Net-Zero for Chinese Tech: A Quick Look at Alibaba’s Carbon Neutrality Plan

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  • Net-Zero for Chinese Tech: A Quick Look at Alibaba’s Carbon Neutrality Plan

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    Alibaba Group [BABA:US], a Chinese e-commerce giant and one of the largest tech companies in the world, pledged to achieve carbon neutrality in its operations and reduce emissions across its supply chains and transportation networks by 2030. The commitment comes from its 2021 Carbon Neutrality Action Report, which was presented on its annual investor day.

    There are three major commitments in Alibaba’s Carbon Neutrality Action Report:

    • By 2030, Alibaba will achieve carbon neutrality in its own operations.
    • By 2030, Alibaba will collaborate with its value chain partners to cut emissions intensity by 50% regarding the base year of 2020.
    • By 2035, Alibaba will facilitate 1.5 gigatons of greenhouse gas (GHG) emissions reduction in Alibaba’s digital ecosystem (“scope 3+” emissions reduction).

    Of these three commitments, the organization introduced two eye-catching concepts: “scope 3+ target” and “1.5 Gigatons for 1.5°C”. These two concepts are beyond the traditional GHG accounting scope. According to GHG Protocol, the global standard for GHG accounting, a company’s GHG emissions are usually classified into three scopes. Scope 1 emissions refer to direct emissions from their owned or controlled sources, such as emissions from the company’s own vehicles. Scope 2 emissions are indirect emissions from the generation of purchased energy, such as steam and electricity. Scope 3 emissions include both upstream and downstream emissions from the company’s value chain, which account for emissions from the company’s suppliers, distributors, and investment activities.

    (Source: Alibaba Carbon Neutrality Action Report 2021)

    Scope 3+ and 1.5 Gigatons for 1.5°C

    Alibaba introduced a “Scope 3+” concept, which refers to the emissions generated by a broader range of participants in the e-commerce platform’s ecosystem. This alludes to the idea of reducing emissions by promoting greener consumption, reuse and repurposing of idle goods, and green modes of transportation and packaging through Alibaba’s e-commerce platform. Alibaba’s “scope 3+” concept was considered a pioneering aspiration. However, a local ESG-focused nonprofit, the Alpha Workshop, criticized this new concept and regarded this as a confusion of GHG accounting concept for marketing purposes. The workshop considers the content of Alibaba’s “scope 3+ emissions” to be under the conventional scope 3 category.

    As to the “1.5 gigatons for 1.5°C” target, it is considered to be the largest emissions reduction amount among big tech companies in China, such as Tencent [0700:HK], Baidu [BIDU:US] and [JD:US]. In January 2021, Tencent disclosed its net-zero commitment, yet provided no specific plans so far. Meanwhile, Baidu disclosed a carbon-neutral roadmap in June, and JD pledged in 2020 to reduce 50% of emissions from 2019 levels. In comparison, Alibaba presented a more ambitious reduction target, along with a more comprehensive and detailed action plan.

    Carbon Neutrality Campaigns of Chinese Tech Firms

    Regarding net-zero initiatives, tech companies in China have quickened their pace in the past year. More and more Chinese tech companies have begun to purchase renewable energy and disclose their GHG emissions data. In a report issued by Greenpeace, Tencent ranked first among China’s cloud providers, for its transparent disclosure of emissions data and increase in renewable energy procurement, as well as its commitment to carbon neutrality. Alibaba only comes in 4th place, as it scores significantly lower in energy transparency, energy efficiency and carbon reduction compared to top performer Tencent.

    (Source: Greenpeace)

    Tech companies consume huge amounts of energy. As reliance on digital technology increases globally, investment in the tech industry also increases, especially after the breakout of COVID, since investing in tech becomes part of post-COVID recovery plans. In particular, data centers are the main focus of tech companies’ carbon footprint reducing effort. Energy consumption from data centers is on track to increase by 66% between 2019 and 2023. It is estimated that the total carbon emissions of China’s data centers will reach 163m tons in 2023. In 2018, the total power consumption of data centers in China was 160.89bn KWh, exceeding the total power consumption of Shanghai City. In particular, 73% of such power is still powered by coal, and the proportion of renewable energy power consumption for data centers remains less than 23%.

    Ways to Reduce the Carbon Footprint for Tech Companies

    Data center energy optimization. Having a few large-scale data centers instead of multiple smaller ones also helps increase energy efficiency of the facilities. Many data centers have been located in regions with colder climates to make use of free cooling, as operating data centers emit a large amount of heat and require significant cooling capacity. As an example, Google [GOOG:US] uses machine learning to match its data center operation closely to suitable weather in order to fine-tune its heating and cooling systems.  

    Product longevity. The more devices, the higher the carbon footprint. Manufacturing could not be ignored. Manufacturing is one of the biggest parts of tech companies’ carbon footprint. Tech companies should take a holistic approach to reduce devices’ carbon footprint, that is to optimize product longevity. Long-lasting products are not only good for customers but also good for the planet.

    Value chain. Within the value chain, stakeholders are an important part of the carbon footprint for tech companies. As a result, tech companies should engage their value chain participants with questionnaires on environmental measures as part of the supplier due diligence. Take Apple [AAPL:US] as an example, 77 suppliers were pushed by Apple to commit solely to green energy in the manufacture, among which many are located in China. By 2019, Apple and its 10 Chinese suppliers funded 134 megawatts of wind power in Hunan province. The project was set up in 2018 to develop 1 gigawatt of renewable energy capacity.

    Use tech to reduce footprint. Technology is a tool, and the use of technology for good is a conscious choice. There are many technological solutions for emission reduction at companies’ disposal. For example, energy efficiency technologies including evaporative cooling, airside economizers, and sophisticated cooling systems can help optimize energy efficiency at energy-intensive facilities such as data centers. Smaller initiatives in the office, such as going paperless and reducing printing, as well as reducing travel by using video conferencing and online tools, can also drive down emissions. Advanced digital technologies can help to fight against climate change. Big data, artificial intelligence, and the internet of things (IoT) provide huge opportunities to improve energy efficiency, measure and monitor the environmental impact of business operations, and enable the transformation to a circular economy model.