ghg protocol revised.pdf


1 The Greenhouse Gas Protocol — 390 — 370 — 350 — 330 — 310 — 290 — 270 ppm Year: 1000 1500 2000 A Corporate Accounting and Reporting Standard REVISED EDITION WORLD RESOURCES INSTITUTE

2 GHG Protocol Initiative Team Janet Ranganathan World Resources Institute World Business Council for Sustainable Development Laurent Corbier Pankaj Bhatia World Resources Institute World Business Council for Sustainable Development Simon Schmitz Peter Gage World Resources Institute Kjell Oren World Business Council for Sustainable Development Revision Working Group Australian Greenhouse Office Brian Dawson & Matt Spannagle BP Mike McMahon Environment Canada Pierre Boileau Rob Frederick Ford Motor Company Bruno Vanderborght Holcim Fraser Thomson International Aluminum Institute Koichi Kitamura Kansai Electric Power Company Chi Mun Woo & Naseem Pankhida KPMG Reid Miner National Council for Air and Stream Improvement PricewaterhouseCoopers Laurent Segalen Jasper Koch Shell Global Solutions International B.V. Somnath Bhattacharjee The Energy Research Institute Cynthia Cummis US Environmental Protection Agency Clare Breidenich UNFCCC Rebecca Eaton World Wildlife Fund Core Advisors Independent Expert Michael Gillenwater Melanie Eddis KPMG Marie Marache PricewaterhouseCoopers Roberto Acosta UNFCCC Vincent Camobreco US Environmental Protection Agency Elizabeth Cook World Resources Institute

3 Table of Contents 2 Introduction The Greenhouse Gas Protocol Initiative Chapter 1 6 GHG Accounting and Reporting Principles GUIDANCE STANDARD GUIDANCE Business Goals and Inventory Design Chapter 2 10 GUIDANCE STANDARD Chapter 3 16 Setting Organizational Boundaries GUIDANCE STANDARD 24 Setting Operational Boundaries Chapter 4 Chapter 5 34 Tracking Emissions Over Time GUIDANCE STANDARD GUIDANCE Identifying and Calculating GHG Emissions 40 Chapter 6 48 Managing Inventory Quality Chapter 7 GUIDANCE Accounting for GHG Reductions Chapter 8 58 GUIDANCE Chapter 9 Reporting GHG Emissions 62 GUIDANCE GUIDANCE GUIDANCE STANDARD STANDARD GUIDANCE 68 Verification of GHG Emissions Chapter 10 74 Setting GHG Targets Chapter 11 GUIDANCE 86 Appendix A Accounting for Indirect Emissions from Electricity Appendix B 88 Accounting for Sequestered Atmospheric Carbon 90 Appendix C Overview of GHG Programs Industry Sectors and Scopes Appendix D 92 Acronyms 95 Glossary 96 References 103 104 Contributors

4 Introduction he Greenhouse Gas Protocol Initiative is a multi-stakeholder partnership of businesses, non-governmental organizations (NGOs), governments, and others convened by the World Resources Institute (WRI), a U.S.-based environmental T NGO, and the World Business Council for Sustainable Development (WBCSD), a Geneva-based coalition of 170 international companies. Launched in 1998, the Initiative’s mission is to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards for business and to promote their broad adoption. The GHG Protocol Initiative comprises two separate but linked standards: (this document, which • GHG Protocol Corporate Accounting and Reporting Standard provides a step-by-step guide for companies to use in quantifying and reporting their GHG emissions) • GHG Protocol Project Quantification Standard (forthcoming; a guide for quantifying reductions from GHG mitigation projects) 2

5 INTRODUCTION 3 The first edition of the The business value of a GHG inventory GHG Protocol Corporate Accounting and published in Global warming and climate change have come to the fore as a Reporting Standard (GHG Protocol Corporate Standard), key sustainable development issue. Many governments are taking September 2001, enjoyed broad adoption and acceptance around the globe by businesses, NGOs, and governments. Many industry, NGO, steps to reduce GHG emissions through national policies that 1 and government GHG programs used the standard as a basis for include the introduction of emissions trading programs, voluntary programs, carbon or energy taxes, and regulations and standards their accounting and reporting systems. Industry groups, such on energy efficiency and emissions. As a result, companies must as the International Aluminum Institute, the International Council be able to understand and manage their GHG risks if they are to of Forest and Paper Associations, and the WBCSD Cement ensure long-term success in a competitive business environment, Sustainability Initiative, partnered with the GHG Protocol Initiative and to be prepared for future national or regional climate policies. to develop complementary industry-specific calculation tools. adoption of the standard can be attributed to the inclu- Widespread A well-designed and maintained corporate GHG inventory can sion of many stakeholders in its development and to the fact that serve several business goals, including: it is robust, practical, and builds on the experience and expertise of numerous experts and practitioners. Managing GHG risks and identifying reduction opportunities • Public reporting and participation in voluntary GHG programs is the • This revised edition of the GHG Protocol Corporate Standard culmination of a two-year multi-stakeholder dialogue, designed • Participating in mandatory reporting programs to build on experience gained from using the first edition. It includes Participating in GHG markets additional guidance, case studies, appendices, and a new chapter • on setting a GHG target. For the most part, however, the first edition • Recognition for early voluntary action. of the Corporate Standard has stood the test of time, and the changes in this revised edition will not affect the results of most GHG inventories. Who should use this standard? provides standards and This standard is written primarily from the perspective of a busi- This GHG Protocol Corporate Standard 2 ness developing a GHG inventory. However, it applies equally to guidance for companies and other types of organizations preparing a GHG emissions inventory. It covers the accounting other types of organizations with operations that give rise to GHG 3 emissions, e.g., NGOs, government agencies, and universities. and reporting of the six greenhouse gases covered by the Kyoto ), methane (CH ), nitrous oxide Protocol — carbon dioxide (CO It should not be used to quantify the reductions associated with 2 4 GHG mitigation projects for use as offsets or credits—the (N O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), 2 GHG Protocol Project Quantification Standard will ). The standard and guidance were and sulphur hexafluoride (SF forthcoming 6 designed with the following objectives in mind: provide standards and guidance for this purpose. Policy makers and architects of GHG programs can also use rele- • To help companies prepare a GHG inventory that represents vant parts of this standard as a basis for their own accounting a true and fair account of their emissions, through the use of standardized approaches and principles and reporting requirements. • To simplify and reduce the costs of compiling a GHG inventory To provide business with information that can be used to build • an effective strategy to manage and reduce GHG emissions • To provide information that facilitates participation in voluntary and mandatory GHG programs • To increase consistency and transparency in GHG accounting and reporting among various companies and GHG programs. Both business and other stakeholders benefit from converging on a common standard. For business, it reduces costs if their GHG inventory is capable of meeting different internal and external information requirements. For others, it improves the consistency, transparency, and understandability of reported information, making it easier to track and compare progress over time.

6 Introduction Relationship to other GHG programs GHG calculation tools To complement the standard and guidance provided here, It is important to distinguish between the GHG Protocol Initiative GHG Protocol Corporate Standard a number of cross-sector and sector-specific calculation tools and other GHG programs. The focuses only on the accounting and reporting of emissions. It does are available on the GHG Protocol Initiative website not require emissions information to be reported to WRI or WBCSD. (, including a guide for small office-based organizations (see chapter 6 for full list). These tools provide step- In addition, while this standard is designed to develop a verifiable inventory, it does not provide a standard for how the verification by-step guidance and electronic worksheets to help users process should be conducted. calculate GHG emissions from specific sources or industries. The tools are consistent with those proposed by the Intergovernmental The GHG Protocol Corporate Standard has been designed to be Panel on Climate Change (IPCC) for compilation of emissions program or policy neutral. However, many existing GHG programs at the national level (IPCC, 1996). They have been refined to be use it for their own accounting and reporting requirements and it user-friendly for non-technical company staff and to increase the is compatible with most of them, including: accuracy of emissions data at a company level. Thanks to help • Voluntary GHG reduction programs, e.g., the World Wildlife Fund from many companies, organizations, and individual experts through an intensive review of the tools, they are believed to (WWF) Climate Savers, the U.S. Environmental Protection Agency (EPA) Climate Leaders, the Climate Neutral Network, represent current “best practice.” and the Business Leaders Initiative on Climate Change (BLICC) GHG registries, e.g., California Climate Action Registry (CCAR), • Reporting in accordance with the World Economic Forum Global GHG Registry GHG Protocol Corporate Standard The GHG Protocol Initiative encourages the use of the GHG Protocol • National and regional industry initiatives, e.g., New Zealand Corporate Standard by all companies regardless of their experience Business Council for Sustainable Development, Taiwan Business in preparing a GHG inventory. The term “shall” is used in the Council for Sustainable Development, Association des entreprises chapters containing standards to clarify what is required to prepare pour la réduction des gaz à effet de serre (AERES) GHG Protocol and report a GHG inventory in accordance with the 4 e.g., UK Emissions Trading Scheme (UK GHG trading programs, • This is intended to improve the consistency Corporate Standard. ETS), Chicago Climate Exchange (CCX), and the European Union with which the standard is applied and the resulting information Greenhouse Gas Emissions Allowance Trading Scheme (EU ETS) that is publicly reported, without departing from the initial intent of the first edition. It also has the advantage of providing a verifiable Sector-specific protocols developed by a number of industry asso- • standard for companies interested in taking this additional step. national Aluminum Institute, International e.g., Inter ciations, est and Paper Associations, International Iron and Council of For Steel Institute, the WBCSD Cement Sustainability Initiative, and International Petroleum Industry Environmental Conservation Overview of main changes to the first edition the Association (IPIECA). This revised edition contains additional guidance, case studies, and annexes. A new guidance chapter on setting GHG targets Since GHG programs often have specific accounting and reporting has been added in response to many requests from companies requirements, companies should always check with any relevant that, having developed an inventory, wanted to take the programs for any additional requirements before developing next step of setting a target. Appendices have been added on their inventory. accounting for indirect emissions from electricity and on accounting for sequestered atmospheric carbon. INTRODUCTION 4

7 INTRODUCTION 5 Changes to specific chapters include: Frequently asked questions... • Below is a list of frequently asked questions, with directions to the Minor rewording of principles. CHAPTER 1: relevant chapters. CHAPTER 2: Goal-related information on operational bound- • aries has been updated and consolidated. What should I consider when setting out to • account for and report emissions? CHAPTER 2 Although still encouraged to account for CHAPTER 3: • emissions using both the equity and control • How do I deal with complex company structures approaches, companies may now report using CHAPTER 3 and shared ownership? one approach. This change reflects the fact What is the difference between direct and indirect • that not all companies need both types of infor- emissions and what is their relevance? CHAPTER 4 mation to achieve their business goals. New • Which indirect emissions should I report? CHAPTER 4 guidance has been provided on establishing control. The minimum equity threshold for • How do I account for and report outsourced and reporting purposes has been removed to enable leased operations? CHAPTER 4 emissions to be reported when significant. • What is a base year and why do I need one? CHAPTER 5 • The definition of scope 2 has been revised to CHAPTER 4: • exclude emissions from electricity purchased My emissions change with acquisitions and divestitures. How do I account for these? for resale—these are now included in scope 3. CHAPTER 5 This prevents two or more companies from CHAPTER 6 • How do I identify my company’s emission sources? double counting the same emissions in the • same scope. New guidance has been added on What kinds of tools are there to help me accounting for GHG emissions associated with calculate emissions? CHAPTER 6 electricity transmission and distribution losses. • What data collection activities and data management Additional guidance provided on Scope 3 issues do my facilities have to deal with? CHAPTER 6 categories and leasing. What determines the quality and credibility of my • • The recommendation of pro-rata adjustments CHAPTER 5: CHAPTER 7 emissions information? was deleted to avoid the need for two adjust- ments. More guidance has been added on How should I account for and report GHG offsets • adjusting base year emissions for changes in that I sell or purchase? CHAPTER 8 calculation methodologies. What information should be included in a GHG • • CHAPTER 6: The guidance on choosing emission factors CHAPTER 9 public emissions report? has been improved. What data must be available to obtain external • verification of the inventory data? • CHAPTER 10 CHAPTER 7: The guidance on establishing an inventory quality management system and on the applica- • What is involved in setting an emissions target and tions and limitations of uncertainty assessment CHAPTER 11 how do I report performance in relation to my target? has been expanded. Guidance has been added on accounting for • CHAPTER 8: NOTES and reporting project reductions and offsets in 1 GHG program is a generic term used to refer to any voluntary or mandatory order to clarify the relationship between the international, national, sub-national government or non-governmental authority that registers, certifies, or regulates GHG emissions or removals. and Project Standards GHG Protocol Corporate . 2 Throughout the rest of this document, the term “company” or “busi- • CHAPTER 9: The required and optional reporting categories ness” is used as shorthand for companies, businesses and other types have been clarified. of organizations. 3 to publicly For example, WRI uses the GHG Protocol Corporate Standard • Guidance on the concepts of materiality and CHAPTER 10: report its own emissions on an annual basis and to participate in the material discrepancy has been expanded. Chicago Climate Exchange. New chapter added on steps in setting a target • CHAPTER 11: 4 Trading programs that operate at the level of facilities primarily use the and tracking and reporting progress. GHG Protocol Initiative calculation tools.

8 GHG Accounting and Reporting Principles 1 STANDARD s with financial accounting and reporting, generally accepted GHG accounting principles are intended to underpin and guide GHG A accounting and reporting to ensure that the reported information represents a faithful, true, and fair account of a company’s GHG emissions. STANDARD GUIDANCE 6

9 7 GHG Accounting and Reporting Principles CHAPTER 1: GHG accounting and reporting practices are evolving and are new to many businesses; however, the principles listed below are derived in part from generally accepted financial accounting and reporting principles. They also reflect the outcome of a collaborative process involving stakeholders from a wide range of technical, environmental, and accounting disciplines. GHG accounting and reporting shall be based on the following principles: RELEVANCE Ensure the GHG inventory appropriately reflects the GHG emissions of the company and serves the decision-making needs of users – both internal and external to the company. Account for and report on all GHG emission sources and activities within the chosen COMPLETENESS inventory boundary. Disclose and justify any specific exclusions. Use consistent methodologies to allow for meaningful comparisons of emissions over time. CONSISTENCY Transparently document any changes to the data, inventory boundary, methods, or any other relevant factors in the time series. TRANSPARENCY Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and make appropriate references to the accounting and calculation methodologies and data sources used. Ensure that the quantification of GHG emissions is systematically neither over nor under ACCURACY actual emissions, as far as can be judged, and that uncertainties are reduced as far as practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable STANDARD assurance as to the integrity of the reported information.

10 GHG Accounting and Reporting Principles bias in estim hese principles are intended to underpin all aspects ates (i.e., an underestimate). Although it of GHG accounting and reporting. Their application appears useful in theory, the practical implementation of T such a threshold is not compatible with the completeness will ensure that the GHG inventory constitutes a true principle of the . In order and fair representation of the company’s GHG emissions. GHG Protocol Corporate Standard Their primary function is to guide the implementation of to utilize a materiality specification, the emissions from a particular source or activity would have to be the , particularly when GHG Protocol Corporate Standard the application of the standards to specific issues or situa- quantified to ensure they were under the threshold. tions is ambiguous. However, once emissions are quantified, most of the benefit of having a threshold is lost. A threshold is often used to determine whether an error Relevance or omission is a material discrepancy or not. This is For an organization’s GHG report to be relevant means not the same as a de minimis for defining a complete that it contains the information that users —both inventory. Instead companies need to make a good faith internal and external to the company—need for their effort to provide a complete, accurate, and consistent decision making. An important aspect of relevance is the accounting of their GHG emissions. For cases where appropriate inventory boundary that selection of an emissions have not been estimated, or estimated at an reflects the substance and economic reality of the insufficient level of quality, it is important that this is company’s business relationships, not merely its legal transparently documented and justified. Verifiers can form. The choice of the inventory boundary is dependent determine the potential impact and relevance of the exclu- GUIDANCE on the characteristics of the company, the intended sion, or lack of quality, on the overall inventory report. purpose of information, and the needs of the users. When choosing the inventory boundary, a number of factors More information on completeness is provided in chap- ters 7 and 10. should be considered, such as: • Organizational structures: control (operational and financial), ownership, legal agreements, joint Consistency ventures, etc. Users of GHG information will want to track and compare GHG emissions information over time in order Operational boundaries: on-site and off-site activities, • processes, services, and impacts to identify trends and to assess the performance of the reporting company. The consistent application of Business context: nature of activities, geographic loca- • accounting approaches, inventory boundary, and calcula- tions, industry sector(s), purposes of information, and tion methodologies is essential to producing comparable users of information GHG emissions data over time. The GHG information More information on defining an appropriate inventory for all operations within an organization’s inventory boundary is provided in chapters 2, 3, and 4. boundary needs to be compiled in a manner that ensures that the aggregate information is internally consistent and comparable over time. If there are changes in the inventory boundary, methods, data or any other factors Completeness affecting emission estimates, they need to be transpar- All relevant emissions sources within the chosen ently documented and justified. inventory boundary need to be accounted for so that a comprehensive and meaningful inventory is compiled. More information on consistency is provided in In practice, a lack of data or the cost of gathering chapters 5 and 9. data may be a limiting factor. Sometimes it is tempting to define a minimum emissions accounting threshold (often referred to as a materiality threshold) stating that a source not exceeding a certain size can be omitted from the inventory. Technically, such a threshold is simply a predefined and accepted negative CHAPTER 1 8

11 9 GHG Accounting and Reporting Principles CHAPTER 1 Volkswagen: Maintaining completeness over time Accuracy Data should be sufficiently precise to enable intended Volkswagen is a global auto manufacturer and the largest users to make decisions with reasonable assurance that automaker in Europe. While working on its GHG inventory, the reported information is credible. GHG measure- Volkswagen realized that the structure of its emission sources had ments, estimates, or calculations should be systemically undergone considerable changes over the last seven years. neither over nor under the actual emissions value, as far Emissions from production processes, which were considered to be as can be judged, and that uncertainties are reduced as irrelevant at a corporate level in 1996, today constitute almost far as practicable. The quantification process should be 20 percent of aggregated GHG emissions at the relevant plant conducted in a manner that minimizes uncertainty. sites. Examples of growing emissions sources are new sites for Reporting on measures taken to ensure accuracy in the engine testing or the investment into magnesium die-casting accounting of emissions can help promote credibility equipment at certain production sites. This example shows that while enhancing transparency. emissions sources have to be regularly re-assessed to maintain a complete inventory over time. More information on accuracy is provided in chapter 7. Transparency Transparency relates to the degree to which information on the processes, procedures, assumptions, and limita- tions of the GHG inventory are disclosed in a clear, factual, neutral, and understandable manner based on The Body Shop: Solving the trade-off clear documentation and archives (i.e., an audit trail). between accuracy and completeness Information needs to be recorded, compiled, and As an international, values-driven retailer of skin, hair, body care, analyzed in a way that enables internal reviewers and external verifiers to attest to its credibility. Specific and make-up products, the Body Shop operates nearly 2,000 loca- tions, serving 51 countries in 29 languages. Achieving both exclusions or inclusions need to be clearly identified and justified, assumptions disclosed, and appropriate refer- accuracy and completeness in the GHG inventory process for such GUIDANCE a large, disaggregated organization, is a challenge. Unavailable ences provided for the methodologies applied and the data sources used. The information should be sufficient data and costly measurement processes present significant to enable a third party to derive the same results if obstacles to improving emission data accuracy. For example, it is provided with the same source data. A “transparent” difficult to disaggregate energy consumption information for report will provide a clear understanding of the issues in shops located within shopping centers. Estimates for these shops are often inaccurate, but excluding sources due to inaccuracy the context of the reporting company and a meaningful creates an incomplete inventory. assessment of performance. An independent external verification is a good way of ensuring transparency and The Body Shop, with help from the Business Leaders Initiative on determining that an appropriate audit trail has been Climate Change (BLICC) program, approached this problem with established and documentation provided. a two-tiered solution. First, stores were encouraged to actively pursue direct consumption data through disaggregated data or More information on transparency is provided in chap- ters 9 and 10. direct monitoring. Second, if unable to obtain direct consumption data, stores were given standardized guidelines for estimating emissions based on factors such as square footage, equipment type, and usage hours. This system replaced the prior fragmentary approach, provided greater accuracy, and provided a more complete account of emissions by including facilities that previ- ously were unable to calculate emissions. If such limitations in the measurement processes are made transparent, users of the information will understand the basis of the data and the trade - off that has taken place.

12 Business Goals and Inventory Design 2 GUIDANCE mproving your understanding of your company’s GHG emissions by compiling a GHG inventory makes good business sense. Companies frequently cite the I following five business goals as reasons for compiling a GHG inventory: Managing GHG risks and identifying reduction opportunities • Public reporting and participation in voluntary GHG programs • Participating in mandatory reporting programs • Participating in GHG markets • Recognition for early voluntary action • GUIDANCE 10

13 11 CHAPTER 2 Business Goals and Inventory Design Companies generally want their GHG inventory to be Appendix C provides an overview of various GHG programs—many of which are based on the capable of serving multiple goals. It therefore makes GHG Protocol Corporate Standard sense to design the process from the outset to provide . The guidance sections of chapters 3 and 4 provide additional information on how to design information for a variety of different users and uses—both current and future. The GHG Protocol an inventory for different goals and uses. Corporate Standard has been designed as a comprehensive GHG accounting and reporting framework to provide the information building blocks capable of serving most Managing GHG risks and identifying reduction opportunities business goals (see Box 1). Thus the inventory data Compiling a comprehensive GHG inventory improves collected according to the GHG Protocol Corporate Standard can be aggregated and disaggregated for a company’s understanding of its emissions profile various organizational and operational boundaries and and any potential GHG liability or “exposure.” A company’s GHG exposure is increasingly becoming a for different business geographic scales (state, country, Annex 1 countries, non-Annex 1 countries, facility, management issue in light of heightened scrutiny by the insurance industry, shareholders, and the emergence of business unit, company, etc.). environmental regulations/policies designed to reduce GHG emissions. BOX 1. Business goals served by GHG inventories In the context of future GHG regulations, significant GHG emissions in a company’s value chain may result in Managing GHG risks and identifying reduction opportunities increased costs (upstream) or reduced sales (down- • Identifying risks associated with GHG constraints in the future stream), even if the company itself is not directly subject • Identifying cost effective reduction opportunities to regulations. Thus investors may view significant indi- rect emissions upstream or downstream of a company’s Setting GHG targets, measuring and reporting progress • operations as potential liabilities that need to be Public reporting and participation in voluntary GHG programs managed and reduced. A limited focus on direct emis- • Voluntary stakeholder reporting of GHG emissions and progress sions from a company’s own operations may miss major towards GHG targets GUIDANCE GHG risks and opportunities, while leading to a misin- terpretation of the company’s actual GHG exposure. Reporting to government and NGO reporting programs, • including GHG registries On a more positive note, what gets measured gets managed. Accounting for emissions can help identify Eco-labelling and GHG certification • the most effective reduction opportunities. This can Participating in mandatory reporting programs drive increased materials and energy efficiency as well • Participating in government reporting programs at the national, as the development of new products and services that regional, or local level reduce the GHG impacts of customers or suppliers. This in turn can reduce production costs and help differen- Participating in GHG markets tiate the company in an increasingly environmentally • Supporting internal GHG trading programs conscious marketplace. Conducting a rigorous GHG • Participating in external cap and trade allowance trading programs inventory is also a prerequisite for setting an internal or public GHG target and for subsequently measuring • Calculating carbon/GHG taxes and reporting progress. Recognition for early voluntary action • Providing information to support “baseline protection” and/or credit for early action

14 Business Goals and Inventory Design Public reporting and participation IBM: The role of renewable energy in voluntary GHG programs in reducing GHG emissions As concerns over climate change grow, NGOs, investors, Indirect emissions associated with the consumption of purchased and other stakeholders are increasingly calling for electricity are a required element of any company’s accounting and greater corporate disclosure of GHG information. They are interested in the actions companies are taking and . Because GHG Protocol Corporate Standard reporting under the purchased electricity is a major source of GHG emissions for compa- in how the companies are positioned relative to their competitors in the face of emerging regulations. In nies, it presents a significant reduction opportunity. IBM, a major information technology company and a member of the WRI’s Green response, a growing number of companies are preparing stakeholder reports containing information on GHG Power Market Development Group, has systematically accounted for these indirect emissions and thus identified the significant potential emissions. These may be stand-alone reports on GHG to reduce them. The company has implemented a variety of strategies emissions or broader environmental or sustainability reports. For example, companies preparing sustainability that would reduce either their demand for purchased energy or the GHG intensity of that purchased energy. One strategy has been to reports using the Global Reporting Initiative guidelines pursue the renewable energy market to reduce the GHG intensity of its should include information on GHG emissions in accor- dance with the GHG Protocol Corporate Standard purchased electricity. (GRI, 2002). Public reporting can also strengthen relation- IBM succeeded in reducing its GHG emissions at its facility in ships with other stakeholders. For instance, companies Austin, Texas, even as energy use stayed relatively constant, through can improve their standing with customers and with the a contract for renewable electricity with the local utility company, GUIDANCE public by being recognized for participating in voluntary Austin Energy. Starting in 2001, this five-year contract is for 5.25 GHG programs. million kWhs of wind-power per year. This zero emission power lowered the facility’s inventory by more than 4,100 tonnes of CO Some countries and states have established GHG 2 registries where companies can report GHG emissions compared to the previous year and represents nearly 5% of the in a public database. Registries may be administered by facility’s total electricity consumption. Company-wide, IBM’s 2002 total renewable energy procurement was 66.2 million kWh, which governments (e.g., U.S. Department of Energy 1605b represented 1.3% of its electricity consumption worldwide and Voluntary Reporting Program), NGOs (e.g., California Climate Action Registry), or industry groups (e.g., World compared to the previous year. Worldwide, IBM 31,550 tonnes of CO 2 purchased a variety of sources of renewable energy including wind, Economic Forum Global GHG Registry). Many GHG programs also provide help to companies setting volun- biomass and solar. tary GHG targets. By accounting for these indirect emissions and looking for associ- ated reduction opportunities, IBM has successfully reduced an Most voluntary GHG programs permit or require the important source of its overall GHG emissions. reporting of direct emissions from operations (including GHGs), as well as indirect GHG emissions from all six purchased electricity. A GHG inventory prepared GHG Protocol Corporate Standard in accordance with the will usually be compatible with most requirements (Appendix C provides an overview of the reporting requirements of some GHG programs). However, since the accounting guidelines of many voluntary programs are periodically updated, companies planning to partici- pate are advised to contact the program administrator to check the current requirements. CHAPTER 2 12

15 13 Business Goals and Inventory Design CHAPTER 2 Participating in mandatory reporting programs Participating in GHG markets GUIDANCE Some governments require GHG emitters to report their Market-based approaches to reducing GHG emissions emissions annually. These typically focus on direct emis- are emerging in some parts of the world. In most sions from operations at operated or controlled facilities places, they take the form of emissions trading in specific geographic jurisdictions. In Europe, facilities programs, although there are a number of other approaches adopted by countries, such as the taxation falling under the requirements of the Integrated Pollution Prevention and Control (IPPC) Directive must approach used in Norway. Trading programs can be implemented on a mandatory (e.g., the forthcoming report emissions exceeding a specified threshold for each EU ETS) or voluntary basis (e.g., CCX). of the six GHGs. The reported emissions are included in a European Pollutant Emissions Register (EPER), a Although trading programs, which determine compliance publicly accessible internet-based database that permits by comparing emissions with an emissions reduction comparisons of emissions from individual facilities or target or cap, typically require accounting only for industrial sectors in different countries (EC-DGE, 2000). direct emissions, there are exceptions. The UK ETS, for In Ontario, Ontario Regulation 127 requires the example, requires direct entry participants to account reporting of GHG emissions (Ontario MOE, 2001). for GHG emissions from the generation of purchased electricity (DEFRA, 2003). The CCX allows its members the option of counting indirect emissions asso- ciated with electricity purchases as a supplemental reduction commitment. Other types of indirect emissions can be more difficult to verify and may present challenges in terms of avoiding double counting. To facilitate independent verification, emissions trading

16 Business Goals and Inventory Design may require participating companies to establish an audit trail for GHG information (see chapter 10). GHG trading programs are likely to impose additional layers of accounting specificity relating to which approach is used for setting organizational boundaries; which GHGs and sources are addressed; how base years are established; the type of calculation method- ology used; the choice of emission factors; and the monitoring and verification approaches employed. The broad participation and best practices incorporated are likely into the GHG Protocol Corporate Standard to inform the accounting requirements of emerging Tata Steel: Development of institutional programs, and have indeed done so in the past. capacity in GHG accounting and reporting For Tata Steel, Asia’s first and India’s largest integrated private Recognition for early voluntary action sector steel company, reducing its GHG emissions through energy A credible inventory may help ensure that a corpora- efficiency is a key element of its primary business goal: the tion’s early, voluntary emissions reductions are acceptability of its product in international markets. Each year, in recognized in future regulatory programs. To illustrate, GUIDANCE pursuit of this goal, the company launches several energy effi- suppose that in 2000 a company started reducing its ciency projects and introduces less-GHG-intensive processes. The GHG emissions by shifting its on-site powerhouse boiler company is also actively pursuing GHG trading markets as a fuel from coal to landfill gas. If a mandatory GHG means of further improving its GHG performance. To succeed in reduction program is later established in 2005 and it these efforts and be eligible for emerging trading schemes, Tata sets 2003 as the base against which reductions are to Steel must have an accurate GHG inventory that includes all be measured, the program might not allow the emissions processes and activities, allows for meaningful benchmarking, reductions achieved by the green power project prior to measures improvements, and promotes credible reporting. 2003 to count toward its target. Tata Steel has developed the capacity to measure its progress in However, if a company’s voluntary emissions reductions reducing GHG emissions. Tata Steel’s managers have access to have been accounted for and registered, they are more on-line information on energy usage, material usage, waste and likely to be recognized and taken into account when byproduct generation, and other material streams. Using this regulations requiring reductions go into effect. For data and the GHG Protocol calculation tools, Tata Steel generates instance, the state of California has stated that it will two key long-term, strategic performance indicators: specific use its best efforts to ensure that organizations that energy consumption (Giga calorie / tonne of crude steel) and GHG register certified emission results with the California intensity (tonne of CO equivalent / tonne of crude steel). These 2 Climate Action Registry receive appropriate considera- indicators are key sustainability metrics in the steel sector world- tion under any future international, federal, or state wide, and help ensure market acceptability and competitiveness. regulatory program relating to GHG emissions. Since the company adopted the GHG Protocol Corporate Standard , tracking performance has become more structured and stream- lined. This system allows Tata Steel quick and easy access to its GHG inventory and helps the company maximize process and material flow efficiencies. CHAPTER 2 14

17 15 CHAPTER 2 Business Goals and Inventory Design Ford Motor Company: Experiences GHG Protocol Corporate Standard using the When Ford Motor Company, a global automaker, embarked on an divestitures? What emission factors should be used? And importantly, how could their methodology be effort to understand and reduce its GHG impacts, it wanted to perhaps most deemed credible with stakeholders? Although the team had no track emissions with enough accuracy and detail to manage them effectively. An internal cross-functional GHG inventory team shortage of opinions, there also seemed to be no clearly right or wrong answers. was formed to accomplish this goal. Although the company was already reporting basic energy and carbon dioxide data at the helped answer many of GHG Protocol Corporate Standard The corporate level, a more detailed understanding of these emis- these questions and the Ford Motor Company now has a more sions was essential to set and measure progress against robust GHG inventory that can be continually improved to fulfill performance targets and evaluate potential participation in its rapidly emerging GHG management needs. Since adopting the external trading schemes. GHG Protocol Corporate Standard , Ford has expanded the coverage of its public reporting to all of its brands globally; it now For several weeks, the team worked on creating a more compre- hensive inventory for stationary combustion sources, and quickly includes direct emissions from sources it owns or controls and found a pattern emerging. All too often team members left meet- indirect emissions resulting from the generation of purchased electricity, heat, or steam. In addition, Ford is a founding member ings with as many questions as answers, and the same questions kept coming up from one week to the next. How should they of the Chicago Climate Exchange, which uses some of the GHG draw boundaries? How do they account for acquisitions and Protocol calculation tools for emissions reporting purposes. GUIDANCE

18 Setting Organizational Boundaries 3 STANDARD usiness operations vary in their legal and organizational structures; they include wholly owned operations, incorporated and non-incorporated B joint ventures, subsidiaries, and others. For the purposes of financial accounting, they are treated according to established rules that depend on the structure of the organization and the relationships among the parties involved. In setting organi- zational boundaries, a company selects an approach for consolidating GHG emissions and then consistently applies the selected approach to define those businesses and operations that constitute the company for the purpose of accounting and reporting GHG emissions. STANDARD GUIDANCE 16

19 17 Setting Organizational Boundaries CHAPTER 3 For corporate reporting, two distinct approaches can be Control approach used to consolidate GHG emissions: the equity share and Under the control approach, a company accounts for 100 percent of the GHG emissions from operations over the control approaches. Companies shall account for and report their consolidated GHG data according to either which it has control. It does not account for GHG emis- the equity share or control approach as presented below. sions from operations in which it owns an interest but If the reporting company wholly owns all its operations, has no control. Control can be defined in either financial its organizational boundary will be the same whichever or operational terms. When using the control approach 1 For companies with joint operations, approach is used. to consolidate GHG emissions, companies shall choose between either the operational control or financial the organizational boundary and the resulting emissions may differ depending on the approach used. In both control criteria. wholly owned and joint operations, the choice of In most cases, whether an operation is controlled by the approach may change how emissions are categorized company or not does not vary based on whether the finan- when operational boundaries are set (see chapter 4). cial control or operational control criterion is used. A notable exception is the oil and gas industry, which often has complex ownership / operatorship structures. Thus, Equity share approach the choice of control criterion in the oil and gas industry Under the equity share approach, a company accounts for can have substantial consequences for a company’s GHG GHG emissions from operations according to its share of inventory. In making this choice, companies should equity in the operation. The equity share reflects economic take into account how GHG emissions accounting and interest, which is the extent of rights a company has to the reporting can best be geared to the requirements of risks and rewards flowing from an operation. Typically, the emissions reporting and trading schemes, how it can be share of economic risks and rewards in an operation is aligned with financial and environmental reporting, aligned with the company’s percentage ownership of that and which criterion best reflects the company’s actual operation, and equity share will normally be the same as power of control. the ownership percentage. Where this is not the case, the economic substance of the relationship the company has The company has financial control Financial Control. • with the operation always overrides the legal ownership over the operation if the former has the ability to direct STANDARD form to ensure that equity share reflects the percentage the financial and operating policies of the latter with a 2 of economic interest. The principle of economic view to gaining economic benefits from its activities. substance taking precedent over legal form is consistent For example, financial control usually exists if the company has the right to the majority of benefits of the with international financial reporting standards. The staff preparing the inventory may therefore need to operation, however these rights are conveyed. Similarly, a company is considered to financially control an consult with the company’s accounting or legal staff to ensure that the appropriate equity share per operation if it retains the majority risks and rewards centage is of ownership of the operation’s assets. applied for each joint operation (see Table 1 for definitions of financial accounting categories). Under this criterion, the economic substance of the relationship between the company and the operation takes precedence over the legal ownership status, so that the company may have financial control over the operation even if it has less than a 50 percent interest in that operation. In assessing the economic substance of the relationship, the impact of potential voting rights, including both those held by the company and those held by other parties, is also taken into account. This criterion is consistent with international financial accounting standards; therefore, a company has finan- cial control over an operation for GHG accounting purposes if the operation is considered as a group company or subsidiary for the purpose of financial

20 Setting Organizational Boundaries consolidation, i.e., if the operation is fully consolidated Table 2 in the guidance section of this chapter illustrates in financial accounts. If this criterion is chosen to the selection of a consolidation approach at the corpo- rate level and the identification of which joint operations determine control, emissions from joint ventures where partners have joint financial control are accounted for will be in the organizational boundary depending on the choice of the consolidation approach. based on the equity share approach (see Table 1 for definitions of financial accounting categories). Operational Control. • A company has operational Consolidation at multiple levels control over an operation if the former or one of its The consolidation of GHG emissions data will only result subsidiaries (see Table 1 for definitions of financial in consistent data if all levels of the organization follow accounting categories) has the full authority to the same consolidation policy. In the first step, the introduce and implement its operating policies at the management of the parent company has to decide on a operation. This criterion is consistent with the current consolidation approach (i.e., either the equity share or accounting and reporting practice of many compa- the financial or operational control approach). Once a nies that report on emissions from facilities, which corporate consolidation policy has been selected, it shall they operate (i.e., for which they hold the operating be applied to all levels of the organization. license). It is expected that except in very rare circumstances, if the company or one of its subsidiaries is the operator of a facility, it will have State-ownership the full authority to introduce and implement its STANDARD The rules provided in this chapter shall also be applied operating policies and thus has operational control. to account for GHG emissions from industry joint operations that involve state ownership or a mix of Under the operational control approach, a company private/ state ownership. accounts for 100% of emissions from operations over which it or one of its subsidiaries has operational control. It should be emphasized that having operational BP: Reporting on the basis of equity share control does not mean that a company necessarily has authority to make all decisions concerning an BP reports GHG emissions on an equity share basis, including operation. For example, big capital investments will those operations where BP has an interest, but where BP is not the operator. In determining the extent of the equity share reporting likely require the approval of all the partners that boundary BP seeks to achieve close alignment with financial have joint financial control. Operational control does accounting procedures. BP’s equity share boundary includes all mean that a company has the authority to introduce and implement its operating policies. operations undertaken by BP and its subsidiaries, joint ventures and associated undertakings as determined by their treatment in the financial accounts. Fixed asset investments, i.e., where BP More information on the relevance and application has limited influence, are not included. of the operational control criterion is provided in petroleum industry guidelines for reporting GHG GHG emissions from facilities in which BP has an equity share emissions (IPIECA, 2003). are estimated according to the requirements of the BP Group Reporting Guidelines for Environmental Performance (BP 2000). Sometimes a company can have joint financial control In those facilities where BP has an equity share but is not the over an operation, but not operational control. In such cases, the company would need to look at the contractual operator, GHG emissions data may be obtained directly from the operating company using a methodology consistent with the BP arrangements to determine whether any one of the part- ners has the authority to introduce and implement its Guidelines, or is calculated by BP using activity data provided by operating policies at the operation and thus has the the operator. responsibility to report emissions under operational BP reports its equity share GHG emissions every year. Since control. If the operation itself will introduce and imple- 2000, independent external auditors have expressed the opinion ment its own operating policies, the partners with joint that the reported total has been found to be free from material financial control over the operation will not report any misstatement when audited against the BP Guidelines. emissions under operational control. CHAPTER 3 18

21 19 CHAPTER 3 Setting Organizational Boundaries TABLE 1. Financial accounting categories ACCOUNTING FOR GHG EMISSIONS ACCORDING TO ACCOUNTING FINANCIAL ACCOUNTING DEFINITION CATEGORY GHG PROTOCOL CORPORATE STANDARD BASED ON BASED ON FINANCIAL CONTROL EQUITY SHARE Group companies / The parent company has the ability to direct the financial and 100% of Equity share of operating policies of the company with a view to gaining subsidiaries GHG emissions GHG emissions economic benefits from its activities. Normally, this category also includes incorporated and non-incorporated joint ventures and partnerships over which the parent company has financial control. Group companies/ subsidiaries are fully consolidated, which implies that 100 percent of the subsidiary’s income, expenses, assets, and liabilities are taken into the parent company’s profit and loss account and balance sheet, respec- tively. Where the parent’s interest does not equal 100 percent, the consolidated profit and loss account and balance sheet shows a deduction for the profits and net assets belonging to minority owners. 0% of Associated / The parent company has significant influence over the operating Equity share of GHG emissions and financial policies of the company, but does not have finan- GHG emissions affiliated cial control. Normally, this category also includes incorporated companies and non-incorporated joint ventures and partnerships over which the parent company has significant influence, but not financial control. Financial accounting applies the equity share method to associated / affiliated companies, which recognizes the parent company’s share of the associate’s profits and net assets. STANDARD Equity share of Non-incorporated Joint ventures / partnerships /operations are proportionally Equity share of consolidated, i.e., each partner accounts for their propor- GHG emissions joint ventures / GHG emissions partnerships / tionate interest of the joint venture’s income, expenses, operations where assets, and liabilities. partners have joint financial control 0% The parent company has neither significant influence nor financial Fixed asset 0% investments control. This category also includes incorporated and non- incorporated joint ventures and partnerships over which the parent company has neither significant influence nor financial control. Financial accounting applies the cost / dividend method to fixed asset investments. This implies that only dividends received are recognized as income and the investment is carried at cost. Franchises Equity share of Franchises are separate legal entities. In most cases, the fran- 100% of chiser will not have equity rights or control over the franchise. GHG emissions GHG emissions Therefore, franchises should not be included in consolidation of GHG emissions data. However, if the franchiser does have equity rights or operational / financial control, then the same rules for consolidation under the equity or control approaches apply. NOTE: T able 1 is based on a comparison of UK, US, Netherlands and International Financial Reporting Standards (KPMG, 2000).

22 Setting Organizational Boundaries hen planning the consolidation of GHG data, it is Government reporting and trading programs may • important to distinguish between GHG accounting require that data be consolidated within certain and GHG reporting. GHG accounting concerns the geographic and operational boundaries (e.g., the U.K. W recognition and consolidation of GHG emissions from Emissions Trading Scheme) operations in which a parent company holds an interest To demonstrate the company’s account to wider stake- • (either control or equity) and linking the data to specific holders, companies may engage in voluntary public operations, sites, geographic locations, business reporting, consolidating GHG data at a corporate level processes, and owners. GHG reporting, on the other in order to show the GHG emissions of their entire hand, concerns the presentation of GHG data in formats business activities. tailored to the needs of various reporting uses and users. Most companies have several goals for GHG reporting, Contracts that cover GHG emissions e.g., official government reporting requirements, emissions trading programs, or public reporting (see chapter 2). To clarify ownership (rights) and responsibility (obliga- tions) issues, companies involved in joint operations may In developing a GHG accounting system, a fundamental draw up contracts that specify how the ownership of consideration is to ensure that the system is capable of emissions or the responsibility for managing emissions meeting a range of reporting requirements. Ensuring and associated risk is distributed between the parties. that data are collected and recorded at a sufficiently Where such arrangements exist, companies may option- disaggregated level, and capable of being consolidated ally provide a description of the contractual arrangement in various forms, will provide companies with maximum GUIDANCE related and include information on allocation of CO flexibility to meet a range of reporting requirements. 2 risks and obligations (see Chapter 9). Double counting When two or more companies hold interests in the same Using the equity share or control approach joint operation and use different consolidation approaches Different inventory reporting goals may require different data sets. Thus companies may need to account for their (e.g., Company A follows the equity share approach while GHG emissions using both the equity share and the Company B uses the financial control approach), emissions GHG Protocol Corporate Standard control approaches. The from that joint operation could be double counted. This may not matter for voluntary corporate public reporting makes no recommendation as to whether voluntary as long as there is adequate disclosure from the company public GHG emissions reporting should be based on the on its consolidation approach. However, double counting equity share or any of the two control approaches, but encourages companies to account for their emissions of emissions needs to be avoided in trading schemes and applying the equity share and a control approach sepa- certain mandatory government reporting programs. rately. Companies need to decide on the approach best suited to their business activities and GHG accounting Reporting goals and level of consolidation and reporting requirements. Examples of how these may Reporting requirements for GHG data exist at various drive the choice of approach include the following: levels, from a specific local facility level to a more that • Reflection of commercial reality. It can be argued aggregated corporate level. Examples of drivers for a company that derives an economic profit from a various levels of reporting include: certain activity should take ownership for any GHG • emissions generated by the activity. This is achieved Official government reporting programs or certain by using the equity share approach, since this emissions trading programs may require GHG data to be reported at a facility level. In these cases, consoli- approach assigns ownership for GHG emissions on the basis of economic interest in a business activity. The dation of GHG data at a corporate level is not relevant control approaches do not always reflect the full GHG emissions portfolio of a company’s business activities, but have the advantage that a company takes full ownership of all GHG emissions that it can directly influence and reduce. CHAPTER 3 20

23 21 CHAPTER 3 Setting Organizational Boundaries • Government reporting and emissions trading programs. • Cost of administration and data access. The equity Government regulatory programs will always need to share approach can result in higher administrative costs than the control approach, since it can be diffi- monitor and enforce compliance. Since compliance responsibility generally falls to the operator (not cult and time consuming to collect GHG emissions equity holders or the group company that has financial data from joint operations not under the control of the reporting company. Companies are likely to have control), governments will usually require reporting better access to operational data and therefore greater on the basis of operational control, either through a ability to ensure that it meets minimum quality facility level-based system or involving the consolida- standards when reporting on the basis of control. tion of data within certain geographical boundaries (e.g. the EU ETS will allocate emission permits to the Completeness of reporting. Companies might find it • operators of certain installations). difficult to demonstrate completeness of reporting While reporting and when the operational control criterion is adopted, • Liability and risk management. since there are unlikely to be any matching records or compliance with regulations will most likely continue lists of financial assets to verify the operations that to be based directly on operational control, the ulti- are included in the organizational boundary. mate financial liability will often rest with the group company that holds an equity share in the operation or has financial control over it. Hence, for assessing risk, GHG reporting on the basis of the equity share and financial control approaches provides a more complete picture. The equity share approach is likely to result in the most comprehensive coverage of liability and risks. In the future, companies might incur liabilities for GHG emissions produced by joint operations in which Royal Dutch/Shell: they have an interest, but over which they do not have Reporting on the basis of operational control financial control. For example, a company that is an equity shareholder in an operation but has no financial In the oil and gas industry, ownership and control structures are GUIDANCE control over it might face demands by the companies often complex. A group may own less than 50 percent of a with a controlling share to cover its requisite share of venture’s equity capital but have operational control over the GHG compliance costs. venture. On the other hand, in some situations, a group may hold Future financial Alignment with financial accounting. • a majority interest in a venture without being able to exert opera- accounting standards may treat GHG emissions as tional control, for example, when a minority partner has a veto liabilities and emissions allowances / credits as assets. vote at the board level. Because of these complex ownership and To assess the assets and liabilities a company creates control structures, Royal Dutch/Shell, a global group of energy by its joint operations, the same and petrochemical companies, has chosen to report its GHG emis- consolidation rules sions on the basis of operational control. By reporting 100 percent that are used in financial accounting should be applied in GHG accounting. The equity share and financial of GHG emissions from all ventures under its operational control, irrespective of its share in the ventures’ equity capital, Royal control approaches result in closer align ment between GHG accounting and financial accounting. Dutch/Shell can ensure that GHG emissions reporting is in line with its operational policy including its Health, Safety and Management information and performance tracking. • Environmental Performance Monitoring and Reporting Guidelines. For the purpose of performance tracking, the control Using the operational control approach, the group generates data approaches seem to be more appropriate since that is consistent, reliable, and meets its quality standards. managers can only be held accountable for activities under their control.

24 Setting Organizational Boundaries FIGURE 1. Defining the organizational boundary of Holland Industries 100% HOLLAND 100% SWITZERLAND 100% 41.5% BGB 0% (50% OWNED) 50% 83% HOLLAND 100% AMERICA 100% 62.25% IRW 100% (75% OWNED) 100% 33.3% KAHUNA 100% CHEMICALS 33.3% HOLLAND INDUSTRIES GUIDANCE 43% 100% QUICKFIX 100% 56% 0% NALLO 0% 0% 0% Equity share SYNTAL 0% Operational control Financial control AN ILLUSTRATION: THE EQUITY SHARE AND CONTROL APPROACHES Holland Industries is a chemicals group comprising corporate level. It then determines which operations at a number of companies/joint ventures active in the the corporate level meet its selected consolidation production and marketing of chemicals. Table 2 outlines approach. Based on the selected consolidation approach, the organizational structure of Holland Industries and the consolidation process is repeated for each lower operational level. In this process, GHG emissions are shows how GHG emissions from the various wholly owned and joint operations are accounted for under first apportioned at the lower operational level both the equity share and control approaches. (subsidiaries, associate, joint ventures, etc.) before they are consolidated at the corporate level. Figure 1 pres- In setting its organizational boundary, Holland ents the organizational boundary of Holland Industries Industries first decides whether to use the equity or based on the equity share and control approaches. control approach for consolidating GHG data at the CHAPTER 3 22

25 23 CHAPTER 3 Setting Organizational Boundaries TABLE 2. Holland Industries - organizational structure and GHG emissions accounting TREATMENT IN CONTROL EMISSIONS ACCOUNTED FOR AND REPORTED WHOLLY ECONOMIC LEGAL OWNED AND OF HOLLAND INDUSTRIES’ BY HOLLAND INDUSTRIES INTEREST STRUCTURE JOINT OPERATING FINANCIAL ACCOUNTS AND PARTNERS HELD BY OPERATIONS (SEE TABLE 1) POLICIES EQUITY SHARE HOLLAND CONTROL APPROACH OF HOLLAND APPROACH INDUSTRIES Holland Holland 100% 100% for 100% Incorporated Wholly owned subsidiary Switzerland Industries company operational control 100% for financial control 83% Subsidiary 83% Incorporated 100% for Holland Holland operational control company Industries America 100% for financial control Joint venture, 41.5% 50% by 0% for via Holland America Rearden BGB operational control partners have Holland (83% x 50%) America joint financial 50% for financial control other (50% x 100%) control partner Rearden Holland via Holland America 75% by 100% for Subsidiary of 62.25% IRW America Holland operational control Holland America America (83% x 75%) 100% for financial control 33.3% Proportionally Non-incorporated 33.3% Holland Kahuna 100% for joint venture; consolidated joint venture Industries Chemicals operational control partners have 33.3% for joint financial financial control control; two other partners: ICT and BCSF GUIDANCE Subsidiary Incorporated joint 43% 43% 100% for Holland QuickFix operational control venture, other Industries (Holland Industries has partner Majox 100% for financial control since financial control it treats Quick Fix as a subsidiary in its financial accounts) 0% for 56% Associated company 56% Incorporated joint Nallo Nallo operational control (Holland Industries does venture, other partner Nagua Co. not have financial control 0% for since it treats Nallo as an financial control Associated company in its financial accounts) 1% Incorporated 0% for Fixed asset investment Erewhon Syntal 0% company, operational control Co. subsidiary of 0% for Erewhon Co. financial control In this example, Holland America (not Holland Industries) holds NOTES a 50 percent interest in BGB and a 75 percent interest in IRW. If 1 The term “operations” is used here as a generic term to denote any the activities of Holland Industries itself produce GHG emissions kind of business activity, irrespective of its organizational, gover- (e.g., emissions associated with electricity use at the head office), nance, or legal structures. then these emissions should also be included in the consolidation 2 Financial accounting standards use the generic term “control” for what at 100 percent. is denoted as “financial control” in this chapter.

26 Setting Operational Boundaries 4 STANDARD fter a company has determined its organizational boundaries in terms of the operations that it owns or controls, it then sets its operational A boundaries. This involves identifying emissions associated with its operations, categorizing them as direct and indirect emissions, and choosing the scope of accounting and reporting for indirect emissions. STANDARD GUIDANCE 24

27 25 Setting Operational Boundaries CHAPTER 4 For effective and innovative GHG management, setting Scope 1: Direct GHG emissions operational boundaries that are comprehensive with Direct GHG emissions occur from sources that are owned or controlled by the company, for example, respect to direct and indirect emissions will help a emissions from combustion in owned or controlled company better manage the full spectrum of GHG risks boilers, fur naces, vehicles, etc.; emissions from chemical and opportunities that exist along its value chain. production in owned or controlled process equipment. are emissions from sources that Direct GHG emissions 1 Direct CO are owned or controlled by the company. emissions from the combustion of biomass 2 shall not be included in scope 1 but reported separately Indirect GHG emissions are emissions that are a (see chapter 9). consequence of the activities of the company but occur GHG emissions not covered by the Kyoto Protocol, e.g. at sources owned or controlled by another company. CFCs, NOx, etc. shall not be included in scope 1 but may What is classified as direct and indirect emissions is be reported separately (see chapter 9). dependent on the consolidation approach (equity share or control) selected for setting the organizational boundary (see chapter 3). Figure 2 below shows the Scope 2: Electricity indirect GHG emissions relationship between the organizational and operational Scope 2 accounts for GHG emissions from the genera- boundaries of a company. 2 tion of purchased electricity consumed by the company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organizational Introducing the concept of “ scope” boundary of the company. Scope 2 emissions physically To help delineate direct and indirect emission sources, occur at the facility where electricity is generated. improve transparency, and provide utility for different types of organizations and different types of climate poli- cies and business goals, three “scopes” (scope 1, scope Scope 3: Other indirect GHG emissions 2, and scope 3) are defined for GHG accounting and Scope 3 is an optional reporting category that allows reporting purposes. Scopes 1 and 2 are carefully defined for the treatment of all other indirect emissions. Scope STANDARD in this standard to ensure that two or more companies 3 emissions are a consequence of the activities of the will not account for emissions in the same scope. This company, but occur from sources not owned or makes the scopes amenable for use in GHG programs controlled by the company. Some examples of scope 3 where double counting matters. activities are extraction and production of purchased Companies shall separately account for and report on materials; transportation of purchased fuels; and use of scopes 1 and 2 at a minimum. sold products and services. FIGURE 2. Organizational and operational boundaries of a company Parent Company Company A Company D Company C Company B BOUNDARIES } ORGANIZATIONAL Owned/ Owned/ Power Car fleet Ship fleet Leased factory Controlled generation unit Controlled building building BOUNDARIES OPERATIONAL } Direct and indirect emissions Leased building

28 Setting Operational Boundaries n operational boundary defines the scope of direct Accounting and reporting on scopes and indirect emissions for operations that fall within Companies account for and report emissions from A a company’s established organizational boundary. scope 1 and 2 separately. Companies may further subdivide emissions data within scopes where this aids The operational boundary (scope 1, scope 2, scope 3) is transparency or facilitates comparability over time. decided at the corporate level after setting the organiza- For example, they may subdivide data by business tional boundary. The selected operational boundary is then uniformly applied to identify and categorize direct and unit/facility, country, source type (stationary combustion, process, fugitive, etc.), and activity type (production indirect emissions at each operational level (see Box 2). of electricity, consumption of electricity, generation or The established organizational and operational bound- aries together constitute a company’s inventory boundary. purchased electricity that is sold to end users, etc.). In addition to the six Kyoto gases, companies may also provide emissions data for other GHGs (e.g., Montreal BOX 2. Organizational and operational boundaries Protocol gases) to give context to changes in emission Organization X is a parent company that has full ownership and levels of Kyoto Protocol gases. Switching from a CFC financial control of operations A and B, but only a 30% non- to HFC, for example, will increase emissions of Kyoto operated interest and no financial control in operation C. Protocol gases. Information on emissions of GHGs other than the six Kyoto gases may be reported separately X would decide whether to Setting Organizational Boundary: from the scopes in a GHG public report. account for GHG emissions by equity share or financial control. If GUIDANCE the choice is equity share, X would include A and B, as well as 30% Together the three scopes provide a comprehensive of C’s emissions. If the approach chosen is financial control, X accounting framework for managing and reducing would count only A and B’s emissions as relevant and subject to direct and indirect emissions. Figure 3 provides an consolidation. Once this has been decided, the organizational overview of the relationship between the scopes and boundary has been defined. the activities that generate direct and indirect emissions along a company’s value chain. Once the organizational boundary Setting Operational Boundary: is set, X then needs to decide, on the basis of its business goals, A company can benefit from efficiency gains throughout whether to account only for scope 1 and scope 2, or whether to the value chain. Even without any policy drivers, include relevant scope 3 categories for its operations. accounting for GHG emissions along the value chain may reveal potential for greater efficiency and lower costs Operations A, B and C (if the equity approach is selected) account (e.g., the use of fly ash as a clinker substitute in the for the GHG emissions in the scopes chosen by X, i.e., they apply the manufacture of cement that reduces downstream emis- corporate policy in drawing up their operational boundaries. sions from processing of waste fly ash, and upstream FIGURE 3. Overview of scopes and emissions across a value chain HFCs CH CO SF N O PFCs 4 2 6 2 SCOPE 1 DIRECT SCOPE 3 SCOPE 2 INDIRECT INDIRECT EMPLOYEE BUSINESS TRAVEL PRODUCTION OF PURCHASED MATERIALS PURCHASED ELECTRICITY FOR OWN USE WASTE DISPOSAL COMPANY OWNED PRODUCT VEHICLES CONTRACTOR OWNED USE VEHICLES OUTSOURCED ACTIVITIES FUEL COMBUSTION Adopted from NZBCSD, 2002 26 CHAPTER 4

29 27 Setting Operational Boundaries CHAPTER 4 emissions from producing clinker). Even if such “win- Scope 2: Electricity indirect GHG emissions win” options are not available, indirect emissions Companies report the emissions from the generation of purchased electricity that is consumed in its owned or reductions may still be more cost effective to accomplish controlled equipment or operations as scope 2. Scope 2 than scope 1 reductions. Thus accounting for indirect emissions can help identify where to allocate limited emissions are a special category of indirect emissions. For resources in a way that maximizes GHG reduction and many companies, purchased electricity represents one of the largest sources of GHG emissions and the most signifi- return on investment. cant opportunity to reduce these emissions. Accounting Appendix D lists GHG sources and activities along the for scope 2 emissions allows companies to assess the risks value chain by scopes for various industry sectors. and opportunities associated with changing electricity and GHG emissions costs. Another important reason for companies to track these emissions is that the information Scope 1: Direct GHG emissions may be needed for some GHG programs. Companies report GHG emissions from sources they own Companies can reduce their use of electricity by investing or control as scope 1. Direct GHG emissions are princi- pally the result of the following types of activities in energy efficient technologies and energy conservation. 4 undertaken by the company: provide Additionally, emerging green power markets opportunities for some companies to switch to less GHG Generation of electricity, heat, or steam. These emis- • intensive sources of electricity. Companies can also install sions result from combustion of fuels in stationary an efficient on site co-generation plant, particularly if it sources, e.g., boilers, furnaces, turbines replaces the purchase of more GHG intensive electricity 3 Most of these emis- from the grid or electricity supplier. Reporting of scope 2 • Physical or chemical processing. emissions allows transparent accounting of GHG emis- sions result from manufacture or processing of chemicals sions and reductions associated with such opportunities. and materials, e.g., cement, aluminum, adipic acid, ammonia manufacture, and waste processing • Transportation of materials, products, waste, and INDIRECT EMISSIONS These emissions result from the combus- employees. GUIDANCE ASSOCIATED WITH TRANSMISSION AND DISTRIBUTION tion of fuels in company owned/controlled mobile Electric utility companies often purchase electricity from combustion sources (e.g., trucks, trains, ships, independent power generators or the grid and resell it to airplanes, buses, and cars) end-consumers through a transmission and distribution 5 (T&D) system. These emissions result from inten- Fugitive emissions. • A portion of the electricity purchased tional or unintentional releases, e.g., equipment leaks by a utility company is consumed (T&D loss) during its transmission and distribution to end-consumers (see Box 3). from joints, seals, packing, and gaskets; methane emissions from coal mines and venting; hydrofluoro- Consistent with the scope 2 definition, emissions from the carbon (HFC) emissions during the use of refrigeration generation of purchased electricity that is consumed and air conditioning equipment; and methane leakages during transmission and distribution are reported in from gas transport. scope 2 by the company that owns or controls the T&D operation. End consumers of the purchased electricity do not report indirect emissions associated with T&D losses SALE OF OWN-GENERATED ELECTRICITY in scope 2 because they do not own or control the T&D Emissions associated with the sale of own-generated operation where the electricity is consumed (T&D loss). electricity to another company are not deducted/netted from scope 1. This treatment of sold electricity is consis- BOX 3. Electricity balance tent with how other sold GHG intensive products are accounted, e.g., emissions from the production of sold Purchased electricity consumed clinker by a cement company or the production of scrap by the utility company during T&D GENERATED steel by an iron and steel company are not subtracted + = ELECTRICITY from their scope 1 emissions. Emissions associated with Purchased electricity consumed the sale/transfer of own-generated electricity may be by end consumers reported in optional information (see chapter 9).

30 Setting Operational Boundaries This approach ensures that there is no double counting Company A is an independent Example one (Figure 4): power generator that owns a power generation plant. within scope 2 since only the T&D utility company will The power plant produces 100 MWh of electricity and account for indirect emissions associated with T&D releases 20 tonnes of emissions per year. Company B losses in scope 2. Another advantage of this approach is is an electricity trader and has a supply contract with that it adds simplicity to the reporting of scope 2 emis- sions by allowing the use of commonly available emission company A to purchase all its electricity. Company B re- factors that in most cases do not include T&D losses. sells the purchased electricity (100 MWh) to company C, End consumers may, however, report their indirect emis- a utility company that owns / controls the T&D system. sions associated with T&D losses in scope 3 under the Company C consumes 5 MWh of electricity in its T&D “generation of electricity consumed in a T&D system and sells the remaining 95 MWh to company D. category Company D is an end user who consumes the purchased system.” Appendix A provides more guidance on electricity (95 MWh) in its own operations. Company A accounting for emissions associated with T&D losses. reports its direct emissions from power generation under scope 1. Company B reports emissions from the purchased electricity sold to a non-end-user as optional OTHER ELECTRICITY-RELATED INDIRECT EMISSIONS information separately from scope 3. Company C reports Indirect emissions from activities upstream of a the indirect emissions from the generation of the part of company’s electricity provider (e.g., exploration, drilling, the purchased electricity that is sold to the end-user flaring, transportation) are reported under scope 3. under scope 3 and the part of the purchased electricity Emissions from the generation of electricity that has been GUIDANCE that it consumes in its T&D system under scope 2. End- purchased for resale to end-users are reported in scope 3 user D reports the indirect emissions associated with its under the category “generation of electricity that is purchased and then resold to end users.” Emissions from own consumption of purchased electricity under scope 2 and can optionally report emissions associated with the generation of purchased electricity for resale to non- end-users (e.g., electricity traders) may be reported sepa- upstream T&D losses in scope 3. Figure 4 shows the accounting of emissions associated with these transactions. rately from scope 3 in “optional information.” The following two examples illustrate how GHG emissions Example two: Company D installs a co-generation unit and sells surplus electricity to a neighboring company E for from the generation, sale, and are accounted for its consumption. Company D reports all direct emis- purchase of electricity. sions from the co-generation unit under scope 1. Indirect emissions from the generation of electricity for export to E are reported by D under optional information separately Seattle City Light: Accounting for the purchase of electricity sold to end users demand, but the production does not match load in all months. So Seattle City Light (SCL), Seattle’s municipal utility company, sells SCL accounts for both purchases from the market and sales into the electricity to its end-use customers that is either produced at its market. SCL also includes the scope 3 upstream emissions from own hydropower facilities, purchased through long-term contracts, natural gas production and delivery, operation of SCL facilities, or purchased on the short-term market. SCL used the first edition of vehicle fuel use, and airline travel. the to estimate its year 2000 and GHG Protocol Corporate Standard year 2002 GHG emissions, and emissions associated with genera- SCL believes that sales to end-users are a critical part of the emis- tion of net purchased electricity sold to end-users was an important sions profile for an electric utility company. Utility companies need component of that inventory. SCL tracks and reports the amount of to provide information on their emissions profile to educate end- electricity sold to end-users on a monthly and annual basis. users and adequately represent the impact of their business, the providing of electricity. End-use customers need to rely on their SCL calculates net purchases from the market (brokers and other utility company to provide electricity, and except in some instances utility companies) by subtracting sales to the market from purchases from the market, measured in MWh. This allows a (green power programs), do not have a choice in where their elec- complete accounting of all emissions impacts from its entire oper- tricity is purchased. SCL meets a customer need by providing ation, including interactions with the market and end-users. On an emissions information to customers who are doing their own emis- annual basis, SCL produces more electricity than there is end-use sions inventory. 28 CHAPTER 4

31 29 CHAPTER 4 Setting Operational Boundaries from scope 3. Company E reports indirect emissions Electricity-related activities not included in scope 2 • (see Appendix A) associated with the consumption of electricity purchased • Extraction, production, and transportation of fuels from the company D’s co-generation unit under scope 2. consumed in the generation of electricity (either For more guidance, see Appendix A on accounting for purchased or own generated by the reporting company) indirect emissions from purchased electricity. Purchase of electricity that is sold to an end user • (reported by utility company) Generation of electricity that is consumed in a T&D • Scope 3: Other indirect GHG emissions system (reported by end-user) Scope 3 is optional, but it provides an opportunity to be • innovative in GHG management. Companies may want to Leased assets, franchises, and outsourced activities— focus on accounting for and reporting those activities that emissions from such contractual arrangements are are relevant to their business and goals, and for which they only classified as scope 3 if the selected consolidation approach (equity or control) does not apply to them. have reliable information. Since companies have discretion Clarification on the classification of leased assets over which categories they choose to report, scope 3 may not lend itself well to comparisons across companies. This should be obtained from the company accountant (see section provides an indicative list of scope 3 categories section on leases below). and includes case studies on some of the categories. Use of sold products and services • Some of these activities will be included under scope 1 if the Waste disposal • pertinent emission sources are owned or controlled by the • Disposal of waste generated in operations company (e.g., if the transportation of products is done in • Disposal of waste generated in the production of vehicles owned or controlled by the company). To determine purchased materials and fuels if an activity falls within scope 1 or scope 3, the company • Disposal of sold products at the end of their life should refer to the selected consolidation approach (equity or control) used in setting its organizational boundaries. • Extraction and production of purchased materials ACCOUNTING FOR SCOPE 3 EMISSIONS GUIDANCE 6 Accounting for scope 3 emissions need not involve a and fuels full-blown GHG life cycle analysis of all products and Transport-related activities • operations. Usually it is valuable to focus on one or two Transportation of purchased materials or goods • major GHG-generating activities. Although it is diffi- • Transportation of purchased fuels cult to provide generic guidance on which scope 3 • Employee business travel emissions to include in an inventory, some general steps • Employees commuting to and from work can be articulated: • Transportation of sold products Transportation of waste • FIGURE 4. GHG accounting from the sale and purchase of electricity A’s Scope 1 C’s Scope 2 D’s Scope 2 emissions = 20t emissions = 1t emissions = 19t ➡ ➡ ➡ 100 MWh 100 MWh 95 MWh Utility Electricity End-user D Generator A ➡ ➡ ➡ Trader B Company C emission factor emission factor emission factor ➡ ➡ ➡ = 0.2 t/MWh = 0.2 t/MWh = 0.2 t/MWh D’s Scope 3 emissions = 1t C’s Scope 3 emissions = 19t B’s Optional Information = 20t

32 Setting Operational Boundaries 1. Describe the value chain. Because the assessment of DHL Nordic Express: The business case for scope 3 emissions does not require a full life cycle accounting for outsourced transportation services assessment, it is important, for the sake of transparency, As a major transportation and logistics company in northern Europe, to provide a general description of the value chain and DHL Express Nordic serves large loads and special transport needs the associated GHG sources. For this step, the scope 3 as well as world wide express package and document deliveries and categories listed can be used as a checklist. Companies offers courier, express, parcel, systemized and specialty business usually face choices on how many levels up- and down- services. Through participation in the Business Leaders Initiative on stream to include in scope 3. Consideration of the Climate Change, the company found that 98 percent of its emissions company’s inventory or business goals and relevance of in Sweden originate from the transport of goods via outsourced the various scope 3 categories will guide these choices. partner transportation firms. Each partner is required, as an element of the subcontract payment scheme, to enter data on vehicles used, Only 2. Determine which scope 3 categories are relevant. distance traveled, fuel efficiency, and background data. This data is some types of upstream or downstream emissions cate- used to calculate total emissions via a tailored calculation tool for gories might be relevant to the company. They may be outsourced transportation which gives a detailed picture of its scope relevant for several reasons: They are large (or believed to be large) relative to the 3 emissions. Linking data to specific carriers allows the company to • company’s scope 1 and scope 2 emissions screen individual carriers for environmental performance and affect decisions based on each carrier’s emissions performance, which is They contribute to the company’s GHG risk exposure • seen through scope 3 as DHL’s own performance. They are deemed critical by key stakeholders (e.g., • GUIDANCE By including scope 3 and promoting GHG reductions throughout the feedback from customers, suppliers, investors, or value chain, DHL Express Nordic increased the relevance of its civil society) emissions footprint, expanded opportunities for reducing its impacts and improved its ability to recognize cost saving opportu- There are potential emissions reductions that could be • undertaken or influenced by the company. nities. Without scope 3, DHL Express Nordic would have lacked much of the information needed to be able to understand and effec- The following examples may help decide which scope 3 tively manage its emissions. categories are relevant to the company. SCOPE ) EMISSIONS (tCO 2 • If fossil fuel or electricity is required to use the 7,265 Scope 1 company’s products, product use phase emissions may be a relevant category to report. This may be espe- 52 Scope 2 cially important if the company can influence product Scope 3 327,634 design attributes (e.g., energy efficiency) or customer behavior in ways that reduce GHG emissions during 334,951 Total the use of the products. FIGURE 5. Accounting of emissions from leased assets Parent Company Company A Company B BOUNDARIES } ORGANIZATIONAL Leased building Leased car fleet Leased car fleet (selected consolidation (selected consolidation criterion (selected consolidation does not apply) criterion applies) criterion applies) BOUNDARIES OPERATIONAL Scope 1 Scope 1 Scope 2 Scope 3 } 30 CHAPTER 4

33 31 CHAPTER 4 Setting Operational Boundaries • Outsourced activities are often candidates for scope 3 IKE A: Customer transportation emissions assessments. It may be particularly important to and from its retail stores to include these when a previously outsourced activity contributed significantly to a company’s scope 1 or IKEA, an international home furniture and furnishings retailer, scope 2 emissions. decided to include scope 3 emissions from customer travel when it became clear, through participation in the Business Leaders • If GHG-intensive materials represent a significant Initiative on Climate Change (BLICC) program, that these emis- fraction of the weight or composition of a product sions were large relative its scope 1 and scope 2 emissions. used or manufactured (e.g., cement, aluminum), Furthermore, these emissions are particularly relevant to IKEA’s companies may want to examine whether there are store business model. Customer travel to its stores, often from opportunities to reduce their consumption of the long distances, is directly affected by IKEA’s choice of store loca- product or to substitute less GHG-intensive materials. tion and the warehouse shopping concept. Large manufacturing companies may have significant • Customer transportation emission calculations were based on emissions related to transporting purchased materials customer surveys at selected stores. Customers were asked for to centralized production facilities. the distance they traveled to the store (based on home postal Commodity and consumer product companies may • code), the number of customers in their car, the number of other stores they intended to visit at that shopping center that day, and want to account for GHGs from transporting raw materials, products, and waste. whether they had access to public transportation to the store. Extrapolating this data to all IKEA stores and multiplying distance Service sector companies may want to report on emis- • by average vehicle efficiencies for each country, the company sions from employee business travel; this emissions calculated that 66 percent of its emissions inventory was from source is not as likely to be significant for other kinds scope 3 customer travel. Based on this information, IKEA will have of companies (e.g., manufacturing companies). significant influence over future scope 3 emissions by considering 3. Identify partners along the value chain. GHG emissions when developing public transportation options Identify any partners that contribute potentially and home delivery services for its existing and new stores. significant amounts of GHGs along the value chain GUIDANCE (e.g., customers /users, product designers /manufac- turers, energy providers, etc.). This is important when Leased assets, outsourcing, and franchises trying to identify sources, obtain relevant data, and The selected consolidation approach (equity share or one calculate emissions. of the control approaches) is also applied to account for 4. Quantify scope 3 emissions. While data availability and categorize direct and indirect GHG emissions from and reliability may influence which scope 3 activities contractual arrangements such as leased assets, are included in the inventory, it is accepted that data outsourcing, and franchises. If the selected equity or accuracy may be lower. It may be more important control approach does not apply, then the company may to understand the relative magnitude of and possible account for emissions from the leased assets, changes to scope 3 activities. Emission estimates are outsourcing, and franchises under scope 3. Specific guid- acceptable as long as there is transparency with regard ance on leased assets is provided below: to the estimation approach, and the data used for the • The USING EQUITY SHARE OR FINANCIAL CONTROL: analysis are adequate to support the objectives of the lessee only accounts for emissions from leased assets inventory. Verification of scope 3 emissions will often that are treated as wholly owned assets in financial be difficult and may only be considered if data is of accounting and are recorded as such on the balance reliable quality. sheet (i.e., finance or capital leases).

34 Setting Operational Boundaries Double counting • USING OPERATIONAL CONTROL: The lessee only accounts for emissions from leased assets that it oper- Concern is often expressed that accounting for indirect emissions will lead to double counting when two ates (i.e., if the operational control criterion applies). different companies include the same emissions in their Guidance on which leased assets are operating and respective inventories. Whether or not double counting which are finance leases should be obtained from the occurs depends on how consistently companies with company accountant. In general, in a finance lease, an shared ownership or trading program administrators organization assumes all rewards and risks from the choose the same approach (equity or control) to set the leased asset, and the asset is treated as wholly owned organizational boundaries. Whether or not double and is recorded as such on the balance sheet. All counting matters, depends on how the reported informa- leased assets that do not meet those criteria are oper- tion is used. ating leases. Figure 5 illustrates the application of Double counting needs to be avoided when compiling consolidation criteria to account for emissions from leased assets. national (country) inventories under the Kyoto Protocol, but these are usually compiled via a top-down exercise using national economic data, rather than aggregation of bottom-up company data. Compliance regimes are more likely to focus on the “point of release” of emis- sions (i.e., direct emissions) and/or indirect emissions from use of electricity. For GHG risk management and GUIDANCE voluntary reporting, double counting is less important. World Resources Institute: Innovations in estimating employee commuting emissions The World Resources Institute has a long-standing commitment to benefit was that employees felt a certain amount of pride at having reduce its annual GHG emissions to net zero through a combination contributed to the inventory development process. The experience of internal reduction efforts and external offset purchases. WRI’s also provided a positive internal communications opportunity. emissions inventory includes scope 2 indirect emissions associ- GHG Protocol Corporate WRI has developed a guide consistent with ated with the consumption of purchased electricity and scope 3 Standard to help office-based organizations understand how to indirect emissions associated with business air travel, employee Working 9 to 5 on Climate Change: track and manage their emissions. commuting, and paper use. WRI has no scope 1 direct emissions. An Office Guide is accompanied by a suite of calculation tools, including one for using a survey method to estimate employee Collecting employee commuting activity data from WRI’s 140 staff can be challenging. The method used is to survey employees once commuting emissions. The Guide and tools can be downloaded from each year about their average commuting habits. In the first two the GHG Protocol Initiative website ( years of the initiative, WRI used an Excel spreadsheet accessible Transportation-related emissions are the fastest growing GHG to all employees on a shared internal network, but only achieved emissions category in the United States. This includes commercial, a 48 percent participation rate. A simplified, web-based survey business, and personal travel as well as commuting. By accounting that downloaded into a spreadsheet improved participation to for commuting emissions, companies may find that several 65 percent in the third year. Using feedback on the survey design, practical opportunities exist for reducing them. For example, when WRI further simplified and refined survey questions, improved user WRI moved to new office space, it selected a building located close friendliness, and reduced the time needed to complete the survey to to public transportation, reducing the need for employees to drive less than a minute. Employee participation rate rose to 88 percent. to work. In its lease, WRI also negotiated access to a locked bike Designing a survey that was easily navigable and had clearly artic- room for those employees who cycle to work. Finally, telework ulated questions significantly improved the completeness and programs significantly reduce commuting emissions by avoiding or accuracy of the employee commuting activity data. An added decreasing the need to travel. 32 CHAPTER 4

35 33 CHAPTER 4 Setting Operational Boundaries For participating in GHG markets or obtaining GHG ABB: Calculating product use phase credits, it would be unacceptable for two organizations emissions associated with electrical appliances to claim ownership of the same emissions commodity and it is therefore necessary to make sufficient ABB, an energy and automation technology company based in provisions to ensure that this does not occur between Switzerland, produces a variety of appliances and equipment, participating companies (see chapter 11). such as circuit breakers and electrical drives, for industrial appli- cations. ABB has a stated goal to issue Environmental Product Declarations (EPDs) for all its core products based on life cycle SCOPES AND DOUBLE COUNTING assessment. As a part of its committment, ABB reports both is designed to GHG Protocol Corporate Standard The manufacturing and product use phase GHG emissions for a variety of its products using a standardized calculation method prevent double counting of emissions between different and set of assumptions. For example, product use phase calcula- companies within scope 1 and 2. For example, the tions for ABB’s 4 kW DriveIT Low Voltage AC drive are based on a scope 1 emissions of company A (generator of 15-year expected lifetime and an average of 5,000 annual oper- electricity) can be counted as the scope 2 emissions of company B (end-user of electricity) but company A’s ating hours. This activity data is multiplied by the average scope 1 emissions cannot be counted as scope 1 emis- electricity emission factor for OECD countries to produce total sions by company C (a partner organization of lifetime product use emissions. company A) as long as company A and company C Compared with manufacturing emissions, product use phase consistently apply the same control or equity share emissions account for about 99 percent of total life cycle emis- approach when consolidating emissions. sions for this type of drive. The magnitude of these emissions and ABB’s control of the design and performance of this equipment Similarly, the definition of scope 2 does not allow double counting of emissions within scope 2, i.e., two different clearly give the company significant leverage on its customers’ companies cannot both count scope 2 emissions from emissions by improving product efficiency or helping customers the purchase of the same electricity. Avoiding this type design better overall systems in which ABB’s products are of double counting within scope 2 emissions makes it a involved. By clearly defining and quantifying significant value useful accounting category for GHG trading programs chain emissions, ABB has gained insight into and influence over GUIDANCE that regulate end users of electricity. its emissions footprint. When used in external initiatives such as GHG trading, the robustness of the scope 1 and 2 definitions combined with the consistent application of either the control or NOTES equity share approach for defining organizational bound- 1 The terms “direct” and “indirect” as used in this document should not aries allows only one company to exercise ownership of be confused with their use in national GHG inventories where ‘direct’ scope 1 or scope 2 emissions. refers to the six Kyoto gases and ‘indirect’ refers to the precursors NOx, NMVOC, and CO. 2 The term “electricity” is used in this chapter as shorthand for elec- tricity, steam, and heating/cooling. 3 For some integrated manufacturing processes, such as ammonia manu- facture, it may not be possible to distinguish between GHG emissions from the process and those from the production of electricity, heat, or steam. 4 Green power includes renewable energy sources and specific clean energy technologies that reduce GHG emissions relative to other sources of energy that supply the electric grid, e.g., solar photovoltaic panels, geothermal energy, landfill gas, and wind turbines. 5 A T&D system includes T&D lines and other T&D equipment (e.g., transformers). 6 “Purchased materials and fuels” is defined as material or fuel that is purchased or otherwise brought into the organizational boundary of the company.

36 Tracking Emissions Over Time 5 STANDARD ompanies often undergo significant structural changes such as acquisitions, divestments, and mergers. These changes will alter a C company’s historical emission profile, making meaningful comparisons over time difficult. In order to maintain consistency over time, or in other words, to keep comparing “like with like”, historic emission data will have to be recalculated. STANDARD GUIDANCE 34

37 35 Tracking Emissions Over Time CHAPTER 5 Companies may need to track emissions over time in Recalculating base year emissions response to a variety of business goals, including: Companies shall develop a base year emissions recalcu- lation policy, and clearly articulate the basis and • Public reporting context for any recalculations. If applicable, the policy • shall state any “significance threshold” applied for Establishing GHG targets deciding on historic emissions recalculation. “Significance • Managing risks and opportunities threshold” is a qualitative and/or quantitative criterion • used to define any significant change to the data, inven- Addressing the needs of investors and other stakeholders tory boundary, methods, or any other relevant factors. A meaningful and consistent comparison of emissions It is the responsibility of the company to determine over time requires that companies set a performance the “significance threshold” that triggers base year datum with which to compare current emissions. This emissions recalculation and to disclose it. It is the 1 performance datum is referred to as the base year responsibility of the verifier to confirm the company’s emissions. For consistent tracking of emissions over adherence to its threshold policy. The following cases time, the base year emissions may need to be recalcu- shall trigger recalculation of base year emissions: lated as companies undergo significant structural • Structural changes in the reporting organization that changes such as acquisitions, divestments, and mergers. have a significant impact on the company’s base year The first step in tracking emissions, however, is the selec- emissions. A structural change involves the transfer tion of a base year. of ownership or control of emissions-generating activ- ities or operations from one company to another. While a single structural change might not have a Choosing a base year significant impact on the base year emissions, the Companies shall choose and report a base year for which cumulative effect of a number of minor structural verifiable emissions data are available and specify their changes can result in a significant impact. Structural reasons for choosing that particular year. changes include: Most companies select a single year as their base year. Mergers, acquisitions, and divestments • STANDARD However, it is also possible to choose an average of annual emissions over several consecutive years. For • Outsourcing and insourcing of emitting activities example, the U.K. ETS specifies an average of Changes in calculation methodology or improvements • 1998–2000 emissions as the reference point for tracking in the accuracy of emission factors or activity data reductions. A multi-year average may help smooth out that result in a significant impact on the base year unusual fluctuations in GHG emissions that would make emissions data a single year’s data unrepresentative of the company’s • typical emissions profile. Discovery of significant errors, or a number of cumu- lative errors, that are collectively significant. The inventory base year can also be used as a basis for setting and tracking progress towards a GHG target in In summary, base year emissions shall be retroactively recalculated to reflect changes in the company that which case it is referred to as a target base year (see chapter 11). would otherwise compromise the consistency and rele- vance of the reported GHG emissions information. Once a company has determined its policy on how it will recal- culate base year emissions, it shall apply this policy in a consistent manner. For example, it shall recalculate for both GHG emissions increases and decreases.

38 Tracking Emissions Over Time election and recalculation of a base year should Choosing a base year Companies should choose as a base year the earliest rele- relate to the business goals and the particular S context of the company: vant point in time for which they have reliable data. Some organizations have adopted 1990 as a base year in • For the purpose of reporting progress towards volun- order to be consistent with the Kyoto Protocol. However, tary public GHG targets, companies may follow the obtaining reliable and verifiable data for historical base standards and guidance in this chapter years such as 1990 can be very challenging. • A company subject to an external GHG program may If a company continues to grow through acquisitions, it face external rules governing the choice and recalcu- may adopt a policy that shifts or “rolls” the base year lation of base year emissions forward by a number of years at regular intervals. • Chapter 11 contains a description of such a “rolling For internal management goals, the company may follow the rules and guidelines recommended in this base year,” including a comparison with the fixed base year approach described in this chapter. A fixed base document, or it may develop its own approach, which year has the advantage of allowing emissions data to be should be followed consistently. compared on a like-with-like basis over a longer time period than a rolling base year approach. Most emis- sions trading and registry programs require a fixed base year policy to be implemented. GUIDANCE FIGURE 6. Base year emissions recalculation for an acquisition Facility C Unit B Facility C 15 emissions 20 20 Unit A ➡ Recalculated Figures Figures reported in respective years 20 20 20 15 30 30 30 30 25 25 30 30 30 30 GAMMA EMISSIONS 25 25 123 123 Gamma Increase in Base Year Acquires C Production Company Gamma consists of two business units (A and B). In its base year (year one), each business unit emits 25 tonnes CO . In year two, 2 the company undergoes “organic growth,” leading to an increase in emissions to 30 tonnes CO per business unit, i.e., 60 tonnes CO in 2 2 total. The base year emissions are not recalculated in this case. At the beginning of year three, the company acquires producti on facility C in years two and three. The , and 20 tonnes CO from another company. The annual emissions of facility C in year one were 15 tonnes CO 2 2 . To maintain consistency over time, the total emission of company Gamma in year three, including facility C, are therefore 80 tonnes CO 2 company recalculates its base year emissions to take into account the acquisition of facility C. The base year emissions increa se by 15 tonnes CO —the quantity of emissions produced by facility C in Gamma’s base year. The recalculated base year emissions are 2 65 tonnes CO as the recalculated emissions for year two. . Gamma also (optionally) reports 80 tonnes CO 2 2 36 CHAPTER 5

39 37 CHAPTER 5 Tracking Emissions Over Time FIGURE 7. Base year emissions recalculation for a divestment Unit C Unit B 30 Unit A ➡ Figures reported in respective years Recalculated figures 30 30 25 30 30 30 30 25 25 BETA EMISSIONS 30 30 30 30 25 25 123 123 Increase in Base Year Beta Production Divests C Company Beta consists of three business units (A, B, and C). Each business unit emits 25 tonnes CO and the total emissions for the 2 company are 75 tonnes CO in the base year (year one). In year two, the output of the company grows, leading to an increase in emissions 2 per business unit, i.e., 90 tonnes CO to 30 tonnes CO in total. At the beginning of year three, Beta divests business unit C and its annual 2 2 emissions are now 60 tonnes, representing an apparent reduction of 15 tonnes relative to the base year emissions. However, to m aintain consistency over time, the company recalculates its base year emissions to take into account the divestment of business unit C. The base year emissions are lowered by 25 tonnes CO — the quantity of emissions produced by the business unit C in the base year. The recalcu- 2 lated base year emissions are 50 tonnes CO over the three , and the emissions of company Beta are seen to have risen by 10 tonnes CO 2 2 GUIDANCE as the recalculated emissions for year two. years. Beta (optionally) reports 60 tonnes CO 2 phere, for example, an acquisition or divestment only Significance thresholds for recalculations transfers existing GHG emissions from one company’s Whether base year emissions are recalculated depends inventory to another. on the significance of the changes. The determination of a significant change may require taking into account the Figures 6 and 7 illustrate the effect of structural cumulative effect on base year emissions of a number changes and the application of this standard on recalcu- GHG Protocol of small acquisitions or divestments. The lation of base year emissions. Corporate Standard makes no specific recommenda- what constitutes “significant.” However, tions as to some GHG programs do specify numerical significance Timing of recalculations for structural changes thresholds, e.g., the California Climate Action When significant structural changes occur during the Registry, where the change threshold is 10 percent of middle of the year, the base year emissions should be the base year emissions, determined on a cumulative recalculated for the entire year, rather than only for the basis from the time the base year is established. remainder of the reporting period after the structural change occurred. This avoids having to recalculate base year emissions again in the succeeding year. Similarly, Base year emissions current year emissions should be recalculated for the recalculation for structural changes entire year to maintain consistency with the base year Structural changes trigger recalculation because they recalculation. If it is not possible to make a recalcula- merely transfer emissions from one company to another tion in the year of the structural change (e.g., due to without any change of emissions released to the atmos-

40 Tracking Emissions Over Time lack of data for an acquired company), the recalculation No base year emissions recalculations 2 for facilities that did not exist in the base year may be carried out in the following year. Base year emissions are not recalculated if the company makes an acquisition of (or insources) operations that did not exist in its base year. There may only be a recal- Recalculations for changes in calculation methodology or improvements in data accuracy culation of historic data back to the year in which the acquired company came into existence. The same applies A company might report the same sources of GHG emis- to cases where the company makes a divestment of (or sions as in previous years, but measure or calculate outsources) operations that did not exist in the base year. them differently. For example, a company might have used a national electric power generation emissions Figure 8 illustrates a situation where no recalculation of factor to estimate scope 2 emissions in year one of base year emissions is required, since the acquired reporting. In later years, it may obtain more accurate facility came into existence after the base year was set. utility-specific emission factors (for the current as well as past years) that better reflect the GHG emissions associated with the electricity that it has purchased. No recalculation for “ outsourcing/insourcing” If the differences in emissions resulting from such a if reported under scope 2 and/or scope 3 change are significant, historic data is recalculated Structural changes due to “outsourcing” or “insourcing” applying the new data and/or methodology. do not trigger base year emissions recalculation if the company is reporting its indirect emissions from relevant Sometimes the more accurate data input may not reason- GUIDANCE outsourced or insourced activities. For example, ably be applied to all past years or new data points may outsourcing production of electricity, heat, or steam not be available for past years. The company may then does not trigger base year emissions recalculation, since have to backcast these data points, or the change in data requires scope 2 source may simply be acknowledged without recalcula- the GHG Protocol Corporate Standard tion. This acknowledgement should be made in the report reporting. However, outsourcing/insourcing that shifts significant emissions between scope 1 and scope 3 when each year in order to enhance transparency; otherwise, scope 3 is not reported does trigger a base year emis- new users of the report in the two or three years after the change may make incorrect assumptions about the sions recalculation (e.g., when a company outsources the transportation of products). performance of the company. In case a company decides to track emissions over time Any changes in emission factor or activity data that reflect real changes in emissions (i.e., changes in fuel separately for different scopes, and has separate base type or technology) do not trigger a recalculation. years for each scope, base year emissions recalculation for outsourcing or insourcing is made. Optional reporting for recalculations Optional information that companies may report on ENDESA: Recalculation of base year recalculations includes: emissions because of structural changes • The recalculated GHG emissions data for all years requires setting a base year for GHG Protocol Corporate Standard The between the base year and the reporting year comparing emissions over time. To be able to compare over time, the All actual emissions as reported in respective years in base year emissions must be recalculated if any structural changes • occur in the company. In a deal completed January 2002, the the past, i.e., the figures that have not been recalcu- ENDESA Group, a power generation company based in Spain, sold its lated. Reporting the original figures in addition to the recalculated figures contributes to transparency since 87.5 percent holding in Viesgo, a part of its Spanish power genera- it illustrates the evolution of the company’s structure tion business, to ENEL, an Italian power company. To account for this over time. structural change, historical emissions from the six power plants included in the sale were no longer accounted for in the Endesa GHG inventory and therefore removed from its base year emissions. This recalculation provides ENDESA with a complete and comparable picture of its historical emissions. 38 CHAPTER 5

41 39 Tracking Emissions Over Time CHAPTER 5 Acquisition of a facility that came into existence after the base year was set FIGURE 8. Facility C Unit B 20 15 Unit A ➡ Figures reported in respective years Recalculated figures 20 20 15 30 30 30 30 25 25 TETA EMISSIONS 30 30 30 30 25 25 123 123 Teta Base Year Increase in Production Acquires C Company Teta consists of two business units (A and B). In its base year (year one), the company emits 50 tonnes CO In year two, the 2. company undergoes organic growth, leading to an increase in emissions to 30 tonnes CO in total. per business unit, i.e., 60 tonnes CO 2 2 The base year emissions are not recalculated in this case. At the beginning of year three, Teta acquires a production facility C from in year two and 20 tonnes CO another company. Facility C came into existence in year two, its emissions being 15 tonnes CO in year 2 2 . In this acquisition case, the three. The total emissions of company Teta in year three, including facility C, are therefore 80 tonnes CO 2 of Teta base year emissions of company Teta do not change because the acquired facility C did not exist in year one when the base year . Teta (optionally) reports 75 tonnes as the recalculated figure was set. The base year emissions of Teta therefore remain at 50 tonnes CO 2 for year two emissions. GUIDANCE No recalculation for organic growth or decline Base year emissions and any historic data are not recalculated for organic growth or decline. Organic growth/decline refers to increases or decreases in production output, changes in product mix, and closures and openings of operating units that are owned or controlled by the company. The rationale for this is that organic growth or decline results in a change of emissions to the atmosphere and therefore needs to be counted as an increase or decrease in the company’s emissions profile over time. NOTES 1 Terminology on this topic can be confusing. Base year emissions should be differentiated from the term “baseline,” which is mostly used in the context of project-based accounting. The term base year focuses on a comparison of emissions over time, while a baseline is a hypothetical scenario for what GHG emissions would have been in the absence of a GHG reduction project or activity. 2 For more information on the timing of base year emissions recalcula- tions, see the guidance document “Base year recalculation methodologies for structural changes” on the GHG Protocol website (

42 Identifying and Calculating GHG Emissions 6 GUIDANCE nce the inventory boundary has been established, companies generally O calculate GHG emissions using the following steps: 1. Identify GHG emissions sources 2. Select a GHG emissions calculation approach 3. Collect activity data and choose emission factors 4. Apply calculation tools 5. Roll-up GHG emissions data to corporate level. This chapter describes these steps and the calculation tools developed by the GHG Protocol. The calculation tools are available on the GHG Protocol Initiative website at GUIDANCE 40

43 41 CHAPTER 6 Identifying and Calculating GHG Emissions FIGURE 9. To create an accurate account of their emissions, Steps in identifying and calculating GHG emissions companies have found it useful to divide overall emis- sions into specific categories. This allows a company Identify Sources to use specifically developed methodologies to accu- rately calculate the emissions from each sector and source category. Select Calculation Approach Collect Data and Choose Emission Factors Identify GHG emissions sources The first of the five steps in identifying and calculating a company’s emissions as outlined in Figure 9 is to Apply Calculation Tools categorize the GHG sources within that company’s boundaries. GHG emissions typically occur from the Roll-up Data to Corporate Level following source categories: Stationary combustion: combustion of fuels in • stationary equipment such as boilers, furnaces, sions and own or control a power production facility will burners, turbines, heaters, incinerators, engines, likely have direct emissions from all the main source flares, etc. categories. Office-based organizations may not have any combustion of fuels in trans- • Mobile combustion: direct GHG emissions except in cases where they own or portation devices such as automobiles, trucks, buses, operate a vehicle, combustion device, or refrigeration trains, airplanes, boats, ships, barges, vessels, etc. and air-conditioning equipment. Often companies are surprised to realize that significant emissions come emissions from physical or chem- • Process emissions: from sources that are not initially obvious (see United from the calcination step ical processes such as CO 2 Technologies case study). in cement manufacturing, CO from catalytic cracking 2 in petrochemical processing, PFC emissions from GUIDANCE aluminum smelting, etc. IDENTIFY SCOPE 2 EMISSIONS • Fugitive emissions: intentional and unintentional The next step is to identify indirect emission sources from releases such as equipment leaks from joints, seals, the consumption of purchased electricity, heat, or steam. packing, gaskets, as well as fugitive emissions from Almost all businesses generate indirect emissions due to the coal piles, wastewater treatment, pits, cooling towers, purchase of electricity for use in their processes or services. gas processing facilities, etc. Every business has processes, products, or services that IDENTIFY SCOPE 3 EMISSIONS generate direct and/or indirect emissions from one or This optional step involves identification of other indirect more of the above broad source categories. The GHG emissions from a company’s upstream and downstream Protocol calculation tools are organized based on these activities as well as emissions associated with categories. Appendix D provides an overview of direct outsourced/contract manufacturing, leases, or franchises and indirect GHG emission sources organized by scopes not included in scope 1 or scope 2. and industry sectors that may be used as an initial guide to identify major GHG emission sources. The inclusion of scope 3 emissions allows businesses to expand their inventory boundary along their value chain and to identify all relevant GHG emissions. This provides IDENTIFY SCOPE 1 EMISSIONS a broad overview of various business linkages and As a first step, a company should undertake an exer- possible opportunities for significant GHG emission cise to identify its direct emission sources in each of reductions that may exist upstream or downstream of a the four source categories listed above. Process emis- company’s immediate operations (see chapter 4 for an sions are usually only relevant to certain industry overview of activities that can generate GHG emissions sectors like oil and gas, aluminum, cement, etc. along a company’s value chain). Manufacturing companies that generate process emis-

44 Identifying and Calculating GHG Emissions Select a calculation approach Collect activity data and choose emission factors Direct measurement of GHG emissions by monitoring concentration and flow rate is not common. More often, For most small to medium-sized companies and for many emissions may be calculated based on a mass balance or larger companies, scope 1 GHG emissions will be calcu- stoichiometric basis specific to a facility or process. lated based on the purchased quantities of commercial fuels (such as natural gas and heating oil) using However, the most common approach for calculating published emission factors. Scope 2 GHG emissions will GHG emissions is through the application of documented emission factors. These factors are calculated ratios primarily be calculated from metered electricity consumption and supplier-specific, local grid, or other relating GHG emissions to a proxy measure of activity at an emissions source. The IPCC guidelines (IPCC, 1996) published emission factors. Scope 3 GHG emissions will primarily be calculated from activity data such as fuel refer to a hierarchy of calculation approaches and tech- use or passenger miles and published or third-party niques ranging from the application of generic emission emission factors. In most cases, if source- or facility- factors to direct monitoring. specific emission factors are available, they are In many cases, particularly when direct monitoring is preferable to more generic or general emission factors. either unavailable or prohibitively expensive, accurate emission data can be calculated from fuel use data. Even Industrial companies may be faced with a wider range small users usually know both the amount of fuel of approaches and methodologies. They should seek guidance from the sector-specific guidelines on the consumed and have access to data on the carbon content of the fuel through default carbon content coefficients or GHG Protocol website (if available) or from their GUIDANCE industry associations (e.g., International Aluminum through more accurate periodic fuel sampling. Institute, International Iron and Steel Institute, Companies should use the most accurate calculation approach available to them and that is appropriate for American Petroleum Institute, WBCSD Sustainable Cement Initiative, International Petroleum Industry their reporting context. Environmental Conservation Association). Apply calculation tools United Technologies Corporation: This section provides an overview of the GHG calcula- More than meets the eye tion tools and guidance available on the GHG Protocol Initiative In 1996, United Technologies Corporation (UTC), a global aero- website ( Use of these tools is encouraged as they have been peer reviewed space and building systems technology corporation, appointed a team to set boundaries for the company’s new Natural Resource by experts and industry leaders, are regularly updated, and are believed to be the best available. The tools, Conservation, Energy and Water Use Reporting Program. The team however, are optional. Companies may substitute their focused on what sources of energy should be included in the program's annual report of energy consumption. The team own GHG calculation methods, provided they are decided jet fuel needed to be reported in the annual report; jet fuel more accurate than or are at least consistent with the GHG Protocol Corporate Standards approaches. was used by a number of UTC divisions for engine and flight hard- ware testing and for test firing. Although the amount of jet fuel There are two main categories of calculation tools: used in any given year was subject to wide variation due to that can be applied to different Cross-sector tools • changing test schedules, the total amount consumed in an sectors. These include stationary combustion, mobile average year was believed to be large and potentially small combustion, HFC use in refrigeration and air condi- enough to be specifically excluded. However, jet fuel consumption reports proved that initial belief incorrect. Jet fuel has accounted tioning, and measurement and estimation uncertainty. for between 9 and 13 percent of the corporation's total annual use that are designed to calculate Sector-specific tools • of energy since the program commenced. Had UTC not included emissions in specific sectors such as aluminum, iron the use of jet fuel in annual data collection efforts, a significant and steel, cement, oil and gas, pulp and paper, office- emissions source would have been overlooked. based organizations. 42 CHAPTER 6

45 43 Identifying and Calculating GHG Emissions CHAPTER 6 Most companies will need to use more than one calcu- The guidance for each calculation tool includes the following sections: lation tool to cover all their GHG emission sources. For example, to calculate GHG emissions from an provides an overview of the purpose and Overview: • aluminum production facility, the company would use content of the tool, the calculation method used in the the calculation tools for aluminum production, tool, and a process description stationary combustion (for any consumption of Choosing activity data and emission factors: purchased electricity, generation of energy on-site, etc), provides • sector-specific good practice guidance and references mobile combustion (for transportation of materials and products by train, vehicles employed on-site, employee for default emission factors business travel, etc), and HFC use (for refrigeration, • Calculation methods: describes different calculation etc). See Table 3 for the full list of tools. methods depending on the availability of site-specific activity data and emission factors STRUCTURE OF GHG PROTOCOL CALCULATION TOOLS provides good practice guidance • Quality control: Each of the cross-sector and sector-specific calculation • Internal reporting and documentation: provides tools on the website share a common format and guidance on internal documentation to support include step-by-step guidance on measuring and calcu- emissions calculations. lating emissions data. Each tool consists of a guidance section and automated worksheets with explanations on how to use them. TM ChevronTexaco: The SANGEA accounting and reporting system ChevronTexaco, a global energy company, has developed and imple- the software, easing updates when methodologies or default mented energy utilization and GHG estimation and reporting factors change. Updates to this central reference are automati- . This GHG Protocol Corporate Standard cally applied to the existing configuration and input data. software consistent with the software is available free of charge and makes it easier, more accu- Updates will mirror the timing and content of updates to the GUIDANCE American Petroleum Institute Compendium of GHG emission esti- rate, and less costly to institute a corporate-wide GHG accounting ™ mating methodologies. and reporting system in the oil and gas sector. Called the SANGEA Energy and Greenhouse Gas Emissions Estimating System, it is • The system is auditable. The software requires detailed audit trail currently in use at all ChevronTexaco facilities worldwide, comprising information on data inputs and system users. There is docu- more than 70 reporting entities. mented accountability of who made any change to the system. The system is an auditable, Excel-and-Visual-Basic-based tool for • Using one system saves money. Significant cost savings are estimating GHG emissions and energy utilization. It streamlines corpo- achieved by using the same system in all facilities, as compared rate-level data consolidation by allowing the inventory coordinator at to conventional, disparate systems. each facility to configure a spreadsheet, enter monthly data, and send ™ system quarterly reports to a centralized database. ChevronTexaco’s one-off investment in developing the SANGEA has already shown results: A rough cost estimate for ChevronTexaco's ™ system employs a variety of strategies to In practice, the SANGEA Richmond, California, refinery indicates savings of more than 70 ensure consistent calculation methods and ease company-wide percent over a five-year period compared with the conventional standardization: ™ is approaches based on locally developed reporting systems. SANGEA expected to reduce the long term expenses of maintaining a legacy • Spreadsheet configuration and material input information for system and hiring independent consultants. Employing a combination specific facilities can be carried over from year to year. Inventory ™ GHG Protocol Corporate Standard specialists can easily modify configurations as a facility changes of the calculation s and SANGEA software to replace a diverse and confusing set of accounting and (due to new construction, retirement of units, etc.). reporting templates yields significant efficiency and accuracy gains, • Updates are efficient. Methodologies for estimating emissions, and allows the company to more accurately manage GHG emissions emission factors, and calculation equations are stored centrally in and institute specific emissions improvements.

46 Identifying and Calculating GHG Emissions Overview of GHG calculation tools available on the GHG Protocol website TABLE 3. . MAIN FEATURES CALCULATION TOOLS emissions from fuel combustion in stationary equipment • Stationary Combustion Calculates direct and indirect CO 2 Provides two options for allocating GHG emissions from a co-generation facility • • Provides default fuel and national average electricity emission factors • Calculates direct and indirect CO Mobile Combustion emissions from fuel combustion in mobile sources 2 • Provides calculations and emission factors for road, air, water, and rail transport Calculates direct HFC emissions during manufacture, use and disposal of refrigeration and air- • HFC from Air Conditioning and Refrigeration Use conditioning equipment in commercial applications Provides three calculation methodologies: a sales-based approach, a life cycle stage based • approach, and an emission factor based approach Measurement and Estimation • Introduces the fundamentals of uncertainty analysis and quantification CROSS-SECTOR TOOLS Uncertainty for GHG Emissions • Calculates statistical parameter uncertainties due to random errors related to calculation of GHG emissions • Automates the aggregation steps involved in developing a basic uncertainty assessment for GHG GUIDANCE inventory data from anode oxidation, PFC emis- Aluminum and other non- • Calculates direct GHG emissions from aluminum production (CO 2 sions from the “anode effect,” and SF used in non-ferrous metals production as a cover gas) Ferrous Metals Production 6 • Iron and Steel ) from oxidation of the reducing agent, from the calcination Calculates direct GHG emissions (CO 2 of the flux used in steel production, and from the removal of carbon from the iron ore and scrap steel used Nitric Acid Manufacture O) from the production of nitric acid • Calculates direct GHG emissions (N 2 Calculates direct GHG emissions (CO ) from ammonia production. This is for the removal of Ammonia Manufacture • 2 carbon from the feedstock stream only; combustion emissions are calculated with the stationary combustion module O) from adipic acid production Adipic Acid Manufacture • Calculates direct GHG emissions (N 2 • Cement Calculates direct CO emissions from the calcination process in cement manufacturing (WBCSD 2 tool also calculates combustion emissions) • Provides two calculation methodologies: the cement-based approach and the clinker-based approach Lime from the calcination process) • Calculates direct GHG emissions from lime manufacturing (CO 2 Calculates direct HFC-23 emissions from production of HCFC-22 HFC-23 from • SECTOR-SPECIFIC TOOLS HCFC-22 Production • , CH Pulp and Paper , and N Calculates direct CO O emissions from production of pulp and paper. This includes 2 2 4 calculation of direct and indirect CO emissions from combustion of fossil fuels, bio-fuels, and 2 waste products in stationary equipment Semi-Conductor Calculates PFC emission from the production of semi-conductor wafers • Wafer Production • Calculates direct CO emissions from electricity Guide for Small emissions from fuel use, indirect CO 2 2 emissions from business travel and commuting consumption, and other indirect CO Office-Based Organizations 2 44 CHAPTER 6

47 45 Identifying and Calculating GHG Emissions CHAPTER 6 In the automated worksheet section, it is only necessary BP: A standardized system to insert activity data into the worksheets and to select for internal reporting of GHGs an appropriate emission factor or factors. Default emis- BP, a global energy company, has been collecting GHG data from sion factors are provided for the sectors covered, but it is the different parts of its operations since 1997 and has consoli- also possible to insert customized emission factors that dated its internal reporting processes into one central database are more representative of the reporting company’s oper- system. The responsibility for reporting environmental emissions , N O, etc.) , CH ations. The emissions of each GHG (CO 2 2 4 lies with about 320 individual BP facilities and business depart- are calculated separately and then converted to CO 2 ments, which are termed “reporting units.” All reporting units have equivalents on the basis of their global warming potential. to complete a standard Excel pro-forma spreadsheet every quarter, Some tools, such as the iron and steel sector tool and the stating actual emissions for the preceding three months and HFC cross-sector tool, take a tiered approach, offering a updates to forecasts for the current year and the next two years. In choice between a simple and a more advanced calculation addition, reporting units are asked to account for all significant methodology. The more advanced methods are expected variances, including sustainable reductions. The reporting units all to produce more accurate emissions estimates but usually use the same BP GHG Reporting Guidelines “Protocol” (BP, 2000) require collection of more detailed data and a more for quantifying their emissions of carbon dioxide and methane. thorough understanding of a company’s technologies. All pro-forma spreadsheets are e-mailed automatically by the central database to the reporting units, and the completed e-mail returns are uploaded into the database by a corporate team, who Roll-up GHG emissions data to corporate level To report a corporation’s total GHG emissions, compa- check the quality of the incoming data. The data are then compiled, by the end of the month following each quarter end, to provide the nies will usually need to gather and summarize data total emission inventory and forecasts for analysis against BP’s from multiple facilities, possibly in different countries GHG target. Finally, the inventory is reviewed by a team of inde- and business divisions. It is important to plan this process carefully to minimize the reporting burden, pendent external auditors to provide assurance on the quality and reduce the risk of errors that might occur while accuracy of the data. compiling data, and ensure that all facilities are GUIDANCE collecting information on an approved, consistent basis. For internal reporting up to the corporate level, it is Ideally, corporations will integrate GHG reporting with recommended that standardized reporting formats their existing reporting tools and processes, and take advantage of any relevant data already collected and be used to ensure that data received from different business units and facilities is comparable, and that reported by facilities to division or corporate offices, internal reporting rules are observed (see BP case regulators or other stakeholders. study). Standardized formats can significantly reduce The tools and processes chosen to report data will the risk of errors. depend upon the information and communication infra- structure already in place (i.e., how easy is it to include new data categories in corporate databases). It will also depend upon the amount of detail that corporate head- quarters wishes to be reported from facilities. Data collection and management tools could include: Secure databases available over the company intranet • or internet, for direct data entry by facilities Spreadsheet templates filled out and e-mailed to a corpo- • rate or division office, where data is processed further Paper reporting forms faxed to a corporate or division • office where data is re-entered in a corporate data- base. However, this method may increase the likelihood of errors if there are not sufficient checks in place to ensure the accurate transfer of the data.

48 Identifying and Calculating GHG Emissions Approaches for rolling up DECENTRALIZED APPROACH: GHG emissions data to corporate level INDIVIDUAL FACILITIES CALCULATE GHG EMISSIONS DATA Asking facilities to calculate GHG emissions themselves There are two basic approaches for gathering data on GHG will help to increase their awareness and understanding emissions from a corporation’s facilities (Figure 10): of the issue. However, it may also lead to resistance, Centralized: • individual facilities report activity/fuel increased training needs, an increase in calculation use data (such as quantity of fuel used) to the corpo- errors, and a greater need for auditing of calculations. rate level, where GHG emissions are calculated. Requesting that facilities calculate GHG emissions Decentralized: individual facilities collect activity/fuel themselves may be the preferred option if: • use data, directly calculate their GHG emissions • GHG emission calculations require detailed knowledge using approved methods, and report this data to the of the kind of equipment being used at facilities; corporate level. • GHG emission calculation methods vary across a Approaches to gathering data FIGURE 10. number of facilities; SITE LEVEL CORPORATE LEVEL • Process emissions (in contrast to emissions from Sites report activity data burning fossil fuels) make up an important share of (GHG emissions calculated at Activity data ➡ total GHG emissions; corporate level: activity data x emissions factor = GHG emissions) • Resources are available to train facility staff to GUIDANCE Activity data conduct these calculations and to audit them; x emission factor Sites report GHG emissions ➡ • = A user-friendly tool is available to simplify the calcu- GHG emissions lation and reporting task for facility-level staff; or DECENTRALIZED CENTRALIZED • Local regulations require reporting of GHG emissions The difference between these two approaches is in where the emissions calculations occur (i.e., where activity data at a facility level. is multiplied by the appropriate emission factors) and in The choice of collection approach depends on the needs what type of quality management procedures must be put and characteristics of the reporting company. For in place at each level of the corporation. Facility-level example, United Technologies Corporation uses the staff is generally responsible for initial data collection centralized approach, leaving the choice of emission under both approaches. factors and calculations to corporate staff, while BP uses the decentralized approach and follows up with audits to Under both approaches, staff at corporate and lower levels of consolidation should take care to identify and ensure calculations are correct, documented, and follow approved methods. To maximize accuracy and minimize exclude any scope 2 or 3 emissions that are also reporting burdens, some companies use a combination of accounted for as scope 1 emissions by other facilities, business units, or companies included in the emissions the two approaches. Complex facilities with process inventory consolidation. emissions calculate their emissions at the facility level, while facilities with uniform emissions from standard sources only report fuel use, electricity consumption, and CENTRALIZED APPROACH: travel activity. The corporate database or reporting tool then calculates total GHG emissions for each of these INDIVIDUAL FACILITIES REPORT ACTIVITY/FUEL USE DATA This approach may be particularly suitable for office- standard activities. based organizations. Requesting that facilities report The two approaches are not mutually exclusive and their activity/fuel use data may be the preferred option if: should produce the same result. Thus companies • desiring a consistency check on facility-level calcula- The staff at the corporate or division level can calcu- late emissions data in a straightforward manner on tions can follow both approaches and compare the results. Even when facilities calculate their own GHG the basis of activity/fuel use data; and emissions, corporate staff may still wish to gather Emissions calculations are standard across a number • activity/fuel use data to double-check calculations and of facilities. explore opportunities for emissions reductions. These 46 CHAPTER 6

49 47 CHAPTER 6 Identifying and Calculating GHG Emissions data should be available and transparent to staff at all corporate levels. Corporate staff should also verify that facility-reported data are based on well defined, consis- tent, and approved inventory boundaries, reporting periods, calculation methodologies, etc. Common guidance on reporting to corporate level Reports from facility level to corporate or division offices should include all relevant information as speci- fied in chapter 9. Some reporting categories are common to both the centralized and decentralized approaches and should be reported by facilities to their These include: corporate offices. • A brief description of the emission sources • A list and justification of specific exclusion or inclu- sion of sources • Comparative information from previous years • The reporting period covered • Any trends evident in the data REPORTING FOR THE DECENTRALIZED APPROACH Progress towards any business targets In addition to the GHG emissions data and aforemen- • tioned common categories of reporting data, individual • A discussion of uncertainties in activity/fuel use or facilities following the decentralized approach by emissions data reported, their likely cause, and recom- reporting calculated GHG emissions to the corporate GUIDANCE mendations for how data can be improved level should also report the following: • A description of events and changes that have an impact A description of GHG calculation methodologies and • on reported data (acquisitions, divestitures, closures, any changes made to those methodologies relative to technology upgrades, changes of reporting boundaries previous reporting periods or calculation methodologies applied, etc.). Ratio indicators (see chapter 9) • Details on any data references used for the calculations, • REPORTING FOR THE CENTRALIZED APPROACH in particular information on emission factors used. In addition to the activity/fuel use data and aforemen- Clear records of calculations undertaken to derive tioned common categories of reporting data, facilities following the centralized approach by reporting emissions data should be kept for any future internal or external verification. activity/fuel use data to the corporate level should also report the following: Activity data for freight and passenger transport • activities (e.g., freight transport in tonne-kilometers) Activity data for process emissions (e.g., tonnes of • fertilizer produced, tonnes of waste in landfills) Clear records of any calculations undertaken to derive • activity/fuel use data Local emission factors necessary to translate fuel use • emissions. and/or electricity consumption into CO 2

50 Managing Inventory Quality 7 GUIDANCE ompanies have different reasons for managing the quality of their C GHG emissions inventory, ranging from identifying opportunities for improvement to stakeholder demand to preparation for regulation. The GHG recognizes that these reasons are a function of a Protocol Corporate Standard company’s goals and its expectations for the future. A company’s goals for and vision of the evolution of the GHG emissions issue should guide the design of its corporate inventory, the implementation of a quality management system, and the treatment of uncertainty within its inventory. GUIDANCE 48

51 49 Managing Inventory Quality CHAPTER 7 A corporate GHG inventory program includes all institu- Defining inventory quality outlines five tional, managerial, and technical arrangements made for The GHG Protocol Corporate Standard the collection of data, preparation of the inventory, and accounting principles that set an implicit standard for implementation of steps to manage the quality of the the faithful representation of a company’s GHG emission 1 through its technical, accounting, and reporting efforts inventory. The guidance in this chapter is intended to help companies develop and implement a quality (see chapter 1). Putting these principles into practice will result in a credible and unbiased treatment and pres- management system for their inventory. entation of issues and data. For a company to follow Given an uncertain future, high quality information will these principles, quality management needs to be an have greater value and more uses, while low quality integral part of its corporate inventory program. The information may have little or no value or use and may goal of a quality management system is to ensure that even incur penalties. For example, a company may these principles are put into practice. currently be focusing on a voluntary GHG program but also want its inventory data to meet the anticipated requirements of a future when emissions may have monetary value. A quality management system is essential to ensuring that an inventory continues KPMG: The value of integrating to meet the principles of the GHG Protocol Corporate GHG management with existing systems Standard and anticipates the requirements of future KPMG, a global services company, found that a key factor in the GHG emissions programs. derivation of reliable, verifiable GHG data is the integration of Even if a company is not anticipating a future regulatory GHG data management and reporting mechanisms with compa- mechanism, internal and external stakeholders will nies’ core operational management and assurance processes. demand high quality inventory information. Therefore, This is because: the implementation of some type of quality management system is important. However, the It is more efficient to widen the scope of existing embedded • GHG Protocol Corporate Standard management and assurance processes than to develop a separate recognizes that companies do not have unlim- function responsible for generating and reporting GHG information. ited resources, and, unlike financial accounting, GUIDANCE corporate GHG inventories involve a level of scientific As GHG information becomes increasingly monetized, it will • and engineering complexity. Therefore, companies should attract the same attention as other key performance indicators develop their inventory program and quality manage- of businesses. Therefore, management will need to ensure ment system as a cumulative effort in keeping with their adequate procedures are in place to report reliable data. These resources, the broader evolution of policy, and their own procedures can most effectively be implemented by functions corporate vision. within the organization that oversee corporate governance, A quality management system provides a systematic internal audit, IT, and company reporting. process for preventing and correcting errors, and Another factor that is often not given sufficient emphasis is identifies areas where investments will likely lead to training of personnel and communication of GHG objectives. Data the greatest improvement in overall inventory quality. generation and reporting systems are only as reliable as the However, the primary objective of quality management people who operate them. Many well-designed systems fail is ensuring the credibility of a company’s GHG inven- because the precise reporting needs of the company are not tory information. The first step towards achieving this adequately explained to the people who have to interpret a objective is defining inventory quality. reporting standard and calculation tools. Given the complexity of accounting boundaries and an element of subjectivity that must accompany source inclusion and equity share, inconsistent inter- pretation of reporting requirements is a real risk. It is also important that those responsible for supplying input data are aware of its use. The only way to minimize this risk is through clear communication, adequate training and knowledge sharing.

52 Managing Inventory Quality An inventory program framework management, these processes and systems may be inte- A practical framework is needed to help companies grated, where appropriate, with other corporate processes related to quality. conceptualize and design a quality management system and to help plan for future improvements. This frame- DOCUMENTATION: This is the record of methods, data, work focuses on the following institutional, managerial, processes, systems, assumptions, and estimates used to and technical components of an inventory (Figure 11): prepare an inventory. It includes everything employees need to prepare and improve a company’s inventory. These are the technical aspects of inventory METHODS: preparation. Companies should select or develop method- Since estimating GHG emissions is inherently technical (involving engineering and science), high quality, trans- ologies for estimating emissions that accurately represent parent documentation is particularly important to the characteristics of their source categories. The GHG Protocol credibility. If information is not credible, or fails to be provides many default methods and calculation tools to help with this effort. The design of an inventory effectively communicated to either internal or external stakeholders, it will not have value. program and quality management system should provide for the selection, application, and updating of inventory Companies should seek to ensure the quality of these methodologies as new research becomes available, components at every level of their inventory design. changes are made to business operations, or the impor- tance of inventory reporting is elevated. DATA: Implementing an This is the basic information on activity levels, GUIDANCE inventory quality management system emission factors, processes, and operations. Although methodologies need to be appropriately rigorous and A quality management system for a company’s inventory program should address all four of the inventory compo- detailed, data quality is more important. No method- nents described above. To implement the system, a ology can compensate for poor quality input data. The design of a corporate inventory program should facilitate company should take the following steps: the collection of high quality inventory data and the This team should 1. Establish an inventory quality team. maintenance and improvement of collection procedures. be responsible for implementing a quality manage- These are the ment system, and continually improving inventory INVENTORY PROCESSES AND SYSTEMS: quality. The team or manager should coordinate institutional, managerial, and technical procedures for interactions between relevant business units, preparing GHG inventories. They include the team and facilities and external entities such as government processes charged with the goal of producing a high agency programs, research institutions, verifiers, or quality inventory. To streamline GHG inventory quality consulting firms. FIGURE 11: Inventory quality management system INVENTORY QUALITY MANAGEMENT SYSTEM 1. Establish Inventory Quality Team ➡ DATA 2. Develop Quality Management Plan 7. Report, Document, and Archive ➡ METHODS SYSTEMS 3. Perform Generic Quality Checks 6. Institutionalize Formal Feedback Loops ➡ DOCUMENTATION ➡➡➡ 5. Review Final Inventory Estimates and Reports 4. Perform Source-Specific Quality Checks ➡ FEEDBACK 50 CHAPTER 7

53 51 Managing Inventory Quality CHAPTER 7 2. Develop a quality management plan. This plan ISO procedures. To ensure accuracy, the bulk of the describes the steps a company is taking to implement plan should focus on practical measures for imple- its quality management system, which should be menting the quality management system, as incorporated into the design of its inventory program described in steps three and four. from the beginning, although further rigor and These apply to data 3. Perform generic quality checks. coverage of certain procedures may be phased in and processes across the entire inventory, focusing on over multiple years. The plan should include proce- appropriately rigorous quality checks on data handling, dures for all organizational levels and inventory documentation, and emission calculation activities development processes—from initial data collection (e.g., ensuring that correct unit conversions are used). to final reporting of accounts. For efficiency and Guidance on quality checking procedures is provided comprehensiveness, companies should integrate (and in the section on implementation below (see table 4). extend as appropriate) existing quality systems to cover GHG management and reporting, such as any TABLE 4. Generic quality management measures DATA GATHERING, INPUT, AND HANDLING ACTIVITIES • Check a sample of input data for transcription errors • Identify spreadsheet modifications that could provide additional controls or checks on quality • Ensure that adequate version control procedures for electronic files have been implemented • Others DATA DOCUMENTATION • Confirm that bibliographical data references are included in spreadsheets for all primary data • Check that copies of cited references have been archived GUIDANCE • r Check that assumptions and criteria for selection of boundaries, base years, methods, activity data, emission factors, and othe parameters are documented • Check that changes in data or methodology are documented • Others CALCULATING EMISSIONS AND CHECKING CALCULATIONS • Check whether emission units, parameters, and conversion factors are appropriately labeled • Check if units are properly labeled and correctly carried through from beginning to end of calculations • Check that conversion factors are correct • Check the data processing steps (e.g., equations) in the spreadsheets • Check that spreadsheet input data and calculated data are clearly differentiated • Check a representative sample of calculations, by hand or electronically • Check some calculations with abbreviated calculations (i.e., back of the envelope calculations) • Check the aggregation of data across source categories, business units, etc. • Check consistency of time series inputs and calculations • Others

54 Managing Inventory Quality 4. Perform source-category-specific quality checks. Practical measures for implementation This Although principles and broad program design guidelines includes more rigorous investigations into the appro- are important, any guidance on quality management priate application of boundaries, recalculation procedures, and adherence to accounting and would be incomplete without a discussion of practical reporting principles for specific source categories, as inventory quality measures. A company should imple- these measures at multiple levels within the company, ment well as the quality of the data input used (e.g., whether electricity bills or meter readings are the best from the point of primary data collection to the final corporate inventory approval process. It is important to source of consumption data) and a qualitative descrip- tion of the major causes of uncertainty in the data. implement these measures at points in the inventory The information from these investigations can also be program where errors are mostly likely to occur, such as the initial data collection phase and during calculation and used to support a quantitative assessment of uncer- data aggregation. While corporate level inventory quality tainty. Guidance on these investigations is provided in may initially be emphasized, it is important to ensure the section on implementation below. quality measures are implemented at all levels of disaggre- 5. Review final inventory estimates and reports. After gation (e.g., facility, process, geographical, according to a the inventory is completed, an internal technical particular scope, etc) to be better prepared for GHG review should focus on its engineering, scientific, markets or regulatory rules in the future. and other technical aspects. Subsequently, an internal managerial review should focus on securing Companies also need to ensure the quality of their histor- GUIDANCE official corporate approval of and support for the ical emission estimates and trend data. They can achieve this by employing inventory quality measures to mini- inventory. A third type of review involving experts mize biases that can arise from changes in the external to the company’s inventory program is characteristics of the data or methods used to calculate addressed in chapter 10. historical emission estimates, and by following the stan- 6. Institutionalize formal feedback loops. The results of dards and guidance of chapter 5. the reviews in step five, as well as the results of every The third step of a quality management system, as other component of a company’s quality management described above, is to implement generic quality system, should be fed back via formal feedback proce- dures to the person or team identified in step one. checking measures. These measures apply to all source categories and all levels of inventory preparation. Errors should be corrected and improvements imple- mented based on this feedback. Table 4 provides a sample list of such measures. 7. Establish reporting, documentation, and archiving The fourth step of a quality management system is source category-specific data quality investigations. The The system should contain record keeping procedures. information gathered from these investigations can also procedures that specify what information will be docu- be used for the quantitative and qualitative assessment mented for internal purposes, how that information of data uncertainty (see section on uncertainty). should be archived, and what information is to be reported for external stakeholders. Like internal and Addressed below are the types of source-specific quality measures that can be employed for emission factors, external reviews, these record keeping procedures activity data, and emission estimates. include formal feedback mechanisms. A company’s quality management system and overall inventory program should be treated as evolving, in keeping with a company’s reasons for preparing an inventory. The plan should address the company’s strategy for a multi-year implementation (i.e., recognize that inventories are a long-term effort), including steps to ensure that all quality control findings from previous years are adequately addressed. 52 CHAPTER 7

55 53 Managing Inventory Quality CHAPTER 7 EMISSION FACTORS AND OTHER PARAMETERS Interface: Integration of emissions For a particular source category, emissions calculations and business data systems will generally rely on emission factors and other parame- ters (e.g., utilization factors, oxidation rates, methane Interface, Inc., is the world’s largest manufacturer of carpet tiles 2 conversion factors). These factors and parameters may and upholstery fabrics for commercial interiors. The company has be published or default factors, based on company- established an environmental data system that mirrors its corpo- specific data, site-specific data, or direct emission or rate financial data reporting. The Interface EcoMetrics system is other measurements. For fuel consumption, published designed to provide activity and material flow data from business emission factors based on fuel energy content are gener- units in a number of countries (the United States, Canada, ally more accurate than those based on mass or volume, Australia, the United Kingdom, Thailand and throughout Europe) except when mass or volume based factors have been and provides metrics for measuring progress on environmental measured at the company- or site-specific level. Quality issues such as GHG emissions. Using company-wide accounting investigations need to assess the representativeness and guidelines and standards, energy and material input data are applicability of emission factors and other parameters to reported to a central database each quarter and made available the specific characteristics of a company. Differences to sustainability personnel. These data are the foundation of between measured and default values need to be qualita- Interface’s annual inventory and enable data comparison over tively explained and justified based upon the company’s time in the pursuit of improved quality. operational characteristics. Basing emissions data systems on financial reporting helps Interface improve its data quality. Just as financial data need to be documented and defensible, Interface’s emissions data are ACTIVITY DATA held to standards that promote an increasingly transparent, The collection of high quality activity data will often be accurate, and high-quality inventory. Integrating its financial and the most significant limitation for corporate GHG inven- emissions data systems has made Interface’s GHG accounting tories. Therefore, establishing robust data collection and reporting more useful as it strives to be a “completely procedures needs to be a priority in the design of any sustainable company” by 2020. company’s inventory program. The following are useful GUIDANCE measures for ensuring the quality of activity data: • Develop data collection procedures that allow the same • Investigate activity data that is generated for purposes data to be efficiently collected in future years. other than preparing a GHG inventory. In doing so, Convert fuel consumption data to energy units before companies will need to check the applicability of this • applying carbon content emission factors, which may be data to inventory purposes, including completeness, consistency with the source category definition, and better correlated to a fuel’s energy content than its mass. consistency with the emission factors used. For Compare current year data with historical trends. If • example, data from different facilities may be exam- data do not exhibit relatively consistent changes from ined for inconsistent measurement techniques, year to year then the causes for these patterns should operating conditions, or technologies. Quality control be investigated (e.g., changes of over 10 percent from measures (e.g., ISO) may have already been conducted year to year may warrant further investigation). during the data’s original preparation. These measures can be integrated with the company’s inventory quality • Compare activity data from multiple reference sources (e.g., government survey data or data compiled by management system. trade associations) with corporate data when possible. • Check that base year recalculation procedures have Such checks can ensure that consistent data is being been followed consistently and correctly (see chapter 5). reported to all parties. Data can also be compared • among facilities within a company. Check that operational and organizational boundary decisions have been applied correctly and consistently to the collection of activity data (see chapters 3 and 4).

56 Managing Inventory Quality Investigate whether biases or other characteristics that • Inventory quality and inventory uncertainty Preparing a GHG inventory is inherently both an could affect data quality have been previously identi- accounting and a scientific exercise. Most applications fied (e.g., by communicating with experts at a particular facility or elsewhere). For example, a bias for company-level emissions and removal estimates require that these data be reported in a format similar to could be the unintentional exclusion of operations at smaller facilities or data that do not correspond financial accounting data. In financial accounting, it is exactly with the company’s organizational boundaries. standard practice to report individual point estimates (i.e., single value versus a range of possible values). In Extend quality management measures to cover any • contrast, the standard practice for most scientific studies additional data (sales, production, etc.) used to esti- of GHG and other emissions is to report quantitative mate emission intensities or other ratios. data with estimated error bounds (i.e., uncertainty). Just like financial figures in a profit and loss or bank account statement, point estimates in a corporate emission inven- EMISSION ESTIMATES tory have obvious uses. However, how would or should Estimated emissions for a source category can be the addition of some quantitative measure of uncertainty compared with historical data or other estimates to to an emission inventory be used? ensure they fall within a reasonable range. Potentially unreasonable estimates provide cause for checking In an ideal situation, in which a company had perfect emission factors or activity data and determining quantitative information on the uncertainty of its emis- whether changes in methodology, market forces, or sion estimates at all levels, the primary use of this GUIDANCE information would almost certainly be comparative. other events are sufficient reasons for the change. In situations where actual emission monitoring occurs Such comparisons might be made across companies, emissions), the data from moni- (e.g., power plant CO across business units, across source categories, or 2 through time. In this situation, inventory estimates could tors can be compared with calculated emissions using even be rated or discounted based on their quality activity data and emission factors. before they were used, with uncertainty being the objec- If any of the above emission factor, activity data, emis- tive quantitative metric for quality. Unfortunately, such sion estimate, or other parameter checks indicate a objective uncertainty estimates rarely exist. problem, more detailed investigations into the accuracy of the data or appropriateness of the methods may be required. These more detailed investigations can also TYPES OF UNCERTAINTIES be utilized to better assess the quality of data. One Uncertainties associated with GHG inventories can potential measure of data quality is a quantitative and scientific uncertainty and be broadly categorized into qualitative assessment of their uncertainty. Scientific uncertainty arises . estimation uncertainty when the science of the actual emission and/or removal process is not completely understood. For example, Vauxhall Motors: many direct and indirect factors associated with global The importance of accuracy checks warming potential (GWP) values that are used to The experience of the U.K. automotive manufacturer Vauxhal combine emission estimates for various GHGs involve Motors illustrates the importance of attention to detail in significant scientific uncertainty. Analyzing and quanti- setting up GHG information collection systems. The company fying such scientific uncertainty is extremely problematic wished to calculate GHG emissions from staff air travel. and is likely to be beyond the capacity of most company However, when determining the impact of flight travel, it is inventory programs. important to make sure that the round trip distance is used when calculating emissions. Fortunately, Vauxhall’s review of its assumptions and calculation methodologies revealed this fact and avoided reporting emissions that were 50 percent lower than the actual value. 54 CHAPTER 7

57 55 CHAPTER 7 Managing Inventory Quality Estimation uncertainty arises any time GHG emissions are quantified. Therefore all emissions or removal esti- mates are associated with estimation uncertainty. Estimation uncertainty can be further classified into two 3 and model uncertainty types: parameter uncertainty. refers to the uncertainty associated Model uncertainty with the mathematical equations (i.e., models) used to characterize the relationships between various parame- ters and emission processes. For example, model uncertainty may arise either due to the use of an incor- rect mathematical model or inappropriate input into the model. As with scientific uncertainty, estimating model uncertainty is likely to be beyond most company’s inventory efforts; however, some companies may wish to utilize their unique scientific and engi- neering expertise to evaluate the uncertainty in their emission estimation models. refers to the uncertainty associ- Parameter uncertainty ated with quantifying the parameters used as inputs (e.g., activity data and emission factors) into estima- tion models. Parameter uncertainties can be evaluated through statistical analysis, measurement equipment precision determinations, and expert judgment. Quantifying parameter uncertainties and then esti- mating source category uncertainties based on these parameter uncertainties will be the primary focus of GUIDANCE companies that choose to investigate the uncertainty in their emission inventories. LIMITATIONS OF UNCERTAINTY ESTIMATES Given that only parameter uncertainties are within the feasible scope of most companies, uncertainty estimates for corporate GHG inventories will, of necessity, be imperfect. Complete and robust sample data will not 4 always be available to assess the statistical uncertainty in every parameter. For most parameters (e.g., liters of uncertainty estimates, companies will usually have 6 The problem with expert gasoline purchased or tonnes of limestone consumed), to rely on expert judgment. only a single data point may be available. In some judgment, though, is that it is difficult to obtain in a comparable (i.e., unbiased) and consistent manner cases, companies can utilize instrument precision or calibration information to inform their assessment of across parameters, source categories, or companies. statistical uncertainty. However, to quantify some of the 5 associated with parameters systematic uncertainties and to supplement statistical

58 Managing Inventory Quality For these reasons, almost all comprehensive estimates of Given these limitations, the role of qualitative and quan- titative uncertainty assessments in developing GHG uncertainty for GHG inventories will be not only imper- component and, despite fect but also have a inventories include: subjective the most thorough efforts, are themselves considered Promoting a broader learning and quality • highly uncertain. In most cases, uncertainty estimates feedback process. cannot be interpreted as an objective measure of quality. Supporting efforts to qualitatively understand and Nor can they be used to compare the quality of emission • estimates between source categories or companies. document the causes of uncertainty and help identify ways of improving inventory quality. For example, Exceptions to this include the following cases in which it collecting the information needed to determine the is assumed that either statistical or instrument precision statistical properties of activity data and emission data are available to objectively estimate each para- factors forces one to ask hard questions and to care- meter’s statistical uncertainty (i.e., expert judgment is fully and systematically investigate data quality. not needed): Establishing lines of communication and feedback • • When two operationally similar facilities use identical with data suppliers to identify specific opportunities emission estimation methodologies, the differences in to improve quality of the data and methods used. scientific or model uncertainties can, for the most • Providing valuable information to reviewers, verifiers, part, be ignored. Then quantified estimates of statis- and managers for setting priorities for investments tical uncertainty can be treated as being comparable GUIDANCE into improving data sources and methodologies. between facilities. This type of comparability is what is aimed for in some trading programs that prescribe The GHG Protocol Corporate Standard has developed a specific monitoring, estimation, and measurement supplementary guidance document on uncertainty assess- requirements. However, even in this situation, the ments (“Guidance on uncertainty assessment in GHG degree of comparability depends on the flexibility that inventories and calculating statistical parameter uncer- participants are given for estimating emissions, the tainty”) along with an uncertainty calculation tool, both homogeneity across facilities, as well as the level of of which are available on the GHG Protocol website. The enforcement and review of the methodologies used. guidance document describes how to use the calculation tool in aggregating uncertainties. It also discusses in • Similarly, when a single facility uses the same estima- tion methodology each year, the systematic parameter more depth different types of uncertainties, the limita- uncertainties — in addition to scientific and model tions of quantitative uncertainty assessment, and how uncertainty estimates should be properly interpreted. uncertainties — in a source’s emission estimates for 7 two years are, for the most part, identical. Because Additional guidance and information on assessing the systematic parameter uncertainties then cancel uncertainty— including optional approaches to devel- out, the uncertainty in an emission trend (e.g., the quantitative uncertainty estimates and eliciting oping difference between the estimates for two years) is judgments from experts — can also be found in EPA's generally less than the uncertainty in total emissions Emissions Inventory Improvement Program, Volume VI: for a single year. In such a situation, quantified uncer- Quality Assurance/Quality Control (1999) and in tainty estimates can be treated as being comparable chapter 6 of the IPCC’s Good Practice Guidance (2000a). over time and used to track relative changes in the quality of a facility’s emission estimates for that source category. Such estimates of uncertainty in emission trends can also be used as a guide to setting a facility’s emissions reduction target. Trend uncer- tainty estimates are likely to be less useful for setting broader (e.g., company-wide) targets (see chapter 11) because of the general problems with comparability between uncertainty estimates across gases, sources, and facilities. 56 CHAPTER 7

59 57 CHAPTER 7 Managing Inventory Quality GUIDANCE NOTES 1 5 Systematic parameter uncertainty occurs if data are systematically Although the term “emissions inventory” is used throughout this chapter, biased. In other words, the average of the measured or estimated value is the guidance equally applies to estimates of removals due to sink cate- always less or greater than the true value. Biases arise, for example, gories (e.g., forest carbon sequestration). because emission factors are constructed from non-representative 2 Some emission estimates may be derived using mass or energy samples, all relevant source activities or categories have not been identi- balances, engineering calculations, or computer simulation models. In fied, or incorrect or incomplete estimation methods or faulty measurement addition to investigating the input data to these models, companies equipment have been used. Because the true value is unknown, such should also consider whether the internal assumptions (including systematic biases cannot be detected through repeated experiments and, assumed parameters in the model) are appropriate to the nature of the therefore, cannot be quantified through statistical analysis. However, it is company’s operations. possible to identify biases and, sometimes, to quantify them through data quality investigations and expert judgments. 3 Emissions estimated from direct emissions monitoring will generally only involve parameter uncertainty (e.g., equipment measurement error). 6 The role of expert judgment can be twofold: First, it can provide the data necessary to estimate the parameter. Second, it can help (in combination 4 Statistical uncertainty results from natural variations (e.g., random with data quality investigations) identify, explain, and quantify both human errors in the measurement process and fluctuations in measure- statistical and systematic uncertainties. ment equipment). Statistical uncertainty can be detected through repeated experiments or sampling of data. 7 It should be recognized, however, that biases may not be constant from year to year but instead may exhibit a pattern over time (e.g., may be growing or falling). For example, a company that continues to disinvest in collecting high quality data may create a situation in which the biases in its data get worse each year. These types of data quality issues are extremely problematic because of the effect they can have on calculated emission trends. In such cases, systematic parameter uncertainties cannot be ignored.

60 Accounting for GHG Reductions 8 GUIDANCE s voluntary reporting, external GHG programs, and emission trading A systems evolve, it is becoming more and more essential for compa- nies to understand the implications of accounting for GHG emissions changes over time on the one hand, and, on the other hand, accounting for offsets or credits that result from GHG reduction projects. This chapter elaborates on the different issues associated with the term “GHG reductions.” GUIDANCE 58

61 59 Accounting for GHG Reductions CHAPTER 8 rate-wide scale, this information can also be used when focuses on The GHG Protocol Corporate Standard accounting and reporting for GHG emissions at the setting and reporting progress towards a corporate-wide company or organizational level. Reductions in corpo- GHG target (see chapter 11). rate emissions are calculated by comparing changes In order to track and explain changes in GHG emissions in the company’s actual emissions inventory over time over time, companies may find it useful to provide relative to a base year. Focusing on overall corporate information on the nature of these changes. For or organizational level emissions has the advantage of example, BP asks each of its reporting units to provide helping companies manage their aggregate GHG risks such information in an accounting movement format and opportunities more effectively. It also helps focus using the following categories (BP 2000): resources on activities that result in the most cost- Acquisitions and divestments effective GHG reductions. • • Closure In contrast to corporate accounting, the forthcoming GHG Protocol Project Quantification Standard focuses on • Real reductions (e.g., efficiency improvements, the quantification of GHG reductions from GHG miti- material or fuel substitution) gation projects that will be used as offsets. Offsets are • Change in production level discrete GHG reductions used to compensate for (i.e., offset) GHG emissions elsewhere, for example to meet • Changes in estimation methodology a voluntary or mandatory GHG target or cap. Offsets are calculated relative to a baseline that represents a Other • hypothetical scenario for what emissions would have This type of information can be summarized at the been in the absence of the project. corporate level to provide an overview of the company’s performance over time. Corporate GHG reductions at facility or country level Reductions in indirect emissions From the perspective of the earth's atmosphere, it does not Reductions in indirect emissions (changes in scope 2 or 3 GUIDANCE matter where GHG emissions or reductions occur. From emissions over time) may not always capture the actual the perspective of national and international policymakers emissions reduction accurately. This is because there is addressing global warming, the location where GHG not always a direct cause-effect relationship between the reductions are achieved is relevant, since policies usually activity of the reporting company and the resulting GHG focus on achieving reductions within specific countries emissions. For example, a reduction in air travel would or regions, as spelled out, for example, in the Kyoto reduce a company’s scope 3 emissions. This reduction is Protocol. Thus companies with global operations will usually quantified based on an average emission factor have to respond to an array of state, national, or regional of fuel use per passenger. However, how this reduction regulations and requirements that address GHGs from actually translates into a change in GHG emissions to operations or facilities within a specific geographic area. the atmosphere would depend on a number of factors, The GHG Protocol Corporate Standard calculates GHG including whether another person takes the “empty seat” emissions using a bottom-up approach. This involves or whether this unused seat contributes to reduced air traffic over the longer term. Similarly, reductions calculating emissions at the level of an individual source or facility and then rolling this up to the corporate level. in scope 2 emissions calculated with an average grid Thus a company’s overall emissions may decrease, even emissions factor may over- or underestimate the actual if increases occur at specific sources, facilities, or opera- reduction depending on the nature of the grid. tions and vice-versa. This bottom-up approach enables Generally, as long as the accounting of indirect emissions companies to report GHG emissions information at over time recognizes activities that in aggregate change different scales, e.g., by individual sources or facilities, global emissions, any such concerns over accuracy or by a collection of facilities within a given country. should not inhibit companies from reporting their indi- Companies can meet an array of government require- rect emissions. In cases where accuracy is more ments or voluntary commitments by comparing actual important, it may be appropriate to undertake a more emissions over time for the relevant scale. On a corpo-

62 Accounting for GHG Reductions detailed assessment of the actual reduction using a Some projects • CONSIDERATION OF REVERSIBILITY. achieve reductions in atmospheric carbon dioxide project quantification methodology. levels by capturing, removing and/or storing carbon or GHGs in biological or non-biological sinks (e.g., forestry, land Project based reductions and offsets/credits use management, underground reser- voirs). These reductions may be temporary in that Project reductions that are to be used as offsets should the removed carbon dioxide may be returned to the be quantified using a project quantification method, such atmosphere at some point in the future through GHG Protocol Project Quantification as the forthcoming Standard, intentional activities or accidental occurrences — that addresses the following accounting issues: 2 such as harvesting of forestland or forest fires, etc. • SELECTION OF A BASELINE SCENARIO AND EMISSION. The risk of reversibility should be assessed, together The baseline scenario represents what would have with any mitigation or compensation measures happened in the absence of the project. Baseline included in the project design. emissions are the hypothetical emissions associated • AVOIDANCE OF DOUBLE COUNTING. with this scenario. The selection of a baseline To avoid double scenario always involves uncertainty because it counting, the reductions giving rise to the offset must occur at sources or sinks not included in the target or represents a hypothetical scenario for what would cap for which the offset is used. Also, if the reductions have happened without the project. The project occur at sources or sinks owned or controlled by reduction is calculated as the difference between someone other than the parties to the project (i.e., the baseline and project emissions. This differs from GUIDANCE the way corporate or organizational reductions are they are indirect), the ownership of the reduction should be clarified to avoid double counting. measured in this document, i.e., in relation to an actual historical base year. Offsets may be converted into credits when used to meet an externally imposed target. Credits are convertible and This relates to • DEMONSTRATION OF ADDITIONALITY. transferable instruments usually bestowed by an external whether the project has resulted in emission reductions or removals in addition to what would have happened in GHG program. They are typically generated from an activity such as an emissions reduction project and then the absence of the project. If the project reduction is used to meet a target in an otherwise closed system, such used as an offset, the quantification procedure should as a group of facilities with an absolute emissions cap address additionality and demonstrate that the project itself is not the baseline and that project emissions are placed across them. Although a credit is usually based on less than baseline emissions. Additionality ensures the the underlying reduction calculation, the conversion of an offset into a credit is usually subject to strict rules, which integrity of the fixed cap or target for which the offset is used. Each reduction unit from a project used as an may differ from program to program. For example, a Certified Emission Reduction (CER) is a credit issued by offset allows the organization or facility with a cap or the Kyoto Protocol Clean Development Mechanism. Once target one additional unit of emissions. If the project issued, this credit can be traded and ultimately used to were going to happen anyway (i.e., is non-additional), meet Kyoto Protocol targets. Experience from the “pre- global emissions will be higher by the number of reduc- compliance” market in GHG credits highlights the tion units issued to the project. importance of delineating project reductions that are to • IDENTIFICATION AND QUANTIFICATION OF RELEVANT be used as offsets with a credible quantification method These are GHG emissions SECONDARY EFFECTS. capable of providing verifiable data. changes resulting from the project not captured by the 1 Secondary effects are typically the primary effect(s). small, unintended GHG consequences of a project and Reporting project based reductions include leakage (changes in the availability or quan- It is important for companies to report their physical tity of a product or service that results in changes in inventory emissions for their chosen inventory bound- GHG emissions elsewhere) as well as changes in GHG aries separately and independently of any GHG trades emissions up- and downstream of the project. If rele- 3 they undertake. GHG trades should be reported in its vant, secondary effects should be incorporated into public GHG report under optional information—either the calculation of the project reduction. in relation to a target (see chapter 11) or corporate 60 CHAPTER 8

63 61 CHAPTER 8 Accounting for GHG Reductions inventory (see chapter 9). Appropriate information Alcoa: Taking advantage addressing the credibility of purchased or sold offsets or of renewable energy certificates credits should be included. Alcoa, a global manufacturer of aluminum, is implementing a When companies implement internal projects that reduce variety of strategies to reduce its GHG emissions. One approach GHGs from their operations, the resulting reductions are has been to purchase renewable energy certificates, or RECs, to usually captured in their inventory’s boundaries. These offset some of the company’s GHG emissions. RECs, which repre- reductions need not be reported separately unless they are sent the environmental benefits of renewable energy unbundled sold, traded externally, or otherwise used as an offset or from the actual flow of electrons, are an innovative method of credit. However, some companies may be able to make providing renewable energy to individual customers. RECs repre- changes to their own operations that result in GHG sent the unbundled environmental benefits, such as avoided CO 2 emissions changes at sources not included in their own emissions, generated by producing electricity from renewable inventory boundary, or not captured by comparing rather than fossil sources. RECs can be sold bundled with the emissions changes over time. For example: electricity (as green power) or separately to customers interested • Substituting fossil fuel with waste-derived fuel that in supporting renewable energy. might otherwise be used as landfill or incinerated Alcoa found that RECs offer a variety of advantages, including without energy recovery. Such substitution may have direct access to the benefits of renewable energy for facilities that no direct effect on (or may even increase) a may have limited renewable energy procurement options. In company’s own GHG emissions. However, it could October 2003, Alcoa began purchasing RECs equivalent to 100% result in emissions reductions elsewhere by another of the electricity used annually at four corporate offices in T ennessee, organization, e.g., through avoiding landfill gas and Pennsylvania, and New York. The RECs Alcoa is purchasing effec- fossil fuel use. tively mean that the four corporate centers are now operating on • electricity generated by projects that produce electricity from land- Installing an on-site power generation plant (e.g., a fill gas, avoiding the emission of more than 6.3 million kilograms combined heat and power, or CHP, plant) that (13.9 million pounds) of carbon dioxide annually. Alcoa chose provides surplus electricity to other companies may RECs in part because the supplier was able to provide RECs to all increase a company’s direct emissions, while GUIDANCE four facilities through one contract. This flexibility lowered the displacing the consumption of grid electricity by the companies supplied. Any resulting emissions reduc- administrative cost of purchasing renewable energy for multiple tions at the plants where this electricity would have facilities that are served by different utilities. otherwise been produced will not be captured in the For more information on RECs, see the Green Power Market inventory of the company installing the on-site plant. Development Group’s Corporate Guide to Green Power Markets: Substituting purchased grid electricity with an on-site Installment #5 (WRI, 2003). • power generation plant (e.g., CHP) may increase a company’s direct GHG emissions, while reducing the These reductions may be separately quantified, for GHG emissions associated with the generation of grid GHG Protocol Project Quantification example using the electricity. Depending on the GHG intensity and the Standard, and reported in a company’s public GHG supply structure of the electricity grid, this reduction report under optional information in the same way as may be over- or underestimated when merely GHG trades described above. comparing scope 2 emissions over time, if the latter are quantified using an average grid emission factor. NOTES 1 Primary effects are the specific GHG reducing elements or activities (reducing GHG emissions, carbon storage, or enhancing GHG removals) that the project is intended to achieve. 2 This problem with the temporary nature of GHG reductions is sometimes referred to as the “permanence” issue. 3 The term “GHG trades” refers to all purchases or sales of allowances, offsets, and credits.

64 Reporting GHG Emissions 9 STANDARD credible GHG emissions report presents relevant information that A is complete, consistent, accurate and transparent. While it takes time to develop a rigorous and complete corporate inventory of GHG emissions, knowledge will improve with experience in calculating and reporting data. It is therefore recommended that a public GHG report: • Be based on the best data available at the time of publication, while being transparent about its limitations Communicate any material discrepancies identified in previous years • Include the company’s gross emissions for its chosen inventory boundary • separate from and independent of any GHG trades it might engage in. STANDARD GUIDANCE 62

65 63 CHAPTER 9 Reporting GHG Emissions Reported information shall be “relevant, complete, Optional information GHG Protocol consistent, transparent and accurate.” The A public GHG emissions report should include, when Corporate Standard applicable, the following additional information: requires reporting a minimum of scope 1 and scope 2 emissions. INFORMATION ON EMISSIONS AND PERFORMANCE Required information • Emissions data from relevant scope 3 emissions activi- ties for which reliable data can be obtained. A public GHG emissions report that is in accordance with the shall include GHG Protocol Corporate Standard Emissions data further subdivided, where this aids • the following information: transparency, by business units/facilities, country, source types (stationary combustion, process, fugitive, etc.), and activity types (production of electricity, DESCRIPTION OF THE COMPANY AND INVENTORY BOUNDARY transportation, generation of purchased electricity • An outline of the organizational boundaries chosen, that is sold to end users, etc.). including the chosen consolidation approach. Emissions attributable to own generation of elec- • An outline of the operational boundaries chosen, and if • tricity, heat, or steam that is sold or transferred to scope 3 is included, a list specifying which types of another organization (see chapter 4). activities are covered. • Emissions attributable to the generation of electricity, The reporting period covered. • heat or steam that is purchased for re-sale to non-end users (see chapter 4). INFORMATION ON EMISSIONS • A description of performance measured against • Total scope 1 and 2 emissions independent of any internal and external benchmarks. GHG trades such as sales, purchases, transfers, or Emissions from GHGs not covered by the Kyoto • banking of allowances. Protocol (e.g., CFCs, NO ,), reported separately x STANDARD • from scopes. Emissions data separately for each scope. Emissions data for all six GHGs separately (CO Relevant ratio performance indicators (e.g. emissions • , CH • , 2 4 per kilowatt-hour generated, tonne of material N O, HFCs, PFCs, SF ) in metric tonnes and in tonnes 6 2 of CO production, or sales). equivalent. 2 • • Year chosen as base year, and an emissions profile over An outline of any GHG management/reduction time that is consistent with and clarifies the chosen programs or strategies. policy for making base year emissions recalculations. Information on any contractual provisions addressing • Appropriate context for any significant emissions • GHG-related risks and obligations. changes that trigger base year emissions recalculation An outline of any external assurance provided and a • (acquisitions/divestitures, outsourcing/insourcing, copy of any verification statement, if applicable, of the changes in reporting boundaries or calculation reported emissions data. methodologies, etc.). Emissions data for direct CO emissions from biologi- • 2 from burning cally sequestered carbon (e.g., CO 2 biomass/biofuels), reported separately from the scopes. Methodologies used to calculate or measure emissions, • providing a reference or link to any calculation tools used. Any specific exclusions of sources, facilities, • and / or operations.

66 Reporting GHG Emissions • INFORMATION ON OFFSETS Information on the causes of emissions changes that Information on offsets that have been purchased or • did not trigger a base year emissions recalculation developed outside the inventory boundary, subdivided (e.g., process changes, efficiency improvements, plant closures). by GHG storage/removals and emissions reduction projects. Specify if the offsets are verified/certified GHG emissions data for all years between the base • (see chapter 8) and/or approved by an external GHG year and the reporting year (including details of and program (e.g., the Clean Development Mechanism, reasons for recalculations, if appropriate) Joint Implementation). • Information on the quality of the inventory (e.g., infor- • Information on reductions at sources inside the inven- mation on the causes and magnitude of uncertainties tory boundary that have been sold/transferred as in emission estimates) and an outline of policies in offsets to a third party. Specify if the reduction has place to improve inventory quality. (see chapter 7). been verified/certified and/or approved by an external • GHG program (see chapter 8). Information on any GHG sequestration. • A list of facilities included in the inventory. • A contact person. STANDARD CHAPTER 9 64

67 65 Reporting GHG Emissions CHAPTER 9 y following the GHG Protocol Corporate Standard Double Counting reporting requirements, users adopt a compre- Companies should take care to identify and exclude from B hensive standard with the necessary detail and reporting any scope 2 or scope 3 emissions that are transparency for credible public reporting. The also reported as scope 1 emissions by other facilities, appropriate level of reporting of optional information business units, or companies included in the emissions inventory consolidation (see chapter 6). categories can be determined by the objectives and intended audience for the report. For national or voluntary GHG programs, or for internal management purposes, reporting requirements may vary (Appendix C Use of ratio indicators Two principal aspects of GHG performance are of summarizes the requirements of various GHG programs). interest to management and stakeholders. One concerns For public reporting, it is important to differentiate the overall GHG impact of a company — that is the between a summary of a public report that is, for absolute quantity of GHG emissions released to the example, published on the Internet or in Sustainability/ atmosphere. The other concerns the company’s GHG Corporate Social Responsibility reporting (e.g., emissions normalized by some business metric that Global Reporting Initiative) and a full public report results in a ratio indicator. The GHG Protocol Corporate that contains all the necessary data as specified by the Standard requires reporting of absolute emissions; reporting standard spelled out in this volume. Not reporting of ratio indicators is optional. every circulated report must contain all information as specified by this standard, but a link or reference Ratio indicators provide information on performance needs to be made to a publicly available full report relative to a business type and can facilitate compar- where all information is available. isons between similar products and processes over time. Companies may choose to report GHG ratio indicators For some companies, providing emissions data for in order to: specific GHGs or facilities /business units, or reporting • ratio indicators, may compromise business confiden- Evaluate performance over time (e.g., relate figures from different years, identify trends in the data, and tiality. If this is the case, the data need not be publicly show performance in relation to targets and base reported, but can be made available to those auditing the GUIDANCE GHG emissions data, assuming confidentiality is secured. years (see chapter 11). Companies should strive to create a report that is as Establish a relationship between data from different • categories. For example, a company may want to transparent, accurate, consistent and complete as possible. Structurally, this may be achieved by adopting establish a relationship between the value that an action provides (e.g., price of a tonne of product) and the reporting categories of the standard (e.g., required description of the company and inventory boundary, its impact on society or on the environment (e.g., required information on corporate emissions, optional emissions from product manufacturing). information on emissions and performance, and • Improve comparability between different sizes of busi- optional information on offsets) as a basis of the report. ness and operations by normalizing figures (e.g., by Qualitatively, including a discussion of the reporting assessing the impact of different sized businesses on company’s strategy and goals for GHG accounting, the same scale). any particular challenges or tradeoffs faced, the context of decisions on boundaries and other accounting It is important to recognize that the inherent diversity parameters, and an analysis of emissions trends of businesses and the circumstances of individual companies can result in misleading indicators. may help provide a complete picture of the company’s Apparently minor differences in process, product, or inventory efforts. location can be significant in terms of environmental effect. Therefore, it is necessary to know the business context in order to be able to design and interpret ratio indicators correctly.

68 Reporting GHG Emissions Companies may develop ratios that make most sense PRODUCTIVITY/EFFICIENCY RATIOS. Productivity/efficiency ratios express the value or for their business and are relevant to their decision- achievement of a business divided by its GHG impact. making needs. They may select ratios for external reporting that improve the understanding and clarify Increasing efficiency ratios reflect a positive perform- ance improvement. Examples of productivity/efficiency the interpretation of their performance for their ratios include resource productivity (e.g., sales per stakeholders. It is important to provide some perspec- tive on issues such as scale and limitations of GHG) and process eco-efficiency (e.g., production indicators in a way that users understand the nature volume per amount of GHG). of the information provided. Companies should consider what ratio indicators best capture the bene- fits and impacts of their business, i.e., its operations, its products, and its effects on the marketplace and on the entire economy. Some examples of different ratio indicators are provided here. GUIDANCE MidAmerican: Setting ratio indicators for a utility company MidAmerican Energy Holdings Company, an energy company For example, in 2001, using CEM data and fuel calculations, the based in Iowa, wanted a method to track a power plant’s GHG company’s Iowa utility business emitted roughly 23 million tonnes , while generating approximately 21 million megawatt hours. of CO intensity, while also being able to roll individual plant results 2 Its 2001 GHG intensity indicator calculates to approximately into a corporate “generation portfolio” GHG intensity indicator. 2,177 lbs/MWh of CO MidAmerican also wanted to be able to take into account the GHG , reflecting the Iowa utility company’s reliance 2 benefits from planned renewable generation, as well as measure on traditional coal-fired generation. the impacts of other changes to its generation portfolio over time By 2008, the Iowa utility company will have constructed a new (e.g., unit retirements or new construction). The company adopted 790 MW coal-fueled plant, a 540 MW combined-cycle natural gas a GHG intensity indicator that specifically measures pounds of plant, and a 310 MW wind-turbine farm and added them to its direct emissions over total megawatt hours generated (lbs/MWh). generation portfolio. The utility company’s overall CO emissions 2 will increase, but so will its megawatt production. The combined To measure its direct emissions, the company leverages data currently gathered to satisfy existing regulatory requirements emissions from the new coal- and gas-fired plants will be added and, where gaps might exist, uses fuel calculations. For coal- to the GHG intensity indicator’s numerator, while the megawatt fired units, that means mainly using continuous emissions production data from all three facilities will be added to the indi- cator’s denominator. More importantly, and the ratio indicator monitoring (CEM) data and the U.S. Environmental Protection illustrates this, over time MidAmerican’s GHG intensity will Agency’s emission factors for natural gas- and fuel oil-fired GHG Protocol Corporate Standard decline as more efficient generation is brought online and older units. Using the , the company completes an annual emission inventory for each of its fossil- power plants are used less or retired altogether. fired plants, gathering together a) fuel volume and heat input data, b) megawatt production data, c) CEMs data, and d) fuel calculations using appropriate emission factors. 66 CHAPTER 9

69 67 CHAPTER 9 Reporting GHG Emissions INTENSITY RATIOS. Intensity ratios express GHG impact per unit of physical activity or unit of economic output. A physical intensity ratio is suitable when aggre- gating or comparing across businesses that have similar products. An economic intensity ratio is suitable when aggregating or comparing across businesses that produce different products. A declining intensity ratio reflects a positive performance improvement. Many companies historically tracked environmental perform- ance with intensity ratios. Intensity ratios are often called “normalized” environmental impact data. Examples of intensity ratios include product emission emissions per electricity intensity (e.g., tonnes of CO 2 generated); service intensity (e.g., GHG emissions per function or per service); and sales intensity (e.g., emis- sions per sales). A percentage indicator is a ratio PERCENTAGES. between two similar issues (with the same physical unit in the numerator and the denominator). Examples of percentages that can be meaningful in performance reports include current GHG emissions expressed as a percentage of base year GHG emissions. For further guidance on ratio indicators refer to CCAR, 2003; GRI, 2002; Verfaillie and Bidwell, 2000. GUIDANCE

70 Verification of GHG Emissions 10 GUIDANCE erification is an objective assessment of the accuracy and completeness of reported GHG information and the conformity of this information to V pre-established GHG accounting and reporting principles. Although the practice of verifying corporate GHG inventories is still evolving the emergence of widely and the forth- accepted standards, such as the GHG Protocol Corporate Standard , should help GHG verification GHG Protocol Project Quantification Standard coming become more uniform, credible, and widely accepted. GUIDANCE 68

71 69 Verification of GHG Emissions CHAPTER 10 This chapter provides an overview of the key elements of Improvement of internal accounting and reporting • a GHG verification process. It is relevant to companies practices (e.g., calculation, recording and internal who are developing GHG inventories and have planned reporting systems, and the application of GHG for, or are considering, obtaining an independent verifi- accounting and reporting principles), and facilitating cation of their results and systems. Furthermore, as the learning and knowledge transfer within the company process of developing a verifiable inventory is largely the • Preparation for mandatory verification requirements same as that for obtaining reliable and defensible data, of GHG programs. this chapter is also relevant to all companies regardless of any intention to commission a GHG verification. Internal assurance Verification involves an assessment of the risks of mate- While verification is often undertaken by an independent, rial discrepancies in reported data. Discrepancies relate to differences between reported data and data generated external third party, this may not always be the case. Many companies interested in improving their GHG from the proper application of the relevant standards and methodologies. In practice, verification involves the inventories may subject their information to internal verification by personnel who are independent of prioritization of effort by the verifier towards the data and associated systems that have the greatest impact on the GHG accounting and reporting process. Both overall data quality. internal and external verification should follow similar procedures and processes. For external stakeholders, external third part verification is likely to significantly Relevance of GHG principles increase the credibility of the GHG inventory. However, The primary aim of verification is to provide confidence independent internal verifications can also provide to users that the reported information and associated valuable assurance over the reliability of information. statements represent a faithful, true, and fair account of Internal verification can be a worthwhile learning expe- a company’s GHG emissions. Ensuring transparency and rience for a company prior to commissioning an external verifiability of the inventory data is crucial for verifica- verification by a third party. It can also provide external tion. The more transparent, well controlled and well verifiers with useful information to begin their work. GUIDANCE documented a company’s emissions data and systems are, the more efficient it will be to verify. As outlined in chapter 1, there are a number of GHG accounting and The concept of materiality reporting principles that need to be adhered to when The concept of “materiality” is essential to understanding compiling a GHG inventory. Adherence to these princi- the process of verification. Chapter 1 provides a useful ples and the presence of a transparent, well-documented interpretation of the relationship between the principle of system (sometimes referred to as an audit trail) is the completeness and the concept of materiality. Information basis of a successful verification. is considered to be material if, by its inclusion or exclu- sion, it can be seen to influence any decisions or actions is an error material discrepancy taken by users of it. A Goals (for example, from an oversight, omission or miscalcula- Before commissioning an independent verification, a tion) that results in a reported quantity or statement company should clearly define its goals and decide being significantly different to the true value or meaning. whether they are best met by an external verification. In order to express an opinion on data or information, a Common reasons for undertaking a verification include: verifier would need to form a view on the materiality of Increased credibility of publicly reported emissions • all identified errors or uncertainties. information and progress towards GHG targets, While the concept of materiality involves a value judg- leading to enhanced stakeholder trust ment, the point at which a discrepancy becomes material ( materiality threshold ) is usually pre-defined. As a rule of Increased senior management confidence in reported • thumb, an error is considered to be materially misleading information on which to base investment and target- setting decisions

72 Verification of GHG Emissions if its value exceeds 5% of the total inventory for the part • The state of calibration and maintenance of meters of the organization being verified. used, and the types of meters used The verifier needs to assess an error or omission in the Reliability and availability of input data • full context within which information is presented. For Assumptions and estimations applied • example, if a 2% error prevents a company from Aggregation of data from different sources achieving its corporate target then this would most likely • be considered material. Understanding how verifiers Other assurance processes to which the systems and • apply a materiality threshold will enable companies to data are subjected (e.g., internal audit, external more readily establish whether the omissions of an indi- reviews and certifications). vidual source or activity from their inventory is likely to raise questions of materiality. Materiality thresholds may also be outlined in the Establishing the verification parameters requirements of a specific GHG program or determined The scope of an independent verification and the level of assurance it provides will be influenced by the company's by a national verification standard, depending on who goals and/or any specific jurisdictional requirements. It is requiring the verification and for what reasons. A is possible to verify the entire GHG inventory or specific materiality threshold provides guidance to verifiers on what may be an immaterial discrepancy so that they can parts of it. Discrete parts may be specified in terms of geographic location, business units, facilities, and type of concentrate their work on areas that are more likely GUIDANCE emissions. The verification process may also examine to lead to materially misleading errors. A materiality more general managerial issues, such as quality manage- threshold is not the same as de minimis emissions, or ment procedures, managerial awareness, availability of a permissible quantity of emissions that a company can leave out of its inventory. resources, clearly defined responsibilities, segregation of duties, and internal review procedures. The company and verifier should reach an agreement up- Assessing the risk of material discrepancy front on the scope, level and objective of the verification. Verifiers need to assess the risk of material discrepancy This agreement (often referred to as the scope of work) will of each component of the GHG information collection and address issues such as which information is to be included reporting process. This assessment is used to plan and in the verification (e.g., head office consolidation only or direct the verification process. In assessing this risk, they information from all sites), the level of scrutiny to which will consider a number of factors, including: selected data will be subjected (e.g., desk top review or on-site review), and the intended use of the results of the • The structure of the organization and the approach used to assign responsibility for monitoring and verification). The materiality threshold is another item to reporting GHG emissions be considered in the scope of work. It will be of key consid- eration for both the verifier and the company, and is linked The approach and commitment of management to • to the objectives of the verification. GHG monitoring and reporting The scope of work is influenced by what the verifier actu- • Development and implementation of policies and ally finds once the verification commences and, as a result, processes for monitoring and reporting (including the scope of work must remain sufficiently flexible to documented methods explaining how data is generated enable the verifier to adequately complete the verification. and evaluated) A clearly defined scope of work is not only important • Processes used to check and review calculation to the company and verifier, but also for external methodologies stakeholders to be able to make informed and appro- Complexity and nature of operations • priate decisions. Verifiers will ensure that specific exclusions have not been made solely to improve the • Complexity of the computer information system used company’s performance. To enhance transparency and to process the information credibility companies should make the scope of work publicly available. 70 CHAPTER 10

73 71 Verification of GHG Emissions CHAPTER 10 Site visits Timing of the verification Depending on the level of assurance required from The engagement of a verifier can occur at various points during the GHG preparation and reporting process. verification, verifiers may need to visit a number of sites to enable them to obtain sufficient, appropriate evidence Some companies may establish a semi-permanent internal verification team to ensure that GHG data stan- over the completeness, accuracy and reliability of reported information. The sites visited should be repre- dards are being met and improved on an on-going basis. sentative of the organization as a whole. The selection of Verification that occurs during a reporting period allows sites to be visited will be based on consideration of a for any reporting deficiencies or data issues to be number of factors, including: addressed before the final report is prepared. This may Nature of the operations and GHG sources at each site be particularly useful for companies preparing high • profile public reports. However, some GHG programs • Complexity of the emissions data collection and may require, often on a random selection basis, an inde- calculation process pendent verification of the GHG inventory following the submission of a report (e.g., World Economic Forum • Percentage contribution to total GHG emissions from Global GHG Registry, Greenhouse Challenge program in each site Australia, EU ETS). In both cases the verification • The risk that the data from sites will be cannot be closed out until the final data for the period materially misstated has been submitted. Competencies and training of key personnel • • Results of previous reviews, verifications, and uncertainty analyses. GUIDANCE PricewaterhouseCoopers: GHG inventory verification — lessons from the field PricewaterhouseCoopers (PwC), a global services company, has also easy to verify since most companies have reliable data on MWh been conducting GHG emissions verifications for the past 10 years consumed and emission factors are publicly available. in various sectors, including energy, chemicals, metals, semicon- However, experience has shown that for most companies, GHG data ductors, and pulp and paper. PwC’s verification process involves for 1990 is too unreliable to provide a verifiable base year for the two key steps: purposes of tracking emissions over time or setting a GHG target. 1. An evaluation of whether the GHG accounting and reporting Challenges also remain in auditing GHG emissions embedded in waste fuels, co-generation, passenger travel, and shipping. ) has been methodology (e.g., GHG Protocol Corporate Standard correctly implemented Over the past 3 years PwC has noticed a gradual evolution of GHG verification practices from “customized” and “voluntary” to 2. Identification of any material discrepancies. “standardized” and “mandatory.” The California Climate Action The GHG Protocol Corporate Standard has been crucial in helping Registry, World Economic Forum Global GHG Registry and the PwC to design an effective GHG verification methodology. Since the forthcoming EU ETS (covering 12,000 industrial sites in Europe) publication of the first edition, PwC has witnessed rapid improve- require some form of emissions verification. In the EU ETS GHG ments in the quality and verifiability of GHG data reported. In verifiers will likely have to be accredited by a national body. GHG GHGs and combustion particular the quantification on non-CO 2 verifier accreditation processes have already been established in emissions has dramatically improved. Cement sector emissions the UK for its domestic trading scheme, and in California for regis- verification has been made easier by the release of the WBCSD tering emissions in the CCAR. cement sector tool. GHG emissions from purchased electricity are

74 Verification of GHG Emissions Selecting a verifier Details of joint venture agreements, outsourcing and • Some factors to consider when selecting a verifier contractor agreements, production sharing agree- include their: ments, emissions rights and other legal or contractual documents that determine the organizational and • previous experience and competence in undertaking operational boundaries GHG verifications ented procedures for identifying sources of Docum • • understanding of GHG issues including calculation emissions within the organizational and operational methodologies boundaries understanding of the company’s operations and • Information on other assurance processes to which the • industry systems and data are subjected (e.g. internal audit, external reviews and certifications) objectivity, credibility, and independence. • It is important to recognize that the knowledge and qual- • Data used for calculating GHG emissions. This might, ifications of the individual(s) conducting the verification for example, include: can be more important than those of the organization(s) Energy consumption data (invoices, delivery notes, • they come from. Companies should select organizations weigh-bridge tickets, meter readings: electricity, based on the knowledge and qualifications of their actual gas pipes, steam, and hot water, etc.) verifiers and ensure that the lead verifier assigned to Production data (tonnes of material produced, kWh • them is appropriately experienced. Effective verification GUIDANCE of GHG inventories often requires a mix of specialized of electricity produced, etc.) skills, not only at a technical level (e.g., engineering Raw material consumption data for mass balance • experience, industry specialists) but also at a business calculations (invoices, delivery notes, weighbridge level (e.g., verification and industry specialists). tickets, etc.) • Emission factors (laboratory analysis etc.). Preparing for a GHG verification • Description of how GHG emissions data have The internal processes described in chapter 7 are likely been calculated: to be similar to those followed by an independent veri- fier. Therefore, the materials that the verifiers need are • Emission factors and other parameters used and their justification similar. Information required by an external verifier is likely to include the following: • Assumptions on which estimations are based • Information about the company's main activities and • Information on the measurement accuracy of GHG emissions (types of GHG produced, description meters and weigh-bridges (e.g., calibration records), of activity that causes GHG emissions) and other measurement techniques • Information about the company/groups/organiza- • Equity share allocations and their alignment with tion (list of subsidiaries and their geographic financial reporting location, ownership structure, financial entities within the organization) • Documentation on what, if any, GHG sources or activities are excluded due to, for example, tech- Details of any changes to the company’s organiza- • nical or cost reasons. tional boundaries or processes during the period, • Information gathering process: including justification for the effects of these changes on emissions data Description of the procedures and systems used to • collect, document and process GHG emissions data at the facility and corporate level • Description of quality control procedures applied (internal audits, comparison with last year’s data, recalculation by second person, etc.). 72 CHAPTER 10

75 73 Verification of GHG Emissions CHAPTER 10 • Other information: As well as issuing an opinion on whether the reported information is free from material discrepancy, the veri- Selected consolidation approach as defined in • fiers may, depending on the agreed scope of work, also chapter 3 issue a verification report containing a number of recom- mendations for future improvements. The process of list of (and access to) persons responsible for • verification should be viewed as a valuable input to the collecting GHG emissions data at each site and at process of continual improvement. Whether verification the corporate level (name, title, e-mail, and tele- is undertaken for the purposes of internal review, public phone numbers) reporting or to certify compliance with a particular • information on uncertainties, qualitative and if GHG program, it will likely contain useful information available, quantitative. and guidance on how to improve and enhance a company’s GHG accounting and reporting system. Appropriate documentation needs to be available to support the GHG inventory being subjected to external Similar to the process of selecting a verifier, those verification. Statements made by management for which selected to be responsible for assessing and imple- there is no available supporting documentation cannot be menting responses to the verification findings should verified. Where a reporting com pany has not yet imple- also have the appropriate skills and understanding of mented systems for routinely accounting and recording GHG accounting and reporting issues. GHG emissions data, an external verification will be difficult and may result in the verifier being unable to issue an opinion. Under these circumstances, the veri- fiers may make recommendations on how current data collection and collation process should be improved so that an opinion can be obtained in future years. Companies are responsible for ensuring the existence, quality and retention of documentation so as to create an audit trail of how the inventory was compiled. If GUIDANCE a company issues a specific base year against which it assesses its GHG performance, it should retain all relevant historical records to support the base year data. These issues should be born in mind when designing and implementing GHG data processes and procedures. Using the verification findings Before the verifiers will verify that an inventory has met the relevant quality standard, they may require the company to adjust any material errors that they identi- fied during the course of the verification. If the verifiers and the company cannot come to an agreement regarding adjustments, then the verifier may not be able to provide the company with an unqualified opinion. All material errors (individually or in aggregate) need to be amended prior to the final verification sign off.

76 Setting a GHG Target 11 GUIDANCE etting targets is a routine business practice that helps ensure that S an issue is kept on senior management’s “radar screen” and factored into relevant decisions about what products and services to provide and what materials and technologies to use. Often, a corporate GHG emission reduction target is the logical follow-up to developing a GHG inventory. GUIDANCE 74

77 75 CHAPTER 11 Setting a GHG Target Steps in setting a GHG target FIGURE 12. This chapter provides guidance on the process of setting and reporting on a corporate GHG target. Although 1. Obtain senior management commitment the chapter focuses on emissions, many of the consid- · erations equally apply to GHG sequestration (see Appendix B). It is not the purpose of this chapter to 2. Decide on the target type prescribe what a company’s target should be, rather the Set an absolute or intensity target? focus is on the steps involved, the choices to be made, ➡ and the implications of those choices. 3. Decide on the target boundary Which GHGs to include? Why Set a GHG Target? Which direct and indirect emissions? Any robust business strategy requires setting targets for Which geographical operations? revenues, sales, and other core business indicators, as Treat business types separately? well as tracking performance against those targets. ➡ Likewise, effective GHG management involves setting a GHG target. As companies develop strategies to reduce 4. Choose the target base year the GHG emissions of their products and operations, Use a fixed or rolling approach? corporate-wide GHG targets are often key elements of Use a single or multi-year approach? these efforts, even if some parts of the company are ➡ or will be subject to mandatory GHG limits. Common drivers for setting a GHG target include: 5. Define the target completion date Set a long- or short-term target? • MINIMIZING AND MANAGING GHG RISKS ➡ While developing a GHG inventory is an important step towards identifying GHG risks and opportunities, 6. Define the length of the target commitment period a GHG target is a planning tool that can actually drive Set a one-year or multi-year commitment period? GHG reductions. A GHG target will help raise internal ➡ GUIDANCE awareness about the risks and opportunities presented by climate change and ensure the issue is on the busi- 7. Decide on the use of offsets or credits ness agenda. This can serve to minimize and more ➡ effectively manage the business risks associated with climate change. 8. Establish a target double counting policy ACHIEVING COST SAVINGS • How to deal with double counting of reductions across companies? AND STIMULATING INNOVATION How does GHG trading affect target performance? ➡ Implementing a GHG target can result in cost savings by driving improvements in process innovation and 9. Decide on the target level resource efficiency. Targets that apply to products can What is business-as-usual? How far to go beyond that? drive R&D, which in turn creates products and serv- How do all the above steps influence the decision? ices that can increase market share and reduce ➡ emissions associated with the use of products. • PREPARING FOR FUTURE REGULATIONS 10. Track and report progress Internal accountability and incentive mechanisms that Make regular performance checks are established to support a target’s implementation Report information in relation to the target can also equip companies to respond more effectively to future GHG regulations. For example, some compa- nies have found that experimenting with internal GHG trading programs has allowed them to better under- stand the possible impacts of future trading programs on the company.

78 Setting a GHG Target • DEMONSTRATING LEADERSHIP BOX 4. Comparing absolute and intensity targets AND CORPORATE RESPONSIBILITY With the emergence of GHG regulations in many parts reduce absolute emissions over time ABSOLUTE TARGETS (Example: reduce CO of the world, as well as growing concern about the by 25 percent below 1994 levels by 2010) 2 effects of climate change, a commitment such as Advantages setting a public corporate GHG target demonstrates Designed to achieve a reduction in a specified quantity of GHGs • leadership and corporate responsibility. This can emitted to the atmosphere improve a company’s standing with customers, • Environmentally robust as it entails a commitment to reduce GHGs by employees, investors, business partners, and the public, a specified amount and enhance brand reputation. Transparently addresses potential stakeholder concerns about • PARTICIPATING IN VOLUNTARY PROGRAMS • the need to manage absolute emissions A growing number of voluntary GHG programs are emerging to encourage and assist companies in Disadvantages setting, implementing, and tracking progress toward Target base year recalculations for significant structural changes • GHG targets. Participation in voluntary programs to the organization add complexity to tracking progress over time can result in public recognition, may facilitate recog- Does not allow comparisons of GHG intensity/efficiency • nition of early action by future regulations, and enhance a company’s GHG accounting and reporting • Recognizes a company for reducing GHGs by decreasing produc- capacity and understanding. GUIDANCE tion or output (organic decline, see chapter 5) • May be difficult to achieve if the company grows unexpectedly Steps in Setting a Target and growth is linked to GHG emissions Setting a GHG target involves making choices among reduce the ratio of emissions relative to INTENSITY TARGETS various strategies for defining and achieving a GHG by 12 percent per a business metric over time (Example: reduce CO 2 reduction. The business goals, any relevant policy tonne of clinker between 2000 and 2008) context, and stakeholder discussions should inform these choices. Advantages Reflects GHG performance improvements independent of organic • The following sections outline the ten steps involved. growth or decline Although presented sequentially, in practice target setting involves cycling back and forth between the steps. • Target base year recalculations for structural changes are It is assumed that the company has developed a GHG usually not required (see step 4) inventory before implementing these steps. Figure 12 • May increase the comparability of GHG performance among companies summarizes the steps. Disadvantages • No guarantee that GHG emissions to the atmosphere will be 1. Obtain senior management commitment reduced—absolute emissions may rise even if intensity goes As with any corporate wide target, senior management down and output increases buy-in and commitment particularly at the board/CEO Companies with diverse operations may find it difficult to define • level is a prerequisite for a successful GHG reduction a single common business metric program. Implementing a reduction target is likely to necessitate changes in behavior and decision-making If a monetary variable is used for the business metric, such as • dollar of revenue or sales, it must be recalculated for changes in throughout the organization. It also requires estab- lishing an internal accountability and incentive system product prices and product mix, as well as inflation, adding complexity to the tracking process and providing adequate resources to achieve the target. This will be difficult, if not impossible, without senior management commitment. 76 CHAPTER 11

79 77 Setting a GHG Target CHAPTER 11 Royal Dutch/Shell: The target cascade The Royal Dutch/Shell Group, a global energy corporation, discovered when implementing its voluntary GHG reduction target that one of concluded the biggest challenges was to cascade the target down to the actions of all employees who influence target performance. It was nents that that successful implementation required different targets at different levels of the company. This is because each of the compo indi- underlie absolute GHG emissions is influenced by decision-making at various management levels (from the corporate level down to vidual businesses and facilities). Absolute GHG emissions at a plant (tonnes of CO -e.) = Function (MP x BPE x PE) 2 Quantity of product manufactured by a facility. This is fundamental to the need to grow and is therefore controlled at corporat e MP level. GHG emissions are typically not managed by limiting this component. Best process energy use per tonne. The optimal (or theoretical) energy consumed (translates to emissions) by a particular BPE design of plant. The type of plant built is a business-level decision. Significant capital decisions may be involved in buildin g a new plant incorporating new technology. For existing plants, BPE is improved by significant design change and retrofitting. Thi s could also involve large capital expenditure. PE Plant efficiency index. An index that indicates how the plant is actually performing relative to BPE. PE is a result of day-to- day TM decisions taken by plant operators and technicians. It is improved also by the Shell Global Solutions Energise programme, which typically requires low capital expenditure to implement. Royal Dutch/Shell found that while this model is probably an oversimplification when it comes to exploration and production fac ilities, it is suitable for manufacturing facilities (e.g., refineries and chemical plants). It illustrates that an absolute target could o nly be set at the corporate level, while lower levels require intensity or efficiency targets. ACTIONS THAT TYPE OF TARGET LEVEL OF DECISION-MAKING REDUCE EMISSIONS (IN GENERAL AND ON TARGET) See below Corporate Reduce absolute emissions All levels depending on scale MP: not normally constrained -------- (e.g. new venture, new plant, operational) GUIDANCE Reduce GHG intensity Business in consultation with corporate See below Improve BPE Building new plants Business with new technology (efficiency) Retrofitting and changing Business design of plants TM Improve PE Increase plant Facility, supported by Shell Global Solutions Energise operating efficiency (efficiency) Box 4 summarizes the advantages and disadvantages 2. Decide on the target type of each type of target. Some companies have both an There are two broad types of GHG targets: absolute and absolute and an intensity target. Box 5 provides exam- intensity-based. An absolute target is usually expressed ples of corporate GHG targets. The Royal Dutch/Shell in terms of a reduction over time in a specified quantity case study illustrates how a corporate wide absolute of GHG emissions to the atmosphere, the unit typically target can be implemented by formulating a combina- e. An intensity target is usually being tonnes of CO - 2 tion of intensity targets at lower levels of expressed as a reduction in the ratio of GHG emissions 1 decision-making within the company. relative to another business metric. The comparative metric should be carefully selected. It can be the output of the company (e.g. tonne CO e per tonne product, per - 2 3. Decide on the target boundary kWh, per tonne mileage) or some other metric such as The target boundary defines which GHGs, geographic oper- sales, revenues or office space. To facilitate transparency, ations, sources, and activities are covered by the target. companies using an intensity target should also report the The target and inventory boundary can be identical, or absolute emissions from sources covered by the target.

80 Setting a GHG Target the target may address a specified subset of the sources BOX 5. Selected corporate GHG targets included in the company inventory. The quality of the GHG ABSOLUTE TARGETS inventory should be a key factor informing this choice. The Reduce GHGs by 1 percent each year from 1998 through 2005 questions to be addressed in this step include the following: • ABB Alcoa • WHICH GHGS? Targets usually include one or more of • Reduce GHGs by 25 percent from 1990 levels by 2010, and 50 percent from 1990 levels over same period, if inert anode tech- the six major GHGs covered by the Kyoto Protocol. GHG sources For companies with significant non-CO nology succeeds 2 it usually makes sense to include these to increase the BP Hold net GHGs stable at 1990 levels through 2012 • range of reduction opportunities. However, practical • monitoring limitations may apply to smaller sources. Reduce GHGs by 65 percent from 1990 levels by 2010 Dupont from U.S. generating facilities at 2000 Entergy • • Stabilize CO Only country WHICH GEOGRAPHICAL OPERATIONS? 2 or regional operations with reliable GHG inventory levels through 2005 data should be included in the target. For companies • Ford Reduce CO by 4 percent over 2003-2006 timeframe 2 with global operations, it makes sense to limit the based upon average 1998-2001 baseline as part of Chicago target’s geographical scope until a robust and reli- Climate Exchange able inventory has been developed for all operations. Reduce PFCs by 10 percent from 1995 levels by 2010 Companies that participate in GHG programs Intel • 2 involving trading will need to decide whether or not Reduce GHGs by 7 percent from 1990 levels by Johnson & Johnson • GUIDANCE to include the emissions sources covered in the trading 2010, with interim goal of 4 percent below 1990 levels by 2005 program in their corporate target. If common sources emissions 20 percent below its 1994 Reduce CO Polaroid • are included, i.e., if there is overlap in sources covered 2 between the corporate target and the trading program, emissions by year-end 2005; 25 percent by 2010 companies should consider how they will address • Royal Dutch/Shell Manage GHG emissions so that they are still any double counting resulting from the trading of 5 percent or more below the 1990 baseline by 2010, even while GHG reductions in the trading program (see step 8). growing the business • WHICH DIRECT AND INDIRECT EMISSION SOURCES? • Transalta Reduce GHGs to 1990 levels by 2000. Achieve zero net Including indirect GHG emissions in a target will GHGs from Canadian operations by 2024 facilitate more cost-effective reductions by increasing the reduction opportunities available. However, INTENSITY TARGETS 3 Reduce by the year 2010 the Group average specific • Holcim Ltd. indirect emissions are generally harder to measure emissions by 20 percent from the reference year 1990 net CO accurately and verify than direct emissions although 2 some categories, such as scope 2 emissions from emissions per kWh Reduce CO Kansai Electric Power Company • 2 purchased electricity, may be amenable to accurate /kWh sold in fiscal 2010 to approx. 0.34 kg-CO 2 measurement and verification. Including indirect Reduce GHGs by 18 percent per barrel Miller Brewing Company • emissions can raise issues with regard to ownership and double counting of reductions, as indirect emis- of production from 2001 to 2006 sions are by definition someone else’s direct emissions Reduce GHGs by 10 National Renewable Energy Laboratory • (see step 8). percent per square foot from 2000 to 2005 SEPARATE TARGETS FOR DIFFERENT TYPES OF BUSINESSES? • COMBINED ABSOLUTE & INTENSITY TARGETS For companies with diverse operations it may make SC Johnson GHG emissions intensity reduction of 23 percent • more sense to define separate GHG targets for by 2005, which represents an absolute or actual GHG reduction different core businesses, especially when using an of 8 percent intensity target, where the most meaningful business emissions in Annex I countries Reduce absolute gross CO metric for defining the target varies across business Lafarge • 2 units (e.g., GHGs per tonne of cement produced or 10 percent below 1990 levels by the year 2010. Reduce worldwide barrel of oil refined). emissions 20 percent below 1990 levels average specific net CO 2 3 by the year 2010 78 CHAPTER 11

81 79 Setting a GHG Target CHAPTER 11 considerations as described for multi-year average 4. Choose the target base year base years in chapter 5 apply. For a target to be credible, it has to be transparent how target emissions are defined in relation to past emissions. Chapter 5 provides standards on when and how to Two general approaches are available: a fixed target base recalculate base year emissions in order to ensure year or a rolling target base year. like-with-like comparisons over time when structural changes (e.g., acquisitions/divestitures) or changes in Most GHG USING A FIXED TARGET BASE YEAR. • measurement and calculation methodologies alter the targets are defined as a percentage reduction in emis- emissions profile over time. In most cases, this will sions below a fixed target base year (e.g., reduce CO 2 also be an appropriate approach for recalculating data emissions 25 percent below 1994 levels by 2010). for a fixed target base year. Chapter 5 describes how companies should track emis- sions in their inventory over time in reference to a • Companies USING A ROLLING TARGET BASE YEAR. fixed base year. Although it is possible to use different may consider using a rolling target base year if years for the inventory base year and the target base obtaining and maintaining reliable and verifiable data year, to streamline the inventory and target reporting for a fixed target base year is likely to be challenging process, it usually makes sense to use the same year (for example, due to frequent acquisitions). With a for both. As with the inventory base year, it is impor- rolling target base year, the base year rolls forward at tant to ensure that the emissions data for the target regular time intervals, usually one year, so that emis- 4 base year are reliable and verifiable. It is possible to sions are always compared against the previous year. use a multi-year average target base year. The same However, emission reductions can still be collectively TABLE 5. Comparing targets with rolling and fixed base years FIXED TARGET BASE YEAR ROLLING TARGET BASE YEAR A target might take the form of “over the next X A target might take the form “we will How might the target be stated? years we will reduce emissions every year by Y% emit X% less in year B than in year A” 5 compared to the previous year” GUIDANCE The previous year What is the target base year? A fixed reference year in the past The time series of absolute emissions If there have been significant structural changes the How far back is like-with-like will compare like with like time series of absolute emissions will not compare comparison possible? like with like over more than two years at a time What is the basis for comparing The comparison over time is based on what was The comparison over time is based on what is owned/controlled by the company emissions between the target owned/controlled by the company in the years the 6 in the target completion year. base year and completion year? information was reported (see also Figure 14) Emissions are recalculated only for the year prior How far back are Emissions are recalculated for all years back to the fixed target base year recalculations made? to the structural change, or ex-post for the year of the structural change which then becomes the base year. If a company with a target acquires a How reliable are the target Data from an acquired company’s GHG emissions company that did not have reliable GHG are only necessary for the year before the acquisi- base year emissions? data in the target base year; back- tion (or even only from the acquisition onwards), casting of emissions becomes necessary, reducing or eliminating the need for back-casting reducing the reliability of the base year When are recalculations made? The circumstances which trigger recalculations for structural changes etc. (see chapter 5) are the same under both approaches

82 Setting a GHG Target stated over several years. An example would be “from 6. Define the length of the commitment period 2001 through 2012, emissions will be reduced by one The target commitment period is the period of time percent every year, compared to the previous year.” during which emissions performance is actually measured against the target. It ends with the target completion When structural or methodological changes occur, ons only need to be made to the previous recalculati date. Many companies use single-year commitment 7 periods, whereas the Kyoto Protocol, for example, speci- year. As a result, like-with-like comparisons of emissions in the “target starting year” (2001 in the fies a multi-year “first commitment period” of five years example) and “target completion year” (2012) (2008 – 2012). The length of the target commitment cannot be made because emissions are not recalcu- period is an important factor in determining a company’s level of commitment. Generally, the longer the target lated for all years back to the target starting year. commitment period, the longer the period during which The definition of what triggers a base-year emissions emissions performance counts towards the target. recalculation is the same as under the fixed base year approach. The difference lies in how far back emissions • EXAMPLE OF A SINGLE YEAR COMMITMENT PERIOD. Company Beta has a target of reducing emissions by are recalculated. Table 5 compares targets using the 10 percent compared to its target base year 2000, by rolling and fixed base year approaches while Figure 14 the commitment year 2010. For Beta to meet its target, illustrates one of the key differences. it is sufficient for its emissions to be, in the year 2010, no more than 90 percent of year 2000 emissions. RECALCULATIONS UNDER INTENSITY TARGETS GUIDANCE • EXAMPLE OF A MULTI-YEAR COMMITMENT PERIOD. While the standard in chapter 5 applies to absolute Company Gamma has a target of reducing emissions inventory emissions of companies using intensity by 10 percent, compared to its target base year 2000, targets, recalculations for structural changes for the by the commitment period 2008 – 2012. For Gamma purposes of the target are not usually needed unless the to meet its target, its sum total emissions from structural change results in a significant change in the 2008–2012 must not exceed 90 percent of year GHG intensity. However, if recalculations for structural 2000 emissions times five (number of years in the changes are made for the purposes of the target, they should be made for both the absolute emissions and the FIGURE 13. Defining the target completion date business metric. If the target business metric becomes irrelevant through a structural change, a reformulation Short-term of the target might be needed (e.g., when a company refocuses on a different industry but had used an industry-specific business metric before). 5. Define the target completion date EMISSIONS The target completion date determines whether the target is relatively short- or long-term. Long-term targets (e.g., with a completion year ten years from the TIME time the target is set) facilitate long-term planning for large capital investments with GHG benefits. However, Long-term they might encourage later phase-outs of less efficient Uncertainty range equipment. Generally, long-term targets depend on uncertain future developments, which can have opportu- nities as well as risks, which is illustrated in Figure 13. A five-year target period may be more practical for EMISSIONS organizations with shorter planning cycles. TIME 80 CHAPTER 11

83 81 CHAPTER 11 Setting a GHG Target FIGURE 14. Comparing a stabilization target under the fixed and rolling target base year approach INCREASE Company A Fixed base year ➡ Company B 123 ➡ A aquires B at NO CHANGE the start of year 3 EMISSIONS NO CHANGE Company ➡ A 123 Rolling base year Company A 23 12 ich has A stabilization target is one that aims to keep emissions constant over time. In this example, company A acquires company B, wh experienced organic GHG growth since the target base year (or “starting” year). Under the rolling approach, emissions growth in the acquired company (B) from year 1 to year 2 does not appear as an emissions increase in relation to the target of the acquiring company (A). Thus company A would meet its stabilization target when using the rolling approach but not when using the fixed approach. In parallel to the example in chapter 5, past GHG growth or decline in divested facilities (GHG changes before the divestment) would affect the target performance under the rolling approach, while it would not be counted under the fixed approach. commitment period). In other words, its average GUIDANCE emissions over those five years must not exceed FIGURE 15. Short vs. long commitment periods 90 percent of year 2000 emissions. Target commitment periods longer than one year can 1 year be used to mitigate the risk of unpredictable events in one particular year influencing performance against the target. Figure 15 shows that the length of the target commitment period determines how many emis- sions are actually relevant for target performance. EMISSIONS For a target using a rolling base year, the commitment period applies throughout: emission performance is TIME continuously being measured against the target every year from when the target is set until the target 5 years completion date. 8 7. Decide on the use of GHG offsets or credits A GHG target can be met entirely from internal reduc- EMISSIONS tions at sources included in the target boundary or through additionally using offsets that are generated from GHG reduction projects that reduce emissions at TIME sources (or enhance sinks) external to the target 9 The use of offsets may be appropriate when boundary.

84 Setting a GHG Target the cost of internal reductions is high, opportunities for resulting difference is then divided by the corresponding reductions limited, or the company is unable to meet its metric. It is important, however, that absolute emissions target because of unexpected circumstances. When are still reported separately both from offsets and the business metric (see step 9 below). reporting on the target, it should be specified whether offsets are used and how much of the target reduction was achieved using them. 8. Establish a target double counting policy This step addresses double counting of GHG reductions and offsets, as well as allowances issued by external CREDIBILITY OF OFFSETS AND TRANSPARENCY trading programs. It applies only to companies that There are currently no generally accepted methodologies engage in trading (sale or purchase) of GHG offsets or for quantifying GHG offsets. The uncertainties that whose corporate target boundaries interface with other surround GHG project accounting make it difficult to companies’ targets or external programs. establish that an offset is equivalent in magnitude to the 10 internal emissions it is offsetting. This is why compa- Given that there is currently no consensus on how such nies should always report their own internal emissions double counting issues should be addressed, companies in separate accounts from offsets used to meet the should develop their own “Target Double Counting target, rather than providing a net figure (see step 10). Policy.” This should specify how reductions and trades It is also important to carefully assess the credibility of related to other targets and programs will be reconciled offsets used to meet a target and to specify the origin with their corporate target, and accordingly which types GUIDANCE and nature of the offsets when reporting. Information of double counting situations are regarded as relevant. needed includes: Listed here are some examples of double counting that • the type of project might need to be addressed in the policy. • geographic and organizational origin This can occur when • DOUBLE COUNTING OF OFFSETS. a GHG offset is counted towards the target by both the how offsets have been quantified • selling and purchasing organizations. For example, • whether they have been recognized by external company A undertakes an internal reduction project programs (CDM, JI, etc.) that reduces GHGs at sources included in its own target. Company A then sells this project reduction to One important way to ensure the credibility of offsets is company B to use as an offset towards its target, while to demonstrate that the quantification methodology adequately addresses all of the key project accounting still counting it toward its own target. In this case, challenges in chapter 8. Taking these challenges into reductions are counted by two different organizations account, the forthcoming GHG Protocol Project against targets that cover different emissions sources. Quantification Standard Trading programs address this by using registries that aims to improve the consistency, credibility, and rigor of project accounting. allocate a serial number to all traded offsets or credits and ensuring the serial numbers are retired once Additionally, it is important to check that offsets have they are used. In the absence of registries this could not also been counted towards another organization’s be addressed by a contract between seller and buyer. GHG target. This might involve a contract between the 11 DOUBLE COUNTING DUE TO TARGET OVERLAP. • buyer and seller that transfers ownership of the offset. This can occur when sources included under a Step 8 provides more information on accounting for GHG trades in relation to a corporate target, including company’s corporate target are also subject to limits establishing a policy on double counting. by an external program or another company’s target. Two examples: • Company A has a corporate target that includes OFFSETS AND INTENSITY TARGETS GHG sources that are also regulated under a trading When using offsets under intensity targets, all the above program. In this case, reductions at the common considerations apply. In order to determine compliance sources are used by company A to meet both its with the target, the offsets can be subtracted from the corporate target and the trading program target. figure used for absolute emissions (the numerator); the CHAPTER 11 82

85 83 CHAPTER 11 Setting a GHG Target • Company B has a corporate target to reduce its 12 direct emissions from the generation of electricity. Company C who purchases electricity directly from company B also has a corporate target that includes indirect emissions from the purchase of electricity (scope 2). Company C undertakes energy efficiency measures to reduce its indirect emissions from the use of the electricity. These will usually 13 show up as reductions in both companies’ targets. These two examples illustrate that double counting is inherent when the GHG sources where the reductions occur are included in more than one target of the same or different organizations. Without limiting the scope of targets it may be difficult to avoid this type of double counting and it probably does not matter if the double counting is restricted to the organizations sharing the same sources in their targets (i.e., when the two targets overlap). • DOUBLE COUNTING OF ALLOWANCES TRADED IN This occurs when a corporate EXTERNAL PROGRAMS. double counting policy and state any reasons for target overlaps with an external trading program and choosing not to address some double counting situations. allowances that cover the common sources are sold in the trading program for use by another organization The Holcim case study describes how one company has and reconciled with the regulatory target, but not chosen to track performance towards its target and reconciled with the corporate target. This example address double counting issues. differs from the previous example in that double counting occurs across two targets that are not over- GUIDANCE lapping (i.e., they do not cover the same sources). 9. Decide on the target level This type of double counting could be avoided if the The decision on setting the target level should be company selling the allowances reconciles the trade informed by all the previous steps. Other considerations with its corporate target (see Holcim case study). to take into account include: Whatever the company decides to do in this situation, • Understanding the key drivers affecting GHG emis- in order to maintain credibility, it should address sions by examining the relationship between GHG buying and selling of allowances in trading programs emissions and other business metrics, such as produc- in a consistent way. For example, if it decides not to tion, square footage of manufacturing space, number reconcile allowances that it sells in a trading program of employees, sales, revenue, etc. with its corporate target, it should also not count any allowances of the same type that it purchases to meet Developing different reduction strategies based on the • its corporate target. major reduction opportunities available and examining their effects on total GHG emissions. Investigate how Ideally a company should try to avoid double counting in emissions projections change with different mitigation its corporate target if this undermines the environmental strategies. integrity of the target. Also, any prevented double counting between two organizations provides an addi- • Looking at the future of the company as it relates to tional incentive for one of these companies to further GHG emissions. reduce emissions. However, in practice the avoidance of • Factoring in relevant growth factors such as production double counting can be quite challenging, particularly plans, revenue or sales targets, and Return on Investment for companies subject to multiple external programs and (ROI) of other criteria that drive investment strategy. when indirect GHG emissions are included in the target. Companies should therefore be transparent about their

86 Setting a GHG Target Holcim: Using a GHG balance sheet to track performance towards the target target. Those companies whose voluntary cap overlaps with a Holcim, a global cement producer, tracks its performance in relation to its voluntary corporate target using a GHG balance regulatory cap (e.g., in Europe) must also demonstrate a neutral or positive balance towards the regulatory cap. GHG sheet. This balance sheet shows, for each commitment period and for each country business, on one side the actual GHG reductions in Europe are thus reported towards both targets emissions and on the other side the GHG “assets” and (see second example of double counting in step 8). “instruments.” These assets and instruments consist of the Both sides of the country business balance sheets are consoli- voluntary GHG target itself (the “voluntary cap”; in other dated to group level. Credits and allowances traded within the words, the allowances that Holcim provides for itself), a regu- group simply cancel out in the asset column of the consoli- latory target (“cap”) if applicable, plus the CDM credits dated corporate level GHG balance sheet. Any credits or purchased (added) or sold (subtracted), and any regulatory allowances traded externally are reconciled with both the emissions trading allowances purchased (added) or sold voluntary and regulatory caps at the bottom line of the asset (subtracted). Thus if any country business sells CDM credits column of the balance sheet. This ensures that any sold (generated at sources inside the voluntary target boundary), it allowance is only counted by the buying organization (when is ensured that only the buying organization counts the credit Holcim’s target and that of the buying organization do not (see first example of double counting in step 8). overlap). A purchased allowance or credit is counted towards At the end of the commitment period, every country business both the voluntary and regulatory targets of the European busi- GUIDANCE must demonstrate a neutral or positive balance towards Holcim’s ness (these two targets overlap). (All values in tonnes CO -e/year) GHG balance sheet 2 GHG ASSETS & INSTRUMENTS GHG EMISSIONS Holcim (country A in Europe) Voluntary cap (direct emissions) Emissions, direct, indirect + biomass Regulatory cap (direct emissions) Reg. allowances purchased (+) or sold (-) CDM credits purchased (+) or sold (-) Sum of direct emissions Sum of voluntary cap, reg. allowances & credits Sum of direct emissions, according to EU ETS Sum of regulatory cap, reg. allowances & credits Holcim (country X in Latin America) Emissions, direct, indirect + biomass Voluntary cap CDM credits purchased (+) or sold (-) Sum of direct emissions Sum of voluntary cap & credits Holcim Group Sum of direct emissions Sum of voluntary cap, reg. allowances & credits 84 CHAPTER 11

87 85 CHAPTER 11 Setting a GHG Target • Considering whether there are any existing environmental REPORT INFORMATION IN RELATION TO THE TARGET. • Companies should include the following information when or energy plans, capital investments, product/service changes, or targets that will affect GHG emissions. setting and reporting progress in relation to a target: Are there plans already in place for fuel switching, 1. Description of the target on site power generation, and/or renewable energy Provide an outline of the target boundaries chosen • investments that affect the future GHG trajectory? • Specify target type, target base year, target • completion date, and length of commitment period Benchmarking GHG emissions with similar • organizations. Generally, organizations that have Specify whether offsets can be used to meet the not previously invested in energy and other GHG target; if yes, specify the type and amount reductions should be capable of meeting more aggres- Describe the target double counting policy • Specify target level. sive reduction levels because they would have more • cost-effective reduction opportunities. 2. Information on emissions and performance in rela- tion to the target Report emissions from sources inside the target • 10. Track and report progress boundary separately from any GHG trades Once the target has been set, it is necessary to track If using an intensity target, report absolute emis- • performance against it in order to check compliance, sions from within the target boundary separately, and also—in order to maintain credibility—to report both from any GHG trades and the business metric emissions and any external reductions in a consistent, • Report GHG trades that are relevant to complete and transparent manner. compliance with the target (including how many In order • offsets were used to meet the target) CARRY OUT REGULAR PERFORMANCE CHECKS. • to track performance against a target, it is important Report any internal project reductions sold or to link the target to the annual GHG inventory process transferred to another organization for use as an offset and make regular checks of emissions in relation to • Report overall performance in relation to the target. Some companies use interim targets for the target. this purpose (a target using a rolling target base year GUIDANCE automatically includes interim targets every year). NOTES 7 1 For further details on different recalculation methodologies, see the Some companies may formulate GHG efficiency targets by formulating guidance document “Base year recalculation methodologies for struc- this ratio the other way around. tural changes” on the GHG Protocol website ( 2 Examples include the U.K. ETS, the CCX, and the EU ETS. 8 As noted in chapter 8, offsets can be converted to credits. Credits are 3 Holcim’s and Lafarge’s target have been formulated using the termi- thus understood to be a subset of offsets. This chapter uses the term nology of the WBCSD Cement CO Protocol (WBCSD, 2001), which 2 offsets as a generic term. “specific” to denote emissions per tonne of cement produced. uses 9 For the purposes of this chapter, the terms “internal” and “external” 4 It is possible to use an interval other than one year. However, the longer refer to whether the reductions occur at sources inside (internal) or the interval at which the base year rolls forward, the more this approach outside (external) the target boundary. becomes like a fixed target base year. This discussion is based on a 10 This equivalence is sometimes referred to as “fungibility.” However, rolling target base year that moves forward at annual intervals. “fungibility” can also refer to equivalence in terms of the value in 5 Note that simply adding the yearly emissions changes under the rolling meeting a target (two fungible offsets have the same value in meeting base year yields a different result from the comparison over time made a target, i.e., they can both be applied to the same target). with a fixed base year, even without structural changes. In absolute 11 Overlap here refers to a situation when two or more targets include the terms, an X% reduction every year over 5 years (compared to the same sources in their target boundaries. previous year) is not the same as an (X times 5) reduction in year 5 compared to year 1. 12 Similarly, company A in this example could be subject to a mandatory 6 Depending on which recalculation methodology is used when applying cap on its direct emissions under a trading program and engage in the rolling base year, the comparison over time can include emissions trading allowances covering the common sources it shares with that occurred when the company did not own or control the emission company B. In this case, the example in the section “Double counting sources. However, the inclusion of this type of information is mini- of allowances traded in external programs” is more relevant. mized. See also the guidance document “Base year recalculation 13 The energy efficiency measures implemented by company C may not methodologies for structural changes” on the GHG Protocol website always result in an actual reduction of company B’s emissions. See ( chapter 8 for further details on reductions in indirect emissions.

88 Accounting for Indirect Emissions from Purchased Electricity A his appendix provides guidance on how to account companies and electricity suppliers often exercise choice over where they purchase electricity, this for and report indirect emissions associated with the purchase of electricity. Figure A–1 provides provides them with an important T an overview of the transactions associated with purchased electricity and the corresponding emissions. GHG reduction opportunity (see Seattle City Light case study in chapter 4). Since scope 3 is optional, companies that are unable to track their electricity sales in terms of Purchased electricity for own consumption end users and non-end users can choose not to report Emissions associated with the generation of purchased these emissions in scope 3. Instead, they can report the electricity that is consumed by the reporting company total emissions associated with purchased electricity that are reported in scope 2. Scope 2 only accounts for the is sold to both end- and non-end-users under optional portion of the direct emissions from generating elec- information in the category “generation of purchased tricity that is actually consumed by the company. A electricity, heat, or steam for re-sale to non-end users.” company that purchases electricity and transports it in a transmission and distribution (T&D) system that it owns or controls reports the emissions associated with T&D Purchased electricity for resale to intermediaries losses under scope 2. However, if the reporting company Emissions associated with the generation of purchased owns or controls the T&D system but generates (rather electricity that is resold to an intermediary (e.g., urchases) the electricity transmitted through its than p trading transactions) may be reported under optional wires, the emissions associated with T&D losses are information under the category “Generation of APPENDIX not reported under scope 2, as they would already be purchased electricity, heat, or steam for re-sale to non- accounted for under scope 1. This is the case when end users.” Examples of trading transactions include generation, transmission, and distribution systems are brokerage /trading room transactions involving purchased vertically integrated and owned or controlled by the electricity or any other transaction in which electricity is same company. purchased directly from one source or the spot market and then resold to an intermediary (e.g., a non-end user). These emissions are reported under optional information Purchased electricity for resale to end-users separately from scope 3 because there could be a Emissions from the generation of purchased electricity number of trading transactions before the electricity for resale to end-users, for example purchases by a finally reaches the end-user. This may cause duplicative utility company, may be reported under scope 3 in the reporting of indirect emissions from a series of electricity category “generation of purchased electricity that is trading transactions for the same electricity. sold to end-users.” This reporting category is particu- larly relevant for utility companies that purchase wholesale electricity supplied by independent power producers for resale to their customers. Since utility FIGURE A– 1. Accounting for the indirect GHG emissions associated with purchased electricity Scope 2 Own consumption Indirect emissions from own consumption of purchased electricity Scope 3 Resale to end-users Purchased Electricity Indirect emissions from purchased electricity sold to end users ➡ Resale to Optional Information intermediaries Emissions from purchased electricity sold to non end users 86

89 APPENDIX A 87 EMISSIONS FROM GENERATION TOTAL CO 2 GHG emissions upstream EFG = ELECTRICITY GENERATED of the generation of electricity Emissions associated with the extraction and production FROM GENERATION EMISSIONS TOTAL CO 2 of fuels consumed in the generation of purchased EFC = ELECTRICITY CONSUMED electricity may be reported in scope 3 under the cate- gory “extraction, production, and transportation of EFC and EFG are related as shown below. fuels consumed in the generation of electricity.” These EFC x ELECTRICITY CONSUMED emissions occur upstream of the generation of electricity. = Examples include emissions from mining of coal, T&D LOSSES) EFG + (ELECTRICITY CONSUMED x refining of gasoline, extraction of natural gas, and production of hydrogen (if used as a fuel). T&D LOSSES x EFG = EFC + 1 ( ) ELECTRICITY CONSUMED Choosing electricity emission factors As these equations indicate, EFC multiplied by the amount GHG Protocol To quantify scope 2 emissions, the of consumed electricity yields the sum of emissions attrib- Corporate Standard recommends that companies obtain utable to electricity consumed during end use and source/supplier specific emission factors for the elec- transmission and distribution. In contrast, EFG multiplied tricity purchased. If these are not available, regional by the amount of consumed electricity yields emissions or grid emission factors should be used. For more attributable to electricity consumed during end use only. information on choosing emission factors, see the relevant GHG Protocol calculation tools available Consistent with the scope 2 definition (see chapter 4), on the GHG Protocol website ( GHG Protocol Corporate Standard requires the use the of EFG to calculate scope 2 emissions. The use of EFG ensures internal consistency in the treatment of GHG emissions associated electricity related upstream emissions categories and APPENDIX A with the consumption of electricity in T&D avoids double counting in scope 2. Additionally, there Emissions from the generation of electricity that is are several other advantages in using EFG: consumed in a T&D system may be reported in scope 3 1) It is simpler to calculate and widely available in under the category “generation of electricity that is published regional, national, and international sources. consumed in a T&D system” by end-users. Published electricity grid emission factors do not usually include 2) It is based on a commonly used approach to calculate T&D losses. To calculate these emissions, it may be emissions intensity, i.e., emissions per unit of produc- necessary to apply supplier or location specific T&D loss tion output. factors. Companies that purchase electricity and trans- 3) It ensures transparency in reporting of indirect emis- port it in their own T&D systems would report the sions from T&D losses. portion of electricity consumed in T&D under scope 2. The formula to account for emissions associated with T&D losses is the following: Accounting for indirect emissions INDIRECT EMISSIONS x EFG associated with T&D losses FROM CONSUMPTION OF ELECTRICITY CONSUMED = There are two types of electricity emission factors: ELECTRICITY DURING T&D DURING T&D Emission factor at generation (EFG) and Emissions factor at consumption (EFC). EFG is calculated from In some countries such as Japan, local regulations may CO emissions from generation of electricity divided 2 require utility companies to provide both EFG and EFC to by amount of electricity generated. EFC is calculated its consumers, and consumers may be required to use EFC emissions from generation divided by amount from CO 2 to calculate indirect emissions from the consumption of of electricity consumed. purchased electricity. In this case, a company still needs to use EFG to report its scope 2 emissions for a GHG report . prepared in accordance with GHG Protocol Corporate Standard

90 Accounting for Sequestered Atmospheric Carbon B Information on a company’s impacts on sequestered key purpose of the GHG Protocol Corporate Standard is to provide companies with guidance on how to atmospheric carbon can be used for strategic planning, for develop inventories that provide an accurate and educating stakeholders, and for identifying opportunities A for improving the company’s GHG profile. Opportunities complete picture of their GHG emissions both from their direct operations as well as those along the value may also exist to create value from reductions created 1 For some types of companies, this is not along the value chain by companies acting alone or in chain. partnership with raw material providers or customers. possible without addressing the company’s impacts on 2 sequestered atmospheric carbon. Accounting for sequestered carbon in the GHG Protocol Corporate Standard context of the Sequestered atmospheric carbon During photosynthesis, plants remove carbon (as CO ) Consensus methods have yet to be developed under the 2 for accounting of GHG Protocol Corporate Standard from the atmosphere and store it in plant tissue. Until sequestered atmospheric carbon as it moves through the this carbon is cycled back into the atmosphere, it value chain of biomass-based industries. Nonetheless, resides in one of a number of “carbon pools.” These some issues that would need to be addressed when pools include (a) above ground biomass (e.g., vegeta- tion) in forests, farmland, and other terrestrial addressing impacts on sequestered carbon in corporate environments, (b) below ground biomass (e.g., roots), inventories can be examined in the context of existing GHG Protocol Corporate and (c) biomass-based products (e.g., wood products) guidance provided by the APPENDIX Standard both while in use and when stored in a landfill. as highlighted below. Carbon can remain in some of these pools for long periods of time, sometimes for centuries. An increase in SETTING ORGANIZATIONAL BOUNDARIES the stock of sequestered carbon stored in these pools The GHG Protocol Corporate Standard outlines two represents a net removal of carbon from the atmos- approaches for consolidating GHG data— the equity share phere; a decrease in the stock represents a net addition approach and the control approach. In some cases, it of carbon to the atmosphere. may be possible to apply these approaches directly to emissions/removals associated with sequestered atmos- pheric carbon. Among the issues that may need to be Why include impacts on sequestered carbon examined is the ownership of sequestered carbon under in corporate GHG inventories? the different types of contractual arrangements It is generally recognized that changes in stocks of involving land and wood ownership, harvesting rights, sequestered carbon and the associated exchanges of and control of land management and harvesting deci- carbon with the atmosphere are important to national sions. The transfer of ownership as carbon moves level GHG emissions inventories, and consequently, these through the value chain may also need to be addressed. impacts on sequestered carbon are commonly addressed In some cases, as part of a risk management program in national inventories (UNFCCC, 2000). Similarly, for for instance, companies may be interested in performing companies in biomass-based industries, such as the forest value chain assessments of sequestered carbon without products industry, some of the most significant aspects of regard to ownership or control just as they might do for a company’s overall impact on atmospheric CO levels 2 scope 2 and 3 emissions. will occur as a result of impacts on sequestered carbon in their direct operations as well as along their value chain. Some forest product companies have begun to address SETTING OPERATIONAL BOUNDARIES this aspect of their GHG footprint within their corporate As with GHG emissions accounting, setting operational GHG inventories (Georgia Pacific, 2002). Moreover, boundaries for sequestered carbon inventories would help WBCSD’s Sustainable Forest Products Industry Working companies transparently report their impacts on Group—which represents a significant cluster of inte- sequestered carbon along their value chain. Companies grated forestry companies operating internationally—is may, for example, provide a description of the value developing a project that will further investigate carbon chain capturing impacts that are material to the results measurement, accounting, reporting, and ownership of the analysis. This should include which pools are issues associated with the forest products value chain. 88

91 APPENDIX B 89 Quantification Standard included in the analysis, which are not, and the is designed to calculate project reductions that will be used as offsets, relative to a hypo- rationale for the selections. Until consensus methods thetical baseline scenario for what would have happened are developed for characterizing impacts on sequestered atmospheric carbon along the value chain, without the project. In the forestry sector, projects take the form of removal enhancements. this information can be included in the “optional information” section of a GHG inventory compiled Chapter 8 in this document addresses some of the issues using the GHG Protocol Corporate Standard. that must be addressed when accounting for offsets from GHG reduction projects. Much of this guidance is also applicable to removal enhancement projects. One TRACKING REMOVALS OVER TIME example is the issue of reversibility of removals — also As is sometimes the case with accounting for GHG emis- chapter 8. briefly described in sions, base year data for impacts on sequestered carbon may need to be averaged over multiple years to accom- modate the year-to-year variability expected of these REPORTING GHG REMOVALS systems. The temporal scale used in sequestered carbon Until consensus methods are developed for character- accounting will often be closely tied to the spatial scale izing impacts on sequestered atmospheric carbon along over which the accounting is done. The question of how the value chain, this information can be included in to recalculate base years to account for land acquisition the “optional information” section of the inventory (See and divestment, land use changes, and other activities chapter 9). Information on sequestered carbon in the also needs to be addressed. company’s inventory boundary should be kept separate from project-based reductions at sources that are not in the inventory boundary. Where removal enhancement IDENTIFYING AND CALCULATING GHG REMOVALS projects take place within a company’s inventory GHG Protocol Corporate Standard The does not include boundary they would normally show up as an increase in consensus methods for sequestered carbon quantifica- carbon removals over time, but can also be reported in tion. Companies should, therefore, explain the methods optional information. However, they should also be iden- used. In some instances, quantification methods used tified separately to ensure that they are not double in national inventories can be adapted for corporate- counted. This is especially important when they are sold level quantification of sequestered carbon. IPCC as offsets or credits to a third party. (1997; 2000b) provides useful information on how to As companies develop experience using various do this. In 2004, IPCC is expected to issue Good Practice Guidance for Land Use, Land Use Change methods for characterizing impacts on sequestered and Forestry, with information on methods for quan- carbon, more information will become available on the tification of sequestered carbon in forests and forest level of accuracy to expect from these methods. In the products. Companies may also find it useful to consult early stages of developing this experience, however, the methods used to prepare national inventories for companies may find it difficult to assess the uncer- tainty associated with the estimates and therefore may those countries where significant parts of their need to give special care to how the estimates are company’s value chain reside. represented to stakeholders. In addition, although corporate inventory accounting differs from project-based accounting (as discussed below), it may be possible to use some of the calculation and monitoring methods derived from project level NOTES accounting of sequestration projects. 1 In this Appendix, “value chain” means a series of operations and entities, starting with the forest and extending through end-of-life management, that (a) supply or add value to raw materials and inter- mediate products to produce final products for the marketplace and (b) ACCOUNTING FOR REMOVAL ENHANCEMENTS are involved in the use and end-of-life management of these products. A corporate inventory can be used to account for yearly 2 In this Appendix the term “sequestered atmospheric carbon” refers removals within the corporate inventory boundary. exclusively to sequestration by biological sinks. In contrast, the forthcoming GHG Protocol Project

92 Overview of GHG Programs Overview of GHG Programs C TYPE OF PROGRAM FOCUS NAME OF PROGRAM GASES COVERED ORGANIZATIONAL (Organization, PROJECT BOUNDARIES project, facility) Equity share or control for Organizations report Organization Voluntary registry California Climate Action Registry (Projects possible California or US operations CO for first three 2 years of participa- in 2004) tion, all six GHGs thereafter. US EPA Climate Leaders Six Voluntary reduction Equity share or control Organization for US operations program at a minimum CO 2 Organization Voluntary registry WWF Climate Savers Equity share or control for worldwide operations APPENDIX Six Organization World Economic Forum Voluntary registry Equity share or control for Global GHG Register worldwide operations Facility Mandatory allowance Facilities in Six EU GHG Emissions Allowance Trading Scheme trading scheme selected sectors Facilities that fall under Six Kyoto gases European Pollutant Facility Mandatory registry EU IPPC directive Emission Registry as well as other for large industrial pollutants facilities ment/ippc/eper/index.htm Chicago Climate Exchange Voluntary allowance Equity share Organization Six and project trading scheme Respect Europe BLICC Organization Equity share or control for Six Voluntary reduction worldwide operations program 90

93 APPENDIX C 91 OPERATIONAL VERIFICATION TARGET BASE YEAR NATURE/PURPOSE BOUNDARIES OF PROGRAM Required through certi- Baseline protection, Specific to each Encouraged but optional Scope 1 and 2 fied third party verifier organization, recalculation required, scope 3 public reporting, consistent with to be decided GHG Protocol possible future targets required Corporate Standard Year that organization joins Optional, provides Required, specific to Public recognition, Scope 1 and 2 assistance setting required, scope 3 program, recalculation each organization guidance and checklist optional GHG Protocol targets and of components that consistent with achieving reductions should be included required Corporate Standard if undertaken Scope 1 and 2 Chosen year since 1990, specific Third party verifier Achieve targets, Required, specific to required, scope 3 public recognition, to each organization, recalcula- each organization tion consistent with optional expert assistance GHG Protocol required Corporate Standard Chosen year since 1990, specific Baseline protection, Encouraged but optional Third party verifier Scope 1 and 2 to each organization, recalcula- or spot checks public reporting, required, scope 3 targets encouraged by WEF optional GHG Protocol tion consistent with but optional required Corporate Standard Scope 1 Determined by member country Achieve annual caps Annual compliance with Third party verifier allocated and traded through tradable for allowance allocation allowance market, allowances, EU committed to 8% overall initial period from reduction below 1990 2005 to 2007 Permit individual Scope 1 required Local permitting Not applicable Not applicable authority industrial facilities Direct combustion Achieve annual Average of 1998 through 2001 Third party verifier 1% below its baseline in 2003, 2% below baseline and process emis- targets through trad- in 2004, 3% below base- sion sources and able allowance market line in 2005 and 4% indirect emissions below baseline in 2006 optional. Achieve targets, Specific to each Mandatory, specific to Scope 1 and 2 Third party verifier required, scope 3 each organization public recognition, organization, recalculation consistent with expert assistance GHG Protocol strongly encouraged required Corporate Standard

94 Industry Sectors and Scopes D 1 SCOPE 2 SECTOR SCOPE 1 EMISSION SOURCES SCOPE 3 EMISSION SOURCES EMISSION SOURCES ENERGY Energy Stationary combustion • • Stationary combustion (mining and extraction of fuels, Stationary combustion (boilers and turbines used • Generation (consumption of energy for refining or processing fuels) in the production of electricity, heat or steam, fuel purchased electricity, pumps, fuel cells, flaring) 2 Process emissions (production of fuels, SF • emissions ) 6 heat or steam) Mobile combustion (trucks, barges and trains for • • Mobile combustion (transportation of fuels/waste, transportation of fuels) employee business travel, employee commuting) leakage from transmission Fugitive emissions (CH • 4 • Fugitive emissions (CH and CO from waste landfills, 2 4 and storage facilities, HFC emissions from LPG storage emissions) pipelines, SF 6 emissions from transmission and distri- facilities, SF 6 bution equipment) 3 Oil and Gas Stationary combustion (process heaters, engines, • • Stationary combustion (product use as fuel or combus- • Stationary combustion turbines, flares, incinerators, oxidizers, production of tion for the production of purchased materials) (consumption of electricity, heat and steam) purchased electricity, Mobile combustion (transportation of raw • heat or steam) Process emissions (process vents, equipment vents, • materials/products/waste, employee business travel, maintenance/turnaround activities, non-routine activities) employee commuting, product use as fuel) • Mobile combustion (transportation of raw • Process emissions (product use as feedstock or emis- materials/products/waste; company owned vehicles) sions from the production of purchased materials) • Fugitive emissions (leaks from pressurized equipment, from waste landfills and CO • Fugitive emissions (CH 4 2 wastewater treatment, surface impoundments) or from the production of purchased materials) APPENDIX • Stationary combustion (methane flaring and use, use • Stationary combustion (product use as fuel) Coal Mining • Stationary combustion of explosives, mine fires) (consumption of • Mobile combustion (transportation of coal/waste, purchased electricity, Mobile combustion (mining equipment, transportation • employee business travel, employee commuting) heat or steam) of coal) • Process emissions (gasification) • Fugitive emissions (CH emissions from coal mines 4 and coal piles) METALS 4 Stationary combustion (raw material processing and • Aluminum • Stationary combustion (bauxite to aluminum processing, • Stationary combustion coke production by second party suppliers, manufacture coke baking, lime, soda ash and fuel use, on-site CHP) (consumption of of production line machinery) purchased electricity, • Process emissions (carbon anode oxidation, electrol- heat or steam) • Mobile combustion (transportation services, business ysis, PFC) travel, employee commuting) • Mobile combustion (pre- and post-smelting trans- • Process emissions (during production of purchased portation, ore haulers) materials) , HFC and PFC, SF • Fugitive emissions (fuel line CH 4 6 • Fugitive emissions (mining and landfill CH cover gas) and CO , 4 2 outsourced process emissions) 5 Stationary combustion (mining equipment, production • Stationary combustion (coke, coal and carbonate • Iron and Steel • Stationary combustion of purchased materials) fluxes, boilers, flares) (consumption of purchased electricity, • • Process emissions (crude iron oxidation, consumption of Process emissions (production of ferroalloys) heat or steam) reducing agent, carbon content of crude iron/ferroalloys) • Mobile combustion (transportation of raw materials/products/waste and intermediate products) Mobile combustion (on-site transportation) • • Fugitive emissions (CH • Fugitive emission (CH O) , N and CO from waste landfills) 4 4 2 2 CHEMICALS Nitric acid, Stationary combustion (boilers, flaring, reductive • Stationary combustion (production of purchased mate- • Stationary combustion • Ammonia, Adipic rials, waste combustion) furnaces, flame reactors, steam reformers) (consumption of acid, Urea, and purchased electricity, • Process emissions (production of purchased materials) • Process emissions (oxidation/reduction of substrates, Petrochemicals heat or steam) O byproducts, catalytic cracking, impurity removal, N 2 • Mobile combustion (transportation of raw myriad other emissions individual to each process) materials/products/waste, employee business travel, Mobile combustion (transportation of raw • employee commuting) materials/products/waste) • Fugitive emissions (CH from waste landfills and CO 2 4 • Fugitive emissions (HFC use, storage tank leakage) and pipelines) 92

95 APPENDIX D 93 SCOPE 2 SECTOR SCOPE 1 EMISSION SOURCES SCOPE 3 EMISSION SOURCES EMISSION SOURCES MINERALS Cement and • Stationary combustion • Process emissions (calcination of limestone) • Stationary combustion (production of pur chased mate- 6 Lime (consumption of rials, waste combustion) Stationary combustion (clinker kiln, drying of • purchased electricity, raw materials, production of electricity) • Process emissions (production of purchased clinker and lime) heat or steam) • Mobile combustion (quarry operations, Mobile combustion (transportation of raw • on-site transportation) materials/products/waste, employee business travel, employee commuting) and CO , • Fugitive emissions (mining and landfill CH 4 2 outsourced process emissions) 7 WASTE Landfills, Waste Stationary combustion(recycled waste used as a fuel) • Stationary combustion • • Stationary combustion (incinerators, boilers, flaring) combustion, (consumption of Process emissions (recycled waste used as a feedstock) • Process emissions (sewage treatment, nitrogen loading) • Water services purchased electricity, heat or steam) Mobile combustion (transportation of waste/products, • emissions from and CO • Fugitive emissions (CH 4 2 employee business travel, employee commuting) waste and animal product decomposition) Mobile combustion (transportation of waste/products) • PULP & PAPER 8 Stationary combustion (production of purchased mate- • • Stationary combustion (production of steam and elec- Pulp and Paper Stationary combustion • rials, waste combustion) tricity, fossil fuel-derived emissions from calcination (consumption of of calcium carbonate in lime kilns, drying products with purchased electricity, • Process emissions (production of purchased materials) infrared driers fired with fossil fuels) heat or steam) • Mobile combustion (transportation of raw • Mobile combustion (transportation of raw materials, prod- materials/products/waste, employee business travel, ucts, and wastes, operation of harvesting equipment) commuting) employee and CO from waste) • Fugitive emissions (CH 4 2 Fugitive emissions (landfill CH • emissions) and CO 4 2 9 & HCFC 22 PRODUCTION HFC, PFC, SF 6 HFC, PFC, SF6 & HCFC 22 production HCFC 22 • Stationary combustion (production of purchased materials) • Stationary combustion(production of electricity, • Stationary combustion production heat or steam) (consumption of • Process emissions (production of pur chased m aterials) purchased electricity, • Process emissions (HFC venting) heat or steam) • Mobile combustion (transportation of raw materials/prod- Mobile combustion (transportation of raw • ucts/waste, employee business travel, employee commuting) materials/products/waste) Fugitive emissions(fugitive leaks in product use, CH • 4 • Fugitive emissions (HFC use) and CO from waste landfills) 2 SEMICONDUCTOR PRODUCTION Process emissions (C • F , F , CH , C , CHF , NF , SF • Stationary combustion (production of imported mate- Semiconductor Stationary combustion • 6 3 6 8 2 3 3 4 created from O used in wafer fabrication, CF F , N C rials, waste combustion, upstream T&D losses of production (consumption of 2 4 8 4 and C processing) F F C purchased electricity) purchased electricity, 6 2 3 8 heat or steam) Stationary combustion (oxidation of volatile organic • Process emissions (production of pur chased • materials, waste, production of electricity, heat or steam) outsourced disposal of returned process gases and container remainder/heel) Fugitive emissions (process gas storage leaks, • container remainders/heel leakage) • Mobile combustion (transportation of raw materials/prod- ucts/waste, employee business travel, employee commuting) • Mobile combustion (transportation of raw materials/products/waste) and CO emissions, down- • Fugitive emissions (landfill CH 4 2 stream process gas container remainder / heel leakage) 10 OTHER SECTORS Other Sectors Stationary combustion (production of purchased materials) • • Stationary combustion (production of electricity, heat or steam) Service sector/ • Stationary combustion Office based (consumption of 10 materials) • Process emissions (production of pur chased • Mobile combustion (transportation of raw organizations purchased electricity, materials/waste) heat or steam) • Mobile combustion (transportation of raw materials/ products/ waste, employee business travel, • Fugitive emissions (mainly HFC emissions during use employee commuting) of refrigeration and air-conditioning equipment)

96 Appendix D NOTES 1 6 Scope 3 activities of outsourcing, contract manufacturing, and fran- The WBCSD Working Group Cement: Toward a Sustainable Cement Emissions Protocol: CO chises are not addressed in this table because the inclusion of specific Industry has developed The Cement CO 2 2 Monitoring and Reporting Protocol for the Cement Industry (2002), GHG sources will depend on the nature of the outsourcing. which includes guidelines and tools to calculate GHG emissions from 2 process emissions are to be developed. Guidelines on unintentional SF 6 the cement sector. 3 The American Petroleum Institute’s Compendium of Greenhouse Gas 7 Guidelines for waste sector are to be developed. Emissions Methodologies for the Oil and Gas Industry (2004) provides 8 The Climate Change Working Group of the International Council of guidelines and calculation methodology for calculating GHG emissions Forest and Paper Associations has developed Calculation Tools for from the oil and gas sector. Estimating Greenhouse Gas Emissions from Pulp and Paper Mills 4 The International Aluminum Institute’s Aluminum Sector Greenhouse (2002), which includes guidelines and tools to calculate GHG emissions Gas Protocol (2003), in cooperation with WRI and WBCSD, provides from the pulp and paper sector. guidelines and tools for calculating GHG emissions from the 9 production are to be developed. Guidelines for PFC and SF aluminum sector. 6 5 10 Businesses in “other sectors” can estimate GHG emissions using The International Iron and Steel Institute's Iron and Steel sector guide- lines, in cooperation with WRI and WBCSD, are under development. cross-sectoral estimation tools—stationary combustion, mobile (transportation) combustion, HFC use, measurement and estimation uncertainty, and waste. 11 WRI has developed Working 9 to 5 on Climate Change: An Office Guide (2002) and, which include guidelines and calculation tools for calculating GHG emissions from office- based organizations. 94

97 95 Acronyms Clean Development Mechanism CDM CEM Continuous Emission Monitoring Methane CH 4 CER Certified Emission Reduction CCAR California Climate Action Registry CCX Chicago Climate Exchange Carbon Dioxide CO 2 CO - e Carbon Dioxide Equivalent 2 EPER European Pollutant Emission Register European Union Emissions Allowance Trading Scheme EU ETS GHG Greenhouse Gas GAAP Generally Accepted Accounting Principles HFCs Hydrofluorocarbons IPCC Intergovernmental Panel on Climate Change International Petroleum Industry IPIECA Environmental Conservation Association ISO International Standards Organization JI Joint Implementation N O Nitrous Oxide 4 NGO Non-Governmental Organization PFCs Perfluorocarbons SF Sulfur Hexafluoride 6 T&D Transmission and Distribution UK ETS United Kingdom Emission Trading Scheme WBCSD World Business Council for Sustainable Development WRI World Resources Institute

98 Glossary Absolute target emissions by 25% A target defined by reduction in absolute emissions over time e.g., reduces CO 2 below 1994 levels by 2010. (Chapter 11) Additionality A criterion for assessing whether a project has resulted in GHG emission reductions or removals in addition to what would have occurred in its absence. This is an important criterion when the goal of the project is to offset emissions elsewhere. (Chapter 8) A commodity giving its holder the right to emit a certain quantity of GHG. (Chapter 11) Allowance Annex 1 countries Defined in the International Climate Change Convention as those countries taking on emissions reduction obligations: Australia; Austria; Belgium; Belarus; Bulgaria; Canada; Croatia; Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hungary; Iceland; Ireland; Italy; Japan; Latvia; Liechtenstein; Lithuania; Luxembourg; Monaco; Netherlands; New Zealand; Norway; Poland; Portugal; Romania; Russian Federation; Slovakia; Slovenia; Spain; Sweden; Switzerland; Ukraine; United Kingdom; USA. The parent company has significant influence over the operating and financial policies of the Associated/affiliated company associated/affiliated company, but not financial control. (Chapter 3) Audit Trail Well organized and transparent historical records documenting how an inventory was compiled. Baseline A hypothetical scenario for what GHG emissions, removals or storage would have been in the absence of the GHG project or project activity. (Chapter 8) A historic datum (a specific year or an average over multiple years) against which a company’s Base year emissions are tracked over time. (Chapter 5) Base year emissions GHG emissions in the base year. (Chapter 5) Recalculation of emissions in the base year to reflect a change in the structure of the company, or Base year emissions recalculation to reflect a change in the accounting methodology used. This ensures data consistency over time, i.e., comparisons of like with like over time. (Chapter 5, 11) Fuel made from plant material, e.g. wood, straw and ethanol from plant matter (Chapter 4, 9, Appendix B) Biofuels Boundaries GHG accounting and reporting boundaries can have several dimensions, i.e. organizational, opera- tional, geographic, business unit, and target boundaries. The inventory boundary determines which emissions are accounted and reported by the company. (Chapter 3, 4, 11) Cap and trade system A system that sets an overall emissions limit, allocates emissions allowances to participants, and allows them to trade allowances and emission credits with each other. (Chapter 2, 8, 11) A lease which transfers substantially all the risks and rewards of ownership to the lessee and is Capital Lease accounted for as an asset on the balance sheet of the lessee. Also known as a Financial or Finance Lease. Leases other than Capital/Financial/Finance leases are Operating leases. Consult an accountant for further detail as definitions of lease types differ between various accepted financial standards. (Chapter 4) Carbon sequestration and storage of carbon in biological sinks. The uptake of CO 2 Clean Development Mechanism A mechanism established by Article 12 of the Kyoto Protocol for project-based emission reduction activities in developing countries. The CDM is designed to meet two main objectives: to address the (CDM) sustainability needs of the host country and to increase the opportunities available to Annex 1 Parties to meet their GHG reduction commitments. The CDM allows for the creation, acquisition and transfer of CERs from climate change mitigation projects undertaken in non-Annex 1 countries. 96

99 GLOSSARY 97 Certified Emission Reductions A unit of emission reduction generated by a CDM project. CERs are tradable commodities that can be (CERs) used by Annex 1 countries to meet their commitments under the Kyoto Protocol. Co-generation unit/Combined A facility producing both electricity and steam/heat using the same fuel supply. (Chapter 3) heat and power (CHP) Combination of GHG emissions data from separate operations that form part of one company or group Consolidation of companies. (Chapter 3, 4) The ability of a company to direct the policies of another operation. More specifically, it is defined as Control either operational control (the organization or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operation) or financial control (the organization has the ability to direct the financial and operating policies of the operation with a view to gaining economic benefits from its activities). (Chapter 3) A program to produce annual corporate inventories that are in keeping with the principles, standards, Corporate inventory program and guidance of the GHG Protocol Corporate Standard . This includes all institutional, managerial and technical arrangements made for the collection of data, preparation of a GHG inventory, and imple- mentation of the steps taken to manage the quality of their emission inventory. -e) The universal unit of measurement to indicate the global warming potential (GWP) of each of the six equivalent (CO CO 2 2 greenhouse gases, expressed in terms of the GWP of one unit of carbon dioxide. It is used to evaluate releasing (or avoiding releasing) different greenhouse gases against a common basis. A GHG Protocol calculation tool that addresses GHG sources common to various sectors, e.g. Cross-sector calculation tool emissions from stationary or mobile combustion. See also GHG Protocol calculation tools ( Emissions from sources that are owned or controlled by the reporting company. (Chapter 4) Direct GHG emissions Direct monitoring of exhaust stream contents in the form of continuous emissions monitoring (CEM) Direct monitoring or periodic sampling. (Chapter 6) Two or more reporting companies take ownership of the same emissions or reductions. (Chapter 3, 4, 8, 11) Double counting The release of GHG into the atmosphere. Emissions A factor allowing GHG emissions to be estimated from a unit of available activity data (e.g. tonnes of Emission factor fuel consumed, tonnes of product produced) and absolute GHG emissions. (Chapter 6) Emission Reduction Unit (ERU) A unit of emission reduction generated by a Joint Implementation (JI) project. ERUs are tradable commodities which can be used by Annex 1 countries to help them meet their commitment under the Kyoto Protocol. Equity share The equity share reflects economic interest, which is the extent of rights a company has to the risks and rewards flowing from an operation. Typically, the share of economic risks and rewards in an oper- ation is aligned with the company's percentage ownership of that operation, and equity share will normally be the same as the ownership percentage. (Chapter 3) Estimation uncertainty Uncertainty that arises whenever GHG emissions are quantified, due to uncertainty in data inputs and calculation methodologies used to quantify GHG emissions. (Chapter 7) Finance lease A lease which transfers substantially all the risks and rewards of ownership to the lessee and is accounted for as an asset on the balance sheet of the lessee. Also known as a Capital or Financial Lease. Leases other than Capital/Financial/Finance leases are Operating leases. Consult an accountant for further detail as definitions of lease types differ between various accepted accounting principles. (Chapter 4)

100 Glossary Fixed asset investment Equipment, land, stocks, property, incorporated and non-incorporated joint ventures, and partnerships over which the parent company has neither significant influence nor control. (Chapter 3) Fugitive emissions Emissions that are not physically controlled but result from the intentional or unintentional releases of GHGs. They commonly arise from the production, processing transmission storage and use of fuels and other chemicals, often through joints, seals, packing, gaskets, etc. (Chapter 4, 6) Green power A generic term for renewable energy sources and specific clean energy technologies that emit fewer GHG emissions relative to other sources of energy that supply the electric grid. Includes solar photovoltaic panels, solar thermal energy, geothermal energy, landfill gas, low-impact hydropower, and wind turbines. (Chapter 4) Greenhouse gases (GHG) For the purposes of this standard, GHGs are the six gases listed in the Kyoto Protocol: carbon dioxide ); methane (CH (CO ); nitrous oxide (N O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); and 2 2 4 ). sulphur hexafluoride (SF 6 Collection of GHG emissions from a GHG source for storage in a sink. GHG capture GHG offsets can be converted into GHG credits when used to meet an externally imposed target. GHG credit A GHG credit is a convertible and transferable instrument usually bestowed by a GHG program. (Chapter 8, 11) Offsets are discrete GHG reductions used to compensate for (i.e., offset) GHG emissions elsewhere, for GHG offset example to meet a voluntary or mandatory GHG target or cap. Offsets are calculated relative to a baseline that represents a hypothetical scenario for what emissions would have been in the absence of the mitigation project that generates the offsets. To avoid double counting, the reduction giving rise to the offset must occur at sources or sinks not included in the target or cap for which it is used. GHG program A generic term used to refer to any voluntary or mandatory international, national, sub-national, government or non-governmental authority that registers, certifies, or regulates GHG emissions or removals outside the company. e.g. CDM, EU ETS, CCX, and CCAR. GHG project A specific project or activity designed to achieve GHG emission reductions, storage of carbon, or enhancement of GHG removals from the atmosphere. GHG projects may be stand-alone projects, or specific activities or elements within a larger non-GHG related project. (Chapter 8, 11) GHG Protocol calculation tools A number of cross-sector and sector-specific tools that calculate GHG emissions on the basis of activity data and emission factors (available at A multi-stakeholder collaboration convened by the World Resources Institute and World Business Council GHG Protocol Initiative for Sustainable Development to design, develop and promote the use of accounting and reporting standards for business. It comprises of two separate but linked standards — the GHG Protocol Corporate and the Accounting and Reporting Standard GHG Protocol Project Quantification Standard. GHG Protocol Project An additional module of the GHG Protocol Initiative addressing the quantification of GHG reduction projects. This includes projects that will be used to offset emissions elsewhere and/or Quantification Standard generate credits. More information available at (Chapter 8, 11) GHG Protocol sector specific A GHG calculation tool that addresses GHG sources that are unique to certain sectors, e.g., process calculation tools emissions from aluminum production. (see also GHG Protocol Calculation tools) GHG public report Provides, among other details, the reporting company’s physical emissions for its chosen inventory boundary. (Chapter 9) 98

101 GLOSSARY 99 GHG registry A public database of organizational GHG emissions and/or project reductions. For example, the US Department of Energy 1605b Voluntary GHG Reporting Program, CCAR, World Economic Forum’s Global GHG Registry. Each registry has its own rules regarding what and how information is reported. (Introduction, Chapter 2, 5, 8, 10) GHG removal Absorbtion or sequestration of GHGs from the atmosphere. Any physical unit or process that stores GHGs; usually refers to forests and underground/deep sea GHG sink . reservoirs of CO 2 GHG source Any physical unit or process which releases GHG into the atmosphere. All purchases or sales of GHG emission allowances, offsets, and credits. GHG trades Global Warming Potential (GWP) A factor describing the radiative forcing impact (degree of harm to the atmosphere) of one unit of a . given GHG relative to one unit of CO 2 The parent company has the ability to direct the financial and operating policies of a group Group company / subsidiary company/subsidiary with a view to gaining economic benefits from its activities. (Chapter 3) Heating value The amount of energy released when a fuel is burned completely. Care must be taken not to confuse higher heating values (HHVs), used in the US and Canada, and lower heating values, used in all other countries (for further details refer to the calculation tool for stationary combustion available at Emissions that are a consequence of the operations of the reporting company, but occur at sources Indirect GHG emissions owned or controlled by another company. (Chapter 4) Insourcing The administration of ancillary business activities, formally performed outside of the company, using resources within a company. (Chapter 3, 4, 5, 9) Ratios that express GHG impact per unit of physical activity or unit of economic value (e.g. tonnes of Intensity ratios emissions per unit of electricity generated). Intensity ratios are the inverse of productivity/effi- CO 2 ciency ratios. (Chapter 9, 11) A target defined by reduction in the ratio of emissions and a business metric over time e.g., reduce Intensity target CO per tonne of cement by 12% between 2000 and 2008. (Chapter 11) 2 Intergovernmental Panel on International body of climate change scientists. The role of the IPCC is to assess the scientific, Climate Change (IPCC) technical and socio-economic information relevant to the understanding of the risk of human-induced climate change ( Inventory A quantified list of an organization’s GHG emissions and sources. Inventory boundary An imaginary line that encompasses the direct and indirect emissions that are included in the inven- tory. It results from the chosen organizational and operational boundaries. (Chapter 3, 4) The extent to which an inventory provides a faithful, true and fair account of an organization’s GHG Inventory quality emissions. (Chapter 7) The JI mechanism was established in Article 6 of the Kyoto Protocol and refers to climate change miti- Joint Implementation (JI) gation projects implemented between two Annex 1 countries. JI allows for the creation, acquisition and transfer of “emission reduction units” (ERUs). A protocol to the United Nations Framework Convention on Climate Change (UNFCCC). Once entered Kyoto Protocol into force it will require countries listed in its Annex B (developed nations) to meet reduction targets of GHG emissions relative to their 1990 levels during the period of 2008–12.

102 Glossary Leakage (Secondary effect) Leakage occurs when a project changes the availability or quantity of a product or service that results in changes in GHG emissions elsewhere. (Chapter 8) Life Cycle Analysis Assessment of the sum of a product’s effects (e.g. GHG emissions) at each step in its life cycle, including resource extraction, production, use and waste disposal. (Chapter 4) An error (for example from an oversight, omission, or miscalculation) that results in the reported Material discrepancy quantity being significantly different to the true value to an extent that will influence performance or decisions. Also known as material misstatement.(Chapter 10) Materiality threshold A concept employed in the process of verification. It is often used to determine whether an error or omission is a material discrepancy or not. It should not be viewed as a de minimus for defining a complete inventory. (Chapter 10) Mobile combustion Burning of fuels by transportation devices such as cars, trucks, trains, airplanes, ships etc. (Chapter 6) Model uncertainty GHG quantification uncertainty associated with mathematical equations used to characterize the relationship between various parameters and emission processes. (Chapter 7) Non-Annex 1 countries Countries that have ratified or acceded to the UNFCC but are not listed under Annex 1 and are there- fore not under any emission reduction obligation (see also Annex 1 countries). Operation A generic term used to denote any kind of business, irrespective of its organizational, governance, or legal structures. An operation can be a facility, subsidiary, affiliated company or other form of joint venture. (Chapter 3, 4) Operating lease A lease which does not transfer the risks and rewards of ownership to the lessee and is not recorded as an asset in the balance sheet of the lessee. Leases other than Operating leases are Capital/Financial/Finance leases. Consult an accountant for further detail as definitions of lease types differ between various accepted financial standards. (Chapter 4) Operational boundaries The boundaries that determine the direct and indirect emissions associated with operations owned or controlled by the reporting company. This assessment allows a company to establish which operations and sources cause direct and indirect emissions, and to decide which indirect emissions to include that are a consequence of its operations. (Chapter 4) Organic growth/decline Increases or decreases in GHG emissions as a result of changes in production output, product mix, plant closures and the opening of new plants. (Chapter 5) Organizational boundaries The boundaries that determine the operations owned or controlled by the reporting company, depending on the consolidation approach taken (equity or control approach). (Chapter 3) The contracting out of activities to other businesses. (Chapter 3, 4, 5) Outsourcing Parameter uncertainty GHG quantification uncertainty associated with quantifying the parameters used as inputs to estima- tion models. (Chapter 7) Primary effects The specific GHG reducing elements or activities (reducing GHG emissions, carbon storage, or enhancing GHG removals) that the project is intended to achieve. (Chapter 8) Emissions generated from manufacturing processes, such as the CO that is arises from the break- Process emissions 2 down of calcium carbonate (CaCO ) during cement manufacture. (Chapter 4, Appendix D) 3 Productivity/efficiency ratios Ratios that express the value or achievement of a business divided by its GHG impact. Increasing effi- ciency ratios reflect a positive performance improvement. e.g. resource productivity(sales per tonne GHG). Productivity/efficiency ratios are the inverse of intensity ratios. (Chapter 9) Ratio indicator Indicators providing information on relative performance such as intensity ratios or productivity/effi- ciency ratios. (Chapter 9) 100

103 GLOSSARY 101 Renewable energy Energy taken from sources that are inexhaustible, e.g. wind, water, solar, geothermal energy, and biofuels. Reporting Presenting data to internal management and external users such as regulators, shareholders, the general public or specific stakeholder groups. (Chapter 9) Reversibility of reductions This occurs when reductions are temporary, or where removed or stored carbon may be returned to the atmosphere at some point in the future. (Chapter 8) Rolling base year The process of shifting or rolling the base year forward by a certain number of years at regular inter- vals of time. (Chapter 5, 11) Uncertainty that arises when the science of the actual emission and/or removal process is not Scientific Uncertainty completely understood. (Chapter 7) Defines the operational boundaries in relation to indirect and direct GHG emissions. (Chapter 4) Scope A reporting organization’s direct GHG emissions. (Chapter 4) Scope 1 inventory A reporting organization’s emissions associated with the generation of electricity, heating/ cooling, or Scope 2 inventory steam purchased for own consumption. (Chapter 4) A reporting organization’s indirect emissions other than those covered in scope 2. (Chapter 4) Scope 3 inventory Scope of works An up-front specification that indicates the type of verification to be undertaken and the level of assurance to be provided between the reporting company and the verifier during the verification process. (Chapter 10) Secondary effects (Leakage) GHG emissions changes resulting from the project not captured by the primary effect(s). These are typically the small, unintended GHG consequences of a project. (Chapter 8) Sequestered atmospheric carbon Carbon removed from the atmosphere by biological sinks and stored in plant tissue. Sequestered atmospheric carbon does not include GHGs captured through carbon capture and storage. A qualitative or quantitative criteria used to define a significant structural change. It is the responsi- Significance threshold bility of the company/ verifier to determine the “significance threshold” for considering base year emissions recalculation. In most cases the “significance threshold” depends on the use of the infor- mation, the characteristics of the company, and the features of structural changes. (Chapter 5) Burning of fuels to generate electricity, steam, heat, or power in stationary equipment such as boilers, Stationary Combustion furnaces etc. Structural change A change in the organizational or operational boundaries of a company that result in the transfer of ownership or control of emissions from one company to another. Structural changes usually result from a transfer of ownership of emissions, such as mergers, acquisitions, divestitures, but can also include outsourcing/ insourcing. (Chapter 5) emissions 25% below the target base Target base year The base year used for defining a GHG target, e.g. to reduce CO 2 year levels by the target base year 2000 by the year 2010. (Chapter 11) Target boundary The boundary that defines which GHG’s, geographic operations, sources and activities are covered by the target. (Chapter 11) The period of time during which emissions performance is actually measured against the target. It Target commitment period ends with the target completion date. (Chapter 11) Target completion date The date that defines the end of the target commitment period and determines whether the target is relatively short- or long-term. (Chapter 11)

104 Glossary A policy that determines how double counting of GHG reductions or other instruments, such as Target double counting policy allowances issued by external trading programs, is dealt with under a GHG target. It applies only to companies that engage in trading (sale or purchase) of offsets or whose corporate target boundaries interface with other companies’ targets or external programs. (Chapter 11) Uncertainty 1. Statistical definition: A parameter associated with the result of a measurement that characterizes the dispersion of the values that could be reasonably attributed to the measured quantity. (e.g., the sample variance or coefficient of variation). (Chapter 7) 2. Inventory definition: A general and imprecise term which refers to the lack of certainty in emissions- related data resulting from any causal factor, such as the application of non-representative factors or methods, incomplete data on sources and sinks, lack of transparency etc. Reported uncertainty information typically specifies a quantitative estimates of the likely or perceived difference between a reported value and a qualitative description of the likely causes of the difference. (Chapter 7). Signed in 1992 at the Rio Earth Summit, the UNFCCC is a milestone Convention on Climate Change United Nations Framework Convention on Climate Change treaty that provides an overall framework for international efforts to (UNFCCC) mitigate climate (UNFCCC) change. The Kyoto Protocol is a protocol to the UNFCCC. Value chain emissions Emissions from the upstream and downstream activities associated with the operations of the reporting company. (Chapter 4) Verification An independent assessment of the reliability (considering completeness and accuracy) of a GHG inventory. (Chapter 10) 102

105 103 References API IPCC (2000b), Land Use, Land Use Change, and Forestry: A (2004), Compendium of Greenhouse Gas Emissions Intergovernmental Panel on Climate Methodologies for the Oil and Gas Industry, Final Draft, American Special Report of the IPCC, Change. Cambridge University Press, Cambridge, UK Petroleum Institute Environmental Performance: Group Reporting (2000), (2003), BP Petroleum Industry Guidelines for Reporting IPIECA Version 2.2 Guidelines, International Petroleum Industry Greenhouse Gas Emissions, Environmental Conservation Association, London (2003), General Reporting Guidelines, California Climate CCAR (1999), Action Registry International Standard on Environmental ISO Performance Evaluation, (ISO 14031), International Standard Guidelines for the Measurement and Reporting of DEFRA (2003), Organization, Geneva Emissions by direct participants in the UK Emissions Trading UK Department for Environment, Food and Rural Affairs, (2000), Global Accounting: UK, US, IAS and Netherlands Scheme, KPMG Compared, London, UK ETS(01)05rev2 2nd Edition, KPMG Accountants NV (2000), NZBCSD EC-DGE Guidance Document for EPER Implementation, The Challenge of GHG Emissions: the “why” (2002), and “how” of accounting and reporting for GHG emissions: An European Commission Directorate-General for Environment Industry Guide, New Zealand Business Council for Sustainable EPA (1999), Emission Inventory Improvement Program, Development, Auckland U.S. Environmental Volume VI: Quality Assurance/Quality Control, Protection Agency Airborne Contaminant Discharge Monitoring (2001), Ontario MOE and Reporting, Ontario Ministry of the Environment, Toronto, (2002), Protocol for the Inventory of Greenhouse Georgia Pacific Ontario Regulation 127/01 Gases in Georgia-Pacific Corporation, Georgia-Pacific Synthesis Report on National Greenhouse Gas Corporation, Atlanta UNFCCC (2000), Information Reported by Annex I Parties for the Land-Use Change Global Reporting Initiative, Sustainability Reporting GRI (2002), and Forestry Sector and Agricultural Soils Category, Global Reporting Initiative Guidelines, FCCC/TP/1997/5, United Nations Framework Convention on Climate Change Aluminum Sector Greenhouse Gas Protocol, (2003), IAI International Aluminum Institute , and R. Bidwell (2000), Measuring Eco-efficiency: A Verfaillie, H. ICFPA (2002), Calculation Tools and for Estimating Greenhouse World Business Guide to Reporting Company Performance, Gas Emissions from Pulp and Paper Mills, Climate Change Council for Sustainable Development, Geneva Working Group of the International Council of Forest and (2001), The Cement CO Protocol: CO WBCSD Emissions 2 2 Paper Associations Monitoring and Reporting Protocol for the Cement Industry, World Business Council for Sustainable Development: Working Group IPCC (1996), Revised IPCC Guidelines for National GHG Cement, Geneva Inventories: Reference Manual, Intergovernmental Panel on Climate Change (2002), Working 9 to 5 on Climate Change: An Office Guide, WRI (1997), World Resources Institute, Washington, DC IPCC Revised 1996 IPCC Guidelines for National Greenhouse Intergovernmental Panel on Climate Change Gas Inventories, WRI Renewable Energy Certificates: An Attractive Means (2003), for Corporate Customers to Purchase Renewable Energy, World Evaluating Approaches for Estimating Net Emissions (1998), IPCC Resources Institute, Washington, DC of Carbon Dioxide from Forest Harvesting and Wood Products, by Schlamadinger , Intergovernmental S. Brown , B. Lim , and B. Panel on Climate Change IPCC (2000a), Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories, Intergovernmental Panel on Climate Change

106 Contributors (REVISED EDITION) Structured Feedback Companies AstraZeneca Philips & Yaming Co., Ltd. Birka Energi Seattle City Light Eastman Kodak Co. Simplex Mills Co. Ltd. ENDESA Sony Corporation IKEA International A / S STMicroelectronics Tata Iron & Steel Company Ltd. Interface, Inc. Tokyo Electric Power Company Kansai Electric Power Company Tokyo Gas Co. Ltd. Nike, Inc. We Energies Norsk Hydro N.V. Nuon Renewable Energy Road Testers (FIRST EDITION) Ontario Power Generation Baxter International Petro-Canada BP CODELCO PricewaterhouseCoopers road tested with European companies in the non-ferrous metal sector Duncans Industries Public Service Electric and Gas Dupont Company Shree Cement Ford Motor Company Shell Canada Fortum Power and Heat Suncor Energy General Motors Corporation Tokyo Electric Power Company Hindalco Industries Volkswagen IBM Corporation World Business Council for Sustainable Development Maihar Cement World Resources Institute Nike, Inc. 500 PPM road tested with several small and medium Norsk Hydro companies in Germany (FIRST EDITION) WRI & WBCSD GHG Protocol Initiative Team Janet Ranganathan World Resources Institute David Moorcroft World Business Council for Sustainable Development World Resources Institute Pankaj Bhatia Jasper Koch World Business Council for Sustainable Development Project Management Team (FIRST EDITION) Brian Smith Innovation Associates The Energy Research Institute Sujata Gupta Yasuo Hosoya Tokyo Electric Power Company Hans Aksel Haugen Norsk Hydro World Wildlife Fund Pew Center on Climate Change Vicki Arroyo Rebecca Eaton Aidan J. Murphy Royal Dutch/ Shell 104

107 CONTRIBUTORS 105 Contributors Heather Tansey 3M Corporation Britt Sahlestrom Birka Energi Ingo Puhl 500 PPM BP David Evans Nick Hughes BP Dawn Fenton ABB Christian Kornevall BP Tasmin Lishman ABB British Standards Institution Mark Barthel Paul-Antoine Lacour AFOCEL Business for Social Responsibility JoAnna Bullock Kenneth Martchek Alcoa Robyn Camp California Climate Action Registry Vince Van Son Alcoa California Climate Action Registry Jill Gravender Alcan Ron Nielsen California Climate Action Registry Steve Pomper Alcan Dianne Wittenberg Allegheny Energy California Portland Cement Pat Quinn David Cahn Paul Blacklock Calor Gas Limited Joe Cascio Booz Allen & Hamilton Inc. Alliance to Save Energy Cameron-Cole Julie Chiaravalli David Jaber Alstom Power Environment Alain Bill Connie Sasala Cameron-Cole Robert Greco Evan Jones American Petroleum Institute Canada’s Climate Change Voluntary Challenge and Registry Inc. Walter C. Retzsch American Petroleum Institute Canadian Institute of Alan D. Willis Karen Ritter American Petroleum Institute Chartered Accountants Tom Carter American Portland Cement Alliance Miguel A Gonzalez CEMEX American Portland Cement Alliance Dale Louda Carlos Manuel CEMEX Duarte Oliveira Ted Gullison Anova Inna Gritsevich CENEf Aon Risk Services of Texas Inc J Douglas Akerson (Center for Energy Efficiency) John Molburg Argonne National Laboratory Center for Clean Air Policy Ellina Levina Arthur Anderson Sophie Jabonski Center for Clean Air Policy Steve Winkelman Fiona Gadd Arthur Andersen Central European University (Hungary) Aleg Cherp and ECOLOGIA Christophe Scheitzky Arthur Andersen Scot Foster Mark Fallon CH2M Hill Arthur D. Little Mike Isenberg Arthur D. Little CH2M Hill Lisa Nelowet Grice Arthur Lee Arthur D. Little Bill Wescott ChevronTexaco ChevronTexaco AstraZeneca Keith Moore William C. McLeod AstraZeneca Susann Nordrum Birgita Thorsin ChevronTexaco Chicago Climate Exchange Alice LeBlanc Atofina Chemicals Thomas E. Werkem Charlene R. Garland Jean-Bernard Carrasco Clean Air-Cool Planet Australian Greenhouse Office Clean Energy Group Donna Boysen David Harrison Australian Greenhouse Office Climate Neutral Network Bronwyn Pollock Australian Greenhouse Office Jennifer DuBose Australian Greenhouse Office Climate Neutral Network Sue Hall Linda Powell James Shevlin Australian Greenhouse Office Karen Meadows Climate Neutral Network Climate Trust Battelle Memorial Institute Chris Loreti Michael Burnett Baxter International Ronald E. Meissen Clipper Windpower David Olsen Marco Bedoya Cimpor Birka Energi Göran Andersson Birka Energi Jose Guimaraes Cimpor Sofi Harms-Ringdahl

108 Contributors Paul Tebo Elizabeth Arner DuPont Company Fitzgerald Fred Whiting Fernando E. Toledo DuPont Company CODELCO Roy Wood Collier Shannon Scott Eastman Kodak Co. Bruce Steiner Jochen Harnisch Lynn Preston ECOFYS Collins & Aikman Annick Carpentier Alan Tate Ecos Corporation Confederation of European Paper Industries Pedro Moura Costa EcoSecurities K.P. Nyati Confederation of Indian Industry Justin Guest EcoSecurities Sonal Pandya Conservation International Emission Credit LLC D. Gary Madden Conservation International Michael Totten Kyle L. Davis Edison Mission Energy / Dominick J. Mormile Consolidated Edison Company MidAmerican Energy Holdings Co. CRL Energy Ltd. ENDESA Maria Antonia John Kessels Abad Puértolas Cumming Cockburn Limited Ian Lewis ENDESA David Corregidor Sanz Raymond P. Cote Dalhousie University Elvira Elso Torralba ENDESA Olivia Hartridge DEFRA/European Commission Energy & Environmental Analysis, Inc. Joel Bluestein Robert Casamento Deloitte & Touche The Energy Research Institute Y P Abbi Deloitte & Touche Markus Lehni The Energy Research Institute Girish Sethi Flemming Tost Deloitte & Touche The Energy Research Institute Vivek Sharma Philip Comer Det Norske Veritas Crosbie Baluch Energetics Pty. Ltd. Simon Dawes Det Norske Veritas Marcus Schneider Energy Foundation Trygve Roed Larsen Det Norske Veritas Energy Futures Australia Pty Ltd David Crossley Einar Telnes Det Norske Veritas Patrick Nollet Entreprises pour l'Environnement Development Alternatives Kalipada Chatterjee Envinta James L. Wolf Development Alternatives Vivek Kumar Kenneth Olsen Environment Canada Samrat Sengupta Development Alternatives Adrian Steenkamer Environment Canada The Dow Chemical Company Francesco Balocco Environmental Defense Millie Chu Baird Paul Cicio The Dow Chemical Company Environmental Defense Sarah Wade The Dow Chemical Company Frank Farfone Environmental Energy Technologies Satish Kumar The Dow Chemical Company Peter Molinaro Environmental Interface John Cowan Scott Noesen The Dow Chemical Company Edward W. Repa Environmental Research The Dow Chemical Company Stephen Rose and Education Foundation The Dow Chemical Company Jorma Salmikivi Tatiana Bosteels Environmental Resources Management Don Hames The Dow Chemical Company Environmental Resources Management William B. Weil Duncans Industries R. Swarup Wiley Barbour Environmental Resources Trust DuPont Company John B. Carberry Barney Brannen Environmental Resources Trust David Childs DuPont Company Environmental Resources Trust Ben Feldman Dupont Company John C. DeRuyter Environmental Synergy Al Daily Tom Jacob DuPont Company Anita M. Celdran Environmental Technology Evaluation Center Mack McFarland DuPont Company Environmental Technology William E. Kirksey DuPont Company Ed Mongan Evaluation Center DuPont Company Ron Reimer 106

109 CONTRIBUTORS 107 James Bradbury Global Environment EPOTEC Joseph Romm and Technology Foundation Alan B. Reed EPOTEC Arthur H Rosenfeld Global Environment Ernst & Young Daniele Agostini and Technology Foundation Ernst Basler & Partners Juerg Fuessler Government of India Ministry Dilip Biswas of Environment & Forests Stefan Larsson ESAB Matthew DeLuca Green Mountain Energy European Bank for Reconstruction Lutz Blank and Development Greenergy ECCM Richard Tipper European Bank for Reconstruction Alke Schmidt Ralph Taylor Greenleaf Composting Company and Development Glenna Ford GreenWare Environmental Systems Peter Vis European Commission Nickolai Denisov GRID-Arendal / Hindalco Industries European Commission Chris Evers Y.K. Saxena Gujarat Ambuja Cement ExxonMobil Research Yun Yang Mihir Moitra & Engineering Company Hindalco Industries Ltd. Holcim Claude Culem Urs Brodmann Factor Consulting and Management M.A. J. Jeyaseelan Holcim Federation of Indian Chambers Adrienne Williams of Commerce & Industry Honeywell Allied Signal Mo Loya Finnish Forest Industries Federation Anu Karessuo Edan Dionne IBM Corporation Tod Delaney First Environment IBM Corporation Ravi Kuchibhotla First Environment Brian Glazebrook Thomas A. Cortina ICCP First Environment James D. Heeren Paul E. Bailey ICF Consulting James T. Wintergreen First Environment ICF Consulting Anne Choate Five Winds International Kevin Brady ICF Consulting Craig Ebert Duncan Noble Five Winds International Marcia M. Gowen ICF Consulting Five Winds International Steven Young Kamala R. Jayaraman ICF Consulting Larry Merritt Ford Motor Company ICF Consulting Richard Lee Ford Motor Company Chad McIntosh Diana Paper ICF Consulting John Sullivan Ford Motor Company ICF Consulting Frances Sussman Debbie Zemke Ford Motor Company ICF Consulting Molly Tirpak Dan Blomster Fortum Power and Heat IKEA International A / S Thomas Bergmark Fortum Power and Heat Arto Heikkinen Eva May Lawson IKEA International A / S Jussi Nykanen Fortum Power and Heat IKEA International A / S Mona Nilsson Global Environment Steven Hellem Othmar Schwank INFRAS Management Initiative Institute for Lifecycle Energy Analysis Roel Hammerschlag Judith M. Mullins General Motors Corporation Interface Inc. Shannon Cox Terry Pritchett General Motors Corporation Interface Inc. Buddy Hay General Motors Corporation Richard Schneider Interface Inc. Alyssa Tippens Robert Stephens General Motors Corporation Interface Inc. Melissa Vernon General Motors Corporation Kristin Zimmerman International Aluminum Institute Willy Bjerke George Washington University Mark Starik Jerry Marks International Aluminum Institute Michael Rumberg Gerling Group of Insurances Robert Dornau International Emissions GHG Spaces Jeffrey C. Frost Trading Association Global Environment and Energy Group T. Imai

110 Contributors Natural Resources Defense Council Andrei Marcu International Emissions Jeff Fiedler Trading Association NCASI Brad Upton Akira Tanabe International Finance Corporation NESCAUM Timothy J. Roskelley International Finance Corporation George Thomas Nexant Matthew W. Addison International Paper Company Danny L. Adams Atulya Dhungana Nexant Julie C. Brautigam International Paper Company David H. King Niagara Mohawk Power Corporation Carl Gagliardi International Paper Company Martin A. Smith Niagara Mohawk Power Corporation International Paper Company Thomas C. Jorling Jim Goddard Nike Inc. Mark E. Bateman Investor Responsibility Research Center Nike Inc. Leta Winston S.K. Bezbaroa ITC Ltd. NILIT Amit Meridor ITC Ltd. H.D. Kulkami Norsk Hydro Karina Aas Michael Nesbit JAN Consultants Jos van Danne Norsk Hydro Johnson & Johnson International Chris Hunter Norsk Hydro Hans Goosens Harry Kaufman Johnson & Johnson International Norsk Hydro Jon Rytter Hasle Daniel Usas Johnson & Johnson Worldwide Norsk Hydro Tore K. Jenssen Engineering Services Norsk Hydro Halvor Kvande Shintaro Yokokawa Kansai Electric Power Co. Bernt Malme Norsk Hydro KPMG Iain Alexander Norsk Hydro Lillian Skogen Giulia Galluccio KPMG Norsk Hydro Jostein Soreide Lisa Gibson KPMG Lasse Nord Norsk Hydro Jed Jones KPMG Norske Skogindustrier ASA Thor Lobben Sophie Punte KPMG North Carolina State University Morton A. Barlaz Michele Sanders KPMG Novatech Geir Husdal Chris Boyd Lafarge Corporation Gard Pedersen Novatech David W. Carroll Lafarge Corporation Ron Oei Nuon N.V. Lawrence Berkeley National Laboratory Ed Vine OECD Jan Corfee-Morlot Lincoln Electric Service Richard Kahle Stephane Willems OECD Logistics Management Institute Michael E. Canes Anda Kalvins Ontario Power Generation The Louis Berger Group Erik Brejla Mikako Kokitsu Osaka Gas Co. Michael J. Bradley M.J. Bradley & Associates Greg San Martin Pacific Gas and Electric Company Brian Jones M.J. Bradley & Associates Pacific Northwest National Laboratory Ken Humphreys McBernie QERL Craig McBernie PE Europe GmbH Michael Betz Meridian Energy Limited Tracy Dyson Petro-Canada Kathy Scales Meridian Institute Tim Mealey Pew Center Judith Greenwald MWA Consultants Maria Wellisch Naomi Pena Pew Center NAM Margriet Kuijper Daniel L. Chartier PG&E Generating Sukumar Devotta National Chemical Laboratory Philips & Yaming Co. Ltd. Zhang Fan Neil B. Cohn Natsource Philips & Yaming Co. Ltd. Xue Gongren Natsource Garth Edward Planning and Development Orestes R. Anastasia Robert Youngman Natsource Collaborative International Natural Resources Defense Council Dale S. Bryk LIST OF CONTRIBUTORS 108

111 CONTRIBUTORS 109 Robert Hall SGS Platts Research and Consulting Gareth Phillips Antoine de Neil Kolwey SGS Platts Research and Consulting La Rochefordière Poubelle Associates David B. Sussman Murray G. Jones Shell Canada Powergen Bill Kyte Sean Kollee Shell Canada Surojit Bose PricewaterhouseCoopers Shell Canada Rick Weidel PricewaterhouseCoopers Melissa Carrington Siam Cement Pipope Siripatananon Rachel Cummins PricewaterhouseCoopers Simplex Mills Co. Ltd. J.P. Semwal PricewaterhouseCoopers Len Eddy SMEC Environment Ros Taplin Dennis Jennings PricewaterhouseCoopers Robert K. Ham Solid & Hazardous PricewaterhouseCoopers Terje Kronen Waste Engineering PricewaterhouseCoopers Craig McBurnie Jeremy K. O’Brien Solid Waste Association of North America Olivier Muller PricewaterhouseCoopers Hidemi Tomita Sony Corporation PricewaterhouseCoopers Dorje Mundle Gwen Parker Stanford University PricewaterhouseCoopers Thierry Raes STMicroelectronics Georges Auguste Alain Schilli PricewaterhouseCoopers Ivonne Bertoncini STMicroelectronics PricewaterhouseCoopers Hans Warmenhoven STMicroelectronics Giuliano Boccalletti PRIEN Pedro Maldonado STMicroelectronics Eugenio Ferro Alfredo Munoz PRIEN STMicroelectronics Philippe Levavasseur Mark S. Brownstein PSEG Suncor Energy Geoffrey Johns PSEG James Hough Swiss Federal Institute of Technology, Manuele de Gennaro PSEG Samuel Wolfe ETH Zurich Vinayak Khanolkar Pudumjee Pulp & Paper Mills Ltd. Markus Ohndorf Swiss Federal Institute of Technology, Federica Ranghieri ETH Zurich Ranghieri & Associates Swiss Federal Office for Energy Resources for the Future Matthias Gysler Jennifer Lee Kaj Embren Respect Europe Christopher T. Swiss Reinsurance Co. Walker Mei Li Han Respect Europe Gregory A. Norris Sylvatica The RETEC Group David W. Cross Tata Iron & Steel Company Ltd. GS Basu Rio Tinto Alan Steinbeck RP Sharma Tata Iron & Steel Company Ltd. RMC Group Katie Smith Tellus Institute Robert Graff Rocky Mountain Institute Rick Heede Tellus Institute Sivan Kartha Chris Lotspeich Rocky Mountain Institute Michael Lazarus Tellus Institute Anita M. Burke Royal Dutch / Shell Tellus Institute Allen L. White Royal Dutch / Shell David Hone Tetra Tech Em Incorporated Will Gibson Ruddy Consultants Thomas Ruddy Satish Malik Tetra Tech Em Incorporated Julie Doherty Science Applications Intl. Corp. Tetra Tech Em Incorporated Fred Zobrist Science Applications Intl. Corp. Richard Y. Richards Sonal Agrawal Tetra Tech India Seattle City Light Corinne Grande Ranjana Ganguly Tetra Tech India Doug Howell Seattle City Light Tetra Tech India Ashwani Zutshi Edwin Aalders SGS Mark D. Crowdis Think Energy SGS Irma Lubrecht

112 Contributors U.S. Environmental Protection Agency Tinus Pulles TNO MEP Dina Kruger U.S. Environmental Protection Agency Yasushi Hieda Skip Laitner Tokyo Electric Power Co. Ltd Joseph Mangino Tokyo Electric Power Co. Ltd. U.S. Environmental Protection Agency Midori Sasaki Pam Herman Milmoe U.S. Environmental Protection Agency Tsuji Yoshiyuki Tokyo Electric Power Co. Ltd. U.S. Environmental Protection Agency Beth Murray Hiroshi Hashimoto Tokyo Gas Co. Ltd. Deborah Ottinger U.S. Environmental Protection Agency Takahiro Nagata Tokyo Gas Co. Ltd U.S. Environmental Protection Agency Paul Stolpman Tokyo Gas Co. Ltd. Kentaro Suzawa Susan Thorneloe U.S. Environmental Protection Agency Satoshi Yoshida Tokyo Gas Co. Ltd. Chloe Weil Torrie Smith Associates Ralph Torrie U.S. Environmental Protection Agency Manuela Ojan Phil J. Wirdzek U.S. Environmental Protection Agency Toyota Motor Company Trane Company Eugene Smithart Tom Wirth U.S. Environmental Protection Agency Michael Savonis U.S. Federal Highway Administration Laura Kosloff Trexler & Associates Trexler & Associates Mark Trexler U.S. Geological Survey M. Michael Miller U.S. Geological Survey Hendrik G. van Oss Walter Greer Trinity Consultants Valentin V. Tepordei University of Cambridge U.S. Geological Survey Jochen Mundinger U.S. Postal Service UPM-Kymmene Corporation Hannu Nilsen Marguerite Downey U.S. Asia Environmental Partnership Nao Ikemoto Hussein Abaza UNEP Lambert Kuijpers UNEP U.S. Department of Energy Stephen Calopedis Gregory H. Kats Gary Nakarado UNEP U.S. Department of Energy UNEP Mark Radka Dick Richards U.S. Department of Energy Arthur Rosenfeld Stelios Pesmajoglou UNFCCC U.S. Department of Energy Arthur Rypinski Union of Concerned Scientists Alden Meyer U.S. Department of Energy Monisha Shah U.S. Department of Energy United Technologies Corporation Judith Bayer Tatiana Strajnic Fred Keller U.S. Department of Energy United Technologies Corporation United Technologies Corporation Paul Patlis Kenneth Andrasko U.S. Environmental Protection Agency U.S. Environmental Protection Agency Jan Canterbury United Technologies Corporation Ellen J. Quinn United Technologies Corporation U.S. Environmental Protection Agency Ed Coe Bill Walters U.S. Environmental Protection Agency Lisa H. Chang Gary Bull University of British Colombia University of British Columbia Andrea Denny U.S. Environmental Protection Agency Zoe Harkin Bob Doyle Gerard Alleng University of Delaware U.S. Environmental Protection Agency Jacob Park Henry Ferland U.S. Environmental Protection Agency University of Maryland URS Corporation Dave Godwin U.S. Environmental Protection Agency Terri Shires Angela Crooks USAID Katherine Grover U.S. Environmental Protection Agency Virginia Gorsevski U.S. Environmental Protection Agency John Hall USAID USAID Carrie Stokes U.S. Environmental Protection Agency Lisa Hanle U.S. Environmental Protection Agency Reid Harvey Sandeep Tandon USAID U.S. Environmental Protection Agency Kathleen Hogan A.K. Ghose Vam Organosys Ltd. U.S. Environmental Protection Agency Vivendi Environment Roy Huntley Cyril Coillot U.S. Environmental Protection Agency Eric Lesueur Vivendi Environment Bill N. Irving 110

113 CONTRIBUTORS 111 Michael Dillman Anand Rao World Resources Institute Volkswagen Volkswagen Lee Schipper World Resources Institute Stephan Herbst Herbert Forster Jason Snyder Votorantim World Resources Institute Claude Grinfeder Votorantim Jennifer Morgan World Wildlife Fund World Business Council Mahua Acharya WRI and WBCSD would also like to thank the following individuals for Sustainable Development and organizations for their generous financial support: Energy Christine Elleboode World Business Council for Sustainable Development Foundation, Spencer T. and Ann W. Olin Foundation, John D. and Margaret Flaherty World Business Council Catherine T. MacArthur Foundation, Charles Stewart Mott for Sustainable Development Foundation, the US Agency for International Development, the US Al Fry World Business Council Environmental Protection Agency, Arthur Lee, Anglo American, for Sustainable Development Baxter International, BP, Det Norske Veritas, DuPont, Ford, General World Business Council Susanne Haefeli for Sustainable Development Motors, Lafarge, International Paper, Norsk Hydro, Ontario Power World Business Council Kija Kummer Generation, Petro-Canada, PowerGen, S.C.Johnson, SGS, Shell, for Sustainable Development Statoil, STMicroelectronics, Sulzer, Suncor, Swiss Re, Texaco, The World Business Council Heidi Sundin for Sustainable Development Dow Chemical Company, Tokyo Electric Power Company, Toyota, Donna Danihel We Energies TransAlta and Volkswagen. Gary Risner Weyerhauser Whirlpool Corporation Thomas F. Catania Williams Company Eric Olafson Johannes Heister World Bank Ajay Mathur World Bank World Economic Forum Richard Samans Andrew Aulisi World Resources Institute Kevin Baumert World Resources Institute Carey Bylin World Resources Institute Florence Daviet World Resources Institute World Resources Institute Manmita Dutta World Resources Institute Suzie Greenhalgh Craig Hanson World Resources Institute World Resources Institute Fran Irwin World Resources Institute David Jhirad Nancy Kete World Resources Institute World Resources Institute Bill LaRocque World Resources Institute Jim MacKenzie Emily Matthews World Resources Institute Sridevi Nanjundaram World Resources Institute Jim Perkaus World Resources Institute World Resources Institute Jonathan Pershing World Resources Institute Samantha Putt del Pino Design: Alston Taggart, Barbieri and Green

114 Ordering publications WBCSD WBCSD, c/o Earthprint Limited Tel: (44 1438) 748 111 Fax: (44 1438) 748 844 @ wbcsd Publications are available at: WRI Hopkins Fulfillment Service Tel: (1 410) 516 6956 Fax: (1 410) 516 6998 e-mail: hfscustserv @ Publications can be ordered from WRI’s secure online http:// store: Disclaimer This document, designed to promote best practice GHG accounting and reporting, has been developed through a unique multi-stakeholder consultative process involving representatives of reporters and report-users from around the world. While WBCSD and WRI encourage use of the GHG Protocol Corporate Standard by all corporations and organizations, the preparation and publication of reports based fully or partially on the GHG Protocol is the full responsibility of those producing them. Neither the WBCSD and WRI, nor other individuals who contributed to this standard assume responsibility for any conse- quences or damages resulting directly or indirectly from its use in the preparation of reports or the use of reports based on the GHG Protocol Corporate Standard. Copyright © World Resources Institute and World Business Council for Sustainable Development, March 2004 ISBN 1-56973-568-9 Printed in USA Printed on Phoeno Star (20% post consumer waste, T chlorine-free pulp processed paper) with soy-based inks. 112

115 About WBCSD About WRI The World Business Council for Sustainable Development (WBCSD) World Resources Institute is an independent nonprofit organization with a staff of more than 100 scientists, economists, policy is a coalition of 170 international companies united by a shared experts, business analysts, statistical analysts, mapmakers, and commitment to sustainable development via the three pillars of communicators working to protect the Earth and improve people’s economic growth, ecological balance and social progress. Our members are drawn from more than 35 countries and 20 major lives. The GHG Protocol Initiative is managed by WRI’s Sustainable Enterprise Program which for more than a decade, has harnessed industrial sectors. We also benefit from a global network of 48 national and regional business councils and partner organi- the power of business to create profitable solutions to environment zations involving some 1,000 business leaders globally. and development challenges. WRI is the only organization that brings together four influential forces to accelerate change in business practice: corporations, entrepreneurs, investors, and business schools.

116 WORLD RESOURCES INSTITUTE 10 G Street, NE (Suite 800) 4, chemin de Conches Washington, DC 20002 1231 Conches-Geneva USA Switzerland Tel: (1 202) 729 76 00 Tel: (41 22) 839 31 00 Fax: (1 202) 729 76 10 Fax: (41 22) 839 31 31 E-mail: sepinfo @ E-mail: info @ Internet: www. Internet: www

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