Three new business models to achieve carbon reduction targets

Three new business models to achieve carbon reduction targets

NORTHAMPTON, MA / ACCESSWIRE / September 23, 2022 / Tetra Tech: Tetra Tech’s Rodrigo Chaparro, senior climate advisor, examines three Collaborative Approaches as a market-based path to net zero ahead of the 2022 United Nations Climate Change Conference (COP27).

This is the second in a three-part series exploring how Article 6 of the Paris Agreement can boost the clean energy transition.

The most recent Intergovernmental Panel on Climate Change (IPCC) report shows that about 2,400 gigatons (Gt) of net CO2 Emissions were generated globally from 1850 to 2019. Over 1,000 Gt (42 percent) occurred in the last 30 years.

We can only afford another 500 Gt over the next 80 years if we are to limit global warming to 1.5 °C by 2100. This goal seems unlikely given current emission reduction commitments set out in Nationally Determined Contributions (NDCs ).

“Our best hope for deep emissions reductions lies in the energy sector. Collaborative approaches provide a market-based way forward.”

Our best hope for deep emissions reductions lies in the energy sector. Countries must cut or eliminate fossil fuels, develop low-emission technologies, switch to alternative energy sources and prioritize energy efficiency. New business models that support CO will also be needed2 reductions, such as the Collaborative Approaches set out at the 2021 United Nations Climate Change Conference (COP26) in Article 6, paragraph 2 of the Paris Agreement.

Developed countries are interested in using Cooperative Approaches to obtain additional CO2 emissions reductions. Developing countries will benefit from receiving technical assistance and the transfer of expensive advanced technologies that will help them achieve the conditional targets set out in their NDCs. Cooperative Approaches provide a market-based pathway and can take many forms, including the three models described below.

Model 1-Common Credit Mechanism

Japan established the Joint Credit Mechanism (JCM), a pioneering Article 6 project-based option for cooperation with developing countries on greenhouse gas (GHG) reduction and sustainable development. Japan is working with 17 partner countries under the JCM to facilitate the adoption of leading low-carbon technologies. The resulting emission reduction of each project is assessed as a contribution by both the partner country and Japan and produces a tradable credit.

Each country has committed to keep a register, issue credits in a timely manner and refrain from using JCM mitigation projects for any other international climate mitigation mechanisms to avoid double counting. The goal of the JCM is to achieve a cumulative reduction in GHG emissions of 100 million tonnes of CO2until 2030.

Through JCM, the Thai company, SNC Former Public Company Limited, installed 3.4 megawatts of rooftop solar power at six factories producing air conditioning components. The project uses high-strength crystalline silicon photovoltaic modules produced by Sharp Energy Solutions, a Japanese company with stricter standards than those of the International Electrotechnical Commission. Solar energy replaces electricity produced by fossil fuel-based power plants, helping to reduce greenhouse gas emissions. Participants jointly determine the distribution of verified credits generated by the project and may allocate part of the credits to their respective countries.

The Ministry of Environment of Japan partially supported the project in this case, with the aim of understanding the operational aspects of the mechanism, obtaining JCM credits towards Japan’s NDCs, and promoting the transfer of low-carbon technologies. Both the Japanese technology maker and the Thai company benefit, creating net reductions in greenhouse gas emissions.

Most JCM projects are in renewable energy and energy efficiency, but there are also some waste to energy and transport projects. As more countries adopt Collaborative Approaches, the variety of projects, types of support and partnership models could expand to areas such as e-mobility, green hydrogen and advanced technologies where utilities can play an important role. The current phase is key to creating the necessary infrastructure in developing countries so that Collaborative Approaches can run smoothly.

Model 2-Utility-Transportation Partnerships

Companies such as Enel X are pioneering partnerships using models that offer financing, smart charging solutions and green certificates. Enel X’s successes include the delivery of six electric terminals and 401 electric buses in Bogotá, Colombia, and 11 electric terminals, 40 smart bus stops and 245 chargers in Santiago, Chile.

Global utilities could use the carbon market mechanism under Article 6 to develop an entirely new business model linking the expertise of utilities with local public transport operators and companies launching electric transport fleets.

The system can be used on a global or regional scale, as it is structured to promote South-South cooperation as well. For example, a foreign or regional utility could contract with a local bus concessionaire to build or finance a renewable energy facility that provides clean electricity and the required charging infrastructure. In return, the utility could receive a share of the CO2 project-related emission reductions that the country of the utility in question can use to meet NDC targets. This type of agreement also helps to spread the risks of the project, making it easier to access financing.

Model 3-Utility-Green Hydrogen Partnerships

The hydrogen supply chain is key for developed economies to achieve their decarbonization goals, especially in light of the expected steady increase in carbon taxes. Drivers of green hydrogen market growth include concerns related to security of fossil fuel supply, decreasing costs of renewable energy, and hydrogen’s ability to increase demand-side flexibility through storage applications. The market is projected to reach $417.5 million by 2028 from an estimated $223 million in 2022.

In advanced economies, green hydrogen can play a role in the clean energy transition as an enabler to integrate higher shares of renewable energy into the energy sector. It also supports sectors struggling to decarbonise, such as trucking, aviation, shipping, heating and other energy-intensive industries. In most developing countries, green hydrogen is not considered a competitive energy source in the short term, but it can certainly become a valuable export.

“A Collaborative Approach could be used to facilitate the international spread of technology, provide climate-friendly finance to investors and structure the carbon credit exchange.”

Utilities are also exploring new international avenues with green hydrogen. The Haru Oni ​​pilot project in Chile will harness the strong winds of Chile’s Magallanes region to produce green hydrogen that will be used to create synthetic fuel for export. The project combines the experience of an Italian utility subsidiary of Siemens, a petroleum company, and German carmaker Porsche, which will use the fuel in its motorsport fleet. A Collaborative Approach could be used to facilitate the international development of technology produced in Germany, to provide climate-friendly finance to investors and to structure the carbon credit exchange.

Most of CO2 emission reductions will be transferred to Germany. Chile will benefit not only from exporting hydrogen but also from bringing more renewables into the grid.

Inventing new models for the new normal

As decarbonization leaders, many power and utility companies are trying to reinvent themselves, experimenting with new business models that serve the energy transition and the bottom line. While the details of partnerships across sectors and countries are different, there is a common thread design, innovation and international collaboration. Cooperative Approaches can play a central role in these initiatives by also facilitating access to new technologies, climate finance and carbon trading.

How can Tetra Tech help customers use Collaborative Approaches?

Tetra Tech’s energy consulting and technical implementation experts can support governments and private sector clients in the following areas.

Development of new carbon markets

  • Advises governments on regulations for energy projects under the Cooperative Approaches and the Sustainable Development Mechanism (SDM) (e.g. project eligibility, compensation mechanisms, financing, monitoring and verification, legal advice)

  • Create clean energy portfolios with carbon offsets that can be traded internationally through Cooperative Approaches and SDM markets

  • Ensure carbon market compliance and maximize the potential to reduce emissions abatement costs

Designing and implementing decarbonisation pathways for utilities and private companies

  • Analyze the market and identify low-carbon financing and investment opportunities

  • Develop the necessary technology to implement decarbonization strategies

  • Evaluate quality offsets that can complement emissions targets, with services including audit projects, conducting financial and commercial due diligence and negotiating with project developers

Read more from Rodrigo about how Article 6 of the Paris Agreement can boost the clean energy transition:

Tetra Tech, Friday, September 23, 2022, press release image

Tetra Tech, Friday, September 23, 2022, press release image

See additional media and more ESG stories from Tetra Tech at

Contact information:

Spokesperson: Tetra Tech

SOURCE: Tetra Tech

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