UltraTech Cement Limited is the largest cement company in India with a consolidated capacity of 116.8 Million Tonnes Per Annum (MTPA) and is the only company outside of China to have 100+ MTPA of cement production capacity in a single country. When setting ambitious targets for reducing its greenhouse gas (GHG) emissions, the company found that Internal Carbon Pricing (ICP) provided a lever for decarbonization.
As 2021 CDP research has shown, many companies are seeing the value of ICP, with the number of companies using or planning to use an internal carbon price increasing 80% over just five years. In India too, a total of 58 companies are either pricing carbon or planning to do so in the next two years, an increase of 12% over last year. It is worth noting that a majority of these companies come from the carbon intensive sectors of chemicals, cement and concrete, IT and software development.
UltraTech adheres to Aditya Birla Group's Sustainability Framework and its three strategic pillars: Responsible Stewardship, Stakeholder Engagement, and Future Proofing. The company’s strategy towards decarbonization focuses on commitment to the Science Based Targets initiative (SBTi), and it had its science-based target for emissions reductions validated in March 2021.
The company has set an ambitious target to reduce scope 1 GHG emissions by 27% per ton of cementitious material by 2017 base year. UltraTech is also committed to reducing scope 2 GHG emissions by 69% per ton of cementitious material within the same time frame.
To fulfil these commitments, UltraTech has developed several tools for decarbonization. One of the major drivers was setting an ICP and the company expects it to play a key role in helping achieve these targets.
Growing stakeholder concerns and consumer demands for sustainable products are driving companies to take meaningful climate action and deliver on their commitments. In addition, COP26 is just round the corner and discussions on Net Zero are also gaining momentum.
This makes it an opportune time for businesses to commit to transparency in conjunction with adopting new initiatives such as ICP, SBTs, and the Taskforce on Climate-related Financial Disclosure to accelerate their journey towards decarbonization.
Setting an Internal Carbon Price
In its deployment of ICP, UltraTech has discovered that it is an excellent tool for accelerating decarbonization across the value chain and enabling this transition within the company.
When internalising the price of its carbon, of the three pricing methods available, UltraTech chose to go with a Shadow Carbon Price of US$10. To arrive at an ICP, UltraTech developed three scenarios, determined a carbon price for each one of them and then selected the one most aligned with its overall climate goals.
While the company did consider the introduction of Emission Trading Scheme (ETS) and Science Based Targets Initiative (SBTi) scenarios, the Proactive National Regulatory Scenario was finally used for calculating their ICP. UltraTech expects the ICP it has adopted to drive investments in low carbon technologies and products.
SBTi was the most aggressive scenario developed during this process. The company used the sector decarbonization SBT tool for a target of Well Below 2°C (WB2D), to determine the level of reduction ambition required for its business. A steeper reduction target naturally raised the price of carbon required to achieve commensurate targets.
An in-depth scenario analysis made the company simplify its requirements and pushed it towards determining varied levels of ICPs for different outcomes.
ICP as a means to achieve targets set under SBTi
UltraTech has found that the ICP works as a catalyst towards meeting its carbon reduction targets. Setting an ICP has helped accelerate the company’s decarbonization agenda across its business and made it seek low-carbon processes and technologies.
When UltraTech began internalising the carbon price, it pushed the company to seek low carbon alternatives in the value chain and conduct project appraisals based on the ICP.
This facilitated fast-tracking of low carbon investments like energy efficiency, alternative fuels, renewable energy and waste heat recovery. ICP has also helped the company bring high cost-abatement technologies like CCS (Carbon Capture and Storage) and product chemistry to the Board of Directors for consideration.
Streamlined processes and a reduced carbon footprint have made the company confident in achieving its decarbonisation goals, reiterating the importance of ICP in helping UltraTech commit to and achieve targets set under SBTi.
To fulfil SBTi commitments made under the WB2D scenario, UltraTech needs to implement multiple decarbonization levers across its business. Therefore, the company has incorporated ICP in the project approval process, and this has allowed it to bring several previously unapproved projects, such as a few energy efficiency & Waste Heat Recovery (WHR) projects with higher payback periods to the discussion table.
The key role played by ICP in fast tracking certain low carbon projects was highlighted during deliberations with UltraTech’s senior management. It secured buy-in for commitment to SBTi, despite requiring ambitious reduction targets.
Challenges and pathways to overcoming them
For several companies, including UltraTech, ICP and SBT are fairly new and challenging concepts. Collating complex data sets, validating input assumptions, understanding climate tools and converting them into simple business language have been some of the key challenges faced by companies.
To overcome these issues and to build awareness on these subjects, UltraTech conducted several rounds of internal workshops for its business teams where complex agendas were broken down into simpler chunks, in forms of communication employees were familiar with. Company-wide communication was undertaken to educate all employees with the concepts of ICP, SBT and the need for UltraTech to adopt them during its decarbonization journey.
Several capacity-building sessions were also conducted for key business teams, such as Projects, Manufacturing, Finance and Strategy to enable them to mainstream these concepts with ease across business processes.
How Indian companies can benefit
A growing number of Indian companies are beginning to price carbon risks to reduce costs, guide capital investment decisions and prepare for inevitable regulatory changes that could increase the cost of emissions and have a financial impact on their business.
Their peers can also benefit by integrating an ICP into their business climate strategy and:
- Factor in climate risks while simultaneously preparing for greater cuts in their comprehensive science-based carbon emissions reduction targets.
- Build greater internal awareness of the financial cost associated with a company’s carbon emissions, ultimately leading to a cultural shift towards leaner and cleaner operations as well as capital expenditures.
Companies can refer to this handbook to learn more about using an ICP to accelerate their decarbonization journey and to achieve emissions reduction targets set under the SBT initiative faster, or can write to us at [email protected].