# Greenhouse Gas Registries: 

# Design Issues & Recommendations for DOE 1605(b) Voluntary Reporting Program

**Prepared by the World Resources Institute**[^1]

**June 5, 2002**

The following overview outlines the key design issues that must be
addressed when developing a rigorous and effective greenhouse gas (GHG)
registry. The recommendations for the most part build on and are
consistent with the GHG Protocol Initiative corporate accounting and
reporting standards and guidelines[^2].

1.  **What objectives should the registry serve?**

We recommend that the registry be designed to serve three key
objectives:

-   Provide a public internet accessible database that tracks entity's
    GHG emissions performance over time

-   Provide a foundation for future regulatory/trading programs

-   Encourage GHG reductions broadly

In order to provide information for a variety of different uses and
users (e.g., public, government, the reporting entity itself), GHG
information should be collected and reported in ways that can be
subsequently aggregated and dis-aggregated according to different
requirements. For example, by gas type, source, facility, state,
country, etc. and in terms of direct and indirect emissions (see section
6 below). For the purposes of providing a foundation for future
regulatory/trading programs (or avoiding penalties for early action) it
is essential that the reported information be complete, consistent,
accurate, and transparent (see 2 below). We believe that the registry
can and should be structured in ways that accommodate all three of the
above objectives.

2.  **What should be the guiding principles for GHG accounting and
    reporting?**

We recommend that the registry require reporting entities to account and
report their GHG emissions according to the following four principles
that are based on established financial accounting and reporting
practices.[^3] In addition, the registry should require board or CEO
level sign off by the reporting entity certifying that these principles
have been applied. This will ensure expectations are clearly set to
promote the highest possible degree of rigor and credibility of the
reported information.

-   **Complete** - Account for all GHG emission sources and activities
    within the specified organizational and operational boundaries. Any
    specific exclusions should be stated and justified.

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-   **Consistent** - Allow meaningful comparison of emissions
    performance over time. Any changes to the basis of reporting should
    be clearly stated to enable continued valid comparison.

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-   **Transparent** - Address all relevant issues in a factual and
    coherent manner, based on a clear audit trail. Important assumptions
    should be disclosed and appropriate references made to the
    calculation methodologies used.

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-   **Accurate** - Exercise due diligence to ensure that GHG estimates
    have the precision needed for their intended use, and provide
    reasonable assurance on the integrity of reported GHG information.

In the interest of achieving the highest quality of data, these guiding
principles must be established to ensure that reporting entities work
toward the same goal with respect to the environmental integrity of
their GHG emissions reports.

3.  **What type of reporting entities?**

We recommend that the reporting entity be an entire company or
organization, not a facility, to enable a comprehensive view of total
GHG emission levels. Current 1605(b) guidelines use the term "reporting
entity," defined as "any U.S. citizen or resident alien; any company,
organization, or group incorporated under or recognized by U.S. law; or
any U.S. Federal, state, or local government entity.\'\' For clarity, a
specific distinction must be made between company/organization and
facility-level reporting, specifying that reporting should be done at
the company or organization level. Furthermore, since GHG emissions do
not constitute a local environmental problem, company level information
is likely to be more useful to the public -- since the public will
identify more readily with companies (as opposed to facilities) and use
the information in their purchasing and other types of decisions.

However, the GHG Protocol recognizes that for the purposes of effective
internal GHG management, both company and facility scale information are
important and calculations and reporting standards are arranged in such
a way as to accommodate both. GHGs are calculated at the level of a
source, aggregated at the facility scale, and then rolled up to
corporate level in the final inventory. We therefore envision a registry
with layers of information beginning at the corporate level supported by
more detailed information at the facility and source levels.

4.  **What are geographical boundaries for reporting entities?**

From the perspective of effective GHG management it makes sense for
companies and other types of entities to compile global GHG emissions
inventories of their entire operations. This will provide internal
managers with a more complete picture of GHG emissions and enable them
to more effectively target reduction efforts in the most efficient and
cost-effective manner. It will also provide the public with a more
complete picture of an entity\'s GHG impact. Furthermore, it will avoid
the creation of perverse incentives, such as reducing emissions in one
country by relocating GHG intensive operations to another country with
no or less stringent regulations. However, for the purposes of providing
information to support a US domestic regulatory/trading programs (or
avoiding penalties for early action) it is essential to be able to
dis-aggregate information by US operations.

5.  **How should GHG emissions from partially owned entities be
    reported?**

We recommend that GHG emissions from partially owned entities (e.g.
joint ventures, partnerships, alliances, etc.) be reported in a manner
that is consistent with the reporting entity\'s financial reporting
practices. This should include reporting GHG emissions on the basis of
both financial control[^4] and equity share[^5] in order to achieve
maximum transparency and utility for decision-makers[^6].

Clearly for a GHG trading program it will be necessary to ultimately
choose one approach and use it consistently, however requiring both
approaches (financial control and equity share) at this stage provides
policy makers with an opportunity to choose the most appropriate method
in the future. Regardless of the system chosen, clear explanations of
these data (i.e. details of shared ownership percentages, contact
information for other parties sharing ownership) will decrease potential
double counting of data while also providing another means of
verification (for example, if two companies report data on a shared
facility). In addition, taking a longer-term perspective, it is likely
that GHG emissions will constitute assets and liabilities that need to
be translated into dollars and included in a company's financial balance
sheets. Thus it is important to design GHG accounting and reporting
systems that are consistent with the way entities report other financial
assets and liabilities.

6.  **How should up and downstream GHG impacts be addressed in the
    registry?**

We recommend the registry require reporting of both direct emissions[^7]
("Scope 1") and indirect emissions[^8] from the import of electricity,
heat or steam ("Scope 2"). Direct and indirect emissions should be
reported and maintained separately in the registry. This separation,
along with clear documentation of the sources and recipients of
electricity, will address any future issues associate with double
counting. The option of reporting other relevant indirect GHG emissions
should also be available to reporting entities

While direct emissions are not usually disputed as a necessary part of
an entity's GHG inventory, the need to include indirect emissions from
purchased/imported electricity, heat and steam is sometimes challenged.
However, these indirect emissions represent a major GHG source and
reduction opportunity for many entities through such means as improved
energy efficiency, increased use of green power, or co-generation
options. In addition, it avoids the creation of perverse incentives such
as outsourcing direct power generation to another party. For example,
when a company using grid electricity decides to invest in an efficient
on site co-generation plant, its direct GHGs go up but indirect GHGs go
down from using less electricity. This would not be reflected if the
registry focused exclusively on direct emissions. This is a major
problem from the perspective of encouraging and supporting the fledgling
US green power market.

Purchases of electricity by electric utilities for sale to end use
customers (e.g., an electricity utility that has a supply contract with
a power generator) should also be reported under *Scope* 2. The
rationale for this is that electric utilities can often exercise choice
over where they buy their energy and this may present significant
opportunities for factoring GHG reductions into their purchasing
decisions. Finally, accounting for emissions of imported electricity,
heat and steam can be relatively simple and yield accurate results,
since the government already publishes reliable electricity emissions
factors through E-grid.

Including the option of reporting other relevant indirect emissions
occurring up and down stream of the reporting entity's direct operations
will provide an assessment of the entity's overall GHG exposure. It will
help the entity to plan for and respond more effectively to future
regulations and caps governing GHG emissions, both in the US and
internationally, as well as shifts in consumer preferences based on
corporate GHG performance and reputation.

7.  **Which GHGs are covered?**

We recommend that the GHG registry limit reporting coverage to 6 types
of GHGs (carbon dioxide, methane, nitrous oxides, perfluorocarbons
(PFCs), hydrofluorocarbons (HFCs) and sulfur hexafluoride). The rational
for including these 6 gases (versus CO~2~ only) is that, although
non-CO2 GHGs are released in smaller quantities, they do have higher
global warming potentials than CO2 and represent important reduction
opportunities for many entities. Additionally, there are some operations
such as waste landfills, coal mining, natural gas distribution where
non-CO2 GHG constitute a large part of their GHG emissions.

Other types of GHGs such as CFC\'s and NOx may be reported as supporting
information but not included in the total for the reporting entities GHG
emissions. For example, for providing context for increases in HFCs as a
result of CFCs phase out.

8.  **Should offsets (project level GHG reductions) be reported in the
    registry?**

We recommend that the registry focus primarily on the entity\'s own GHG
emissions. If GHG mitigation project have to be included, this
information must be kept separate from the entity level emissions
reporting. In the case of purchased emissions credits, this means not
netting these out of the entity's reported emissions.

We would like to point out that there are currently no credible
generally accepted accounting rules covering the accounting and
reporting of GHG mitigation projects. Acknowledging the need for such a
standard, the GHG Protocol Initiative is currently developing a new
module on accounting for GHG mitigation projects that will address both
carbon sequestration and emissions projects.

The sale, transfer or banking of emissions reductions achieved through
changes in the entity's reported activities (whether or not the
emissions reductions are reflected in their total reported GHG
emissions) should be clearly documented in supporting information and
explained by the reporting entity (see section 12 below). All emissions
reduction information should be accompanied by details that support the
validity of the sold, transferred, banked or purchased units, including
complete information on other entities involved.

9.  **Should reporting be mandatory or voluntary?**

It is our recommendation that the DOE 1605(b) registry be redesigned to
transition into a mandatory reporting program. Some key categories of
GHG information should be included in the mandatory part of the registry
and the rest of the reporting categories should be optional or
voluntary. For example, as indicated above, the GHG Protocol recommends
reporting direct emissions from all sources and indirect emissions from
the import of electricity, heat or steam. Reporting of other indirect
emissions could be voluntary.

After ten years of voluntary reporting, 1605(b) should become a
mandatory reporting scheme to ensure that current non-reporters are also
encouraged to take action to reduce GHG emissions.

10. **How to establish and maintain a relevant base year from which to
    track emissions?**

To maintain consistency and comparability over time and across reporting
entities, we recommend that reporting entities are required to establish
a base year[^9] as a basis for tracking future emissions performance.
The base year should be a year for which the reporting entity has
reliable, accurate and verifiable information. The registry should adopt
the GHG Protocol guidelines governing the adjustment of base years to
take into account significant structural changes in the entity (e.g.
acquisitions, mergers, divestitures, etc.).[^10]

An entity's base year emissions should be adjusted for structural
changes when there is significant impact on the reporting consistency of
the organization's total emissions. This may include accounting for the
cumulative effect of a number of small acquisitions or divestitures.
While adding some complexity, this approach aligns with financial
accounting practices, and provides a more meaningful basis for measuring
performance over time.

Organic growth or decline (e.g., increases or decreases in production)
is not considered a condition for base year emissions adjustment.
Opening a new facility is considered a case of organic growth because it
represents new sources of GHG emissions that did not exist prior to the
setting of a base year. Similarly acquisition of companies or parts of
companies that came into existence after the company\'s base year was
set are regarded as organic growth because these changes represent new
GHG emissions that occurred after the base year was set.

11. **Should GHG calculation tools be provided?**

The use of accurate, standardized calculations tools are essential to
the integrity and verifiability of the reported data and it is our
recommendation that the registry provide and require the use of best
practice calculation tools and include an emissions factor database. If
reporting entities choose not to use the calculation tools provided by
the registry, they must be required to make their calculation tools
available for review.

The GHG Protocol website
[www.ghgprotocol.org](http://www.ghgprotocol.org/) provides a number of
user friendly calculation tools that are consistent with IPCC, but
modified to incorporate industry best practices. Cross-sector tools
include stationary combustion, mobile combustion and HFC use from air
conditioning and refrigeration. Sector-specific tools include cement,
lime, iron and steel, aluminum, ammonia, nitric acid manufacturing,
adipic acid manufacturing, HCFC-22 production and semiconductors. We
recommend that the registry use and build on these calculation tools in
consultation with the World Resources Institute and other relevant
stakeholders.

12. **What level of detail on GHGs is reported to the registry/made
    publicly available?**

We recommend that the registry adopt the reporting requirements of the
GHG Protocol corporate accounting and reporting standard[^11]. This
includes:

**Emissions Information**

-   Report emissions data both on a control-based and an equity
    share-based approach.

-   Report emissions data separately for each *Scope* (see 6 above).

-   Report emissions data for all six GHGs separately (CO~2~, CH~4~,
    N~2~O, HFCs, PFCs, SF~6~) in metric tonnes and in metric tonnes of
    CO~2~ equivalent.

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-   Illustrate performance over time and relative to a base year and
    target.

**Supporting information**

-   Describe the methodologies used to calculate and account for
    emissions, or provide a reference or link to the calculation tools
    used.

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-   Provide appropriate context for any significant emissions changes,
    such as extended process shut downs, acquisitions/divestitures,
    outsourcing/insourcing, plant closures/openings, process changes,
    changes in reporting boundaries or calculation methodologies, etc.

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-   Report any emission reduction units that are banked or
    sold/transferred to a third party. Specify if the reduction is
    verified/certified and provide appropriate supporting information.

-   Report emissions from biologically sequestered carbon (e.g. CO~2~
    from burning biomass/biofuels).

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-   Provide a contact person.

13. **Should the registry adopt materiality thresholds?**

In the interest of completeness in presenting an entity's GHG inventory,
we recommend that thresholds not be utilized in the 1605(b) registry.

There currently exists a debate over the use of materiality or
thresholds in determining what emissions should be reported. Advocates
of thresholds indicate that they simplify reporting by not requiring
companies to report smaller sources of emissions. The GHG Protocol does
not support the use of thresholds according to the logic that if the
company calculates the emissions to establish whether they meet
thresholds, the burden in adding them to the reported inventory is
extremely small. Another line of reasoning finds absolute thresholds
(expressed as a set number of units rather than as a percentage)
particularly problematic in that they represent varying levels of
significance for larger and smaller companies. Finally, there is the
possibility that thresholds may encourage accounting loopholes or the
use of less accurate calculation tools in order to minimize the amount
of emissions a company has to report. However, in the event that the
registry becomes a mandatory-reporting scheme, it may be appropriate to
define a materiality threshold for the purposes of triggering the need
to report by an entity.

14. **Should independent verification be mandatory?**

We support the need and requirement for independent verification of GHG
information if the information is to be used for the purposes of
trading, or avoiding penalties for early action.

However, there are currently no credible generally accepted standards
governing the verification of GHG emissions. Therefore, these standards
will need to be developed together with accreditation standards for the
verifiers. Until these standards are developed it is important that
reporting is undertaken in accord with the GHG principles specified
above (section 2) and that reporting entities be required to establish a
clear audit trail from the outset to facilitate future
verification[^12]. In addition, we recommend that the registry develop
guidelines for participating companies on managing and improving
inventory quality.[^13]

15. **Public Disclosure**

We recommend that the registry be designed as a user-friendly internet
accessible electronic database for use by the public. The public should
be provided with direct and easy access to GHG information in a timely
fashion.

It has been demonstrated that mandatory public reporting of emissions in
an internet accessible database stimulates and drives organizations to
take voluntary actions to reduce their emissions (e.g., US Toxic Release
Inventory). We believe that a well designed user-friendly public
database will become a powerful tool for rewarding leadership on GHG
mitigation efforts and spurring action by laggards.

[^1]: Janet Ranganathan, Carey Bylin, and Pankaj Bhatia, World Resources
    Institute Sustainable Enterprise Program, 10 G Street NE (suite
    800), Washington DC 20002.

[^2]: The Greenhouse Gas Protocol Initiative: A corporate accounting and
    reporting standard, World Resources Institute and World Business
    Council for Sustainable Development, October 2001,
    [www.ghgprotocol.org](http://www.ghgprotocol.org/)

[^3]: For further information see Chapter 1. The Greenhouse Gas Protocol
    Initiative: A corporate accounting and reporting standard

[^4]: Financial control is defined as the ability of a company to direct
    the operating policies of an entity (usually this is assumed if the
    company owns more than 50% of the voting interests). In reporting
    for financial control, the reporting entity would report 100% of
    emissions from entities where it has control.

[^5]: For equity share reporting, emissions are reported in proportion
    to the percentage of economic interest in/benefit derived from the
    operation.

[^6]: GHG Protocol (Chapter 3)

[^7]: **Direct emissions** are emissions from sources that are owned or
    controlled by the reporting company, e.g. emissions from factory
    stacks, manufacturing processes and vents, and from
    company-owned/controlled vehicles.

[^8]: **Indirect GHG emissions** are emissions that are a consequence of
    the activities of the reporting company, but occur from sources
    owned or controlled by another company, e.g. emissions from the
    production of purchased electricity, contract manufacturing,
    employee travel on scheduled flights, and emissions occurring during
    the product use phase.

[^9]: A base year is a historic datum (a specific year) for comparing
    GHG emissions over time.

[^10]: GHG Protocol Chapter 6

[^11]: GHG Protocol Chapter 9

[^12]: The GHG Protocol (Chapter 10) includes guidance for those
    developing GHG inventories to do so in a way that will permit
    independent verification.

[^13]: The GHG Protocol Chapter 8 -- Managing Inventory Quality