Putting carbon in the business case
This report proposes that an embedded carbon ‘base case’ should be included in all business cases for large infrastructure projects. The proposal follows the ground breaking report released earlier this year, Decarbonising Infrastructure.
Watch Infrastructure Partnerships Australia CEO Adrian Dwyer
breakdown the key highlights of the report in this 3 minute video.
An embedded (or embodied) carbon ‘base case’ should be included in all business cases for infrastructure projects and programs over $100 million in capital cost. This should be mandatory for all such projects, with government retaining the option to ‘compete’ a lower carbon outcome through detailed design and procurement. This would establish a framework to move infrastructure procurement to a Time, Quality and Cost + Carbon setting.
This proposal has been developed as a discrete policy solution to address the lack of clarity on how the Australian infrastructure sector will reduce the carbon embedded in the vast amounts of steel, concrete and other materials required to deliver the upcoming project pipeline. This proposed reform is targeted specifically at the pre- and early-stages of a project to consider its carbon footprint in construction, rather than an asset’s operational emissions, which are well established through tools like the Design/As-Built IS Rating Scheme.
This proposal arises out of the rigorous analysis undertaken in Infrastructure Partnerships Australia’s report, Decarbonising Infrastructure, and is intended to be read in conjunction with that wider body of work.
“Governments need to determine the assets they want to buy (being lower-carbon infrastructure), in line with their macro commitments (net zero emissions by 2050), and set these as clear outcomes sought in procurement processes, letting the private sector compete for this lower-carbon work.”
– Infrastructure Partnerships Australia, Decarbonising Infrastructure
In April 2022, Infrastructure Partnerships Australia released Decarbonising Infrastructure, a report setting out a pragmatic agenda for Australia’s governments and industry to drive emissions reductions across all forms of infrastructure, including a set of recommended actions. All Australian states and territories have already committed to net zero carbon emissions by 2050. Most recently, the Federal Government introduced a Bill into Parliament proposing to legislate a 43 per cent reduction in net greenhouse gas emissions from 2005 levels by 2030, and net zero emissions by 2050.1
While many of the changes required to decarbonise will be complex, the policy direction and vision required to make them happen are not, and they can build on commitments and actions already taken by industry and governments.
Investors are increasingly looking beyond financial and economic value in assets to understand their ESG credentials, with carbon profiles and scope for decarbonisation as key considerations.
This includes a sharpened focus on the underlying credentials of assets and an increased focus on whole-of-life outcomes, including end-to-end decarbonisation. A burgeoning pool of capital is available for projects with strong ESG credentials as investors look to adjust their portfolios in response to net zero policies and mitigate their climate risk profile. Nevertheless, investors still face challenges in this space – by the time a brownfield asset is transacted, the opportunity to account for the carbon embedded during its construction has usually long disappeared.
Through Infrastructure Partnerships Australia’s engagement on this report, a critical issue emerged. The pathway to reduce the carbon embedded in the vast amounts of steel, concrete and other materials required to deliver the infrastructure pipeline is unclear. Both the scale of this issue and who bears accountability are also remarkably unclear.
Without reform, the benefits of the coming wave of infrastructure construction could be undermined by the significant economic and environmental costs of unnecessary embedded carbon.
1 | Climate Change Bill 2022 (Cth)
Position Statement on Embedded Carbon
The scope of emissions-related challenges in infrastructure has expanded rapidly over recent years, to a moment now where the carbon embedded within assets is in stark focus as an area for action.
There has been some progress – largely industry-driven – through developments such as green concrete, recycled waste in construction materials, and pre-fabricated construction. But, up until now, embedded emissions across construction, operation, and waste have generally been a second order issue in dialogue on decarbonising the sector. As Australia’s energy and transport decarbonise, embedded carbon in construction will become a proportionally larger contributor to our overall emissions, bringing the need to act early into plain view.
While Australia’s official carbon emission reporting does not account for construction emissions in its own standalone category, it is estimated that Australia’s construction industry generates 30 to 50 million tonnes of carbon every year.2 Asset operation emissions are typically accounted for under transport and energy, without considering how infrastructure assets are designed – or the potential Scope Three emissions generated during an asset’s life. Changes to how existing assets are operated or priced to account for this can bring significant reductions in emissions.
Governments have a critical role to play as the planners, funders, procurers, regulators, owners, and operators of a significant proportion of Australia’s infrastructure.
For procurement, public agencies should stipulate clear outcomes sought from bidders in procurement, including requirements for lower-carbon methods, materials or whole-of life efficiency. It is critical that strategic planning and procuring agencies look beyond lowest cost to select the bidder proposing the highest value – with sustainability and decarbonisation attributes forming a key part of that value.
In industry, many major constructors and technical advisors are regularly exposed to global markets and overseas practices, providing opportunities for innovation at scale through identifying, advocating for, and implementing lower-carbon initiatives in Australia that have proven successful in other parts of the world.
Overseas development of an Infrastructure Carbon Management Standard
The challenge of managing carbon in infrastructure has been in focus in the United Kingdom for over a decade. Following the publication of the Government of the United Kingdom’s Infrastructure Carbon Review in 2013, Publicly Available Specification (PAS) 2080: Carbon Management in Infrastructure was developed by industry experts engaged by the British Standards Institute.
PAS 2080:2016 was released in 2016, and among other things, covers carbon management and consistency in the use of data, quantification, benchmarking, and target-setting, as well as value chain carbon, and whole life cost reductions through whole life carbon reduction.
To date, much of the policy and regulatory focus for reducing construction emissions has centred on improving the energy efficiency of buildings and other built assets.
This has relied on the mandatory minimal obligatory requirements for energy efficiency set out in the National Construction Code, alongside voluntary measures such as the National Australian Built Environment Rating System (NABERS) and Green Star. While these requirements are a good start to reducing emissions, more can be done to advance policy and regulatory frameworks to address embedded emissions from construction materials and supply chains.
A number of barriers have stymied progress on low- to zero-carbon innovation in construction. Cost has been a primary concern, with a focus on price efficiency often leaving little room for innovative solutions. However, this concern is diminishing as new products emerge that are both cheaper and more efficient than conventional materials.
Additionally, data on carbon emissions from infrastructure assets lacks granularity, regularity, and reliability – especially given that Scope Three emissions are missing from some industry reporting standards.
2 | Property Council of Australia, 2021, Why embodied carbon is the next frontier.
Infrastructure Partnerships Australia proposes the introduction of a carbon base case for infrastructure projects and programs over $100 million in capital cost. In the initial planning phase of a proposed infrastructure asset, strategic planning and procuring agencies would be required to develop a carbon base case in the project’s business case. This carbon base case would be an estimate of the carbon that would be embedded in the infrastructure asset during its construction, based on data from previous projects of a similar type and scale, and knowledge from the business case about the project’s build characteristics.
This proposed reform is targeted specifically at the pre- and early-stages of a project to consider its carbon footprint in construction, rather than an asset’s operational emissions.
A key issue identified in the development of Infrastructure Partnerships Australia’s Decarbonising Infrastructure report was that for the most part, the majority of the carbon embedded into a project during its construction, has been determined during the early planning and design phases of the project – before it becomes shovel ready.
In a Minimum Viable Product (MVP) form, a carbon base case could be built through simple metrics like estimated volume of concrete, aggregate and steel – and thus carbon – to be used in construction, based on other asset characteristics and parameters set out in the business case. Once tested and implemented, the carbon base case could be periodically refined over time, as assessing embedded carbon on major infrastructure projects becomes more sophisticated. Simply put, government agencies will be able to utilise the carbon ‘base case’ dataset built up over time to inform future work.
As a prospective project reaches procurement, tenderers could – at governments discretion – be asked to bid a lower carbon option than the carbon base case put forward in the business case. Procuring agencies could then take embedded carbon into account in the assessment of bids, alongside the traditional metrics of time, quality and cost. Project planning and procurement stages will, of course, introduce further complexities as a project progresses through detailed design, or becomes subject to a significant variation. However, this is not a reason for inaction – in the same way that variations for cost and scope are treated, the carbon base case should be too.
Following construction completion, the amount of carbon used, measured by the same metrics used to calculate the base case, is reported back to the strategic planning and procuring agencies, as well as other embedded carbon factors accounted for in the project. This reporting should then feed into strategic planning agencies carbon base case iterations, targeting a reduction in the carbon base case on similar projects over time. See Figure 1 for illustrative purposes for the possible lower-carbon solution that could be achieved in a procurement scenario.
Figure 1: Illustrative scenario of a carbon base case being used in the procurement and construction of a project
Swedish Transport Administration Carbon Requirements 3
The Swedish Transport Authority (STA) is a Swedish government agency, responsible for planning, building and operating state roads and railways. In 2016, the STA introduced a similar policy reform to the one proposed by Infrastructure Partnerships Australia, utilising carbon reduction requirements in the procurement of STA’s infrastructure projects. STA requires consultants and contractors working on projects with a budget of five million Euro or more, to use an official carbon calculation tool, Klimatkalkyl, which can be used to calculate the ‘carbon baseline’ in the planning or design phase of a project.
The carbon reduction requirements apply to design and build contracts with a value of five million Euro or more, and the reduction is based on the estimated operational start date as follows:
- projects with an estimated operation start date between 2020 and 2024 must achieve a 15 per cent carbon reduction compared to baseline,
- projects with an estimated operation start date between 2025 and 2029 must achieve a 30 per cent carbon reduction compared to baseline, and
- the baseline must be verified by a carbon declaration based on Klimatkalkyl by end of the project, and certified Environmental Product Declarations (based on applicable standards) required for cement/concrete, reinforcement steel and construction steel.
3 | Anna Kadefors, Stefan Uppenberg, Johanna Alkan Olsson, Daniel Balian and Sofia Lingegård, 2019, Procurement Requirements for Carbon Reduction in Infrastructure Construction Projects – An International Case Study.
Proposed Mechanism for Reform
States and territories – through their strategic planning and procuring agencies – are best placed to drive this reform, and be responsible for tracking and reporting on data. However, there is a strong case for the Federal Government to make infrastructure funding contingent on adherence to this model – being the inclusion of a carbon base case in project business cases. This goes beyond governments procuring lower-carbon infrastructure, it is also an opportunity for governments to use this policy reform as a lever to ‘buy innovation’ in design and construction processes and materials.
It also provides an imperative for design efficiency – a significant benefit in the face of growing supply constraints and substantive cost escalations.
Common standards and guidelines for calculating a carbon base case will make this reform a long-term success. Whether in an MVP project drawing on simple concrete and steel metrics, or a more sophisticated base case, there are already many operational tools and technology solutions developed by industry experts – both in Australia and overseas – that define, measure, and estimate carbon inclusion. Governments can, and should, take a coordinated approach to investigating and agreeing consistent standards and tools for implementing the carbon base case methodology – as seen with the STA’s Klimatkalkyl carbon calculation tool – and can build on existing work such as the standards set out in PAS 2080 or the IS Rating Scheme. However, establishing a common standard should not delay implementing carbon base cases in project planning.
Infrastructure Partnerships Australia would be happy to leverage the dataset held through the Australia and New Zealand Infrastructure Pipeline (ANZIP) to develop some initial expectations around the potential for decarbonisation across the breadth of the pipeline and contribute to sector-wide analysis of infrastructure’s carbon footprint.