Tackling Decarbonization: GHG Accounting Basics
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May 25, 2022 - The recently proposed ruling by the US Securities and Exchange Commission (SEC) regarding reporting of greenhouse gases and climate-related impacts has caused many companies to assess how they will be impacted, and what changes they should make. In light of this, and the many other climate-related business drivers, let’s break down how to identify and subsequently reduce your organization’s GHG emissions.
Backdrop of Climate Change
The urgency of the issue has been best outlined by the work being carried out by the UN Intergovernmental Panel on Climate Change, or IPCC. This is the intergovernmental body of the United Nations responsible for advancing knowledge on climate change caused by human activity. Their work is internationally accepted as the most credible and accurate by leading climate scientists and governments around the world.
Their forecasts and GHG budgets indicate that in order to avoid the most significant harm we must prevent average temperature increases beyond 1.5 degrees Celsius. Beyond this critical tipping point, climate impacts and disasters become more severe and more frequent, and our ability to reverse course on climate change becomes significantly more difficult.
In order to avoid this, companies must adopt changes that enable them to reduce greenhouse gas emissions by 45% by 2030 and to net zero by 2050.
Basic GHG Inventory
Two foundational guidance documents on the subject of greenhouse gas reporting are the GHG Protocol Corporate Standard developed by World Resources Institute and World Business Council for Sustainable Development, and ISO 14064-1:2018. These guidelines instruct businesses on how to create an inventory of greenhouse gases resulting from a range of their business activities. It is applicable across a range of sectors and regions, and is designed to support consistent, transparent communication of a company’s GHG footprint.
The methods described in the GHG Protocol include:
- Identification of Sources of Emissions: How to assess activity that produces emissions such as industrial activity, electricity use, transportation, and other types of activity. An energy management system is a useful framework to support these efforts.
- Determination of the Calculation Approach: How to determine how emissions are calculated and establish the boundaries that define what is to be reported.
- Collection of Activity Data: How to collect the data that represents business activity such as utility bills, fuel purchases, and vehicle mileage.
- The Calculation of GHG Emissions from Activity Data: How to convert all of that data (i.e., kWh of electricity or gallons of fuel consumed) to the corresponding reporting in carbon dioxide equivalent (CO₂e) that represents the GHGs emitted to the atmosphere.
- Reporting of Data: How to report the data publicly, which can be via voluntary company ESG reports, regulatory disclosures, and very soon, through mandated SEC reporting requirements.
Identify Emission Sources
To understand what emits GHGs, we need to understand what they are. We hear about them a lot, and they’re an actual form of pollution that has had a significant impact on our environment and climate. GHGs are emitted as a result of a wide range of activities throughout a company’s value chain.
Accounting and reporting of GHGs can be very complex; therefore, the GHG Protocol has broken different sources of GHG emissions into three different categories called scopes.
- Scope 1 Emissions are direct GHG emissions from sources controlled or owned by an organization. In many cases, these are the fuels that we burn to produce energy or power our activity such as natural gas to heat our sites or power heat-intensive production processes, or gasoline to power transport. Scope 1 emissions also includes refrigerants. Refrigerants used in cooling and HVAC systems produce incredibly damaging GHGs that, in some cases, are more than twenty thousand times more potent than carbon dioxide.
- Scope 2 Emissions represents indirect GHG emissions usually associated with the purchase of electricity. These emissions differ in that they are not emitted at the sites that are owned or controlled by the organization but are instead produced at the sites that produce the energy purchased. The simplest and most common example is the electricity, heat, or steam purchased from a utility.
- Scope 3 Emissions are divided into 15 categories and are the indirect GHGs from all the other sources throughout a company’s value chain typically not owned or controlled by the reporting organization. (But we’ll dig into that a little more in my next blog, Tackling Decarbonization: Scope 3 Emissions, How to Influence Reduction when It’s out of Your Hands.)
Once you have a full understanding of your organization’s energy and emissions baseline, there are many ways to begin driving reductions. Scope 1 emissions can be reduced through process efficiencies, equipment maintenance, responsible management of refrigerants, and transitioning to electrically powered equipment. Scope 2 emissions can be reduced through the purchase of clean energy or through investments in clean energy infrastructure.
Follow our Tackling Decarbonization series for more insights on implementing your carbon reduction initiatives and other future-ready approaches to organizational sustainability.
