Development of a Simulation Tool to Support the Process of Setting Climate Targets – An Exploratory Study at IKEA

Abstract: Background The world’s governments agreed in 2010 to work towards limiting global warming to a two-degree warming compared to pre-industrial temperatures with the presumption that this would suffice in order to avoid the worst effects of climate change. Meeting this goal would, according to The Intergovernmental Panel on Climate Change, require a reduction of global emissions by 41–72 percent by the year 2050. In order to reach this goal, all companies are required to minimise emissions throughout the whole value chain. To assess policies and actions required to achieve said reduction by 2050, simulation is deemed applicable. Purpose The purpose of this master’s thesis is to develop a simulation tool to support the process of setting climate targets with respect to indirect emissions resulting from value chain activities. Research Questions 1. Which are the emission drivers relating purchased goods and services, and use of sold products in IKEA’s Scope 3 emission system? 2. Which parameters can be applied to allow steering on the emission drivers? 3. How should a simulation tool be designed to address and capture the behaviour and characteristics of the emission drivers in the Scope 3 emission system? Methodology The research study consists of a systems approach, abductive methodology and a single-case strategy. To understand the underlying problem, literature review, data gathering and workshops were conducted. A gap analysis was then conducted to analyse emission drivers found both in literature and at the workshops. A simulation model was then constructed by combining spreadsheet and system dynamics modelling. Results The result is a spreadsheet simulation model which can be used as a policy evaluator on all quantifiable drivers found in the scope. Conclusion The study found the major driver of the identified scope 3 emissions. The performed gap analysis, however, showed that the problem did not lie in identifying the driver but rather to quantify their impact on the system. By not being able to quantify all drivers’ impacts, steering parameters will be limited to quantifiable drivers. A framework for developing a simulation tool to support the climate target process is suggested and consists of five ingoing factors; (1) requirements, (2) emission drivers and steering parameters, (3) GHG inventory, (4) scenarios and policies, and (5) the business as usual scenario. A benefit of the simulation tool is that it facilitates an iterative, flexible and fact-based approach for setting climate targets. Furthermore, the model mitigates the risk of too optimistic projections as it takes overlap of various policies into consideration. The constructed spreadsheet model is deterministic; thus, it lacks stochastic variables which entail limitations in the accuracy of the simulation results. Furthermore, the scope of the project entails constraints to map all relevant emission drivers required to predict the Scope 3 system behaviour.