March 2022

Carbon Captures/CO2 Mitigation

Digitally uncover profitable pathways to net-zero

Many view COP26—the 2021 United Nations Climate Change Conference in Glasgow, Scotland—as a missed opportunity.

Dubey, S., AVEVA

Many view COP26—the 2021 United Nations Climate Change Conference in Glasgow, Scotland—as a missed opportunity. However, it did score a few achievements, one of which is draft guidance on Article 6 of the Paris Agreement that is expected to pave the way for operationalizing effective carbon markets.

Energy executives should take notice, as this signifies the role economics and market mechanisms will play as industry decarbonizes. As many leading energy companies commit to net-zero targets, it is important to reaffirm that good planning, execution and the capability to demonstrate additionality in abatement measures can lead to an economically viable transition to net-zero. This article builds on the following themes:

  • The need for energy companies to prioritize their emissions-related initiatives based on detailed analysis of technology options, market conditions and regulations
  • The digital capabilities and solutions needed by organizations to uncover this profitable path to net-zero
  • A recommended framework and next steps for organizations that wish to build this capability.

Net-zero or net profit?

A survey of plans across energy companies and a review of abatement measures reveal the following broad phases or categories of initiatives companies are adopting.

Beginning with unlocking efficiencies, the focus is on increasing efficiencies either through better planning, optimization, control, operations or maintenance. This step is expected to be net-positive for the operators, with the measures often paying for themselves.

The next category is the progressive introduction of low-emissions components into the value chain. These could be new low-emissions feedstocks, intermediates and blend components, equipment replacements, upgrades and additions that reduce emissions without changing the basic process configuration.

The final category of initiatives might require significant capital expenditure (CAPEX) and operating model changes, where today’s operators become a hub for the distribution of low- or zero-emissions energy products. In the process, they also capture and sequester carbon produced for themselves and the surrounding industrial cluster.

While these phases serve to reiterate organizations’ strategic intent, it is also evident that this is a simplistic and sometimes misleading view of how organizations will practically achieve their net-zero targets. Take energy efficiency as an example: its contribution towards decarbonization is often underestimated by executives and relegated to a few initiatives in the first phase. A 2019 report by the International Energy Agency (IEA)1 estimates the cumulative impact from a range of digital technologies and advanced software applications could mean energy savings of up to 30% across the industry globally. These are significant savings in terms of greenhouse gas (GHG) emissions abated. Therefore, energy efficiency must be the focus throughout the net-zero journey as new feeds, equipment or units are introduced into the value chain, and new digital technologies become available.

In general, such simplistic net-zero plans fail to address the challenges from a complex interplay of technology, regulatory and market environments, and how these will evolve in the future. At present, the technology space for net-zero is extremely dynamic, with multiple options being researched. This is a function of the investments being made as well as the demand.

A 2020 IEA report, “Energy technology perspectives,”2 states that more than 33% of the cumulative emissions reductions in the Sustainable Development Scenario (SDS) stem from technologies that are not commercially available today. At the same time, policy and regulatory frameworks continue to evolve. The draft guidance on Article 6 of the Paris Agreement, mentioned earlier, talks of a centralized accounting and reporting platform. This will drive a more rigorous GHG reporting regime globally and encourage more comprehensive carbon pricing initiatives. Such developments will affect the market environment, incentivizing specific initiatives differently depending on how these scenarios play out. This also provides an opportunity for companies that can navigate this better than competitors and leverage market mechanism.

OPTIMIZE THE CARBON CHAIN WITH THE VALUE CHAIN

As energy companies embark on select initiatives and projects on their journey to net-zero, they must develop solutions and capabilities that will guide them in a profitable fashion. Increasingly, GHG mitigations will be incentivized, or emissions penalized through market and non-market mechanisms. These solutions and capabilities will help organizations prioritize their initiatives based on existing and emerging technologies and, more importantly, evaluate them as various regulatory and market scenarios unfold. Energy companies must develop these forward-looking capabilities proactively rather than reactively, always considering the time needed to scale effectively. The winners of the energy transition will be companies that can navigate this journey profitably.

The capability to successfully create, update and execute on a tenable net-zero roadmap should, as a minimum, comprise three key components (FIG. 1) that are discussed separately in greater detail below:

FIG. 1. Capabilities to successfully navigate to net-zero. Source: AVEVA.
  • Carbon-aware planning: The capability to create investment and operating plans considering Scope 1, 2 and 3 emissions.
  • Process digital twin-based energy and emissions management: The capability to calculate emissions reduction potential to drive tactical, operational improvements.
  • Unified production and emissions accounting: The capability to baseline and then track production, fuel and loss, ensuring more consistent reporting between emissions and production and linking emissions reduction to the bottom line through reduced fuel and loss (or increased production).

Companies with these capabilities will have a competitive advantage when balancing between profitability drivers and the new GHG- and sustainability-related drivers to find a profitable path to net-zero. These capabilities are not entirely new, but should be considered as enhancements of existing capabilities and solutions to address the upcoming challenges and create a sustainable competitive advantage as the industry transitions to net-zero.

Carbon-aware planning

This is an enhancement of existing planning models and solutions to address future carbon pricing and carbon caps or limits. It provides organizations the capability to make investment plans based on various carbon pricing and carbon cap scenarios.

The capability consists of having a planning solution that models direct emissions for the organization with appropriate rigor, including capturing the carbon intensity from feed to the final product and ensuring that all economically significant operations or activities and their associated emissions are modeled to be dependent on the level of operations or activity. This covers what are typically classified as Scope 1 emissions. Additionally, the capability should exist to model indirect emissions (Scope 2 and 3), typically based on supplier/customer published numbers, national or regional averages, or industry numbers. This would allow firms to assess the risk of rising carbon pricing and the impact of carbon caps from an overall (Scope 1, 2 and 3) carbon footprint basis. This is key when evaluating alternate feedstocks, energy sources and, in general, any make vs. buy decisions.

The modeling approach must be supported by collaboration with specialized teams from the process, sustainability and commercial/marketing segments. The uncertainty in technology, regulatory and market environments means that various scenarios of demand, prices and new technologies/processes must be evaluated. This information will be collected from specialists, and then different demand/pricing scenarios must be applied against a backdrop of varying policy environments and technology options.

Process digital twin-based energy and emissions management3.

Carbon-aware planning provides the major investment guidance and planning insight into switching to low-emissions or green feed, energy options and producing low-carbon products. However, companies must also identify tactical opportunities for emissions reduction that might not significantly alter the process or require a significant CAPEX investment.

These improvement opportunities include performing maintenance work like exchanger cleaning, changing pump impellers, switching to low-carbon fuels in specific equipment, equipment level heat recovery, conservation and other abatement initiatives. Improvement opportunities will typically lower emissions or increase efficiency in the medium- to short-term, but are too granular or short-term to be adequately addressed by carbon-aware planning.

Companies have been using site-based norms or global/industry benchmarks to compare their energy and emissions performance and identify opportunities for improvement. The problem with using these norms is that they are too aggregated and averaged to provide addressable insights that can help prioritize actions. For example, industry benchmarks are effective at the unit or site level, but have limitations when it comes to prioritizing the potential for efficiency improvement or emissions reduction in the context of specific equipment (pump, motor, exchanger, etc.), considering the nature of site-specific operations.

Suppose that site-based norms for particular equipment or class of equipment based on history are used. In that case, they can provide a comparison based on historical averaged data but not the potential benefit, which can help managers prioritize actions. This is a challenge because feed sometimes can be heavy or light; it can contain high or low sulfur amounts. Similarly, the process may run alternately in a severe mode and a less severe mode. This operational context will impact the energy needed and the GHG emissions from the process.

Averaging the data removes this context—for that reason, the difference from an averaged static norm does not capture the true potential for reduction. Instead, if a digital twin for the process is used and run in parallel in a “green mode,” it will calculate the most practically efficient norms for energy and emissions. The difference between the current value and dynamic target calculated by the “green” digital twin can then provide an accurate view of the reduction potential for energy consumption and emissions (FIG. 2).

FIG. 2. Energy and emissions reduction potential can provide addressable insights. Source: AVEVA.

The first step is to collect plant data (FIG. 3), followed by data validation, gross error detection and reconciliation, a critical step to ensure fidelity and accuracy of outcomes. The digital twin can then be run in green mode to calculate the dynamic target4 based on the most practical and efficient operation, considering feed rate, quality, composition and independent parameters, such as ambient conditions, while meeting product rate and specification requirements.

FIG. 3. Calculating energy and emissions reduction potential using a process digital twin. Source: AVEVA.

This approach makes it possible to calculate the reduction potential for various improvement opportunities—equipment cleaning and maintenance, replacement and upgrades, and heat conservation projects—that impact energy consumption and emissions. This reduction potential then helps prioritize these initiatives based on accurate estimates of benefits. As stated earlier, the capability to find the most beneficial and profitable initiatives in the correct order will be critical to navigating to net-zero successfully. Additionally, the digital twin can also optimize the process based on economic drivers, providing further benefits.

Unified production and emissions accounting

GHG accounting and reporting principles continue to evolve. It is expected that as carbon markets become operational and the cost of emissions is felt more tangibly, the focus on completeness, consistency, transparency and accuracy of emissions reporting will increase.5

Organizations must bring more assurance to Scope 1 emissions reporting. In this context, it is essential to distinguish between reporting requirements (from a regulatory perspective) and the level of accounting that a company desires to achieve. A critical capability for companies will be to develop an accounting system capable of handling future reporting requirements that is granular enough to track reductions in emissions through various initiatives. Additionally, it should also reconcile GHG emissions accounting with overall production accounting. This overall hydrocarbon + GHG accounting approach not only improves the consistency and accuracy of numbers, but also connects emissions to overall fuel and loss in a business-centric focus.6

Fuel and loss has been a traditional metric in the energy industry—in turn, reduction in fuel and loss drives efficiency and production (FIG. 4). It is not uncommon to achieve significant reductions in loss through a well-managed loss management program; this traditionally requires good estimation on various emissions, effluents and fuel usage. A rigorous, unified production and emissions accounting system provides the opportunity to achieve those reductions in loss numbers and sustain them. It also promotes credibility in the reported numbers and reduces the uncertainty in emissions data, bringing it in line with production numbers.

FIG. 4. Unifying GHG emissions and sustainability metrics with fuel and loss. Source: AVEVA.

Scope 2 and 3 are indirect emissions, and are the consequence of the activities of the reporting company; however, they occur at sources owned or controlled by another company or entity. A reporting company is generally unable to measure these emissions directly at the source, but rather relies on a variety of sources like supplier or customer published numbers, national or regional averages or industry numbers (on a per-unit basis), and the level of underlying source activity based on in-house data (where available). The underlying source activity for Scopes 2 and 3 emissions are often captured in transaction systems [e.g., sale, purchased in enterprise resource planning (ERP)] for the reporting company. Companies can confirm they are capturing this data in sufficient detail. Since Scope 2 and 3 emissions for one company are Scope 1 emissions for other companies in the supply chain, a sectoral improvement in emissions reporting will lead to a more accurate basis for indirect emissions reporting.

Bringing it all together

Alone, these capabilities are insufficient: they must work together towards the net-zero target utilizing a plan-do-check-act (PDCA) framework, as shown in FIG. 5, driving iterative and continuous improvement. Driving net-zero targets requires cross-functional collaboration across the value chain, so it is essential to embed the systems and capabilities into the entire supply chain operations. One way is to leverage existing systems, processes and standards already in place. Few such systems to consider are:

FIG. 5. Management system to attain net-zero objectives. Source: AVEVA.
  • International Organization for Standardization (ISO) 50001 for energy management provides a PDCA-based framework that can be extended to emissions management to guide the journey to net-zero.
  • ISO 14000 family of standards, including ISO 14001 (Environmental Management Systems) and ISO 14064 (Greenhouse Gases).

The capabilities discussed here—the use of a digital twin to calculate a rigorous, engineering-based view of energy and emissions reduction potential; and unified production and emissions accounting with a more detailed analysis of fuel and loss—enable a more robust adoption of these systems and standards, overcoming traditional limitations seen in typical deployment (these functions have traditionally been carried out using an array of user-specific Excel calculations). A system and standard-based approach where carbon-aware planning and process digital twin-based energy and emissions management help set targets and prioritize actions. Unified emissions and production accounting enables tracking, monitoring and reporting of achievements against targets, and can provide organizations a competitive advantage on the journey to net-zero.

Energy companies must generate objective targets for emissions reduction and prioritize actions and initiatives based on economics. The ability to monitor and track their progress will help them uncover a profitable path to net-zero. Markets and shareholders will reward companies that demonstrate this capability earlier than others. Companies interested in capturing this opportunity should review their management systems around energy and emissions reporting and management and enhance them by using systems and solutions for carbon-aware planning, process digital twin for energy and emissions management, and unified production and emissions accounting. HP

LITERATURE CITED

  1. International Energy Agency (IEA), “Energy efficiency,” 2019, online: https://www.iea.org/reports/energy-efficiency-2019
  2. International Energy Agency (IEA), “Energy technology perspectives,” 2020, online: https://www.iea.org/reports/energy-technology-perspectives-2020
  3. AVEVA, “Spiral suite core: Model building and optimization,” 2021.
  4. AVEVA , “AVEVA ROMeo process Optimization user guide,” 2021.
  5. World Resource Institute, World Business Council for Sustainable Development, “The Greenhouse Gas Protocol: A corporate accounting and reporting standard,” 2004, online: https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf
  6. AVEVA, “AVEVA production accounting reference guide,” 2021.

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