Decarbonization is no longer just policy compliance—it is also a critical value-creation pathway for consumer goods companies. Successful decarbonization can create value by saving on costs, growing market share, and enabling new green-business building.

Developing the decarbonization pathway requires a thorough understanding of current emissions and the pros and cons of available decarbonization levers. In this article, we first lay out the critical factors companies will have to consider before selecting key levers: the technological maturity, cost, and abatement potential of those levers, as well as current and forthcoming regulations. The levers that have the highest emission-reduction potential will vary by the size of relevant emissions and company-specific context. The second half of this article therefore assesses the main sources of Scope 1 and 2 emissions and provisionally identifies promising decarbonization levers.

Evaluation of decarbonization levers

Developing a clear decarbonization plan is challenging even when companies are deeply committed to reducing greenhouse-gas emissions. There is an urgent need for progress, however: many consumer goods companies only have two years to reach their initial targets.

The first step for companies looking to build a clear roadmap for action is to evaluate potential decarbonization levers. There is no one-size-fits-all approach to reducing operational emissions. Therefore, consumer goods players need to first understand the drivers behind their emissions and tailor their approach and solutions accordingly.

All companies, however, should consider a number of key factors before selecting and implementing a specific lever.

First, the maturity of a technology can affect its reliability, scalability, and cost-effectiveness. Companies need to ensure the technology they adopt is sufficiently mature to meet their operational needs and financial goals.

Second, understanding the cost and abatement potential of different technologies and strategies will be important for prioritizing decarbonization efforts.In particular,companies need to weigh the potential gains and costs of adopting each lever. Gains can include improved efficiency, reduced costs, and increased competitiveness, while costs can include capital expenditures, operational changes, and regulation-related expenditures.

A marginal abatement cost curve (MACC) can be a powerful tool for understanding the lever-by-lever cost-effectiveness of emissions abatement. MACCs plot the total emission abatement potential of different strategies or technologies against their marginal cost of abatement, allowing for the identification of the most cost-effective levers in terms of dollars per metric ton of CO₂equivalent abated (Exhibit 1). Initiatives are organized left to right on the curve based on the initiative’s economic cost of emissions abatement. As such, the MACC serves as a preliminary mechanism to prioritize sustainability initiatives, though final decisions should be made after consulting additional data and criteria.

Finally, it is critical for companies to have a perspective on the current and future regulatory environment. Climate regulations are evolving quickly and can affect the cost and feasibility of individual decarbonization strategies.

Assessing Scope 1 and 2 emissions

Company emissions are categorized into three scopes: Scope 1 and 2 emissions are generated in a company’s own operations, while Scope 3 emissions are indirect emissions from upstream and downstream in the value chain.

Scope 1 and 2 emissions—the subject of this article—typically account for less than 10 percent of total emissions in the consumer goods industry (see sidebar, “The main drivers of Scope 1 and 2 emissions for consumer goods companies”).¹

However, the magnitude of Scope 1 and 2 emissions in the consumer goods space can vary significantly by subsector.²For example, Scope 1 emissions account for an average of 3 percent of total emissions for grocery retailers, 1 percent for apparel manufacturers, and 7 percent for beverage producers. Scope 2 emissions, on the other hand, account for an average of 4 percent of total emissions for both grocery retailers and apparel manufacturers and around 5 percent for beverage producers. In resource-intensive subsectors such as crop farming and processing, on-farm fossil fuels used to operate machinery and vehicles and CO₂emissions from chemical processes can together make up as much as 24 percent of total emissions.

To tackle operational emissions, consumer goods companies should first understand the primary drivers of Scope 1 and 2 emissions in their own unique context. While Scope 2 emissions are usually overwhelmingly driven by electricity consumption, Scope 1 emission sources can vary (Exhibit 2).

For retailers, fugitive emissions from refrigerants could represent around 60 percent of Scope 1 emissions. In contrast, these emissions could make up less than 1 percent of the Scope 1 emissions of food processors, whose largest source of emissions in this category are typically stationary emissions driven by fuel combustion for process and space heating. Fuel combustion from vehicles—including forklifts, vans, and trucks—was the dominant source of Scope 1 emissions for apparel manufacturers.

Addressing Scope 1 and 2 emissions is generally less complex than addressing Scope 3 emissions—which will be the subject of the next article in this series—because companies have direct control over where and how they occur.However, the levers that will have the most impact vary by the size of relevant emissions and by the company-specific context.

Identifying decarbonization levers for Scope 1 emissions

The source of emissions will be the key factor in determining the most effective decarbonization levers.

Fugitive emissions.For refrigerant emissions, key levers will likely include minimizing leakages by repairing and maintaining existing equipment as well as replacing gases with high global-warming potential with lower-emission alternatives such as propane- and CO₂-based gases. Some lower-emission alternatives are already commercially available. They are compatible with new equipment and—with some degree of retrofitting—existing equipment.

Stationary combustion.Key levers will include the electrification of low- and medium-heat processes, which helps companies achieve higher process efficiency and, depending on the local electricity mix, can reduce operational emissions by up to 90 percent. In addition, electric heat pumps are more efficient than gas furnaces, which means that the electrification of water and space heating can reduce CO₂emissions by up to 75 percent. Solar thermal water heating systems, which have lifetime emissions that are only about 10 percent of those of gas boilers per kilowatt-hour (kWh), can also be used for low-temperature processes.

Mobile combustion.Fleet electrification can be a powerful decarbonization lever for consumer goods players with significant emissions from transport. Switching to battery electric vehicle trucks can offer operational savings and overall use-phase emissions that are about 20 to 90 percent lower than those of internal-combustion-engine trucks. Improving routing and load efficiency can also have a significant impact in reducing emissions.

Identifying decarbonization levers for Scope 2 emissions

The transition to renewables is a key lever for reducing Scope 2 emissions, which occur through the generation of purchased electricity. During this transition, some companies opt for a corporate power purchase agreement, which is a contract between a consumer goods player and a power producer to purchase electricity at an agreed price for a predetermined period of time. The energy can come from existing renewable-energy supplies or new projects and can produce up to 90 percent less CO₂per kWh generated.

Another option is to switch to solar energy with rooftop photovoltaics (PVs), which results in up to 90 percent lower CO₂emissions per kWh of energy, despite the initial increase in Scope 3 emissions from sourcing PV panels.

While companies who want to stay on track to meet their emissions targets will need to act quickly, formulating the right sustainability strategy will require significant work to understand current emissions and the highest-potential decarbonization levers. The next article in this series will extend the analysis in this article by focusing on Scope 3 emissions.