Leveraging Nature as an Asset for Energy Companies

Definition of Nature-Based Solutions and How It Adds Value to Energy Companies From Both a Sustainability and Business Perspective

Following the strong momentum of COP15 last December and its landmark 30x30 biodiversity agreement¹, nature and climate are converging and increasingly viewed as interrelated sustainability issues driven by emerging regulations, disclosure frameworks, investor expectations, and public perspectives. Now more than ever, nature-based solutions (NbS) are being recognized for their great potential to simultaneously address both climate change and natural degradation. NbS is an umbrella term that refers to a suite of actions that “protect, sustainably manage, and restore” natural systems to address environmental, economic, and societal challenges².  Examples include planting mangroves to prevent coastal flooding, restoring wetlands to reduce damage from inland and coastal flooding, building bioswales to reduce stormwater damage, implementing controlled burns to mitigate wildfires, and urban forestry to reduce building cooling and electricity demands. By integrating NbS into traditional energy infrastructure, energy companies can serve a unique role in delivering more cost-effective and resilient services to communities, while mitigating physical risks from extreme weather and natural disasters. 

Exploring Recent Market Drivers and Trends

There are regulatory, market, and economic drivers to increase NbS in the energy sector. From a regulatory perspective, mandatory and voluntary greenhouse gas (GHG) reduction targets create incentives for energy companies to adopt NbS practices to cut emissions, while reducing operational expenses. From a market perspective, investors are increasingly demanding companies to disclose their nature- and biodiversity-related impacts and risks. Additionally, voluntary commitments of setting net-zero targets by 2050 enable a decarbonization framework whereby investing in NbS (such as carbon sequestration forestry projects) can help neutralize residual emissions to achieve net-zero. Finally, from an economic perspective, more and more federal grants flowing through the Bipartisan Infrastructure Law and Inflation Reduction Act are being made available to NbS, making these projects more financially attractive.

Why Energy Companies Are Uniquely Positioned For Environmental Stewardship

Energy companies’ operations, including generation, transmission, and distribution, are impacted by natural infrastructure, such as the impact of precipitation patterns on hydropower, wildfire risk to grid assets, and extreme heat on electricity demand. In addition, energy companies own and operate on vast areas of land and the nature within it. Bloomberg estimates that renewable electricity generation already accounts for 13 million acres of land use³, making energy companies some of the largest land owners in the nation. Secondly, energy companies depend heavily on natural ecosystems. Take electric power utilities, for example: water is used for cooling, exhaust gas cleaning, waste product transport, and driving turbines. Energy companies are increasingly at risk from the physical impacts of natural disasters and the high costs to repair damaged assets. More importantly, local communities can also be affected from prolonged power outages, damage to their homes, etc. Can you imagine the scale of positive impact, if the land under the energy companies’ direct and indirect operations are managed through a nature-positive lens? 

Given their close ties with nature, energy companies have been subjected to federal and local regulations related to land, water, and waste since the 1970s. As a result, they have decades of experience in measuring, reporting, and managing nature-related sustainability impacts. This differs from many other industries whereby sustainability started with carbon. Nonetheless, energy companies are increasingly focusing on climate and transitioning toward net-zero, with more and more companies measuring GHG impacts and setting decarbonization goals. Building on this foundation, energy companies are well-positioned to adopt an integrated sustainability approach, whereby both nature and climate metrics are considered holistically to measure environmental impact, target setting, abatement planning, risk mitigation, and resiliency implementation.

Guidehouse’s Nature-Positive Toolkit and How Energy Companies Can Use It 

Building on global case studies where NbS is justified as a significant economic and environmental benefit for energy companies, we have summarized a variety of options to showcase how working with nature can offer added value to energy companies as part of their sustainability journey. 

Nature for Mitigation

• Investing in carbon-capture projects to achieve ambitious climate commitments — Nature-based carbon-capture projects, which absorb CO2 from the atmosphere and sequester it in plants, soils, and sediments, can be more cost-effective than engineered projects. Nature-based carbon-capture also provide co-benefits of enhancing public and recreational health, as well as improving local water quality. Large energy companies like Shell are making billion-dollar investments in nature-based carbon-capture projects⁴ to achieve net-zero emissions. 

• Producing biomass for energy generation and biochar for carbon sequestration — As the regulatory and market demand for renewable energy increases, energy companies are shifting business models to include renewable natural gas (RNG) in their portfolio. Biochar, a byproduct created from the gasification of biomass to produce RNG, is a proven nature-based solution to generate more productive plant growth and enhance yields.  

• Pairing renewable energy technologies with green infrastructure — Recent research has shown that combinations of renewable energy technologies with green spaces or green infrastructure can not only improve system efficacy but also enhance environmental benefits. For example, building green roofs with solar panels can help mitigate urban heat island effects, while simultaneously improving the power output of the photovoltaics due to the cooling effects of surrounding vegetation.⁵

• Leveraging nature-based carbon offset programs to comply with cap-and-trade requirements — For example, in Washington and Oregon, there are offsets that can be purchased to comply with state GHG emissions reduction caps. Energy companies may be able to directly build offset projects to support these programs. One important consideration is to align with offset protocols that are adopted for your state/region, such as the US Forest Management Protocol, Livestock Protocol, and the Ozone-Depleting Substances Protocol, in order to enable the development and scaling of high-quality and high-integrity offset projects.

Nature for Adaptation

• Integrating nature and climate considerations in enterprise risk management and planning — In anticipation of future natural disasters and extreme weather events, energy companies can undertake risk assessments aligned with the Taskforce on Climate-Related Financial Disclosures (TCFD) and Taskforce on Nature-Related Financial Disclosures (TNFD) framework, by understanding its top climate- and nature-related risks and geographical hotspots, and implement NbS based on local characteristics, leveraging ecosystem services disaster reduction and recovery planning. With the finalization of the TNFD framework a few months ago, now is a good time to start thinking about tackling nature and climate-related risks in an integrated manner, and register to become an early adopter of the TNFD framework.⁶

• Incorporating non-energy and social considerations into new infrastructure buildouts — Selecting sites based on an understanding of potential climate risks, impacts to local ecosystems, as well as dependencies on ecosystem services, will help ensure the long-term resiliency of the new assets. Additionally, developing a natural resource management plan that considers ecosystem services will bring benefits to mitigation potential climate risks and improving resiliency of local communities. For example, planting nitrogen-fixing vegetation can not only help alleviate the impact of flooding but also reduce physical damage to assets. Lastly, integrating green architecture into the design of power plants has been proven to bring a variety of environmental and social co-benefits, as demonstrated by CopenHill facilities in Copenhagen.⁷

• Implementing water conservation & replenishment measures — Both power and water utilities rely heavily on a reliable and steady supply of water for uses like power-plant cooling and residential use.  Therefore, adequate water management is crucial, especially in water-stressed regions such as Texas, Colorado, and California. Developing a plan that incorporates natural features to proactively manage future water supply is a great approach. For example, Colorado Springs Utilities created a Sustainable Water Plan to ensure long-term water supply to its communities, composed of a variety of water conservation and efficiency measures through setting water-focused rules, creating business incentive programs, and upscaling water-wise plants.⁸ In areas with heavy reliance on groundwater, managed aquifer recharge using wetland restoration and tree planting is one of the many innovative solutions that effectively maximize water storage, replenish depleted aquifers, improve water and soil quality, and provide additional ecological benefits. ^9,10

• Engaging with local communities to implement nature-based solutions — The participation of local communities is vital for the successful implementation of NbS projects. Community engagement and education help to leverage local knowledge and ensure solutions are tailored to specific needs and circumstances of the communities. Through NbS, energy companies can better connect with its customers and communities and work together on building physical resiliency. Pacific Gas & Electric, as one of the largest landowners in California, runs an annual program called “Better Together Nature Positive Innovation Grants” that invests in nature conservation and restoration activities within its service area. Under one of the awarded programs this year, PG&E is working with Native Americans to implement a community engagement and education program to improve the biodiversity of natural tribal lands, home to oak woodland and native oak species.¹¹

Nature is a powerful ally to achieving decarbonization and resilience goals, especially for energy companies that touch and interact with nature in multiple ways. As NbS is still an emerging topic, educating and engaging stakeholders to harness the power of nature, and gradually integrating nature as a foundational part of business, new opportunities will arise and strengthen community resilience. As a key player in this transition, energy companies can lead the way by building nature-based solutions into its overall transition planning toward net-zero.

This article is co-authored by Kelly Dong, Aditya Ranade, and Danielle Vitoff.

1. Environment, UN. 2022. “UN Biodiversity Conference (COP 15).” UNEP - UN Environment Programme. 2022. https://www.unep.org/un-biodiversity-conference-cop-15.
‌2. Review of Nature-Based Solutions. n.d. IUCN. IUCN. https://iucn.org/our-work/nature-based-solutions.
3. Merrill, Dave. n.d. “U.S. Needs a Lot More Land to Go Green by 2050.” Bloomberg.com. https://www.bloomberg.com/graphics/2021-energy-land-use-economy/#xj4y7vzkg.
‌4. DGB Group. “Shell: Achieving Net Zero through Nature-Based Solutions.” www.green.earth. https://www.green.earth/net-zero/case-studies/shell-achieving-net-zero-through-nature-based-solutions.
‌5. Razzaghi Asl, Sina. 2022. Review of Re-Powering the Nature-Intensive Systems: Insights from Linking Nature-Based Solutions and Energy Transition. Frontiers in Sustainable Cities. September 22, 2022. https://www.frontiersin.org/articles/10.3389/frsc.2022.860914/full#B93.
‌6. Review of Register Your Intention to Start Adopting. n.d. Taskforce on Nature-Related Financial Disclosures. https://tnfd.global/engage/tnfd-adopters/become-a-tnfd-adopter/.
7. Crook, Lizzie. 2019. “BIG Opens CopenHill Power Plant in Copenhagen with Rooftop Ski Slope.” Dezeen. October 8, 2019. https://www.dezeen.com/2019/10/08/big-copenhill-power-plant-ski-slope-copenhagen/.
‌8. Review of Water Conservation & Efficiency. n.d. Colorado Springs Utilities. https://www.csu.org/Pages/WaterConservationEfficiency.aspx.
‌9. Review of The United Nations World Water Development Report 2018: Nature-Based Solutions for Water. 2018. UNESCO. 2018. https://unesdoc.unesco.org/ark:/48223/pf0000261424.
‌10. Review of Long-Term Sustainability for Provo’s Water Supply. 2023. PROVO.org. Federal Emergency Management Agency Region 8. September 2023. https://www.provo.org/home/showpublisheddocument/23136/638309119050230000.
‌11. Review of Better Together Nature Positive Innovation Grant Program. n.d. Pge.com. https://www.pge.com/en/about/giving-locally/nature-postive-innovation-grant.html.