In this article, we provide a concise overview of the key aspects found within the GHG Protocol’s Corporate Standard guidelines concerning the computation of a company’s greenhouse gas (GHG) emissions. These include methods for defining organizational and operational boundaries, which ultimately dictate the extent of emissions measurement, as well as the identification of different emissions sources and approaches to data collection.
Organizational Boundaries in GHG Emissions Reporting
In corporate GHG emissions reporting, two distinct approaches are commonly used to consolidate emissions: the equity share and the control approaches. The choice of approach will likely impact how a company accounts for its emissions, especially for organizations involved in joint operations.
Equity Share Approach
Under the equity share approach, a company reports GHG emissions based on its share of equity in the operation. In other words, it accounts for emissions proportional to its ownership stake.
Control Approach
The control approach, on the other hand, requires a company to account for 100 percent of the GHG emissions from operations over which it has full control. It does not consider GHG emissions from operations in which it holds an interest but lacks control. Control can be defined either in financial or operational terms.
Financial Control: A company exercises financial control over an operation when it has the ability to direct the financial and operating policies of that operation to gain economic benefits.
Operational Control: Operational control exists when a company or one of its subsidiaries has full authority to introduce and implement its operating policies at the operation.
In most cases, whether an operation is deemed controlled by the company or not remains consistent regardless of whether financial or operational control criteria are employed. However, certain industries, such as oil and gas, often feature complex ownership and operatorship structures. In these cases, the choice of control criterion can have substantial consequences for a company’s GHG inventory. Therefore, companies should carefully consider how their choice aligns with emissions reporting and trading schemes, financial and environmental reporting, and their actual control over operations.
Operational Boundaries
Once a company has established its organizational boundaries in terms of owned or controlled operations, it must define its operational boundaries. This process entails identifying emissions associated with its operations, categorizing them as direct and indirect emissions, and selecting the scope of accounting and reporting for indirect emissions. These procedures are detailed below.
Identifying Scope 1 (Direct) Emission Sources
The first step in identifying and calculating a company’s emissions involves categorizing GHG sources within its boundaries. Every business has processes, products, or services that generate Scope 1 (direct) emissions from one or more of the following source categories:
1. Stationary Combustion: Emissions from the combustion of fuels in stationary equipment like boilers, furnaces, turbines, and incinerators.
2. Mobile Combustion: Emissions from fuel combustion in transportation devices such as vehicles, trains, and airplanes.
3. Process Emissions: Emissions resulting from physical or chemical processes, such as those in cement manufacturing or petrochemical processing.
4. Fugitive Emissions: Intentional and unintentional releases, including equipment leaks, emissions from coal piles, and gas processing facilities.
Scope 2 (indirect Emissions)
Scope 2 emissions, as defined by the Greenhouse Gas Protocol (GHG Protocol), refer to indirect greenhouse gas emissions that result from the consumption of purchased or acquired electricity, steam, heating, and cooling by an organization. These emissions are associated with the generation of the energy that a company uses but are produced by an external entity, such as a utility company or an electricity supplier. Scope 2 emissions are considered indirect because they are not generated directly by the organization’s operations, but they are still a significant part of the organization’s carbon footprint.
To calculate Scope 2 emissions, organizations typically use emission factors provided by relevant authorities or utilities to estimate the emissions associated with their energy consumption. Understanding and tracking Scope 2 emissions is important for organizations seeking to measure and reduce their overall carbon emissions and environmental impact.
Scope 3 (Value Chain) Emissions Calculations
Scope 3 emissions measurement can be expected to pose the most formidable challenge for most organizations. Calculating scope 3 emissions involves:
1. Describing the Value Chain: Understand the entire value chain, from suppliers to customers, to identify potential sources of emissions.
2. Determining Relevant Categories: Select Scope 3 categories that are relevant to the company based on their size, GHG risk exposure, stakeholder importance, and potential for emissions reduction.
3. Identifying Value Chain Partners: Identify partners along the value chain, such as customers, product designers, manufacturers, and energy providers, who contribute significant GHG emissions.
4. Quantifying Scope 3 Emissions: While data availability and accuracy may vary, it is crucial to estimate Scope 3 activities and understand their relative magnitude and potential changes. Transparent estimation methods and adequate data support are essential.
Approaches for GHG Emissions Data Gathering
Data collection for corporate GHG emissions from facilities can follow two main approaches:
1. Centralized: Individual facilities report activity and fuel use data to the corporate level, where emissions calculations are performed.
2. Decentralized: Individual facilities collect data and calculate their GHG emissions directly using approved methods, reporting this data to the corporate level.
Both approaches involve facility-level data collection. Care should be taken to identify and exclude any Scope 2 or 3 emissions that are also accounted for as Scope 1 emissions by other facilities, business units, or companies included in the emissions inventory consolidation.
Emission Calculations Using Conversion Factors
Emission factors are pre-established values used to multiply the quantity of an emission source, yielding the emissions generated from the utilization of that source.
– Scope 1 Emissions are calculated based on purchased quantities of commercial fuels using published emission factors.
– Scope 2 Emissions are primarily calculated from metered electricity consumption and supplier-specific emission factors.
– Scope 3 Emissions are computed from activity data, such as fuel consumption or passenger miles, using published or third-party emission factors. Source-specific emission factors are preferred when available.
Specialized Guidance for Certain Industries
Companies in certain sectors may need specialized guidance due to varying methodologies and approaches. They should use industry-specific guidelines on the GHG Protocol website or industry associations such as the International Aluminum Institute, International Iron and Steel Institute, American Petroleum Institute, WBCSD Sustainable Cement Initiative, or International Petroleum Industry Environmental Conservation Association (IPIECA).
Recalculating Base Year Emissions
Organizations commence the tracking of their greenhouse gas (GHG) emissions from a designated base year. This base year typically represents the initial year for which comprehensive emissions data becomes accessible. Subsequent years’ emissions are then compared to this base year to assess and gauge progress in emission reduction efforts.
Companies should establish a policy for recalculating base year emissions and disclose it. This policy should include a “significance threshold” to determine when historic emissions recalculation is necessary. This threshold is a qualitative and/or quantitative criterion used to define significant changes in data, inventory boundaries, methods, or other relevant factors.
Base year emissions should be retroactively recalculated when:
– Structural changes in the reporting organization significantly impact base year emissions, such as mergers, acquisitions, or changes in calculation methodologies.
– Significant errors or cumulative errors are discovered in the emissions data.
Consistency in applying the base year emissions recalculation policy is essential, covering both emissions increases and decreases.
In summary, understanding and effectively managing organizational boundaries in GHG emissions reporting is crucial for transparent and accurate environmental accounting. The choice between equity share and control approaches, proper categorization of emissions sources, and careful consideration of Scope 3 emissions all play pivotal roles in a company’s comprehensive emissions reporting strategy. Furthermore, consistent data collection and adherence to recalculating base year emissions when necessary are essential elements of a robust GHG emissions reporting framework.