception. Take iron and steel production, for example. Accenture modelling suggests switching to gas and renewables can deliver €11 billion positive business value by 2025 — as well as 50 Mt CO2-eq. emissions reduction.

In the longer term, businesses should position themselves now for low-carbon opportunities that promise to scale up. By 2030, for example, 28% of Europe’s cars are likely to be electric, accelerating the emergence of multiple new markets. The number of charging points, for example, will soar from 185,000 in 2019 to 3 million in a decade.

Smart decisions will be needed to achieve this balancing act — but our planet cannot wait. The same way businesses don’t need to choose between profitability and sustainability, they can also reconcile short- and long-term opportunities. With deft footwork and a cool head, European companies can negotiate the tightrope, and achieve global leadership in the process.

Originally published on https://www.linkedin.com.