The Greenhouse Gas Protocol

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1 The Greenhouse Gas Protocol Introduction to the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard The Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting Standard provides a step-bystep guide for companies and government agencies to use in quantifying and reporting their GHG emissions. This set of standards was developed by the Greenhouse Gas Protocol Initiative, a partnership convened by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). This partnership is made up of businesses, non-governmental organizations, governments and others that work to develop internationally accepted greenhouse gas accounting and reporting standards. These standards benefit business and governments alike by reducing costs, improving consistency and transparency and improving the tracking of emissions reduction progress over time. Principles of GHG Protocol The Greenhouse Gas Protocol is governed by five principles which provide a guide to implementation of the GHG Protocol Corporate Standard as well as standard method of accounting for and reporting the greenhouse gas emissions. These five principles are: Relevance Completeness Consistency Transparency Accuracy The first principle of relevance is important for providing useable information to stakeholders both internal and external to the company. The company or government agency should first outline an appropriate inventory boundary that reflects the business goals of the organization. The inventory boundary combines the organizational structures, operational boundaries and business context to set the scope of greenhouse gases produced by the organization. Business goals may include managing GHG risks and identifying reduction opportunities, public reporting and participation in voluntary GHG programs, participating in mandatory reporting programs, participating in GHG markets, and/or recognition for early voluntary action. The completeness of the GHG report is measured by how comprehensive and meaningful the compiled information is. The report should contain all relevant emissions sources from the chosen inventory boundary. Lack of data or the cost of gathering data is sometimes a prohibiting factor for the completeness of a report. In these instances where emissions have not been estimated or estimates are not at a sufficient level of quality, it should be transparently documented and justified within the report. The organization should make the best attempt to provide complete, accurate and consistent accounting of their GHG emissions. Consistency in the organization s reporting of GHG emissions will allow them to track emissions over time to identify trends. Producing comparable GHG emissions data is dependent on consistent inventory boundary and the application of unchanging calculation methodologies to measure emissions. Any changes to inventory boundary, calculation methods or data should be clearly documented within the report. Transparency within the GHG reporting allows for a clear audit trail of the information presented. A transparent report will provide a clear understanding of the data and allow for verification from a third party. In order to be transparent, the processes and procedures of collecting and calculating the data should be clearly documented and any assumptions made or limitations encountered should be disclosed as part of the report.

2 For an organization s report to be credible, the data collected should be accurate and precise. Utilizing standard and systematic measurements, estimates and calculations well help to ensure data accuracy. Accuracy, along with the four other accounting and reporting principles will ensure the organization produces a true and fair representation of their GHG emissions. Defining GHG Protocol The Greenhouse Gas Protocol Corporate Standard covers the accounting and reporting of the six greenhouse gases in the Kyoto Protocol. These greenhouse gases are: Carbon dioxide (CO2) Methane (CH4) Nitrous oxide (N2O) Hydrofluorocarbons (HFCs) Perfluorocarbons (PFCs) Sulphur hexafluoride (SF6) It is optional for organizations to report on additional emissions as well. Before an organization can begin to monitor and report its GHG emissions it must define which emissions will be assessed. First, the organizational boundaries are determined. The organizational boundaries define the operations that are owned or controlled by an organization. Next, the operational boundaries are determined by identifying emissions associated with operations. The figure below demonstrates the distinction between the organizational and operational boundaries of a company. The organizational and operational boundaries together make up a company s inventory boundary. Finally, the emissions are categorized as direct and indirect emissions and a scope of accounting and reporting is assigned for the indirect emissions. Figure 1. Organizational and operational boundaries of a company Direct emissions are those produced by sources that are owned or controlled by the company. Indirect emissions are those produced by activities of the company that occur at sources owned or controlled by another company. Emissions are classified in three scopes (scope 1, scope 2 and scope 3) for GHG accounting and reporting purposes. Under the GHG Protocol Accounting and Reporting Standard, companies are required to report on scope 1 and scope 2 emissions at a minimum. Scope 1 and scope 2 are defined to ensure that two companies do not account for emissions in the same scope. Scope 3 reporting is optional and encompasses emissions from other indirect, non company controlled sources. The figure below demonstrates the relationships between the three scopes.

3 Figure 2. Overview of scopes and emissions across a value chain Scope 1: Direct GHG Emissions Scope 1 emissions are emissions from sources owned or controlled by the organization. Direct emissions are typically produced from the following types of activities: Generation of electricity, heat or steam Chemical processing from a manufacturing process Transportation of materials, products, waste and employees in company owned/controlled vehicles Fugitive emissions from intentional or unintentional releases Scope 2: Electricity Indirect GHG Emissions Scope 2 emissions are a consequence of the production of electricity used by the organization. The electricity is purchased by the organization and consumed in its owned or controlled equipment. Any loss of energy during transmission and distribution is not accounted for by the organization under scope 2, but by the utility company. This reporting approach reduces the risk of double counting in scope 2. Scope 2 reporting can be a useful tool to help companies gauge energy usage and identify areas to reduce costs and emissions. By utilizing energy efficient technologies and implementing energy conservation practices the organization can reduce energy usage, which in turn will reduce costs and produce less GHG emissions. Scope 3: Other Indirect GHG Emissions Scope 3 allows for additional reporting and GHG management. This scope is optional, but provides an opportunity for companies to report on activities that are relevant to their business and goals. Some activities companies may choose to report on are: Extraction and production of purchased materials and fuels Transportation related activities Electricity-related activities Leased assets, franchises and outsourced activities Waste disposal When reporting on scope 3, the organization should ensure they are choosing activities that are upstream or downstream from their owned and controlled operations and that they have not already included the emissions in scope 1 or 2. In order to adhere to the previously defined principles of the GHG protocol, the organization should follow some general guidelines to be as transparent as possible in scope 3. The report should describe the value chain and the associated GHG sources, determine which scope 3 activities are relevant, identify contributing partners in the value chain and quantify scope 3 emissions. Relevant activities to include in scope 3 include those that are very large in proportion to the scope 1 and

4 2 emissions, those that contribute to the company s GHG risk exposure, those that are deemed critical by stakeholders and those that could potentially be reduced by influence from the reporting company. Identifying the partners in the value chain that contribute significantly to GHG emissions is important for gathering emissions data and working to reduce those emissions down the line. Calculating GHG Emissions Once the inventory boundaries and scopes have been defined, it is time to begin calculating emissions with the ultimate goal of reporting the emissions data at the corporate level. Companies typically follow these steps when calculating GHG emissions: 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 The first step is to identify and categorize the emissions sources, as previously described. This is accomplished by identifying all emissions sources within and outside of the company, identifying which sources are direct and indirect and categorizing the sources as scope 1, scope 2 or scope 3 emissions. Once the emissions have been identified and categorized, a calculation approach should be selected. The alternative approach to calculation is the direct monitoring of emissions by concentration and flow rate. This technique is not common and is often prohibitively expensive, however. Calculation methods most frequently involve utilizing documented emissions factors and fuel use data to determine the GHG emissions. The Intergovernmental Panel on Climate Change (IPCC) provides guidelines on calculation approaches and techniques. The most accurate calculation approach that meets the company s reporting goals should be selected. Activity data should be collected as accurately as possible. Different collection methods are typically used for each of the three emissions scopes. Scope 1 involves calculating emissions based on purchased quantities of fuel. Scope 2 involves calculating emissions based on metered electricity consumption by the organization. Scope 3 involves calculation based on activity data such as fuel use or passenger miles. All calculations utilize published emissions factors. Scope 2 may also use supplierspecific or local grid emissions factors, while scope 3 may utilize third-party emissions factors. Once emissions factors have been selected, calculation methods and tools are utilized to determine the level of GHG output. Companies may use their own calculation methods or industry best practice methods and tools provided by the GHG Protocol Initiative. Cross-sector tools can be applied to different industry sectors for calculating various forms of emissions. Sector-specific tools are designed to calculate emissions in specific industry sectors such as oil and gas, aluminum, cement and office-based organizations. Several calculation tools may be needed by one organization to calculate different forms of GHG emissions. The GHG Protocol Initiative website (www.ghgprotocol.org) provides specific guidance on how to use the calculation tools as well as default emissions factors. All GHG emissions data should then be roll-up to be reported at the corporate level. Companies may take one of two approaches to rolling up GHG emissions data: centralized or decentralized. In the centralized approach, the individual facilities will collect their activity and fuel use data and report it to the corporate level where it will be compiled and calculated. In the decentralized approach, the individual facilities will collect their activity and fuel use data and perform their own emissions calculations before reporting the data to the corporate level. With each approach the use of standard formats in calculating and reporting the data is critical to the accuracy of the report. If the decentralized approach is selected, all individual facilities should utilize the same calculation methods and tools in order to minimize discrepancies. Once all data is collected it can be compiled into the report. In addition to the data, the organization should include additional relevant information to provide context to the data. Several areas that are commonly included in GHG emissions reports are:

5 A list and description of the emissions sources Justification for emissions sources included or excluded Reporting period Trends in the data Progress toward business targets Discussions of uncertainties in data or events that may have impacted the data By providing these qualitative measures along with the quantitative emissions data, the organization will deliver a thorough report that is in line with the GHG Protocol Corporate Accounting and Reporting Standard.

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