4.1 Tracking Emissions Over Time
Reporting companies may need to track GHG emissions for regulatory
purposes, for use in reporting to relevant stakeholders, or for internal tracking of
GHG emission targets. This chapter discusses (1) Scope 1, Scope 2, and Scope 3
considerations related to choosing a base year, (2) recalculation of base-year
emissions, and (3) the related reporting requirements.
Corporate Standard, Chapter 5, “Tracking Emissions Over
Time,” Page 35
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 yearFN1 emissions. For
consistent tracking of emissions over time, the base year
emissions may need to be recalculated as companies undergo
significant structural changes such as acquisitions,
divestments, and mergers.
__________________________________________________
FN1 Terminology on this topic can
be confusing. Base year emissions should be differentiated
from the term “baseline,” which is mostly used in the
context of project-based accounting. The term base year
focuses on a comparison of emissions over time, while a
baseline is a hypothetical scenario for what GHG emissions
would have been in the absence of a GHG reduction project or
activity.
4.1.1 Choosing a Base Year
A key step in tracking GHG emissions over time is to choose a base year that
aligns with the reporting company’s operational goals and for which accurate and
complete information is available. Although a base year is usually a single
year, reporting companies may choose a multiyear average of GHG emissions as
their starting point if it is more representative of their typical emission
profile.
The Corporate Standard recommends that a reporting company
choose as its base year the earliest year for which complete and accurate data
are available regarding its GHG emissions. As noted in Chapter 5 of the
Corporate Standard, when this “inventory base year” is used as a reference point
from which to track progress toward the achievement of a GHG emission target, it
is called a “target base year.”1 Companies would disclose the reason for the choice of a specific base year
when comparing target achievements with base-year emissions. Once a base year is
chosen, the base-year emissions are recalculated if they are no longer
comparable with emissions over time as a result of structural changes in the
business or certain other circumstances (see Section 4.1.3 of this Roadmap for more
information).
As outlined in Chapter 5 of this Roadmap,
there are two distinct approaches to calculating Scope 2 emissions: the
location-based method and the market-based method. Companies are advised to
calculate base-year Scope 2 emissions under both methods if sufficient data are
available, as Chapter 9 of the Scope 2 Guidance indicates:
Scope 2 Guidance, Chapter 9, “Setting Reduction Targets
and Tracking Emissions Over Time,” Pages 75–76
9.2 Recalculating Base-Year Emissions . . .
Companies should ensure that the base-year inventory
includes both a location-based and market-based scope 2
total, if applicable and feasible. This ensures “like
with like” comparison over time.
-
If the scope 2 base year chosen was calculated only according to the location-based method, the reporting entity should also recalculate a market-based total if contractual information or residual mix totals are available for the base year. If not, companies should state that the location-based result has been used as a proxy since a market-based result cannot be calculated.
-
If the scope 2 base year chosen was calculated only according to the market-based method, companies should ensure that the contractual instruments used in the base year meet the Scope 2 Quality Criteria. If not, this should be disclosed and a location-based total stated in place of the market-based method total. In addition, companies should calculate a location-based method total in the base year using emission factors appropriate for that year.
The use of a single base year for Scope 1, Scope 2, and Scope 3
emissions encourages consistency for comparison purposes. However, it is
permissible to use a different base year for each scope. For example, if a
reporting company has previously established a Scope 1 and Scope 2 base year for
GHG emissions, a more recent base year may be chosen to report Scope 3
emissions. Often, obtaining relevant and accurate data related to Scope 3
emissions may take additional time. As a result, the reporting company may
establish a separate base year for Scope 3 emissions when accurate and reliable
Scope 3 data are not available for the base year chosen for Scopes 1 and 2. If a
reporting company does not have complete and reliable data necessary to disclose
a base year, the reporting company may disclose the absence of a Scope 3 base
year.
Entities would disclose the reasons why a specific base year is chosen. This
explanation would include, if applicable, the reason why different base years
have been chosen for different scopes.
When a reporting company chooses to disclose Scope 3 emissions
under the Scope 3 Standard, it is required to select a Scope 3 base year and
disclose the reasons for making that selection. Chapter 9 of the Scope 3
Standard notes that entities “should establish a single base year for all scope
3 categories,” further stating that “[a] single base year for all scope 3
categories simplifies scope 3 emissions tracking, avoids ‘cherry picking’ of
base years (or the perception thereof), and allows clearer communication of GHG
emissions to stakeholders.”
However, Chapter 9 of the Scope 3 Standard also recognizes that some entities may
establish different base years for individual Scope 3 categories. For example,
this may occur when an entity has data availability or quality issues that
prevent the entity from using the same base year for all Scope 3 categories. In
such cases, the entity may use a different base year for one or more of the 15
Scope 3 categories.
Further, although reporting companies are not required to set GHG emission
targets, it is recommended that they consider doing so. See Section
4.1.4 for more information about the target-setting process.
4.1.2 Rolling Base Year
If a reporting company continues to grow (e.g., as a result of numerous
acquisitions), it can be complex to continually recalculate emissions for a
fixed base year. In such a case, the reporting company can use a “rolling base
year” as a policy election rather than determine a set base year for comparing
GHG emissions over time. This rolling base year would be rolled forward at
certain regular intervals, as elected. Like the fixed base-year approach, the
rolling base-year approach requires that accurate data related to the reporting
company’s GHG emissions be available for the years that are being compared. The
rolling base-year approach ensures that when multiple structural changes occur
at the reporting company, only GHG emissions for the last rolling base year
would need to be recalculated, as opposed to GHG emissions for a fixed base year
that is potentially much earlier (see Section 4.1.3).
The rolling base-year approach requires the reporting company to calculate
emissions for a new base year and shifts the base year forward by a certain
number of years at regular intervals. The reporting company would select a
policy related to the regular intervals and apply the policy consistently. Most
often, reporting companies choose a regular interval of one year so that GHG
emissions for the current year are compared with those for the immediately
preceding year. The rolling base year reduces the need to (1) gather and include
data from noncontrolled sources (i.e., before an acquisition) and (2) remove
data related to previously controlled sources (i.e., before a divestiture). This
approach helps ensure that a reporting company can compare current-year GHG
emissions with prior-year GHG emissions from a similar organizational
structure.
As noted above, the rolling base-year approach requires emissions for a new base
year to be calculated at regular intervals, as determined by the reporting
company. However, even if a reporting company is not required to establish a new
rolling base year during a reporting year under its policy election,
recalculation of base-year emissions may still be required. The circumstances
that would trigger a recalculation of GHG emissions (see Section
4.1.3) are the same for a rolling base year as for a fixed base
year.
Example 4-1
Company B, a calendar-year-end company,
reports GHG emissions and establishes 20X1 as its base
year. During that year, B’s GHG emissions total five
tonnes of CO2. Assume that in the absence of
any changes in the business, B would have five tonnes of
CO2 emissions in 20X2, 20X3, and
20X4.
In March 20X2, B acquires Company C, a calendar-year-end
company, whose annual GHG emissions are as follows:
-
20X1 — One tonne of CO2.
-
20X2 — Two tonnes of CO2.
-
20X3 — Three tonnes of CO2.
-
20X4 — Three tonnes of CO2.
Company B chooses to calculate its base-year emissions by
using the rolling base-year approach and elects to roll
its base year forward at regular one-year intervals.
When B reports GHG emissions in 20X2, it would include
C’s emissions for the 20X1 historical period for
comparison and would also include C’s emissions for
20X2. That is, B’s GHG emissions for its 20X1 base year
are recalculated to include one tonne of CO2
emissions that C incurred in that year. Therefore, the
emissions disclosed would total six tonnes of
CO2 for 20X1 and seven tonnes of
CO2 for 20X2, as illustrated below.
On an ongoing basis, B would continue to include C’s
emissions in the total GHG emissions disclosed, and the
subsequent year would become the new base year in the
following reports. Said another way, for the 20X3
reporting period, because B elected a policy of rolling
its base year forward at one-year intervals, the GHG
emissions in 20X2 would become the new base-year
emissions, as illustrated below.
4.1.3 Recalculating Base-Year Emissions
Regardless of whether a reporting company has a policy of rolling its base year
forward (as discussed in Section 4.1.2), it will need to
recalculate its base-year emissions under certain facts and circumstances.
Reporting companies are required elect a base-year emission recalculation policy
and apply it consistently. Such a policy would take both quantitative and
qualitative factors into account and establish specific criteria (including the
reporting company’s determination of a significance threshold, as discussed in
Section 4.1.3.1) that will result in recalculation of
the base-year emissions.
The following excerpt from
Chapter 5 of the Corporate Standard broadly describes the circumstances that
would trigger a recalculation of base-year emissions:
Corporate Standard, Chapter 5, “Tracking Emissions Over
Time,” Page 35
Recalculating Base Year Emissions . . .
The following cases shall trigger recalculation of base
year emissions:
-
Structural changes in the reporting organization that have a significant impact on the company’s base year emissions. A structural change involves the transfer of ownership or control of emissions generating activities or operations from one company to another. While a single structural change might not have a significant impact on the base year emissions, the cumulative effect of a number of minor structural changes can result in a significant impact. Structural changes include:
-
Mergers, acquisitions, and divestments
-
Outsourcing and insourcing of emitting activities
-
-
Changes in calculation methodology or improvements in the accuracy of emission factors or activity data that result in a significant impact on the base year emissions data
-
Discovery of significant errors, or a number of cumulative errors, that are collectively significant.
Base-year emissions must be retroactively recalculated to reflect certain
significant changes as determined by the reporting company. Any significance
threshold policy determinations associated with the circumstances outlined above
are to be applied consistently.
4.1.3.1 Significance Threshold
Base-year emissions require recalculation when certain significant changes
occur. A significance threshold can be a qualitative and/or quantitative
assessment performed on “any significant change to the data, inventory
boundary, methods, or any other relevant factors,” as outlined in Chapter 5
of the Corporate Standard. Although the Corporate Standard does not specify
what is considered significant, it notes that certain GHG programs do so. It
observes that the California Climate Action Registry, for example,
prescribes a change threshold of “10 percent of the base year emissions,
determined on a cumulative basis from the time the base year is
established.”
As noted above, a reporting company would elect a significance threshold
policy. When establishing the policy, the reporting company would take both
quantitative and qualitative factors into consideration. The policy elected
must be applied consistently and disclosed.
4.1.3.2 Structural Changes
Base-year emissions are required to be recalculated in line with certain
structural changes, such as (1) mergers, acquisitions, and divestments and
(2) outsourcing and insourcing of emitting activities. These transactions
require recalculation of the determined base-year emissions because they
transfer GHG emissions from one company to another without actually
increasing the GHG emissions released into the atmosphere.
It is important to remember that comparing current GHG emissions with
base-year emissions is meant to increase users’ understanding of a reporting
company’s GHG emission levels by providing greater clarity regarding them.
Therefore, when events (such as acquisitions) result in a lack of
comparability between base-year emissions and current GHG emissions, a
reporting company is advised to consider the discussions below to determine
whether recalculation is necessary.
In some cases, a company may undertake a transaction that represents both an
acquisition and a disposal. The example below illustrates the interaction
between these two events in the assessment of structural changes that
require recalculation of the base-year emissions.
Example 4-2
Company A has a calendar year-end and makes a
significant acquisition in 20X4. On the date of the
acquisition (and at the end of that year), A expects
that it will dispose of a portion of the acquired
operations in 20X5.
There is no exception in the Corporate Standard that
permits A to exclude from its GHG reporting the
portion of the acquired operations it intends to
dispose of. Therefore, in A’s GHG report for 2024, A
will need to account for all sources of GHG
emissions within its selected inventory boundary,
including the GHG emissions from the portion of the
acquired operations it expects to dispose of in the
following year.
Similarly, under the assumption that A has the
information necessary and concludes that the
acquisition represents a significant structural
change, A will need to include the GHG emissions
from all of the acquired operations when
recalculating the base-year emissions in 20X4.
If and when the intended disposal occurs, A will need
to assess whether the disposal represents a
significant structural change and, if so, will need
to recalculate the base-year emissions again.
4.1.3.2.1 Timing of Recalculation
When a structural change occurs during the year, the
Corporate Standard recommends recalculating the base-year emissions for
the entire year to ensure comparability with GHG emissions in future
years. Similarly, GHG emissions for subsequent years in which any
significant structural change occurred would be calculated as though the
change existed as of the beginning of the year. If this is not possible
because the reporting company lacks sufficient data, GHG emissions that
reflect the structural change can be calculated for a full year in the
subsequent year to maintain consistency.
Example 4-3
Company B, a calendar-year-end company, reports
GHG emissions for 20X1, 20X2, and 20X3 and chooses
20X1 as its base year under a fixed base-year
approach. In each of these three years, B’s GHG
emissions total five tonnes of CO2.
In September 20X2, B acquires Company A, a
calendar-year-end company. The annual GHG
emissions of A are as follows:
-
20X1 — One tonne of CO2.
-
20X2 — Two tonnes of CO2.
-
20X3 — Three tonnes of CO2.
To maintain accuracy and
comparability, B recalculates its base-year
emissions to include A’s GHG emissions, which
increase the base-year emissions by one tonne of
CO2. As a result of the acquisition
occurring in 20X2, B includes A’s GHG emissions
for the full year in the reports published for
20X2 and 20X3, as illustrated below.
Note that if A did not exist in 20X1,
recalculation of the base-year emissions would not
be required. Further, in accordance with the
Corporate Standard, if the acquisition had
occurred in 20X3, with 20X1 being the established
base year, recalculation of B’s 20X2 GHG emissions
to include those of A would be optional.
The Corporate Standard does not specify whether recalculation is required
also for significant structural changes that occur after the reporting
period. In this scenario, an entity may apply either of the following
policies if it does so consistently, clearly articulating the basis and
context for any recalculations, including how the entity determined any
significance threshold (see Section 4.1.3.1):
-
Approach A — Only recalculate GHG emissions for significant structural changes that occurred on or before the reporting date.Applying this policy, an entity only considers significant structural changes that occurred on or before the reporting date when assessing whether to calculate GHG emissions retrospectively for the current reporting period. Under this approach, the entity would not adjust the base-year and reporting-period GHG emissions in the current reporting period for structural changes that occur after the reporting date. However, if a significant structural change (e.g., an acquisition) takes place after the reporting period but before issuance of the GHG report, the entity may consider that it will be useful to provide qualitative or quantitative information on the structural change to explain how GHG emissions will be affected in future GHG reports.
-
Approach B — Recalculate GHG emissions for significant structural changes that occurred after the reporting period but before the GHG report is issued.Applying this policy, an entity considers the impact of significant structural changes that occurred after the reporting period when assessing whether to calculate GHG emissions retrospectively for the current reporting period.
When determining which policy is appropriate, the entity would also
consider other regulatory requirements or frameworks with which it is
required to comply.
The example below illustrates the application of Approach A and Approach
B.
Example 4-4
Company A has a calendar year-end and has
established 20X1 as its base year for the purpose
of reporting GHG emissions. Company A’s GHG report
for the year ended December 31, 20X3, is expected
to be issued on March 31, 20X4.
On February 15, 20X4, A completes the acquisition
of Company B, which also has a calendar year-end.
Company B has been tracking its GHG emission data
since 20X1. Therefore, GHG emission data related
to B’s operations are available from 20X1 through
20X3.
The GHG emission data for A and
B, expressed in tonnes of CO2 generated
in the years ended December 31 of 20X3 and 20X1,
respectively, are as follows:
GHG Emissions (in Tonnes of CO2)
| ||
---|---|---|
Year Ended December 31, 20X3 (Reporting
Period)
|
Year Ended December 31, 20X1 (Base Year)
| |
Company A (reporting company)
|
30
|
20
|
Company B (acquired company)
|
15
|
5
|
Approach A — Only Recalculate GHG Emissions
for Significant Structural Changes That Occurred
on or Before the Reporting Date
Applying this approach, A would not report
recalculated emissions in its report for the year
ended December 31, 20X3. However, in the following
reporting period, the significant structural
change to A would be reflected in the base-year
emissions for the year ended December 31, 20X1,
and any other periods presented to incorporate B’s
GHG emissions into A’s GHG report for the year
ended December 31, 20X4.
Approach B — Recalculate GHG Emissions for
Significant Structural Changes That Occurred After
the Reporting Period but Before the GHG Report Is
Issued
Under this approach, A would retrospectively
recalculate GHG emissions to reflect the
acquisition of B if both of the following
conditions are met:
- On the date of issuance of A’s GHG report, sufficient and reliable data related to the structural change are available to A.
- The acquisition of B qualifies as a “significant” structural change on the basis of the quantitative and/or qualitative criteria in A’s established policy.
If A complies with these
requirements, the amounts reported for GHG
emissions would include B’s emissions.
Accordingly, A would report 45 tonnes of
CO2 for the year ended December 31,
20X3 (the reporting period), and 25 tonnes of
CO2 for the year ended December 31,
20X1 (the base year).
4.1.3.3 Changes in Calculation Method, or Improvements in the Accuracy of Emission Factors or Activity Data
The Corporate Standard provides for the calculation of GHG
emissions by means of a bottom-up approach, under which GHG emissions are
calculated at an individual source or facility and subsequently accumulated
up to the corporate level (see Section
8.2 of this Roadmap). When new, more reliable data relevant
to the base year are available, the reporting company would recalculate the
base-year emissions. However, Chapter 5 of the Corporate Standard notes that
“changes in emission factor or activity data that reflect real changes in
emissions (i.e., changes in fuel type or technology) do not trigger a
recalculation” of the base-year emissions.
Sometimes, reporting companies may discover more accurate ways to calculate
GHG emissions included in prior years. For example, in a later year, a more
accurate GHG emission factor may be provided that applies to prior years and
would better represent the GHG emissions associated with a specific purchase
(e.g., electricity or heat). If the application of these changes would be
significant and the changes are applicable to the base year, reporting
companies are required to recalculate the base-year emissions. However, if
reporting companies obtain seemingly more accurate data that cannot be
reasonably applied to previous years, it would be appropriate for them to
consider disclosing any related assumptions, but they would not recalculate
the base-year emissions. As reporting companies improve their calculation
methods and their processes related to data quality and data collection,
they are advised to consider whether recalculation of base-year emissions or
disclosure is required to improve the transparency of their reports.
Further, if a reporting company changes its calculation method in the
current year and the change in method results in current-year GHG emissions
that are significantly different from the base-year emissions, the reporting
company would recalculate the base-year emissions by using the new method.
Other times, more accurate data related to the base year may be available
years later. If this is the case and the new data would significantly change
the base-year emissions, the reporting company would recalculate the
base-year emissions accordingly. Reporting companies are advised to make
decisions related to recalculating the base-year emissions with the intent
of ensuring that users of their reports can clearly identify true changes in
their GHG emissions over time.
4.1.3.4 Discovery of Errors That Are Individually Significant or Cumulative Errors That Are Collectively Significant
If a reporting company discovers errors in its calculation
of base-year emissions that are individually significant, or cumulative
errors in its calculation of base-year emissions that are collectively
significant, it is required to recalculate the base-year emissions. The
Corporate Standard does not define what constitutes a significant error. A
significant error may be considered to be the same as a material
discrepancy, which is defined in the glossary of the Corporate Standard as
“[a]n 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 or decisions. Also
known as material misstatement.” When evaluating whether an error is
material, an entity would also consider the sustainability standards, if
applicable, under which the GHG emissions are being reported (e.g., IFRS
Sustainability Disclosure Standards or ESRS).
Example 4-5
Company C, a calendar-year-end company, reports GHG
emissions for 20X1, 20X2, and 20X3 and chooses 20X1
as its base year. In each of these three years, C’s
GHG emissions total 5 tonnes of CO2.
During its 20X3 reporting, C determines that there
was a significant error in 20X1 whose correction
would require C’s Scope 1 emissions to be increased
by two tonnes of CO2. Company C
determines that this change would be quantitatively
and qualitatively significant under its policy. As a
result, in 20X3, C updates the base-year emissions
to total seven tonnes of CO2 and
discloses its change to the base-year emissions. The
updated base-year emissions are illustrated below.
No changes as a result of the error are needed to
accurately reflect C’s GHG emissions for 20X2.
In C’s 20X3 reporting, C would disclose appropriate
context related to the recalculation of its 20X1
Scope 1 emissions and the events that led to such
recalculation. Because C presents three years of GHG
emissions in this 20X3 report, C would also disclose
GHG emission data for all years from the base year
through the current reporting year.
4.1.3.5 Instances in Which Recalculation Would Not Occur
Recalculation of base-year emissions would not be necessary
in the following circumstances:
-
Facilities did not exist in the base year.
-
Outsourcing or insourcing, if reported under Scope 2 and/or Scope 3.
-
Organic growth or decline.
These circumstances are further discussed below.
4.1.3.5.1 Facilities Did Not Exist in the Base Year
Base-year emissions would not be recalculated for
changes in facilities (acquisitions or divestitures) if the facilities
did not exist during the base year. This is because the objective of
recalculating base-year emissions is to ensure that they are comparable
with current-year GHG emissions. For example, if a reporting company
acquires a facility that existed in the base year, the acquiree’s GHG
emissions would be reallocated to the reporting company’s base-year
emissions to meet that objective. On the other hand, if an acquired
facility did not exist in the base year, there were no GHG emissions
released into the atmosphere from that entity during the base year.
Accordingly, there would be no GHG emissions to reallocate to the
reporting company’s base-year emissions. However, the reporting
company’s GHG emissions would include those from the acquiree for each
reported year in which the acquiree was in existence (including the year
in which the acquiree came into existence, even if the acquiree did not
exist at the beginning of that year).
4.1.3.5.2 Outsourcing or Insourcing, if Reported Under Scope 2 and/or Scope 3
As noted in Chapter
3, emissions from the operation of owned or controlled
facilities would be included in Scope 1 reporting. For example, GHG
emissions from a reporting company’s manufacturing facility that result
from company-owned vehicles, chemical processing, or the generation of
steam in the facility’s production process would be included in the
reporting company’s Scope 1 emissions. However, if the steam is
purchased and consumed as part of the production process, the GHG
emissions associated with the steam would be included in Scope 2
reporting. Any other indirect GHG emission not classified as Scope 2 is
a Scope 3 emission. Scope 3 emissions include emissions from activities
that are not owned or controlled by the reporting company but are a
direct result of the reporting company’s activities related to its value
chain.
When reporting companies choose to report Scope 3
emissions in addition to the Scope 1 and Scope 2 emissions that they are
required to report, a change in ownership or control can result in the
shifting of GHG emissions between scopes. If, for example, a reporting
company outsources an internal activity to a third party, that activity
would shift from Scope 1 or Scope 2 to Scope 3. If a reporting company
brings an activity in-house, that activity may shift from Scope 3 to
Scope 1 or Scope 2.
Considerations for determining whether outsourcing or
insourcing would require recalculation of base-year emissions are
outlined in Chapter 9 of the Scope 3 Standard as follows:
Scope 3 Standard, Chapter 9,
“Setting a GHG Reduction Target and Tracking
Emissions Over Time,” Page 104 (Page 105 in
E-Reader Version)
9.3
Recalculating Base Year Emissions . . .
Recalculations for Outsourcing or Insourcing .
. .
Whether the outsourcing or
insourcing of an activity triggers a base year
emissions recalculation depends on whether:
-
the company previously reported emissions from the activity;
-
the company has a single base year or GHG target for all scopes or separate base years and GHG targets for each scope; and
-
the outsourced or insourced activity contributes significantly to the company’s emissions.
For example, if a reporting company discloses Scope 1,
Scope 2, and Scope 3 emissions and has chosen the same base year for all
three scopes, any changes in the scope classification of GHG emissions
due to outsourcing or insourcing would not trigger a recalculation of
the base-year emissions if the GHG emissions were previously reported.
However, if the GHG emissions were not previously reported,
recalculation would be required in the event of a change in outsourcing
or insourcing if the result was significant.
Any outsourcing of GHG emissions previously included in
the company’s reporting would not require recalculation of base-year
emissions. However, as outlined in Chapter 6 of this Roadmap, Scope 3
reporting is optional. Therefore, any outsourcing that shifts
significant GHG emissions to Scope 3 could trigger recalculation of
base-year emissions if Scope 3 emissions are reported. If Scope 3
emissions are not reported, any significant changes to the Scope 3
emissions would not require recalculation of the reporting company’s
base-year emissions because there would be no base-year emissions to
recalculate in this instance.
4.1.3.5.3 Organic Growth or Decline
The purpose of comparing a base year with the current
year is to show organic growth and decline of operations as related to
GHG emissions. Any operational changes of the reporting company that
result in changes to GHG emissions released into the atmosphere must be
reflected transparently as the reason for either an increase or a
decrease in the reporting company’s GHG emissions over time. Examples of
organic growth or decline include (1) increases or decreases in
production output and (2) openings or closures of operating units
controlled by the reporting company.
Base-year emissions would not be recalculated as a
result of organic growth or decline. Conversely, a reporting company’s
purchase of a facility from a third party to support growth, if
significant, would require recalculation of base-year emissions (see
Section
4.1.3.2). This is because such a purchase represents the
transfer of GHG emissions from one entity to another and would therefore
hinder comparability between the reporting company’s base-year emissions
and its current GHG emissions.
4.1.4 Setting GHG Emission Targets and Energy Reduction Targets
4.1.4.1 Overview
It is important for a reporting company to set GHG emission targets and
energy reduction targets when tracking performance toward operational goals.
The target-setting process is ongoing and requires the involvement of senior
management and relevant stakeholders.
GHG emission targets are aimed at reducing a reporting company’s GHG
emissions. They are applicable to Scope 1, Scope 2, and Scope 3
emissions.
Energy reduction targets are goals that a reporting company sets to more
efficiently use, or reduce its need for, energy purchased or acquired for
its own consumption. They are specific to Scope 2.
GHG emission targets are further discussed in Section
4.1.4.2. Energy reduction targets are further discussed in
Section 4.1.4.3.
4.1.4.2 GHG Emission Targets
Although reporting companies are not required to set GHG
emission targets when reporting Scope 1, Scope 2, or Scope 3 emissions, the
Corporate Standard indicates that it is advisable for them to consider doing
so to:
-
Minimize and manage GHG risks.
-
Achieve cost savings and stimulate innovation.
-
Prepare for future regulations.
-
Demonstrate leadership and corporate responsibility.
-
Participate in voluntary programs.
-
Respond to stakeholder requests or demands.
A key step in establishing a GHG emission target is to
determine the relevant target boundary. This determination includes an
assessment of which geographic areas, sources, and activities to include.
For example, a reporting company is advised to consider:
-
Which of the seven major GHGs to include.
-
Whether to include both direct and indirect emissions.
-
Whether it makes sense to define certain GHG targets per core stream of revenue of the reporting company.
Reporting companies that
choose to set Scope 3 emission targets may determine boundaries for those
targets as follows:
Scope 3 Standard, Chapter 9,
“Setting a GHG Reduction Target and Tracking
Emissions Over Time,” Page 100
9.2 Setting
Scope 3 Reduction Targets . . .
Target
Boundary
Companies may set a variety of scope
3 reduction goals, including:
-
A single target for total scope 1 + scope 2 + scope 3 emissions
-
A single target for total scope 3 emissions
-
Separate targets for individual scope 3 categories
-
A combination of targets, for example a target for total scope 1 + 2 + 3 emissions as well as targets for individual scope 3 categories.
Setting a GHG emission target involves considerations in
addition to those related to determining the target boundary. These
additional considerations are summarized in the table below, which is
adapted from Table 9.1 in Chapter 9 of the Scope 3 Standard but is also
applicable to Scope 1 and Scope 2 emissions.
Table
4-1 Considerations Related to Setting a GHG Emission Target
Issue
|
Description
|
---|---|
Target type
|
Whether to set an absolute or
intensity target
|
Target completion date
|
The duration of the target period
(e.g., short term or long term)
|
Target level
| The numerical value of the GHG emission target |
Use of offsets or credits
|
Whether to use offsets or credits to
meet GHG emission targets
|
4.1.4.2.1 Target Types
A reporting company can set absolute targets, intensity
targets, or both. An absolute target is a goal to reduce GHG emissions
by a specified amount independent of a business metric (i.e., the target
is a specified number of tonnes of emitted GHG, or a specified
percentage reduction in GHG emissions from a previous year). An
intensity target expresses the quantity of CO2 emissions, or
the percentage reduction in those emissions, in relation to a business
metric (e.g., a 25 percent reduction in GHG emissions per unit of
revenue, per number of employees, or per pound of cement produced). A
combination of absolute and intensity targets may be used at different
levels of the reporting company.
The advantages and disadvantages of absolute targets and
intensity targets are outlined in the table below, which is adapted from
Table 9.3 in Chapter 9 of the Scope 3 Standard and Box 4 in Chapter 11
of the Corporate Standard. The table below is applicable to Scope 1,
Scope 2, and Scope 3 emissions.
Table 4-2 Comparison of Absolute and Intensity Targets
Target Type
|
Examples
|
Advantages
|
Disadvantages
|
---|---|---|---|
Absolute target
|
|
|
|
Intensity target
|
|
|
|
Reporting companies are advised to consider which
targets are most valuable to the users of their reporting and best
represent the outputs of their operations.
4.1.4.2.2 Target Completion Dates and Target Levels
Target completion dates can be either short term or long
term. Reporting companies are advised to carefully consider the duration
of each target period they choose to ensure that it aligns with their
business goals. Shorter-term targets may be used to track progress more
frequently, while longer-term targets may be used to reflect goals
toward which a reporting company is continually working.
The target level refers to the numerical value or
incentive of the target. Reporting companies are encouraged to
continually work toward such a goal.
4.1.4.2.3 Use of Offsets or Credits
Reporting companies may use offsets and credits to
counter their GHG emissions and thereby meet specific emission targets
(see Chapter
8 for more information). However, reporting companies are
advised to disclose any use of offsets and credits, including the
targets to which they were applied. In addition, reporting companies are
encouraged to avoid double counting of offsets if possible.
The GHG Protocol does not provide guidance on the
acquisition and retirement of offsets after the reporting period. The
Corporate Standard:
-
Requires an entity to report gross GHG emissions for its chosen inventory boundary separately from any GHG trades such as sales, purchases, transfers, or banking of allowances (see Section 4.3.1).
-
Permits, but does not require, reporting on carbon offsets acquired through GHG trades (see Section 4.3.2).
Therefore, an entity is allowed to disclose information
on carbon offsets that are purchased and retired after the end of
reporting period but before the date on which the GHG report issued if
doing so reflects the entity’s internal policies and relevant
information is disclosed. This conclusion is supported by Chapter 4 of
the GHG Protocol organization’s Mitigation Goal Standard, which
notes that the suggested approach for entities is to “use [GHG credits]
with vintages that fall within a short period prior to the target
year(s) during the goal period.” This guidance recognizes that in some
scenarios, the vintage of a GHG credit may not be exactly the same as
the period in which the credit is used as an offset.
While the guidance in the GHG Protocol does not preclude
entities from reporting on credits purchased and retired after the end
of the reporting period but before the date on which the GHG report is
issued, an entity would need to consider other regulatory requirements
that may preclude it from including such transactions as part of its GHG
emission disclosures or limit the circumstances in which this is
permitted.
In certain instances, it may be appropriate for an
entity to disclose its business model of purchasing carbon offsets after
the end of a reporting period but using them as offsets for that
reporting period (e.g., when the entity’s business model is to purchase
a material amount of carbon offsets after period-end and there is a risk
that the entity may not be able to do so in one or more future periods
because there is a shortage of such credits or the cost of purchasing
them is prohibitive).
The example below illustrates this concept.
Example 4-6
Company A expects that on March
31, 20X4, it will issue a report disclosing GHG
emissions for the year ended December 31, 20X3, in
accordance with the requirements of the Corporate
Standard. During 20X3, A expected that its net GHG
emissions from Product X would be nil. However,
when finalizing the assessment of Product X’s
emissions, A determined that in 20X3:
- Product X produced 100 tonnes of CO2.
- Company A acquired and retired carbon offsets for only 90 tonnes of CO2.
On January 28, 20X4, A completes
a GHG trade in which it acquires 10 tonnes of
carbon offsets. Simultaneously, A retires these
offsets against its GHG emissions. The carbon
offsets purchased by A represent discrete GHG
reductions generated during the year ended
December 31, 20X3 (i.e., the carbon offsets have a
20X3 “vintage”).
In the jurisdiction in which A
operates, there is no requirement that an entity
must own carbon offsets before the end of a
reporting period to apply them against GHG
emissions produced in that period.
Accordingly, A may include the
offsets purchased and retired on January 28, 20X4,
as part of the disclosure it provides on GHG
emissions for the year ended December 31, 20X3,
provided that all of the following conditions are
met:
- Company A has established an internal policy of disclosing allowances, offsets, and credits purchased or sold after the end of the reporting period but before the date of issuance of the GHG report.
- Company A consistently applies its established policy to similar transactions as part of its GHG emission disclosures.
- Company A has assessed the credibility of the carbon offsets used and provides details on their origin and nature.
In addition, A would consider
the information detailed in Sections
4.3.1 and 4.3.2 in
determining the relevant information to be
disclosed in its GHG emission report.
4.1.4.2.4 Accounting for Reductions Over Time
There are two approaches to accounting for GHG
reductions: the inventory method and the project method. The inventory
method involves comparing a reporting company’s current GHG emissions
with its base-year emissions over time, with a focus on company or
organizational level GHG emissions. The project method is
comprehensively addressed in the Project Protocol (see Section
4.1.4.2.4.1 and Chapter 8 for more information).
The project method involves quantifying GHG emission reductions achieved
by specific “projects” and then using those reductions as offsets
against GHG emissions elsewhere. Overall, the Project Protocol
establishes guidance on both calculating and reporting GHG reductions as
a result of specific GHG projects. The two accounting approaches overlap
in that an offset that results from quantification of GHG reductions
under project accounting may be an input into a GHG emission inventory
report prepared under corporate accounting if the reporting company
elects to use offsets. However, under corporate accounting, these
offsets are not used in the calculation of the reporting company’s GHG
emission reductions; rather, they are disclosed separately.
Companies reporting under the Corporate Standard and the
Scope 3 Standard use the inventory method to account for changes in GHG
emissions over time. For Scope 1 emission reporting, the project method
may be used to quantify GHG emission reductions that will be used as
offsets.
Companies reporting under the Scope 3 Standard can also
choose to use the project method, but only in addition to reporting
Scope 3 emissions under the inventory method. Reporting companies that
disclose GHG emission targets may choose to measure reductions by using
either the inventory method or the project method. Any project-based
reductions would be reported separately from the companies’ Scope 1,
Scope 2, and Scope 3 emission reductions calculated under the inventory
method.
Whereas Scope 1 emissions are direct emissions (i.e.,
emissions from sources that the reporting company owns or controls),
Scope 2 and Scope 3 emissions are indirect emissions (i.e., emissions
that are a result of the reporting company’s operations but occur
elsewhere). Therefore, Scope 2 and Scope 3 emission reductions are more
difficult to calculate accurately than reductions in Scope 1 emissions.
Indirect emissions often incorporate many different factors, and
reductions in these emissions are not always a direct result of the
reporting company. This may create complexity in correlating Scope 2 or
Scope 3 emission reductions with projects or initiatives executed by the
reporting company. However, as long as the accounting for Scope 2 and
Scope 3 emissions represents a total change in those emissions over
time, such complexity would not preclude reporting companies from
disclosing reductions in those emissions.
4.1.4.2.4.1 Project Method
Under the project method, which is outlined in
Chapter
8, companies reporting under the Project Protocol
account for GHG emission reductions by using a hypothetical baseline
scenario to estimate baseline GHG emissions that most likely would
have occurred in the absence of a specific project. Said another
way, baseline emissions are the amount of GHG emissions calculated
from this alternative, hypothetical scenario before the start of a
project. The project method may be used in addition to the inventory
method to report Scope 3 emissions since the project method would
provide additional details related to specific activities undertaken
by the reporting company.
4.1.4.2.5 Accounting for Avoided Emissions
Scope 3 Standard, Chapter 9,
“Setting a GHG Reduction Target and Tracking
Emissions Over Time,” Page 107 (Page 108 in
E-Reader Version)
9.5
Accounting for Avoided Emissions . . .
In some cases, GHG reduction
opportunities lie beyond a company’s scope 1,
scope 2, and scope 3 inventories. For example,
some companies may track not only the emissions
that arise from the use of their products
(category 11), but also the avoided emissions in
society that result from the use of their products
and solutions compared to alternative products and
solutions. Avoided emissions may also arise when
accounting for emissions from recycling (category
5 or 13), or from activities in other scope 3
categories.
Accounting for avoided emissions
that occur outside of a company’s scope 1, scope
2, and scope 3 inventories requires a project
accounting methodology.
Some reporting companies may redesign products to
efficiently reduce their Scope 3 emissions. The reductions in these GHG
emissions as a result of the reporting company’s strategies and updated
processes (i.e., avoided GHG emissions) will be reflected in the GHG
emission calculations over time as compared with the base-year
emissions. These avoided GHG emissions may be significant compared with
GHG emission reductions resulting from competitors’ projects and
activities.
Any avoided emissions not already included in the Scope
3 calculation can be separately reported under the Project Protocol and
calculated under the project accounting method. See Chapter 6 for
more information about Scope 3 emissions. See Chapter 8 for more information
about GHG emission reductions and further discussion of the Project
Protocol.
4.1.4.3 Energy Reduction Targets
Scope 2 Standard, Chapter 9, “Setting Reduction
Targets and Tracking Emissions Over Time,” Page
76
9.4 Energy Targets
Some companies have energy use, procurement, or
production targets in addition to GHG reduction
targets. Energy targets can be useful in maintaining
a focus on efficiency and isolating the role of
consumption as compared with the changes in
emissions resulting from supply changes.
Energy reduction targets comprise (1) energy intensity goals and (2)
renewable energy procurement goals. Energy intensity goals are aimed at
reducing the amount of energy consumed by the reporting company per square
foot of a building used in operations or per a specific operational
output.
Renewable energy procurement goals are aimed at increasing the reporting
company’s reliance on renewable energy to a set percentage of its energy
consumption needs (e.g., 100 percent reliance on renewable energy) by a
certain date. When reporting a renewable energy procurement goal, a company
is required to disclose whether the goal reflects a location-based or
market-based assessment.
Footnotes
1
As used throughout this chapter, the term “base year”
may refer to either an inventory base year or a target base year. This
treatment is consistent with the guidance in Chapter 11 of the Corporate
Standard, which notes that “[a]lthough it is possible to use different
years for the inventory base year and the target base year, to
streamline the inventory and target reporting process, it usually makes
sense to use the same year for both.”