Related Expertise: Climate Change and Sustainability, Artificial Intelligence, Oil and Gas
The pressure on businesses to respond to the threat of global warming is growing. Consumers, regulators, and investors alike are increasingly scrutinizing the climate impact of companies in every industry. In his January 2020 letter to CEOs, for example, Larry Fink, chairman and CEO of BlackRock, the world’s largest asset manager, put companies on notice that investors—among other stakeholders—now expect full disclosure of companies’ performance on a range of environmental, social, and governance factors.
But it’s one thing for companies to pay lip service to the need to reduce their greenhouse gas (GHG) emissions. Taking concrete measures to make a difference, especially in today’s pandemic-driven economic climate, is another matter entirely. The difficulty and expense of measuring the full extent of their carbon emissions, and then reducing or offsetting them, has forced many companies to delay the effort.
In this context, artificial intelligence (AI) can be a game changer. Its ability to deliver deep insights into multiple aspects of a company’s carbon footprint and quick cost-cutting wins offers a promising route to accelerating sustainable transformation and reducing expenses in a time of need. And because their size gives them access to huge data sets—a key success factor for deploying AI—large companies are in an especially strong position to benefit from its power.
The threat of climate change is growing, and time is running out. Global GHG emissions currently total about 53 gigatons of carbon dioxide equivalent (CO2e), according to the Carbon Disclosure Project. If we are to meet the goal of limiting the increase in average global temperatures to 1.5°C, as specified in the 2016 Paris Agreement, we must reduce those emissions by 50% by the end of this decade, according to the Science-Based Targets Initiative. In our experience with clients, using AI can achieve 5% to 10% of that needed reduction—between 2.6 and 5.3 gigatons of CO2e.
Meanwhile, BCG studies show that the potential overall impact of applying AI to corporate sustainability amounts to $1.3 trillion to $2.6 trillion in value generated through additional revenues and cost savings by 2030.
This added-value figure for companies does not take into account changes in the price of carbon offsets. That number, currently set at around $30 in the EU Emissions Trading System, could double by 2030. BCG expects to spend $80 per ton by 2030 on high-quality, permanent GHG removal as part of its Net Zero pledge. At this increased price level, the value of reducing GHG emissions through the use of AI would represent an additional savings of $208 billion to $424 billion for all companies globally. If carbon offset prices rise even higher over the coming years, AI opportunities will surely represent even greater savings.
The great strength of AI lies in its ability to learn by experience, collecting massive amounts of data from its environment, intuiting connections that humans fail to notice, and recommending appropriate actions on the basis of its conclusions. Companies looking to reduce their carbon footprint should turn the AI spotlight on all three components of the effort:
In short, AI can help large companies reduce their environmental impact while also alleviating the financial pressure they face as they emerge from the COVID-19 crisis.
Industries that can benefit from this approach include industrial goods (see “A Steelmaker Cuts Emissions and Costs with AI”), transportation, pharmaceutical, consumer packaged goods, energy and utilities (see “AI-Powered Sustainability at a Large Oil and Gas Company”), and others.
To gain these benefits, company leaders must make it a top priority to target areas with high carbon emissions and significant costs—especially those with a potential payback period of less than 24 months. Even the practice of AI uses large amounts of energy, and companies should subject its emissions, too, to analysis. (See “Mitigating AI’s Carbon Footprint.”)
We recommend adopting a three-pronged approach:
AI has already demonstrated its near-term value in helping companies reduce their GHG emissions and cut costs. By generating a positive ROI, often within a year, it should quickly become a financial benefit to companies, rather than yet another cost. We believe that AI can be especially valuable now, as companies recover from the COVID-19 crisis, in lowering costs and beginning the transition to a low-carbon future.
In the longer term, as the price of carbon emissions rises and as advances enable AI to tackle more complex climate issues, the technology will become increasingly important in mitigating the effects of global warming.
Now is the time for leading companies to begin reaping the benefits of AI. Aim high, start small, and scale fast.
The authors thank Cyrille Viossat, Anouk Placet, Mathilde Duverger, and Hamid Maher for their contributions to this publication.
BCG GAMMA is BCG’s global team dedicated to applying artificial intelligence and advanced analytics to business at leading companies and organizations. The team includes 800-plus data scientists and engineers who apply AI and advanced analytics expertise (e.g., machine learning, deep learning, optimization, simulation, text and image analytics) to build solutions that transform business performance. BCG GAMMA’s approach builds value and competitive advantage at the intersection of data science, technology, people, business expertise, processes and ways of working. For more information, please visit our web page.