Despite slow progress in negotiations to secure an international agreement that would replace the Kyoto protocol when it expires in 2012, work continues in a number of jurisdictions to enhance accounting guidelines and to implement mandatory and voluntary systems of emissions reporting. Summaries of the main programs that businesses, government agencies and non-government organisations have adopted to date are presented in Tables 1 and 2 of this article.
The key publications from which most accounting and reporting systems have developed are those produced by the GHG Protocol Initiative. These comprise a set of corporate standards, guidelines and tools that identify emissions of greenhouse gases (see Table 1) under the following categories:
Scope 1: Emissions generated by sources directly owned or controlled by organisations. These include stationary and mobile sources of combustion, processing emissions, as well as the unintended leakage of gases from equipment and plant.
Scope 2: Indirect emissions. Originally limited to the purchase of electricity, these now include the energy content of steam, heating media and cooling water. NB: Further consideration should be given to including the supply and utilisation of electronic information in this category since the computer centers that provide digital services are large consumers of power.
Scope 3: Other indirect emissions embodied in the life cycle of products and corporate supply chains. These include greenhouse gases released during the extraction and processing of raw materials, manufacturing, transport of products to market, retail activities and the outsourcing of services to third parties.
It should be noted that this post does not consider the reporting of greenhouse gases associated with agricultural activities, nor that of offsets handled by the Clean Development Mechanism (CDM) or Joint Implementation (JI) markets. Consult the Kyoto Protocol and websites such as that of the Voluntary Carbon Standard (VCS) for further information.
Mandatory and Voluntary Reporting
A growing number of organisations have started to measure and report their greenhouse gas emissions either under the aegis of mandatory reporting schemes or as part of projects where membership is voluntary. The two largest mandatory schemes - the EU Emissions Trading System and the US's Reporting Rule which is managed by the US's Environmental Protection Agency (EPA) - limit corporate reporting to Scope 1 emissions, whilst others that include the National Greenhouse and Energy Register (NGER) in Australia and the Carbon Reduction Commitment (CRC) Energy Efficiency program recently introduced in the UK, seek to extend the boundaries of reporting to cover Scope 2 gases. In the case of voluntary schemes such as those run by the Climate Registry, the EPA's Climate Leaders Program or the Carbon Disclosure Project, organisations can also choose to report Scope 3 emissions.
It is important to note that in many countries, the legal boundary for financial accounting is the company. This means that companies generally only have a statutory obligation to track liabilities associated with Scope 1 (and potentially, Scope 2) gases because indirect (Scope 3) emissions are controlled or owned by other organisations. At the same time, regulatory and good governance initiatives continue to push for greater disclosure of the risks (including supply chain) that climate change may impose on the future financial well-being of companies - see for example the interpretive guidance note released by the Securities and Exchange Commission (SEC) earlier this year and work by the Climate Disclosure Standards Board (CDSB) to develop a standard set of guidelines for corporate reporting.
A Learning Curve
Determining the quantity of gases released to the atmosphere is not the simplest of tasks. In many cases, companies have started the exercise by focusing on the one gas - carbon dioxide - and a mixture of scopes that cover those areas of their business where emissions can be measured or computed most easily, e.g. stationary and mobile sources of combustion (Scope 1), purchased electricity (Scope 2) and business travel (Scope 3). On a number of occasions, companies have also purchased certified offsets in an attempt to show their operations are emissions or carbon neutral.
Reporting will become a more difficult and expensive exercise for businesses that elect to record other greenhouse gases (for example methane) and/or additional Scope 3/supply chain emissions. In this respect Scope 3 gases can represent up to as much as 90% of a company's total emissions when the energy embedded in the materials, goods and services purchased from other parties to generate revenue and grow balance sheets is accounted for. At the same time, collating Scope 3 data may have a significant role to play in identifying where gains in energy efficiency and by inference, reductions in supply chain costs can be made. Although the GHG Protocol plans to issue two new standards covering the accounting and reporting of Scope 3 emissions by the end of 2010, the methodologies to be followed will be complex and in the author's opinion, more than most organisations will be willing or able to commit resources to. A more practical way forward will probably involve the adoption of commonly accepted values for generic elements of supply chains that will emerge as the take-up of Scope 3 reporting grows.
Scope 1, 2 and 3 Greenhouse Gas Emission Categories
Source: GHG Protocol Corporate Accounting and Reporting Standard
After NZ Business Council for Sustainable Development Industry Guide, 2002
Matching Reporting and Operational Boundaries
The GHG Protocol lays out a sequence of steps that organisations should follow to account for and report their emissions of greenhouse gases. These include:
- Defining the geographical boundaries within which the business operates.
- Setting organisational boundaries.
- Identifying reporting entities at corporate and facility level.
- Deciding emission scopes (1, 2 and/or 3) and which greenhouse gases are to be reported.
- As appropriate, adopting estimating protocols specific to their sector(s) of industry.
- Establishing a base year and setting targets for future years.
Guidelines on how organisations may elect to align the boundaries of their business with those that they use to estimate, compute and report emissions are presented in Chapters 3 and 4 of the GHG Protocol's Corporate Accounting and Reporting Standard, Chapter 4 of its more recent Guide to Designing GHG Accounting and Reporting Programs, as well as Chapter 3 from the EPA's Climate Leaders Design Principles Guidance which draws its material from the Protocol's original Corporate Standard.
Organisational boundaries can be based on either a) direct ownership or b) financial or operational control. In line with statutory accounting rules, many organisations limit the reporting of emissions to those entities that they control financially. Others such as banks and investment groups, may elect to use operational control where this serves to minimise reporting of the Scope 3 emissions generated by the projects they invest in. The World Resources Institute (WRI) has expressed some reservations about this approach and has recently issued a guidelines brief that discusses how the emission profiles of investments can be aligned more closely to the debt and equity positions of stake holders.
Table 1 - Examples of GHG Reporting Guides and Standards
Use links on side panel to access additional material. Also consult the following article which
presents an early comparison of the difference between ISO 14064-1 and the GHG Protocol.
The six greenhouse gases covered by the Kyoto Protocol are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorinated carbons (PFCs) and sulphur hexafluoride (SF6)
| Jurisdiction | Guidance or Standard | Focus | GHGs Covered |
Scope 1 |
Scope 2 |
Scope 3 |
|---|---|---|---|---|---|---|
| International | GHG Protocol: Accounting and Reporting Standard | Published 2004. Internationally recognised procedure for preparing verifiable emission reports. Supported by calculation tools. | All 6 Kyoto gases | Yes | Yes | Optio-nal |
| International | ISO 14064-1, 2 & 3: GHG Accounting & Verification |
Published 2006. Modeled on the GHG Protocol. Used to quantify, report and verify GHG emissions at organisation and project level. | All 6 Kyoto gases | Yes | Yes | Optio-nal |
| North America | The Climate Registry (TCR): General Reporting Protocol | First published 2008. Guidelines and calculation tools for voluntary emissions reporting programs. | All 6 Kyoto gases plus optional gases | Yes | Yes | Optio- nal |
| International | BSI PAS 2050: Specification for the Assessment of Life Cycle GHG Emissions of Goods & Services | Published 2008. Detailed technical spec to be used with a guide that presents worked examples of the carbon footprint of goods and services. | All | Yes | Yes | Yes |
| International | BSI PAS 2060: Specification for the Demonstration of Carbon Neutrality | Published 2010. Details quantification, reduction and offsetting of GHG emissions to achieve / demonstrate carbon neutrality. | All | Yes | Yes | Yes |
| UK | DEFRA Guidance: How to Measure and Report Your GHG Emissions | Published 2009. Details procedure that organisations wishing to measure and reduce GHG emissions should adopt. | All 6 Kyoto gases plus others if deemed material | Yes | Yes | Discre tionary |
| International | GHG Protocol: Product and Supply Chain Standards | Detailed procedures to be issued late 2010. | All | Yes | Yes | Yes |
| International | ISO 14067-1 & 2: Carbon Footprint of Products | Standard to quantify and communicate the GHG emissions of goods and services. Builds on life cycle assessments (ISO 14040/44) and environ- mental labeling and declarations (ISO 14025). To be published in 2011. | All | Yes | Yes | Yes |
| International | Climate Disclosure Standards Board (CDSB) | Developing standard guidelines for corporate reporting of emissions. |
All 6 Kyoto gases | Yes | Dependant on ownership | Optio- nal |
Requirement to Report Emissions
One of the biggest problems facing organisations that operate nationally and/or internationally is how to standardise the calculation and reporting of GHG emissions to satisfy the growing number of regulatory and voluntary organisations that seek data about the emissions they release. Table 2 presents details of some of the reporting programs that have been established in recent years. Of these, the European Union's Emission Trading System (EU ETS) is the largest and longest running, whilst the US's newly initiated Mandatory Reporting Rule (MRR) is arguably the most comprehensive.
The large number of schemes and differences in the way they require GHG emissions to be reported also makes it difficult for investors and other stakeholders to obtain a clear picture of corporate performance and to compare results between companies and/or different sectors of industry. This is highlighted by the Confederation of British Industry (CBI) in a report published in 2009 that called for greater consistency in emissions reporting.
Table 2 - Examples of National and Regional GHG Reporting Programs
The EIA has published a comparison chart of differences between a number of US voluntary programs. Also consult the following GHG Protocol page for information about the reporting schemes that have been developed for Brazil, China, India, Mexico and the Philippines.
| Jurisdiction | Program | Description | GHGs Covered |
Scope 1 |
Scope 2 |
Scope 3 |
|---|---|---|---|---|---|---|
| Europe | EU Emissions Trading System Directive 2003/87/EC plus amendments. | Mandatory reporting for stationary sources emitting > 25,000 CO2e tonnes per annum. Phase 2 runs from 2008-12 and includes member states of the European Union + Norway, Iceland and Liechtenstein. Aircraft operations included from 2010. Changes proposed for Phase 3 include centralised allocation of permits, auctioning of permits and inclusion of additional GHGs. |
CO2 | Yes | - | - |
| US | GHG Reporting Rule, 40 CFR Section 98 | Federal reporting program introduced by the EPA in 2010. Mandatory for all installations emitting >25,000 CO2e tonnes per annum. Includes mobile sources. | All 6 Kyoto gases plus additional fluorinated gases | Yes | - | - |
| US | Regional Greenhouse Gas Initiative (RGGI) | First mandatory cap and trade scheme in the US. 10 north-eastern and mid Atlantic states aim to reduce power plant emissions 10% by 2018. Permits auctioned and profits invested in clean energy alternatives. Offsets permitted. | CO2 | Yes | - | - |
| US | Western Climate Initiative (WCI) | Regional, voluntary cap and trade scheme that aims to reduce participant GHG emissions 15% by 2020. Includes Canadian and US organisations. Threshold > 25,000 tonnes CO2 per annum. | All 6 Kyoto gases | Yes | - | - |
| US | California Climate Action Register (CCAR) | Voluntary scheme that started in 2001. Now requires participants to submit reports to the Climate Registry. Threshold > 25,000 tonnes CO2 per annum. Includes stationary and mobile sources of GHGs. | All 6 Kyoto gases | Yes | Yes | Optio-nal |
| US | EIA 1605b Program | Voluntary program established under the Energy Policy Act of 1992 to encourage companies to report GHG emissions. | All 6 Kyoto gases + CFCs |
Yes | - | - |
| US | EPA Climate Leaders | Voluntary program launched in 2002. EPA and partners work with individual companies to reduce GHG emissions and raise energy efficiencies. | All 6 Kyoto gases | Yes | - | - |
| Canada | GHG Emissions Reporting Program (GHGRP) | Mandatory reporting scheme managed by the federal authorities. Facility threshold >50,000 tonnes CO2e per annum. | CO2, CH4 and N2O |
Yes | - | - |
| Australia | National Greenhouse and Energy Register (NGER) | Mandatory program for facilities emitting >25,000 and corporations >87,500 tonnes CO2e per annum. | All 6 Kyoto gases plus additional fluorinated gases | Yes | Yes | Optio- nal |
| Japan | GHG Accounting and Reporting System | Mandatory program for facilities emitting >3,000 tonnes CO2e per annum. Third party verification not required and restricted publication of data received. | All 6 Kyoto gases | Yes | Yes | - |
| Japan | Voluntary Emissions Trading System (JVETS) | Subsidies provided to help participants reach targets. | CO2 | Yes | - | - |
| UK | CRC Energy Efficiency Scheme | Mandatory reporting of CO2 emissions generated by the consumption of electricity, gas and other fuels. Footprint year - 2010. Allowances to be purchased from April 2011. Registration threshold: organisations consuming >6000 MWh of electricity in 2008. | CO2 | Yes | Yes | - |
| International | Carbon Disclosure Project (CDP) | Voluntary disclosure of emissions. Tabulates and published global results annually. | All 6 Kyoto gases | Yes | Yes | Optio-nal |
Assurance and Compliance
The GHG Protocol's Corporate Accounting and Reporting Standard proposes that the reporting of emissions adhere to the following principals:
- Relevance
- Completeness
- Consistency
- Transparency
- Accuracy
Whilst these objectives are laudable, the difficulty (and expense) for most companies lies in their implementation. The proposal has also generated a rush of words in respect to how such information might be presented alongside financial results - see for example the CDSB's reporting framework or the FASB / IASB's related conceptual framework on financial reporting, both of which are still in draft.
Ultimately, companies require recording, reporting and procedural tools that are simple to use and easy to audit, otherwise they will not countenance the business case for tracking greenhouse gases. At the same time, the mechanics of reporting is becoming ever more complex as an examination of the rules and annual verification page maintained by the UK's Department of Energy and Climate Change (DECC) for reporting under the EU's ETS serves to illustrate. Similar complexity is evident in the mandatory reporting rule book from the US's EPA, as well as material on the auditing of greenhouse gas statements presently being drafted by the International Auditing and Assurance Standards Board (IAASB). Further commentary on the differing approaches used in Europe, the US and Japan can be found in a summary prepared for an International Carbon Action Partnership (ICAP) conference convened in China last autumn.
Problems with Reporting in Europe
The procedure used in Europe has developed around a 15-16 month cycle of measurement, reporting and verification (MRV) that relies heavily on the manual compilation of data and verification by third parties. This approach was formulated during the consultation period in the run-up to the start of the EU's trading system (circa 2002-04) when Excel type templates that were being used to log emissions under integrated pollution prevention and control (IPPC) regulations were adopted to simplify the take-up of greenhouse gas reporting. The agreement reached minimised the need for companies to invest in new instrumentation and data handling systems, but means Europe now lacks a proven system capable of recording emissions electronically to a fiscal standard or reporting them over any period approaching real time.
Problems with the European reporting cycle were first noted in April 2006 when the price of emission allowances collapsed following the release of audited figures for the year 2005. The inability to track positions daily continues to compromise spot prices and market liquidity, complicates alignment with financial reporting periods and leaves companies vulnerable to cash calls should emission permits have to be purchased at short notice. The long reporting period can also be expected to increase the risk of fraud, particularly from 2013 onwards when allowances are to be auctioned under Phase 3 of the trading scheme.
Annual EU ETS Compliance Cycle
Source: Credibility and Integrity of Reported Data (EU ETS).
Paper presented by UK Environment Agency at ICAP China Conference, 2009
Enhanced Reporting Capabilities
A number of organisations in other regions of the World have developed software that can be used to submit emission reports electronically. These include OSCAR for use with Australia's National Greenhouse and Energy Register, CRIS used by the Climate Registry and ECMPS as developed by the EPA for Mandatory Reporting in the US. None appears capable of logging data in real time, but all are designed to simplify the annual submission process. The EPA's system also handles the reporting of emissions of sulphur dioxide, NOx and mercury from power generation stations and can be used to submit reports quarterly.
Combining electronic submission of annual results with software capable of logging data in real time or at least hourly would make it much easier for companies to self certify their emission reports because regulatory agencies would be in a position to check the consistency of data submitted. As it is, an expensive (and somewhat ineffectual) system of third party auditing continues to grow to the apparent benefit of the professional services industry.
Software capable of recording data to a fiscal standard and linking emissions reporting to corporate accounting systems would also make life easier for companies at such time that governments decide to auction permits or introduce other market driven means of regulation.
Follow-Up Posts
Additional material about greenhouse gas reporting will be prepared for future posts. This includes articles about the architecture required of data handling systems and how companies in the energy sector present their results. If time permits, more information will be provided about the handling of offsets, metrics that can be used to determine performance and how emissions can be measured and calculated.
