What may seem like a great climate solution – like switching to a hybrid office, for example – may in reality turn out to be a bad idea. But how do companies make informed decisions on the best ways to reduce their carbon emissions? That’s were carbon accounting comes into play. And decarbonization platform Watershed, which boast customers like Shopify, Airbnb, and Wise, is among the leading solutions in the sector.
We spoke to Steve Davis, Watershed’s Head of Climate Science, who is also a highly-cited researcher and professor of Earth System Science at UC Irvine, to learn more about the company’s approach to carbon accounting, and hear his thoughts on the industry’s most pressing challenges and most exciting opportunities.
This interview has been edited for clarity and length.
What is your story behind joining Watershed?
I’ve been a professor for a little more than 10 years now in Earth System Science. And in that time, I’ve done a lot of work on policy-relevant topics, things that have to do with how climate is interacting with humanity, and vice versa. And I write papers that I hope are valuable to someone, but I never really get a sense of whether anyone’s reading those or making a decision based on what I’ve done. So that was always a little unsatisfying.
And when Watershed approached me and was looking for a Head of Climate Science, it seemed like a great opportunity to help translate that science to the level where a decision maker could make a decision based on it, and be in the room with the decision makers and help influence how they’re just thinking. So that was all very exciting for me and that’s what prompted this move to Watershed.
As a person of science, why do you think it’s important to integrate science-based targets with corporate climate strategies?
We have this very clear idea at the global scale of what needs to happen to stabilize the climate. And there’s a lot of work to do to explain and translate that down the chain to what you and I or a company do daily that adds up to this global picture. It’s not always clear how those two things match up. Even as an academic, when I gave talks, I would often get the question: “Okay, well, that’s all great, we see how an industry has to evolve or a country’s emissions have to trend in the future. But how do I impact that? And what do I do in my day-to-day life?”
And so I think this is where I hopefully can add value at Watershed and bridge those two and talk about how an individual company’s decisions are obviously small compared to the world but can add up and accumulate in a way to match up with what needs to happen. I think the top-level science has to inform what we do at the local scale and the small scale.
What are your daily activities at work? And what are the more strategic projects that you work on?
This morning, for example, I was researching different types of polyethylene because a customer uses different types of plastic, and we have to understand the details of how that affects their emissions. But the more strategic longer-term projects that I’m excited about are developing tools to analyze the different options that our customers have for reducing their emissions. And one of our big pillars at Watershed is not just to measure their emissions, but give them the firepower to act on that and reduce their emissions. My team is working very hard to figure out how to evaluate a company’s emissions, not just where there are large quantities of emissions, but rather, where those emissions are amenable to reduction, where they have leverage, because they own the asset or because there are ready alternatives that they could deploy.
Watershed recently introduced its Supply Chain tool. Could you tell me a bit more about why it’s important to target Scope 3 emissions and what is Watershed’s approach?
Watershed has a bunch of customers that are from the tech sector or the finance sector. And these aren’t traditionally high-emitting sectors themselves, it’s a lot of office work and computers and electricity. Most of their emissions happen upstream, related to electricity, or the things that these firms are purchasing or funding and financing. And so, it’s critical for these types of customers that we get some better resolution on what’s happening beyond the company’s ownership and direct control.
Anyone in this field will tell you, it’s easy to get a rough idea of what’s happening with Scope 3 emissions. But if you want to get down into the details of whether you should prefer one supplier over another, for example, you need to have data to support that kind of decision. This has been a challenge from the dawn of carbon accounting, and Watershed’s recent approach is to develop these tools to allow our customers to reach up and ask their suppliers some key questions that we’ve identified.
Relevant: Watershed Launches Innovative Tool To Decarbonize Corporate Supply Chains
It’s a balance, not wanting to go overboard and give them a survey that would take a team of consultants and a year to complete but rather to be very surgical about the questions that we’re asking, such that if they can answer those few questions, we can say something meaningful about their suppliers and missions.
Watershed’s case study with Shopify, for example, shows that there are things we might consider good for the environment, like having a hybrid office, for example, yet the carbon accounting can suggest otherwise. Could you tell me more about Watershed’s scientific approach toward ensuring that companies effectively measure and reduce their emissions?
I think the hybrid office approach is a good example of what you’re talking about in that sometimes the things that we think of as intuitively a good idea, aren’t always a good idea when you do the math and you analyze the emissions. That’s the value proposition of carbon accounting in general.
In my very early days, I did some work with consumer packaged goods and analyzed their carbon footprints. And one of the companies I worked with was a bottling company that made their bottles with little metal tops that came from Italy. And they were sure that that was terrible because the tops had to be imported all the way from Italy. But it turned out that when you put bottle caps on a ship, it’s a very, very small part of the overall emissions of that ship. It turned out that those are very minor compared to other things that they hadn’t thought about, like the refrigeration of their products in stores after they sell them. So it’s not always easy to just intuitively guess what the big hotspots in your supply chain are. And that’s why we’ve developed all of the methods that we use to analyze these emissions rather than just kind of shooting from the hip.
What are the main challenges in carbon accounting?
One of the challenges is just getting high-quality data about things that are beyond your own businesses’ walls. So the Scope 3 tool that we’ve introduced is one of these that we hope will help us gain a better understanding of emissions that are further from our customers’ control. And thereby giving them some insight, but also some options, maybe switching suppliers, or maybe just understanding how they could advise their suppliers to improve their emissions footprint. Getting that data and engaging the Scope 3 participants in our customer’s footprints, however, is one big challenge.
Another one that’s on my mind a lot these days is that, from the top-down perspective, we have a pretty good idea of how to reduce emissions from the energy system: we know we need to use as much clean power as possible. And we need to increasingly convert transportation and heating to use electricity. Those are going to get us 70% of the way to our goal of reducing emissions, if not more, but when we start talking to individual customers, it’s not always trivial for them to deploy those options.
Clean power, for example, can be challenging. If you don’t have access to clean power in your area, or you don’t have a roof where you can put solar panels. And so you’re going to be buying renewable energy certificates that you may or may not feel great about depending on whether they drive increases in clean power. On the heating and transportation side of things, a lot of the major businesses that we work with don’t necessarily own the buildings that their offices are in. They’re leasing those. And, for example, it’s a 22-store, high-rise office. And so they don’t have a lot of control necessarily on the heating system that’s getting used. We’re thinking hard about how to analyze these situations and focus on those parts of our customers’ footprints where they do have leverage and can make substantial reductions using carbon accounting.
What are the most exciting opportunities that you see ahead of the sector?
Right now, I’m seeing a lot of enthusiasm around developing markets for some of the lower-carbon alternatives beyond electricity. Things like green steel and greener types of cement can matter a lot. And we’re hoping to add those things to our marketplace soon. Beyond that, there’s also increasing interest in some low-carbon fuels, whether that’s sustainable aviation fuels or other types of biofuels, or synthetic fuels made with electrolytic hydrogen. All of these things are coming out of the woodwork. And I think they’re spurred in some measure by the interest of the private sector and some of the new policies like the Inflation Reduction Act. I’m excited that we’ll be able to offer those to our customers.
Read more: BCG: Only 10% Of Companies Measured Their Emissions Comprehensively In 2022