The Greenhouse Gas Protocol

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A Corporate Accounting and Reporting Standard
REVISED EDITIONWORLDRESOURCESINSTITUTE

GHG Protocol Initiative Team
Janet Ranganathan

World Resources Institute

Laurent Corbier

World Business Council for Sustainable Development

Pankaj Bhatia

World Resources Institute

Simon Schmitz

World Business Council for Sustainable Development

Peter Gage

World Resources Institute

Kjell Oren

World Business Council for Sustainable Development

Revision Working Group
Brian Dawson & Matt Spannagle

Australian Greenhouse Office

Mike McMahon

BP

Pierre Boileau

Environment Canada

Rob Frederick

Ford Motor Company

Bruno Vanderborght

HolcimFraser Thomson

International Aluminum InstituteKoichi Kitamura

Kansai Electric Power Company

Chi Mun Woo & Naseem Pankhida

KPMG

Reid Miner

National Council for Air and Stream Improvement

Laurent Segalen

PricewaterhouseCoopers

Jasper Koch

Shell Global Solutions International B.V.

Somnath Bhattacharjee

The Energy Research Institute

Cynthia Cummis

US Environmental Protection Agency

Clare Breidenich

UNFCCC

Rebecca Eaton

World Wildlife FundCore Advisors
Michael Gillenwater

Independent Expert

Melanie Eddis

KPMG

Marie Marache

PricewaterhouseCoopers

Roberto Acosta

UNFCCC

Vincent Camobreco

US Environmental Protection Agency

Elizabeth Cook

World Resources InstituteTable of Contents

Introduction

The Greenhouse Gas Protocol Initiative2

Chapter 1

GHG Accounting and Reporting Principles

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Chapter 2

Business Goals and Inventory Design

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Chapter 3

Setting Organizational Boundaries

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Chapter 4

Setting Operational Boundaries

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Chapter 5

Tracking Emissions Over Time

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Chapter 6

Identifying and Calculating GHG Emissions

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Chapter 7

Managing Inventory Quality

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Chapter 8

Accounting for GHG Reductions

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Chapter 9

Reporting GHG Emissions

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Chapter 10

Verification of GHG Emissions

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Chapter 11

Setting GHG Targets

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Appendix A

Accounting for Indirect Emissions from Electricity

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Appendix B

Accounting for Sequestered Atmospheric Carbon

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Appendix C

Overview of GHG Programs

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Appendix D

Industry Sectors and Scopes

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Acronyms

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Glossary96

References

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Contributors

104IntroductionT

he Greenhouse Gas Protocol Initiative is a multi-stakeholder partnership ofbusinesses, non-governmental organizations (NGOs), governments, and others
convened by the World Resources Institute (WRI), a U.S.-based environmental

NGO, and the World Business Council for Sustainable Development (WBCSD), a
Geneva-based coalition of 170 international companies. Launched in 1998, theInitiative’s mission is to develop internationally accepted greenhouse gas (GHG)
accounting and reporting standards for business and to promote their broad adoption.
The GHG Protocol Initiative comprises two separate but linked standards:• GHG Protocol Corporate Accounting and Reporting Standard (this document, which
provides a step-by-step guide for companies to use in quantifying and reporting their
GHG emissions)• GHG Protocol Project Quantification Standard (forthcoming; a guide for quantifying
reductions from GHG mitigation projects)2

INTRODUCTION

The first edition of the GHG Protocol Corporate Accounting andReporting Standard (GHG Protocol Corporate Standard), published in
September 2001, enjoyed broad adoption and acceptance around theglobe by businesses, NGOs, and governments. Many industry, NGO,and government GHG programs1 used the standard as a basis fortheir accounting and reporting systems. Industry groups, suchas the International Aluminum Institute, the International Councilof Forest and Paper Associations, and the WBCSD Cement
Sustainability Initiative, partnered with the GHG Protocol Initiative
to develop complementary industry-specific calculation tools.
Widespread adoption of the standard can be attributed to the inclusion of many stakeholders in its development and to the fact that
it is robust, practical, and builds on the experience and expertise ofnumerous experts and practitioners.

The business value of a GHG inventory

This revised edition of the GHG Protocol Corporate Standard is theculmination of a two-year multi-stakeholder dialogue, designed
to build on experience gained from using the first edition. It includes
additional guidance, case studies, appendices, and a new chapter
on setting a GHG target. For the most part, however, the first editionof the Corporate Standard has stood the test of time, and thechanges in this revised edition will not affect the results of most
GHG inventories.

• Public reporting and participation in voluntary GHG programs

This GHG Protocol Corporate Standard provides standards andguidance for companies and other types of organizations2
preparing a GHG emissions inventory. It covers the accounting
and reporting of the six greenhouse gases covered by the Kyoto
Protocol — carbon dioxide (CO2), methane (CH4 ), nitrous oxide(N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs),
and sulphur hexafluoride (SF6). The standard and guidance were
designed with the following objectives in mind:

This standard is written primarily from the perspective of a business developing a GHG inventory. However, it applies equally toother types of organizations with operations that give rise to GHG
emissions, e.g., NGOs, government agencies, and universities.3
It should not be used to quantify the reductions associated with
GHG mitigation projects for use as offsets or credits—theforthcoming GHG Protocol Project Quantification Standard will
provide standards and guidance for this purpose.

• To help companies prepare a GHG inventory that represents
a true and fair account of their emissions, through the use ofstandardized approaches and principles

Policy makers and architects of GHG programs can also use relevant parts of this standard as a basis for their own accounting
and reporting requirements.

• To simplify and reduce the costs of compiling a GHG inventory• To provide business with information that can be used to build
an effective strategy to manage and reduce GHG emissions• To provide information that facilitates participation in voluntaryand mandatory GHG programs• To increase consistency and transparency in GHG accounting
and reporting among various companies and GHG programs.
Both business and other stakeholders benefit from converging
on a common standard. For business, it reduces costs if their GHG
inventory is capable of meeting different internal and external
information requirements. For others, it improves the consistency,transparency, and understandability of reported information,
making it easier to track and compare progress over time.

Global warming and climate change have come to the fore as a
key sustainable development issue. Many governments are taking
steps to reduce GHG emissions through national policies that
include the introduction of emissions trading programs, voluntary
programs, carbon or energy taxes, and regulations and standards
on energy efficiency and emissions. As a result, companies must
be able to understand and manage their GHG risks if they are toensure long-term success in a competitive business environment,
and to be prepared for future national or regional climate policies.
A well-designed and maintained corporate GHG inventory canserve several business goals, including:• Managing GHG risks and identifying reduction opportunities• Participating in mandatory reporting programs• Participating in GHG markets• Recognition for early voluntary action.

Who should use this standard?

3

Introduction

Relationship to other GHG programs

GHG calculation tools

It is important to distinguish between the GHG Protocol Initiativeand other GHG programs. The GHG Protocol Corporate Standard
focuses only on the accounting and reporting of emissions. It does
not require emissions information to be reported to WRI or WBCSD.
In addition, while this standard is designed to develop a verifiable
inventory, it does not provide a standard for how the verification
process should be conducted.

To complement the standard and guidance provided here,
a number of cross-sector and sector-specific calculation tools
are available on the GHG Protocol Initiative website(www.ghgprotocol.org), including a guide for small office-basedorganizations (see chapter 6 for full list). These tools provide stepby-step guidance and electronic worksheets to help users
calculate GHG emissions from specific sources or industries. The
tools are consistent with those proposed by the Intergovernmental
Panel on Climate Change (IPCC) for compilation of emissions
at the national level (IPCC, 1996). They have been refined to beuser-friendly for non-technical company staff and to increase theaccuracy of emissions data at a company level. Thanks to help
from many companies, organizations, and individual experts
through an intensive review of the tools, they are believed torepresent current “best practice.”

The GHG Protocol Corporate Standard has been designed to be
program or policy neutral. However, many existing GHG programs
use it for their own accounting and reporting requirements and it
is compatible with most of them, including:• Voluntary GHG reduction programs, e.g., the World Wildlife Fund(WWF) Climate Savers, the U.S. Environmental Protection
Agency (EPA) Climate Leaders, the Climate Neutral Network,and the Business Leaders Initiative on Climate Change (BLICC)• GHG registries, e.g., California Climate Action Registry (CCAR),World Economic Forum Global GHG Registry

Reporting in accordance with the
GHG Protocol Corporate Standard• National and regional industry initiatives, e.g., New ZealandBusiness Council for Sustainable Development, Taiwan BusinessCouncil for Sustainable Development, Association des entreprises
pour la réduction des gaz à effet de serre (AERES)The GHG Protocol Initiative encourages the use of the GHG Protocol
Corporate Standard by all companies regardless of their experiencein preparing a GHG inventory. The term “shall” is used in thechapters containing standards to clarify what is required to prepare
and report a GHG inventory in accordance with the GHG Protocol
Corporate Standard. This is intended to improve the consistency
with which the standard is applied and the resulting informationthat is publicly reported, without departing from the initial intent of
the first edition. It also has the advantage of providing a verifiable
standard for companies interested in taking this additional step.

• GHG trading programs,4 e.g., UK Emissions Trading Scheme (UKETS), Chicago Climate Exchange (CCX), and the European Union
Greenhouse Gas Emissions Allowance Trading Scheme (EU ETS)
• Sector-specific protocols developed by a number of industry associations, e.g., International Aluminum Institute, International
Council of Forest and Paper Associations, International Iron andSteel Institute, the WBCSD Cement Sustainability Initiative, andthe International Petroleum Industry Environmental Conservation
Association (IPIECA).
Since GHG programs often have specific accounting and reporting
requirements, companies should always check with any relevant
programs for any additional requirements before developing
their inventory.

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INTRODUCTION

Overview of main changes to the first edition
This revised edition contains additional guidance, case studies,and annexes. A new guidance chapter on setting GHG targets
has been added in response to many requests from companies
that, having developed an inventory, wanted to take thenext step of setting a target. Appendices have been added on
accounting for indirect emissions from electricity and on
accounting for sequestered atmospheric carbon.

5

INTRODUCTION

Changes to specific chapters include:• C H A P T E R 1 : Minor rewording of principles.
• C H A P T E R 2 : Goal-related information on operational boundaries has been updated and consolidated.
• C H A P T E R 3 : Although still encouraged to account foremissions using both the equity and control
approaches, companies may now report using
one approach. This change reflects the factthat not all companies need both types of information to achieve their business goals. New
guidance has been provided on establishing
control. The minimum equity threshold forreporting purposes has been removed to enableemissions to be reported when significant.
• CHAPTER 4:

The definition of scope 2 has been revised to
exclude emissions from electricity purchased
for resale—these are now included in scope 3.
This prevents two or more companies fromdouble counting the same emissions in thesame scope. New guidance has been added on
accounting for GHG emissions associated withelectricity transmission and distribution losses.
Additional guidance provided on Scope 3
categories and leasing.

• C H A P T E R 5 : The recommendation of pro-rata adjustments
was deleted to avoid the need for two adjustments. More guidance has been added on
adjusting base year emissions for changes incalculation methodologies.
• CHAPTER 6:

The guidance on choosing emission factors
has been improved.

• C H A P T E R 7 : The guidance on establishing an inventory
quality management system and on the applications and limitations of uncertainty assessment
has been expanded.
• C H A P T E R 8 : Guidance has been added on accounting forand reporting project reductions and offsets inorder to clarify the relationship between the
GHG Protocol Corporate and Project Standards.

Frequently asked questions…
Below is a list of frequently asked questions, with directions to therelevant chapters.
• What should I consider when setting out toaccount for and report emissions?

CHAPTER 2• How do I deal with complex company structuresand shared ownership?

CHAPTER 3• What is the difference between direct and indirectemissions and what is their relevance?
CHAPTER 4• Which indirect emissions should I report?

CHAPTER 4• How do I account for and report outsourced andleased operations?

CHAPTER 4• What is a base year and why do I need one?

CHAPTER 5• My emissions change with acquisitions anddivestitures. How do I account for these?

CHAPTER 5• How do I identify my company’s emission sources? C H A P T E R 6• What kinds of tools are there to help me
calculate emissions?

• What data collection activities and data management
issues do my facilities have to deal with?
CHAPTER 6• What determines the quality and credibility of myemissions information?
CHAPTER 7• How should I account for and report GHG offsetsthat I sell or purchase?

CHAPTER 8• What information should be included in a GHG
public emissions report?

CHAPTER 9• What data must be available to obtain externalverification of the inventory data?

C H A P T E R 10

• What is involved in setting an emissions target andhow do I report performance in relation to my target? C H A P T E R 11
NOTES
1

GHG program is a generic term used to refer to any voluntary or mandatoryinternational, national, sub-national government or non-governmental
authority that registers, certifies, or regulates GHG emissions or removals.

2

Throughout the rest of this document, the term “company” or “business” is used as shorthand for companies, businesses and other typesof organizations.

3

For example, WRI uses the GHG Protocol Corporate Standard to publicly
report its own emissions on an annual basis and to participate in the
Chicago Climate Exchange.

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Trading programs that operate at the level of facilities primarily use the
GHG Protocol Initiative calculation tools.

• C H A P T E R 9 : The required and optional reporting categories
have been clarified.
• C H A P T E R 1 0 : Guidance on the concepts of materiality andmaterial discrepancy has been expanded.
• C H A P T E R 1 1 : New chapter added on steps in setting a target
and tracking and reporting progress.

CHAPTER 6

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GHG Accounting and Reporting PrinciplesA

s with financial accounting and reporting, generally accepted GHG
accounting principles are intended to underpin and guide GHG

accounting and reporting to ensure that the reported information represents afaithful, true, and fair account of a company’s GHG emissions.

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6CHAPTER 1:

GHG Accounting and Reporting Principles

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GHG accounting and reporting practices are evolving and are new to manybusinesses; however, the principles listed below are derived in part fromgenerally accepted financial accounting and reporting principles. They also
reflect the outcome of a collaborative process involving stakeholders froma wide range of technical, environmental, and accounting disciplines.

GHG accounting and reporting shall be based on the following principles:
Ensure the GHG inventory appropriately reflects the GHG emissions of the company andserves the decision-making needs of users – both internal and external to the company.

COMPLETENESS

Account for and report on all GHG emission sources and activities within the choseninventory boundary. Disclose and justify any specific exclusions.

CONSISTENCY

Use consistent methodologies to allow for meaningful comparisons of emissions over time.
Transparently document any changes to the data, inventory boundary, methods, or any otherrelevant factors in the time series.

TRANSPARENCY

Address all relevant issues in a factual and coherent manner, based on a clear audit trail.
Disclose any relevant assumptions and make appropriate references to the accounting andcalculation methodologies and data sources used.

ACCURACY

Ensure that the quantification of GHG emissions is systematically neither over nor under
actual emissions, as far as can be judged, and that uncertainties are reduced as far aspracticable. Achieve sufficient accuracy to enable users to make decisions with reasonableassurance as to the integrity of the reported information.

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hese principles are intended to underpin all aspectsof GHG accounting and reporting. Their application
will ensure that the GHG inventory constitutes a trueand fair representation of the company’s GHG emissions.
Their primary function is to guide the implementation of
the GHG Protocol Corporate Standard, particularly when
the application of the standards to specific issues or situations is ambiguous.

Tbias in estimates (i.e., an underestimate). Although it
appears useful in theory, the practical implementation ofsuch a threshold is not compatible with the completenessprinciple of the GHG Protocol Corporate Standard. In order
to utilize a materiality specification, the emissions
from a particular source or activity would have to bequantified to ensure they were under the threshold.
However, once emissions are quantified, most of thebenefit of having a threshold is lost.

Relevance

A threshold is often used to determine whether an error
or omission is a material discrepancy or not. This is
not the same as a de minimis for defining a complete
inventory. Instead companies need to make a good faitheffort to provide a complete, accurate, and consistentaccounting of their GHG emissions. For cases whereemissions have not been estimated, or estimated at aninsufficient level of quality, it is important that this istransparently documented and justified. Verifiers candetermine the potential impact and relevance of the exclusion, or lack of quality, on the overall inventory report.

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For an organization’s GHG report to be relevant meansthat it contains the information that users —both
internal and external to the company—need for theirdecision making. An important aspect of relevance is theselection of an appropriate inventory boundary thatreflects the substance and economic reality of thecompany’s business relationships, not merely its legal
form. The choice of the inventory boundary is dependent
on the characteristics of the company, the intended
purpose of information, and the needs of the users. Whenchoosing the inventory boundary, a number of factors
should be considered, such as:• Organizational structures: control (operationaland financial), ownership, legal agreements, joint
ventures, etc.
• Operational boundaries: on-site and off-site activities,
processes, services, and impacts• Business context: nature of activities, geographic locations, industry sector(s), purposes of information, andusers of information
More information on defining an appropriate inventory
boundary is provided in chapters 2, 3, and 4.

CompletenessAll relevant emissions sources within the choseninventory boundary need to be accounted for so that acomprehensive and meaningful inventory is compiled.
In practice, a lack of data or the cost of gathering
data may be a limiting factor. Sometimes it is
tempting to define a minimum emissions accounting
threshold (often referred to as a materiality threshold)stating that a source not exceeding a certain size
can be omitted from the inventory. Technically, such athreshold is simply a predefined and accepted negative

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CHAPTER 1

More information on completeness is provided in chapters 7 and 10.

Consistency
Users of GHG information will want to track andcompare GHG emissions information over time in order
to identify trends and to assess the performance ofthe reporting company. The consistent application of
accounting approaches, inventory boundary, and calculation methodologies is essential to producing comparable
GHG emissions data over time. The GHG information
for all operations within an organization’s inventory
boundary needs to be compiled in a manner that ensuresthat the aggregate information is internally consistentand comparable over time. If there are changes in theinventory boundary, methods, data or any other factors
affecting emission estimates, they need to be transparently documented and justified.
More information on consistency is provided inchapters 5 and 9.

CHAPTER 1

Volkswagen:
Maintaining completeness over time
Volkswagen is a global auto manufacturer and the largest
automaker in Europe. While working on its GHG inventory,
Volkswagen realized that the structure of its emission sources had
undergone considerable changes over the last seven years.
Emissions from production processes, which were considered to beirrelevant at a corporate level in 1996, today constitute almost
20 percent of aggregated GHG emissions at the relevant plantsites. Examples of growing emissions sources are new sites forengine testing or the investment into magnesium die-casting
equipment at certain production sites. This example shows thatemissions sources have to be regularly re-assessed to maintain acomplete inventory over time.

GHG Accounting and Reporting Principles

9

Accuracy
Data should be sufficiently precise to enable intended
users to make decisions with reasonable assurance thatthe reported information is credible. GHG measurements, estimates, or calculations should be systemicallyneither over nor under the actual emissions value, as far
as can be judged, and that uncertainties are reduced as
far as practicable. The quantification process should be
conducted in a manner that minimizes uncertainty.
Reporting on measures taken to ensure accuracy in theaccounting of emissions can help promote credibility
while enhancing transparency.
More information on accuracy is provided in chapter 7.

Transparency

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The Body Shop, with help from the Business Leaders Initiative on
Climate Change (BLICC) program, approached this problem witha two-tiered solution. First, stores were encouraged to actively
pursue direct consumption data through disaggregated data or
direct monitoring. Second, if unable to obtain direct consumption
data, stores were given standardized guidelines for estimating
emissions based on factors such as square footage, equipment
type, and usage hours. This system replaced the prior fragmentary
approach, provided greater accuracy, and provided a more
complete account of emissions by including facilities that previously were unable to calculate emissions. If such limitations in
the measurement processes are made transparent, users of theinformation will understand the basis of the data and the trade off that has taken place.

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As an international, values-driven retailer of skin, hair, body care,and make-up products, the Body Shop operates nearly 2,000 locations, serving 51 countries in 29 languages. Achieving bothaccuracy and completeness in the GHG inventory process for sucha large, disaggregated organization, is a challenge. Unavailable
data and costly measurement processes present significant
obstacles to improving emission data accuracy. For example, it isdifficult to disaggregate energy consumption information forshops located within shopping centers. Estimates for these shops
are often inaccurate, but excluding sources due to inaccuracy
creates an incomplete inventory.

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More information on transparency is provided in chapters 9 and 10.

The Body Shop: Solving the trade-off
between accuracy and completeness

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Transparency relates to the degree to which informationon the processes, procedures, assumptions, and limitations of the GHG inventory are disclosed in a clear,factual, neutral, and understandable manner based on
clear documentation and archives (i.e., an audit trail).
Information needs to be recorded, compiled, andanalyzed in a way that enables internal reviewers andexternal verifiers to attest to its credibility. Specificexclusions or inclusions need to be clearly identified andjustified, assumptions disclosed, and appropriate references provided for the methodologies applied and thedata sources used. The information should be sufficient
to enable a third party to derive the same results if
provided with the same source data. A “transparent”
report will provide a clear understanding of the issues in
the context of the reporting company and a meaningful
assessment of performance. An independent externalverification is a good way of ensuring transparency anddetermining that an appropriate audit trail has been
established and documentation provided.

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2 Business Goals and Inventory DesignI

mproving your understanding of your company’s GHG emissions by compilinga GHG inventory makes good business sense. Companies frequently cite thefollowing five business goals as reasons for compiling a GHG inventory:• Managing GHG risks and identifying reduction opportunities• Public reporting and participation in voluntary GHG programs• Participating in mandatory reporting programs• Participating in GHG markets• Recognition for early voluntary action

G U I D A N C E

10CHAPTER 2

Companies generally want their GHG inventory to becapable of serving multiple goals. It therefore makes
sense to design the process from the outset to provide
information for a variety of different users anduses—both current and future. The GHG Protocol
Corporate Standard has been designed as a comprehensive
GHG accounting and reporting framework to provide
the information building blocks capable of serving mostbusiness goals (see Box 1). Thus the inventory datacollected according to the GHG Protocol Corporate
Standard can be aggregated and disaggregated forvarious organizational and operational boundaries andfor different business geographic scales (state, country,
Annex 1 countries, non-Annex 1 countries, facility,business unit, company, etc.).

B O X 1 . Business goals served by GHG inventories

Managing GHG risks and identifying reduction opportunities• Identifying risks associated with GHG constraints in the future• Identifying cost effective reduction opportunities• Setting GHG targets, measuring and reporting progress• Reporting to government and NGO reporting programs,
including GHG registries• Calculating carbon/GHG taxes

On a more positive note, what gets measured getsmanaged. Accounting for emissions can help identify
the most effective reduction opportunities. This candrive increased materials and energy efficiency as wellas the development of new products and services that
reduce the GHG impacts of customers or suppliers. Thisin turn can reduce production costs and help differentiate the company in an increasingly environmentallyconscious marketplace. Conducting a rigorous GHG
inventory is also a prerequisite for setting an internalor public GHG target and for subsequently measuring
and reporting progress.

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Recognition for early voluntary action• Providing information to support “baseline protection” and/or
credit for early action

In the context of future GHG regulations, significant
GHG emissions in a company’s value chain may result inincreased costs (upstream) or reduced sales (downstream), even if the company itself is not directly subject
to regulations. Thus investors may view significant indirect emissions upstream or downstream of a company’s
operations as potential liabilities that need to be
managed and reduced. A limited focus on direct emissions from a company’s own operations may miss major
GHG risks and opportunities, while leading to a misinterpretation of the company’s actual GHG exposure.

A• Participating in external cap and trade allowance trading programs

Compiling a comprehensive GHG inventory improves
a company’s understanding of its emissions profile
and any potential GHG liability or “exposure.” A
company’s GHG exposure is increasingly becoming amanagement issue in light of heightened scrutiny by the
insurance industry, shareholders, and the emergence ofenvironmental regulations/policies designed to reduce
GHG emissions.

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Participating in GHG markets• Supporting internal GHG trading programs

Managing GHG risks
and identifying reduction opportunities

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Participating in mandatory reporting programs• Participating in government reporting programs at the national,
regional, or local level

Appendix C provides an overview of various GHG
programs—many of which are based on the GHG Protocol
Corporate Standard. The guidance sections of chapters 3
and 4 provide additional information on how to design
an inventory for different goals and uses.

U• Eco-labelling and GHG certification

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Public reporting and participation in voluntary GHG programs• Voluntary stakeholder reporting of GHG emissions and progress
towards GHG targets

Business Goals and Inventory Design

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Business Goals and Inventory Design

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IBM: The role of renewable energy
in reducing GHG emissions

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Indirect emissions associated with the consumption of purchased
electricity are a required element of any company’s accounting andreporting under the GHG Protocol Corporate Standard. Because
purchased electricity is a major source of GHG emissions for companies, it presents a significant reduction opportunity. IBM, a major
information technology company and a member of the WRI’s GreenPower Market Development Group, has systematically accounted forthese indirect emissions and thus identified the significant potential
to reduce them. The company has implemented a variety of strategies
that would reduce either their demand for purchased energy or the
GHG intensity of that purchased energy. One strategy has been to
pursue the renewable energy market to reduce the GHG intensity of its
purchased electricity.

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IBM succeeded in reducing its GHG emissions at its facility inAustin, Texas, even as energy use stayed relatively constant, througha contract for renewable electricity with the local utility company,
Austin Energy. Starting in 2001, this five-year contract is for 5.25
million kWhs of wind-power per year. This zero emission power
lowered the facility’s inventory by more than 4,100 tonnes of CO2
compared to the previous year and represents nearly 5% of the
facility’s total electricity consumption. Company-wide, IBM’s 2002
total renewable energy procurement was 66.2 million kWh, which
represented 1.3% of its electricity consumption worldwide and31,550 tonnes of CO2 compared to the previous year. Worldwide, IBM
purchased a variety of sources of renewable energy including wind,biomass and solar.
By accounting for these indirect emissions and looking for associated reduction opportunities, IBM has successfully reduced an
important source of its overall GHG emissions.

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CHAPTER 2

Public reporting and participationin voluntary GHG programs
As concerns over climate change grow, NGOs, investors,
and other stakeholders are increasingly calling for
greater corporate disclosure of GHG information. They
are interested in the actions companies are taking andin how the companies are positioned relative to theircompetitors in the face of emerging regulations. In
response, a growing number of companies are preparing
stakeholder reports containing information on GHG
emissions. These may be stand-alone reports on GHG
emissions or broader environmental or sustainability
reports. For example, companies preparing sustainability
reports using the Global Reporting Initiative guidelines
should include information on GHG emissions in accordance with the GHG Protocol Corporate Standard (GRI,
2002). Public reporting can also strengthen relationships with other stakeholders. For instance, companies
can improve their standing with customers and with the
public by being recognized for participating in voluntary
GHG programs.
Some countries and states have established GHG
registries where companies can report GHG emissions
in a public database. Registries may be administered bygovernments (e.g., U.S. Department of Energy 1605b
Voluntary Reporting Program), NGOs (e.g., California
Climate Action Registry), or industry groups (e.g., World
Economic Forum Global GHG Registry). Many GHG
programs also provide help to companies setting voluntary GHG targets.
Most voluntary GHG programs permit or require thereporting of direct emissions from operations (including
all six GHGs), as well as indirect GHG emissions frompurchased electricity. A GHG inventory preparedin accordance with the GHG Protocol Corporate Standard
will usually be compatible with most requirements(Appendix C provides an overview of the reporting
requirements of some GHG programs). However, since
the accounting guidelines of many voluntary programs
are periodically updated, companies planning to participate are advised to contact the program administrator
to check the current requirements.

CHAPTER 2Business Goals and Inventory Design

I
D

Market-based approaches to reducing GHG emissions
are emerging in some parts of the world. In mostplaces, they take the form of emissions trading
programs, although there are a number of otherapproaches adopted by countries, such as the taxation
approach used in Norway. Trading programs can be
implemented on a mandatory (e.g., the forthcoming
EU ETS) or voluntary basis (e.g., CCX).

U

Participating in GHG markets

Some governments require GHG emitters to report theiremissions annually. These typically focus on direct emissions from operations at operated or controlled facilities
in specific geographic jurisdictions. In Europe, facilities
falling under the requirements of the Integrated
Pollution Prevention and Control (IPPC) Directive must
report emissions exceeding a specified threshold for eachof the six GHGs. The reported emissions are included ina European Pollutant Emissions Register (EPER), a
publicly accessible internet-based database that permits
comparisons of emissions from individual facilities orindustrial sectors in different countries (EC-DGE, 2000).
In Ontario, Ontario Regulation 127 requires thereporting of GHG emissions (Ontario MOE, 2001).

G

Participating in mandatory reporting programs

13

A
N
C
E

Although trading programs, which determine complianceby comparing emissions with an emissions reduction
target or cap, typically require accounting only fordirect emissions, there are exceptions. The UK ETS, forexample, requires direct entry participants to accountfor GHG emissions from the generation of purchased
electricity (DEFRA, 2003). The CCX allows its
members the option of counting indirect emissions associated with electricity purchases as a supplemental
reduction commitment. Other types of indirect emissions
can be more difficult to verify and may present
challenges in terms of avoiding double counting. To
facilitate independent verification, emissions trading

E

GHG trading programs are likely to impose additional
layers of accounting specificity relating to whichapproach is used for setting organizational boundaries;
which GHGs and sources are addressed; how baseyears are established; the type of calculation methodology used; the choice of emission factors; and themonitoring and verification approaches employed.
The broad participation and best practices incorporated
into the GHG Protocol Corporate Standard are likely
to inform the accounting requirements of emerging
programs, and have indeed done so in the past.

I

D

A

N

may require participating companies to establish an
audit trail for GHG information (see chapter 10).

C

Business Goals and Inventory Design

U

Recognition for early voluntary actionG

A credible inventory may help ensure that a corporation’s early, voluntary emissions reductions arerecognized in future regulatory programs. To illustrate,
suppose that in 2000 a company started reducing its
GHG emissions by shifting its on-site powerhouse boiler
fuel from coal to landfill gas. If a mandatory GHG
reduction program is later established in 2005 and it
sets 2003 as the base against which reductions are to
be measured, the program might not allow the emissions
reductions achieved by the green power project prior to2003 to count toward its target.
However, if a company’s voluntary emissions reductions
have been accounted for and registered, they are more
likely to be recognized and taken into account whenregulations requiring reductions go into effect. For
instance, the state of California has stated that it willuse its best efforts to ensure that organizations that
register certified emission results with the California
Climate Action Registry receive appropriate consideration under any future international, federal, or state
regulatory program relating to GHG emissions.

14

CHAPTER 2

Tata Steel: Development of institutional
capacity in GHG accounting and reporting
For Tata Steel, Asia’s first and India’s largest integrated private
sector steel company, reducing its GHG emissions through energy
efficiency is a key element of its primary business goal: theacceptability of its product in international markets. Each year, inpursuit of this goal, the company launches several energy efficiency projects and introduces less-GHG-intensive processes. The
company is also actively pursuing GHG trading markets as ameans of further improving its GHG performance. To succeed inthese efforts and be eligible for emerging trading schemes, Tata
Steel must have an accurate GHG inventory that includes allprocesses and activities, allows for meaningful benchmarking,measures improvements, and promotes credible reporting.
Tata Steel has developed the capacity to measure its progress in
reducing GHG emissions. Tata Steel’s managers have access to
on-line information on energy usage, material usage, waste andbyproduct generation, and other material streams. Using thisdata and the GHG Protocol calculation tools, Tata Steel generates
two key long-term, strategic performance indicators: specificenergy consumption (Giga calorie / tonne of crude steel) and GHG
intensity (tonne of CO2equivalent / tonne of crude steel). These
indicators are key sustainability metrics in the steel sector worldwide, and help ensure market acceptability and competitiveness.
Since the company adopted the GHG Protocol Corporate Standard,
tracking performance has become more structured and streamlined. This system allows Tata Steel quick and easy access to its
GHG inventory and helps the company maximize process andmaterial flow efficiencies.

CHAPTER 2Business Goals and Inventory Design

15

Ford Motor Company: Experiencesusing the GHG Protocol Corporate Standard
When Ford Motor Company, a global automaker, embarked on aneffort to understand and reduce its GHG impacts, it wanted to
track emissions with enough accuracy and detail to manage
them effectively. An internal cross-functional GHG inventory teamwas formed to accomplish this goal. Although the company was
already reporting basic energy and carbon dioxide data at thecorporate level, a more detailed understanding of these emissions was essential to set and measure progress against
performance targets and evaluate potential participation inexternal trading schemes.
For several weeks, the team worked on creating a more comprehensive inventory for stationary combustion sources, and quickly
found a pattern emerging. All too often team members left meetings with as many questions as answers, and the same questions
kept coming up from one week to the next. How should theydraw boundaries? How do they account for acquisitions anddivestitures? What emission factors should be used? And
perhaps most importantly, how could their methodology bedeemed credible with stakeholders? Although the team had noshortage of opinions, there also seemed to be no clearly right orwrong answers.
The GHG Protocol Corporate Standard helped answer many ofthese questions and the Ford Motor Company now has a morerobust GHG inventory that can be continually improved to fulfill
its rapidly emerging GHG management needs. Since adopting the
GHG Protocol Corporate Standard, Ford has expanded thecoverage of its public reporting to all of its brands globally; it now
includes direct emissions from sources it owns or controls andindirect emissions resulting from the generation of purchased
electricity, heat, or steam. In addition, Ford is a founding memberof the Chicago Climate Exchange, which uses some of the GHG
Protocol calculation tools for emissions reporting purposes.

G
U
I
D
A
N
C
E

S

T

A

N

D

A

R

D

3 Setting Organizational Boundaries

Business operations vary in their legal and organizational structures;
they include wholly owned operations, incorporated and non-incorporated

joint ventures, subsidiaries, and others. For the purposes of financial accounting,they are treated according to established rules that depend on the structure of theorganization and the relationships among the parties involved. In setting organizational boundaries, a company selects an approach for consolidating GHG
emissions and then consistently applies the selected approach to define thosebusinesses and operations that constitute the company for the purpose ofaccounting and reporting GHG emissions.

S T A N D A R D
G U I D A N C E
16

CHAPTER 3

For corporate reporting, two distinct approaches can beused to consolidate GHG emissions: the equity share andthe control approaches. Companies shall account for andreport their consolidated GHG data according to either
the equity share or control approach as presented below.
If the reporting company wholly owns all its operations,
its organizational boundary will be the same whichever
approach is used.1 For companies with joint operations,the organizational boundary and the resulting emissions
may differ depending on the approach used. In bothwholly owned and joint operations, the choice ofapproach may change how emissions are categorized
when operational boundaries are set (see chapter 4).

Equity share approach17

Control approach
Under the control approach, a company accounts for
100 percent of the GHG emissions from operations overwhich it has control. It does not account for GHG emissions from operations in which it owns an interest but
has no control. Control can be defined in either financial
or operational terms. When using the control approachto consolidate GHG emissions, companies shall choose
between either the operational control or financial
control criteria.
In most cases, whether an operation is controlled by thecompany or not does not vary based on whether the financial control or operational control criterion is used. A
notable exception is the oil and gas industry, which often
has complex ownership / operatorship structures. Thus,
the choice of control criterion in the oil and gas industry
can have substantial consequences for a company’s GHG
inventory. In making this choice, companies shouldtake into account how GHG emissions accounting andreporting can best be geared to the requirements ofemissions reporting and trading schemes, how it can bealigned with financial and environmental reporting,
and which criterion best reflects the company’s actual
power of control.

A
N
D
A
R
D

Under this criterion, the economic substance of therelationship between the company and the operation
takes precedence over the legal ownership status, sothat the company may have financial control over theoperation even if it has less than a 50 percent interestin that operation. In assessing the economic substanceof the relationship, the impact of potential voting
rights, including both those held by the company andthose held by other parties, is also taken into account.
This criterion is consistent with international financial
accounting standards; therefore, a company has financial control over an operation for GHG accounting
purposes if the operation is considered as a groupcompany or subsidiary for the purpose of financial

T• Financial Control. The company has financial control
over the operation if the former has the ability to direct
the financial and operating policies of the latter with aview to gaining economic benefits from its activities.2
For example, financial control usually exists if thecompany has the right to the majority of benefits of theoperation, however these rights are conveyed. Similarly,
a company is considered to financially control an
operation if it retains the majority risks and rewardsof ownership of the operation’s assets.

S

Under the equity share approach, a company accounts for
GHG emissions from operations according to its share ofequity in the operation. The equity share reflects economic
interest, which is the extent of rights a company has to therisks and rewards flowing from an operation. Typically, theshare of economic risks and rewards in an operation isaligned with the company’s percentage ownership of that
operation, and equity share will normally be the same as
the ownership percentage. Where this is not the case, theeconomic substance of the relationship the company has
with the operation always overrides the legal ownershipform to ensure that equity share reflects the percentage
of economic interest. The principle of economic
substance taking precedent over legal form is consistent
with international financial reporting standards. The
staff preparing the inventory may therefore need toconsult with the company’s accounting or legal staff toensure that the appropriate equity share percentage isapplied for each joint operation (see Table 1 for definitionsof financial accounting categories).

Setting Organizational Boundaries

D

Setting Organizational Boundaries

AR

consolidation, i.e., if the operation is fully consolidated
in financial accounts. If this criterion is chosen to
determine control, emissions from joint ventures wherepartners have joint financial control are accounted forbased on the equity share approach (see Table 1 fordefinitions of financial accounting categories).

S

T

A

N

D

• Operational Control. A company has operational
control over an operation if the former or one of its
subsidiaries (see Table 1 for definitions of financial
accounting categories) has the full authority tointroduce and implement its operating policies at theoperation. This criterion is consistent with the current
accounting and reporting practice of many companies that report on emissions from facilities, which
they operate (i.e., for which they hold the operating
license). It is expected that except in very rare
circumstances, if the company or one of its
subsidiaries is the operator of a facility, it will havethe full authority to introduce and implement its
operating policies and thus has operational control.
Under the operational control approach, a company
accounts for 100% of emissions from operations overwhich it or one of its subsidiaries has operational control.
It should be emphasized that having operational
control does not mean that a company necessarily
has authority to make all decisions concerning an
operation. For example, big capital investments will
likely require the approval of all the partners thathave joint financial control. Operational control doesmean that a company has the authority to introduce
and implement its operating policies.
More information on the relevance and applicationof the operational control criterion is provided inpetroleum industry guidelines for reporting GHG
emissions (IPIECA, 2003).
Sometimes a company can have joint financial control
over an operation, but not operational control. In suchcases, the company would need to look at the contractual
arrangements to determine whether any one of the partners has the authority to introduce and implement its
operating policies at the operation and thus has the
responsibility to report emissions under operational
control. If the operation itself will introduce and implement its own operating policies, the partners with joint
financial control over the operation will not report any
emissions under operational control.
18

CHAPTER 3

Table 2 in the guidance section of this chapter illustrates
the selection of a consolidation approach at the corporate level and the identification of which joint operations
will be in the organizational boundary depending on the
choice of the consolidation approach.

Consolidation at multiple levels
The consolidation of GHG emissions data will only result
in consistent data if all levels of the organization follow
the same consolidation policy. In the first step, themanagement of the parent company has to decide on aconsolidation approach (i.e., either the equity share or
the financial or operational control approach). Once a
corporate consolidation policy has been selected, it shallbe applied to all levels of the organization.

State-ownership
The rules provided in this chapter shall also be applied
to account for GHG emissions from industry joint
operations that involve state ownership or a mix ofprivate/state ownership.

BP: Reporting on the basis of equity share
BP reports GHG emissions on an equity share basis, including
those operations where BP has an interest, but where BP is not theoperator. In determining the extent of the equity share reporting
boundary BP seeks to achieve close alignment with financial
accounting procedures. BP’s equity share boundary includes all
operations undertaken by BP and its subsidiaries, joint ventures
and associated undertakings as determined by their treatment in
the financial accounts. Fixed asset investments, i.e., where BP
has limited influence, are not included.
GHG emissions from facilities in which BP has an equity shareare estimated according to the requirements of the BP Group
Reporting Guidelines for Environmental Performance (BP 2000).
In those facilities where BP has an equity share but is not theoperator, GHG emissions data may be obtained directly from theoperating company using a methodology consistent with the BP
Guidelines, or is calculated by BP using activity data provided by
the operator.
BP reports its equity share GHG emissions every year. Since
2000, independent external auditors have expressed the opinion
that the reported total has been found to be free from material
misstatement when audited against the BP Guidelines.

CHAPTER 3

Setting Organizational Boundaries

19

T A B L E 1 . Financial accounting categories
ACCOUNTING
CATEGORY

FINANCIAL ACCOUNTING DEFINITIONACCOUNTING FOR GHG EMISSIONS ACCORDING TO
GHG PROTOCOL CORPORATE STANDARD
BASED ONEQUITY SHAREBASED ON
FINANCIAL CONTROL

100% ofGHG emissions

Associated /affiliatedcompanies

Equity share of
GHG emissions

0% of
GHG emissions

Non-incorporated Joint ventures/partnerships/operations are proportionally
joint ventures /consolidated, i.e., each partner accounts for their proporpartnerships /tionate interest of the joint venture’s income, expenses,
operations where assets, and liabilities.
partners have joint
financial control

Equity share of
GHG emissions

Equity share of
GHG emissions

Fixed asset
investments

The parent company has neither significant influence nor financial
control. This category also includes incorporated and nonincorporated joint ventures and partnerships over which the parent
company has neither significant influence nor financial control.
Financial accounting applies the cost/dividend method to fixed
asset investments. This implies that only dividends received arerecognized as income and the investment is carried at cost.

0%0%Franchises

Franchises are separate legal entities. In most cases, the franchiser will not have equity rights or control over the franchise.
Therefore, franchises should not be included in consolidation of
GHG emissions data. However, if the franchiser does have equity
rights or operational/financial control, then the same rules
for consolidation under the equity or control approaches apply.

Equity share of
GHG emissions

100% ofGHG emissions

The parent company has significant influence over the operating
and financial policies of the company, but does not have financial control. Normally, this category also includes incorporated
and non-incorporated joint ventures and partnerships over which
the parent company has significant influence, but not financial
control. Financial accounting applies the equity share method
to associated/affiliated companies, which recognizes the parent
company’s share of the associate’s profits and net assets.

T

Equity share of
GHG emissions

S

Group companies / The parent company has the ability to direct the financial andsubsidiaries
operating policies of the company with a view to gaining
economic benefits from its activities. Normally, this category
also includes incorporated and non-incorporated joint venturesand partnerships over which the parent company has financial
control. Group companies/subsidiaries are fully consolidated,which implies that 100 percent of the subsidiary’s income,expenses, assets, and liabilities are taken into the parent
company’s profit and loss account and balance sheet, respectively. Where the parent’s interest does not equal 100 percent,
the consolidated profit and loss account and balance sheet
shows a deduction for the profits and net assets belonging tominority owners.

A
N
D
A
R
D

NOTE: Table 1 is based on a comparison of UK, US, Netherlands and International Financial Reporting Standards (KPMG, 2000).

Setting Organizational Boundaries

E

W

A

N

C

hen planning the consolidation of GHG data, it isimportant to distinguish between GHG accounting
and GHG reporting. GHG accounting concerns therecognition and consolidation of GHG emissions fromoperations in which a parent company holds an interest(either control or equity) and linking the data to specificoperations, sites, geographic locations, businessprocesses, and owners. GHG reporting, on the other
hand, concerns the presentation of GHG data in formats
tailored to the needs of various reporting uses and users.

G

U

I

D

Most companies have several goals for GHG reporting,e.g., official government reporting requirements, emissions
trading programs, or public reporting (see chapter 2).
In developing a GHG accounting system, a fundamental
consideration is to ensure that the system is capable ofmeeting a range of reporting requirements. Ensuringthat data are collected and recorded at a sufficiently
disaggregated level, and capable of being consolidated
in various forms, will provide companies with maximum
flexibility to meet a range of reporting requirements.

• Government reporting and trading programs may
require that data be consolidated within certain
geographic and operational boundaries (e.g., the U.K.
Emissions Trading Scheme)• To demonstrate the company’s account to wider stakeholders, companies may engage in voluntary public
reporting, consolidating GHG data at a corporate levelin order to show the GHG emissions of their entire
business activities.

Contracts that cover GHG emissions
To clarify ownership (rights) and responsibility (obligations) issues, companies involved in joint operations may
draw up contracts that specify how the ownership ofemissions or the responsibility for managing emissions
and associated risk is distributed between the parties.
Where such arrangements exist, companies may optionally provide a description of the contractual arrangement
and include information on allocation of CO2 relatedrisks and obligations (see Chapter 9).

Double counting
When two or more companies hold interests in the same
joint operation and use different consolidation approaches(e.g., Company A follows the equity share approach while
Company B uses the financial control approach), emissions
from that joint operation could be double counted. This
may not matter for voluntary corporate public reporting
as long as there is adequate disclosure from the company
on its consolidation approach. However, double countingof emissions needs to be avoided in trading schemes andcertain mandatory government reporting programs.

Reporting goals and level of consolidation
Reporting requirements for GHG data exist at various
levels, from a specific local facility level to a moreaggregated corporate level. Examples of drivers forvarious levels of reporting include:• Official government reporting programs or certain
emissions trading programs may require GHG data to
be reported at a facility level. In these cases, consolidation of GHG data at a corporate level is not relevant

20

CHAPTER 3

Using the equity share or control approach
Different inventory reporting goals may require different
data sets. Thus companies may need to account for their
GHG emissions using both the equity share and thecontrol approaches. The GHG Protocol Corporate Standard
makes no recommendation as to whether voluntary
public GHG emissions reporting should be based on theequity share or any of the two control approaches, but
encourages companies to account for their emissions
applying the equity share and a control approach separately. Companies need to decide on the approach best
suited to their business activities and GHG accounting
and reporting requirements. Examples of how these may
drive the choice of approach include the following:• Reflection of commercial reality. It can be argued thata company that derives an economic profit from acertain activity should take ownership for any GHG
emissions generated by the activity. This is achievedby using the equity share approach, since thisapproach assigns ownership for GHG emissions on thebasis of economic interest in a business activity. The
control approaches do not always reflect the full GHG
emissions portfolio of a company’s business activities,
but have the advantage that a company takes fullownership of all GHG emissions that it can directly
influence and reduce.

CHAPTER 3• Government reporting and emissions trading programs.
Government regulatory programs will always need tomonitor and enforce compliance. Since complianceresponsibility generally falls to the operator (notequity holders or the group company that has financial
control), governments will usually require reportingon the basis of operational control, either through afacility level-based system or involving the consolidation of data within certain geographical boundaries(e.g. the EU ETS will allocate emission permits to theoperators of certain installations).

• Completeness of reporting. Companies might find it
difficult to demonstrate completeness of reportingwhen the operational control criterion is adopted,
since there are unlikely to be any matching records orlists of financial assets to verify the operations thatare included in the organizational boundary.

Royal Dutch/Shell:
Reporting on the basis of operational control

D
A
N
C

In the oil and gas industry, ownership and control structures areoften complex. A group may own less than 50 percent of aventure’s equity capital but have operational control over theventure. On the other hand, in some situations, a group may holda majority interest in a venture without being able to exert operational control, for example, when a minority partner has a vetovote at the board level. Because of these complex ownership andcontrol structures, Royal Dutch/Shell, a global group of energy
and petrochemical companies, has chosen to report its GHG emissions on the basis of operational control. By reporting 100 percent
of GHG emissions from all ventures under its operational control,
irrespective of its share in the ventures’ equity capital, RoyalDutch/Shell can ensure that GHG emissions reporting is in linewith its operational policy including its Health, Safety andEnvironmental Performance Monitoring and Reporting Guidelines.
Using the operational control approach, the group generates datathat is consistent, reliable, and meets its quality standards.

I• Management information and performance tracking.
For the purpose of performance tracking, the control
approaches seem to be more appropriate sincemanagers can only be held accountable for activities
under their control.

• Cost of administration and data access. The equity
share approach can result in higher administrative
costs than the control approach, since it can be difficult and time consuming to collect GHG emissions
data from joint operations not under the control of thereporting company. Companies are likely to havebetter access to operational data and therefore greater
ability to ensure that it meets minimum quality
standards when reporting on the basis of control.

U• Alignment with financial accounting. Future financial
accounting standards may treat GHG emissions asliabilities and emissions allowances / credits as assets.
To assess the assets and liabilities a company createsby its joint operations, the same consolidation rulesthat are used in financial accounting should be appliedin GHG accounting. The equity share and financial
control approaches result in closer alignment between
GHG accounting and financial accounting.

21

G• Liability and risk management. While reporting andcompliance with regulations will most likely continue
to be based directly on operational control, the ultimate financial liability will often rest with the groupcompany that holds an equity share in the operation or
has financial control over it. Hence, for assessing risk,
GHG reporting on the basis of the equity share andfinancial control approaches provides a more complete
picture. The equity share approach is likely to result inthe most comprehensive coverage of liability and risks.
In the future, companies might incur liabilities for
GHG emissions produced by joint operations in which
they have an interest, but over which they do not havefinancial control. For example, a company that is anequity shareholder in an operation but has no financial
control over it might face demands by the companies
with a controlling share to cover its requisite share of
GHG compliance costs.

Setting Organizational Boundaries

ESetting Organizational Boundaries

Defining the organizational boundary of Holland Industries

E

FIGURE 1.

HOLLANDSWITZERLAND

N

C

100%
100%
100%

I
U

BGB
(50% OWNED)

62.25%
100%
100%

IRW
(75% OWNED)HOLLANDAMERICA

D

A

83%
100%
100%

41.5%
0%
50%

33.3%
100%
33.3%

KAHUNACHEMICALS

43%
100%
100%

QUICKFIX

56%
0%
0%

NALLO

G

HOLLAND
INDUSTRIES

0%
0%
0%

SYNTAL

Equity share
Operational control
Financial control

A N I L L U S T R AT I O N :THE EQUITY SHARE AND CONTROL APPROACHESHolland Industries is a chemicals group comprising
a number of companies/joint ventures active in the
production and marketing of chemicals. Table 2 outlines
the organizational structure of Holland Industries andshows how GHG emissions from the various wholly
owned and joint operations are accounted for underboth the equity share and control approaches.
In setting its organizational boundary, Holland
Industries first decides whether to use the equity orcontrol approach for consolidating GHG data at the22

CHAPTER 3

corporate level. It then determines which operations at
the corporate level meet its selected consolidation
approach. Based on the selected consolidation approach,the consolidation process is repeated for each lower
operational level. In this process, GHG emissions are
first apportioned at the lower operational level(subsidiaries, associate, joint ventures, etc.) before they
are consolidated at the corporate level. Figure 1 presents the organizational boundary of Holland Industries
based on the equity share and control approaches.

CHAPTER 3

Setting Organizational Boundaries

23

T A B L E 2 . Holland Industries - organizational structure and GHG emissions accounting
WHOLLYOWNED ANDJOINTOPERATIONSOF HOLLAND

Holland
Switzerland

LEGAL
STRUCTURE
AND PARTNERS

Incorporated
company

ECONOMIC
INTERESTHELD BYHOLLAND
INDUSTRIESCONTROLOF
OPERATING
POLICIES

TREATMENT INHOLLAND INDUSTRIES’FINANCIAL ACCOUNTS(SEE TABLE 1)

100%

HollandIndustries

Wholly owned subsidiary

EMISSIONS ACCOUNTED FOR AND REPORTEDBY HOLLAND INDUSTRIESEQUITY SHAREAPPROACH

100%

CONTROL APPROACH

100% for
operational control
100% forfinancial control

Holland
America

Incorporated
company

83%

HollandIndustries

Subsidiary

83%

100% for
operational control
100% forfinancial control

BGB

IRW

KahunaChemicals

50% byHolland
America

ReardenSubsidiary of
Holland America

75% byHolland
America

Holland
America

Non-incorporated
joint venture;
partners havejoint financial
control; two otherpartners: ICT
and BCSF

33.3%

HollandIndustries

Incorporated joint
venture, otherpartner Majox

43%

Incorporated joint
venture, otherpartner Nagua Co.

56%

Incorporated
company,
subsidiary of
Erewhon Co.

1%

via Holland America

41.5%(83% x 50%)0% foroperational control
50% for financial
control (50% x 100%)

via Holland America

Proportionallyconsolidated joint venture62.25%

100% for
operational control(83% x 75%)

100% forfinancial control

33.3%

100% for
operational control
33.3% forfinancial control

HollandIndustries

Subsidiary43%

100% forfinancial control

U(Holland Industries has
financial control since
it treats Quick Fix as a
subsidiary in its financial
accounts)

100% for
operational control

G

QuickFix

Joint venture,
partners havejoint financial
control otherpartner Rearden

I

Nallo

Nallo

56%

Fixed asset investment

0%0% foroperational control
0% forfinancial control

D

Associated company(Holland Industries does
not have financial control
since it treats Nallo as an
Associated company in its
financial accounts)A

SyntalErewhonCo.

0% foroperational control

N

0% forfinancial control

C

NOTES
1
The term “operations” is used here as a generic term to denote any
kind of business activity, irrespective of its organizational, governance, or legal structures.
2

Financial accounting standards use the generic term “control” for whatis denoted as “financial control” in this chapter.

E

In this example, Holland America (not Holland Industries) holds
a 50 percent interest in BGB and a 75 percent interest in IRW. If
the activities of Holland Industries itself produce GHG emissions(e.g., emissions associated with electricity use at the head office),then these emissions should also be included in the consolidation
at 100 percent.

S

T

A

N

D

A

R

D

4 Setting Operational Boundaries

A

fter a company has determined its organizational boundaries in termsof the operations that it owns or controls, it then sets its operationalboundaries. This involves identifying emissions associated with its operations,
categorizing them as direct and indirect emissions, and choosing the scope ofaccounting and reporting for indirect emissions.

S T A N D A R D
G U I D A N C E
24

CHAPTER 4

For effective and innovative GHG management, setting
operational boundaries that are comprehensive withrespect to direct and indirect emissions will help acompany better manage the full spectrum of GHG risks
and opportunities that exist along its value chain.
Direct GHG emissions are emissions from sources thatare owned or controlled by the company.1
Indirect GHG emissions are emissions that are aconsequence of the activities of the company but occur
at sources owned or controlled by another company.
What is classified as direct and indirect emissions isdependent on the consolidation approach (equity shareor control) selected for setting the organizationalboundary (see chapter 3). Figure 2 below shows therelationship between the organizational and operationalboundaries of a company.

Introducing the concept of “ scope”

Direct GHG emissions occur from sources thatare owned or controlled by the company, for example,
emissions from combustion in owned or controlled
boilers, furnaces, vehicles, etc.; emissions from chemical
production in owned or controlled process equipment.
Direct CO2 emissions from the combustion of biomass
shall not be included in scope 1 but reported separately(see chapter 9).
GHG emissions not covered by the Kyoto Protocol, e.g.
CFCs, NOx, etc. shall not be included in scope 1 but may
be reported separately (see chapter 9).

Scope 2: Electricity indirect GHG emissions
Scope 2 accounts for GHG emissions from the generation of purchased electricity2 consumed by the company.
Purchased electricity is defined as electricity that ispurchased or otherwise brought into the organizationalboundary of the company. Scope 2 emissions physicallyoccur at the facility where electricity is generated.

Scope 3: Other indirect GHG emissions

N

Direct and indirect emissions

Leased factory

Owned/
Controlledbuilding}

O P E R AT I O N A L
BOUNDARIESCar fleet}D

Owned/
Controlledbuilding

Company D

R

Leased buildingPowergeneration unit

Company C

A

Ship fleet

Company B

D

Parent Company

O R G A N I Z AT I O N A L
BOUNDARIESF I G U R E 2 . Organizational and operational boundaries of a company

Company A

A

Scope 3 is an optional reporting category that allows
for the treatment of all other indirect emissions. Scope
3 emissions are a consequence of the activities of thecompany, but occur from sources not owned orcontrolled by the company. Some examples of scope 3
activities are extraction and production of purchasedmaterials; transportation of purchased fuels; and use ofsold products and services.

T

Companies shall separately account for and report on
scopes 1 and 2 at a minimum.

Scope 1: Direct GHG emissions

S

To help delineate direct and indirect emission sources,
improve transparency, and provide utility for different
types of organizations and different types of climate policies and business goals, three “scopes” (scope 1, scope2, and scope 3) are defined for GHG accounting andreporting purposes. Scopes 1 and 2 are carefully definedin this standard to ensure that two or more companies
will not account for emissions in the same scope. This
makes the scopes amenable for use in GHG programs
where double counting matters.

25

Setting Operational Boundaries

Setting Operational Boundaries

E

A

D

A

N

C

n operational boundary defines the scope of direct
and indirect emissions for operations that fall within
a company’s established organizational boundary.
The operational boundary (scope 1, scope 2, scope 3) isdecided at the corporate level after setting the organizational boundary. The selected operational boundary is thenuniformly applied to identify and categorize direct andindirect emissions at each operational level (see Box 2).
The established organizational and operational boundaries together constitute a company’s inventory boundary.

B O X 2 . Organizational and operational boundaries

U

I

Organization X is a parent company that has full ownership andfinancial control of operations A and B, but only a 30% nonoperated interest and no financial control in operation C.

G

Setting Organizational Boundary: X would decide whether toaccount for GHG emissions by equity share or financial control. If
the choice is equity share, X would include A and B, as well as 30%
of C’s emissions. If the approach chosen is financial control, X
would count only A and B’s emissions as relevant and subject toconsolidation. Once this has been decided, the organizationalboundary has been defined.
Setting Operational Boundary: Once the organizational boundary
is set, X then needs to decide, on the basis of its business goals,
whether to account only for scope 1 and scope 2, or whether toinclude relevant scope 3 categories for its operations.
Operations A, B and C (if the equity approach is selected) accountfor the GHG emissions in the scopes chosen by X, i.e., they apply the
corporate policy in drawing up their operational boundaries.

Accounting and reporting on scopes
Companies account for and report emissions fromscope 1 and 2 separately. Companies may further
subdivide emissions data within scopes where this aidstransparency or facilitates comparability over time.
For example, they may subdivide data by business
unit/facility, country, source type (stationary combustion,
process, fugitive, etc.), and activity type (productionof electricity, consumption of electricity, generation orpurchased electricity that is sold to end users, etc.).
In addition to the six Kyoto gases, companies may also
provide emissions data for other GHGs (e.g., Montreal
Protocol gases) to give context to changes in emission
levels of Kyoto Protocol gases. Switching from a CFC
to HFC, for example, will increase emissions of Kyoto
Protocol gases. Information on emissions of GHGs otherthan the six Kyoto gases may be reported separatelyfrom the scopes in a GHG public report.
Together the three scopes provide a comprehensive
accounting framework for managing and reducing
direct and indirect emissions. Figure 3 provides an
overview of the relationship between the scopes andthe activities that generate direct and indirect emissions
along a company’s value chain.
A company can benefit from efficiency gains throughout
the value chain. Even without any policy drivers,
accounting for GHG emissions along the value chain may
reveal potential for greater efficiency and lower costs(e.g., the use of fly ash as a clinker substitute in the
manufacture of cement that reduces downstream emissions from processing of waste fly ash, and upstream

F I G U R E 3 . Overview of scopes and emissions across a value chain

CO2

SF6

CH4

HFCs

N2O

PFCs

SCOPE 1
DIRECT

SCOPE 3SCOPE 2

INDIRECTINDIRECTEMPLOYEE BUSINESS TRAVELWASTE DISPOSALCOMPANY OWNEDVEHICLES
FUEL COMBUSTION

26

CHAPTER 4

PRODUCT
USE

CONTRACTOR OWNEDVEHICLESOUTSOURCED ACTIVITIES

Adopted from NZBCSD, 2002

PRODUCTION OF
PURCHASED MATERIALSPURCHASED ELECTRICITYFOR OWN USECHAPTER 4

emissions from producing clinker). Even if such “winwin” options are not available, indirect emissions
reductions may still be more cost effective to accomplish
than scope 1 reductions. Thus accounting for indirectemissions can help identify where to allocate limited
resources in a way that maximizes GHG reduction andreturn on investment.
Appendix D lists GHG sources and activities along thevalue chain by scopes for various industry sectors.

Scope 1: Direct GHG emissions
Companies report GHG emissions from sources they own
or control as scope 1. Direct GHG emissions are principally the result of the following types of activities
undertaken by the company:• Generation of electricity, heat, or steam. These emissions result from combustion of fuels in stationary
sources, e.g., boilers, furnaces, turbines• Physical or chemical processing.3 Most of these emissions result from manufacture or processing of chemicals
and materials, e.g., cement, aluminum, adipic acid,ammonia manufacture, and waste processing

Companies can reduce their use of electricity by investingin energy efficient technologies and energy conservation.
Additionally, emerging green power markets4 provide
opportunities for some companies to switch to less GHG
intensive sources of electricity. Companies can also installan efficient on site co-generation plant, particularly if itreplaces the purchase of more GHG intensive electricity
from the grid or electricity supplier. Reporting of scope 2
emissions allows transparent accounting of GHG emissions and reductions associated with such opportunities.

INDIRECT EMISSIONSA S S O C I AT E D W I T H T R A N S M I S S I O N A N D D I S T R I B U T I O NElectric utility companies often purchase electricity fromindependent power generators or the grid and resell it toend-consumers through a transmission and distribution(T&D) system.5 A portion of the electricity purchasedby a utility company is consumed (T&D loss) during its
transmission and distribution to end-consumers (see Box 3).

A
NConsistent with the scope 2 definition, emissions from thegeneration of purchased electricity that is consumed
during transmission and distribution are reported inscope 2 by the company that owns or controls the T&D
operation. End consumers of the purchased electricity do
not report indirect emissions associated with T&D losses
in scope 2 because they do not own or control the T&D
operation where the electricity is consumed (T&D loss).

DC

BOX 3.

Electricity balance

G E N E R AT E D
ELECTRICITY=

Purchased electricity consumed
by the utility company during T&D+
Purchased electricity consumed
by end consumers

E

Emissions associated with the sale of own-generated
electricity to another company are not deducted/netted
from scope 1. This treatment of sold electricity is consistent with how other sold GHG intensive products areaccounted, e.g., emissions from the production of soldclinker by a cement company or the production of scrap
steel by an iron and steel company are not subtracted
from their scope 1 emissions. Emissions associated withthe sale/transfer of own-generated electricity may bereported in optional information (see chapter 9).

Companies report the emissions from the generation ofpurchased electricity that is consumed in its owned orcontrolled equipment or operations as scope 2. Scope 2
emissions are a special category of indirect emissions. For
many companies, purchased electricity represents one of
the largest sources of GHG emissions and the most significant opportunity to reduce these emissions. Accounting
for scope 2 emissions allows companies to assess the risks
and opportunities associated with changing electricity and
GHG emissions costs. Another important reason forcompanies to track these emissions is that the information
may be needed for some GHG programs.

I

S A L E O F O W N - G E N E R AT E D E L E C T R I C I T Y

Scope 2: Electricity indirect GHG emissions

U• Fugitive emissions. These emissions result from intentional or unintentional releases, e.g., equipment leaks
from joints, seals, packing, and gaskets; methane
emissions from coal mines and venting; hydrofluorocarbon (HFC) emissions during the use of refrigeration
and air conditioning equipment; and methane leakages
from gas transport.

27

G• Transportation of materials, products, waste, andemployees. These emissions result from the combustion of fuels in company owned/controlled mobile
combustion sources (e.g., trucks, trains, ships,
airplanes, buses, and cars)

Setting Operational Boundaries

E

Setting Operational Boundaries

I

D

A

N

C

This approach ensures that there is no double counting
within scope 2 since only the T&D utility company willaccount for indirect emissions associated with T&D
losses in scope 2. Another advantage of this approach isthat it adds simplicity to the reporting of scope 2 emissions by allowing the use of commonly available emission
factors that in most cases do not include T&D losses.
End consumers may, however, report their indirect emissions associated with T&D losses in scope 3 under the
category “generation of electricity consumed in a T&D
system.” Appendix A provides more guidance on
accounting for emissions associated with T&D losses.

O T H E R E L E C T R I C I T Y- R E L AT E D I N D I R E C T E M I S S I O N SGUIndirect emissions from activities upstream of acompany’s electricity provider (e.g., exploration, drilling,
flaring, transportation) are reported under scope 3.
Emissions from the generation of electricity that has beenpurchased for resale to end-users are reported in scope 3
under the category “generation of electricity that ispurchased and then resold to end users.” Emissions fromthe generation of purchased electricity for resale to nonend-users (e.g., electricity traders) may be reported separately from scope 3 in “optional information.”
The following two examples illustrate how GHG emissions
are accounted for from the generation, sale, andpurchase of electricity.

Seattle City Light: Accounting for thepurchase of electricity sold to end users
Seattle City Light (SCL), Seattle’s municipal utility company, sells
electricity to its end-use customers that is either produced at its
own hydropower facilities, purchased through long-term contracts,or purchased on the short-term market. SCL used the first edition of
the GHG Protocol Corporate Standard to estimate its year 2000 andyear 2002 GHG emissions, and emissions associated with generation of net purchased electricity sold to end-users was an importantcomponent of that inventory. SCL tracks and reports the amount ofelectricity sold to end-users on a monthly and annual basis.
SCL calculates net purchases from the market (brokers and otherutility companies) by subtracting sales to the market frompurchases from the market, measured in MWh. This allows acomplete accounting of all emissions impacts from its entire operation, including interactions with the market and end-users. On anannual basis, SCL produces more electricity than there is end-use
28

CHAPTER 4

Example one (Figure 4): Company A is an independent

power generator that owns a power generation plant.
The power plant produces 100 MWh of electricity andreleases 20 tonnes of emissions per year. Company B
is an electricity trader and has a supply contract withcompany A to purchase all its electricity. Company B resells the purchased electricity (100 MWh) to company C,a utility company that owns / controls the T&D system.
Company C consumes 5 MWh of electricity in its T&D
system and sells the remaining 95 MWh to company D.
Company D is an end user who consumes the purchased
electricity (95 MWh) in its own operations. Company A
reports its direct emissions from power generation
under scope 1. Company B reports emissions from thepurchased electricity sold to a non-end-user as optional
information separately from scope 3. Company C reports
the indirect emissions from the generation of the part ofthe purchased electricity that is sold to the end-user
under scope 3 and the part of the purchased electricity
that it consumes in its T&D system under scope 2. Enduser D reports the indirect emissions associated with its
own consumption of purchased electricity under scope 2
and can optionally report emissions associated with
upstream T&D losses in scope 3. Figure 4 shows theaccounting of emissions associated with these transactions.
Example two: Company D installs a co-generation unit

and sells surplus electricity to a neighboring company E
for its consumption. Company D reports all direct emissions from the co-generation unit under scope 1. Indirectemissions from the generation of electricity for export to
E are reported by D under optional information separately

demand, but the production does not match load in all months. So
SCL accounts for both purchases from the market and sales into themarket. SCL also includes the scope 3 upstream emissions fromnatural gas production and delivery, operation of SCL facilities,
vehicle fuel use, and airline travel.
SCL believes that sales to end-users are a critical part of the emissions profile for an electric utility company. Utility companies needto provide information on their emissions profile to educate endusers and adequately represent the impact of their business, theproviding of electricity. End-use customers need to rely on theirutility company to provide electricity, and except in some instances(green power programs), do not have a choice in where their electricity is purchased. SCL meets a customer need by providing
emissions information to customers who are doing their own emissions inventory.

CHAPTER 4

from scope 3. Company E reports indirect emissions
associated with the consumption of electricity purchasedfrom the company D’s co-generation unit under scope 2.
For more guidance, see Appendix A on accounting forindirect emissions from purchased electricity.

Scope 3: Other indirect GHG emissions
Scope 3 is optional, but it provides an opportunity to beinnovative in GHG management. Companies may want tofocus on accounting for and reporting those activities thatare relevant to their business and goals, and for which they
have reliable information. Since companies have discretionover which categories they choose to report, scope 3 may
not lend itself well to comparisons across companies. Thissection provides an indicative list of scope 3 categories
and includes case studies on some of the categories.
Some of these activities will be included under scope 1 if thepertinent emission sources are owned or controlled by thecompany (e.g., if the transportation of products is done invehicles owned or controlled by the company). To determine
if an activity falls within scope 1 or scope 3, the company
should refer to the selected consolidation approach (equity
or control) used in setting its organizational boundaries.
• Extraction and production of purchased materials
and fuels6

Setting Operational Boundaries

29• Electricity-related activities not included in scope 2(see Appendix A)• Extraction, production, and transportation of fuelsconsumed in the generation of electricity (eitherpurchased or own generated by the reporting company)• Purchase of electricity that is sold to an end user
(reported by utility company)• Generation of electricity that is consumed in a T&D
system (reported by end-user)• Leased assets, franchises, and outsourced activities—
emissions from such contractual arrangements are
only classified as scope 3 if the selected consolidation
approach (equity or control) does not apply to them.
Clarification on the classification of leased assets
should be obtained from the company accountant (seesection on leases below).
• Use of sold products and services• Waste disposal• Disposal of waste generated in operations• Disposal of waste generated in the production ofpurchased materials and fuels• Disposal of sold products at the end of their life

ACCOUNTING FOR SCOPE 3 EMISSIONSUID• Transport-related activities• Transportation of purchased materials or goods• Transportation of purchased fuels• Employee business travel• Employees commuting to and from work
• Transportation of sold products• Transportation of waste

G

Accounting for scope 3 emissions need not involve afull-blown GHG life cycle analysis of all products andoperations. Usually it is valuable to focus on one or two
major GHG-generating activities. Although it is difficult to provide generic guidance on which scope 3
emissions to include in an inventory, some general steps
can be articulated:

F I G U R E 4 . GHG accounting from the sale and purchase of electricity

Aemission factor= 0.2 t/MWh

B’s Optional Information = 20t➡

End-user D

emission factor= 0.2 t/MWh

C’s Scope 3 emissions = 19t➡

➡
UtilityCompany C

D’s Scope 3 emissions = 1t

Eemission factor= 0.2 t/MWh➡

95 MWh➡

Electricity
Trader B➡

➡

100 MWh➡

100 MWh

D’s Scope 2
emissions = 19t

C

Generator A

C’s Scope 2
emissions = 1t

N➡

A’s Scope 1
emissions = 20t

E

Setting Operational Boundaries

1. Describe the value chain. Because the assessment of

DHL Nordic Express: The business case foraccounting for outsourced transportation services

A

N

C

scope 3 emissions does not require a full life cycle
assessment, it is important, for the sake of transparency,
to provide a general description of the value chain andthe associated GHG sources. For this step, the scope 3
categories listed can be used as a checklist. Companies
usually face choices on how many levels up- and downstream to include in scope 3. Consideration of thecompany’s inventory or business goals and relevance ofthe various scope 3 categories will guide these choices.

As a major transportation and logistics company in northern Europe,
DHL Express Nordic serves large loads and special transport needs
as well as world wide express package and document deliveries andoffers courier, express, parcel, systemized and specialty businessservices. Through participation in the Business Leaders Initiative on
Climate Change, the company found that 98 percent of its emissionsin Sweden originate from the transport of goods via outsourced
partner transportation firms. Each partner is required, as an elementof the subcontract payment scheme, to enter data on vehicles used,distance traveled, fuel efficiency, and background data. This data isused to calculate total emissions via a tailored calculation tool foroutsourced transportation which gives a detailed picture of its scope
3 emissions. Linking data to specific carriers allows the company toscreen individual carriers for environmental performance and affectdecisions based on each carrier’s emissions performance, which isseen through scope 3 as DHL’s own performance.

D

2. Determine which scope 3 categories are relevant. OnlyU

I

some types of upstream or downstream emissions categories might be relevant to the company. They may be
relevant for several reasons:• They are large (or believed to be large) relative to thecompany’s scope 1 and scope 2 emissions

G• They contribute to the company’s GHG risk exposure• They are deemed critical by key stakeholders (e.g.,
feedback from customers, suppliers, investors, orcivil society)

By including scope 3 and promoting GHG reductions throughout thevalue chain, DHL Express Nordic increased the relevance of its
emissions footprint, expanded opportunities for reducing its
impacts and improved its ability to recognize cost saving opportunities. Without scope 3, DHL Express Nordic would have lacked
much of the information needed to be able to understand and effectively manage its emissions.

• There are potential emissions reductions that could beundertaken or influenced by the company.
The following examples may help decide which scope 3
categories are relevant to the company.
• If fossil fuel or electricity is required to use thecompany’s products, product use phase emissions may
be a relevant category to report. This may be especially important if the company can influence productdesign attributes (e.g., energy efficiency) or customer
behavior in ways that reduce GHG emissions during
the use of the products.

SCOPE

E M I S S I O N S ( t C O 2)

Scope 1

7,265

Scope 252

Scope 3

327,634

Total

334,951

Company A
Leased car fleet(selected consolidation
criterion applies)

Scope 130

CHAPTER 4

Company B
Leased building(selected consolidation
criterion applies)

Scope 1

Scope 2

Leased car fleet(selected consolidation criterion
does not apply)

Scope 3}}O P E R AT I O N A L
BOUNDARIESParent Company

O R G A N I Z AT I O N A L
BOUNDARIESF I G U R E 5 . Accounting of emissions from leased assets

CHAPTER 4• Outsourced activities are often candidates for scope 3
emissions assessments. It may be particularly important
to include these when a previously outsourced activity
contributed significantly to a company’s scope 1 orscope 2 emissions.
• If GHG-intensive materials represent a significant
fraction of the weight or composition of a productused or manufactured (e.g., cement, aluminum),companies may want to examine whether there areopportunities to reduce their consumption of the
product or to substitute less GHG-intensive materials.
• Large manufacturing companies may have significant
emissions related to transporting purchased materials
to centralized production facilities.
• Commodity and consumer product companies may
want to account for GHGs from transporting raw
materials, products, and waste.
• Service sector companies may want to report on emissions from employee business travel; this emissions
source is not as likely to be significant for other kindsof companies (e.g., manufacturing companies).
3. Identify partners along the value chain.

to and from its retail stores
IKEA, an international home furniture and furnishings retailer,
decided to include scope 3 emissions from customer travel when
it became clear, through participation in the Business Leaders
Initiative on Climate Change (BLICC) program, that these emissions were large relative its scope 1 and scope 2 emissions.
Furthermore, these emissions are particularly relevant to IKEA’sstore business model. Customer travel to its stores, often fromlong distances, is directly affected by IKEA’s choice of store location and the warehouse shopping concept.
Customer transportation emission calculations were based on
customer surveys at selected stores. Customers were asked forthe distance they traveled to the store (based on home postalcode), the number of customers in their car, the number of otherstores they intended to visit at that shopping center that day, andwhether they had access to public transportation to the store.
Extrapolating this data to all IKEA stores and multiplying distanceby average vehicle efficiencies for each country, the company
calculated that 66 percent of its emissions inventory was fromscope 3 customer travel. Based on this information, IKEA will havesignificant influence over future scope 3 emissions by considering
GHG emissions when developing public transportation options
and home delivery services for its existing and new stores.

Leased assets, outsourcing, and franchises

ANC• U S I N G E Q U I T Y S H A R E O R F I N A N C I A L C O N T R O L : The
lessee only accounts for emissions from leased assetsthat are treated as wholly owned assets in financial
accounting and are recorded as such on the balance
sheet (i.e., finance or capital leases).

D

The selected consolidation approach (equity share or oneof the control approaches) is also applied to account forand categorize direct and indirect GHG emissions fromcontractual arrangements such as leased assets,outsourcing, and franchises. If the selected equity orcontrol approach does not apply, then the company may
account for emissions from the leased assets,outsourcing, and franchises under scope 3. Specific guidance on leased assets is provided below:I

and reliability may influence which scope 3 activities
are included in the inventory, it is accepted that data
accuracy may be lower. It may be more importantto understand the relative magnitude of and possible
changes to scope 3 activities. Emission estimates are
acceptable as long as there is transparency with regard
to the estimation approach, and the data used for the
analysis are adequate to support the objectives of theinventory. Verification of scope 3 emissions will often
be difficult and may only be considered if data is ofreliable quality.

IKEA: Customer transportationU

4. Quantify scope 3 emissions. While data availability

31

G

Identify any partners that contribute potentiallysignificant amounts of GHGs along the value chain(e.g., customers /users, product designers /manufacturers, energy providers, etc.). This is important whentrying to identify sources, obtain relevant data, andcalculate emissions.

Setting Operational Boundaries

EE

Setting Operational BoundariesC• U S I N G O P E R AT I O N A L C O N T R O L : The lessee only
accounts for emissions from leased assets that it operates (i.e., if the operational control criterion applies).

G

U

I

D

A

N

Guidance on which leased assets are operating andwhich are finance leases should be obtained from thecompany accountant. In general, in a finance lease, anorganization assumes all rewards and risks from theleased asset, and the asset is treated as wholly owned
and is recorded as such on the balance sheet. All
leased assets that do not meet those criteria are operating leases. Figure 5 illustrates the application of
consolidation criteria to account for emissions fromleased assets.

Double counting
Concern is often expressed that accounting for indirectemissions will lead to double counting when two
different companies include the same emissions in theirrespective inventories. Whether or not double counting
occurs depends on how consistently companies withshared ownership or trading program administrators
choose the same approach (equity or control) to set theorganizational boundaries. Whether or not double
counting matters, depends on how the reported information is used.
Double counting needs to be avoided when compiling
national (country) inventories under the Kyoto Protocol,
but these are usually compiled via a top-down exercise
using national economic data, rather than aggregationof bottom-up company data. Compliance regimes are
more likely to focus on the “point of release” of emissions (i.e., direct emissions) and/or indirect emissions
from use of electricity. For GHG risk management andvoluntary reporting, double counting is less important.

World Resources Institute:Innovations in estimating employee commuting emissions
The World Resources Institute has a long-standing commitment to
reduce its annual GHG emissions to net zero through a combinationof internal reduction efforts and external offset purchases. WRI’semissions inventory includes scope 2 indirect emissions associated with the consumption of purchased electricity and scope 3
indirect emissions associated with business air travel, employee
commuting, and paper use. WRI has no scope 1 direct emissions.
Collecting employee commuting activity data from WRI’s 140 staff
can be challenging. The method used is to survey employees once
each year about their average commuting habits. In the first two
years of the initiative, WRI used an Excel spreadsheet accessible
to all employees on a shared internal network, but only achieved
a 48 percent participation rate. A simplified, web-based surveythat downloaded into a spreadsheet improved participation to65 percent in the third year. Using feedback on the survey design,
WRI further simplified and refined survey questions, improved user
friendliness, and reduced the time needed to complete the survey toless than a minute. Employee participation rate rose to 88 percent.
Designing a survey that was easily navigable and had clearly articulated questions significantly improved the completeness andaccuracy of the employee commuting activity data. An added

32

CHAPTER 4

benefit was that employees felt a certain amount of pride at having
contributed to the inventory development process. The experience
also provided a positive internal communications opportunity.
WRI has developed a guide consistent with GHG Protocol Corporate
Standard to help office-based organizations understand how to
track and manage their emissions. Working 9 to 5 on Climate Change:
An Office Guide is accompanied by a suite of calculation tools,
including one for using a survey method to estimate employee
commuting emissions. The Guide and tools can be downloaded fromthe GHG Protocol Initiative website (www.ghgprotocol.org).
Transportation-related emissions are the fastest growing GHG
emissions category in the United States. This includes commercial,business, and personal travel as well as commuting. By accounting
for commuting emissions, companies may find that several
practical opportunities exist for reducing them. For example, when
WRI moved to new office space, it selected a building located close
to public transportation, reducing the need for employees to drive
to work. In its lease, WRI also negotiated access to a locked bikeroom for those employees who cycle to work. Finally, teleworkprograms significantly reduce commuting emissions by avoiding or
decreasing the need to travel.

CHAPTER 4

For participating in GHG markets or obtaining GHG
credits, it would be unacceptable for two organizations
to claim ownership of the same emissions commodity
and it is therefore necessary to make sufficient
provisions to ensure that this does not occur between
participating companies (see chapter 11).

33

ABB: Calculating product use phaseemissions associated with electrical appliances
ABB, an energy and automation technology company based in
Switzerland, produces a variety of appliances and equipment,such as circuit breakers and electrical drives, for industrial applications. ABB has a stated goal to issue Environmental ProductDeclarations (EPDs) for all its core products based on life cycle
assessment. As a part of its committment, ABB reports bothmanufacturing and product use phase GHG emissions for avariety of its products using a standardized calculation method
and set of assumptions. For example, product use phase calculations for ABB’s 4 kW DriveIT Low Voltage AC drive are based on a
15-year expected lifetime and an average of 5,000 annual operating hours. This activity data is multiplied by the average
electricity emission factor for OECD countries to produce total
lifetime product use emissions.

SCOPES AND DOUBLE COUNTINGThe GHG Protocol Corporate Standard is designed toprevent double counting of emissions between different
companies within scope 1 and 2. For example, thescope 1 emissions of company A (generator ofelectricity) can be counted as the scope 2 emissions ofcompany B (end-user of electricity) but company A’s
scope 1 emissions cannot be counted as scope 1 emissions by company C (a partner organization ofcompany A) as long as company A and company C
consistently apply the same control or equity shareapproach when consolidating emissions.

G

Compared with manufacturing emissions, product use phaseemissions account for about 99 percent of total life cycle emissions for this type of drive. The magnitude of these emissions and
ABB’s control of the design and performance of this equipment
clearly give the company significant leverage on its customers’emissions by improving product efficiency or helping customers
design better overall systems in which ABB’s products are
involved. By clearly defining and quantifying significant value
chain emissions, ABB has gained insight into and influence overits emissions footprint.

Similarly, the definition of scope 2 does not allow double
counting of emissions within scope 2, i.e., two different
companies cannot both count scope 2 emissions fromthe purchase of the same electricity. Avoiding this typeof double counting within scope 2 emissions makes it auseful accounting category for GHG trading programs
that regulate end users of electricity.

U

NOTES
1
The terms “direct” and “indirect” as used in this document should not
be confused with their use in national GHG inventories where ‘direct’refers to the six Kyoto gases and ‘indirect’ refers to the precursors NOx,NMVOC, and CO.

I

When used in external initiatives such as GHG trading,
the robustness of the scope 1 and 2 definitions combinedwith the consistent application of either the control orequity share approach for defining organizational boundaries allows only one company to exercise ownership ofscope 1 or scope 2 emissions.

Setting Operational Boundaries

3

For some integrated manufacturing processes, such as ammonia manufacture, it may not be possible to distinguish between GHG emissions fromthe process and those from the production of electricity, heat, or steam.

4

Green power includes renewable energy sources and specific clean energy
technologies that reduce GHG emissions relative to other sources of energythat supply the electric grid, e.g., solar photovoltaic panels, geothermalenergy, landfill gas, and wind turbines.

N

5

A T&D system includes T&D lines and other T&D equipment(e.g., transformers).
“Purchased materials and fuels” is defined as material or fuel that ispurchased or otherwise brought into the organizational boundary of
the company.

E

6

C

The term “electricity” is used in this chapter as shorthand for electricity, steam, and heating/cooling.

A

D

2

S

T

A

N

D

A

R

D

5 Tracking Emissions Over TimeC

ompanies often undergo significant structural changes such as
acquisitions, divestments, and mergers. These changes will alter acompany’s historical emission profile, making meaningful comparisons overtime difficult. In order to maintain consistency over time, or in other words,
to keep comparing “like with like”, historic emission data will have tobe recalculated.

S T A N D A R D
G U I D A N C E
34

CHAPTER 5

Companies may need to track emissions over time inresponse to a variety of business goals, including:•Public reporting•

Establishing GHG targets•

Managing risks and opportunities•

Addressing the needs of investors and other stakeholders

A meaningful and consistent comparison of emissions
over time requires that companies set a performance
datum with which to compare current emissions. This
performance datum is referred to as the base year1
emissions. For consistent tracking of emissions overtime, the base year emissions may need to be recalculated as companies undergo significant structuralchanges such as acquisitions, divestments, and mergers.

Companies shall develop a base year emissions recalculation policy, and clearly articulate the basis andcontext for any recalculations. If applicable, the policy
shall state any “significance threshold” applied for
deciding on historic emissions recalculation. “Significancethreshold” is a qualitative and/or quantitative criterion
used to define any significant change to the data, inventory boundary, methods, or any other relevant factors.
It is the responsibility of the company to determine
the “significance threshold” that triggers base year
emissions recalculation and to disclose it. It is the
responsibility of the verifier to confirm the company’s
adherence to its threshold policy. The following cases
shall trigger recalculation of base year emissions:•

Choosing a base year
Companies shall choose and report a base year for which
verifiable emissions data are available and specify theirreasons for choosing that particular year.

Structural changes in the reporting organization thathave a significant impact on the company’s base year
emissions. A structural change involves the transferof ownership or control of emissions-generating activities or operations from one company to another.
While a single structural change might not have asignificant impact on the base year emissions, thecumulative effect of a number of minor structuralchanges can result in a significant impact. Structuralchanges include:•

Mergers, acquisitions, and divestments•

Outsourcing and insourcing of emitting activities

Discovery of significant errors, or a number of cumulative errors, that are collectively significant.

DAR

In summary, base year emissions shall be retroactively
recalculated to reflect changes in the company thatwould otherwise compromise the consistency and relevance of the reported GHG emissions information. Oncea company has determined its policy on how it will recalculate base year emissions, it shall apply this policy in aconsistent manner. For example, it shall recalculate forboth GHG emissions increases and decreases.

N

•

A

Changes in calculation methodology or improvementsin the accuracy of emission factors or activity datathat result in a significant impact on the base year
emissions data

T

•

S

The inventory base year can also be used as a basis forsetting and tracking progress towards a GHG target inwhich case it is referred to as a target base year (seechapter 11).

35

Recalculating base year emissions

The first step in tracking emissions, however, is the selection of a base year.

Most companies select a single year as their base year.
However, it is also possible to choose an average ofannual emissions over several consecutive years. For
example, the U.K. ETS specifies an average of1998–2000 emissions as the reference point for tracking
reductions. A multi-year average may help smooth out
unusual fluctuations in GHG emissions that would makea single year’s data unrepresentative of the company’s
typical emissions profile.

Tracking Emissions Over TimeD• For the purpose of reporting progress towards voluntary public GHG targets, companies may follow thestandards and guidance in this chapter

E
C

S

N

Tracking Emissions Over Timeelection and recalculation of a base year should
relate to the business goals and the particular
context of the company:A• A company subject to an external GHG program may
face external rules governing the choice and recalculation of base year emissions

Companies should choose as a base year the earliest relevant point in time for which they have reliable data.
Some organizations have adopted 1990 as a base year inorder to be consistent with the Kyoto Protocol. However,obtaining reliable and verifiable data for historical baseyears such as 1990 can be very challenging.
If a company continues to grow through acquisitions, it
may adopt a policy that shifts or “rolls” the base year
forward by a number of years at regular intervals.
Chapter 11 contains a description of such a “rollingbase year,” including a comparison with the fixed baseyear approach described in this chapter. A fixed baseyear has the advantage of allowing emissions data to becompared on a like-with-like basis over a longer time
period than a rolling base year approach. Most emissions trading and registry programs require a fixed baseyear policy to be implemented.

G

U

I

D

• For internal management goals, the company may
follow the rules and guidelines recommended in thisdocument, or it may develop its own approach, whichshould be followed consistently.

Choosing a base year

F I G U R E 6 . Base year emissions recalculation for an acquisition

Facility C
Facility C
emissions

15

Unit B

20

20

Unit A➡

Recalculated Figures

Figures reported in respective years

GAMMA EMISSIONS

20

20

20

30

30

30

30

2

3

15
30

30

25

25
30

30
25

25
1
Base Year

2

3

1

Increase in
Gamma
Production
Acquires C
Company Gamma consists of two business units (A and B). In its base year (year one), each business unit emits 25 tonnes CO2. In year two,the company undergoes “organic growth,” leading to an increase in emissions to 30 tonnes CO2 per business unit, i.e., 60 tonnes CO2 in
total. The base year emissions are not recalculated in this case. At the beginning of year three, the company acquires production facility Cfrom another company. The annual emissions of facility C in year one were 15 tonnes CO2, and 20 tonnes CO2 in years two and three. The
total emission of company Gamma in year three, including facility C, are therefore 80 tonnes CO2. To maintain consistency over time, thecompany recalculates its base year emissions to take into account the acquisition of facility C. The base year emissions increase by
15 tonnes CO2—the quantity of emissions produced by facility C in Gamma’s base year. The recalculated base year emissions are
65 tonnes CO2. Gamma also (optionally) reports 80 tonnes CO2 as the recalculated emissions for year two.
36

CHAPTER 5

CHAPTER 5

37

Tracking Emissions Over TimeF I G U R E 7 . Base year emissions recalculation for a divestment

Unit C
Unit B

30

BETA EMISSIONS

Figures reported in respective years➡

Unit A

Recalculated figures

30

30

30

30

25
30

30

25

25
25

30

30

25

30

30

1

2

3

1

2

3

Base Year

Increase in
Production

Beta
Divests C

ATiming of recalculations for structural changes

CE

When significant structural changes occur during the
middle of the year, the base year emissions should berecalculated for the entire year, rather than only for theremainder of the reporting period after the structuralchange occurred. This avoids having to recalculate baseyear emissions again in the succeeding year. Similarly,
current year emissions should be recalculated for theentire year to maintain consistency with the base year
recalculation. If it is not possible to make a recalculation in the year of the structural change (e.g., due toN

Structural changes trigger recalculation because they
merely transfer emissions from one company to anotherwithout any change of emissions released to the atmos-

Figures 6 and 7 illustrate the effect of structuralchanges and the application of this standard on recalculation of base year emissions.

D

Base year emissions
recalculation for structural changes

phere, for example, an acquisition or divestment onlytransfers existing GHG emissions from one company’s
inventory to another.

I

Whether base year emissions are recalculated depends
on the significance of the changes. The determination ofa significant change may require taking into account the
cumulative effect on base year emissions of a numberof small acquisitions or divestments. The GHG Protocol
Corporate Standard makes no specific recommendations as to what constitutes “significant.” However,some GHG programs do specify numerical significancethresholds, e.g., the California Climate Action
Registry, where the change threshold is 10 percent of
the base year emissions, determined on a cumulativebasis from the time the base year is established.

U

Significance thresholds for recalculations

G

Company Beta consists of three business units (A, B, and C). Each business unit emits 25 tonnes CO2 and the total emissions for thecompany are 75 tonnes CO2 in the base year (year one). In year two, the output of the company grows, leading to an increase in emissions
to 30 tonnes CO2 per business unit, i.e., 90 tonnes CO2 in total. At the beginning of year three, Beta divests business unit C and its annual
emissions are now 60 tonnes, representing an apparent reduction of 15 tonnes relative to the base year emissions. However, to maintainconsistency over time, the company recalculates its base year emissions to take into account the divestment of business unit C. The baseyear emissions are lowered by 25 tonnes CO2—the quantity of emissions produced by the business unit C in the base year. The recalculated base year emissions are 50 tonnes CO2, and the emissions of company Beta are seen to have risen by 10 tonnes CO2 over the three
years. Beta (optionally) reports 60 tonnes CO2 as the recalculated emissions for year two.

Tracking Emissions Over TimeC

E

lack of data for an acquired company), the recalculation
may be carried out in the following year.2

N

Recalculations for changes in calculation
methodology or improvements in data accuracy

U

I

D

A

A company might report the same sources of GHG emissions as in previous years, but measure or calculatethem differently. For example, a company might haveused a national electric power generation emissions
factor to estimate scope 2 emissions in year one ofreporting. In later years, it may obtain more accurate
utility-specific emission factors (for the current as wellas past years) that better reflect the GHG emissions
associated with the electricity that it has purchased.
If the differences in emissions resulting from such achange are significant, historic data is recalculated
applying the new data and/or methodology.

G

Sometimes the more accurate data input may not reasonably be applied to all past years or new data points may
not be available for past years. The company may thenhave to backcast these data points, or the change in data
source may simply be acknowledged without recalculation. This acknowledgement should be made in the report
each year in order to enhance transparency; otherwise,
new users of the report in the two or three years after thechange may make incorrect assumptions about theperformance of the company.
Any changes in emission factor or activity data thatreflect real changes in emissions (i.e., changes in fueltype or technology) do not trigger a recalculation.

No base year emissions recalculations
for facilities that did not exist in the base year
Base year emissions are not recalculated if the company
makes an acquisition of (or insources) operations that
did not exist in its base year. There may only be a recalculation of historic data back to the year in which theacquired company came into existence. The same applies
to cases where the company makes a divestment of (oroutsources) operations that did not exist in the base year.
Figure 8 illustrates a situation where no recalculation ofbase year emissions is required, since the acquired
facility came into existence after the base year was set.

No recalculation for “ outsourcing/insourcing”
if reported under scope 2 and/or scope 3
Structural changes due to “outsourcing” or “insourcing”
do not trigger base year emissions recalculation if thecompany is reporting its indirect emissions from relevant
outsourced or insourced activities. For example,
outsourcing production of electricity, heat, or steam
does not trigger base year emissions recalculation, since
the GHG Protocol Corporate Standard requires scope 2
reporting. However, outsourcing/insourcing that shifts
significant emissions between scope 1 and scope 3 whenscope 3 is not reported does trigger a base year emissions recalculation (e.g., when a company outsources
the transportation of products).
In case a company decides to track emissions over time
separately for different scopes, and has separate baseyears for each scope, base year emissions recalculationfor outsourcing or insourcing is made.

Optional reporting for recalculations
Optional information that companies may report on
recalculations includes:• The recalculated GHG emissions data for all years
between the base year and the reporting year
• All actual emissions as reported in respective years in
the past, i.e., the figures that have not been recalculated. Reporting the original figures in addition to therecalculated figures contributes to transparency since
it illustrates the evolution of the company’s structure
over time.

38

CHAPTER 5

ENDESA: Recalculation of base year
emissions because of structural changes
The GHG Protocol Corporate Standard requires setting a base year forcomparing emissions over time. To be able to compare over time, thebase year emissions must be recalculated if any structural changes
occur in the company. In a deal completed January 2002, the
ENDESA Group, a power generation company based in Spain, sold its
87.5 percent holding in Viesgo, a part of its Spanish power generation business, to ENEL, an Italian power company. To account for thisstructural change, historical emissions from the six power plants
included in the sale were no longer accounted for in the Endesa GHG
inventory and therefore removed from its base year emissions. This
recalculation provides ENDESA with a complete and comparable
picture of its historical emissions.

CHAPTER 5

39

Tracking Emissions Over TimeF I G U R E 8 . Acquisition of a facility that came into existence after the base year was set

Facility C
Unit B

15

TETA EMISSIONS➡

Figures reported in respective years

20

Unit A

Recalculated figures

20
30

30

15

20

30

30

25

25
25

30

30

25

30

30

1

2

3

1

2

3

Base Year

Increase in
Production

Teta
Acquires C

Company Teta consists of two business units (A and B). In its base year (year one), the company emits 50 tonnes CO2. In year two, thecompany undergoes organic growth, leading to an increase in emissions to 30 tonnes CO2 per business unit, i.e., 60 tonnes CO2 in total.
The base year emissions are not recalculated in this case. At the beginning of year three, Teta acquires a production facility C fromanother company. Facility C came into existence in year two, its emissions being 15 tonnes CO2 in year two and 20 tonnes CO2 in year
three. The total emissions of company Teta in year three, including facility C, are therefore 80 tonnes CO2. In this acquisition case, thebase year emissions of company Teta do not change because the acquired facility C did not exist in year one when the base year of Teta
was set. The base year emissions of Teta therefore remain at 50 tonnes CO2. Teta (optionally) reports 75 tonnes as the recalculated figure
for year two emissions.

G

No recalculation for organic growth or decline
U
I
DA

Base year emissions and any historic data are notrecalculated for organic growth or decline. Organic
growth/decline refers to increases or decreases in
production output, changes in product mix, and closuresand openings of operating units that are owned orcontrolled by the company. The rationale for this isthat organic growth or decline results in a change ofemissions to the atmosphere and therefore needs to be
counted as an increase or decrease in the company’s
emissions profile over time.

N

NOTES

2

For more information on the timing of base year emissions recalculations, see the guidance document “Base year recalculation
methodologies for structural changes” on the GHG Protocol website(www.ghgprotocol.org).

E

Terminology on this topic can be confusing. Base year emissions should
be differentiated from the term “baseline,” which is mostly used in thecontext of project-based accounting. The term base year focuses on acomparison of emissions over time, while a baseline is a hypotheticalscenario for what GHG emissions would have been in the absence ofa GHG reduction project or activity.

C

1

G

U

I

D

A

N

C

E

6 Identifying and Calculating GHG EmissionsO

nce the inventory boundary has been established, companies generally
calculate GHG emissions using the following steps:

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.

This chapter describes these steps and the calculation tools developed by the GHG
Protocol. The calculation tools are available on the GHG Protocol Initiative website
at www.ghgprotocol.org.

G U I D A N C E

40CHAPTER 6

To create an accurate account of their emissions,companies have found it useful to divide overall emissions into specific categories. This allows a company
to use specifically developed methodologies to accurately calculate the emissions from each sector andsource category.

Identify GHG emissions sources
The first of the five steps in identifying and calculating
a company’s emissions as outlined in Figure 9 is tocategorize the GHG sources within that company’s
boundaries. GHG emissions typically occur from thefollowing source categories:• Stationary combustion: combustion of fuels instationary equipment such as boilers, furnaces,
burners, turbines, heaters, incinerators, engines,
flares, etc.
• Mobile combustion: combustion of fuels in transportation devices such as automobiles, trucks, buses,
trains, airplanes, boats, ships, barges, vessels, etc.

FIGURE 9.

Steps in identifying and calculating GHG emissions
Identify Sources

Select Calculation Approach

Collect Data and Choose Emission Factors

Apply Calculation Tools

Roll-up Data to Corporate Level

sions and own or control a power production facility will
likely have direct emissions from all the main source
categories. Office-based organizations may not have any
direct GHG emissions except in cases where they own or
operate a vehicle, combustion device, or refrigeration
and air-conditioning equipment. Often companies are
surprised to realize that significant emissions comefrom sources that are not initially obvious (see United
Technologies case study).

IDENTIFY SCOPE 2 EMISSIONSThis optional step involves identification of other indirectemissions from a company’s upstream and downstream
activities as well as emissions associated withoutsourced/contract manufacturing, leases, or franchises
not included in scope 1 or scope 2.

ANE

The inclusion of scope 3 emissions allows businesses toexpand their inventory boundary along their value chain
and to identify all relevant GHG emissions. This provides
a broad overview of various business linkages andpossible opportunities for significant GHG emission
reductions that may exist upstream or downstream of acompany’s immediate operations (see chapter 4 for an
overview of activities that can generate GHG emissions
along a company’s value chain).

C

As a first step, a company should undertake an exercise to identify its direct emission sources in each of
the four source categories listed above. Process emissions are usually only relevant to certain industry
sectors like oil and gas, aluminum, cement, etc.
Manufacturing companies that generate process emis-

IDENTIFY SCOPE 3 EMISSIONSDIDENTIFY SCOPE 1 EMISSIONSI

Every business has processes, products, or services thatgenerate direct and/or indirect emissions from one ormore of the above broad source categories. The GHG
Protocol calculation tools are organized based on thesecategories. Appendix D provides an overview of direct
and indirect GHG emission sources organized by scopes
and industry sectors that may be used as an initial guideto identify major GHG emission sources.

The next step is to identify indirect emission sources fromthe consumption of purchased electricity, heat, or steam.
Almost all businesses generate indirect emissions due to thepurchase of electricity for use in their processes or services.

U• Fugitive emissions: intentional and unintentional
releases such as equipment leaks from joints, seals,
packing, gaskets, as well as fugitive emissions fromcoal piles, wastewater treatment, pits, cooling towers,
gas processing facilities, etc.

41

G

• Process emissions: emissions from physical or chemical processes such as CO2 from the calcination stepin cement manufacturing, CO2 from catalytic cracking
in petrochemical processing, PFC emissions fromaluminum smelting, etc.

Identifying and Calculating GHG Emissions

Identifying and Calculating GHG Emissions

E

Select a calculation approach

I

D

A

N

C

Direct measurement of GHG emissions by monitoring
concentration and flow rate is not common. More often,
emissions may be calculated based on a mass balance or
stoichiometric basis specific to a facility or process.
However, the most common approach for calculating
GHG emissions is through the application of documented
emission factors. These factors are calculated ratios
relating GHG emissions to a proxy measure of activity at
an emissions source. The IPCC guidelines (IPCC, 1996)
refer to a hierarchy of calculation approaches and techniques ranging from the application of generic emission
factors to direct monitoring.

GU

In many cases, particularly when direct monitoring iseither unavailable or prohibitively expensive, accurate
emission data can be calculated from fuel use data. Evensmall users usually know both the amount of fuelconsumed and have access to data on the carbon content
of the fuel through default carbon content coefficients or
through more accurate periodic fuel sampling.
Companies should use the most accurate calculation
approach available to them and that is appropriate for
their reporting context.

United Technologies Corporation:
More than meets the eye
In 1996, United Technologies Corporation (UTC), a global aerospace and building systems technology corporation, appointed ateam to set boundaries for the company’s new Natural Resource
Conservation, Energy and Water Use Reporting Program. The teamfocused on what sources of energy should be included in the
program's annual report of energy consumption. The team
decided jet fuel needed to be reported in the annual report; jet fuelwas used by a number of UTC divisions for engine and flight hardware testing and for test firing. Although the amount of jet fuelused in any given year was subject to wide variation due tochanging test schedules, the total amount consumed in an
average year was believed to be large and potentially smallenough to be specifically excluded. However, jet fuel consumption
reports proved that initial belief incorrect. Jet fuel has accounted
for between 9 and 13 percent of the corporation's total annual useof energy since the program commenced. Had UTC not included
the use of jet fuel in annual data collection efforts, a significant
emissions source would have been overlooked.

42

CHAPTER 6

Collect activity dataand choose emission factors
For most small to medium-sized companies and for manylarger companies, scope 1 GHG emissions will be calculated based on the purchased quantities of commercial
fuels (such as natural gas and heating oil) using
published emission factors. Scope 2 GHG emissions will
primarily be calculated from metered electricity
consumption and supplier-specific, local grid, or otherpublished emission factors. Scope 3 GHG emissions will
primarily be calculated from activity data such as fueluse or passenger miles and published or third-party
emission factors. In most cases, if source- or facilityspecific emission factors are available, they are
preferable to more generic or general emission factors.
Industrial companies may be faced with a wider range
of approaches and methodologies. They should seek
guidance from the sector-specific guidelines on the
GHG Protocol website (if available) or from theirindustry associations (e.g., International Aluminum
Institute, International Iron and Steel Institute,
American Petroleum Institute, WBCSD Sustainable
Cement Initiative, International Petroleum Industry
Environmental Conservation Association).

Apply calculation tools
This section provides an overview of the GHG calculation tools and guidance available on the GHG Protocol
Initiative website (www.ghgprotocol.org). Use of thesetools is encouraged as they have been peer reviewed
by experts and industry leaders, are regularly updated,
and are believed to be the best available. The tools,
however, are optional. Companies may substitute theirown GHG calculation methods, provided they are
more accurate than or are at least consistent with the
GHG Protocol Corporate Standards approaches.
There are two main categories of calculation tools:• Cross-sector tools that can be applied to different
sectors. These include stationary combustion, mobile
combustion, HFC use in refrigeration and air conditioning, and measurement and estimation uncertainty.
• Sector-specific tools that are designed to calculate
emissions in specific sectors such as aluminum, ironand steel, cement, oil and gas, pulp and paper, officebased organizations.

CHAPTER 6

Most companies will need to use more than one calculation tool to cover all their GHG emission sources.
For example, to calculate GHG emissions from analuminum production facility, the company would use
the calculation tools for aluminum production,
stationary combustion (for any consumption ofpurchased electricity, generation of energy on-site, etc),
mobile combustion (for transportation of materials andproducts by train, vehicles employed on-site, employee
business travel, etc), and HFC use (for refrigeration,etc). See Table 3 for the full list of tools.

S T R U C T U R E O F G H G P R O T O C O L C A L C U L AT I O N T O O L S

Each of the cross-sector and sector-specific calculation
tools on the website share a common format andinclude step-by-step guidance on measuring and calculating emissions data. Each tool consists of a guidance
section and automated worksheets with explanations on
how to use them.

Identifying and Calculating GHG Emissions

43

The guidance for each calculation tool includes thefollowing sections:• Overview: provides an overview of the purpose andcontent of the tool, the calculation method used in thetool, and a process description• Choosing activity data and emission factors: provides
sector-specific good practice guidance and references
for default emission factors• Calculation methods: describes different calculation
methods depending on the availability of site-specificactivity data and emission factors• Quality control: provides good practice guidance• Internal reporting and documentation: provides
guidance on internal documentation to support
emissions calculations.

ChevronTexaco: The SANGEATM accounting and reporting system

A
N
C
E

• Updates are efficient. Methodologies for estimating emissions,emission factors, and calculation equations are stored centrally in

ChevronTexaco’s one-off investment in developing the SANGEA™ system
has already shown results: A rough cost estimate for ChevronTexaco's
Richmond, California, refinery indicates savings of more than 70
percent over a five-year period compared with the conventional
approaches based on locally developed reporting systems. SANGEA™ is
expected to reduce the long term expenses of maintaining a legacy
system and hiring independent consultants. Employing a combinationof the GHG Protocol Corporate Standards and SANGEA™ calculation
software to replace a diverse and confusing set of accounting andreporting templates yields significant efficiency and accuracy gains,
and allows the company to more accurately manage GHG emissions
and institute specific emissions improvements.

D• Spreadsheet configuration and material input information for
specific facilities can be carried over from year to year. Inventory
specialists can easily modify configurations as a facility changes(due to new construction, retirement of units, etc.).

• Using one system saves money. Significant cost savings areachieved by using the same system in all facilities, as compared
to conventional, disparate systems.

I

In practice, the SANGEA™ system employs a variety of strategies toensure consistent calculation methods and ease company-widestandardization:• The system is auditable. The software requires detailed audit trail
information on data inputs and system users. There is documented accountability of who made any change to the system.

U

The system is an auditable, Excel-and-Visual-Basic-based tool for
estimating GHG emissions and energy utilization. It streamlines corporate-level data consolidation by allowing the inventory coordinator ateach facility to configure a spreadsheet, enter monthly data, and sendquarterly reports to a centralized database.

the software, easing updates when methodologies or default
factors change. Updates to this central reference are automatically applied to the existing configuration and input data.
Updates will mirror the timing and content of updates to theAmerican Petroleum Institute Compendium of GHG emission estimating methodologies.

G

ChevronTexaco, a global energy company, has developed and implemented energy utilization and GHG estimation and reporting
software consistent with the GHG Protocol Corporate Standard. This
software is available free of charge and makes it easier, more accurate, and less costly to institute a corporate-wide GHG accounting
and reporting system in the oil and gas sector. Called the SANGEA™
Energy and Greenhouse Gas Emissions Estimating System, it iscurrently in use at all ChevronTexaco facilities worldwide, comprisingmore than 70 reporting entities.

Identifying and Calculating GHG Emissions

E

TABLE 3.

Overview of GHG calculation tools available on the GHG Protocol website

CALCULATION TOOLSC

Stationary Combustion

MAIN FEATURES.

• Calculates direct and indirect CO2 emissions from fuel combustion in stationary equipment• Provides two options for allocating GHG emissions from a co-generation facility

N• Provides default fuel and national average electricity emission factors
Mobile Combustion• Calculates direct and indirect CO2 emissions from fuel combustion in mobile sources

HFC from Air Conditioning
and Refrigeration Use• Calculates direct HFC emissions during manufacture, use and disposal of refrigeration and airconditioning equipment in commercial applications• Provides three calculation methodologies: a sales-based approach, a life cycle stage based
approach, and an emission factor based approach

Measurement and Estimation
Uncertainty for GHG Emissions

G

U

I

D

CROSS-SECTOR TOOLSA• Provides calculations and emission factors for road, air, water, and rail transport• Introduces the fundamentals of uncertainty analysis and quantification• Calculates statistical parameter uncertainties due to random errors related to calculation of
GHG emissions

SECTOR-SPECIFIC TOOLS• Automates the aggregation steps involved in developing a basic uncertainty assessment for GHG
inventory data

44

Aluminum and other nonFerrous Metals Production• Calculates direct GHG emissions from aluminum production (CO2 from anode oxidation, PFC emissions from the “anode effect,” and SF6 used in non-ferrous metals production as a cover gas)

Iron and Steel• Calculates direct GHG emissions (CO2) from oxidation of the reducing agent, from the calcinationof the flux used in steel production, and from the removal of carbon from the iron ore and scrap
steel used

Nitric Acid Manufacture• Calculates direct GHG emissions (N2O) from the production of nitric acid

Ammonia Manufacture• Calculates direct GHG emissions (CO2) from ammonia production. This is for the removal ofcarbon from the feedstock stream only; combustion emissions are calculated with the stationary
combustion module

Adipic Acid Manufacture• Calculates direct GHG emissions (N2O) from adipic acid production

Cement• Calculates direct CO2 emissions from the calcination process in cement manufacturing (WBCSD
tool also calculates combustion emissions)• Provides two calculation methodologies: the cement-based approach and the clinker-based approach

Lime• Calculates direct GHG emissions from lime manufacturing (CO2 from the calcination process)

HFC-23 from
HCFC-22 Production• Calculates direct HFC-23 emissions from production of HCFC-22

Pulp and Paper• Calculates direct CO2, CH4, and N2O emissions from production of pulp and paper. This includes
calculation of direct and indirect CO2 emissions from combustion of fossil fuels, bio-fuels, andwaste products in stationary equipment

Semi-Conductor
Wafer Production• Calculates PFC emission from the production of semi-conductor wafers

Guide for Small
Office-Based Organizations• Calculates direct CO2 emissions from fuel use, indirect CO2 emissions from electricity
consumption, and other indirect CO2 emissions from business travel and commuting

CHAPTER 6

CHAPTER 6

In the automated worksheet section, it is only necessary
to insert activity data into the worksheets and to selectan appropriate emission factor or factors. Default emission factors are provided for the sectors covered, but it isalso possible to insert customized emission factors thatare more representative of the reporting company’s operations. The emissions of each GHG (CO2 , CH4 , N2O, etc.)
are calculated separately and then converted to CO2
equivalents on the basis of their global warming potential.
Some tools, such as the iron and steel sector tool and the
HFC cross-sector tool, take a tiered approach, offering a
choice between a simple and a more advanced calculation
methodology. The more advanced methods are expected
to produce more accurate emissions estimates but usuallyrequire collection of more detailed data and a morethorough understanding of a company’s technologies.

Roll-up GHG emissions data to corporate level

BP, a global energy company, has been collecting GHG data fromthe different parts of its operations since 1997 and has consolidated its internal reporting processes into one central databasesystem. The responsibility for reporting environmental emissions
lies with about 320 individual BP facilities and business departments, which are termed “reporting units.” All reporting units haveto complete a standard Excel pro-forma spreadsheet every quarter,
stating actual emissions for the preceding three months andupdates to forecasts for the current year and the next two years. In
addition, reporting units are asked to account for all significant
variances, including sustainable reductions. The reporting units all
use the same BP GHG Reporting Guidelines “Protocol” (BP, 2000)
for quantifying their emissions of carbon dioxide and methane.
All pro-forma spreadsheets are e-mailed automatically by thecentral database to the reporting units, and the completed e-mailreturns are uploaded into the database by a corporate team, whocheck the quality of the incoming data. The data are then compiled,by the end of the month following each quarter end, to provide thetotal emission inventory and forecasts for analysis against BP’s
GHG target. Finally, the inventory is reviewed by a team of independent external auditors to provide assurance on the quality andaccuracy of the data.

For internal reporting up to the corporate level, it isrecommended that standardized reporting formats
be used to ensure that data received from different
business units and facilities is comparable, and thatinternal reporting rules are observed (see BP casestudy). Standardized formats can significantly reduce
the risk of errors.

I
D
A
N

• Secure databases available over the company intranet
or internet, for direct data entry by facilities

BP: A standardized system
for internal reporting of GHGs

U

The tools and processes chosen to report data will
depend upon the information and communication infrastructure already in place (i.e., how easy is it to include
new data categories in corporate databases). It will also
depend upon the amount of detail that corporate headquarters wishes to be reported from facilities. Data
collection and management tools could include:45

G

To report a corporation’s total GHG emissions, companies will usually need to gather and summarize datafrom multiple facilities, possibly in different countries
and business divisions. It is important to plan thisprocess carefully to minimize the reporting burden,
reduce the risk of errors that might occur while
compiling data, and ensure that all facilities arecollecting information on an approved, consistent basis.
Ideally, corporations will integrate GHG reporting with
their existing reporting tools and processes, and takeadvantage of any relevant data already collected andreported by facilities to division or corporate offices,
regulators or other stakeholders.

Identifying and Calculating GHG Emissions• Spreadsheet templates filled out and e-mailed to a corporate or division office, where data is processed further

C• Paper reporting forms faxed to a corporate or division
office where data is re-entered in a corporate database. However, this method may increase thelikelihood of errors if there are not sufficient checks inplace to ensure the accurate transfer of the data.

E

DECENTRALIZED APPROACH:C

There are two basic approaches for gathering data on GHG
emissions from a corporation’s facilities (Figure 10):
• Centralized: individual facilities report activity/fueluse data (such as quantity of fuel used) to the corporate level, where GHG emissions are calculated.

Asking facilities to calculate GHG emissions themselves
will help to increase their awareness and understandingof the issue. However, it may also lead to resistance,increased training needs, an increase in calculation
errors, and a greater need for auditing of calculations.
Requesting that facilities calculate GHG emissions
themselves may be the preferred option if:

EApproaches for rolling up
GHG emissions data to corporate level

N

Identifying and Calculating GHG Emissions

DA• Decentralized: individual facilities collect activity/fueluse data, directly calculate their GHG emissions
using approved methods, and report this data to thecorporate level.

SITE LEVELC O R P O R AT E L E V E L

CENTRALIZEDActivity data

Sites report activity data
(GHG emissions calculated atcorporate level: activity data x
emissions factor = GHG emissions)

DECENTRALIZED

G

U

I

F I G U R E 1 0 . Approaches to gathering data

Activity data x
emission factor=
GHG emissions➡
➡

Sites report GHG emissions

The difference between these two approaches is in where
the emissions calculations occur (i.e., where activity data
is multiplied by the appropriate emission factors) and inwhat type of quality management procedures must be put
in place at each level of the corporation. Facility-levelstaff is generally responsible for initial data collection
under both approaches.
Under both approaches, staff at corporate and lower
levels of consolidation should take care to identify andexclude any scope 2 or 3 emissions that are also
accounted for as scope 1 emissions by other facilities,business units, or companies included in the emissions
inventory consolidation.

CENTRALIZED APPROACH:I N D I V I D U A L FA C I L I T I E S R E P O R T A C T I V I T Y / F U E L U S E D ATA

This approach may be particularly suitable for officebased organizations. Requesting that facilities reporttheir activity/fuel use data may be the preferred option if:• The staff at the corporate or division level can calculate emissions data in a straightforward manner on
the basis of activity/fuel use data; and• Emissions calculations are standard across a numberof facilities.
46

CHAPTER 6I N D I V I D U A L FA C I L I T I E S C A L C U L AT E G H G E M I S S I O N S D ATA• GHG emission calculations require detailed knowledgeof the kind of equipment being used at facilities;• GHG emission calculation methods vary across anumber of facilities;• Process emissions (in contrast to emissions fromburning fossil fuels) make up an important share of
total GHG emissions;• Resources are available to train facility staff toconduct these calculations and to audit them;• A user-friendly tool is available to simplify the calculation and reporting task for facility-level staff; or• Local regulations require reporting of GHG emissions
at a facility level.
The choice of collection approach depends on the needs
and characteristics of the reporting company. For
example, United Technologies Corporation uses thecentralized approach, leaving the choice of emission
factors and calculations to corporate staff, while BP uses
the decentralized approach and follows up with audits toensure calculations are correct, documented, and follow
approved methods. To maximize accuracy and minimize
reporting burdens, some companies use a combination of
the two approaches. Complex facilities with process
emissions calculate their emissions at the facility level,
while facilities with uniform emissions from standard
sources only report fuel use, electricity consumption, andtravel activity. The corporate database or reporting tool
then calculates total GHG emissions for each of thesestandard activities.
The two approaches are not mutually exclusive andshould produce the same result. Thus companies
desiring a consistency check on facility-level calculations can follow both approaches and compare theresults. Even when facilities calculate their own GHG
emissions, corporate staff may still wish to gather
activity/fuel use data to double-check calculations andexplore opportunities for emissions reductions. TheseCHAPTER 6

Identifying and Calculating GHG Emissions

47

data should be available and transparent to staff at all
corporate levels. Corporate staff should also verify thatfacility-reported data are based on well defined, consistent, and approved inventory boundaries, reporting
periods, calculation methodologies, etc.

Common guidance on reporting to corporate level
Reports from facility level to corporate or division
offices should include all relevant information as specified in chapter 9. Some reporting categories arecommon to both the centralized and decentralized
approaches and should be reported by facilities to theircorporate offices. These include:• A brief description of the emission sources• A list and justification of specific exclusion or inclusion of sources• Comparative information from previous years• The reporting period covered• Any trends evident in the data
• Progress towards any business targets

Clear records of calculations undertaken to derive
emissions data should be kept for any future internal orexternal verification.

A
N• Activity data for freight and passenger transport
activities (e.g., freight transport in tonne-kilometers)• Details on any data references used for the calculations,in particular information on emission factors used.

D

In addition to the activity/fuel use data and aforementioned common categories of reporting data, facilities
following the centralized approach by reporting
activity/fuel use data to the corporate level should also
report the following:• Ratio indicators (see chapter 9)

I

REPORTING FOR THE CENTRALIZED APPROACH• A description of GHG calculation methodologies andany changes made to those methodologies relative toprevious reporting periodsU• A description of events and changes that have an impact
on reported data (acquisitions, divestitures, closures,
technology upgrades, changes of reporting boundaries
or calculation methodologies applied, etc.).

In addition to the GHG emissions data and aforementioned common categories of reporting data, individual
facilities following the decentralized approach byreporting calculated GHG emissions to the corporate
level should also report the following:G• A discussion of uncertainties in activity/fuel use or
emissions data reported, their likely cause, and recommendations for how data can be improved

REPORTING FOR THE DECENTRALIZED APPROACH• Activity data for process emissions (e.g., tonnes offertilizer produced, tonnes of waste in landfills)

C• Clear records of any calculations undertaken to derive
activity/fuel use dataE

• Local emission factors necessary to translate fuel use
and/or electricity consumption into CO2 emissions.

G

U

I

D

A

N

C

E

7 Managing Inventory Quality

C

ompanies have different reasons for managing the quality of their
GHG emissions inventory, ranging from identifying opportunities for

improvement to stakeholder demand to preparation for regulation. The GHG
Protocol Corporate Standard recognizes that these reasons are a function of acompany’s goals and its expectations for the future. A company’s goals for andvision of the evolution of the GHG emissions issue should guide the design of
its corporate inventory, the implementation of a quality management system,and the treatment of uncertainty within its inventory.

G U I D A N C E

48

CHAPTER 7

A corporate GHG inventory program includes all institutional, managerial, and technical arrangements made forthe collection of data, preparation of the inventory, andimplementation of steps to manage the quality of theinventory.1 The guidance in this chapter is intended tohelp companies develop and implement a quality
management system for their inventory.
Given an uncertain future, high quality information will
have greater value and more uses, while low quality
information may have little or no value or use and may
even incur penalties. For example, a company may
currently be focusing on a voluntary GHG program but
also want its inventory data to meet the anticipatedrequirements of a future when emissions may havemonetary value. A quality management systemis essential to ensuring that an inventory continues
to meet the principles of the GHG Protocol Corporate
Standard and anticipates the requirements of future
GHG emissions programs.

Defining inventory quality
The GHG Protocol Corporate Standard outlines fiveaccounting principles that set an implicit standard forthe faithful representation of a company’s GHG emission
through its technical, accounting, and reporting efforts(see chapter 1). Putting these principles into practicewill result in a credible and unbiased treatment and presentation of issues and data. For a company to follow
these principles, quality management needs to be an
integral part of its corporate inventory program. The
goal of a quality management system is to ensure thatthese principles are put into practice.

KPMG: The value of integrating
GHG management with existing systems
KPMG, a global services company, found that a key factor in thederivation of reliable, verifiable GHG data is the integration of
GHG data management and reporting mechanisms with companies’ core operational management and assurance processes.
This is because:• It is more efficient to widen the scope of existing embedded
management and assurance processes than to develop a separate
function responsible for generating and reporting GHG information.

D
A
N
C
E

Another factor that is often not given sufficient emphasis istraining of personnel and communication of GHG objectives. Data
generation and reporting systems are only as reliable as thepeople who operate them. Many well-designed systems failbecause the precise reporting needs of the company are notadequately explained to the people who have to interpret areporting standard and calculation tools. Given the complexity ofaccounting boundaries and an element of subjectivity that must
accompany source inclusion and equity share, inconsistent interpretation of reporting requirements is a real risk. It is also
important that those responsible for supplying input data areaware of its use. The only way to minimize this risk is throughclear communication, adequate training and knowledge sharing.

I• As GHG information becomes increasingly monetized, it will
attract the same attention as other key performance indicatorsof businesses. Therefore, management will need to ensure
adequate procedures are in place to report reliable data. These
procedures can most effectively be implemented by functions
within the organization that oversee corporate governance,internal audit, IT, and company reporting.

U

A quality management system provides a systematic
process for preventing and correcting errors, andidentifies areas where investments will likely lead tothe greatest improvement in overall inventory quality.
However, the primary objective of quality management
is ensuring the credibility of a company’s GHG inventory information. The first step towards achieving thisobjective is defining inventory quality.

49

G

Even if a company is not anticipating a future regulatory
mechanism, internal and external stakeholders will
demand high quality inventory information. Therefore,
the implementation of some type of quality management
system is important. However, the GHG Protocol Corporate
Standard recognizes that companies do not have unlimited resources, and, unlike financial accounting,corporate GHG inventories involve a level of scientificand engineering complexity. Therefore, companies should
develop their inventory program and quality management system as a cumulative effort in keeping with theirresources, the broader evolution of policy, and their own
corporate vision.

Managing Inventory Quality

Managing Inventory Quality

E

An inventory program framework

management, these processes and systems may be integrated, where appropriate, with other corporate
processes related to quality.

NC

A practical framework is needed to help companies
conceptualize and design a quality management systemand to help plan for future improvements. This framework focuses on the following institutional, managerial,
and technical components of an inventory (Figure 11):D O C U M E N T AT I O N : This is the record of methods, data,processes, systems, assumptions, and estimates used toprepare an inventory. It includes everything employees
need to prepare and improve a company’s inventory.
Since estimating GHG emissions is inherently technical(involving engineering and science), high quality, transparent documentation is particularly important tocredibility. If information is not credible, or fails to beeffectively communicated to either internal or external
stakeholders, it will not have value.

M E T H O D S : These are the technical aspects of inventory

U

I

D

A

preparation. Companies should select or develop methodologies for estimating emissions that accurately represent
the characteristics of their source categories. The GHG
Protocol provides many default methods and calculation
tools to help with this effort. The design of an inventory
program and quality management system should provide
for the selection, application, and updating of inventory
methodologies as new research becomes available,changes are made to business operations, or the importance of inventory reporting is elevated.

Companies should seek to ensure the quality of thesecomponents at every level of their inventory design.

Implementing an
inventory quality management system

G

D AT A : This is the basic information on activity levels,

emission factors, processes, and operations. Althoughmethodologies need to be appropriately rigorous anddetailed, data quality is more important. No methodology can compensate for poor quality input data. The
design of a corporate inventory program should facilitate
the collection of high quality inventory data and themaintenance and improvement of collection procedures.

A quality management system for a company’s inventory
program should address all four of the inventory components described above. To implement the system, acompany should take the following steps:
1. Establish an inventory quality team. This team should

be responsible for implementing a quality management system, and continually improving inventory
quality. The team or manager should coordinate
interactions between relevant business units,facilities and external entities such as government
agency programs, research institutions, verifiers, or
consulting firms.

I N V E N T O R Y P R O C E S S E S A N D S Y S T E M S : These are theinstitutional, managerial, and technical procedures for
preparing GHG inventories. They include the team andprocesses charged with the goal of producing a highquality inventory. To streamline GHG inventory quality
F I G U R E 1 1 : Inventory quality management system

INVENTORY QUALITY MANAGEMENT SYSTEMD AT A

7. Report, Document, and Archive➡

SYSTEMS6. Institutionalize Formal Feedback Loops➡
5. Review Final Inventory Estimates and Reports➡

F E E D B A C K
50

CHAPTER 7

3. Perform Generic Quality Checks➡

D O C U M E N T AT I O N

2. Develop Quality Management Plan➡

METHODS➡

➡

1. Establish Inventory Quality Team

4. Perform Source-Specific Quality Checks

CHAPTER 7

2. Develop a quality management plan. This plan

describes the steps a company is taking to implement
its quality management system, which should beincorporated into the design of its inventory programfrom the beginning, although further rigor andcoverage of certain procedures may be phased inover multiple years. The plan should include procedures for all organizational levels and inventory
development processes—from initial data collection
to final reporting of accounts. For efficiency andcomprehensiveness, companies should integrate (andextend as appropriate) existing quality systems tocover GHG management and reporting, such as any
TABLE 4.

Managing Inventory Quality

51

ISO procedures. To ensure accuracy, the bulk of theplan should focus on practical measures for implementing the quality management system, as
described in steps three and four.
3. Perform generic quality checks. These apply to dataand processes across the entire inventory, focusing on
appropriately rigorous quality checks on data handling,
documentation, and emission calculation activities(e.g., ensuring that correct unit conversions are used).
Guidance on quality checking procedures is provided
in the section on implementation below (see table 4).

Generic quality management measures

D AT A G AT H E R I N G , I N P U T, A N D H A N D L I N G A C T I V I T I E S• Check a sample of input data for transcription errors• Identify spreadsheet modifications that could provide additional controls or checks on quality• Ensure that adequate version control procedures for electronic files have been implemented• Others
DATA DOCUMENTATION• Confirm that bibliographical data references are included in spreadsheets for all primary dataG

• Check that copies of cited references have been archived• Check that assumptions and criteria for selection of boundaries, base years, methods, activity data, emission factors, and otherparameters are documented

U• Check that changes in data or methodology are documented

I• Others
CALCULATING EMISSIONS AND CHECKING CALCULATIONS

D• Check whether emission units, parameters, and conversion factors are appropriately labeled• Check if units are properly labeled and correctly carried through from beginning to end of calculations

A• Check that conversion factors are correct• Check the data processing steps (e.g., equations) in the spreadsheetsN• Check that spreadsheet input data and calculated data are clearly differentiatedC• Check a representative sample of calculations, by hand or electronically• Check some calculations with abbreviated calculations (i.e., back of the envelope calculations)• Check consistency of time series inputs and calculations• Others

E• Check the aggregation of data across source categories, business units, etc.

E

Managing Inventory Quality

4. Perform source-category-specific quality checks. This

I

D

A

N

C

includes more rigorous investigations into the appropriate application of boundaries, recalculation
procedures, and adherence to accounting andreporting principles for specific source categories, aswell as the quality of the data input used (e.g.,whether electricity bills or meter readings are the bestsource of consumption data) and a qualitative description of the major causes of uncertainty in the data.
The information from these investigations can also be
used to support a quantitative assessment of uncertainty. Guidance on these investigations is provided in
the section on implementation below.
5. Review final inventory estimates and reports. AfterGU

the inventory is completed, an internal technicalreview should focus on its engineering, scientific,
and other technical aspects. Subsequently, aninternal managerial review should focus on securing
official corporate approval of and support for theinventory. A third type of review involving experts
external to the company’s inventory program isaddressed in chapter 10.
6. Institutionalize formal feedback loops. The results of

the reviews in step five, as well as the results of every
other component of a company’s quality management
system, should be fed back via formal feedback procedures to the person or team identified in step one.
Errors should be corrected and improvements implemented based on this feedback.
7. Establish reporting, documentation, and archiving
procedures. The system should contain record keeping

procedures that specify what information will be documented for internal purposes, how that information
should be archived, and what information is to bereported for external stakeholders. Like internal andexternal reviews, these record keeping procedures
include formal feedback mechanisms.
A company’s quality management system and overall
inventory program should be treated as evolving, in
keeping with a company’s reasons for preparing an
inventory. The plan should address the company’s
strategy for a multi-year implementation (i.e., recognizethat inventories are a long-term effort), including steps
to ensure that all quality control findings from previous
years are adequately addressed.

52

CHAPTER 7

Practical measures for implementation
Although principles and broad program design guidelines
are important, any guidance on quality management
would be incomplete without a discussion of practicalinventory quality measures. A company should implement these measures at multiple levels within the company,
from the point of primary data collection to the final
corporate inventory approval process. It is important toimplement these measures at points in the inventory
program where errors are mostly likely to occur, such as
the initial data collection phase and during calculation anddata aggregation. While corporate level inventory quality
may initially be emphasized, it is important to ensure
quality measures are implemented at all levels of disaggregation (e.g., facility, process, geographical, according to aparticular scope, etc) to be better prepared for GHG
markets or regulatory rules in the future.
Companies also need to ensure the quality of their historical emission estimates and trend data. They can achieve
this by employing inventory quality measures to minimize biases that can arise from changes in thecharacteristics of the data or methods used to calculate
historical emission estimates, and by following the standards and guidance of chapter 5.
The third step of a quality management system, as
described above, is to implement generic quality
checking measures. These measures apply to all source
categories and all levels of inventory preparation.
Table 4 provides a sample list of such measures.
The fourth step of a quality management system issource category-specific data quality investigations. The
information gathered from these investigations can also
be used for the quantitative and qualitative assessmentof data uncertainty (see section on uncertainty).
Addressed below are the types of source-specific quality
measures that can be employed for emission factors,
activity data, and emission estimates.

CHAPTER 7

E M I S S I O N FA C T O R S A N D O T H E R P A R A M E T E R S

For a particular source category, emissions calculations
will generally rely on emission factors and other parameters (e.g., utilization factors, oxidation rates, methane
conversion factors).2 These factors and parameters may
be published or default factors, based on companyspecific data, site-specific data, or direct emission orother measurements. For fuel consumption, publishedemission factors based on fuel energy content are generally more accurate than those based on mass or volume,
except when mass or volume based factors have beenmeasured at the company- or site-specific level. Quality
investigations need to assess the representativeness andapplicability of emission factors and other parameters to
the specific characteristics of a company. Differences
between measured and default values need to be qualitatively explained and justified based upon the company’s
operational characteristics.

A C T I V I T Y D AT A

N

• Investigate activity data that is generated for purposes
other than preparing a GHG inventory. In doing so,companies will need to check the applicability of thisdata to inventory purposes, including completeness,consistency with the source category definition, andconsistency with the emission factors used. For
example, data from different facilities may be examined for inconsistent measurement techniques,operating conditions, or technologies. Quality control
measures (e.g., ISO) may have already been conductedduring the data’s original preparation. These measures
can be integrated with the company’s inventory quality
management system.

A• Check that base year recalculation procedures havebeen followed consistently and correctly (see chapter 5).

C• Check that operational and organizational boundary
decisions have been applied correctly and consistently
to the collection of activity data (see chapters 3 and 4).

E• Compare activity data from multiple reference sources(e.g., government survey data or data compiled bytrade associations) with corporate data when possible.
Such checks can ensure that consistent data is being
reported to all parties. Data can also be comparedamong facilities within a company.

Basing emissions data systems on financial reporting helps
Interface improve its data quality. Just as financial data need to
be documented and defensible, Interface’s emissions data areheld to standards that promote an increasingly transparent,
accurate, and high-quality inventory. Integrating its financial andemissions data systems has made Interface’s GHG accounting
and reporting more useful as it strives to be a “completely
sustainable company” by 2020.

D• Compare current year data with historical trends. If
data do not exhibit relatively consistent changes fromyear to year then the causes for these patterns should
be investigated (e.g., changes of over 10 percent fromyear to year may warrant further investigation).

Interface, Inc., is the world’s largest manufacturer of carpet tiles
and upholstery fabrics for commercial interiors. The company has
established an environmental data system that mirrors its corporate financial data reporting. The Interface EcoMetrics system isdesigned to provide activity and material flow data from business
units in a number of countries (the United States, Canada,
Australia, the United Kingdom, Thailand and throughout Europe)and provides metrics for measuring progress on environmental
issues such as GHG emissions. Using company-wide accounting
guidelines and standards, energy and material input data arereported to a central database each quarter and made available
to sustainability personnel. These data are the foundation ofInterface’s annual inventory and enable data comparison overtime in the pursuit of improved quality.

I• Convert fuel consumption data to energy units before
applying carbon content emission factors, which may bebetter correlated to a fuel’s energy content than its mass.

Interface: Integration of emissions
and business data systems

U• Develop data collection procedures that allow the samedata to be efficiently collected in future years.

53

G

The collection of high quality activity data will often be
the most significant limitation for corporate GHG inventories. Therefore, establishing robust data collection
procedures needs to be a priority in the design of any
company’s inventory program. The following are usefulmeasures for ensuring the quality of activity data:

Managing Inventory Quality

E

Managing Inventory Quality

NC• Investigate whether biases or other characteristics that
could affect data quality have been previously identified (e.g., by communicating with experts at aparticular facility or elsewhere). For example, a bias
could be the unintentional exclusion of operations at
smaller facilities or data that do not correspondexactly with the company’s organizational boundaries.

D

A• Extend quality management measures to cover any
additional data (sales, production, etc.) used to estimate emission intensities or other ratios.

I

E M I S S I O N E S T I M AT E S

GU

Estimated emissions for a source category can becompared with historical data or other estimates toensure they fall within a reasonable range. Potentiallyunreasonable estimates provide cause for checking
emission factors or activity data and determining
whether changes in methodology, market forces, orother events are sufficient reasons for the change. In
situations where actual emission monitoring occurs(e.g., power plant CO2 emissions), the data from monitors can be compared with calculated emissions using
activity data and emission factors.
If any of the above emission factor, activity data, emission estimate, or other parameter checks indicate aproblem, more detailed investigations into the accuracyof the data or appropriateness of the methods may berequired. These more detailed investigations can also
be utilized to better assess the quality of data. One
potential measure of data quality is a quantitative andqualitative assessment of their uncertainty.

Vauxhall Motors:
The importance of accuracy checks
The experience of the U.K. automotive manufacturer Vauxhal
Motors illustrates the importance of attention to detail insetting up GHG information collection systems. The company
wished to calculate GHG emissions from staff air travel.
However, when determining the impact of flight travel, it isimportant to make sure that the round trip distance is used
when calculating emissions. Fortunately, Vauxhall’s review of
its assumptions and calculation methodologies revealed thisfact and avoided reporting emissions that were 50 percent
lower than the actual value.

54

CHAPTER 7

Inventory quality and inventory uncertainty
Preparing a GHG inventory is inherently both anaccounting and a scientific exercise. Most applications
for company-level emissions and removal estimates
require that these data be reported in a format similar tofinancial accounting data. In financial accounting, it isstandard practice to report individual point estimates(i.e., single value versus a range of possible values). In
contrast, the standard practice for most scientific studies
of GHG and other emissions is to report quantitative
data with estimated error bounds (i.e., uncertainty). Just
like financial figures in a profit and loss or bank accountstatement, point estimates in a corporate emission inventory have obvious uses. However, how would or should
the addition of some quantitative measure of uncertainty
to an emission inventory be used?
In an ideal situation, in which a company had perfectquantitative information on the uncertainty of its emission estimates at all levels, the primary use of thisinformation would almost certainly be comparative.
Such comparisons might be made across companies,
across business units, across source categories, or
through time. In this situation, inventory estimates could
even be rated or discounted based on their quality
before they were used, with uncertainty being the objective quantitative metric for quality. Unfortunately, suchobjective uncertainty estimates rarely exist.

TYPES OF UNCERTAINTIES

Uncertainties associated with GHG inventories canbe broadly categorized into scientific uncertainty andestimation uncertainty. Scientific uncertainty arises
when the science of the actual emission and/or removal
process is not completely understood. For example,
many direct and indirect factors associated with global
warming potential (GWP) values that are used to
combine emission estimates for various GHGs involve
significant scientific uncertainty. Analyzing and quantifying such scientific uncertainty is extremely problematicand is likely to be beyond the capacity of most company
inventory programs.

CHAPTER 7

Managing Inventory Quality

55

Estimation uncertainty arises any time GHG emissions
are quantified. Therefore all emissions or removal estimates are associated with estimation uncertainty.
Estimation uncertainty can be further classified into two
types: model uncertainty and parameter uncertainty.3
Model uncertainty refers to the uncertainty associatedwith the mathematical equations (i.e., models) used tocharacterize the relationships between various parameters and emission processes. For example, model
uncertainty may arise either due to the use of an incorrect mathematical model or inappropriate input into
the model. As with scientific uncertainty, estimating
model uncertainty is likely to be beyond mostcompany’s inventory efforts; however, some companies
may wish to utilize their unique scientific and engineering expertise to evaluate the uncertainty in theiremission estimation models.
Parameter uncertainty refers to the uncertainty associ-G

ated with quantifying the parameters used as inputs(e.g., activity data and emission factors) into estimation models. Parameter uncertainties can be evaluatedthrough statistical analysis, measurement equipment
precision determinations, and expert judgment.
Quantifying parameter uncertainties and then estimating source category uncertainties based on theseparameter uncertainties will be the primary focus ofcompanies that choose to investigate the uncertainty intheir emission inventories.

U

L I M I T AT I O N S O F U N C E R T A I N T Y E S T I M AT E S

IDNuncertainty estimates, companies will usually haveto rely on expert judgment.6 The problem with expert
judgment, though, is that it is difficult to obtain in acomparable (i.e., unbiased) and consistent manner
across parameters, source categories, or companies.

A
C

Given that only parameter uncertainties are within thefeasible scope of most companies, uncertainty estimatesfor corporate GHG inventories will, of necessity, be
imperfect. Complete and robust sample data will notalways be available to assess the statistical uncertainty4
in every parameter. For most parameters (e.g., liters ofgasoline purchased or tonnes of limestone consumed),
only a single data point may be available. In somecases, companies can utilize instrument precision orcalibration information to inform their assessment ofstatistical uncertainty. However, to quantify some of thesystematic uncertainties5 associated with parameters
and to supplement statisticalE

E

Managing Inventory Quality

A

N

C

For these reasons, almost all comprehensive estimates of
uncertainty for GHG inventories will be not only imperfect but also have a subjective component and, despite
the most thorough efforts, are themselves consideredhighly uncertain. In most cases, uncertainty estimatescannot be interpreted as an objective measure of quality.
Nor can they be used to compare the quality of emission
estimates between source categories or companies.

I

D

Exceptions to this include the following cases in which it
is assumed that either statistical or instrument precision
data are available to objectively estimate each parameter’s statistical uncertainty (i.e., expert judgment is
not needed):GU• When two operationally similar facilities use identicalemission estimation methodologies, the differences inscientific or model uncertainties can, for the mostpart, be ignored. Then quantified estimates of statistical uncertainty can be treated as being comparable
between facilities. This type of comparability is what is
aimed for in some trading programs that prescribe
specific monitoring, estimation, and measurement
requirements. However, even in this situation, thedegree of comparability depends on the flexibility thatparticipants are given for estimating emissions, thehomogeneity across facilities, as well as the level ofenforcement and review of the methodologies used.
• Similarly, when a single facility uses the same estimation methodology each year, the systematic parameter
uncertainties — in addition to scientific and model
uncertainties — in a source’s emission estimates for
two years are, for the most part, identical.7 Because
the systematic parameter uncertainties then cancel
out, the uncertainty in an emission trend (e.g., thedifference between the estimates for two years) is
generally less than the uncertainty in total emissions
for a single year. In such a situation, quantified uncertainty estimates can be treated as being comparable
over time and used to track relative changes in thequality of a facility’s emission estimates for thatsource category. Such estimates of uncertainty inemission trends can also be used as a guide to settinga facility’s emissions reduction target. Trend uncertainty estimates are likely to be less useful for setting
broader (e.g., company-wide) targets (see chapter 11)
because of the general problems with comparability
between uncertainty estimates across gases, sources,
and facilities.

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CHAPTER 7

Given these limitations, the role of qualitative and quantitative uncertainty assessments in developing GHG
inventories include:• Promoting a broader learning and quality
feedback process.
• Supporting efforts to qualitatively understand anddocument the causes of uncertainty and help identify
ways of improving inventory quality. For example,
collecting the information needed to determine thestatistical properties of activity data and emission
factors forces one to ask hard questions and to carefully and systematically investigate data quality.
• Establishing lines of communication and feedback
with data suppliers to identify specific opportunities
to improve quality of the data and methods used.
• Providing valuable information to reviewers, verifiers,
and managers for setting priorities for investments
into improving data sources and methodologies.
The GHG Protocol Corporate Standard has developed asupplementary guidance document on uncertainty assessments (“Guidance on uncertainty assessment in GHG
inventories and calculating statistical parameter uncertainty”) along with an uncertainty calculation tool, bothof which are available on the GHG Protocol website. The
guidance document describes how to use the calculation
tool in aggregating uncertainties. It also discusses inmore depth different types of uncertainties, the limitations of quantitative uncertainty assessment, and how
uncertainty estimates should be properly interpreted.
Additional guidance and information on assessing
uncertainty— including optional approaches to developing quantitative uncertainty estimates and eliciting
judgments from experts — can also be found in EPA's
Emissions Inventory Improvement Program, Volume VI:
Quality Assurance/Quality Control (1999) and inchapter 6 of the IPCC’s Good Practice Guidance (2000a).

CHAPTER 7

Managing Inventory Quality

57

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6

Statistical uncertainty results from natural variations (e.g., random
human errors in the measurement process and fluctuations in measurement equipment). Statistical uncertainty can be detected throughrepeated experiments or sampling of data.

The role of expert judgment can be twofold: First, it can provide the datanecessary to estimate the parameter. Second, it can help (in combination
with data quality investigations) identify, explain, and quantify both
statistical and systematic uncertainties.

7

It should be recognized, however, that biases may not be constant fromyear to year but instead may exhibit a pattern over time (e.g., may be
growing or falling). For example, a company that continues to disinvest incollecting high quality data may create a situation in which the biases in
its data get worse each year. These types of data quality issues are
extremely problematic because of the effect they can have on calculated
emission trends. In such cases, systematic parameter uncertainties
cannot be ignored.

4

E

Emissions estimated from direct emissions monitoring will generally only
involve parameter uncertainty (e.g., equipment measurement error).

C

3

N

Some emission estimates may be derived using mass or energybalances, engineering calculations, or computer simulation models. In
addition to investigating the input data to these models, companies
should also consider whether the internal assumptions (including
assumed parameters in the model) are appropriate to the nature of thecompany’s operations.

A

2

D

Systematic parameter uncertainty occurs if data are systematicallybiased. In other words, the average of the measured or estimated value isalways less or greater than the true value. Biases arise, for example,
because emission factors are constructed from non-representative
samples, all relevant source activities or categories have not been identified, or incorrect or incomplete estimation methods or faulty measurement
equipment have been used. Because the true value is unknown, such
systematic biases cannot be detected through repeated experiments and,
therefore, cannot be quantified through statistical analysis. However, it ispossible to identify biases and, sometimes, to quantify them through data
quality investigations and expert judgments.

I

5

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NOTES
1
Although the term “emissions inventory” is used throughout this chapter,the guidance equally applies to estimates of removals due to sink categories (e.g., forest carbon sequestration).

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8 Accounting for GHG ReductionsAs voluntary reporting, external GHG programs, and emission trading
systems evolve, it is becoming more and more essential for compa-

nies to understand the implications of accounting for GHG emissions changes
over time on the one hand, and, on the other hand, accounting for offsets or
credits that result from GHG reduction projects. This chapter elaborates on the
different issues associated with the term “GHG reductions.”

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CHAPTER 8

Accounting for GHG Reductions

The GHG Protocol Corporate Standard focuses on
accounting and reporting for GHG emissions at thecompany or organizational level. Reductions in corporate emissions are calculated by comparing changes
in the company’s actual emissions inventory over time
relative to a base year. Focusing on overall corporate
or organizational level emissions has the advantage ofhelping companies manage their aggregate GHG risks
and opportunities more effectively. It also helps focus
resources on activities that result in the most costeffective GHG reductions.

rate-wide scale, this information can also be used whensetting and reporting progress towards a corporate-wide
GHG target (see chapter 11).

In contrast to corporate accounting, the forthcoming
GHG Protocol Project Quantification Standard focuses on
the quantification of GHG reductions from GHG mitigation projects that will be used as offsets. Offsets are
discrete GHG reductions used to compensate for (i.e.,
offset) GHG emissions elsewhere, for example to meeta voluntary or mandatory GHG target or cap. Offsets
are calculated relative to a baseline that represents ahypothetical scenario for what emissions would havebeen in the absence of the project.

• Closure

Corporate GHG reductions
at facility or country level• Acquisitions and divestments• Real reductions (e.g., efficiency improvements,
material or fuel substitution)• Change in production level• Changes in estimation methodology• OtherThis type of information can be summarized at thecorporate level to provide an overview of the company’s
performance over time.

Reductions in indirect emissions

D
A
N
C
E

Generally, as long as the accounting of indirect emissions
over time recognizes activities that in aggregate change
global emissions, any such concerns over accuracy
should not inhibit companies from reporting their indirect emissions. In cases where accuracy is more
important, it may be appropriate to undertake a more

I

Reductions in indirect emissions (changes in scope 2 or 3
emissions over time) may not always capture the actual
emissions reduction accurately. This is because there is
not always a direct cause-effect relationship between theactivity of the reporting company and the resulting GHG
emissions. For example, a reduction in air travel would
reduce a company’s scope 3 emissions. This reduction isusually quantified based on an average emission factor
of fuel use per passenger. However, how this reduction
actually translates into a change in GHG emissions to
the atmosphere would depend on a number of factors,
including whether another person takes the “empty seat”
or whether this unused seat contributes to reduced air
traffic over the longer term. Similarly, reductionsin scope 2 emissions calculated with an average gridemissions factor may over- or underestimate the actual
reduction depending on the nature of the grid.

U

The GHG Protocol Corporate Standard calculates GHG
emissions using a bottom-up approach. This involves
calculating emissions at the level of an individual sourceor facility and then rolling this up to the corporate level.
Thus a company’s overall emissions may decrease, even
if increases occur at specific sources, facilities, or operations and vice-versa. This bottom-up approach enables
companies to report GHG emissions information at
different scales, e.g., by individual sources or facilities,
or by a collection of facilities within a given country.
Companies can meet an array of government requirements or voluntary commitments by comparing actual
emissions over time for the relevant scale. On a corpo-

In order to track and explain changes in GHG emissions
over time, companies may find it useful to provide
information on the nature of these changes. For
example, BP asks each of its reporting units to provide
such information in an accounting movement format
using the following categories (BP 2000):G

From the perspective of the earth's atmosphere, it does notmatter where GHG emissions or reductions occur. Fromthe perspective of national and international policymakers
addressing global warming, the location where GHG
reductions are achieved is relevant, since policies usuallyfocus on achieving reductions within specific countries
or regions, as spelled out, for example, in the Kyoto
Protocol. Thus companies with global operations will
have to respond to an array of state, national, or regional
regulations and requirements that address GHGs fromoperations or facilities within a specific geographic area.

59

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Accounting for GHG Reductions•

Project based reductions and offsets/credits

AN

Project reductions that are to be used as offsets should
be quantified using a project quantification method, suchas the forthcoming GHG Protocol Project Quantification
Standard, that addresses the following accounting issues:•

SELECTION OF A BASELINE SCENARIO AND EMISSION.

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The baseline scenario represents what would have
happened in the absence of the project. Baseline
emissions are the hypothetical emissions associatedwith this scenario. The selection of a baseline
scenario always involves uncertainty because it
represents a hypothetical scenario for what would
have happened without the project. The project
reduction is calculated as the difference between
the baseline and project emissions. This differs fromthe way corporate or organizational reductions aremeasured in this document, i.e., in relation to an
actual historical base year.
•

D E M O N S T R AT I O N O F A D D I T I O N A L I T Y. This relates towhether the project has resulted in emission reductions
or removals in addition to what would have happened in
the absence of the project. If the project reduction isused as an offset, the quantification procedure should
address additionality and demonstrate that the project
itself is not the baseline and that project emissions areless than baseline emissions. Additionality ensures theintegrity of the fixed cap or target for which the offset isused. Each reduction unit from a project used as anoffset allows the organization or facility with a cap ortarget one additional unit of emissions. If the project
were going to happen anyway (i.e., is non-additional),
global emissions will be higher by the number of reduction units issued to the project.

•

I D E N T I F I C AT I O N A N D Q U A N T I F I C AT I O N O F R E L E VA N T
S E C O N D A R Y E F F E C T S . These are GHG emissionschanges resulting from the project not captured by the
primary effect(s).1 Secondary effects are typically thesmall, unintended GHG consequences of a project andinclude leakage (changes in the availability or quantity of a product or service that results in changes in
GHG emissions elsewhere) as well as changes in GHG
emissions up- and downstream of the project. If relevant, secondary effects should be incorporated into
the calculation of the project reduction.
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CHAPTER 8

C O N S I D E R AT I O N O F R E V E R S I B I L I T Y. Some projects

achieve reductions in atmospheric carbon dioxidelevels by capturing, removing and/or storing carbon
or GHGs in biological or non-biological sinks (e.g.,forestry, land use management, underground reservoirs). These reductions may be temporary in thatthe removed carbon dioxide may be returned to theatmosphere at some point in the future throughintentional activities or accidental occurrences —such as harvesting of forestland or forest fires, etc.2
The risk of reversibility should be assessed, together
with any mitigation or compensation measures
included in the project design.

Cdetailed assessment of the actual reduction using a
project quantification methodology.

•

AV O I D A N C E O F D O U B L E C O U N T I N G . To avoid double
counting, the reductions giving rise to the offset mustoccur at sources or sinks not included in the target orcap for which the offset is used. Also, if the reductions
occur at sources or sinks owned or controlled bysomeone other than the parties to the project (i.e.,they are indirect), the ownership of the reduction
should be clarified to avoid double counting.

Offsets may be converted into credits when used to meetan externally imposed target. Credits are convertible andtransferable instruments usually bestowed by an external
GHG program. They are typically generated from anactivity such as an emissions reduction project and thenused to meet a target in an otherwise closed system, suchas a group of facilities with an absolute emissions cap
placed across them. Although a credit is usually based on
the underlying reduction calculation, the conversion of an
offset into a credit is usually subject to strict rules, which
may differ from program to program. For example, aCertified Emission Reduction (CER) is a credit issued by
the Kyoto Protocol Clean Development Mechanism. Once
issued, this credit can be traded and ultimately used tomeet Kyoto Protocol targets. Experience from the “precompliance” market in GHG credits highlights theimportance of delineating project reductions that are to
be used as offsets with a credible quantification method
capable of providing verifiable data.

Reporting project based reductions
It is important for companies to report their physicalinventory emissions for their chosen inventory boundaries separately and independently of any GHG trades
they undertake. GHG trades3 should be reported in its
public GHG report under optional information—either
in relation to a target (see chapter 11) or corporate

CHAPTER 8

inventory (see chapter 9). Appropriate information
addressing the credibility of purchased or sold offsets or
credits should be included.

•

Alcoa, a global manufacturer of aluminum, is implementing avariety of strategies to reduce its GHG emissions. One approachhas been to purchase renewable energy certificates, or RECs, tooffset some of the company’s GHG emissions. RECs, which represent the environmental benefits of renewable energy unbundledfrom the actual flow of electrons, are an innovative method ofproviding renewable energy to individual customers. RECs represent the unbundled environmental benefits, such as avoided CO2
emissions, generated by producing electricity from renewable
rather than fossil sources. RECs can be sold bundled with theelectricity (as green power) or separately to customers interested
in supporting renewable energy.

Substituting fossil fuel with waste-derived fuel thatmight otherwise be used as landfill or incinerated
without energy recovery. Such substitution may haveno direct effect on (or may even increase) a
company’s own GHG emissions. However, it could
result in emissions reductions elsewhere by anotherorganization, e.g., through avoiding landfill gas andfossil fuel use.

Alcoa found that RECs offer a variety of advantages, including
direct access to the benefits of renewable energy for facilities that
may have limited renewable energy procurement options. In
October 2003, Alcoa began purchasing RECs equivalent to 100%of the electricity used annually at four corporate offices in Tennessee,
Pennsylvania, and New York. The RECs Alcoa is purchasing effectively mean that the four corporate centers are now operating onelectricity generated by projects that produce electricity from landfill gas, avoiding the emission of more than 6.3 million kilograms(13.9 million pounds) of carbon dioxide annually. Alcoa chose
RECs in part because the supplier was able to provide RECs to all
four facilities through one contract. This flexibility lowered theadministrative cost of purchasing renewable energy for multiple
facilities that are served by different utilities.

D
A

These reductions may be separately quantified, forexample using the GHG Protocol Project Quantification
Standard, and reported in a company’s public GHG
report under optional information in the same way as
GHG trades described above.

I
N

Substituting purchased grid electricity with an on-site
power generation plant (e.g., CHP) may increase acompany’s direct GHG emissions, while reducing the
GHG emissions associated with the generation of gridelectricity. Depending on the GHG intensity and the
supply structure of the electricity grid, this reduction
may be over- or underestimated when merelycomparing scope 2 emissions over time, if the latterare quantified using an average grid emission factor.

For more information on RECs, see the Green Power Market
Development Group’s Corporate Guide to Green Power Markets:
Installment #5 (WRI, 2003).

U

Installing an on-site power generation plant (e.g., a
combined heat and power, or CHP, plant) thatprovides surplus electricity to other companies may
increase a company’s direct emissions, whiledisplacing the consumption of grid electricity by thecompanies supplied. Any resulting emissions reductions at the plants where this electricity would haveotherwise been produced will not be captured in theinventory of the company installing the on-site plant.

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•

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Alcoa: Taking advantageof renewable energy certificates

When companies implement internal projects that reduce
GHGs from their operations, the resulting reductions areusually captured in their inventory’s boundaries. These
reductions need not be reported separately unless they are
sold, traded externally, or otherwise used as an offset or
credit. However, some companies may be able to makechanges to their own operations that result in GHG
emissions changes at sources not included in their own
inventory boundary, or not captured by comparing
emissions changes over time. For example:•

Accounting for GHG Reductions

This problem with the temporary nature of GHG reductions is sometimes
referred to as the “permanence” issue.

3

The term “GHG trades” refers to all purchases or sales of allowances,offsets, and credits.

E

2

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NOTES
1
Primary effects are the specific GHG reducing elements or activities(reducing GHG emissions, carbon storage, or enhancing GHG removals)
that the project is intended to achieve.

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9 Reporting GHG Emissions

A

credible GHG emissions report presents relevant information thatis complete, consistent, accurate and transparent. While it takes

time to develop a rigorous and complete corporate inventory of GHG emissions,knowledge will improve with experience in calculating and reporting data. It istherefore recommended that a public GHG report:• Be based on the best data available at the time of publication, while beingtransparent about its limitations• Communicate any material discrepancies identified in previous years• Include the company’s gross emissions for its chosen inventory boundary
separate from and independent of any GHG trades it might engage in.
S T A N D A R D
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CHAPTER 9

Reported information shall be “relevant, complete,consistent, transparent and accurate.” The GHG Protocol
Corporate Standard requires reporting a minimum ofscope 1 and scope 2 emissions.

Reporting GHG Emissions

63

Optional information
A public GHG emissions report should include, whenapplicable, the following additional information:

I N F O R M AT I O N O N E M I S S I O N S A N D P E R F O R M A N C E

Required information
A public GHG emissions report that is in accordancewith the GHG Protocol Corporate Standard shall include
the following information:

DESCRIPTION OF THE COMPANY AND INVENTORY BOUNDARY• An outline of the organizational boundaries chosen,
including the chosen consolidation approach.
• An outline of the operational boundaries chosen, and if
scope 3 is included, a list specifying which types ofactivities are covered.
• The reporting period covered.

I N F O R M AT I O N O N E M I S S I O N S• Emissions data further subdivided, where this aidstransparency, by business units/facilities, country,
source types (stationary combustion, process, fugitive,etc.), and activity types (production of electricity,transportation, generation of purchased electricity
that is sold to end users, etc.).
• Emissions attributable to own generation of electricity, heat, or steam that is sold or transferred toanother organization (see chapter 4).
• Emissions attributable to the generation of electricity,heat or steam that is purchased for re-sale to non-end
users (see chapter 4).
• A description of performance measured againstinternal and external benchmarks.

• Emissions data for all six GHGs separately (CO2, CH4,
N2O, HFCs, PFCs, SF6) in metric tonnes and in tonnesof CO2 equivalent.

• Relevant ratio performance indicators (e.g. emissions
per kilowatt-hour generated, tonne of material
production, or sales).

• Year chosen as base year, and an emissions profile overtime that is consistent with and clarifies the chosen
policy for making base year emissions recalculations.

• An outline of any GHG management/reduction
programs or strategies.

A• Information on any contractual provisions addressing
GHG-related risks and obligations.

N• An outline of any external assurance provided and a
copy of any verification statement, if applicable, of thereported emissions data.

D• Appropriate context for any significant emissionschanges that trigger base year emissions recalculation(acquisitions/divestitures, outsourcing/insourcing,changes in reporting boundaries or calculation
methodologies, etc.).

S• Emissions data separately for each scope.

• Emissions from GHGs not covered by the Kyoto
Protocol (e.g., CFCs, NOx ,), reported separatelyfrom scopes.

T• Total scope 1 and 2 emissions independent of any
GHG trades such as sales, purchases, transfers, orbanking of allowances.

• Emissions data from relevant scope 3 emissions activities for which reliable data can be obtained.

A• Emissions data for direct CO2 emissions from biologically sequestered carbon (e.g., CO2 from burning
biomass/biofuels), reported separately from the scopes.

R• Methodologies used to calculate or measure emissions,providing a reference or link to any calculation tools used.

D• Any specific exclusions of sources, facilities,
and / or operations.

D

Reporting GHG Emissions

R• Information on the causes of emissions changes that
did not trigger a base year emissions recalculation(e.g., process changes, efficiency improvements,
plant closures).

DA• GHG emissions data for all years between the baseyear and the reporting year (including details of andreasons for recalculations, if appropriate)N• Information on the quality of the inventory (e.g., information on the causes and magnitude of uncertainties
in emission estimates) and an outline of policies inplace to improve inventory quality. (see chapter 7).

A• Information on any GHG sequestration.
• A list of facilities included in the inventory.

S

T• A contact person.

64

CHAPTER 9I N F O R M AT I O N O N O F F S E T S• Information on offsets that have been purchased ordeveloped outside the inventory boundary, subdivided
by GHG storage/removals and emissions reduction
projects. Specify if the offsets are verified/certified(see chapter 8) and/or approved by an external GHG
program (e.g., the Clean Development Mechanism,
Joint Implementation).
• Information on reductions at sources inside the inventory boundary that have been sold/transferred as
offsets to a third party. Specify if the reduction has
been verified/certified and/or approved by an external
GHG program (see chapter 8).

CHAPTER 9

B

y following the GHG Protocol Corporate Standard
reporting requirements, users adopt a comprehensive standard with the necessary detail andtransparency for credible public reporting. The
appropriate level of reporting of optional information
categories can be determined by the objectives andintended audience for the report. For national or
voluntary GHG programs, or for internal management
purposes, reporting requirements may vary (Appendix C
summarizes the requirements of various GHG programs).
For public reporting, it is important to differentiate
between a summary of a public report that is, forexample, published on the Internet or in Sustainability/
Corporate Social Responsibility reporting (e.g.,
Global Reporting Initiative) and a full public reportthat contains all the necessary data as specified by thereporting standard spelled out in this volume. Not
every circulated report must contain all informationas specified by this standard, but a link or reference
needs to be made to a publicly available full report
where all information is available.

Double Counting
Companies should take care to identify and exclude from
reporting any scope 2 or scope 3 emissions that arealso reported as scope 1 emissions by other facilities,business units, or companies included in the emissions
inventory consolidation (see chapter 6).

Use of ratio indicators
Two principal aspects of GHG performance are ofinterest to management and stakeholders. One concerns
the overall GHG impact of a company — that is theabsolute quantity of GHG emissions released to theatmosphere. The other concerns the company’s GHG
emissions normalized by some business metric that
results in a ratio indicator. The GHG Protocol Corporate
Standard requires reporting of absolute emissions;
reporting of ratio indicators is optional.
Ratio indicators provide information on performance
relative to a business type and can facilitate comparisons between similar products and processes over time.
Companies may choose to report GHG ratio indicatorsin order to:• Evaluate performance over time (e.g., relate figuresfrom different years, identify trends in the data, andshow performance in relation to targets and baseyears (see chapter 11).

A
N
C
E

It is important to recognize that the inherent diversityof businesses and the circumstances of individualcompanies can result in misleading indicators.
Apparently minor differences in process, product, or
location can be significant in terms of environmental
effect. Therefore, it is necessary to know the business
context in order to be able to design and interpret
ratio indicators correctly.

D• Improve comparability between different sizes of business and operations by normalizing figures (e.g., byassessing the impact of different sized businesses on
the same scale).

I• Establish a relationship between data from different
categories. For example, a company may want toestablish a relationship between the value that anaction provides (e.g., price of a tonne of product) and
its impact on society or on the environment (e.g.,
emissions from product manufacturing).

U

Companies should strive to create a report that is astransparent, accurate, consistent and complete as
possible. Structurally, this may be achieved by adopting
the reporting categories of the standard (e.g., required
description of the company and inventory boundary,required information on corporate emissions, optional
information on emissions and performance, andoptional information on offsets) as a basis of the report.
Qualitatively, including a discussion of the reporting
company’s strategy and goals for GHG accounting,
any particular challenges or tradeoffs faced, thecontext of decisions on boundaries and other accounting
parameters, and an analysis of emissions trends
may help provide a complete picture of the company’s
inventory efforts.

65

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For some companies, providing emissions data for
specific GHGs or facilities /business units, or reporting
ratio indicators, may compromise business confidentiality. If this is the case, the data need not be publicly
reported, but can be made available to those auditing the
GHG emissions data, assuming confidentiality is secured.

Reporting GHG Emissions

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Reporting GHG Emissions

P R O D U C T I V I T Y / E F F I C I E N C Y R AT I O S .

Productivity/efficiency ratios express the value or
achievement of a business divided by its GHG impact.
Increasing efficiency ratios reflect a positive performance improvement. Examples of productivity/efficiency
ratios include resource productivity (e.g., sales per
GHG) and process eco-efficiency (e.g., production
volume per amount of GHG).

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Companies may develop ratios that make most sense
for their business and are relevant to their decisionmaking needs. They may select ratios for externalreporting that improve the understanding and clarify
the interpretation of their performance for theirstakeholders. It is important to provide some perspective on issues such as scale and limitations of
indicators in a way that users understand the natureof the information provided. Companies should
consider what ratio indicators best capture the benefits and impacts of their business, i.e., its operations,its products, and its effects on the marketplace and on
the entire economy. Some examples of different ratio
indicators are provided here.

MidAmerican:
Setting ratio indicators for a utility company
MidAmerican Energy Holdings Company, an energy company
based in Iowa, wanted a method to track a power plant’s GHG
intensity, while also being able to roll individual plant results
into a corporate “generation portfolio” GHG intensity indicator.
MidAmerican also wanted to be able to take into account the GHG
benefits from planned renewable generation, as well as measure
the impacts of other changes to its generation portfolio over time(e.g., unit retirements or new construction). The company adopted
a GHG intensity indicator that specifically measures pounds of
direct emissions over total megawatt hours generated (lbs/MWh).
To measure its direct emissions, the company leverages data
currently gathered to satisfy existing regulatory requirements
and, where gaps might exist, uses fuel calculations. For coalfired units, that means mainly using continuous emissions
monitoring (CEM) data and the U.S. Environmental Protection
Agency’s emission factors for natural gas- and fuel oil-fired
units. Using the GHG Protocol Corporate Standard, the company
completes an annual emission inventory for each of its fossilfired plants, gathering together a) fuel volume and heat input
data, b) megawatt production data, c) CEMs data, and d) fuelcalculations using appropriate emission factors.

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For example, in 2001, using CEM data and fuel calculations, thecompany’s Iowa utility business emitted roughly 23 million tonnesof CO2, while generating approximately 21 million megawatt hours.
Its 2001 GHG intensity indicator calculates to approximately
2,177 lbs/MWh of CO2, reflecting the Iowa utility company’s relianceon traditional coal-fired generation.
By 2008, the Iowa utility company will have constructed a new
790 MW coal-fueled plant, a 540 MW combined-cycle natural gas
plant, and a 310 MW wind-turbine farm and added them to its
generation portfolio. The utility company’s overall CO2 emissions
will increase, but so will its megawatt production. The combined
emissions from the new coal- and gas-fired plants will be added
to the GHG intensity indicator’s numerator, while the megawatt
production data from all three facilities will be added to the indicator’s denominator. More importantly, and the ratio indicatorillustrates this, over time MidAmerican’s GHG intensity will
decline as more efficient generation is brought online and older
power plants are used less or retired altogether.

CHAPTER 9

Reporting GHG Emissions

67

I N T E N S I T Y R AT I O S . Intensity ratios express GHG

impact per unit of physical activity or unit of economic
output. A physical intensity ratio is suitable when aggregating or comparing across businesses that have similar
products. An economic intensity ratio is suitable whenaggregating or comparing across businesses that
produce different products. A declining intensity ratio
reflects a positive performance improvement. Manycompanies historically tracked environmental performance with intensity ratios. Intensity ratios are often
called “normalized” environmental impact data.
Examples of intensity ratios include product emission
intensity (e.g., tonnes of CO2 emissions per electricity
generated); service intensity (e.g., GHG emissions perfunction or per service); and sales intensity (e.g., emissions per sales).

P E R C E N T A G E S . A percentage indicator is a ratio

between two similar issues (with the same physical unit
in the numerator and the denominator). Examples ofpercentages that can be meaningful in performance
reports include current GHG emissions expressed as apercentage of base year GHG emissions.
For further guidance on ratio indicators refer to CCAR,
2003; GRI, 2002; Verfaillie and Bidwell, 2000.

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10 Verification of GHG Emissions

Verification is an objective assessment of the accuracy and completenessof reported GHG information and the conformity of this information topre-established GHG accounting and reporting principles. Although the practiceof verifying corporate GHG inventories is still evolving the emergence of widely
accepted standards, such as the GHG Protocol Corporate Standard and the forthcoming GHG Protocol Project Quantification Standard, should help GHG verification
become more uniform, credible, and widely accepted.

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CHAPTER 10

Verification of GHG Emissions

This chapter provides an overview of the key elements ofa GHG verification process. It is relevant to companies
who are developing GHG inventories and have planned
for, or are considering, obtaining an independent verification of their results and systems. Furthermore, as theprocess of developing a verifiable inventory is largely thesame as that for obtaining reliable and defensible data,
this chapter is also relevant to all companies regardlessof any intention to commission a GHG verification.

• Improvement of internal accounting and reporting
practices (e.g., calculation, recording and internalreporting systems, and the application of GHG
accounting and reporting principles), and facilitating
learning and knowledge transfer within the company

Verification involves an assessment of the risks of material discrepancies in reported data. Discrepancies relate
to differences between reported data and data generated
from the proper application of the relevant standards
and methodologies. In practice, verification involves theprioritization of effort by the verifier towards the data
and associated systems that have the greatest impact onoverall data quality.

Internal assurance

Relevance of GHG principles

C
E

While the concept of materiality involves a value judgment, the point at which a discrepancy becomes material(materiality threshold) is usually pre-defined. As a rule ofthumb, an error is considered to be materially misleadingN

The concept of “materiality” is essential to understanding
the process of verification. Chapter 1 provides a usefulinterpretation of the relationship between the principle ofcompleteness and the concept of materiality. Informationis considered to be material if, by its inclusion or exclusion, it can be seen to influence any decisions or actions
taken by users of it. A material discrepancy is an error(for example, from an oversight, omission or miscalculation) that results in a reported quantity or statement
being significantly different to the true value or meaning.
In order to express an opinion on data or information, averifier would need to form a view on the materiality of
all identified errors or uncertainties.

A• Increased senior management confidence in reported
information on which to base investment and targetsetting decisions

The concept of materiality

D• Increased credibility of publicly reported emissions
information and progress towards GHG targets,leading to enhanced stakeholder trust

Internal verification can be a worthwhile learning experience for a company prior to commissioning an externalverification by a third party. It can also provide externalverifiers with useful information to begin their work.

I

Before commissioning an independent verification, acompany should clearly define its goals and decide
whether they are best met by an external verification.
Common reasons for undertaking a verification include:

While verification is often undertaken by an independent,
external third party, this may not always be the case.
Many companies interested in improving their GHG
inventories may subject their information to internalverification by personnel who are independent of
the GHG accounting and reporting process. Bothinternal and external verification should follow similar
procedures and processes. For external stakeholders,external third part verification is likely to significantly
increase the credibility of the GHG inventory. However,independent internal verifications can also provide
valuable assurance over the reliability of information.

U

Goals

• Preparation for mandatory verification requirementsof GHG programs.

G

The primary aim of verification is to provide confidence
to users that the reported information and associatedstatements represent a faithful, true, and fair account of
a company’s GHG emissions. Ensuring transparency andverifiability of the inventory data is crucial for verification. The more transparent, well controlled and well
documented a company’s emissions data and systems
are, the more efficient it will be to verify. As outlined inchapter 1, there are a number of GHG accounting andreporting principles that need to be adhered to whencompiling a GHG inventory. Adherence to these principles and the presence of a transparent, well-documented
system (sometimes referred to as an audit trail) is thebasis of a successful verification.

69

E• The state of calibration and maintenance of meters
used, and the types of meters used

The verifier needs to assess an error or omission in thefull context within which information is presented. For
example, if a 2% error prevents a company fromachieving its corporate target then this would most likely
be considered material. Understanding how verifiers
apply a materiality threshold will enable companies tomore readily establish whether the omissions of an individual source or activity from their inventory is likely toraise questions of materiality.

• Reliability and availability of input data

Materiality thresholds may also be outlined in therequirements of a specific GHG program or determinedby a national verification standard, depending on who
is requiring the verification and for what reasons. A
materiality threshold provides guidance to verifiers on
what may be an immaterial discrepancy so that they canconcentrate their work on areas that are more likely
to lead to materially misleading errors. A materiality
threshold is not the same as de minimis emissions, ora permissible quantity of emissions that a company canleave out of its inventory.

Establishing the verification parameters

Assessing the risk of material discrepancy

The company and verifier should reach an agreement upfront on the scope, level and objective of the verification.
This agreement (often referred to as the scope of work) willaddress issues such as which information is to be includedin the verification (e.g., head office consolidation only or
information from all sites), the level of scrutiny to which
selected data will be subjected (e.g., desk top review oron-site review), and the intended use of the results of theverification). The materiality threshold is another item tobe considered in the scope of work. It will be of key consideration for both the verifier and the company, and is linked
to the objectives of the verification.

G

U

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D

A

N

if its value exceeds 5% of the total inventory for the partof the organization being verified.

C

Verification of GHG Emissions

Verifiers need to assess the risk of material discrepancyof each component of the GHG information collection andreporting process. This assessment is used to plan anddirect the verification process. In assessing this risk, they
will consider a number of factors, including:• The structure of the organization and the approach
used to assign responsibility for monitoring andreporting GHG emissions• The approach and commitment of management to
GHG monitoring and reporting• Development and implementation of policies andprocesses for monitoring and reporting (including
documented methods explaining how data is generated
and evaluated)• Processes used to check and review calculation
methodologies• Complexity and nature of operations• Complexity of the computer information system used
to process the information

70

C H A P T E R 10

• Assumptions and estimations applied• Aggregation of data from different sources• Other assurance processes to which the systems anddata are subjected (e.g., internal audit, external
reviews and certifications).

The scope of an independent verification and the level ofassurance it provides will be influenced by the company's
goals and/or any specific jurisdictional requirements. It
is possible to verify the entire GHG inventory or specificparts of it. Discrete parts may be specified in terms ofgeographic location, business units, facilities, and type ofemissions. The verification process may also examine
more general managerial issues, such as quality management procedures, managerial awareness, availability ofresources, clearly defined responsibilities, segregation ofduties, and internal review procedures.

The scope of work is influenced by what the verifier actually finds once the verification commences and, as a result,the scope of work must remain sufficiently flexible toenable the verifier to adequately complete the verification.
A clearly defined scope of work is not only importantto the company and verifier, but also for external
stakeholders to be able to make informed and appropriate decisions. Verifiers will ensure that specificexclusions have not been made solely to improve thecompany’s performance. To enhance transparency andcredibility companies should make the scope of work
publicly available.

CHAPTER 10

Verification of GHG Emissions

Site visits

Timing of the verification

Depending on the level of assurance required fromverification, verifiers may need to visit a number of sites
to enable them to obtain sufficient, appropriate evidence
over the completeness, accuracy and reliability ofreported information. The sites visited should be representative of the organization as a whole. The selection ofsites to be visited will be based on consideration of anumber of factors, including:

The engagement of a verifier can occur at various points
during the GHG preparation and reporting process.
Some companies may establish a semi-permanentinternal verification team to ensure that GHG data standards are being met and improved on an on-going basis.

• Nature of the operations and GHG sources at each site
• Complexity of the emissions data collection andcalculation process• Percentage contribution to total GHG emissions fromeach site• The risk that the data from sites will bematerially misstated71

Verification that occurs during a reporting period allows
for any reporting deficiencies or data issues to beaddressed before the final report is prepared. This may
be particularly useful for companies preparing highprofile public reports. However, some GHG programs
may require, often on a random selection basis, an independent verification of the GHG inventory following thesubmission of a report (e.g., World Economic Forum
Global GHG Registry, Greenhouse Challenge program inAustralia, EU ETS). In both cases the verification
cannot be closed out until the final data for the period
has been submitted.

• Competencies and training of key personnel• Results of previous reviews, verifications, anduncertainty analyses.

G

PricewaterhouseCoopers:
GHG inventory verification — lessons from the fieldU
N
C
E

The GHG Protocol Corporate Standard has been crucial in helping
PwC to design an effective GHG verification methodology. Since thepublication of the first edition, PwC has witnessed rapid improvements in the quality and verifiability of GHG data reported. In
particular the quantification on non-CO2 GHGs and combustion
emissions has dramatically improved. Cement sector emissions
verification has been made easier by the release of the WBCSD
cement sector tool. GHG emissions from purchased electricity areOver the past 3 years PwC has noticed a gradual evolution of
GHG verification practices from “customized” and “voluntary” to“standardized” and “mandatory.” The California Climate Action
Registry, World Economic Forum Global GHG Registry and theforthcoming EU ETS (covering 12,000 industrial sites in Europe)require some form of emissions verification. In the EU ETS GHG
verifiers will likely have to be accredited by a national body. GHG
verifier accreditation processes have already been established in
the UK for its domestic trading scheme, and in California for registering emissions in the CCAR.

A

2. Identification of any material discrepancies.

However, experience has shown that for most companies, GHG datafor 1990 is too unreliable to provide a verifiable base year for the
purposes of tracking emissions over time or setting a GHG target.
Challenges also remain in auditing GHG emissions embedded inwaste fuels, co-generation, passenger travel, and shipping.

D

1. An evaluation of whether the GHG accounting and reporting
methodology (e.g., GHG Protocol Corporate Standard) has beencorrectly implemented

also easy to verify since most companies have reliable data on MWhconsumed and emission factors are publicly available.

I

PricewaterhouseCoopers (PwC), a global services company, hasbeen conducting GHG emissions verifications for the past 10 years
in various sectors, including energy, chemicals, metals, semiconductors, and pulp and paper. PwC’s verification process involves
two key steps:

Verification of GHG Emissions

E

Selecting a verifierC

Some factors to consider when selecting a verifier
include their:N• previous experience and competence in undertaking
GHG verificationsA• understanding of GHG issues including calculation
methodologiesD• understanding of the company’s operations andindustry• objectivity, credibility, and independence.

G

U

I

It is important to recognize that the knowledge and qualifications of the individual(s) conducting the verification
can be more important than those of the organization(s)they come from. Companies should select organizations
based on the knowledge and qualifications of their actual
verifiers and ensure that the lead verifier assigned tothem is appropriately experienced. Effective verificationof GHG inventories often requires a mix of specializedskills, not only at a technical level (e.g., engineeringexperience, industry specialists) but also at a businesslevel (e.g., verification and industry specialists).

Preparing for a GHG verification
The internal processes described in chapter 7 are likely
to be similar to those followed by an independent verifier. Therefore, the materials that the verifiers need aresimilar. Information required by an external verifier islikely to include the following:• Information about the company's main activities and
GHG emissions (types of GHG produced, descriptionof activity that causes GHG emissions)• Information about the company/groups/organization (list of subsidiaries and their geographic
location, ownership structure, financial entities
within the organization)• Details of any changes to the company’s organizational boundaries or processes during the period,
including justification for the effects of these changes
on emissions data

72

C H A P T E R 10

• Details of joint venture agreements, outsourcing andcontractor agreements, production sharing agreements, emissions rights and other legal or contractual
documents that determine the organizational andoperational boundaries• Documented procedures for identifying sources ofemissions within the organizational and operationalboundaries• Information on other assurance processes to which thesystems and data are subjected (e.g. internal audit,
external reviews and certifications)• Data used for calculating GHG emissions. This might,
for example, include:•

Energy consumption data (invoices, delivery notes,
weigh-bridge tickets, meter readings: electricity,
gas pipes, steam, and hot water, etc.)•

Production data (tonnes of material produced, kWhof electricity produced, etc.)•

Raw material consumption data for mass balancecalculations (invoices, delivery notes, weighbridge
tickets, etc.)•

Emission factors (laboratory analysis etc.).

• Description of how GHG emissions data havebeen calculated:•

Emission factors and other parameters used andtheir justification•

Assumptions on which estimations are based•

Information on the measurement accuracy of
meters and weigh-bridges (e.g., calibration records),
and other measurement techniques•

Equity share allocations and their alignment withfinancial reporting•

Documentation on what, if any, GHG sources or
activities are excluded due to, for example, technical or cost reasons.

• Information gathering process:•Description of the procedures and systems used tocollect, document and process GHG emissions dataat the facility and corporate level•

Description of quality control procedures applied(internal audits, comparison with last year’s data,
recalculation by second person, etc.).

CHAPTER 10• Other information:•

Selected consolidation approach as defined inchapter 3•list of (and access to) persons responsible forcollecting GHG emissions data at each site and at
the corporate level (name, title, e-mail, and telephone numbers)•

information on uncertainties, qualitative and if
available, quantitative.

Appropriate documentation needs to be available tosupport the GHG inventory being subjected to externalverification. Statements made by management for which
there is no available supporting documentation cannot be
verified. Where a reporting company has not yet implemented systems for routinely accounting and recording
GHG emissions data, an external verification will bedifficult and may result in the verifier being unable toissue an opinion. Under these circumstances, the verifiers may make recommendations on how current datacollection and collation process should be improved sothat an opinion can be obtained in future years.

73

As well as issuing an opinion on whether the reported
information is free from material discrepancy, the verifiers may, depending on the agreed scope of work, also
issue a verification report containing a number of recommendations for future improvements. The process ofverification should be viewed as a valuable input to theprocess of continual improvement. Whether verificationis undertaken for the purposes of internal review, public
reporting or to certify compliance with a particular
GHG program, it will likely contain useful informationand guidance on how to improve and enhance acompany’s GHG accounting and reporting system.
Similar to the process of selecting a verifier, those
selected to be responsible for assessing and implementing responses to the verification findings should
also have the appropriate skills and understanding of
GHG accounting and reporting issues.

G
U

Companies are responsible for ensuring the existence,
quality and retention of documentation so as to create
an audit trail of how the inventory was compiled. If
a company issues a specific base year against which it
assesses its GHG performance, it should retain all
relevant historical records to support the base year data.
These issues should be born in mind when designing andimplementing GHG data processes and procedures.

Verification of GHG Emissions

I

Using the verification findings
D
A
NC

Before the verifiers will verify that an inventory has met
the relevant quality standard, they may require thecompany to adjust any material errors that they identified during the course of the verification. If the verifiers
and the company cannot come to an agreement
regarding adjustments, then the verifier may not be able
to provide the company with an unqualified opinion. All
material errors (individually or in aggregate) need to beamended prior to the final verification sign off.

E

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E

11 Setting a GHG TargetS

etting targets is a routine business practice that helps ensure that
an issue is kept on senior management’s “radar screen” and factored

into relevant decisions about what products and services to provide and whatmaterials and technologies to use. Often, a corporate GHG emission reduction
target is the logical follow-up to developing a GHG inventory.

G U I D A N C E

74

5. Define the target completion date
Set a long- or short-term target?

6. Define the length of the target commitment period
Set a one-year or multi-year commitment period?

G

7. Decide on the use of offsets or credits

U

8. Establish a target double counting policy
How to deal with double counting of reductions across companies?
How does GHG trading affect target performance?

I

➡

D
A

9. Decide on the target level
What is business-as-usual? How far to go beyond that?
How do all the above steps influence the decision?

➡

N

10. Track and report progress
Make regular performance checks
Report information in relation to the targetCE• P R E P A R I N G F O R F U T U R E R E G U L AT I O N SInternal accountability and incentive mechanisms thatare established to support a target’s implementation
can also equip companies to respond more effectively
to future GHG regulations. For example, some companies have found that experimenting with internal GHG
trading programs has allowed them to better understand the possible impacts of future trading programson the company.

4. Choose the target base year
Use a fixed or rolling approach?
Use a single or multi-year approach?

➡

Implementing a GHG target can result in cost savingsby driving improvements in process innovation andresource efficiency. Targets that apply to products candrive R&D, which in turn creates products and services that can increase market share and reduce
emissions associated with the use of products.

3. Decide on the target boundary
Which GHGs to include?
Which direct and indirect emissions?
Which geographical operations?
Treat business types separately?

➡

A N D S T I M U L AT I N G I N N O VAT I O N

2. Decide on the target typeSet an absolute or intensity target?

➡

• A C H I E V I N G C O S T S AV I N G S

1. Obtain senior management commitment➡

• MINIMIZING AND MANAGING GHG RISKS
While developing a GHG inventory is an important
step towards identifying GHG risks and opportunities,
a GHG target is a planning tool that can actually drive
GHG reductions. A GHG target will help raise internal
awareness about the risks and opportunities presented
by climate change and ensure the issue is on the business agenda. This can serve to minimize and more
effectively manage the business risks associated withclimate change.

Steps in setting a GHG target➡

Any robust business strategy requires setting targets forrevenues, sales, and other core business indicators, aswell as tracking performance against those targets.
Likewise, effective GHG management involves settinga GHG target. As companies develop strategies to reduce
the GHG emissions of their products and operations,
corporate-wide GHG targets are often key elements ofthese efforts, even if some parts of the company areor will be subject to mandatory GHG limits. Common
drivers for setting a GHG target include:

FIGURE 12.

75➡

Why Set a GHG Target?

Setting a GHG Target·

This chapter provides guidance on the process of setting
and reporting on a corporate GHG target. Although
the chapter focuses on emissions, many of the considerations equally apply to GHG sequestration (seeAppendix B). It is not the purpose of this chapter toprescribe what a company’s target should be, rather thefocus is on the steps involved, the choices to be made,and the implications of those choices.

CHAPTER 11

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Setting a GHG Target• D E M O N S T R AT I N G L E A D E R S H I P

G

U

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D

A

N

C

A N D C O R P O R AT E R E S P O N S I B I L I T YWith the emergence of GHG regulations in many partsof the world, as well as growing concern about theeffects of climate change, a commitment such as
setting a public corporate GHG target demonstrates
leadership and corporate responsibility. This canimprove a company’s standing with customers,
employees, investors, business partners, and the public,
and enhance brand reputation.

A B S O L U T E T A R G E T S reduce absolute emissions over time
(Example: reduce CO2 by 25 percent below 1994 levels by 2010)• P A R T I C I P AT I N G I N V O L U N T A R Y P R O G R A M S
A growing number of voluntary GHG programs are
emerging to encourage and assist companies insetting, implementing, and tracking progress toward
GHG targets. Participation in voluntary programs
can result in public recognition, may facilitate recognition of early action by future regulations, andenhance a company’s GHG accounting and reporting
capacity and understanding.

• Transparently addresses potential stakeholder concerns about
the need to manage absolute emissions

Steps in Setting a Target
Setting a GHG target involves making choices among
various strategies for defining and achieving a GHG
reduction. The business goals, any relevant policy
context, and stakeholder discussions should inform
these choices.
The following sections outline the ten steps involved.
Although presented sequentially, in practice target
setting involves cycling back and forth between the steps.
It is assumed that the company has developed a GHG
inventory before implementing these steps. Figure 12
summarizes the steps.

1. Obtain senior management commitment
As with any corporate wide target, senior managementbuy-in and commitment particularly at the board/CEO
level is a prerequisite for a successful GHG reduction
program. Implementing a reduction target is likely tonecessitate changes in behavior and decision-making
throughout the organization. It also requires establishing an internal accountability and incentive systemand providing adequate resources to achieve the target.
This will be difficult, if not impossible, without senior
management commitment.

76

B O X 4 . Comparing absolute and intensity targets

C H A P T E R 11

Advantages• Designed to achieve a reduction in a specified quantity of GHGs
emitted to the atmosphere• Environmentally robust as it entails a commitment to reduce GHGs by
a specified amount

Disadvantages• Target base year recalculations for significant structural changes
to the organization add complexity to tracking progress over time
• Does not allow comparisons of GHG intensity/efficiency• Recognizes a company for reducing GHGs by decreasing production or output (organic decline, see chapter 5)• May be difficult to achieve if the company grows unexpectedly
and growth is linked to GHG emissions
I N T E N S I T Y T A R G E T S reduce the ratio of emissions relative toa business metric over time (Example: reduce CO2 by 12 percent per
tonne of clinker between 2000 and 2008)
Advantages• Reflects GHG performance improvements independent of organic
growth or decline• Target base year recalculations for structural changes areusually not required (see step 4)• May increase the comparability of GHG performance among companies
Disadvantages• No guarantee that GHG emissions to the atmosphere will be
reduced—absolute emissions may rise even if intensity goes
down and output increases• Companies with diverse operations may find it difficult to define
a single common business metric• If a monetary variable is used for the business metric, such as
dollar of revenue or sales, it must be recalculated for changes in
product prices and product mix, as well as inflation, adding
complexity to the tracking process

CHAPTER 11

Setting a GHG Target

77

Royal Dutch/Shell: The target cascade
The Royal Dutch/Shell Group, a global energy corporation, discovered when implementing its voluntary GHG reduction target that one of
the biggest challenges was to cascade the target down to the actions of all employees who influence target performance. It was concluded
that successful implementation required different targets at different levels of the company. This is because each of the components that
underlie absolute GHG emissions is influenced by decision-making at various management levels (from the corporate level down to individual businesses and facilities).
Absolute GHG emissions at a plant (tonnes of CO 2-e.) = Function (MP x BPE x PE)
MP

Quantity of product manufactured by a facility. This is fundamental to the need to grow and is therefore controlled at corporate
level. GHG emissions are typically not managed by limiting this component.

BPE

Best process energy use per tonne. The optimal (or theoretical) energy consumed (translates to emissions) by a particular
design of plant. The type of plant built is a business-level decision. Significant capital decisions may be involved in building a
new plant incorporating new technology. For existing plants, BPE is improved by significant design change and retrofitting. This
could also involve large capital expenditure.

PE

Plant efficiency index. An index that indicates how the plant is actually performing relative to BPE. PE is a result of day-to-day
decisions taken by plant operators and technicians. It is improved also by the Shell Global Solutions EnergiseTM programme,
which typically requires low capital expenditure to implement.

Royal Dutch/Shell found that while this model is probably an oversimplification when it comes to exploration and production facilities, it
is suitable for manufacturing facilities (e.g., refineries and chemical plants). It illustrates that an absolute target could only be set at thecorporate level, while lower levels require intensity or efficiency targets.
LEVEL OF DECISION-MAKING(IN GENERAL AND ON TARGET)

Reduce absolute emissions

See below

Corporate

MP: not normally constrained--------All levels depending on scale(e.g. new venture, new plant, operational)

Reduce GHG intensity

See below

Business in consultation with corporate

Building new plants
with new technology

Business

Retrofitting and changing
design of plants

Business

Increase plant
operating efficiency

Facility, supported by Shell Global Solutions EnergiseTM

Improve BPE(efficiency)

I

Improve PE(efficiency)U

A C T I O N S T H AT
REDUCE EMISSIONSGTYPE OF TARGET

D

2. Decide on the target type

C
E

The target boundary defines which GHGs, geographic operations, sources, and activities are covered by the target.
The target and inventory boundary can be identical, orN

3. Decide on the target boundaryA

There are two broad types of GHG targets: absolute andintensity-based. An absolute target is usually expressedin terms of a reduction over time in a specified quantityof GHG emissions to the atmosphere, the unit typically
being tonnes of CO2-e. An intensity target is usually
expressed as a reduction in the ratio of GHG emissions
relative to another business metric.1 The comparative
metric should be carefully selected. It can be the outputof the company (e.g. tonne CO2-e per tonne product, perkWh, per tonne mileage) or some other metric such as
sales, revenues or office space. To facilitate transparency,
companies using an intensity target should also report theabsolute emissions from sources covered by the target.

Box 4 summarizes the advantages and disadvantagesof each type of target. Some companies have both anabsolute and an intensity target. Box 5 provides examples of corporate GHG targets. The Royal Dutch/Shell
case study illustrates how a corporate wide absolutetarget can be implemented by formulating a combination of intensity targets at lower levels ofdecision-making within the company.

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Setting a GHG Target

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C

the target may address a specified subset of the sources
included in the company inventory. The quality of the GHG
inventory should be a key factor informing this choice. The
questions to be addressed in this step include the following:

ABSOLUTE TARGETS• ABB Reduce GHGs by 1 percent each year from 1998 through 2005

• W H I C H G H G S ? Targets usually include one or more of
the six major GHGs covered by the Kyoto Protocol.
For companies with significant non-CO2 GHG sources
it usually makes sense to include these to increase therange of reduction opportunities. However, practicalmonitoring limitations may apply to smaller sources.

• Alcoa Reduce GHGs by 25 percent from 1990 levels by 2010, and50 percent from 1990 levels over same period, if inert anode technology succeeds• W H I C H G E O G R A P H I C A L O P E R AT I O N S ? Only country
or regional operations with reliable GHG inventory
data should be included in the target. For companies
with global operations, it makes sense to limit thetarget’s geographical scope until a robust and reliable inventory has been developed for all operations.
Companies that participate in GHG programs
involving trading2 will need to decide whether or not
to include the emissions sources covered in the trading
program in their corporate target. If common sources
are included, i.e., if there is overlap in sources covered
between the corporate target and the trading program,companies should consider how they will address
any double counting resulting from the trading of
GHG reductions in the trading program (see step 8).

• Entergy Stabilize CO2 from U.S. generating facilities at 2000
levels through 2005

• WHICH DIRECT AND INDIRECT EMISSION SOURCES?
Including indirect GHG emissions in a target will
facilitate more cost-effective reductions by increasing
the reduction opportunities available. However,indirect emissions are generally harder to measureaccurately and verify than direct emissions althoughsome categories, such as scope 2 emissions frompurchased electricity, may be amenable to accurate
measurement and verification. Including indirectemissions can raise issues with regard to ownershipand double counting of reductions, as indirect emissions are by definition someone else’s direct emissions(see step 8).
• SEPARATE TARGETS FOR DIFFERENT TYPES OF BUSINESSES?
For companies with diverse operations it may makemore sense to define separate GHG targets fordifferent core businesses, especially when using an
intensity target, where the most meaningful businessmetric for defining the target varies across business
units (e.g., GHGs per tonne of cement produced or
barrel of oil refined).

78

B O X 5 . Selected corporate GHG targets

C H A P T E R 11

• BP Hold net GHGs stable at 1990 levels through 2012
• Dupont Reduce GHGs by 65 percent from 1990 levels by 2010

• Ford Reduce CO2 by 4 percent over 2003-2006 timeframe
based upon average 1998-2001 baseline as part of Chicago
Climate Exchange• Intel Reduce PFCs by 10 percent from 1995 levels by 2010
• Johnson & Johnson Reduce GHGs by 7 percent from 1990 levels by
2010, with interim goal of 4 percent below 1990 levels by 2005
• Polaroid Reduce CO2 emissions 20 percent below its 1994
emissions by year-end 2005; 25 percent by 2010
• Royal Dutch/Shell Manage GHG emissions so that they are still
5 percent or more below the 1990 baseline by 2010, even while
growing the business• Transalta Reduce GHGs to 1990 levels by 2000. Achieve zero net
GHGs from Canadian operations by 2024
INTENSITY TARGETS• Holcim Ltd. Reduce by the year 2010 the Group average specific3
net CO2 emissions by 20 percent from the reference year 1990
• Kansai Electric Power Company Reduce CO2 emissions per kWhsold in fiscal 2010 to approx. 0.34 kg-CO2 /kWh
• Miller Brewing Company Reduce GHGs by 18 percent per barrelof production from 2001 to 2006
• National Renewable Energy Laboratory Reduce GHGs by 10
percent per square foot from 2000 to 2005
COMBINED ABSOLUTE & INTENSITY TARGETS• SC Johnson GHG emissions intensity reduction of 23 percent
by 2005, which represents an absolute or actual GHG reductionof 8 percent• Lafarge Reduce absolute gross CO2 emissions in Annex I countries
10 percent below 1990 levels by the year 2010. Reduce worldwide
average specific net CO2 emissions 20 percent below 1990 levelsby the year 2010 3

CHAPTER 11

4. Choose the target base year
For a target to be credible, it has to be transparent how
target emissions are defined in relation to past emissions.
Two general approaches are available: a fixed target baseyear or a rolling target base year.
• U S I N G A F I X E D T A R G E T B A S E Y E A R . Most GHG

targets are defined as a percentage reduction in emissions below a fixed target base year (e.g., reduce CO2
emissions 25 percent below 1994 levels by 2010).
Chapter 5 describes how companies should track emissions in their inventory over time in reference to a
fixed base year. Although it is possible to use different
years for the inventory base year and the target baseyear, to streamline the inventory and target reporting
process, it usually makes sense to use the same year
for both. As with the inventory base year, it is important to ensure that the emissions data for the target
base year are reliable and verifiable. It is possible touse a multi-year average target base year. The same

TABLE 5.

Setting a GHG Target

79

considerations as described for multi-year averagebase years in chapter 5 apply.
Chapter 5 provides standards on when and how torecalculate base year emissions in order to ensurelike-with-like comparisons over time when structuralchanges (e.g., acquisitions/divestitures) or changes inmeasurement and calculation methodologies alter theemissions profile over time. In most cases, this will
also be an appropriate approach for recalculating data
for a fixed target base year.
• U S I N G A R O L L I N G T A R G E T B A S E Y E A R . Companies

may consider using a rolling target base year if
obtaining and maintaining reliable and verifiable data
for a fixed target base year is likely to be challenging(for example, due to frequent acquisitions). With arolling target base year, the base year rolls forward atregular time intervals, usually one year, so that emissions are always compared against the previous year.4
However, emission reductions can still be collectively

Comparing targets with rolling and fixed base years
FIXED TARGET BASE YEARROLLING TARGET BASE YEAR

If there have been significant structural changes thetime series of absolute emissions will not compare
like with like over more than two years at a time

What is the basis for comparing
emissions between the target
base year and completion year?
(see also Figure 14)

The comparison over time is based onwhat is owned/controlled by the company
in the target completion year.

The comparison over time is based on what wasowned/controlled by the company in the years theinformation was reported6

How far back arerecalculations made?

Emissions are recalculated for all years
back to the fixed target base year

Emissions are recalculated only for the year prior
to the structural change, or ex-post for the yearof the structural change which then becomes thebase year.

How reliable are the target
base year emissions?

If a company with a target acquires acompany that did not have reliable GHG
data in the target base year; backcasting of emissions becomes necessary,
reducing the reliability of the base year

Data from an acquired company’s GHG emissions
are only necessary for the year before the acquisition (or even only from the acquisition onwards),
reducing or eliminating the need for back-casting

When are recalculations made?

The circumstances which trigger recalculations for structural changes etc. (see chapter 5) are
the same under both approaches

E

The time series of absolute emissions
will compare like with likeC

How far back is like-with-likecomparison possible?

N

The previous year

A

A fixed reference year in the past

D

What is the target base year?

I

A target might take the form of “over the next X
years we will reduce emissions every year by Y%
compared to the previous year”5U

A target might take the form “we will
emit X% less in year B than in year A”

G

How might the target be stated?

I

While the standard in chapter 5 applies to absoluteinventory emissions of companies using intensity
targets, recalculations for structural changes for the
purposes of the target are not usually needed unless the
structural change results in a significant change in the
GHG intensity. However, if recalculations for structuralchanges are made for the purposes of the target, theyshould be made for both the absolute emissions and thebusiness metric. If the target business metric becomes
irrelevant through a structural change, a reformulationof the target might be needed (e.g., when a company
refocuses on a different industry but had used anindustry-specific business metric before).

5. Define the target completion date
The target completion date determines whether thetarget is relatively short- or long-term. Long-termtargets (e.g., with a completion year ten years from thetime the target is set) facilitate long-term planning forlarge capital investments with GHG benefits. However,they might encourage later phase-outs of less efficientequipment. Generally, long-term targets depend on
uncertain future developments, which can have opportunities as well as risks, which is illustrated in Figure 13.
A five-year target period may be more practical fororganizations with shorter planning cycles.

6. Define the length of the commitment period
The target commitment period is the period of time
during which emissions performance is actually measured
against the target. It ends with the target completion
date. Many companies use single-year commitment
periods, whereas the Kyoto Protocol, for example, specifies a multi-year “first commitment period” of five years(2008 –2012). The length of the target commitment
period is an important factor in determining a company’slevel of commitment. Generally, the longer the target
commitment period, the longer the period during whichemissions performance counts towards the target.
• EXAMPLE OF A SINGLE YEAR COMMITMENT PERIOD.
Company Beta has a target of reducing emissions by
10 percent compared to its target base year 2000, by
the commitment year 2010. For Beta to meet its target,
it is sufficient for its emissions to be, in the year 2010,
no more than 90 percent of year 2000 emissions.
• EXAMPLE OF A MULTI-YEAR COMMITMENT PERIOD.
Company Gamma has a target of reducing emissions
by 10 percent, compared to its target base year 2000,
by the commitment period 2008 – 2012. For Gamma
to meet its target, its sum total emissions from2008–2012 must not exceed 90 percent of year
2000 emissions times five (number of years in the
F I G U R E 1 3 . Defining the target completion date

Short-term
EMISSIONSR E C A L C U L AT I O N S U N D E R I N T E N S I T Y T A R G E T S

DUThe definition of what triggers a base-year emissions
recalculation is the same as under the fixed base year
approach. The difference lies in how far back emissions
are recalculated. Table 5 compares targets using therolling and fixed base year approaches while Figure 14
illustrates one of the key differences.

G

A

N

C

stated over several years. An example would be “from2001 through 2012, emissions will be reduced by one
percent every year, compared to the previous year.”
When structural or methodological changes occur,
recalculations only need to be made to the previous
year.7 As a result, like-with-like comparisons ofemissions in the “target starting year” (2001 in theexample) and “target completion year” (2012)cannot be made because emissions are not recalculated for all years back to the target starting year.

TIME

Long-term
Uncertainty range

EMISSIONS

E

Setting a GHG Target

TIME

80

C H A P T E R 11

CHAPTER 11

81

Setting a GHG Target

FIGURE 14. Comparing a stabilization target under the fixed and rolling target base year approach
INCREASE

Company A➡

Fixed base year
Company
B

EMISSIONS

1

2

3

➡

A aquires B at
the start of year 3

NO CHANGENO CHANGE➡

CompanyA123

Rolling base year
Company A

1

2

2

3

A stabilization target is one that aims to keep emissions constant over time. In this example, company A acquires company B, which has
experienced organic GHG growth since the target base year (or “starting” year). Under the rolling approach, emissions growth in theacquired company (B) from year 1 to year 2 does not appear as an emissions increase in relation to the target of the acquiring company(A). Thus company A would meet its stabilization target when using the rolling approach but not when using the fixed approach. In parallelto the example in chapter 5, past GHG growth or decline in divested facilities (GHG changes before the divestment) would affect the target
performance under the rolling approach, while it would not be counted under the fixed approach.

EMISSIONSTIMECEMISSIONSN

5 yearsA
E

A GHG target can be met entirely from internal reductions at sources included in the target boundary or
through additionally using offsets that are generated
from GHG reduction projects that reduce emissions at
sources (or enhance sinks) external to the target
boundary.9 The use of offsets may be appropriate when8

D

For a target using a rolling base year, the commitment
period applies throughout: emission performance iscontinuously being measured against the target every
year from when the target is set until the target
completion date.

7. Decide on the use of GHG offsets or credits

1 yearI

Target commitment periods longer than one year canbe used to mitigate the risk of unpredictable events in
one particular year influencing performance against
the target. Figure 15 shows that the length of thetarget commitment period determines how many emissions are actually relevant for target performance.

Short vs. long commitment periods

U

FIGURE 15.

G

commitment period). In other words, its average
emissions over those five years must not exceed
90 percent of year 2000 emissions.

TIME

Setting a GHG Target

N

C

E

the cost of internal reductions is high, opportunities for
reductions limited, or the company is unable to meet its
target because of unexpected circumstances. Whenreporting on the target, it should be specified whether
offsets are used and how much of the target reduction
was achieved using them.

resulting difference is then divided by the corresponding
metric. It is important, however, that absolute emissions
are still reported separately both from offsets and thebusiness metric (see step 9 below).

8. Establish a target double counting policy

A

CREDIBILITY OF OFFSETS AND TRANSPARENCY

G

U

I

D

There are currently no generally accepted methodologies
for quantifying GHG offsets. The uncertainties thatsurround GHG project accounting make it difficult toestablish that an offset is equivalent in magnitude to theinternal emissions it is offsetting.10 This is why companies should always report their own internal emissions
in separate accounts from offsets used to meet thetarget, rather than providing a net figure (see step 10).
It is also important to carefully assess the credibility ofoffsets used to meet a target and to specify the origin
and nature of the offsets when reporting. Informationneeded includes:• the type of project• geographic and organizational origin• how offsets have been quantified• whether they have been recognized by external
programs (CDM, JI, etc.)
One important way to ensure the credibility of offsets is
to demonstrate that the quantification methodology
adequately addresses all of the key project accounting
challenges in chapter 8. Taking these challenges into
account, the forthcoming GHG Protocol Project
Quantification Standard aims to improve the consistency,
credibility, and rigor of project accounting.
Additionally, it is important to check that offsets havenot also been counted towards another organization’s
GHG target. This might involve a contract between thebuyer and seller that transfers ownership of the offset.
Step 8 provides more information on accounting for
GHG trades in relation to a corporate target, including
establishing a policy on double counting.

OFFSETS AND INTENSITY TARGETS

When using offsets under intensity targets, all the above
considerations apply. In order to determine compliancewith the target, the offsets can be subtracted from thefigure used for absolute emissions (the numerator); the82

C H A P T E R 11

This step addresses double counting of GHG reductions
and offsets, as well as allowances issued by external
trading programs. It applies only to companies thatengage in trading (sale or purchase) of GHG offsets orwhose corporate target boundaries interface with othercompanies’ targets or external programs.
Given that there is currently no consensus on how suchdouble counting issues should be addressed, companies
should develop their own “Target Double Counting
Policy.” This should specify how reductions and trades
related to other targets and programs will be reconciledwith their corporate target, and accordingly which typesof double counting situations are regarded as relevant.
Listed here are some examples of double counting thatmight need to be addressed in the policy.
• D O U B L E C O U N T I N G O F O F F S E T S . This can occur whena GHG offset is counted towards the target by both theselling and purchasing organizations. For example,
company A undertakes an internal reduction projectthat reduces GHGs at sources included in its own
target. Company A then sells this project reduction tocompany B to use as an offset towards its target, whilestill counting it toward its own target. In this case,reductions are counted by two different organizations
against targets that cover different emissions sources.
Trading programs address this by using registries that
allocate a serial number to all traded offsets or credits
and ensuring the serial numbers are retired once
they are used. In the absence of registries this could
be addressed by a contract between seller and buyer.
• D O U B L E C O U N T I N G D U E T O T A R G E T O V E R L A P. 11
This can occur when sources included under acompany’s corporate target are also subject to limits
by an external program or another company’s target.
Two examples:•

Company A has a corporate target that includes
GHG sources that are also regulated under a trading
program. In this case, reductions at the common
sources are used by company A to meet both its
corporate target and the trading program target.

CHAPTER 11•

Setting a GHG Target

83

Company B has a corporate target to reduce its
direct emissions from the generation of electricity.12
Company C who purchases electricity directly fromcompany B also has a corporate target that
includes indirect emissions from the purchase ofelectricity (scope 2). Company C undertakes energy
efficiency measures to reduce its indirect emissions
from the use of the electricity. These will usuallyshow up as reductions in both companies’ targets.13

These two examples illustrate that double counting isinherent when the GHG sources where the reductions occur
are included in more than one target of the same ordifferent organizations. Without limiting the scope oftargets it may be difficult to avoid this type of double
counting and it probably does not matter if the double
counting is restricted to the organizations sharing the same
sources in their targets (i.e., when the two targets overlap).
•

D O U B L E C O U N T I N G O F A L L O WA N C E S T R A D E D I N

The Holcim case study describes how one company has
chosen to track performance towards its target andaddress double counting issues.

9. Decide on the target level
The decision on setting the target level should be
informed by all the previous steps. Other considerations
to take into account include:I
D• Understanding the key drivers affecting GHG emissions by examining the relationship between GHG
emissions and other business metrics, such as production, square footage of manufacturing space, numberof employees, sales, revenue, etc.

U

• Looking at the future of the company as it relates to
GHG emissions.

C• Factoring in relevant growth factors such as productionplans, revenue or sales targets, and Return on Investment(ROI) of other criteria that drive investment strategy.

EN• Developing different reduction strategies based on the
major reduction opportunities available and examining
their effects on total GHG emissions. Investigate how
emissions projections change with different mitigation
strategies.

A

Ideally a company should try to avoid double counting in
its corporate target if this undermines the environmental
integrity of the target. Also, any prevented double
counting between two organizations provides an additional incentive for one of these companies to further
reduce emissions. However, in practice the avoidance of
double counting can be quite challenging, particularly
for companies subject to multiple external programs andwhen indirect GHG emissions are included in the target.
Companies should therefore be transparent about their

double counting policy and state any reasons forchoosing not to address some double counting situations.

GE X T E R N A L P R O G R A M S . This occurs when a corporate
target overlaps with an external trading program andallowances that cover the common sources are sold in
the trading program for use by another organization
and reconciled with the regulatory target, but notreconciled with the corporate target. This example
differs from the previous example in that double
counting occurs across two targets that are not overlapping (i.e., they do not cover the same sources).
This type of double counting could be avoided if thecompany selling the allowances reconciles the tradewith its corporate target (see Holcim case study).
Whatever the company decides to do in this situation,in order to maintain credibility, it should address
buying and selling of allowances in trading programsin a consistent way. For example, if it decides not toreconcile allowances that it sells in a trading programwith its corporate target, it should also not count any
allowances of the same type that it purchases to meetits corporate target.

E

Holcim, a global cement producer, tracks its performance inrelation to its voluntary corporate target using a GHG balance
sheet. This balance sheet shows, for each commitment period
and for each country business, on one side the actual GHG
emissions and on the other side the GHG “assets” and“instruments.” These assets and instruments consist of thevoluntary GHG target itself (the “voluntary cap”; in otherwords, the allowances that Holcim provides for itself), a regulatory target (“cap”) if applicable, plus the CDM credits
purchased (added) or sold (subtracted), and any regulatory
emissions trading allowances purchased (added) or sold
(subtracted). Thus if any country business sells CDM credits(generated at sources inside the voluntary target boundary), it
is ensured that only the buying organization counts the credit(see first example of double counting in step 8).

U

I

D

A

N

Holcim: Using a GHG balance sheet
to track performance towards the target

C

Setting a GHG TargetG

At the end of the commitment period, every country businessmust demonstrate a neutral or positive balance towards Holcim’s

target. Those companies whose voluntary cap overlaps with aregulatory cap (e.g., in Europe) must also demonstrate aneutral or positive balance towards the regulatory cap. GHG
reductions in Europe are thus reported towards both targets(see second example of double counting in step 8).
Both sides of the country business balance sheets are consolidated to group level. Credits and allowances traded within thegroup simply cancel out in the asset column of the consolidated corporate level GHG balance sheet. Any credits orallowances traded externally are reconciled with both thevoluntary and regulatory caps at the bottom line of the asset
column of the balance sheet. This ensures that any soldallowance is only counted by the buying organization (whenHolcim’s target and that of the buying organization do not
overlap). A purchased allowance or credit is counted towards
both the voluntary and regulatory targets of the European business (these two targets overlap).

GHG balance sheet (All values in tonnes CO2-e/year)
GHG ASSETS & INSTRUMENTS

GHG EMISSIONS

Holcim (country A in Europe)

Voluntary cap (direct emissions)

Emissions, direct, indirect + biomass

Regulatory cap (direct emissions)Reg. allowances purchased (+) or sold (-)
CDM credits purchased (+) or sold (-)
Sum of voluntary cap, reg. allowances & credits

Sum of direct emissions

Sum of regulatory cap, reg. allowances & credits

Sum of direct emissions, according to EU ETSHolcim (country X in Latin America)
Voluntary cap

Emissions, direct, indirect + biomass

CDM credits purchased (+) or sold (-)
Sum of voluntary cap & credits

Sum of direct emissions

Holcim GroupSum of voluntary cap, reg. allowances & credits

84

C H A P T E R 11

Sum of direct emissions

CHAPTER 11• Considering whether there are any existing environmental
or energy plans, capital investments, product/service
changes, or targets that will affect GHG emissions.
Are there plans already in place for fuel switching,on site power generation, and/or renewable energy
investments that affect the future GHG trajectory?

Setting a GHG Target

85• R E P O R T I N F O R M AT I O N I N R E L AT I O N T O T H E T A R G E T.
Companies should include the following information whensetting and reporting progress in relation to a target:
1. Description of the target• Provide an outline of the target boundaries chosen• Specify target type, target base year, target
completion date, and length of commitment period• Specify whether offsets can be used to meet thetarget; if yes, specify the type and amount• Describe the target double counting policy• Specify target level.

• Benchmarking GHG emissions with similarorganizations. Generally, organizations that havenot previously invested in energy and other GHG
reductions should be capable of meeting more aggressive reduction levels because they would have morecost-effective reduction opportunities.

2. Information on emissions and performance in relation to the target• Report emissions from sources inside the target
boundary separately from any GHG trades• If using an intensity target, report absolute emissions from within the target boundary separately,
both from any GHG trades and the business metric• Report GHG trades that are relevant tocompliance with the target (including how manyoffsets were used to meet the target)• Report any internal project reductions sold ortransferred to another organization for use as
an offset• Report overall performance in relation to
the target.

10. Track and report progress
Once the target has been set, it is necessary to track
performance against it in order to check compliance,
and also—in order to maintain credibility—to reportemissions and any external reductions in a consistent,
complete and transparent manner.

G• C A R RY O U T R E G U L A R P E R F O R M A N C E C H E C K S . In order
to track performance against a target, it is important
to link the target to the annual GHG inventory process
and make regular checks of emissions in relation to
the target. Some companies use interim targets forthis purpose (a target using a rolling target base year
automatically includes interim targets every year).
NOTES

Holcim’s and Lafarge’s target have been formulated using the terminology of the WBCSD Cement CO2 Protocol (WBCSD, 2001), whichuses“specific” to denote emissions per tonne of cement produced.

4

It is possible to use an interval other than one year. However, the longer
the interval at which the base year rolls forward, the more this approach
becomes like a fixed target base year. This discussion is based on arolling target base year that moves forward at annual intervals.

59

For the purposes of this chapter, the terms “internal” and “external”
refer to whether the reductions occur at sources inside (internal) or
outside (external) the target boundary.

10

This equivalence is sometimes referred to as “fungibility.” However,“fungibility” can also refer to equivalence in terms of the value inmeeting a target (two fungible offsets have the same value in meetinga target, i.e., they can both be applied to the same target).

11

Overlap here refers to a situation when two or more targets include thesame sources in their target boundaries.

12

Similarly, company A in this example could be subject to a mandatory
cap on its direct emissions under a trading program and engage in
trading allowances covering the common sources it shares withcompany B. In this case, the example in the section “Double countingof allowances traded in external programs” is more relevant.

13

The energy efficiency measures implemented by company C may notalways result in an actual reduction of company B’s emissions. See
chapter 8 for further details on reductions in indirect emissions.

C
E

Depending on which recalculation methodology is used when applying
the rolling base year, the comparison over time can include emissions
that occurred when the company did not own or control the emission
sources. However, the inclusion of this type of information is minimized. See also the guidance document “Base year recalculation
methodologies for structural changes” on the GHG Protocol website(www.ghgprotocol.org).

As noted in chapter 8, offsets can be converted to credits. Credits arethus understood to be a subset of offsets. This chapter uses the term
offsets as a generic term.

N

6

Note that simply adding the yearly emissions changes under the rollingbase year yields a different result from the comparison over time madewith a fixed base year, even without structural changes. In absoluteterms, an X% reduction every year over 5 years (compared to theprevious year) is not the same as an (X times 5) reduction in year 5compared to year 1.

8

A

Examples include the U.K. ETS, the CCX, and the EU ETS.

3

For further details on different recalculation methodologies, see theguidance document “Base year recalculation methodologies for structural changes” on the GHG Protocol website (www.ghgprotocol.org).

D

2

7

I

Some companies may formulate GHG efficiency targets by formulating
this ratio the other way around.

U

1

A Accounting for Indirect Emissions from Purchased Electricity

T

D

I

X

his appendix provides guidance on how to accountfor and report indirect emissions associated withthe purchase of electricity. Figure A–1 provides
an overview of the transactions associated withpurchased electricity and the corresponding emissions.

Purchased electricity for own consumption

A

P

P

E

N

Emissions associated with the generation of purchased
electricity that is consumed by the reporting company
are reported in scope 2. Scope 2 only accounts for the
portion of the direct emissions from generating electricity that is actually consumed by the company. A
company that purchases electricity and transports it in atransmission and distribution (T&D) system that it owns
or controls reports the emissions associated with T&D
losses under scope 2. However, if the reporting company
owns or controls the T&D system but generates (rather
than purchases) the electricity transmitted through its
wires, the emissions associated with T&D losses are
not reported under scope 2, as they would already be
accounted for under scope 1. This is the case whengeneration, transmission, and distribution systems arevertically integrated and owned or controlled by thesame company.

Purchased electricity for resale to end-users
Emissions from the generation of purchased electricity
for resale to end-users, for example purchases by autility company, may be reported under scope 3 in the
category “generation of purchased electricity that issold to end-users.” This reporting category is particularly relevant for utility companies that purchasewholesale electricity supplied by independent power
producers for resale to their customers. Since utility

companies and electricity suppliers often exercise
choice over where they purchase electricity, thisprovides them with an important
GHG reduction opportunity (see Seattle City Light casestudy in chapter 4). Since scope 3 is optional, companies
that are unable to track their electricity sales in terms ofend users and non-end users can choose not to reportthese emissions in scope 3. Instead, they can report the
total emissions associated with purchased electricity thatis sold to both end- and non-end-users under optional
information in the category “generation of purchased
electricity, heat, or steam for re-sale to non-end users.”

Purchased electricity for resale to intermediaries
Emissions associated with the generation of purchased
electricity that is resold to an intermediary (e.g.,
trading transactions) may be reported under optional
information under the category “Generation ofpurchased electricity, heat, or steam for re-sale to nonend users.” Examples of trading transactions include
brokerage/trading room transactions involving purchased
electricity or any other transaction in which electricity ispurchased directly from one source or the spot market
and then resold to an intermediary (e.g., a non-end user).
These emissions are reported under optional information
separately from scope 3 because there could be anumber of trading transactions before the electricity
finally reaches the end-user. This may cause duplicative
reporting of indirect emissions from a series of electricity
trading transactions for the same electricity.

F I G U R E A – 1 . Accounting for the indirect GHG emissions associated with purchased electricity➡
Purchased Electricity

86

Own consumption

Scope 2
Indirect emissions from own consumption of purchased electricity

Resale to end-users

Scope 3
Indirect emissions from purchased electricity sold to end users

Resale tointermediaries

Optional Information
Emissions from purchased electricity sold to non end users

87

APPENDIX A

GHG emissions upstreamof the generation of electricity
Emissions associated with the extraction and productionof fuels consumed in the generation of purchased
electricity may be reported in scope 3 under the category “extraction, production, and transportation offuels consumed in the generation of electricity.” Theseemissions occur upstream of the generation of electricity.
Examples include emissions from mining of coal,refining of gasoline, extraction of natural gas, andproduction of hydrogen (if used as a fuel).

EFG =

EFC =

T O T A L C O 2 E M I S S I O N S FROM GENERATIONELECTRICITY GENERATEDT O T A L C O 2 E M I S S I O N S FROM GENERATIONELECTRICITY CONSUMED

EFC and EFG are related as shown below.
EFC x ELECTRICITY CONSUMED=EFG x ( E L E C T R I C I T Y C O N S U M E D + T & D L O S S E S )EFC = EFG x

T&D LOSSES( 1 + ELECTRICITY CONSUMED )Choosing electricity emission factors
To quantify scope 2 emissions, the GHG Protocol
Corporate Standard recommends that companies obtainsource/supplier specific emission factors for the electricity purchased. If these are not available, regionalor grid emission factors should be used. For more
information on choosing emission factors, see therelevant GHG Protocol calculation tools available
on the GHG Protocol website (www.ghgprotocol.org).

3) It ensures transparency in reporting of indirect emissions from T&D losses.

=

INDIRECT EMISSIONSFROM CONSUMPTION OF
ELECTRICITY DURING T&D

D

EFG x
ELECTRICITY CONSUMEDDURING T&D

N

The formula to account for emissions associated with
T&D losses is the following:E
I
A

In some countries such as Japan, local regulations may
require utility companies to provide both EFG and EFC to
its consumers, and consumers may be required to use EFC
to calculate indirect emissions from the consumption ofpurchased electricity. In this case, a company still needs touse EFG to report its scope 2 emissions for a GHG report
prepared in accordance with GHG Protocol Corporate Standard.

X

There are two types of electricity emission factors:
Emission factor at generation (EFG) and Emissions
factor at consumption (EFC). EFG is calculated fromCO2 emissions from generation of electricity divided
by amount of electricity generated. EFC is calculated
from CO2 emissions from generation divided by amountof electricity consumed.

2) It is based on a commonly used approach to calculate
emissions intensity, i.e., emissions per unit of production output.

P

Accounting for indirect emissions
associated with T&D losses

1) It is simpler to calculate and widely available inpublished regional, national, and international sources.

P

Emissions from the generation of electricity that isconsumed in a T&D system may be reported in scope 3
under the category “generation of electricity that isconsumed in a T&D system” by end-users. Publishedelectricity grid emission factors do not usually include
T&D losses. To calculate these emissions, it may benecessary to apply supplier or location specific T&D loss
factors. Companies that purchase electricity and transport it in their own T&D systems would report the
portion of electricity consumed in T&D under scope 2.

Consistent with the scope 2 definition (see chapter 4),
the GHG Protocol Corporate Standard requires the useof EFG to calculate scope 2 emissions. The use of
EFG ensures internal consistency in the treatment ofelectricity related upstream emissions categories andavoids double counting in scope 2. Additionally, there
are several other advantages in using EFG:A

GHG emissions associatedwith the consumption of electricity in T&D

As these equations indicate, EFC multiplied by the amountof consumed electricity yields the sum of emissions attributable to electricity consumed during end use andtransmission and distribution. In contrast, EFG multipliedby the amount of consumed electricity yields emissions
attributable to electricity consumed during end use only.

B Accounting for Sequestered Atmospheric Carbon

A

Information on a company’s impacts on sequesteredatmospheric carbon can be used for strategic planning, foreducating stakeholders, and for identifying opportunities
for improving the company’s GHG profile. Opportunities
may also exist to create value from reductions createdalong the value chain by companies acting alone or inpartnership with raw material providers or customers.

A

P

P

E

N

D

I

X

key purpose of the GHG Protocol Corporate Standard
is to provide companies with guidance on how todevelop inventories that provide an accurate andcomplete picture of their GHG emissions both fromtheir direct operations as well as those along the value
chain.1 For some types of companies, this is notpossible without addressing the company’s impacts on
sequestered atmospheric carbon.2

Sequestered atmospheric carbon

Accounting for sequestered carbon in thecontext of the GHG Protocol Corporate Standard

During photosynthesis, plants remove carbon (as CO2)
from the atmosphere and store it in plant tissue. Until
this carbon is cycled back into the atmosphere, it
resides in one of a number of “carbon pools.” These
pools include (a) above ground biomass (e.g., vegetation) in forests, farmland, and other terrestrial
environments, (b) below ground biomass (e.g., roots),and (c) biomass-based products (e.g., wood products)
both while in use and when stored in a landfill.

Consensus methods have yet to be developed under the
GHG Protocol Corporate Standard for accounting ofsequestered atmospheric carbon as it moves through thevalue chain of biomass-based industries. Nonetheless,some issues that would need to be addressed whenaddressing impacts on sequestered carbon in corporate
inventories can be examined in the context of existingguidance provided by the GHG Protocol Corporate
Standard as highlighted below.

Carbon can remain in some of these pools for long
periods of time, sometimes for centuries. An increase in
the stock of sequestered carbon stored in these pools
represents a net removal of carbon from the atmosphere; a decrease in the stock represents a net additionof carbon to the atmosphere.

Why include impacts on sequestered carbon
in corporate GHG inventories?
It is generally recognized that changes in stocks ofsequestered carbon and the associated exchanges ofcarbon with the atmosphere are important to national
level GHG emissions inventories, and consequently, these
impacts on sequestered carbon are commonly addressedin national inventories (UNFCCC, 2000). Similarly, forcompanies in biomass-based industries, such as the forest
products industry, some of the most significant aspects ofa company’s overall impact on atmospheric CO2 levels
will occur as a result of impacts on sequestered carbon in
their direct operations as well as along their value chain.
Some forest product companies have begun to address
this aspect of their GHG footprint within their corporate
GHG inventories (Georgia Pacific, 2002). Moreover,
WBCSD’s Sustainable Forest Products Industry Working
Group—which represents a significant cluster of integrated forestry companies operating internationally—isdeveloping a project that will further investigate carbon
measurement, accounting, reporting, and ownershipissues associated with the forest products value chain.
88

S E T T I N G O R G A N I Z AT I O N A L B O U N D A R I E S

The GHG Protocol Corporate Standard outlines two
approaches for consolidating GHG data—the equity shareapproach and the control approach. In some cases, it
may be possible to apply these approaches directly toemissions/removals associated with sequestered atmospheric carbon. Among the issues that may need to be
examined is the ownership of sequestered carbon under
the different types of contractual arrangements
involving land and wood ownership, harvesting rights,
and control of land management and harvesting decisions. The transfer of ownership as carbon moves
through the value chain may also need to be addressed.
In some cases, as part of a risk management programfor instance, companies may be interested in performing
value chain assessments of sequestered carbon without
regard to ownership or control just as they might do for
scope 2 and 3 emissions.

S E T T I N G O P E R AT I O N A L B O U N D A R I E S

As with GHG emissions accounting, setting operationalboundaries for sequestered carbon inventories would help
companies transparently report their impacts on
sequestered carbon along their value chain. Companies
may, for example, provide a description of the value
chain capturing impacts that are material to the resultsof the analysis. This should include which pools are

APPENDIX B

included in the analysis, which are not, and therationale for the selections. Until consensus methods
are developed for characterizing impacts on
sequestered atmospheric carbon along the value chain,
this information can be included in the “optional
information” section of a GHG inventory compiledusing the GHG Protocol Corporate Standard.

T R A C K I N G R E M O VA L S O V E R T I M E

As is sometimes the case with accounting for GHG emissions, base year data for impacts on sequestered carbon
may need to be averaged over multiple years to accommodate the year-to-year variability expected of thesesystems. The temporal scale used in sequestered carbon
accounting will often be closely tied to the spatial scale
over which the accounting is done. The question of how
to recalculate base years to account for land acquisitionand divestment, land use changes, and other activities
also needs to be addressed.

I D E N T I F Y I N G A N D C A L C U L AT I N G G H G R E M O VA L S

The GHG Protocol Corporate Standard does not include
consensus methods for sequestered carbon quantification. Companies should, therefore, explain the methods
used. In some instances, quantification methods usedin national inventories can be adapted for corporatelevel quantification of sequestered carbon. IPCC
(1997; 2000b) provides useful information on how to
do this. In 2004, IPCC is expected to issue Good
Practice Guidance for Land Use, Land Use Change
and Forestry, with information on methods for quantification of sequestered carbon in forests and forest
products. Companies may also find it useful to consult
the methods used to prepare national inventories for
those countries where significant parts of theircompany’s value chain reside.
In addition, although corporate inventory accounting
differs from project-based accounting (as discussed
below), it may be possible to use some of the calculationand monitoring methods derived from project levelaccounting of sequestration projects.

A C C O U N T I N G F O R R E M O VA L E N H A N C E M E N T S

A corporate inventory can be used to account for yearlyremovals within the corporate inventory boundary.
In contrast, the forthcoming GHG Protocol Project

Quantification Standard is designed to calculate project
reductions that will be used as offsets, relative to a hypothetical baseline scenario for what would have happened
without the project. In the forestry sector, projects take theform of removal enhancements.
Chapter 8 in this document addresses some of the issues
that must be addressed when accounting for offsetsfrom GHG reduction projects. Much of this guidance isalso applicable to removal enhancement projects. One
example is the issue of reversibility of removals — also
briefly described in chapter 8.

R E P O R T I N G G H G R E M O VA L S

Until consensus methods are developed for characterizing impacts on sequestered atmospheric carbon along
the value chain, this information can be included in
the “optional information” section of the inventory (Seechapter 9). Information on sequestered carbon in thecompany’s inventory boundary should be kept separate
from project-based reductions at sources that are not in
the inventory boundary. Where removal enhancement
projects take place within a company’s inventory
boundary they would normally show up as an increase incarbon removals over time, but can also be reported in
optional information. However, they should also be identified separately to ensure that they are not double
counted. This is especially important when they are soldas offsets or credits to a third party.
As companies develop experience using various
methods for characterizing impacts on sequesteredcarbon, more information will become available on thelevel of accuracy to expect from these methods. In theearly stages of developing this experience, however,companies may find it difficult to assess the uncertainty associated with the estimates and therefore mayneed to give special care to how the estimates are
represented to stakeholders.

NOTES
1
In this Appendix, “value chain” means a series of operations andentities, starting with the forest and extending through end-of-life
management, that (a) supply or add value to raw materials and intermediate products to produce final products for the marketplace and (b)are involved in the use and end-of-life management of these products.
2

In this Appendix the term “sequestered atmospheric carbon” refers
exclusively to sequestration by biological sinks.

89

X

NAME OF PROGRAM

I

COverview of GHG Programs

TYPE OF PROGRAM

FOCUS

GASES COVEREDO R G A N I Z AT I O N A L
PROJECT BOUNDARIES

California Climate Action Registrywww.climateregisty.org

Voluntary registry

Organization(Projects possible
in 2004)

Organizations report
CO2 for first three
years of participation, all six
GHGs thereafter.

Equity share or control for
California or US operations

US EPA Climate Leaders
www.epa.gov/climateleaders

Voluntary reduction
program

Organization

Six

Equity share or control
for US operations
at a minimum

WWF Climate Savers
www.worldwildlife.org/climatesavers

Voluntary registry

Organization

CO2

Equity share or control
for worldwide operations

World Economic Forum
Global GHG Registerwww.weforum.org

Voluntary registry

Organization

Six

Equity share or control forworldwide operations

EU GHG Emissions Allowance
Mandatory allowance
Trading Scheme
trading scheme
www.europa.eu.int/comm/environment/

Facility

Six

Facilities inselected sectors

European Pollutant
Emission Registrywww.europa.eu.int/comm/environment/ippc/eper/index.htm

Mandatory registry
for large industrial
facilities

Facility

Six Kyoto gases
as well as otherpollutants

Facilities that fall under
EU IPPC directive

Chicago Climate Exchange
www.chicagoclimateexchange.com

Voluntary allowance
trading scheme

Organizationand project

Six

Equity share

Respect Europe BLICC
www.respecteurope.com/rt2/blicc/

Voluntary reduction
program

Organization

Six

Equity share or control forworldwide operations

A

P

P

E

N

D

(Organization,
project, facility)

90

91

APPENDIX CO P E R AT I O N A L
BOUNDARIESN AT U R E / P U R P O S E
OF PROGRAM

Scope 1 and 2
required, scope 3
to be decided

Baseline protection,
public reporting,possible future targets

Scope 1 and 2
required, scope 3
optional

TARGETV E R I F I C AT I O NSpecific to eachorganization, recalculationconsistent with GHG Protocol
Corporate Standard required

Encouraged but optional

Required through certified third party verifier

Public recognition,
assistance setting
targets andachieving reductions

Year that organization joinsprogram, recalculationconsistent with GHG Protocol
Corporate Standard required

Required, specific toeach organization

Optional, provides
guidance and checklistof components thatshould be included
if undertaken

Scope 1 and 2
required, scope 3
optional

Achieve targets,
public recognition,
expert assistance

Chosen year since 1990, specificto each organization, recalculation consistent with GHG Protocol
Corporate Standard required

Required, specific toeach organization

Third party verifier

Scope 1 and 2
required, scope 3
optional

Baseline protection,
public reporting,targets encouraged
but optional

Chosen year since 1990, specificto each organization, recalculation consistent with GHG Protocol
Corporate Standard required

Encouraged but optional

Third party verifieror spot checks
by WEF

Scope 1

Achieve annual caps
through tradable
allowance market,
initial period from2005 to 2007

Determined by member country
for allowance allocation

Annual compliance withallocated and tradedallowances, EU
committed to 8% overall
reduction below 1990

Third party verifier

Scope 1 required

Permit individual
industrial facilities

Not applicableNot applicable

Local permitting
authority

Average of 1998 through 2001

1% below its baseline in2003, 2% below baseline
in 2004, 3% below baseline in 2005 and 4%
below baseline in 2006

Third party verifier

Specific to eachorganization, recalculationconsistent with GHG Protocol
Corporate Standard required

Mandatory, specific toeach organization

Third party verifier

Direct combustion Achieve annual
and process emis- targets through tradsion sources and able allowance market
indirect emissions
optional.
Scope 1 and 2
required, scope 3
strongly
encouraged

Achieve targets,
public recognition,
expert assistance

BASE YEAR

D

Industry Sectors and Scopes

X

ENERGYISECTOR

EnergyGeneration

SCOPE 1 EMISSION SOURCES• Stationary combustion (boilers and turbines usedin the production of electricity, heat or steam, fuelpumps, fuel cells, flaring)D• Mobile combustion (trucks, barges and trains fortransportation of fuels)N• Fugitive emissions (CH4 leakage from transmission
and storage facilities, HFC emissions from LPG storage
facilities, SF6 emissions from transmission and distribution equipment)

A

P

P

E

Oil and Gas3

Coal Mining

SCOPE 2EMISSION SOURCESSCOPE 3 EMISSION SOURCES 1• Stationary combustion • Stationary combustion (mining and extraction of fuels,(consumption ofenergy for refining or processing fuels)purchased electricity,• Process emissions (production of fuels, SF6 emissions2)
heat or steam)• Mobile combustion (transportation of fuels/waste,employee business travel, employee commuting)• Fugitive emissions (CH4 and CO2 from waste landfills,
pipelines, SF6 emissions)• Stationary combustion (process heaters, engines,
turbines, flares, incinerators, oxidizers, production ofelectricity, heat and steam)• Stationary combustion • Stationary combustion (product use as fuel or combustion for the production of purchased materials)(consumption ofpurchased electricity,• Mobile combustion (transportation of raw
heat or steam)• Process emissions (process vents, equipment vents,
materials/products/waste, employee business travel,
maintenance/turnaround activities, non-routine activities)
employee commuting, product use as fuel)• Mobile combustion (transportation of raw
materials/products/waste; company owned vehicles)• Process emissions (product use as feedstock or emissions from the production of purchased materials)• Fugitive emissions (leaks from pressurized equipment,
wastewater treatment, surface impoundments)• Fugitive emissions (CH4 and CO2 from waste landfills
or from the production of purchased materials)• Stationary combustion (methane flaring and use, useof explosives, mine fires)• Stationary combustion • Stationary combustion (product use as fuel)(consumption ofpurchased electricity, • Mobile combustion (transportation of coal/waste,• Mobile combustion (mining equipment, transportation
employee business travel, employee commuting)heat or steam)of coal)• Process emissions (gasification)• Fugitive emissions (CH4 emissions from coal mines
and coal piles)

METALS
Aluminum4• Stationary combustion (bauxite to aluminum processing, • Stationary combustion • Stationary combustion (raw material processing andcoke production by second party suppliers, manufacturecoke baking, lime, soda ash and fuel use, on-site CHP) (consumption ofof production line machinery)purchased electricity,• Process emissions (carbon anode oxidation, electrolheat or steam)• Mobile combustion (transportation services, business
ysis, PFC)
travel, employee commuting)• Mobile combustion (pre- and post-smelting trans• Process emissions (during production of purchased
portation, ore haulers)materials)• Fugitive emissions (fuel line CH4, HFC and PFC, SF6• Fugitive emissions (mining and landfill CH4 and CO2,
cover gas)
outsourced process emissions)

Iron and Steel5• Stationary combustion (coke, coal and carbonate
fluxes, boilers, flares)• Stationary combustion • Stationary combustion (mining equipment, productionof purchased materials)(consumption ofpurchased electricity,• Process emissions (crude iron oxidation, consumption of heat or steam)• Process emissions (production of ferroalloys)
reducing agent, carbon content of crude iron/ferroalloys)• Mobile combustion (transportation of raw• Mobile combustion (on-site transportation)materials/products/waste and intermediate products)• Fugitive emission (CH4, N2O)

• Fugitive emissions (CH4 and CO2 from waste landfills)

CHEMICALS
Nitric acid,• Stationary combustion (boilers, flaring, reductive
Ammonia, Adipic furnaces, flame reactors, steam reformers)acid, Urea, andPetrochemicals • Process emissions (oxidation/reduction of substrates,
impurity removal, N2O byproducts, catalytic cracking,myriad other emissions individual to each process)• Mobile combustion (transportation of raw
materials/products/waste)• Fugitive emissions (HFC use, storage tank leakage)
92• Stationary combustion • Stationary combustion (production of purchased materials, waste combustion)(consumption ofpurchased electricity,• Process emissions (production of purchased materials)
heat or steam)• Mobile combustion (transportation of raw
materials/products/waste, employee business travel,
employee commuting)• Fugitive emissions (CH4 and CO2 from waste landfills
and pipelines)

93

APPENDIX DSECTORSCOPE 1 EMISSION SOURCESSCOPE 2EMISSION SOURCESSCOPE 3 EMISSION SOURCESMINERALS
Cement and
Lime6• Process emissions (calcination of limestone)• Stationary combustion (clinker kiln, drying of
raw materials, production of electricity)• Mobile combustion (quarry operations,on-site transportation)• Stationary combustion • Stationary combustion (production of purchased mate(consumption of
rials, waste combustion)purchased electricity,• Process emissions (production of purchased clinker and lime)
heat or steam)• Mobile combustion (transportation of raw
materials/products/waste, employee business travel,
employee commuting)• Fugitive emissions (mining and landfill CH4 and CO2,
outsourced process emissions)

WASTE 7
Landfills, Waste • Stationary combustion (incinerators, boilers, flaring) • Stationary combustion • Stationary combustion(recycled waste used as a fuel)combustion,(consumption of
Water services • Process emissions (sewage treatment, nitrogen loading) purchased electricity, • Process emissions (recycled waste used as a feedstock)heat or steam)• Mobile combustion (transportation of waste/products,• Fugitive emissions (CH and CO emissions from42

waste and animal product decomposition)

employee business travel, employee commuting)• Mobile combustion (transportation of waste/products)
PULP & PAPER
Pulp and Paper8 • Stationary combustion (production of steam and elec- • Stationary combustion • Stationary combustion (production of purchased materials, waste combustion)
tricity, fossil fuel-derived emissions from calcination(consumption ofof calcium carbonate in lime kilns, drying products with purchased electricity,• Process emissions (production of purchased materials)
infrared driers fired with fossil fuels)
heat or steam)• Mobile combustion (transportation of raw materials, products, and wastes, operation of harvesting equipment)• Fugitive emissions (CH4 and CO2 from waste)
H F C , P F C , S F6 & H C F C 2 2 P R O D U C T I O N 9
HCFC 22
production• Stationary combustion(production of electricity,heat or steam)• Process emissions (HFC venting)• Mobile combustion (transportation of raw
materials/products/waste)• Fugitive emissions (HFC use)

• Mobile combustion (transportation of raw
materials/products/waste, employee business travel,
employee commuting)• Fugitive emissions (landfill CH4 and CO2 emissions)
HFC, PFC, SF6 & HCFC 22 production• Stationary combustion • Stationary combustion (production of purchased materials)(consumption ofpurchased electricity, • Process emissions (production of purchased materials)
heat or steam)• Mobile combustion (transportation of raw materials/products/waste, employee business travel, employee commuting)• Fugitive emissions(fugitive leaks in product use, CH4
and CO2 from waste landfills)

SEMICONDUCTOR PRODUCTION
Semiconductor
production• Process emissions (C2F6, CH4, CHF3, SF6, NF3, C3F8,• Stationary combustion • Stationary combustion (production of imported mateC4F8, N2O used in wafer fabrication, CF4 created fromrials, waste combustion, upstream T&D losses of(consumption of
C2F6 and C3F8 processing)purchased electricity)purchased electricity,heat or steam)• Stationary combustion (oxidation of volatile organic• Process emissions (production of purchased materials,
waste, production of electricity, heat or steam)outsourced disposal of returned process gases andcontainer remainder/heel)• Fugitive emissions (process gas storage leaks,
container remainders/heel leakage)• Mobile combustion (transportation of raw materials/products/waste, employee business travel, employee commuting)• Mobile combustion (transportation of raw
materials/products/waste)• Fugitive emissions (landfill CH4 and CO2 emissions, downstream process gas container remainder / heel leakage)O T H E R S E C T O R S 10
Service sector/
Office basedorganizations10

Other Sectors• Stationary combustion (production of electricity, heat or steam) • Stationary combustion • Stationary combustion (production of purchased materials)(consumption of• Mobile combustion (transportation of raw
purchased electricity, • Process emissions (production of purchased materials)
materials/waste)heat or steam)• Mobile combustion (transportation of raw• Fugitive emissions (mainly HFC emissions during useof refrigeration and air-conditioning equipment)materials/products/ waste, employee business travel,
employee commuting)Appendix D

NOTES
1

Scope 3 activities of outsourcing, contract manufacturing, and franchises are not addressed in this table because the inclusion of specific
GHG sources will depend on the nature of the outsourcing.

2

Guidelines on unintentional SF6 process emissions are to be developed.

3

The American Petroleum Institute’s Compendium of Greenhouse Gas
Emissions Methodologies for the Oil and Gas Industry (2004) provides
guidelines and calculation methodology for calculating GHG emissions
from the oil and gas sector.

4

5

94

The International Aluminum Institute’s Aluminum Sector Greenhouse
Gas Protocol (2003), in cooperation with WRI and WBCSD, provides
guidelines and tools for calculating GHG emissions from thealuminum sector.
The International Iron and Steel Institute's Iron and Steel sector guidelines, in cooperation with WRI and WBCSD, are under development.

6

The WBCSD Working Group Cement: Toward a Sustainable Cement
Industry has developed The Cement CO2 Protocol: CO2 Emissions
Monitoring and Reporting Protocol for the Cement Industry (2002),
which includes guidelines and tools to calculate GHG emissions fromthe cement sector.

7

Guidelines for waste sector are to be developed.

8

The Climate Change Working Group of the International Council ofForest and Paper Associations has developed Calculation Tools for
Estimating Greenhouse Gas Emissions from Pulp and Paper Mills(2002), which includes guidelines and tools to calculate GHG emissions
from the pulp and paper sector.

9

Guidelines for PFC and SF6 production are to be developed.

10

Businesses in “other sectors” can estimate GHG emissions using
cross-sectoral estimation tools—stationary combustion, mobile(transportation) combustion, HFC use, measurement and estimation
uncertainty, and waste.

11

WRI has developed Working 9 to 5 on Climate Change: An Office
Guide (2002) and www.Safeclimate.net, which include guidelines
and calculation tools for calculating GHG emissions from officebased organizations.

Acronyms

CDM

Clean Development Mechanism

CEM

Continuous Emission Monitoring

CH4

Methane

CER

Certified Emission Reduction

CCAR

California Climate Action Registry

CCX

Chicago Climate Exchange

CO2

Carbon Dioxide

C O 2- eCarbon Dioxide Equivalent

EPER

European Pollutant Emission Register

E U E T S European Union Emissions Allowance Trading Scheme
GHG

Greenhouse Gas

GAAP

Generally Accepted Accounting Principles

HFCs

Hydrofluorocarbons

IPCC

Intergovernmental Panel on Climate Change

I P I E C A International Petroleum Industry

Environmental Conservation Association
ISO

International Standards Organization

JI

Joint Implementation

N 4O

Nitrous Oxide

NGO

Non-Governmental Organization

PFCs

Perfluorocarbons

SF6

Sulfur Hexafluoride

T&D

Transmission and Distribution

U K E T S United Kingdom Emission Trading Scheme
W B C S D World Business Council

for Sustainable Development
WRI

World Resources Institute95

Glossary96

Absolute target

A target defined by reduction in absolute emissions over time e.g., reduces CO2 emissions by 25%
below 1994 levels by 2010. (Chapter 11)

Additionality

A criterion for assessing whether a project has resulted in GHG emission reductions or removals in
addition to what would have occurred in its absence. This is an important criterion when the goal of
the project is to offset emissions elsewhere. (Chapter 8)

Allowance

A commodity giving its holder the right to emit a certain quantity of GHG. (Chapter 11)

Annex 1 countries

Defined in the International Climate Change Convention as those countries taking on emissions
reduction obligations: Australia; Austria; Belgium; Belarus; Bulgaria; Canada; Croatia; Czech
Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hungary; Iceland; Ireland; Italy; Japan;
Latvia; Liechtenstein; Lithuania; Luxembourg; Monaco; Netherlands; New Zealand; Norway; Poland;
Portugal; Romania; Russian Federation; Slovakia; Slovenia; Spain; Sweden; Switzerland; Ukraine;
United Kingdom; USA.

Associated/affiliated company

The parent company has significant influence over the operating and financial policies of theassociated/affiliated company, but not financial control. (Chapter 3)

Audit Trail

Well organized and transparent historical records documenting how an inventory was compiled.

Baseline

A hypothetical scenario for what GHG emissions, removals or storage would have been in the absenceof the GHG project or project activity. (Chapter 8)

Base year

A historic datum (a specific year or an average over multiple years) against which a company’s
emissions are tracked over time. (Chapter 5)

Base year emissions

GHG emissions in the base year. (Chapter 5)

Base year emissions recalculation

Recalculation of emissions in the base year to reflect a change in the structure of the company, or
to reflect a change in the accounting methodology used. This ensures data consistency over time, i.e.,comparisons of like with like over time. (Chapter 5, 11)

Biofuels

Fuel made from plant material, e.g. wood, straw and ethanol from plant matter (Chapter 4, 9, Appendix B)

Boundaries

GHG accounting and reporting boundaries can have several dimensions, i.e. organizational, operational, geographic, business unit, and target boundaries. The inventory boundary determines whichemissions are accounted and reported by the company. (Chapter 3, 4, 11)

Cap and trade system

A system that sets an overall emissions limit, allocates emissions allowances to participants, andallows them to trade allowances and emission credits with each other. (Chapter 2, 8, 11)

Capital Lease

A lease which transfers substantially all the risks and rewards of ownership to the lessee and isaccounted for as an asset on the balance sheet of the lessee. Also known as a Financial or FinanceLease. Leases other than Capital/Financial/Finance leases are Operating leases. Consult an
accountant for further detail as definitions of lease types differ between various accepted financial
standards. (Chapter 4)

Carbon sequestration

The uptake of CO2 and storage of carbon in biological sinks.

Clean Development Mechanism(CDM)

A mechanism established by Article 12 of the Kyoto Protocol for project-based emission reduction
activities in developing countries. The CDM is designed to meet two main objectives: to address thesustainability needs of the host country and to increase the opportunities available to Annex 1 Parties
to meet their GHG reduction commitments. The CDM allows for the creation, acquisition and transfer
of CERs from climate change mitigation projects undertaken in non-Annex 1 countries.

GLOSSARY

Certified Emission Reductions(CERs)A unit of emission reduction generated by a CDM project. CERs are tradable commodities that can beused by Annex 1 countries to meet their commitments under the Kyoto Protocol.

Co-generation unit/Combined
heat and power (CHP)

A facility producing both electricity and steam/heat using the same fuel supply. (Chapter 3)

Consolidation

Combination of GHG emissions data from separate operations that form part of one company or groupof companies. (Chapter 3, 4)

Control

The ability of a company to direct the policies of another operation. More specifically, it is defined aseither operational control (the organization or one of its subsidiaries has the full authority to introduce
and implement its operating policies at the operation) or financial control (the organization has theability to direct the financial and operating policies of the operation with a view to gaining economic
benefits from its activities). (Chapter 3)

Corporate inventory program

A program to produce annual corporate inventories that are in keeping with the principles, standards,
and guidance of the GHG Protocol Corporate Standard. This includes all institutional, managerial andtechnical arrangements made for the collection of data, preparation of a GHG inventory, and implementation of the steps taken to manage the quality of their emission inventory.

CO2 equivalent (CO2-e)

The universal unit of measurement to indicate the global warming potential (GWP) of each of the six
greenhouse gases, expressed in terms of the GWP of one unit of carbon dioxide. It is used to evaluate
releasing (or avoiding releasing) different greenhouse gases against a common basis.

Cross-sector calculation tool

A GHG Protocol calculation tool that addresses GHG sources common to various sectors, e.g.
emissions from stationary or mobile combustion. See also GHG Protocol calculation tools(www.ghgprotocol.org).

Direct GHG emissions

Emissions from sources that are owned or controlled by the reporting company. (Chapter 4)

Direct monitoring

Direct monitoring of exhaust stream contents in the form of continuous emissions monitoring (CEM)or periodic sampling. (Chapter 6)

Double counting

Two or more reporting companies take ownership of the same emissions or reductions. (Chapter 3, 4, 8, 11)

Emissions

The release of GHG into the atmosphere.

Emission factor

A factor allowing GHG emissions to be estimated from a unit of available activity data (e.g. tonnes offuel consumed, tonnes of product produced) and absolute GHG emissions. (Chapter 6)

Emission Reduction Unit (ERU)

A unit of emission reduction generated by a Joint Implementation (JI) project. ERUs are tradable
commodities which can be used by Annex 1 countries to help them meet their commitment under the
Kyoto Protocol.

Equity share

The equity share reflects economic interest, which is the extent of rights a company has to the risks
and rewards flowing from an operation. Typically, the share of economic risks and rewards in an operation is aligned with the company's percentage ownership of that operation, and equity share will
normally be the same as the ownership percentage. (Chapter 3)

Estimation uncertainty

Uncertainty that arises whenever GHG emissions are quantified, due to uncertainty in data inputs andcalculation methodologies used to quantify GHG emissions. (Chapter 7)

Finance lease

A lease which transfers substantially all the risks and rewards of ownership to the lessee and isaccounted for as an asset on the balance sheet of the lessee. Also known as a Capital or Financial
Lease. Leases other than Capital/Financial/Finance leases are Operating leases. Consult an
accountant for further detail as definitions of lease types differ between various accepted accounting
principles. (Chapter 4)

97

Glossary98

Fixed asset investment

Equipment, land, stocks, property, incorporated and non-incorporated joint ventures, and partnerships
over which the parent company has neither significant influence nor control. (Chapter 3)

Fugitive emissions

Emissions that are not physically controlled but result from the intentional or unintentional releasesof GHGs. They commonly arise from the production, processing transmission storage and use of fuels
and other chemicals, often through joints, seals, packing, gaskets, etc. (Chapter 4, 6)

Green power

A generic term for renewable energy sources and specific clean energy technologies that emit fewer
GHG emissions relative to other sources of energy that supply the electric grid. Includes solar
photovoltaic panels, solar thermal energy, geothermal energy, landfill gas, low-impact hydropower,
and wind turbines. (Chapter 4)

Greenhouse gases (GHG)

For the purposes of this standard, GHGs are the six gases listed in the Kyoto Protocol: carbon dioxide(CO2); methane (CH4); nitrous oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); andsulphur hexafluoride (SF6).

GHG capture

Collection of GHG emissions from a GHG source for storage in a sink.

GHG credit

GHG offsets can be converted into GHG credits when used to meet an externally imposed target.
A GHG credit is a convertible and transferable instrument usually bestowed by a GHG program.
(Chapter 8, 11)

GHG offset

Offsets are discrete GHG reductions used to compensate for (i.e., offset) GHG emissions elsewhere, forexample to meet a voluntary or mandatory GHG target or cap. Offsets are calculated relative to abaseline that represents a hypothetical scenario for what emissions would have been in the absenceof the mitigation project that generates the offsets. To avoid double counting, the reduction giving
rise to the offset must occur at sources or sinks not included in the target or cap for which it is used.

GHG program

A generic term used to refer to any voluntary or mandatory international, national, sub-national,
government or non-governmental authority that registers, certifies, or regulates GHG emissions or
removals outside the company. e.g. CDM, EU ETS, CCX, and CCAR.

GHG project

A specific project or activity designed to achieve GHG emission reductions, storage of carbon, or
enhancement of GHG removals from the atmosphere. GHG projects may be stand-alone projects,
or specific activities or elements within a larger non-GHG related project. (Chapter 8, 11)

GHG Protocol calculation tools

A number of cross-sector and sector-specific tools that calculate GHG emissions on the basis ofactivity data and emission factors (available at www.ghgprotocol.org).

GHG Protocol Initiative

A multi-stakeholder collaboration convened by the World Resources Institute and World Business Council
for Sustainable Development to design, develop and promote the use of accounting and reporting
standards for business. It comprises of two separate but linked standards — the GHG Protocol Corporate
Accounting and Reporting Standard and the GHG Protocol Project Quantification Standard.

GHG Protocol Project
Quantification Standard

An additional module of the GHG Protocol Initiative addressing the quantification of GHG
reduction projects. This includes projects that will be used to offset emissions elsewhere and/or
generate credits. More information available at www.ghgprotocol.org. (Chapter 8, 11)

GHG Protocol sector specificcalculation tools

A GHG calculation tool that addresses GHG sources that are unique to certain sectors, e.g., process
emissions from aluminum production. (see also GHG Protocol Calculation tools)

GHG public report

Provides, among other details, the reporting company’s physical emissions for its chosen inventory
boundary. (Chapter 9)

GLOSSARY

GHG registry

A public database of organizational GHG emissions and/or project reductions. For example, the US
Department of Energy 1605b Voluntary GHG Reporting Program, CCAR, World Economic Forum’s Global
GHG Registry. Each registry has its own rules regarding what and how information is reported.
(Introduction, Chapter 2, 5, 8, 10)

GHG removal

Absorbtion or sequestration of GHGs from the atmosphere.

GHG sink

Any physical unit or process that stores GHGs; usually refers to forests and underground/deep sea
reservoirs of CO2.

GHG source

Any physical unit or process which releases GHG into the atmosphere.

GHG trades

All purchases or sales of GHG emission allowances, offsets, and credits.

Global Warming Potential (GWP)

A factor describing the radiative forcing impact (degree of harm to the atmosphere) of one unit of agiven GHG relative to one unit of CO2.

Group company / subsidiary

The parent company has the ability to direct the financial and operating policies of a groupcompany/subsidiary with a view to gaining economic benefits from its activities. (Chapter 3)

Heating value

The amount of energy released when a fuel is burned completely. Care must be taken not to confuse
higher heating values (HHVs), used in the US and Canada, and lower heating values, used in all othercountries (for further details refer to the calculation tool for stationary combustion available atwww.ghgprotocol.org).

Indirect GHG emissions

Emissions that are a consequence of the operations of the reporting company, but occur at sources
owned or controlled by another company. (Chapter 4)

Insourcing

The administration of ancillary business activities, formally performed outside of the company, using
resources within a company. (Chapter 3, 4, 5, 9)

Intensity ratios

Ratios that express GHG impact per unit of physical activity or unit of economic value (e.g. tonnes of
CO2 emissions per unit of electricity generated). Intensity ratios are the inverse of productivity/efficiency ratios. (Chapter 9, 11)Intensity target

A target defined by reduction in the ratio of emissions and a business metric over time e.g., reduce
CO2 per tonne of cement by 12% between 2000 and 2008. (Chapter 11)

Intergovernmental Panel on
Climate Change (IPCC)

International body of climate change scientists. The role of the IPCC is to assess the scientific,
technical and socio-economic information relevant to the understanding of the risk of human-induced
climate change (www.ipcc.ch).

Inventory

A quantified list of an organization’s GHG emissions and sources.

Inventory boundary

An imaginary line that encompasses the direct and indirect emissions that are included in the inventory. It results from the chosen organizational and operational boundaries. (Chapter 3, 4)

Inventory quality

The extent to which an inventory provides a faithful, true and fair account of an organization’s GHG
emissions. (Chapter 7)

Joint Implementation (JI)The JI mechanism was established in Article 6 of the Kyoto Protocol and refers to climate change mitigation projects implemented between two Annex 1 countries. JI allows for the creation, acquisition
and transfer of “emission reduction units” (ERUs).

Kyoto Protocol

A protocol to the United Nations Framework Convention on Climate Change (UNFCCC). Once enteredinto force it will require countries listed in its Annex B (developed nations) to meet reduction targetsof GHG emissions relative to their 1990 levels during the period of 2008–12.

99

Glossary100

Leakage (Secondary effect)

Leakage occurs when a project changes the availability or quantity of a product or service that resultsin changes in GHG emissions elsewhere. (Chapter 8)Life Cycle Analysis

Assessment of the sum of a product’s effects (e.g. GHG emissions) at each step in its life cycle,
including resource extraction, production, use and waste disposal. (Chapter 4)Material discrepancy

An error (for example from an oversight, omission, or miscalculation) that results in the reported
quantity being significantly different to the true value to an extent that will influence performance ordecisions. Also known as material misstatement.(Chapter 10)

Materiality threshold

A concept employed in the process of verification. It is often used to determine whether an error oromission is a material discrepancy or not. It should not be viewed as a de minimus for defining acomplete inventory. (Chapter 10)

Mobile combustion

Burning of fuels by transportation devices such as cars, trucks, trains, airplanes, ships etc. (Chapter 6)

Model uncertainty

GHG quantification uncertainty associated with mathematical equations used to characterize therelationship between various parameters and emission processes. (Chapter 7)

Non-Annex 1 countries

Countries that have ratified or acceded to the UNFCC but are not listed under Annex 1 and are therefore not under any emission reduction obligation (see also Annex 1 countries).

Operation

A generic term used to denote any kind of business, irrespective of its organizational, governance, orlegal structures. An operation can be a facility, subsidiary, affiliated company or other form of joint
venture. (Chapter 3, 4)

Operating lease

A lease which does not transfer the risks and rewards of ownership to the lessee and is not recorded
as an asset in the balance sheet of the lessee. Leases other than Operating leases are
Capital/Financial/Finance leases. Consult an accountant for further detail as definitions of lease
types differ between various accepted financial standards. (Chapter 4)

Operational boundaries

The boundaries that determine the direct and indirect emissions associated with operations owned orcontrolled by the reporting company. This assessment allows a company to establish which operations
and sources cause direct and indirect emissions, and to decide which indirect emissions to include
that are a consequence of its operations. (Chapter 4)

Organic growth/decline

Increases or decreases in GHG emissions as a result of changes in production output, product mix,
plant closures and the opening of new plants. (Chapter 5)

Organizational boundaries

The boundaries that determine the operations owned or controlled by the reporting company,
depending on the consolidation approach taken (equity or control approach). (Chapter 3)

Outsourcing

The contracting out of activities to other businesses. (Chapter 3, 4, 5)

Parameter uncertainty

GHG quantification uncertainty associated with quantifying the parameters used as inputs to estimation models. (Chapter 7)

Primary effects

The specific GHG reducing elements or activities (reducing GHG emissions, carbon storage, or
enhancing GHG removals) that the project is intended to achieve. (Chapter 8)

Process emissions

Emissions generated from manufacturing processes, such as the CO2 that is arises from the breakdown of calcium carbonate (CaCO3) during cement manufacture. (Chapter 4, Appendix D)

Productivity/efficiency ratios

Ratios that express the value or achievement of a business divided by its GHG impact. Increasing efficiency ratios reflect a positive performance improvement. e.g. resource productivity(sales per tonne
GHG). Productivity/efficiency ratios are the inverse of intensity ratios. (Chapter 9)

Ratio indicator

Indicators providing information on relative performance such as intensity ratios or productivity/efficiency ratios. (Chapter 9)

GLOSSARY

Renewable energy

Energy taken from sources that are inexhaustible, e.g. wind, water, solar, geothermal energy, and biofuels.

ReportingPresenting data to internal management and external users such as regulators, shareholders, thegeneral public or specific stakeholder groups. (Chapter 9)

Reversibility of reductions

This occurs when reductions are temporary, or where removed or stored carbon may be returned to theatmosphere at some point in the future. (Chapter 8)

Rolling base year

The process of shifting or rolling the base year forward by a certain number of years at regular intervals of time. (Chapter 5, 11)

Scientific Uncertainty

Uncertainty that arises when the science of the actual emission and/or removal process is notcompletely understood. (Chapter 7)

Scope

Defines the operational boundaries in relation to indirect and direct GHG emissions. (Chapter 4)

Scope 1 inventory

A reporting organization’s direct GHG emissions. (Chapter 4)

Scope 2 inventory

A reporting organization’s emissions associated with the generation of electricity, heating/ cooling, or
steam purchased for own consumption. (Chapter 4)

Scope 3 inventory

A reporting organization’s indirect emissions other than those covered in scope 2. (Chapter 4)

Scope of works

An up-front specification that indicates the type of verification to be undertaken and the level ofassurance to be provided between the reporting company and the verifier during the verification
process. (Chapter 10)

Secondary effects (Leakage)

GHG emissions changes resulting from the project not captured by the primary effect(s). These are
typically the small, unintended GHG consequences of a project. (Chapter 8)

Sequestered atmospheric carbon Carbon removed from the atmosphere by biological sinks and stored in plant tissue. Sequesteredatmospheric carbon does not include GHGs captured through carbon capture and storage.
Significance threshold

A qualitative or quantitative criteria used to define a significant structural change. It is the responsibility of the company/ verifier to determine the “significance threshold” for considering base year
emissions recalculation. In most cases the “significance threshold” depends on the use of the information, the characteristics of the company, and the features of structural changes. (Chapter 5)

Stationary Combustion

Burning of fuels to generate electricity, steam, heat, or power in stationary equipment such as boilers,
furnaces etc.

Structural change

A change in the organizational or operational boundaries of a company that result in the transfer ofownership or control of emissions from one company to another. Structural changes usually result
from a transfer of ownership of emissions, such as mergers, acquisitions, divestitures, but can also
include outsourcing/ insourcing. (Chapter 5)

Target base year

The base year used for defining a GHG target, e.g. to reduce CO2 emissions 25% below the target baseyear levels by the target base year 2000 by the year 2010. (Chapter 11)

Target boundary

The boundary that defines which GHG’s, geographic operations, sources and activities are covered by
the target. (Chapter 11)

Target commitment period

The period of time during which emissions performance is actually measured against the target. It
ends with the target completion date. (Chapter 11)

Target completion date

The date that defines the end of the target commitment period and determines whether the target isrelatively short- or long-term. (Chapter 11)

101

Glossary

Target double counting policy

A policy that determines how double counting of GHG reductions or other instruments, such asallowances issued by external trading programs, is dealt with under a GHG target. It applies only tocompanies that engage in trading (sale or purchase) of offsets or whose corporate target boundaries
interface with other companies’ targets or external programs. (Chapter 11)

Uncertainty

1. Statistical definition: A parameter associated with the result of a measurement that characterizes
the dispersion of the values that could be reasonably attributed to the measured quantity. (e.g., thesample variance or coefficient of variation). (Chapter 7)
2. Inventory definition: A general and imprecise term which refers to the lack of certainty in emissionsrelated data resulting from any causal factor, such as the application of non-representative factors or
methods, incomplete data on sources and sinks, lack of transparency etc. Reported uncertainty
information typically specifies a quantitative estimates of the likely or perceived difference between
a reported value and a qualitative description of the likely causes of the difference. (Chapter 7).

102

United Nations Framework
Convention on Climate Change(UNFCCC)

Signed in 1992 at the Rio Earth Summit, the UNFCCC is a milestone Convention on Climate Change
treaty that provides an overall framework for international efforts to (UNFCCC) mitigate climatechange. The Kyoto Protocol is a protocol to the UNFCCC.

Value chain emissions

Emissions from the upstream and downstream activities associated with the operations of thereporting company. (Chapter 4)

Verification

An independent assessment of the reliability (considering completeness and accuracy) of a GHG
inventory. (Chapter 10)

103

References

API (2004), Compendium of Greenhouse Gas Emissions
Methodologies for the Oil and Gas Industry, Final Draft, American
Petroleum Institute

IPCC (2000b), Land Use, Land Use Change, and Forestry: A
Special Report of the IPCC, Intergovernmental Panel on Climate
Change. Cambridge University Press, Cambridge, UK

BP (2000), Environmental Performance: Group Reporting
Guidelines, Version 2.2

IPIECA (2003), Petroleum Industry Guidelines for Reporting
Greenhouse Gas Emissions, International Petroleum Industry
Environmental Conservation Association, London

CCAR (2003), General Reporting Guidelines, California Climate
Action Registry
DEFRA (2003), Guidelines for the Measurement and Reporting of
Emissions by direct participants in the UK Emissions Trading
Scheme, UK Department for Environment, Food and Rural Affairs,
London, UK ETS(01)05rev2
EC-DGE (2000), Guidance Document for EPER Implementation,
European Commission Directorate-General for Environment
EPA (1999), Emission Inventory Improvement Program,
Volume VI: Quality Assurance/Quality Control, U.S. Environmental
Protection Agency
Georgia Pacific (2002), Protocol for the Inventory of Greenhouse
Gases in Georgia-Pacific Corporation, Georgia-PacificCorporation, Atlanta
GRI (2002), Global Reporting Initiative, Sustainability Reporting
Guidelines, Global Reporting Initiative
IAI (2003), Aluminum Sector Greenhouse Gas Protocol,
International Aluminum Institute
ICFPA (2002), Calculation Tools and for Estimating Greenhouse
Gas Emissions from Pulp and Paper Mills, Climate Change
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IPCC (1996), Revised IPCC Guidelines for National GHG
Inventories: Reference Manual, Intergovernmental Panel on
Climate Change
IPCC (1997), Revised 1996 IPCC Guidelines for National Greenhouse
Gas Inventories, Intergovernmental Panel on Climate Change
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S. Brown, B. Lim, and B. Schlamadinger, Intergovernmental
Panel on Climate Change
IPCC (2000a), Good Practice Guidance and Uncertainty
Management in National Greenhouse Gas Inventories,
Intergovernmental Panel on Climate Change

ISO (1999), International Standard on Environmental
Performance Evaluation, (ISO 14031), International Standard
Organization, Geneva
KPMG (2000), Global Accounting: UK, US, IAS and Netherlands
Compared, 2nd Edition, KPMG Accountants NV
NZBCSD (2002), The Challenge of GHG Emissions: the “why”
and “how” of accounting and reporting for GHG emissions: An
Industry Guide, New Zealand Business Council for Sustainable
Development, Auckland
Ontario MOE (2001), Airborne Contaminant Discharge Monitoring
and Reporting, Ontario Ministry of the Environment, Toronto,
Ontario Regulation 127/01
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Information Reported by Annex I Parties for the Land-Use Change
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Climate Change
Verfaillie, H., and R. Bidwell (2000), Measuring Eco-efficiency: A
Guide to Reporting Company Performance, World BusinessCouncil for Sustainable Development, Geneva
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Monitoring and Reporting Protocol for the Cement Industry, World
Business Council for Sustainable Development: Working Group
Cement, Geneva
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World Resources Institute, Washington, DC
WRI (2003), Renewable Energy Certificates: An Attractive Means
for Corporate Customers to Purchase Renewable Energy, World
Resources Institute, Washington, DC

Contributors

Structured Feedback Companies ( R E V I S E D E D I T I O N )AstraZeneca

Philips & Yaming Co., Ltd.

Birka Energi

Seattle City Light

Eastman Kodak Co.

Simplex Mills Co. Ltd.

ENDESA

Sony Corporation

IKEA International A / S

STMicroelectronics

Interface, Inc.

Tata Iron & Steel Company Ltd.

Kansai Electric Power Company

Tokyo Electric Power Company

Nike, Inc.

Tokyo Gas Co. Ltd.

Norsk Hydro

We Energies

N.V. Nuon Renewable Energy

Road Testers ( F I R S T E D I T I O N )Baxter International

Ontario Power Generation

BP

Petro-Canada

CODELCOPricewaterhouseCoopers road tested with European
companies in the non-ferrous metal sector

Duncans Industries

Public Service Electric and Gas

Dupont Company

Shree Cement

Ford Motor Company

Shell Canada

Fortum Power and Heat

Suncor Energy

General Motors Corporation

Tokyo Electric Power Company

Hindalco Industries

Volkswagen

IBM Corporation

World Business Council for Sustainable Development

Maihar Cement

World Resources Institute

Nike, Inc.

500 PPM road tested with several small and medium
companies in Germany

Norsk Hydro

WRI & WBCSD GHG Protocol Initiative Team ( F I R S T E D I T I O N )Janet Ranganathan

World Resources InstitutePankaj Bhatia

World Resources InstituteDavid Moorcroft

World Business Council
for Sustainable Development

Jasper Koch

World Business Council
for Sustainable Development

Project Management Team ( F I R S T E D I T I O N )104

Brian Smith

Innovation Associates

Sujata Gupta

The Energy Research InstituteHans Aksel Haugen

Norsk Hydro

Yasuo Hosoya

Tokyo Electric Power Company

Vicki Arroyo

Pew Center on Climate Change

Rebecca Eaton

World Wildlife Fund

Aidan J. Murphy

Royal Dutch/ Shell

105

CONTRIBUTORSContributors
Heather Tansey

3M Corporation

Britt Sahlestrom

Birka Energi

Ingo Puhl

500 PPMDavid EvansBP

Dawn Fenton

ABB

Nick Hughes

BP

Christian Kornevall

ABB

Tasmin LishmanBPPaul-Antoine Lacour

AFOCELMark Barthel

British Standards Institution

Kenneth Martchek

Alcoa

JoAnna Bullock

Business for Social Responsibility

Vince Van Son

Alcoa

Robyn Camp

California Climate Action Registry

Ron Nielsen

Alcan

Jill Gravender

California Climate Action Registry

Steve Pomper

Alcan

Dianne Wittenberg

California Climate Action Registry

Pat Quinn

Allegheny Energy

David Cahn

California Portland Cement

Joe Cascio Booz

Allen & Hamilton Inc.

Paul Blacklock

Calor Gas Limited

David Jaber

Alliance to Save Energy

Julie Chiaravalli

Cameron-Cole

Alain Bill

Alstom Power Environment

Connie Sasala

Cameron-Cole

Robert Greco

American Petroleum Institute

Evan Jones

Walter C. Retzsch

American Petroleum Institute

Canada’s Climate Change Voluntary
Challenge and Registry Inc.

Karen Ritter

American Petroleum Institute

Alan D. Willis

Canadian Institute ofChartered Accountants

Tom Carter

American Portland Cement Alliance

Miguel A Gonzalez

CEMEX

Dale Louda

American Portland Cement Alliance

CEMEX

Ted Gullison

Anova

Carlos Manuel
Duarte Oliveira

J Douglas Akerson

Aon Risk Services of Texas Inc

Inna Gritsevich

CENEf(Center for Energy Efficiency)

John Molburg

Argonne National Laboratory

Ellina Levina

Center for Clean Air Policy

Sophie Jabonski

Arthur Anderson

Steve Winkelman

Center for Clean Air Policy

Fiona Gadd

Arthur Andersen

Aleg Cherp

Christophe Scheitzky

Arthur Andersen

Central European University (Hungary)and ECOLOGIA

Scot Foster

Arthur D. Little

Mark Fallon

CH2M Hill

Mike Isenberg

Arthur D. Little

Lisa Nelowet GriceCH2M Hill

Bill Wescott

Arthur D. Little

Arthur Lee

ChevronTexaco

Keith Moore

AstraZeneca

William C. McLeod

ChevronTexaco

Birgita Thorsin

AstraZeneca

Susann Nordrum

ChevronTexaco

Thomas E. Werkem

Atofina Chemicals

Alice LeBlanc

Chicago Climate Exchange

Jean-Bernard Carrasco

Australian Greenhouse OfficeCharlene R. Garland

Clean Air-Cool Planet

David Harrison

Australian Greenhouse Office

Donna Boysen

Clean Energy GroupBronwyn Pollock

Australian Greenhouse OfficeJennifer DuBose

Climate Neutral Network

Linda Powell

Australian Greenhouse Office

Sue HallClimate Neutral Network

James Shevlin

Australian Greenhouse Office

Karen Meadows

Climate Neutral Network

Chris Loreti

Battelle Memorial InstituteMichael Burnett

Climate Trust

Ronald E. Meissen

Baxter International

David Olsen

Clipper Windpower

Göran Andersson

Birka Energi

Marco Bedoya

Cimpor

Sofi Harms-Ringdahl

Birka Energi

Jose Guimaraes

Cimpor

Contributors

106

Elizabeth Arner

CO2e.com/Cantor Fitzgerald

Paul Tebo

DuPont Company

Fernando E. Toledo

CODELCOFred Whiting

DuPont Company

Bruce Steiner

Collier Shannon Scott

Roy Wood

Eastman Kodak Co.

Lynn Preston

Collins & Aikman

Jochen HarnischECOFYS

Annick Carpentier

Confederation ofEuropean Paper Industries

Alan Tate

Ecos Corporation

Pedro Moura Costa

EcoSecurities

K.P. Nyati

Confederation of Indian Industry

Justin Guest

EcoSecurities

Sonal Pandya

Conservation International

D. Gary Madden

Emission Credit LLC

Michael Totten

Conservation International

Kyle L. Davis

Dominick J. Mormile

Consolidated Edison Company

Edison Mission Energy/
MidAmerican Energy Holdings Co.

John Kessels

CRL Energy Ltd.

ENDESA

Ian Lewis

Cumming Cockburn Limited

Maria Antonia
Abad Puértolas

Raymond P. Cote

Dalhousie University

David Corregidor SanzENDESA

Olivia Hartridge

DEFRA/European Commission

Elvira Elso Torralba

ENDESA

Robert Casamento

Deloitte & Touche

Joel Bluestein

Energy & Environmental Analysis, Inc.

Markus Lehni

Deloitte & Touche

Y P Abbi

The Energy Research Institute

Flemming Tost

Deloitte & Touche

Girish Sethi

The Energy Research InstitutePhilip Comer

Det Norske Veritas

Vivek Sharma

The Energy Research Institute

Simon Dawes

Det Norske Veritas

Crosbie Baluch

Energetics Pty. Ltd.

Trygve Roed Larsen

Det Norske Veritas

Marcus Schneider

Energy Foundation

Einar Telnes

Det Norske Veritas

David Crossley

Energy Futures Australia Pty Ltd

Kalipada Chatterjee

Development Alternatives

Patrick Nollet

Entreprises pour l'Environnement

Vivek Kumar

Development Alternatives

James L. Wolf

Envinta

Samrat Sengupta

Development Alternatives

Kenneth Olsen

Environment Canada

Francesco Balocco

The Dow Chemical Company

Adrian Steenkamer

Environment Canada

Paul Cicio

The Dow Chemical Company

Millie Chu Baird

Environmental DefenseFrank Farfone

The Dow Chemical Company

Sarah Wade

Environmental DefensePeter Molinaro

The Dow Chemical Company

Satish Kumar

Environmental Energy Technologies

Scott Noesen

The Dow Chemical Company

John Cowan

Environmental Interface

Stephen Rose

The Dow Chemical Company

Edward W. Repa

Environmental Researchand Education Foundation

Jorma Salmikivi

The Dow Chemical Company

Tatiana Bosteels

Environmental Resources Management

Don Hames

The Dow Chemical Company

William B. Weil

Environmental Resources Management

R. Swarup

Duncans Industries

Wiley Barbour

Environmental Resources TrustJohn B. Carberry

DuPont Company

Barney Brannen

Environmental Resources TrustDavid Childs

DuPont Company

Ben Feldman

Environmental Resources TrustJohn C. DeRuyter

Dupont Company

Al Daily

Environmental Synergy

Tom Jacob

DuPont Company

Anita M. Celdran

Mack McFarland

DuPont Company

Environmental Technology
Evaluation Center

Ed Mongan

DuPont Company

William E. Kirksey

Environmental Technology
Evaluation Center

Ron Reimer

DuPont Company

107

CONTRIBUTORSJames Bradbury

EPOTEC

Alan B. Reed

EPOTEC

Daniele Agostini

Ernst & Young

Juerg Fuessler

Ernst Basler & Partners

Stefan Larsson

ESAB

Lutz Blank

Joseph Romm

Global Environment
and Technology Foundation

Arthur H Rosenfeld

Global Environment
and Technology Foundation

Dilip Biswas

Government of India Ministryof Environment & Forests

European Bank for Reconstruction
and Development

Matthew DeLuca

Green Mountain Energy

Richard Tipper

Greenergy ECCM

Alke Schmidt

European Bank for Reconstruction
and Development

Ralph Taylor

Greenleaf Composting Company

Peter Vis

European Commission

Glenna Ford

GreenWare Environmental Systems

Chris Evers

European Commission

Nickolai Denisov

GRID-Arendal / Hindalco Industries

Yun Yang

ExxonMobil Research& Engineering Company

Y.K. Saxena

Gujarat Ambuja Cement

Mihir Moitra

Hindalco Industries Ltd.

Urs Brodmann

Factor Consulting and Management

Claude Culem

HolcimM.A. J. Jeyaseelan

Federation of Indian Chambersof Commerce & Industry

Adrienne Williams

HolcimMo Loya

Honeywell Allied Signal

Anu Karessuo

Finnish Forest Industries Federation

Edan Dionne

IBM Corporation

Tod DelaneyFirst Environment

Ravi Kuchibhotla

IBM Corporation

Brian Glazebrook

First Environment

Thomas A. Cortina

ICCP

James D. HeerenFirst Environment

Paul E. Bailey

ICF Consulting

James T. Wintergreen

First Environment

Anne Choate

ICF Consulting

Kevin Brady

Five Winds International

Craig Ebert

ICF Consulting

Duncan Noble

Five Winds International

Marcia M. Gowen

ICF Consulting

Steven Young

Five Winds International

Kamala R. Jayaraman

ICF Consulting

Larry Merritt

Ford Motor Company

Richard Lee

ICF Consulting

Chad McIntosh

Ford Motor Company

Diana PaperICF Consulting

John Sullivan

Ford Motor Company

Frances Sussman

ICF Consulting

Debbie Zemke

Ford Motor Company

Molly Tirpak

ICF Consulting

Dan Blomster

Fortum Power and HeatThomas Bergmark

IKEA International A / S

Arto Heikkinen

Fortum Power and Heat

Eva May Lawson

IKEA International A / S

Jussi Nykanen

Fortum Power and HeatMona Nilsson

IKEA International A / S

Steven Hellem

Global Environment
Management Initiative

Othmar Schwank

INFRAS

Judith M. Mullins

General Motors CorporationRoel Hammerschlag

Institute for Lifecycle Energy Analysis

Terry Pritchett

General Motors Corporation

Shannon Cox

Interface Inc.

Richard Schneider

General Motors Corporation

Buddy Hay

Interface Inc.

Robert Stephens

General Motors Corporation

Alyssa Tippens

Interface Inc.

Kristin Zimmerman

General Motors Corporation

Melissa Vernon

Interface Inc.

Mark Starik

George Washington University

Willy Bjerke

International Aluminum InstituteMichael Rumberg

Gerling Group of Insurances

Jerry Marks

International Aluminum InstituteJeffrey C. Frost

GHG Spaces

Robert Dornau

International Emissions
Trading Association

T. ImaiGlobal Environment and Energy GroupContributors

108

Andrei Marcu

International Emissions
Trading Association

Akira Tanabe

International Finance Corporation

George Thomas

International Finance Corporation

Danny L. Adams

International Paper Company

Julie C. Brautigam

International Paper Company

Carl Gagliardi

International Paper Company

Thomas C. JorlingInternational Paper Company

Mark E. Bateman

Investor Responsibility Research Center

S.K. Bezbaroa

ITC Ltd.

H.D. Kulkami

ITC Ltd.

Michael Nesbit

JAN Consultants

Chris Hunter

Johnson & Johnson International

Harry Kaufman

Johnson & Johnson International

Daniel Usas

Johnson & Johnson Worldwide
Engineering Services

Shintaro Yokokawa

Jeff Fiedler

Natural Resources Defense Council

Brad Upton

NCASI

Timothy J. Roskelley

NESCAUM

Matthew W. Addison

NexantAtulya Dhungana

NexantDavid H. King

Niagara Mohawk Power Corporation

Martin A. Smith

Niagara Mohawk Power Corporation

Jim Goddard

Nike Inc.

Leta Winston

Nike Inc.

Amit Meridor

NILIT

Karina Aas

Norsk Hydro

Jos van Danne

Norsk Hydro

Hans Goosens

Norsk Hydro

Jon Rytter Hasle

Norsk Hydro

Tore K. Jenssen

Norsk Hydro

Kansai Electric Power Co.

Halvor Kvande

Norsk Hydro

Iain Alexander

KPMG

Bernt Malme

Norsk Hydro

Giulia Galluccio

KPMG

Lillian Skogen

Norsk Hydro

Lisa Gibson

KPMG

Jostein Soreide

Norsk Hydro

Jed Jones

KPMG

Lasse Nord

Norsk Hydro

Sophie Punte

KPMG

Thor Lobben

Norske Skogindustrier ASA

Michele Sanders

KPMG

Morton A. Barlaz

North Carolina State University

Chris Boyd

Lafarge Corporation

Geir Husdal

NovatechDavid W. Carroll

Lafarge Corporation

Gard Pedersen

Novatech

Ed VineLawrence Berkeley National Laboratory

Ron OeiNuon N.V.

Richard Kahle

Lincoln Electric Service

Jan Corfee-Morlot

OECD

Michael E. Canes

Logistics Management InstituteStephane Willems

OECD

Erik Brejla

The Louis Berger Group

Anda Kalvins

Ontario Power Generation

Michael J. Bradley

M.J. Bradley & Associates

Mikako Kokitsu

Osaka Gas Co.

Brian Jones

M.J. Bradley & Associates

Greg San Martin

Pacific Gas and Electric Company

Craig McBernie

McBernie QERLKen Humphreys

Pacific Northwest National Laboratory

Tracy Dyson

Meridian Energy Limited

Michael Betz

PE Europe GmbHTim Mealey

Meridian Institute

Kathy Scales

Petro-Canada

Maria Wellisch

MWA Consultants

Judith Greenwald

Pew Center

Margriet Kuijper

NAM

Naomi Pena

Pew Center

Sukumar Devotta

National Chemical Laboratory

Daniel L. Chartier

PG&E Generating

Neil B. Cohn

Natsource

Zhang Fan

Philips & Yaming Co. Ltd.

Garth Edward

Natsource

Xue Gongren

Philips & Yaming Co. Ltd.

Robert Youngman

Natsource

Orestes R. Anastasia

Planning and Development
Collaborative International

Dale S. Bryk

Natural Resources Defense Council

LIST OF CONTRIBUTORS109CONTRIBUTORS

Robert Hall

Platts Research and Consulting

Gareth Phillips

SGS

Neil Kolwey

Platts Research and Consulting

SGS

David B. Sussman

Poubelle Associates

Antoine de
La RochefordièreBill Kyte

Powergen

Murray G. Jones

Shell Canada

Surojit Bose

PricewaterhouseCoopers

Sean Kollee

Shell Canada

Melissa Carrington

PricewaterhouseCoopers

Rick Weidel

Shell Canada

Rachel Cummins

PricewaterhouseCoopers

Pipope Siripatananon

Siam Cement

Len Eddy

PricewaterhouseCoopers

J.P. Semwal

Simplex Mills Co. Ltd.

Dennis Jennings

PricewaterhouseCoopers

Ros Taplin

SMEC Environment

Terje Kronen

PricewaterhouseCoopers

Robert K. Ham

Solid & Hazardous
Waste Engineering

Craig McBurnie

PricewaterhouseCoopers

Jeremy K. O’Brien

Olivier Muller

PricewaterhouseCoopers

Solid Waste Associationof North America

Dorje Mundle

PricewaterhouseCoopers

Hidemi Tomita

Sony Corporation

Thierry Raes

PricewaterhouseCoopers

Gwen Parker

Stanford University

Alain Schilli

PricewaterhouseCoopers

Georges Auguste

STMicroelectronics

Hans Warmenhoven

PricewaterhouseCoopers

Ivonne Bertoncini

STMicroelectronics

Pedro Maldonado

PRIEN

Giuliano Boccalletti

STMicroelectronics

Alfredo Munoz

PRIEN

Eugenio Ferro

STMicroelectronics

Mark S. Brownstein

PSEG

Philippe Levavasseur

STMicroelectronics

James Hough

PSEG

Geoffrey Johns

Suncor Energy

Samuel Wolfe

PSEG

Manuele de Gennaro

Swiss Federal Institute of Technology,
ETH Zurich

Vinayak Khanolkar

Pudumjee Pulp & Paper Mills Ltd.

Markus Ohndorf

Federica Ranghieri

Ranghieri & Associates

Swiss Federal Institute of Technology,
ETH ZurichJennifer Lee

Resources for the Future

Matthias Gysler

Swiss Federal Office for Energy

Kaj Embren

Respect Europe

Swiss Reinsurance Co.

Mei Li Han

Respect Europe

Christopher T.
WalkerDavid W. Cross

The RETEC Group

Gregory A. Norris

Sylvatica

Alan Steinbeck

Rio Tinto

GS Basu

Tata Iron & Steel Company Ltd.

Katie Smith

RMC Group

RP Sharma

Tata Iron & Steel Company Ltd.

Rick Heede

Rocky Mountain Institute

Robert Graff

Tellus Institute

Chris LotspeichRocky Mountain InstituteSivan Kartha

Tellus InstituteAnita M. BurkeRoyal Dutch / Shell

Michael Lazarus

Tellus InstituteDavid Hone

Royal Dutch / Shell

Allen L. White

Tellus InstituteThomas Ruddy

Ruddy Consultants

Will Gibson

Tetra Tech Em Incorporated

Julie Doherty

Science Applications Intl. Corp.

Satish Malik

Tetra Tech Em Incorporated

Richard Y. Richards

Science Applications Intl. Corp.

Fred Zobrist

Tetra Tech Em Incorporated

Corinne Grande

Seattle City Light

Sonal Agrawal

Tetra Tech India

Doug Howell

Seattle City Light

Ranjana Ganguly

Tetra Tech India

Edwin Aalders

SGS

Ashwani Zutshi

Tetra Tech India

Irma Lubrecht

SGS

Mark D. Crowdis

Think Energy

Contributors

110

Tinus Pulles

TNO MEP

Dina Kruger

U.S. Environmental Protection Agency

Yasushi Hieda

Tokyo Electric Power Co. Ltd

Skip Laitner

U.S. Environmental Protection Agency

Midori Sasaki

Tokyo Electric Power Co. Ltd.

Joseph Mangino

U.S. Environmental Protection Agency

Tsuji Yoshiyuki

Tokyo Electric Power Co. Ltd.

Pam Herman Milmoe

U.S. Environmental Protection Agency

Hiroshi Hashimoto

Tokyo Gas Co. Ltd.

Beth Murray

U.S. Environmental Protection Agency

Takahiro Nagata

Tokyo Gas Co. Ltd

Deborah Ottinger

U.S. Environmental Protection Agency

Kentaro Suzawa

Tokyo Gas Co. Ltd.

Paul Stolpman

U.S. Environmental Protection Agency

Satoshi Yoshida

Tokyo Gas Co. Ltd.

Susan Thorneloe

U.S. Environmental Protection Agency

Ralph Torrie

Torrie Smith Associates

Chloe Weil

U.S. Environmental Protection Agency

Manuela Ojan

Toyota Motor Company

Phil J. Wirdzek

U.S. Environmental Protection Agency

Eugene Smithart

Trane Company

Tom Wirth

U.S. Environmental Protection Agency

Laura Kosloff

Trexler & Associates

Michael Savonis

U.S. Federal Highway Administration

Mark Trexler

Trexler & Associates

M. Michael Miller

U.S. Geological Survey

Walter Greer

Trinity Consultants

Hendrik G. van Oss

U.S. Geological Survey

Jochen Mundinger

University of Cambridge

Valentin V. Tepordei

U.S. Geological Survey

Hannu Nilsen

UPM-Kymmene Corporation

Marguerite Downey

U.S. Postal Service

Nao Ikemoto

U.S. Asia Environmental Partnership

Hussein Abaza

UNEP

Stephen Calopedis

U.S. Department of Energy

Lambert Kuijpers

UNEP

Gregory H. Kats

U.S. Department of Energy

Gary Nakarado

UNEP

Dick Richards

U.S. Department of Energy

Mark Radka

UNEP

Arthur Rosenfeld

U.S. Department of Energy

Stelios Pesmajoglou

UNFCCC

Arthur Rypinski

U.S. Department of Energy

Alden Meyer

Union of Concerned Scientists

Monisha ShahU.S. Department of Energy

Judith Bayer

United Technologies Corporation

Tatiana Strajnic

U.S. Department of Energy

Fred Keller

United Technologies Corporation

Kenneth Andrasko

U.S. Environmental Protection Agency

Paul Patlis

United Technologies Corporation

Jan Canterbury

U.S. Environmental Protection Agency

Ellen J. Quinn

United Technologies Corporation

Ed CoeU.S. Environmental Protection Agency

Bill Walters

United Technologies Corporation

Lisa H. Chang

U.S. Environmental Protection Agency

Gary Bull

University of British Colombia

Andrea Denny

U.S. Environmental Protection Agency

Zoe Harkin

University of British Columbia

Bob Doyle

U.S. Environmental Protection Agency

Gerard Alleng

University of Delaware

Henry Ferland

U.S. Environmental Protection Agency

Jacob Park

University of Maryland

Dave Godwin

U.S. Environmental Protection Agency

Terri Shires

URS Corporation

Katherine Grover

U.S. Environmental Protection Agency

Angela Crooks

USAID

John Hall

U.S. Environmental Protection Agency

Virginia Gorsevski

USAID

Lisa Hanle

U.S. Environmental Protection Agency

Carrie Stokes

USAID

Reid Harvey

U.S. Environmental Protection Agency

Sandeep Tandon

USAID

Kathleen Hogan

U.S. Environmental Protection Agency

A.K. Ghose

Vam Organosys Ltd.

Roy Huntley

U.S. Environmental Protection Agency

Cyril Coillot

Vivendi Environment

Bill N. Irving

U.S. Environmental Protection Agency

Eric Lesueur

Vivendi Environment

111

CONTRIBUTORSMichael Dillman

Volkswagen

Anand Rao

World Resources InstituteStephan Herbst

Volkswagen

Lee Schipper

World Resources Institute

Herbert Forster

Votorantim

Jason Snyder

World Resources InstituteClaude Grinfeder

Votorantim

Jennifer Morgan

World Wildlife Fund

Mahua Acharya

World Business Council
for Sustainable Development

WRI and WBCSD would also like to thank the following individuals

Christine ElleboodeWorld Business Council
for Sustainable Development

and organizations for their generous financial support: Energy

Margaret Flaherty

World Business Council
for Sustainable Development

Catherine T. MacArthur Foundation, Charles Stewart Mott

Al FryWorld Business Council
for Sustainable Development

Foundation, Spencer T. and Ann W. Olin Foundation, John D. andFoundation, the US Agency for International Development, the US
Environmental Protection Agency, Arthur Lee, Anglo American,

Susanne Haefeli

World Business Council
for Sustainable Development

Baxter International, BP, Det Norske Veritas, DuPont, Ford, General

Kija Kummer

World Business Council
for Sustainable Development

Heidi Sundin

World Business Council
for Sustainable Development

Statoil, STMicroelectronics, Sulzer, Suncor, Swiss Re, Texaco, The

Donna Danihel

We Energies

TransAlta and Volkswagen.

Gary Risner

Weyerhauser

Thomas F. Catania

Whirlpool Corporation

Eric Olafson

Williams Company

Johannes Heister

World Bank

Ajay Mathur

World Bank

Richard Samans

World Economic Forum

Andrew Aulisi

World Resources InstituteKevin Baumert

World Resources Institute

Carey Bylin

World Resources Institute

Florence Daviet

World Resources InstituteManmita Dutta

World Resources InstituteSuzie Greenhalgh

World Resources Institute

Craig Hanson

World Resources InstituteFran Irwin

World Resources InstituteDavid Jhirad

World Resources InstituteNancy Kete

World Resources InstituteBill LaRocque

World Resources Institute

Jim MacKenzie

World Resources InstituteEmily Matthews

World Resources InstituteSridevi Nanjundaram

World Resources Institute

Jim Perkaus

World Resources Institute

Jonathan Pershing

World Resources InstituteSamantha
Putt del Pino

World Resources Institute

Motors, Lafarge, International Paper, Norsk Hydro, Ontario Power
Generation, Petro-Canada, PowerGen, S.C.Johnson, SGS, Shell,

Dow Chemical Company, Tokyo Electric Power Company, Toyota,

Design: Alston Taggart, Barbieri and GreenOrdering publications
WBCSD

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Tel: (44 1438) 748 111
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wbcsd @ earthprint.com
Publications are available at:www.wbcsd.org
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Disclaimer
This document, designed to promote best practice GHG
accounting and reporting, has been developed through aunique multi-stakeholder consultative process involving
representatives of reporters and report-users from aroundthe world. While WBCSD and WRI encourage use of the
GHG Protocol Corporate Standard by all corporations
and organizations, the preparation and publication ofreports based fully or partially on the GHG Protocol is thefull responsibility of those producing them. Neither the
WBCSD and WRI, nor other individuals who contributed
to this standard assume responsibility for any consequences or damages resulting directly or indirectly fromits use in the preparation of reports or the use of reports
based on the GHG Protocol Corporate Standard.

Copyright © World Resources Institute and World Business Council
for Sustainable Development, March 2004
ISBN 1-56973-568-9
Printed in USA

Printed on Phoeno Star (20% post consumer waste,chlorine-free pulp processed paper) with soy-based inks.

112

TAbout WBCSD

About WRI

The World Business Council for Sustainable Development (WBCSD)World Resources Institute is an independent nonprofit organization

is a coalition of 170 international companies united by a sharedwith a staff of more than 100 scientists, economists, policy

commitment to sustainable development via the three pillars ofexperts, business analysts, statistical analysts, mapmakers, andeconomic growth, ecological balance and social progress. Ourcommunicators working to protect the Earth and improve people’s

members are drawn from more than 35 countries and 20 major

lives. The GHG Protocol Initiative is managed by WRI’s Sustainableindustrial sectors. We also benefit from a global network ofEnterprise Program which for more than a decade, has harnessed

48 national and regional business councils and partner organi-

the power of business to create profitable solutions to environment

zations involving some 1,000 business leaders globally.

and development challenges. WRI is the only organization thatbrings together four influential forces to accelerate change inbusiness practice: corporations, entrepreneurs, investors, andbusiness schools.

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