Carbon reporting: why two numbers are better than one
This January 2015, the GHG (Greenhouse Gas) Protocol program issued a critical update to their Corporate Standard (2004), the standard used globally for voluntary corporate carbon accounting (or “carbon footprinting”).
This update addressed “scope 2,” the category covering emissions from purchased and consumed electricity, heat, steam and cooling.
As we note in the Guidance, scope 2 represents one of the largest sources of GHG emissions globally: the generation of electricity and heat now accounts for at least a 40% of global GHG emissions.
We know how to reduce these emissions: using less energy, and shifting to low-carbon supply.
Electricity consumers and suppliers play a huge role in taking these actions—but it’s hard to shift your individual supply to low carbon when you don’t know what your supply is, or what its emissions are, in the first place.
The corporate GHG inventory should be the place where companies consistently and reliably report this information. It’s supposed to inform internal and external stakeholders about a company’s performance.
But the lack of global consistency and fundamental questions about scope 2 meant that companies were reporting their scope 2 emissions differently—some based on local or national grid energy production data (what we now call the “location-based method”), and some reporting emissions from selected energy purchases based on contractual or supplier-specific information (now called the “market-based method”).
That prompted us, the GHG Protocol program, to undergo a 4 year international consultation process to develop the new Guidance.
The update sets new accounting and reporting requirements that apply to thousands of companies, and has integrated already into reporting platforms like CDP and energy purchasing guidance like the Sustainable Purchasing Leadership Council and the RE 100 campaign.
Why new Guidance?
Almost all energy markets, and especially those for renewable energy, around the world are premised on systems for tracking.
This is the basis of directives on consumer choice, for supplier disclosure, and renewable quota policies. But prior to the Guidance, it wasn’t clear how this contractual definition of electricity consumption lined up for scope 2 accounting.
Companies have defined and purchased energy in all kinds of ways—through differentiated products like “green tariffs” from their suppliers, entering into long-term contracts with specific generators, or purchasing certificates to match their consumption.
In all these cases, the core accounting needs are the same: emissions from contractually purchased electricity needs to be quantified in a consistent way, based on robust systems and clear supplier disclosure that ensured unique claims and no double counting of emissions between end-users.
What are the changes in the new Guidance?
Companies reporting scope 2 have two major new accounting and reporting requirements, including:
Dual reporting: If a company has any operations in a country with contractual information about electricity (including the US, Europe, Australia, Japan, and many others), they have to report two scope 2 figures: one calculated based on the location-based method, and one based on the market-based method.
If you don’t make specified purchases, then you have to use a residual mix for your market-based method emission factor. These two numbers together provide a more transparent and complete picture of the GHG impact of purchasing and using electricity.
Scope 2 Quality Criteria: Any instruments like RECs, GOs or other contracts need to meet a set of 8 Quality Criteria in order to be used in the market-based method calculation. These policy-neutral criteria build on existing best practices to ensure unique claims and no double counting.
The Guidance also identifies how companies can use their electricity purchasing power to push for more new renewable energy build, which will help reduce emissions throughout the sector.
What are the Next Steps?
The Guidance takes effect for 2015 data, so most companies have this year to start gathering data in conformance with the new requirements. Likewise, CDP will be updating their annual survey later this year to achieve full alignment.
Companies can do three things today to start uptake:
1. Read the new Guidance – companies can download it, the Executive Summary and other resources here
2. Identify your internal electricity purchases, and see how they match to the Guidance – does your organisation participate in a green tariff scheme offered by your supplier, or have other specified contracts for electricity? Or buy unbundled certificates?
If so, these are the starting point for deriving the emission rate associated with your purchase.
3. Begin conversations between GHG reporting/CSR teams and energy teams—for many companies, energy procurement teams have never directly interacted with GHG reporting teams except on determining consumption (MWh) numbers.
The conversation will likely expand from how much energy are we buying? to what kind of energy are we buying, and how do we know what it is?
The new Guidance has already begun informing consumer decisions about electricity purchases and suppliers, and will continue to help companies assess the real risks and opportunities associated with their supply choices.
We look forward to seeing how the Guidance will help strengthen supplier and consumer relationships and lead to a low-carbon energy future.