As companies try to achieve their decarbonization Net Zero Goals by 2050, the demand for clean technology solutions becomes increasingly important. US consumers are willing to pay up to 10% more for sustainable products, and 36% of B2B customers would switch suppliers if their sustainability needs aren’t met (Branden et al. 2024). Building a sustainable business remains a strategic imperative. With clean energy technology investment projected to reach $800 billion in 2024 and $1 trillion by 2030 (Meinecke et al. 2024), the market is evolving quickly. Customers, consumers, and regulators are driving this change, and businesses must adapt to remain competitive. However, efforts to commercialize emerging clean technologies face challenges, as the industry experiences barriers to widespread adoption.
Industry Challenges
- Technical Hurdles
Early-stage technology with tons of promise comes with its fair share of risks: unreliable performance, integration issues, and scale-up challenges. These technical problems drive up costs, resulting in ‘green premiums’—the extra expense of cleaner technologies over conventional options, which can be a major financial obstacle for many companies. For example, sustainable aviation fuel (SAF) remains two to three times more expensive than conventional jet fuel (Mistry et al. 2024).
The solution lies in a shared understanding of standardized designs that are not only safe but affordable. In the 1980s, wind power faced fragmentation and inefficiencies. The introduction of standardized safety, quality, and technical specifications by the International Electrotechnical Commission (IEC) reduced risks, attracted investment, and lowered costs. Clean tech can achieve the same by adopting universal standards that streamline production and deployment. For example, the International Civil Aviation Organization (ICAO) is developing standards for sustainable aviation fuel (SAF), helping to streamline production and increase global adoption in the aviation industry (Mistry et al. 2024).
- Missing Market
Even when the technology is mature and the buyers are eager, clean tech faces a crucial issue: the market itself. For new technologies like clean hydrogen, the infrastructure just isn’t there yet. Emerging technologies need significant infrastructure investment, and without well-established markets, it’s hard to find buyers willing to take on the risk of fluctuating prices (Financial Times 2021).
A potential solution for clean tech can be found in tolling agreements, a successful model from the liquefied natural gas (LNG) industry. In the LNG industry, building infrastructure, such as terminals, is costly and risky due to price fluctuations and uncertainties in gas supply. With tolling agreements, the terminal operator charges a flat fee for liquefaction capacity without owning the gas, insulating the operator from the risks of gas production and sales. This approach reduces financial risk and provides a stable revenue stream, boosting investor confidence (Branden et al. 2024). For clean tech to thrive, similar models that effectively distribute risk between buyers and sellers are essential.
- Policy Barriers
Support for clean technology varies wildly depending on where you are, making it difficult for companies to navigate. In the United States, emissions standards can vary significantly between states, creating a fragmented regulatory environment. Meanwhile, the European Union has overarching emissions targets, but each member country enforces them differently. In Canada, a similar challenge exists at the provincial level. British Columbia has implemented aggressive emissions reduction strategies, including a robust carbon pricing system, pushing industries to adopt cleaner technologies faster. In contrast, Alberta, with its heavy reliance on oil and gas, has more lenient emissions standards and less pressure on industries to decarbonize (Branden et al. 2024). This dynamic is evident in the Trans Mountain pipeline expansion, where Alberta’s push for oil exports clashes with British Columbia’s environmental concerns.
Addressing this regulatory patchwork with consistent and uniform policy is key to accelerating clean tech adoption globally.
As the clean tech industry works to overcome barriers like technical hurdles, market challenges, and policy inconsistencies, individual companies across all sectors are facing their own set of challenges in decarbonizing their operations and supply chains.
Firm Strategies
- Decarbonizing Supply Chains
Currently, 36% of companies are behind on their Scope 1 and Scope 2 targets. Scope 1 refers to direct emissions from sources owned or controlled by the company, such as fuel combustion from company vehicles. Scope 2 covers indirect emissions from purchased energy, like electricity or heat. Even more concerning, 51% of companies are behind on Scope 3 targets, which account for emissions generated indirectly throughout the supply chain, from raw material sourcing to waste disposal (Degot et al. 2023). Scope 3 is especially difficult to manage, as it involves the entire value chain (spanning suppliers, customers, and logistics) and represents 75% of all greenhouse gas emissions. Industries with complex supply chains, such as agriculture and food services, face the greatest challenge in reducing these emissions (Stone 2022).
For many executives, decarbonization presents high costs and uncertain returns. Behind closed doors, CFOs often question the timing: “I know I’ll need to decarbonize, but when? The upfront costs are immediate, while the payback is less certain” (Unglesbee 2023).
However, companies that are ahead in the race to Net Zero are not waiting and understand that decarbonization isn’t just an environmental responsibility; it’s a strategic business opportunity (Degot et al. 2023).
Using a “triangle of optimization” approach (emissions, efficiency, costs) decarbonizing supply chains offers both financial and nonfinancial rewards:
- Financial: Lower operating costs, tax savings, and higher valuations.
- Nonfinancial: Enhanced reputation, increased regulatory compliance, improved attraction and retention of talent, and greater customer loyalty.
- Phased Approach to Decarbonization
Additionally, companies that are struggling to meet their Scope 3 emissions targets should adopt a phased-approach.
In the short term, companies should prioritize easy wins like using renewable energy and energy-efficient technologies. For the long term, collaborating with suppliers to adopt low-carbon alternatives and innovating within the supply chain are key. For example, Tesla has taken the innovative approach of vertically integrating its supply chain and developing innovative battery technology in-house, reducing its reliance on external suppliers and creating more control over its emissions (Halvorson 2024).
- The Importance of Flexibility
Companies must also remain flexible to constantly changing technology advancements and unsure environments. For example, the surge in demand for electricity from generative AI has disrupted many sustainability plans. In 2023, Microsoft saw a 30% increase in Scope 3 emissions due to AI and cloud-related data centre expansion. In response, Microsoft adjusted its strategy, setting a goal for its major suppliers to use 100% carbon-free electricity by 2030 (Lichtenau et al. 2023).
The path to sustainability is far from easy. It requires overcoming financial burdens, navigating uncertain returns, and collaborating across complex supply chains. Yet, the necessity of decarbonization is clear. Those who are willing to embrace the challenge will find that sustainability is not just a goal, but an essential step toward future resilience and growth (Meinecke et al. 2024).
Bibliography
Branden, Jean-Charles van den, Yelena Ageyeva-Furman, and Derek Baraldi. 2024. “The Visionary CEO’s Guide to Sustainability.” Bain. 2024. https://www.bain.com/insights/topics/ceo-sustainability-guide/.
Degot, Charlotte, Diana, Dimitrova, and Courtney Dong. 2023. “Why Some Companies Are Ahead in the Race to Net Zero.” BCG Global. November 14, 2023. https://www.bcg.com/publications/2023/why-some-companies-are-ahead-in-the-race-to-net-zero-and-reducing-emssions.
Financial Times . 2021. “How Companies Can Decarbonise Their Supply Chains.” Bcg.ft.com. 2021. https://bcg.ft.com/article/companies-decarbonise-their-supply-chains.
Halvorson, Bengt. 2024. “Musk: Buying EV Batteries from Suppliers Costs Less vs. Tesla’s Own.” Green Car Reports. June 15, 2024. https://www.greencarreports.com/news/1143529_musk-ev-batteries-from-suppliers-costs-less-vs-tesla.
Lichtenau, Torsten, Abhijit Prabhu, and Anna Fritz Månsson. 2023. “Operations and Supply Chain Decarbonization: Lower Emissions, Higher Performance.” Bain. November 13, 2023. https://www.bain.com/insights/operations-and-supply-chain-decarbonization-lower-emissions-higher-performance-ceo-sustainability-guide-2023/.
Meinecke, Hubertus, Chrissy O’Brien, Yvonne Zhou, and Hassan Siddiqui. 2024. “Boosting Your Bottom Line through Decarbonization.” BCG Global. September 17, 2024. https://www.bcg.com/publications/2024/boosting-bottom-line-reducing-carbon-emissions
Mistry, Karan, Vinoj Pillai, Bahar Carroll, and David Cotton. 2024. “What Today’s Climate Tech Can Learn from Yesterday’s Energy Transitions.” BCG Global. September 19, 2024. https://www.bcg.com/publications/2024/what-climate-can-learn-from-past-energy-shifts.
Stone, Matt. 2022. “Re:think: How to Decarbonize Supply Chains.” Mckinsey.com. 2022. https://www.mckinsey.com/~/media/mckinsey/email/rethink/2022/07/2022-07-13d.html.
Unglesbee, Ben. 2023. “Who Will Pay to Decarbonize the Supply Chain?” Supply Chain Dive. August 15, 2023. https://www.supplychaindive.com/news/who-will-pay-to-decarbonize-the-supply-chain/690631/.
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