Published July 23, 2020
To be able to reliably understand emissions and measure progress in reducing them, businesses need a standardised framework for classifying their emissions. Greenhouse gas accounting describes the way to inventory and audit emissions. A corporate GHG emissions assessment quantifies emissions produced directly and indirectly. It is a business tool that provides a basis for understanding and managing climate impacts.
This guide will introduce the Greenhouse Gas (GHG) Protocol. The GHG Protocol is an organisation led by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It sets standards for measuring and managing emissions in a range of contexts. One of its documents is the Corporate Accounting and Reporting Standard. It is often called the Corporate Standard, or the GHG Protocol. The latter is a misnomer, because it is the name of the organisation that publishes the standard, not the standard itself. Furthermore, the GHG Protocol publishes other standards for GHG emissions accounting in non-corporate contexts. The Corporate Standard is the globally accepted accounting framework for business GHG emissions.
The defining feature of the Corporate Standard is its classification of corporate emissions into three Scopes.
Scope 1 emissions are defined as direct GHG emissions. These are emissions produced by the burning of any fuel or those associated with the operation of any process that the business directly controls.
For example, they include the burning of any natural gas the business purchases, or the burning of any fuel used in vehicles the business owns. There are examples of Scope 1 emissions that are not directly resultant from fuel, such as process emissions. These might be those associated with a particular manufacturing or industrial process, or the fugitive emissions associated with the operation of air conditioning or refrigeration.
Scope 2 emissions are defined as the upstream emissions associated with purchased electricity, steam, heat, and cooling used by a business.
In the case of electricity, Scope 2 emissions are the emissions created by the power plant that generates the electricity that a business uses.
Scope 3 emissions are defined as indirect emissions. They represent the emissions the business is associated with but does not directly control.
Scope 3 emissions come from a multitude of upstream and downstream sources, including the emissions of the supply chain, those produced by the third-party processing of the business’s waste, and those associated with the use of the products or services that the business sells. The use of purchased energy has Scope 3 emissions associated with its transmission and distribution, distinct from the Scope 2 emissions associated with its generation.
It is important to note that the Corporate Standard is not legislation, but a standard promoted by a nongovernmental organisation. However, the principle of emissions Scopes has influenced emissions reporting legislation globally. In the UK, the Corporate Standard can be found in all but name in reporting legislation such as Mandatory Greenhouse Gas Reporting and Streamlined Energy and Carbon Reporting.
The Corporate Standard has evolved to give companies useful options when reporting their emissions to demonstrate environmentally friendly behaviour. One of the most important examples of this is the Standard’s introduction of market-based Scope 2 reporting.
When reporting Scope 2 emissions from electricity use, companies can use a ‘location-based’ methodology. What this means is that an average emissions intensity is assigned to the electricity grid from which the company draws its energy. It is this average for the grid in the area the company operates that makes the methodology ‘location-based’. Most legislation for emissions reporting mandates that a location-based calculation of Scope 2 emissions must always be included.
However, the location-based method leaves behind companies that purchase renewable energy from their energy suppliers. This energy should have zero Scope 2 emissions associated with it. The Corporate Standard provides for this by introducing a set of ‘quality criteria’ for ‘market-based’ methodologies for Scope 2 reporting. It is the acknowledgement of the buying decisions companies make when purchasing their energy that makes these methodologies ‘market-based’. The preferred methodology for market based Scope 2 emissions reporting is for companies to use ‘energy attribute certificates’ for the energy they buy to demonstrate its emissions intensity. These certificates show the generation mix that was used for a particular energy supply. For European renewable energy, these are called Guarantees of Origin. It is possible for a contract to have a ‘100% Renewable Energy Guarantee of Origin (REGO)’ certificate, which allows zero Scope 2 emissions to be associated with that supply.
The Corporate Standard currently only provides market-based reporting guidance for Scope 2. Companies with green gas contracts are currently left behind by the Corporate Standard. Here, national legislation departs from the Corporate Standard in some cases. For example, the UK’s Streamlined Energy and Carbon Reporting allows companies to report market-based figures for their natural gas alongside mandated location-based figures.