I have written an article to be published shortly in the Chemical Engineer that identifies a number of work-arounds (some deliberate, some performed unknowingly) that companies use to appear 'carbon neutral' when reporting emissions of greenhouse gases. I have taken the opportunity in this web post to update and expand upon some of the details presented in the article.
Most organisations are aware of a reputational need to reduce emissions of greenhouse gases, but any drive to implement will be tempered by the wishes of management to keep the effort and cost of collating the necessary data to a minimum. It is also likely that the risk of placing details in the public domain will raise concerns at board level and within legal departments. For example, submitting data to voluntary schemes, presenting information in sustainability reports or discussing climate related risks in the management reports that accompany financial results could create a record trail that might expose companies to future liabilities should climate change begin to have a more marked impact on people's lives. Given such issues, it is not surprising that uptake of emissions reporting to date has been guarded.
Whilst the marketing objective is to demonstrate that a business is carbon neutral, the following examples show how companies have started to account for their emissions, commonly by under-reporting or by exploiting differences in scope categories:
- Limit reporting to those areas of the business where emissions can be measured or computed most easily. This commonly encompasses the following mixture of readings:
- Scope 1 - stationary and mobile sources of combustion
- Scope 2 - purchased electricity, and
- Scope 3 - business travel
- Purchase offsets. These allow a business to claim neutrality at little cost, but the technique usually overlooks the quantities of gases generated by those companies supplying goods and services to the business - see for example the following article published by the Wall Street Journal which examined a claim by Dell the computer manufacturer that its operations were carbon neutral.
The availability of offsets also encourages organisations not to invest in less carbon intensive processes as evidenced by the numbers of carbon credits purchased in recent years by European power generation companies and steel manufacturers. Concerns have also been raised about some of the methodologies used to create offsets under the UNFCCC's Clean Development Mechanism (CDM), in particular those associated with the over-production and subsequent destruction of the hydrofluorocarbon and major green house forcing agent, HFC-23.
Focus reporting on the one gas – carbon dioxide. Emissions of other greenhouse gases such as methane (CH4) and nitrous oxide (N2O) have much higher warming potentials, but until recently there has only been a voluntary requirement for organisations to record quantities released into the atmosphere as part of their carbon footprint. This will change with the introduction of mandatory reporting in the US and proposals to increase the scope of the European trading scheme when Phase 2 ends in 2012.
Omit supply chain / Scope 3 emissions. The greenhouse gases embedded in the goods and services that companies purchase from other parties to generate revenue and grow their balance sheets can constitute a very large part of any organisation's total emissions - see for example a recent paper by Carnegie-Mellon's Green Design Institute (GDI) that reviews the carbon footprint of enterprises across different sectors of the US economy.
Outsource manufacturing capabilities to companies located in other countries. This is an approach that the developed nations have unwittingly relied upon to help them report a supposed reduction in emissions in recent years.
Use subsidiaries or licence process technologies to companies in regions of the world where disclosure is not mandatory. This is an effective technique that international corporations have used to move the reporting of large quantities of gas ‘off-book’.
Invest in, but do not own or hold a controlling interest in organisations that are large emitters of greenhouse gases. This is commonly used by banks and investment houses to minimise reporting of Scope 3 emissions.
Accounting for Greenhouse Gas Inventories
Comparison of Organisational Boundary and Investment Approaches
GHG Protocol - Guide to Designing
Accounting & Reporting Programs, 2007
WRI Report - Accounting for Risk: GHG
inventory for Financial Institutions, 2009
Rely on an economic down-turn to reduce emissions or close / mothball assets that previously have been allocated large emission quotas.
Submit emissions data in a timely manner to a voluntary reporting scheme. Demonstrating a company’s commitment to reporting can earn high marks in annual surveys, but does not necessarily reflect true emissions performance. A recent example can be seen in a scheme promoted by the Carbon Disclosure Project where more than half the companies ranking highly in a Global 500 Leadership Index actually demonstrated very poor returns on embodied carbon employed - typically, emission intensities greater than 2,000 tons CO2 / million $ revenue.
Emissions Intensity of Leadership Companies by Sector
Source: Carbon Disclosure Project 2009, Table 3, Global 500 Report
- Rely on good advertising copy. This is an effective marketing technique widely used with sustainability reporting and in corporate social responsibility (CSR) circles.
For more material on the reporting of greenhouse gases, please consult the following posts: