Sustainability and decarbonization
Cutting emissions at the lowest cost and managing carbon costs: emission scopes, cost per tonne, abatement curves, carbon prices, and EU border charges.
Key takeaways
- Measure where the emissions are, rank the ways to cut them by cost per tonne, take the cheapest first until the target is met, and compare the rest with the carbon price the company faces.
- Start from the baseline by scope, rank levers by cost per tonne, fill the target with the cheapest ones, and test the expensive ones against the carbon price and any green premium.
- Sustainability questions appear across many industries, sometimes as the main case and sometimes as a twist in a cost or investment case.
- The strong answer is ordered by cost and tied to the target. The weak one confuses ambition with a plan.
What this case type is and when it shows up
A sustainability case asks how a company can cut its greenhouse-gas emissions, usually to meet a target (for example 40 percent lower by 2030), at the lowest cost, or how carbon costs and customer demands affect its business. It is common in energy, industry, transport, and consumer goods, and often mixes with cost, investment, or market-entry questions.
Key idea
Measure where the emissions are, rank the ways to cut them by cost per tonne, take the cheapest first until the target is met, and compare the rest with the carbon price the company faces.
The underlying theory, in plain language
Emissions are measured in tonnes of carbon dioxide equivalent (tCO2e) and grouped into three scopes. Scope 1: direct emissions from the company's own operations, such as burning gas in a furnace. Scope 2: emissions from the electricity and heat it buys. Scope 3: all other emissions in its value chain, such as suppliers making its materials or customers using its products. Scope 3 is often the largest and the hardest to change.
The cost of a lever per tonne (abatement cost) is its extra yearly cost (the investment spread over its life as a yearly amount, plus any change in running cost) divided by the tonnes it avoids each year. A negative cost means the lever saves money, for example efficiency. A marginal abatement cost curve (MACC) lists levers from cheapest to most expensive, with the tonnes each one avoids.
A carbon price makes emitting costly. In the EU emissions trading system, large emitters must surrender one allowance for each tonne they emit; some allowances are received free and the rest are bought. A lever that costs less per tonne than the carbon price pays for itself. The EU carbon border adjustment mechanism (CBAM) charges importers of goods such as steel, aluminum, cement, and fertilizers for the carbon embedded in those goods, at the EU carbon price, minus any carbon price already paid in the country of origin. It phases in as EU free allocation is withdrawn: a deduction linked to the free allowances EU producers still receive (set by an EU benchmark for each product) shrinks each year. In 2026 only 2.5 percent of that deduction is removed, so importers pay mainly on emissions above the benchmark, and the deduction reaches zero in 2034, when the full charge applies to all embedded emissions. The rules are still phasing in and may change, so always check the current schedule.
There can also be upside: some customers pay more for low-carbon products (a green premium), and cheaper clean power can lower costs. Large clean-energy projects, such as green hydrogen made with solar and wind power in the Gulf, depend heavily on the cost of electricity and on long-term buyers.
What the prompts sound like, from simple to hard
- Simple: how can a UK supermarket chain cut its electricity emissions.
- Medium: a German steel-components maker must cut emissions 40 percent by 2030 at the lowest cost.
- Hard: judge the economics of a large green hydrogen project in the Gulf, of the kind planned in Oman or at NEOM in Saudi Arabia, using illustrative figures.
Finding and narrowing the real problem
Key idea
Start from the baseline by scope, rank levers by cost per tonne, fill the target with the cheapest ones, and test the expensive ones against the carbon price and any green premium.
- Reach the emissions target at the lowest cost
- Baseline by scope
- Scope 1: own fuel use
- Scope 2: bought electricity and heat
- Scope 3: suppliers and product use
- Key: Levers ranked by cost per tonne
- Efficiency (often saves money)
- Clean electricity
- Process and fuel changes
- Supplier and material changes
- Carbon costs
- Carbon price on own emissions
- EU border charge on exports
- Upside and risks
- Green premium from customers
- Technology and timing risk
The baseline tells you where to look; the cost per tonne tells you the order.
Frameworks for this type, each as a thinking tool with its limit
- Scope 1, 2, 3 baseline: Find where emissions come from before choosing levers. Limit: Scope 3 data is often rough; say how confident you are.
- Abatement cost curve (MACC): Rank levers by cost per tonne and fill the target from the cheapest. Limit: Costs change with energy prices and technology; levers can depend on each other.
- Carbon cost exposure: Tonnes x carbon price, including border charges on exports. Limit: Rules and prices change; use scenarios.
Methods for solving this type
- Build the baseline by scope
- List levers with tonnes avoided and cost per tonne
- Fill the target from the cheapest lever up
- Compare expensive levers with the carbon price and any green premium
- Check capital needs, timing, and technology risk
The math patterns it relies on
- Target tonnes = baseline x percent cut
- Cost per tonne = extra yearly cost / tonnes avoided
- Carbon cost = tonnes x carbon price
- Border charge at full phase-in = embedded emissions per unit x EU carbon price x units, minus carbon price paid at origin
Worked cases
Worked case
Cutting emissions 40 percent at a German steel-components maker
The prompt
A German maker of forged steel components emits 100,000 tonnes of CO2e a year (Scope 1 and 2). It must cut 40 percent by 2030 at the lowest cost. The exhibit lists its options. What plan do you recommend?
Interviewer-led: the interviewer shows the lever table and asks you to build the plan.
Clarifying questions, with the interviewer's answers
- Is the 40 percent target for Scope 1 and 2 only?Answer: Yes. Scope 3 comes later.
- What is the baseline?Answer: 100,000 tonnes a year: 60,000 Scope 1 and 40,000 Scope 2.
- What carbon price should I assume, and are lever costs before or after it?Answer: EUR 80 per tonne on Scope 1 emissions, likely rising. Lever costs in the exhibit do not include carbon savings.
A hypothesis to say out loud: The first cuts are usually cheap, through efficiency and clean electricity. My hypothesis is that the company can meet 40 percent with low-cost levers and does not need expensive process changes yet.
The structure
- Fill the target with the cheapest levers first
- Target in tonnes
- Key: Levers in order of cost per tonne
- Cost of the plan
- Next levers versus the carbon price
The exhibit
| Lever | Scope cut | Tonnes avoided a year | Cost (EUR per tonne, before carbon savings) |
|---|---|---|---|
| Efficiency: heat recovery and controls | Scope 1 | 10,000 | -40 |
| Renewable electricity contract | Scope 2 | 30,000 | 10 |
| Electric furnaces for heat treatment | Scope 1 | 25,000 | 90 |
| Hydrogen-ready burners | Scope 1 | 15,000 | 250 |
Working it through
1. Target in tonnes
40 percent of the 100,000-tonne baseline.
Tonnes to cut a year:100,000 × 0.4 = 40,0002. Cheapest levers first
Efficiency (heat recovery and better controls, cutting gas use) saves money; renewable electricity through a long-term contract costs EUR 10 per tonne. Together they avoid:
Tonnes from the two cheapest levers:10,000 + 30,000 = 40,0003. Yearly cost of the plan
Efficiency saves EUR 40 per tonne; renewable power costs EUR 10 per tonne. A negative result means the plan saves money.
Yearly cost of the plan (EUR):10,000 × -40 + 30,000 × 10 = -100,0004. Average cost per tonne
The plan saves a little money on average.
Average cost (EUR per tonne):(10,000 × -40 + 30,000 × 10) ÷ 40,000 = -2.55. Counting the carbon saved
The lever costs exclude carbon. The 10,000 Scope 1 tonnes cut by efficiency also avoid EUR 80 each of carbon cost, EUR 800,000 a year. The plan's yearly saving including carbon:
Yearly saving including carbon (EUR):-(10,000 × -40 + 30,000 × 10) + 10,000 × 80 = 900,0006. Next lever at today's carbon price
Electric furnaces cost EUR 90 per tonne but cut Scope 1 (assuming the extra electricity is renewable; otherwise Scope 2 rises), which carries the EUR 80 carbon price. Net cost for 25,000 tonnes:
Net yearly cost of electric furnaces (EUR):25,000 × (90 - 80) = 250,0007. Next lever if the carbon price reaches EUR 100
The same lever would then save money.
Net yearly cost at EUR 100 (EUR):25,000 × (90 - 100) = -250,000
What the exhibit shows
The two cheapest levers avoid the full 40,000 tonnes needed and together save money. Electric furnaces are close to paying for themselves at today's carbon price; hydrogen burners are far from it.
The recommendation
Meet the 40 percent target with efficiency and a renewable electricity contract. First, together they avoid the full 40,000 tonnes. Second, they save about EUR 100,000 a year before carbon savings, and about EUR 900,000 a year once the EUR 800,000 of avoided carbon cost on the 10,000 Scope 1 tonnes is counted. Third, they use proven technology and can be in place well before 2030. Prepare electric furnaces as the next step: at EUR 80 per tonne they cost about EUR 250,000 a year net, but they pay for themselves if the carbon price passes EUR 90. Leave hydrogen burners until costs fall.
Risks: Renewable power contracts depend on electricity prices and supply; Carbon prices may not rise as expected; Efficiency savings may be smaller than engineering estimates.
Next steps: Tender for a 10-year renewable power contract; Run an energy audit to confirm the efficiency savings; Design electric furnaces and set a carbon-price trigger for the decision.
A strong candidate
Built from the baseline, filled the target from the cheapest lever, and tested the next lever against the carbon price.
A weak candidate
Recommended hydrogen because it sounds most advanced, the most expensive option per tonne.
Worked case
An Indian steelmaker and the EU carbon border charge
The prompt
An Indian steelmaker exports to the EU. Its steel carries about 2.5 tonnes of CO2 per tonne of steel. How exposed is it to the EU carbon border charge, and what should it do?
Candidate-led: you drive; the interviewer answers what you ask. All figures are illustrative.
Clarifying questions, with the interviewer's answers
- How much steel goes to the EU, and at what price and margin?Answer: 200,000 tonnes a year at EUR 600 per tonne, with a margin of about 10 percent.
- How is the border charge calculated?Answer: Look at full phase-in, due in 2034: the importer pays the EU carbon price, assume EUR 80 per tonne, on all the CO2 embedded in the steel, minus any carbon price already paid in India, which you can assume is zero. Until then a shrinking deduction linked to EU free allowances lowers the charge. The real rules have more detail and may change.
- Who pays in practice?Answer: The EU importer pays, but expects the exporter to share the cost through lower prices.
A hypothesis to say out loud: Steel made in blast furnaces carries a lot of carbon. My hypothesis is that the border charge, once fully phased in, would be larger than the whole margin on EU exports, so the company must either cut emissions on that steel or sell it elsewhere.
The structure
- Size the charge, compare with margin, and test the options
- Charge per tonne and in total
- Key: Charge versus margin on EU sales
- Options: cut emissions, pass on cost, sell elsewhere
Working it through
1. Charge per tonne of steel
Candidate: "At full phase-in the charge applies to all 2.5 tonnes of embedded CO2, at EUR 80 each:"
Charge (EUR per tonne of steel):2.5 × 80 = 2002. Total yearly charge
200,000 tonnes exported to the EU.
Charge (EUR a year):200,000 × 2.5 × 80 = 40,000,0003. Compare with margin
Candidate: "What do we earn on EU sales today?" Interviewer: "About 10 percent of EUR 600 per tonne." The charge is more than three times the whole margin.
Margin on EU sales (EUR a year):200,000 × 600 × 0.1 = 12,000,0004. Option: lower-carbon route
Candidate: "Is there a lower-carbon way to make the EU volume?" Interviewer: "An electric arc furnace using scrap would emit about 0.6 tonnes per tonne of steel and cost EUR 150 million." Candidate: "It would still pay the charge on 0.6 tonnes, EUR 48 per tonne of steel:"
Remaining charge (EUR a year):200,000 × 0.6 × 80 = 9,600,0005. Yearly benefit
Interviewer: "EU buyers would also pay about EUR 30 per tonne more for low-carbon steel." The charge saved plus the premium:
Yearly benefit (EUR):200,000 × (2.5 - 0.6) × 80 + 200,000 × 30 = 36,400,0006. Payback
Investment divided by the yearly benefit.
Payback (years):150,000,000 ÷ 36,400,000 = 4.12
The recommendation
I recommend that the steelmaker plan now for a lower-carbon route for EU sales. First, once fully phased in, the border charge of about EUR 40 million a year would be more than three times the EUR 12 million margin on EU exports. Second, a scrap-based electric arc furnace cuts the charge to about EUR 9.6 million and earns a green premium, a benefit of about EUR 36.4 million a year and a payback of about 4.1 years. Third, the charge phases in until 2034, but steel this carbon-heavy pays on its emissions above the EU benchmark from the start, so the time to build is shorter than the end date suggests. Model the charge year by year.
Risks: Border-charge rules, deductions, and the phase-in schedule may change; Scrap supply and electricity prices affect the new furnace's cost; EU buyers may not pay the full green premium.
Next steps: Model the charge year by year under the current phase-in schedule; Secure scrap supply and a power contract for the new furnace; Talk to the top EU buyers about low-carbon steel contracts.
A strong candidate
Sized the charge, compared it with margin, and tested a lower-carbon option with payback and phase-in timing.
A weak candidate
Said the charge "is the importer's problem" and ignored that it would be passed back through price.
Prompt: "How should we cut our emissions 40 percent?"
Weaker answer
Lists every green technology it knows, leads with hydrogen, and never compares costs per tonne.
Stronger answer
Starts from the baseline by scope, ranks levers by cost per tonne, meets the target with the two cheapest (saving about EUR 100,000 a year before carbon savings, and about EUR 900,000 a year once the EUR 800,000 of avoided carbon cost on the 10,000 Scope 1 tonnes is counted), and tests the next lever against the carbon price.
Why the stronger answer wins: The strong answer is ordered by cost and tied to the target. The weak one confuses ambition with a plan.
Common mistakes, traps, and curveballs
- Mixing up the scopes
- Starting with the most visible lever instead of the cheapest
- Forgetting that some levers save money
- Ignoring rising carbon prices when judging expensive levers
- Treating uncertain rules as fixed
- Promising targets with technology that is not yet ready
Sustainability questions appear across many industries, sometimes as the main case and sometimes as a twist in a cost or investment case. Firms with large sustainability practices may expect you to know the scopes and cost per tonne. Formats differ by office and change over time, so check the current process for your target office.
Practice
A factory in Poland uses 20,000,000 kWh of grid electricity a year. Poland's grid, still heavy in coal, emits about 0.65 kg of CO2 per kWh (illustrative). What are its Scope 2 emissions, in tonnes a year?
A lever at a UAE plant costs AED 2,000,000 a year more than today and avoids 25,000 tonnes a year. What is its cost per tonne, in AED?
Illustrative figures for a green hydrogen project in Oman: making 1 kg of hydrogen uses about 50 kWh of electricity, and solar power costs about USD 0.03 per kWh. What is the electricity cost per kg of hydrogen, in USD?
A company buys electricity from the grid. Which scope are the emissions from that electricity?
A lever has a cost of minus EUR 30 per tonne. What does that mean?
Carbon costs EUR 80 per tonne. A lever that cuts Scope 1 emissions costs EUR 60 per tonne. Should you do it on cost alone?
Start from the baseline by scope, cut the cheapest tonnes first, and judge expensive levers against the carbon price and any green premium.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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