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PROJECT DIRECTORSJanet RanganathanDave MoorcroftJasper KochPankaj BhatiaWorld Resources InstituteWorld Business Council for Sustainable DevelopmentWorld Business Council for Sustainable DevelopmentWorld Resources InstitutePROJECT MANAGEMENT TEAMBryan SmithHans Aksel HaugenVicki Arroyo CochranAidan J. MurphySujata GuptaYasuo HosoyaRebecca EatonInnovation AssociatesNorsk HydroPew Center on Global Climate ChangeShell InternationalTata Energy Research InstituteTokyo Electric Power CompanyWorld Wildlife FundCORE ADVISORSMike McMahonDon HamesBruno VanderborghtMelanie EddisKjell ØrenLaurent SegalenMarie MaracheRoberto AcostaVincent CamobrecoCynthia CummisElizabeth CookBPDow Chemical CanadaHolcimKPMGNorsk HydroPricewaterhouseCoopersPricewaterhouseCoopersUNFCCCU.S. EPAU.S. EPAWorld Resources Institute

IntroductionThe Greenhouse GasProtocol InitiativeThe mission of the Greenhouse Gas Protocol Initiative (GHG Protocol) isto develop and promote internationally accepted greenhouse gas(GHG) accounting and reporting standards through an open andinclusive process.Jointly convened in 1998 by the World Business Council forSustainable Development (WBCSD) and the World Resources Institute(WRI), the GHG Protocol is a unique multi-stakeholder partnership ofbusinesses, NGOs, and governments that serves as the premier sourceof knowledge about corporate GHG accounting and reporting.This corporate accounting and reporting standard draws on theexpertise and contributions of numerous individuals andorganizations from around the world. The resulting standard andguidance are supplemented by a number of user-friendly GHGcalculation tools on the GHG Protocol website (www.ghgprotocol.org).The standard, guidance, and tools will help companies andother organizations:• develop a credible GHG inventory underpinned by GHGaccounting and reporting principles• account and report information from global operations in a waythat presents a clear picture of GHG impacts, and facilitatesunderstanding as well as comparison with similar reports• provide internal management with valuable information on whichto build an effective strategy to manage and reduce GHG emissions• provide GHG information that complements other climateinitiatives and reporting standards, including financial standards2

The Greenhouse Gas Protocol InitiativeIntroductionThis first edition of the GHG Protocol comprises GHGaccounting and reporting standards, and guidelines forcompanies and other types of organizations 1 . It addresses theaccounting and reporting of the six greenhouse gases 2covered by the Kyoto Protocol.Unlike for financial accounting and reporting, there are no‘generally accepted accounting and reporting practices’ forcorporate GHG emissions. The GHG Protocol is a significantmilestone on the journey toward generally accepted GHGaccounting and reporting practices. It builds on extensivedialogue, which has taken place between diverse stakeholdergroups over the last three years; on the road testing of anearlier draft by more than 30 companies in 10 countries; andon extensive peer reviews. It is intended that in the future theGHG Protocol will be revised using feedback from itsapplication.GHG emissions – a business issueMany governments are taking steps to reduce GHG emissionsthrough national policies. These include the introduction ofpermit trading systems; voluntary reduction and reportingprograms; carbon or energy taxes; and regulations andstandards on energy efficiency and emissions.In recent years, global warming and climate change havebecome international issues for both industrialized anddeveloping countries. They will undoubtedly continue to beimportant politically and economically for generations tocome. Increasingly, companies will need to understand andmanage their GHG risks in order to maintain their license tooperate, to ensure long-term success in a competitive businessenvironment, and to comply with national or regional policiesaimed at reducing corporate GHG emissions.Measuring and reporting GHG emissionsPerformance measurement plays an essential role in strategydevelopment and evaluating to what extent organizationalobjectives have been met. Credible GHG accounting will be aprerequisite for participation in GHG trading markets and fordemonstrating compliance with government regulations. At anoperational level, GHG emissions performance may be relevantto eco-efficiency involving dematerialization of products andprocesses, energy efficiency, and the reduction of waste.The benefits of a common standardIn addition to ensuring that GHG performance measures arerelevant and useful, their success will also depend on ensuringthat benefits outweigh costs. To achieve this, two objectivesmust be met.Firstly, the time and cost of developing GHG accounting andreporting systems must be kept as low as possible. The GHGProtocol helps to meet this objective by providing userfriendlyand systematic guidance. Secondly, a corporateGHG inventory must be developed in such a way as to becompatible with requirements and standards which may bedeveloped nationally in the future. At present, the diversityof accounting and reporting practices makes it harder todevelop such an inventory, and reduces the comparability,credibility, and utility of GHG information.The GHG Protocol builds on the experience and knowledgeof many organizations, practitioners, and stakeholders topromote convergence of GHG accounting practices. In thisway, it will reduce costs, improve comparability, andstrengthen the capacity of managers to make informeddecisions on GHG risks and opportunities. The GHG Protocolwill also render reported information credible and reliable inthe eyes of external stakeholders.As national regulatory schemes governing GHGs are stillevolving, it is not possible to predict the exact accountingand reporting requirements of the future. The GHG Protocol,however, will help companies better understand their ownposition as regulatory programs are debated and developed.Buy-in and flexibilityAn important starting point for a company contemplatingGHG performance measurement is to understand where themeasures link with the company’s business drivers, and whattheir relevance to company performance will be. This willalso encourage buy-in to the system from employees andsenior management who may be faced with a range ofcompeting objectives. The guidelines have been assembledto reflect these needs and to suit a variety of organizations.Since the GHG Protocol is concerned with accounting foremissions at the corporate level, it covers a number of issuesthat are not touched upon by other reporting schemes andguidelines, such as how to draw organizational andoperational boundaries for a GHG inventory.Relation to other measurement and reportingguidelinesThe GHG Protocol is compatible with most other emergingGHG reporting schemes since emissions data accounted foron the basis of the GHG Protocol will meet the reportingrequirements of most of these. The GHG calculation toolsavailable on the website (www.ghgprotocol.org) areconsistent with those proposed by the IntergovernmentalPanel on Climate Change (IPCC) for the compilation ofemissions at the national level (IPCC, 1996a). Many arerefined to be user-friendly for non-technical company staff,3

The Greenhouse Gas Protocol Initiativeand to increase the accuracy of emissions data at companylevel.Thanks to help from many companies, organizations, andindividual experts through an intensive road test and peerreview phase, these tools represent current best practice in theevolving area of corporate GHG accounting.Future activities of the GHG ProtocolThe GHG Protocol will continue to serve as a process by which toimprove and further develop accounting and reportingstandards in the future, and to broaden the base of users andstakeholder input. This includes building bridges with existingand emerging climate initiatives.Feedback is invited and encouraged from organizations usingthese guidelines to account and report on their GHGemissions, as well as from users of reported information. Twoadditional accounting modules are under development thataddress accounting for GHG emissions in the value chain andproject-based GHG reduction activities. Further information isavailable at www.ghgprotocol.orgFrequently asked questionsBelow is a list of frequently asked questions, with directions torelevant sections of the document.• What should I consider when setting out to account forand report GHG emissions?Chapter 2• How do I deal with complex company structures andshared ownership?Chapter 3• What is the difference between direct and indirectemissions and what is their relevance?Chapter 4• How do I account for GHG reductions?Chapter 5• What is a base year and why do I need one?Chapter 6• My GHG emissions will change with acquisitions anddivestitures. How do I account for these?Chapter 6• How do I identify my company’s GHG emissions sources?Chapter 7• What data collection activities and data managementissues do my operational facilities have to deal with?Chapter 7• What kinds of tools are there to help me calculate GHGemissions?Chapter 7• What determines the quality and credibility of my GHGemissions information?Chapter 8• What information should I report?Chapter 9• What data must be available to obtain external verificationof the inventory data?Chapter 104

The Greenhouse Gas Protocol InitiativeNavigating your way through thisdocumentWhilst every effort has been made to keep this document asconcise as possible, the diversity and complexity of GHGaccounting and reporting issues necessitate comprehensivecoverage. This section will help you navigate your waythrough the document.The GHG Protocol comprises three types of sections: GHGaccounting and reporting standards (blue pages), guidanceon applying standards (orange pages), and practical adviceranging from designing a GHG inventory to verifyingemissions data (green pages).The order of contents presented below demonstrates a logicalprogression for companies aiming to implement the GHGProtocol.CHAPTER 1GHG accounting and reporting principlesGuidance on GHG accounting and reporting principlesCHAPTER 2Business goals and inventory designCHAPTER 3Setting organizational boundariesGuidance on setting organizational boundariesCHAPTER 4Setting operational boundariesGuidance on setting operational boundariesCHAPTER 5Accounting for GHG reductionsCHAPTER 6Setting a historic performance datumGuidance on setting a historic performance datumCHAPTER 7Identifying and calculating GHG emissionsCHAPTER 8Managing inventory qualityCHAPTER 9Reporting GHG emissionsGuidance on reporting GHG emissionsCHAPTER 10Verification of GHG emissionsNOTES1 Throughout the rest of this document, the term ‘company’ is used as shorthand for‘companies and other types of organizations’.2 Carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), Hydrofluorocarbons(HFCs), Perfluorcarbons (PFCs) and Sulphur Hexafluoride (SF 6 ).5

Chapter 1GHG accountingand reporting principlesAs with financial reporting, generally accepted GHG accountingprinciples are intended to underpin GHG accounting and reportingto ensure that:• the reported information represents a true and fair account of anorganization’s GHG emissions• the reported information is credible and unbiased in its treatmentand presentation of issuesGHG accounting and reporting is evolving and is new to many. Theprinciples outlined in this chapter are the outcome of a collaborativeprocess involving a wide range of technical, environmental, andaccounting disciplines.6

GHG accounting and reporting principlesGHG accounting and reporting should be based on the following principles:• RelevanceDefine boundaries that appropriately reflect the GHGemissions of the business and the decision-making needsof users.• CompletenessAccount for all GHG emissions sources and activitieswithin the chosen organizational and operationalboundaries. Any specific exclusions should be stated andjustified.• ConsistencyAllow meaningful comparison of emissions performanceover time. Any changes to the basis of reporting shouldbe clearly stated to enable continued valid comparison.• TransparencyAddress all relevant issues in a factual and coherentmanner, based on a clear audit trail. Importantassumptions should be disclosed and appropriatereferences made to the calculation methodologies used.• AccuracyExercise due diligence to ensure that GHG calculationshave the precision needed for their intended use, andprovide reasonable assurance on the integrity ofreported GHG information.7

Guidance on GHG accounting and reporting principlesGuidance on GHG accountingand reporting principlesRelevanceIt is necessary to define accounting and reportingboundaries that appropriately reflect the GHG emissions ofyour business. The choice of appropriate boundariesdepends on the characteristics of the company, theintended purpose of the GHG information, and the needsof the users. When choosing such boundaries, a number ofdifferent dimensions need to be considered such as:• organizational structures: operating licenses, ownership,legal agreements, joint ventures, etc.• operational boundaries: on-site and off-site activities,processes, services and impacts• the business context: nature of activities, geographiclocations, industry sector(s), purpose of information,users of information• specific exclusions or inclusions and their validity andtransparencyThe boundaries should represent the substance andeconomic reality of the business, and not merely its legalform.More information on setting appropriate boundaries isprovided in:• Chapter 2: Business goals and inventory design• Chapter 3: Setting organizational boundaries• Chapter 4: Setting operational boundariesCompletenessIdeally all emissions sources within the chosenorganizational and operational boundaries should bereported. In practice, a lack of data or the cost ofgathering data may be a limiting factor. If specific sourcesare not reported, this needs to be clearly stated in thereport. Sometimes it is tempting to define a materialitythreshold, i.e. stating that sources not exceeding a certainsize are omitted. However, the materiality of a source canonly be established after it has been assessed. This impliesthat some data is available and can be included in the GHGinventory – even if it is just an estimate. What is consideredmaterial will also depend on the needs of users and thesize of a company and its emissions sources.ConsistencyUsers of GHG information will often want to track andcompare GHG emissions information over time in order toidentify trends and to assess the performance of thereporting organization. Conformity over time, with thesame approach and practices in the calculation andpresentation of data, is essential. If there is a change in thebasis of reported information, this should be clearly stated.In addition, when presenting GHG information, it isimportant to provide sufficient economic/business contextto justify and explain any significant changes. This enablescontinued comparison of like with like. The way in whichdata and activities are described will affect users’ ability tounderstand GHG information. Technical and scientificterms should be used carefully. Since GHG accounting andreporting is new to many companies and stakeholders, thelevel of knowledge of different user groups of GHGemissions data may be quite varied.More information on this is provided in:• Chapter 6: Setting a historic performance datum• Chapter 9: Reporting GHG emissionsTransparencyTransparency relates to the degree to which reportedinformation is seen as being reliable. It entails being openwith relevant issues and data. Information is usually judged‘transparent’ when it conveys a good understanding of theissues in the context of the reporting company, and whenit provides a meaningful assessment of performance. Anindependent external verification is a good way ofincreasing transparency.More information on this is provided in:• Chapter 9: Reporting GHG emissions• Chapter 10: Verification of GHG emissionsAccuracyAccurate data is important for making decisions. Poorinternal calculation/reporting systems and the inherentuncertainties in the calculation methodology applied canjeopardize accuracy. In an emissions inventory, a poorcalculation/reporting system (i.e. a systemic error) canresult from an emissions calculation process in which some8

Guidance on GHG accounting and reporting principlesaspect of real-world emissions production is misstated or isnot taken into account. In contrast to a poor reportingsystem, inherent uncertainties result from the intrinsicvariability in the process causing the emissions and theassociated calculation methodology. Adhering toprescribed and tested GHG calculation methodologies, andputting in place a robust accounting and reporting systemwhich has appropriate internal and external controls, canimprove data accuracy.More information on how to increase your inventory’saccuracy and on how to minimize data uncertainties isprovided in:• Chapter 8: Managing inventory qualityVolkswagen: Maintaining relevance andcompleteness over timeWhile working on its 2000 GHG inventory, Volkswagenrealized that the structure of its emissions sources hadundergone considerable changes over the last five years.Emissions from production processes, which wereconsidered to be irrelevant at a corporate level in 1996,were assessed and found to constitute almost 20 percent ofaggregate corporate GHG emissions.New sites for engine testing and the investment intomagnesium die-casting equipment at certain productionsites were examples of growing emissions sources.Volkswagen’s experience demonstrates that emissionssources have to be regularly re-assessed to maintain acomplete and relevant inventory over time.9

Chapter 2Business goalsand inventory designImproving your understanding of your company’s GHG emissions bycompiling a GHG inventory makes good business sense. The fourcategories of business goals most frequently listed by companies asreasons for compiling a GHG inventory are the following:• GHG risk management• public reporting/participation in voluntary initiatives• GHG markets• regulatory/government reporting10

Business goals and inventory designGHG risk management• identifying GHG risks and reduction opportunities in thevalue chain• setting internal targets, measuring and reporting progress• identifying cost effective reduction opportunities• developing process/product innovations• internal/external benchmarkingPublic reporting/participation in voluntary initiatives• stakeholder reporting, e.g. Global Reporting Initiative• voluntary non-governmental organization (NGO)programs, e.g. Climate Neutral Network, WWF ClimateSavers Program, Environmental Resources Trust• voluntary government programs, e.g. Canadian ClimateChange Voluntary Challenge and Registry, AustralianGreenhouse Challenge Program, California Climate ActionRegistry, and US EPA Climate Leaders Initiative• eco-labeling and certificationGHG markets• buying or selling emissions credits• cap and trade allowance trading programs, e.g. UKEmissions Trading Scheme, Chicago Climate ExchangeRegulatory/government reporting• directives, e.g. European Integrated Pollution Preventionand Control Directive, European Pollutant EmissionRegister• reporting under national or local regulations, e.g.Canadian National Pollutant Release Inventory• carbon taxes• baseline protectionThis list is not exhaustive – companies may have otherimportant goals for an inventory. In practice, most companieshave multiple goals. It therefore makes sense that, from theoutset, the inventory is designed to provide information for avariety of different uses and users. To this end, informationshould be collected in ways that it can be subsequentlyaggregated and dis-aggregated for different operational andorganizational boundaries, and for different businessgeographic scales, e.g. state, country, Annex 1 countries, non-Annex 1 countries, facility, business unit, and company.The guidance on operational boundaries in Chapter 4: Settingoperational boundaries, provides information on settingboundaries for different inventory goals and uses.GHG risk managementFor companies developing a GHG inventory for the first time,information that helps them more effectively manage thebusiness risks and opportunities associated with potential GHGconstraints can be an important motivator.An inventory of direct GHG emissions, as well as emissionsoccurring up- and downstream of operations, will provide anassessment of the company’s GHG exposure. It will help thecompany respond more effectively to any move towardregulations and caps governing GHG emissions, as well astoward shifts in consumer preferences based on corporateGHG performance and reputation. Policies that increase theprice of fossil fuels and electricity may have a profound impacton the future competitive performance of companies in theGHG intensive sectors.Conducting a rigorous GHG inventory is also a prerequisite forsetting GHG reduction goals and for identifying opportunitiesfor reductions.Rio Tinto: Setting a GHG reduction targetRio Tinto mines and processes natural resources. In 1999, itpublished a three-year five percent improvement target andhas subsequently reported positive annual progress. TheGHG reduction goal was set for two reasons. Firstly, it wasrealised that targets would increase the company’s rate ofenvironmental performance improvement and, secondly,stakeholders were asking which direction the companywanted to go. The reduction target was developed in amanner that the company believed measured actualperformance, and was aligned with business improvement.It was only developed after confidence in the GHGaccounting methodology had been gained throughpreparing a number of annual inventories and projections.Public reporting/participation in voluntary initiativesCompanies with global operations may want to develop asingle corporate GHG inventory that enables them toparticipate in a number of NGO and government schemes indifferent locations. Companies preparing sustainability reportsusing the Global Reporting Initiative guidelines will need toreport information on their GHG emissions(GRI, 2000).Adoption of the GHG Protocol standard provides sufficientinformation to meet the GHG accounting requirements ofmost of these voluntary initiatives. Appendix 1 provides anoverview of the GHG accounting and reporting requirements11

Business goals and inventory designof different voluntary programs on climate change.Since the accounting guidelines of many voluntary schemesare periodically updated, companies planning to participateare advised to contact the scheme administrator to checkwhat the current requirements are. Some schemes may makemore demands on the company than others.The Australian Greenhouse Challenge Program, for example,requires participants to develop an action plan of GHGreduction measures as well as a forecast of GHG emissionswith and without implementation of the action plan. TheWWF Climate Savers Program requires participants to committo an overall GHG reduction goal and to obtain anindependent verification of current CO 2 emissions as abaseline for performance.GHG markets and regulatory/government reportingGHG markets and regulatory approaches to greenhouse gasemissions are beginning to emerge in some parts of theworld. Shell and BP have already established internal GHGemissions trading programs as part of their overall GHGmanagement strategy. It is not possible, however, at this earlystage, to design a comprehensive GHG accounting systemthat will meet the future requirements of all the differentregulatory and market based mechanisms. Different schemeswill evolve with different inventory requirements. With this inmind, the GHG Protocol standard has been designed toprovide GHG information building blocks that can be used asthe foundation for supporting a variety of informationrequirements, including those resulting from regulatory ormarket based systems.It is likely that future regulatory and trading schemes willimpose additional layers of accounting specificity relating towhich facilities are included; which GHG sources areaddressed; how base years are established; the type ofcalculation methodology used; the choice of emissions factors;and the monitoring and verification approaches employed.However, the broad participation and best practicesincorporated into the GHG Protocol are likely to inform theaccounting requirements of future schemes. Chapter 4:Setting operational boundaries, describes the GHG reportingrequirements under the European Pollutant Emissions Registerand Integrated Pollution Prevention Control Directive. Again,it is important to check the specific requirements, as these aresubject to change.For emissions trading, where compliance is to be judged bycomparing the inventory with the emissions cap, it is likelythat a rigorous and accurate inventory of direct emissions willgenerally be required. Indirect emissions are difficult to verifyand present particular challenges in terms of avoiding doublecounting of emissions. To facilitate independent verification,emissions trading may require that participating companiesestablish an audit trail for emissions data (see Chapter 10:Verification of GHG emissions). Over time, as the importanceof emissions trading grows, emissions inventories will becomeincreasingly transparent, comparable, and accurate.Ford Motor Company: Experiences roadtesting the GHG ProtocolWhen Ford Motor Company embarked on an effort tounderstand and reduce its GHG impacts, it wanted to trackemissions with enough accuracy and detail to managethem effectively. An internal cross-functional GHG inventoryteam was formed to accomplish this goal. Although thecompany was already reporting basic energy and carbondioxide data at the corporate level, a more detailedunderstanding of these emissions was essential to set andmeasure progress against performance targets and evaluatepotential participation in external trading schemes.For several weeks, the team worked on creating a morecomprehensive inventory for stationary combustionsources, and quickly found a pattern emerging. All toooften the team left meetings with as many questions asanswers, and the same questions kept coming up from oneweek to the next. How should the company drawboundaries? How could acquisitions and divestitures beaccounted for? What emissions factors should be used?And perhaps most importantly, how could themethodology be deemed credible with stakeholders?Although the team had no shortage of opinions, there alsoseemed to be no right or wrong answers – until the teamdiscovered the GHG Protocol.The GHG Protocol provided guidance on answering many ofthe questions. Although at the time, still a road test draft,the GHG Protocol offered a framework upon which to basedecisions, one supported by a diverse set of stakeholders,and with the promise of becoming a global standard.Because of its flexible and progressive nature, the GHGProtocol could be applied at the company’s own pace andtailored to meet its specific needs. As a result of the GHGProtocol, Ford Motor Company now has a more robustinventory of GHGs from stationary sources, one that can becontinually improved to fulfill rapidly emerging GHGmanagement needs.12

Chapter 3Settingorganizational boundariesBusinesses vary in their legal and organizational structures – theseinclude incorporated and non-incorporated joint ventures,subsidiaries and others. Companies may operate globally andencompass a number of autonomous business streams and businessunits.When accounting for GHG emissions from partially-ownedentities/facilities, it is important to draw clear organizationalboundaries, which should be consistent with the organizationalboundaries which have been drawn up for financial reportingpurposes.14

Setting organizational boundariesFinancial reporting is based upon the concepts of ‘control’and ‘influence’. The concepts of ‘control’ and ‘influence’ areoften defined and applied differently according to acompany’s specific financial accounting and reportingpolicies/practices. Where possible, it makes sense to followcompany-specific distinctions already in place for financialaccounting, provided these are explicitly explained andfollowed consistently. When applying these concepts theunderlying assumption of ‘substance over form’ should befollowed. This assumption is based on the premise that GHGemissions should be accounted and reported in accordancewith the company’s substance and economic reality and notmerely its legal form.For the purpose of applying the concepts of ‘control’ and‘significant influence’ to GHG accounting, the followingdefinitions may prove helpful.Control is defined as the ability of a company to direct theoperating policies of another entity/facility. Usually, if thecompany owns more than 50 percent of the voting interests,this implies control. The holder of the operating license oftenexerts control, however, holding the operating license is not asufficient criteria for being able to direct the operating policiesof an entity/facility. In practice, the actual exercise ofdominant influence itself is enough to satisfy the definition ofcontrol without requiring any formal power or ability throughwhich it arises.incurred if the asset was impaired. However, it is recognizedthat GHG emissions are different in their nature and it may beappropriate for these to be reported to properly reflect thecompany’s overall GHG emissions. If this is the case it isimportant to state this in the public report.Companies should preferably account for and report theirGHG emissions according to the framework presented inTable 1. This framework is set out to provide GHG emissionsinformation in a transparent manner on the basis ofcontrol/influence and equity share basis. Equity share isdefined as the percentage of economic interest in/benefitderived from an operation. This approach increases theusability of GHG information for different users and aims, asfar as possible, to mirror the approach adopted by financialaccounting and reporting standards.Where there is a contractual arrangement that covers GHGemissions, the company should defer to this for the purposesof emissions allocation.Significant influence: the issue of whether a company hassignificant influence over an entity/facility is likely to havebeen already established by the company-specific financialaccounting and reporting policies/practices. However, whereit is necessary to determine if one company exerts significantinfluence over an entity/facility, the following factors shouldbe considered:• the company owns voting interests of between 20 and 50percent• the company has the power to participate in theentity’s/facility’s financial and operating policy decisions• the company has a long-term interest in the entity/facilityDefinitions of ‘control’ or ‘significant influence’ apply toincorporated as well as to non-incorporated operations, i.e.GHG emissions have to be reported from incorporated as wellas from non-incorporated entities/facilities. GHG emissionsfrom entities/facilities that are not under significant influenceor control (e.g. the company owns less than 20 percent of thevoting interests) are generally not reported. This is consistentwith financial accounting standards where a company wouldonly recognize revenue if dividends were paid or a loss15

Setting organizational boundariesTable 1: Accounting for GHG emissions on the basis of control and equity shareCategoryWhat to reportReporting for controlControlled entities/facilitiesEmissions from those entities/facilities, which aredefined as being controlled. It is likely that this willalready be determined by company-specific financialaccounting policies/practices.This category includes entities/facilities that are:• wholly owned• not wholly owned, but controlled• jointly controlled assets/entitiesThe concept of jointly controlled assets/entities will haveto be considered based on the specific business andindustry context.Wholly ownedNot wholly ownedbut controlledJointly controlled100% of GHG emissions100% of GHG emissionsEquity share of GHG emissionsReporting for equity shareABControlled entities/facilitiesEmissions from those entities/facilities, which aredefined as being controlled. It is likely that this willalready be determined by company-specific financialaccounting policies/practices.This category includes entities/facilities that are:• wholly owned• not wholly owned, but controlled• jointly controlled assets/entitiesSignificant influence – associated entities/facilitiesEmissions from entities/facilities over which the reportingcompany has significant influence but does not control. Itis likely that this will already be determined by companyspecificfinancial accounting policies/practices.Equity share of GHG emissionsIf there is a specific contractual arrangement that coversthe division of earnings/production, that arrangementshould be considered. This is likely to be most prominentin the upstream oil and gas industry, and is determinedby company-specific financial accountingpolicies/practices.Equity share of GHG emissionsIf there is a specific contractual arrangement that coversthe division of earnings/production, that arrangementshould be considered. This is likely to be most prominentin the upstream oil and gas industry, and is determinedby company-specific financial accountingpolicies/practices.Equity share of GHG emissionsEquity share of GHG emissions from entities/facilities thatare controlled or under significant influence ( A + B )If the reporting company wholly owns all its facilities/entities,simply report the same number under the control and equitycategories and report zero for entities under significantinfluence.Depending on the needs of users and the accessibility of GHGinformation, a company may determine that it is sufficientonly to report its controlled GHG emissions, and not to reportits equity share of such emissions. If this is the case, it shouldbe clearly stated in the company’s public GHG report.16

Guidance on setting organizational boundariesGuidance on settingorganizational boundariesWhat constitutes ‘control’ and ‘significant influence’ may notalways be obvious. The definitions provided by differentfinancial accounting and reporting standards such as theInternational Accounting Standards (IAS) and US GenerallyAccepted Accounting Principles (US GAAP) do not alwaysconverge. Therefore, when accounting for GHG emissionsfrom partially-owned entities/facilities you should follow, asclosely as possible, the distinctions of ‘control’ and ‘significantinfluence’ as applied by your company for the financialconsolidation of such entities/facilities.By focusing on degree of control/influence, the frameworkpresented in Table 1 mirrors, as far as possible, the approachadopted by financial accounting and reporting standards. Thisapproach is also based on the concept of ‘substance andeconomic reality over legal form’. Following a reportingapproach that is consistent with such standards has severaladvantages. GHG emissions will, in the near future, become aliability and, therefore, should be accounted for in the sameway as financial liabilities. In addition, due to the transparentnature of this framework in terms of the degree ofcontrol/influence exerted over GHG emissions sources,companies can better assess their GHG risks andopportunities, leading to well-informed managementdecisions.In some industry sectors, such as the oil and gas industry, theeconomic interest a party receives from an entity can varyover time depending on the specific agreements in place. Forexample, a company owns 50 percent of the voting interestsin an entity, but, based on funding and production sharingcontracts in place, receives 60 percent of the production inthe first three years, and in subsequent years 50 percent.Therefore, the equity share in years one to three would be 60percent, with 50 percent in the subsequent years. In mostcases, the equity share will equal the voting interest in theventure.This framework also provides greater transparency and utilityof information for the different users and uses of GHGinformation.GHG emissions reduction initiatives, and regulatory andtrading schemes often focus on control rather thanownership. The company holding the operating license mightbe asked to report 100 percent of the operations’ GHGemissions. It is therefore important to distinguish betweenoperations controlled on the basis of the operating licenseand those controlled on the basis of majority voting interestor other reasons.For the purpose of public reporting and to inform internalmanagement decisions, GHG emissions data should show acomplete picture of the reporting company’s GHG emissions,and therefore cover all categories of control/influence asspecified in Table 1.17

Guidance on setting organizational boundariesThe following example illustrates how to account forand report GHG emissions from controlled and ownedentities/facilities on an equity share-based approach andon a control-based approach.In the examples presented in Figure 1, it is assumed – withthe exception of Entity D – that the company holding themajority voting interest also holds the operating license.Figure 1: Voting interest held by company Alpha and company Beta100 % voting interestEntity A (incorporated)emissions: 700 tCO 2Company AlphaControl-based total: 1950 tCO 2Equity share: 1630 tCO 280 % voting interest20 % voting interest50 % voting interest50 % voting interestEntity B (incorporated)emissions: 400 tCO 2Joint Venture C(not incorporated)emissions: 500 tCO 2Company BetaControl-based total: 2050 tCO 2Equity share: 2290 tCO 260 % voting interest40 % voting interest andholding operating license10 % voting interest90 % voting interest100 % voting interestEntity D (incorporated)emissions: 600 tCO 2Entity E (incorporated)emissions: 800 tCO 2Entity F (incorporated)emissions: 1000 tCO 218

Guidance on setting organizational boundariesTable 2: Company Alpha: GHG emissions on the basis of control/influence and equity shareCategory Entities/facilities What to reportwholly owned Entity A (Alpha owns 100%) 100% 700 tCO 2Reporting for controlnot wholly owned, but controlled Entity B (Alpha owns 80%) 100% 400 tCO 2Entity D (Alpha does not hold operatinglicense but owns 60%)100% 600 tCO 2jointly controlled Joint Venture C (Alpha controls jointly with Beta) 50% 250 tCO 2Control-based total 1950 tCO 2controlled entities/facilities Entity A (Alpha owns 100%) equity share 700 tCO 2Reporting for equity shareassociated entities/facilities -significant influenceEntity B (Alpha owns 80%) equity share 320 tCO 2Entity D (Alpha does not hold operatinglicense but owns 60%)equity share 360 tCO 2Joint Venture C (Alpha controls jointly with Beta) equity share 250 tCO 2Equity share total 1630 tCO 2In this example (Figure 1), it is assumed that Company Alphacontrols Entity D, although Alpha does not hold the operatinglicense for Entity D. Based on the definition of control, it hasto be considered who actually exercises dominant influenceover the operations of Entity D. Clearly, investment decisionsand other significant financial and operational decisionsregarding the operation of Entity D can only be taken withthe consent of Company Alpha, since it holds the majorityvoting interest.Table 3: Company Beta: GHG emissions on the basis of control/influence and equity shareCategory Entities/facilities What to reportReporting for controlwholly owned Entity F (Beta owns 100%) 100% 1000 tCO 2not wholly owned, but controlled Entity E (Beta owns 90%) 100% 800 tCO 2jointly controlled Joint Venture C (Beta controls jointly with Alpha) 50% 250 tCO 2Control-based total 2050 tCO 2Reporting for equity sharecontrolled Entity F (Beta owns 100%) equity share 1000 tCO 2entities/facilitiesEntity E (Beta owns 90%) equity share 720 tCO 2associated entities/facilities -significant influenceJoint Venture C (Beta controls jointly with Alpha) equity share 250 tCO 2Entity D (Beta holds operating licenseand owns 40%)equity share 240 tCO 2Entity B (Beta owns 20%) equity share 80 tCO 2Equity share total 2290 tCO 219

Chapter 4Settingoperational boundariesAfter a company has determined its organizational boundaries interms of the entities/facilities that it owns or controls, it must thendefine its operational boundaries.For effective and innovative GHG management, setting operationalboundaries that are comprehensive with respect to direct and indirectemissions will help a company better manage the full spectrum ofGHG risks and opportunities that exist in its upstream anddownstream operations.This involves making choices about how to account for direct andindirect GHG emissions 1 .20

Setting operational boundariesDirect GHG emissions are emissions from sources that areowned or controlled by the reporting company, e.g. emissionsfrom factory stacks, manufacturing processes and vents, andfrom company-owned/controlled vehicles.Indirect GHG emissions are emissions that are a consequenceof the activities of the reporting company, but occur fromsources owned or controlled by another company, e.g.emissions from the production of purchased electricity, contractmanufacturing, employee travel on scheduled flights, andemissions occurring during the product use phase.Introducing the concept of ‘scope’To help delineate direct and indirect emissions sources, improvetransparency, and provide utility for different types oforganizations with different needs and purposes, three ‘scopes’are defined for GHG accounting and reporting purposes.The GHG Protocol recommends that companies account for andreport scopes 1 and 2 at a minimum.Scope 1: Direct GHG emissionsScope 1 accounts for direct GHG emissions from sources that areowned or controlled by the reporting company. Scope 1emissions are principally the result of the following activities:• production of electricity, heat, or steam• physical or chemical processing 2 , e.g. cement, adipic acidand ammonia manufacture• transportation of materials, products, waste, andemployees, e.g. use of mobile combustion sources, such as:trucks, trains, ships, airplanes, buses, and cars• fugitive emissions: intentional or unintentional releases suchas: equipment leaks from joints, seals; methane emissionsfrom coal mines; HFC emissions during the use of airconditioning equipment; and CH 4 leakages from gastransportScope 2: GHG emissions from imports of electricity,heat, or steamScope 2 accounts for indirect emissions associated with thegeneration of imported/purchased electricity, heat, or steam.Emissions attributable to the generation of exported/soldelectricity, heat, or steam should be reported separately undersupporting information. These emissions must also be includedin scope 1. To increase data transparency, emissions dataassociated with imported and exported electricity, heat, or steamshould not be netted.The emissions associated with the generation of importedelectricity, heat, or steam are a special case of indirect emissions.For many companies, electricity usage represents one of themost significant opportunities to reduce GHG emissions.Companies can reduce their use of electricity and/or use it moreefficiently by investing in energy efficient technologies.Additionally, emerging green power markets 3 enable somecompanies to switch to less GHG intensive electricity suppliers.Companies can also install an efficient co-generation plant onsite to replace the import of more GHG intensive electricity fromthe grid. Scope 2 facilitates the transparent accounting of suchchoices.Scope 3: Other indirect GHG emissionsScope 3 allows for the treatment of other indirect emissions thatare a consequence of the activities of the reporting company,but occur from sources owned or controlled by anothercompany, such as:• employee business travel• transportation of products, materials, and waste• outsourced activities, contract manufacturing, and franchises• emissions from waste generated by the reporting companywhen the point of GHG emissions occurs at sources or sitesthat are owned or controlled by another company, e.g.methane emissions from landfilled waste• emissions from the use and end-of-life phases of productsand services produced by the reporting company• employees commuting to and from work• production of imported materialsDouble countingConcern is often expressed that such accounting treatment ofindirect emissions will lead to double counting when twodifferent entities include the same emissions in their respectiveinventories. Whether or not double counting occurs depends onhow consistently direct and indirect emissions are reported.Whether or not double counting matters, depends on how thereported information is used.Double counting needs to be avoided when compiling nationalinventories under the Kyoto Protocol, but these are usuallycompiled via a top-down exercise using national economic data,rather than aggregation of bottom-up company data.Compliance regimes are more likely to focus on the ‘point ofrelease’ of emissions and are more concerned about acompany’s direct emissions. For participating in GHG markets, itwould not be acceptable for two organizations to claimownership of the same piece of commodity and it is thereforenecessary to make sufficient provisions to ensure that this doesnot occur between participating entities. For GHG riskmanagement and voluntary reporting double counting is lessimportant.21

Guidance on setting operational boundariesGuidance on settingoperational boundariesCompanies should, at a minimum, account and report GHGemissions from scopes 1 and 2. To ensure maximum flexibilityand clarity, companies are also encouraged to account andreport relevant scope 3 emissions. Together these three scopesrepresent significant opportunities for reducing emissions.Figure 2 provides an overview of activities that generate GHGemissions along a company’s value chain. Appendix 2 listsGHG emissions sources and activities by scopes and sectors.All scopes:• Account and report GHG information separately for eachscope.• To facilitate comparability over time, further subdivideemissions data where this aids transparency, e.g. bybusiness units/facilities, country, source types (productionof electricity or steam, transportation, processes, etc.).Scope 1:• All companies report scope 1.Scope 2:• All companies report scope 2.• Emissions from imported electricity can be estimated frompurchase records and grid emissions factors. You should usethe most reliable emissions factors available and beconsistent in their use.• Purchases of electricity by electric utilities for sale to end-usecustomers (e.g. an electricity utility that has a supplycontract with a power generator) should be reported underscope 2. The rationale for this is that utilities often exercisechoice over where they buy their energy and this maypresent significant opportunities for GHG reductions.• Trading transactions of electricity should not be reported.• If you export electricity, heat, or steam to the grid or toanother company, the emissions associated with the exportsshould not be deducted from scope 1.• Emissions from exported electricity, heat, or steam shouldbe reported under supporting information and notdeducted from any imports, as this would be inconsistentwith how other exported products are accounted, e.g.Figure 2: An overview of GHG emissions along the value chain22

Guidance on setting operational boundariesexport of clinker by a cement company or scrap steel by aniron and steel company.• Three examples are provided below to illustrate GHGaccounting from energy generation.• GHG emissions from activities upstream of your electricityprovider, e.g. exploration, drilling, flaring, transportation,and refining should not be reported under scope 2.Scopes and business goalsCompanies frequently cite four goals as compelling reasonsfor compiling a GHG inventory:• GHG risk management• public reporting/participation in voluntary initiatives• GHG markets• regulatory/government reportingScope 3:• Scope 3 provides an opportunity to be innovative withGHG management. Emissions reported under scope 3should be adequately explained and supported by data andevidence.• It will not be relevant or appropriate for companies to reporton all of the activities listed under scope 3. Companies shouldreport those activities that are relevant to their business andgoals, and for which they have reliable information.Reporting GHGs from energy generationExample one: Company A is an electric utility that ownstwo power generation plants and has a supply contractwith a third power generation plant owned by company B.Company A reports the GHG emissions from the twopower plants it owns under scope 1 and the emissions fromthe electricity supplied to it by B under scope 2. CompanyB reports all the emissions from its power plant underscope 1.Example two: Company C installs a co-generation unit,reduces its import of electricity from the grid, and sellssurplus electricity to a neighboring company D. CompanyC reports all emissions from the co-generation unit underscope 1 and increases its direct emissions. Company C alsoreports a reduction in scope 2 emissions. Emissions fromthe generation of electricity exported to D are reported byC under supporting information, and by D as scope 2emissions.Example three: Company E uses electricity supplied by aco-generation unit that is owned by an energy supplier.Company E reports the GHG emissions associated with itselectricity use under scope 2, even if it consumes 100percent of the power and steam produced. The energysupplier reports all the emissions as direct under scope 1.In countries where GHG emissions are regulated it ispossible that related financial impacts associated withGHG emissions are negotiated in the contract betweenthe two parties. This would deal with any extra costs forthe energy supplier.Since most companies have multiple goals, it makes sense todesign an inventory from the outset to provide informationthat will serve all of these. This will require consideration ofhow data might subsequently be ‘sliced and diced’, e.g. bystate, country, facility, business unit, and company.GHG risk managementFrom the perspective of GHG management it makes sense todefine broad operational boundaries that explore GHGemissions risks and opportunities in all three scopes. This willbe important for understanding the competitive environmentand for developing a long-term business strategy in a GHGconstrained world. For GHG risk management, accuracy is lessimportant, since the goal is to capture a broad overview of acompany’s GHG impact.Narrower focus on direct emissions may miss major GHGreduction opportunities and risks. For example, appliancessuch as washing machines, refrigerators, and automobilesproduce most GHG emissions during their use phase.Whirlpool has estimated that its clothes dryer uses 20 timesmore energy over its working life than the energy used inmanufacturing the dryer, and its washing machines 50 timesmore (Loreti et al., 2000). Similarly, General Motors (GM) hasestimated that all GM vehicles in operation in the UnitedStates account for 23 percent of US transportation-relatedemissions (EIA, 1997). Estimates of GHG emissions fromindirect sources both upstream and downstream of youroperations will improve your understanding of GHG impactsand help identify opportunities to collaborate with others inyour value chain to reduce GHG emissions and to share thebenefits.Public reporting/participation in voluntary initiativesSome companies, particularly in the electric utility andchemical-manufacturing sector, produce GHG inventories inconjunction with voluntary partnerships with government.Many countries have developed national GHG reportingschemes targeted at business, for example, Canada’sVoluntary Challenge Register, Australia’s GreenhouseChallenge Program, and the US Department of Energy’sVoluntary 1605b Reporting Program. The specific GHGreporting requirements relating to direct and indirect GHG23

Guidance on setting operational boundariesemissions vary between the different initiatives. Someschemes, such as the US Department of Energy 1605bProgram, leave the choice of what to include entirely up tothe reporting entity, while others are more specific. In the US,several state governments, such as California and NewHampshire, are also developing GHG registries. Partners in theUS EPA’s voluntary industry-government partnership, ClimateLeaders, must compile their GHG inventory to include scope 1and scope 2 emissions and set a public GHG emissionsreduction goal.Appendix 1 provides an overview of the various GHGaccounting and reporting requirements of several voluntaryGHG reporting and reduction initiatives. A GHG accountingand reporting system developed according to the GHGProtocol should enable you to meet nearly all the accountingand reporting requirements of these initiatives.GHG markets and regulatory/government reportingCompanies intending to participate in GHG trading systemswill need to produce a rigorous and verifiable scope 1inventory. Where compliance is judged against a datum andemissions cap, as is the case for the US Sulfur Dioxide TradingProgram, it is also necessary to produce a robust baseline.Although regulatory and market-based programs typicallyfocus on direct emissions sources, there are exceptions. TheUK Emissions Trading Scheme for example, requires directentry participants to account for GHG emissions from thegeneration of imported electricity, heat, and steam (DEFRA,2001).Regulatory programs often focus on scope 1 emissions fromoperated or controlled facilities. In Europe, facilities fallingunder the requirements of the Integrated Pollution andPrevention and Control Directive (IPPC) must report emissionsexceeding a specified threshold for each of the six Kyotogases 4 . From 2003, information on emissions reported underIPPC for the reporting year 2001 and onwards will beincluded in a European Pollutant Emission Register (EPER) –a publicly accessible internet-based database that permitscomparison of emissions of individual facilities or industrialsectors in different countries (EC–DGE, 2000).Shell Canada: One standard, multiple usesAn important goal of many companies is to build a GHGinventory that serves many uses. One of these is to establisha foundation which anticipates compliance with futurenational GHG accounting schemes and regulations. ShellCanada’s participation in the GHG Protocol road test wasdriven, in part, by the desire to compare the ideas of theGHG Protocol with current reporting needs of the CanadianClimate Change Voluntary Challenge and Registry (VCR).Shell Canada undertook a gap analysis to identifycomponents that could be added to the VCR to meet theintentions of the GHG Protocol, and also to see how theGHG Protocol might be enhanced.The GHG Protocol’s three-scope accounting approach fordirect and indirect emissions was different to how ShellCanada had traditionally reported GHGs under the VCRscheme. The GHG Protocol’s scope terminology was foundto be very useful for distinguishing between emissions Shellhas direct control over and those it indirectly influences.Shell Canada believes the utility of the scope approach willincrease as the GHG Protocol becomes further defined andis utilized internationally. The formalization of the GHGProtocol’s three-scope approach in broad internationalapplication could significantly improve the clarity of GHGreporting, while not discounting the incentive to becomemore energy efficient in the use of imported electricity.Overall, Shell felt it was largely in agreement with the GHGProtocol and with slight modifications could meet therequirements of that accounting system. No substantialbarriers were found in VCR that would prevent Shell’s GHGinventory from achieving compliance with both reportingsystems. With select additions, Shell can offer a futurereport that achieves both VCR Champion Reporting statusdomestically and GHG Protocol compatibility. This is animportant discovery for Shell Canada because itdemonstrates the validity of its existing reporting methodsand provides a blueprint for its continuous improvementtoward a future international standard.24

Guidance on setting operational boundariesSwiss Re : The bottom line onbusiness travelWhen Swiss Re began recording environmentalperformance indicators, the company gave high priority toenergy consumption and business travel since theytraditionally constitute the highest GHG impacts of aninsurance company.While acquiring data from energy suppliers provedrelatively easy, accessing correlated business travel datafrom reservation agents proved more challenging. SwissRe’s Business Travel Centre in Zurich began sorting some800 of almost 5000 travel cards and extrapolating theresult for the total number of flights in 1996. Based on thisspot-check system, the business travel indicator wasprojected each year in the same manner until 1999. In2000, Swiss Re launched a Lotus Notes-based ‘travelbooking system’ for business trips. At first sight, the systempermitted a consistent indicator for the first time, but itproved impossible to correlate the number of destinationswith the accumulated number of miles flown.During 2000, Swiss Re decided to make all flight bookingsthrough American Express (AMEXCO), and was able toutilize their Flight Power tool for detailed monitoring of allbusiness travel activities. Not only is it now possible torecord the number of destinations and cost per unit, butthe miles flown can also be calculated for furtherevaluation. This solution immediately enhanced both dataquality and quantity. American Express provides monthlydata to update the miles per unit indicator on a quarterlybasis. This parameter is used for internal monitoring and topromote cost consciousness of each cost center.Norsk Hydro: Learning by doingIn 1990, Norsk Hydro recognized that it did not have agood overview of the GHG emissions from its operationsand decided to conduct a first GHG inventory. In additionto CO 2 and CH 4 the company also looked at N 2 O fromfertilizer production and fluorinated species such as CFgases and SF 6 . Norsk Hydro has since developed a webbasedsystem for registering GHGs, other emissions, andenergy data to keep track of environmental performance.Based on the inventory work, the company establishedgood contacts with the scientific community andregulatory authorities. The inventory also provided anexcellent basis for identifying emissions reduction potentialsthrough a variety of measures, in particular throughimproved operational performance and the introduction ofnew technology. Gradually, Norsk Hydro reduced emissionsof CF gases from aluminum electrolysis, and decreased theuse of SF 6 in magnesium casting. A major lesson from the‘learning by doing‘ approach with GHG inventories wasrealizing the importance of consistent boundary definitions.This produces quantitative, high quality data, whichprovides a basis for cost-effective abatement measures.As a consequence of the company’s environmentalprinciples – a life cycle view of activities, and a focus onabatement actions, which prove to be cost-effective in a lifecycle context – Norsk Hydro extended its analysis to acompany-wide life cycle inventory of GHGs in 1996. Thestudy revealed that from a life cycle perspective, about 80percent of GHG emissions were related to use of thecompany’s products, mainly CO 2 from the use of oil andgas, as well as N 2 O from the use of fertilizers.NOTES1 The terms ‘direct’ and ‘indirect‘ as used in this document should not be confusedwith their use in national GHG inventories where ‘direct‘ refers to the six Kyoto gasesand ‘indirect‘ refers to the precursors NO x , NMVOC, and CO.2 For some integrated manufacturing processes, such as ammonia manufacture, it maynot be possible to distinguish between GHG emissions from the process and theproduction of electricity, heat, or steam.3 Green power includes renewable energy sources and specific clean energytechnologies that reduce GHG emissions relative to other sources of energy thatsupply the electric grid, e.g. solar photovoltaic panels, geothermal energy, landfill gas,and wind turbines.4 EPER sets the following facility-based reporting thresholds for Kyoto GHGs (kg/yr):CO 2 – 100,000,000; CH 4 – 100,000; N 2 O- 10,000; HFCs – 100; PFCs – 100;SF 6 – 50. Reported emissions data must be accompanied by a one-letter codereferring to the methodology of emissions determination (M - measurement,C - calculated, E - non standardized estimate). Source categories should becompatible with NOSE-P categories.25

Chapter 5Accountingfor GHG reductionsThe GHG Protocol focuses on accounting and reporting for GHGemissions at the corporate level. The reporting standard providesguidance on how to prepare a summary of GHG information for acompany’s global operations. GHG reductions can then be measuredby comparing absolute changes in the company’s overall GHGemissions over time, or by developing ratio indicators to track relativeperformance.A company’s overall emissions may be reduced, even if increasesoccur at specific sources, facilities, or operations within a givencountry. Focusing on the overall company GHG impact has theadvantage of helping companies more effectively manage theiraggregate GHG risks and opportunities. It also helps guide thetransfer of resources to activities resulting in the most cost-effectiveGHG reductions.26

Accounting for GHG reductionsGHG reductions at the scale of a facility or countryFrom the perspective of the climate it does not matter whereGHG emissions reductions occur. From the perspective ofnational and international policies on global warming, theplace where reductions are achieved is relevant since thesepolicies focus on achieving GHG reductions within specificcountries or regions. Thus companies with global operationswill have to respond to an array of national regulations andrequirements that address GHGs from operations or facilitieswithin a specific country.The GHG Protocol calculates GHG emissions using a bottomupapproach. This involves calculating emissions at the level ofan individual source and then rolling this up via facilities tothe corporate level. This approach enables companies to sliceand dice GHG emissions information at different scales, e.g.by individual sources or facilities, or by a collection of facilitieswithin a given country. This allows a company to meet anarray of government requirements or voluntary commitments.Reductions can then also be measured by comparingemissions over time for the chosen scale.a variety of ‘pre-compliance’ or voluntary transactions.Experience from this ‘pre-compliance‘ market in GHGreduction credits highlights the importance of delineatingreductions with a robust, valid and quantifiable accountingsystem that provides credible and verifiable data. Keyaccounting challenges for project-based credits areestablishing ownership of the reduction credits, baselineconstruction and additionality, and leakage.Under the Kyoto Protocol, JI and CDM activities must result inGHG reductions that are additional to any that wouldotherwise occur in the absence of the certified project activity.The baseline provides a reference point for what emissionswould have been without the project intervention. Leakagerelates to increases or decreases of GHG emissions elsewhereas a result of a project.The GHG Protocol does not address all the accountingchallenges associated with project-based reductions, but it canhelp companies identify and account for those reductions thatoccur within their organizational and operational boundaries.Project-based reductions, offsets, creditsInternational negotiators and domestic policymakers aredeveloping market-based regulatory instruments. It is widelyanticipated that corporations, amongst others, will activelytrade emissions allowances or emissions reduction creditsthrough these mechanisms.For example, the Kyoto Protocol sets emissions targets forparticipating industrialized nations and establishes three marketbasedmechanisms to promote cost-effective reductions. Theseare: international emissions trading, joint implementation (JI),and the clean development mechanism (CDM).The GHG Protocol is initiating a task force to explore anddevelop guidance on accounting for project-based reductionsin a manner that is robust and consistent with the potentialfinancial value and integrity of any commodity that may beattached to reductions.Reporting project-based reductions, offsets, creditsThe sale, transfer, or banking of emissions reductions creditsachieved from reduction activities within a company’s selectedoperational boundaries (scopes 1, 2 or 3) should be clearlyindicated in its public GHG report under the section onsupporting information.Under each mechanism, a party facing high costs in reducingits own emissions can purchase certified emissions reductioncredits for lower cost reductions undertaken by another party.These credits will be generated by financing projects thatresult in verifiable emissions reductions (e.g. district heatingupgrades) or in removing GHGs from the atmosphere (e.g.enhancing carbon sinks via reforestation activities). It isenvisioned that both government and corporate entities willuse these credits to fulfill obligations under domestic law. Atboth national and international levels, the rules governing theeligibility of reduction projects and the trade of emissionsrights are still under discussion.A few leading companies are already seeking to turn emissionsreductions into competitive advantage and are participating inThe purchase of emissions reduction credits from anotherorganization may also be reported in the public GHG report.Appropriate supporting information addressing the validityand credibility of purchased emissions reduction units shouldbe included.When companies make changes to their operations that resultin GHG reductions, these will usually be captured in one ofthe three GHG Protocol scopes. However, some companiesmay be able to make changes to their own operations thatresult in GHG reductions not captured by any of their threescopes, for example:• Substituting fossil fuel with imported waste-derived fuel thatmight otherwise be landfill or incinerated without energyrecovery. Such substitution may have no direct effect on (ormay even increase) the importing company’s own GHG27

Accounting for GHG reductionsemissions. However, it could result in real GHG savingselsewhere, e.g. avoiding landfill GHG emissions and fossilfuel use.• The installation of an on-site co-generation plant thatprovides electricity for the company and otherorganizations. This may increase the company’s directemissions, but decrease the GHG emissions of theorganizations using the exported electricity, by displacingmore GHG intensive electricity sources.These reductions may be accounted for in the same way asthe purchased project-based reductions described above andreported in a company’s public GHG report.Kansai Electric Power Company: Accountingfor GHGs from electricity consumptionIn Japan the responsibility for CO 2 emissions from electricityconsumption is assigned to end-users. Emissions arecalculated by multiplying a CO 2 emissions factor by theamount of electricity consumed. The CO 2 emissions factoris derived by dividing the total amount of CO 2 emitted byan electricity supplier by the corresponding amount ofelectricity generated from all the supplier’s sources, e.g.nuclear, fossil-fueled, and hydroelectric power (the meanemissions factor). Although it is not possible to identify aparticular power generation source with a given reductionof electricity in Japan, some organizations have assumedthat any reductions they make in electricity leads to areduction in fossil-fueled power generation. Kansai ElectricPower Company points out that this assumption overestimatesGHG reductions from reduced electricity use andis not credible for the following reasons:• in practice, hydroelectric power is used for the shorttermload balancing needed to control frequency,whereas nuclear power is used to balance seasonal loadby planning periodic inspections outside of demandpeaks• since the CO 2 emissions factor for fossil-fueled power isgreater than the average emissions factor for all powersources, this approach overestimates actual GHGreductionsIn the absence of a credible and verifiable alternative, themean CO 2 emissions factor should thus be used forcalculating the CO 2 reductions from lower electricityconsumption.28

Chapter 6Settinga historic performance datum“What sort of comparisons do I need to make over time?”Emissions performance comparisons can be done against the lastaccounting period as well as against emissions in a selected referenceyear.Comparison only against the last accounting period is unlikely tocater for strategic business goals such as establishment of emissionsreduction targets and management of risks and opportunities, oraddress the needs of investors and other stakeholders.30

Setting a historic performance datumThe GHG Protocol recommends setting a historic performancedatum for comparing emissions over time. This performancedatum is the base year emissions. Base year emissions canbe differentiated from the term baseline, used in the contextof project-based accounting under the Kyoto Protocol. Thebase year emissions concept aims at a broader footprintintended to allow comparison of emissions performance overtime. This datum recognizes that the methods and tools toaccount and report GHG emissions will improve over time,and that many industries will undergo major changes andconsolidation. In contrast, a baseline usually refers to anemissions scenario that would occur in the absensce of theGHG reduction project.If you intend to participate in a voluntary GHG reductionsscheme or a GHG emissions trading scheme, it is important tofirst check with the scheme to determine whether it has anyspecific rules governing the establishment of base yearemissions or baselines. The UK Emissions Trading Scheme, forexample, specifies that the baseline will be the averageemissions in the three years up to and including 2000 fordirect entry participants (DEFRA, 2001).Choosing a base yearCompanies should choose a base year for which verifiabledata is available. Companies should specify their reasons forchoosing that particular year.existing GHG emissions from one company’s balancesheet to another.• The base year emissions should not be adjusted for anychanges in outsourcing activities if the company isreporting its indirect emissions from such activities underscopes 2 or 3. The same rule applies to insourcing.• If significant structural changes occur during the middle ofa year, the base year emissions should be adjusted on apro-rata basis.• The base year emissions should be adjusted for changes incalculation methodologies that result in significantchanges in your calculated GHG emissions data. Discoveryof errors, or a number of cumulative errors, thatsignificantly affects base year emissions should result in anadjustment of base year emissions.In summary, once a company has determined how it willadjust its base year emissions, it should apply this policy in aconsistent manner. For example, it should adjust for bothGHG emissions increases and decreases. The base yearemissions should be retrospectively adjusted to allow forspecific changes in the company that would otherwiseinvalidate the use of its base year emissions as a performancedatum, or would compromise the consistency and relevanceof the reported GHG information.Base year emissions adjustmentsCompanies should develop a base year emissions adjustmentpolicy, and clearly articulate the basis for making anyadjustments. The policy should state any ‘significantthreshold’ 1 applied for considering base year emissionsadjustment.The following rules should be observed for base yearemissions adjustments:• The base year emissions should be adjusted to maintaincomparability if significant structural changes occur in theorganization. What defines a significant structural changeusually depends on the size of the organization. Examplesinclude mergers, major acquisitions, and divestitures.• The base year emissions should be adjusted to account forthe transfer of ownership/control of emissions sources.• The base year emissions should not be adjusted fororganic growth or decline of the organization. Organicgrowth/decline refers to increase/decrease in productionoutput, changes in product mix, plant closures and theopening of new plants. The rationale for this is thatorganic growth results in new or additional emissions tothe atmosphere, whereas an acquisition only transfers31

Guidance on setting a historic performance datumGuidance on setting a historicperformance datumThe establishment of a base year and adjustment of base yearemissions should be related to business goals:• to achieve certified emissions reduction targets, there maybe external rules which influence the choice andadjustment of the base year emissions• for internal management goals, the company may followthe rules and guidelines recommended in this document,or it may develop its own approach which should befollowed consistently• to report progress toward publicly set GHG reductiongoals, the company should follow the rules and guidelinesrecommended in this documentChoosing a base yearObtaining reliable data for historical base years such as 1990is a challenging task. For some GHG sources a consistent andverifiable data set may not be available. If this is the case,particularly for key source categories, it may make sense tochoose a more recent base year. Some organizations areadopting 1990 as a base year in order to be consistent withthe Kyoto Protocol. The Kyoto Protocol set 1990 as a baseyear for industrialized countries to reduce their emissions inthe first commitment period of 2008-2012.Example one: Base year emissionsadjustment for an acquisition – Figure 3Company Gamma consists of two business units (A and B).In its base year (year one) the company emits 50 tonnesCO 2 . In year two, the company undergoes organic growth,leading to an increase in emissions to 30 tonnes CO 2 perbusiness unit, i.e. 60 tonnes CO 2 in total. The base yearemissions are not adjusted in this case. In the beginning ofyear three, Gamma acquires a production facility C fromanother company. The annual emissions of facility C in yearone were 15 tonnes CO 2 , and 20 tonnes CO 2 in year two.The total emissions of company Gamma in year three,including facility C are therefore 80 tonnes CO 2 . Tomaintain consistency over time, the company recalibratesits base year emissions to take into account the acquisitionof facility C. The base year emissions increase by 15 tonnesCO 2 – the quantity of emissions produced by facility C inGamma’s base year. The adjusted base year emissions are65 tonnes CO 2 .Figure 3100Base year adjustment for structural changesBase year emissions should be adjusted for structural changeswhen there is significant impact on the reporting consistencyof the organization’s total emissions. This may includeaccounting for the cumulative effect of a number of smallacquisitions or divestitures. While adding some complexity,this approach aligns with financial accounting practices, andprovides a meaningful basis for measuring performance overEmissions (tonnes CO2)806040200C1550B25A25year one(base year)60B30A30year two(increase inproduction)80C20B30A30year three(acquisition offacility C)Adjusted base yearemissions:65 tonnes CO 2time. Examples one and two offer illustrations of possiblestructural changes and the application of the GHG Protocolstandard on base year emissions adjustment.32

Guidance on setting a historic performance datumExample two: Base year emissionsadjustment for a divestment – Figure 4Company Beta consists of three business units (A, B, and C).Each business unit emits 25 tonnes CO 2 and the totalemissions for the company are 75 tonnes CO 2 in the baseyear (year one). In year two, the output of the companygrows, leading to an increase in emissions to 30 tonnes CO 2per business unit, i.e. 90 tonnes CO 2 in total. In year three,Beta divests business unit C, and its annual emissions are now60 units, representing an apparent reduction of 15 unitsrelative to the base year emissions. However, to maintainconsistency over time, the company recalibrates its base yearemissions to take into account the divestment of business unitC. The base year emissions are lowered by 25 tonnes CO 2 –the quantity of emissions produced by the business unit C inthe base year. The adjusted base year emissions are 50 tonnesCO 2 , and the emissions of company Beta are seen to haverisen by 10 tonnes CO 2 over the three years.Figure 4Emissions (tonnes CO2)10080604020075C25B25A25year one(base year)90C30B30A30year two(increase inproduction)year three(divestment offacility C)No adjustment for organic growth or declineOrganic growth or decline is not considered a condition for baseyear emissions adjustment. Opening a new facility is considered acase of organic growth because it represents new sources of GHGemissions that did not exist prior to the setting of a base year.Similarly, the acquisition of companies or parts of companies thatcame into existence after the company’s base year was set areregarded as organic growth because these changes represent newGHG emissions that occurred after the base year was set. In thefollowing cases, there should be no adjustment to the base year:• an operating unit that was set up after the base year wasestablished is shut down• a new operating unit is started• an acquisition of a company or part/s of a company thatcame into existence after the base year of the acquiringcompany was set (see Example three)• ‘outsourcing’ of operations that came into existence after thebase year was set• ‘insourcing’ of operations that came into existence after thebase year was set60B30A30Adjusted base yearemissions:50 tonnes CO 2Example three: Acquisition of a facility thatcame into existence after the base year wasset – Figure 5Company Teta consists of two business units (A and B). Inits base year (year one) the company emits 50 tonnes CO 2 .In year two, the company undergoes organic growth,leading to an increase in emissions to 30 tonnes CO 2 perbusiness unit, i.e. 60 tonnes CO 2 in total. The base yearemissions are not adjusted in this case. In the beginning ofyear three, Teta acquires a production facility C fromanother company. Facility C came into existence in yeartwo, its emissions being 15 tonnes CO 2 in year two and 20tonnes CO 2 in year three. The total emissions of companyTeta in year three, including facility C are therefore 80tonnes CO 2 . In this acquisition case, the base yearemissions of company Teta do not change because theacquired facility C did not exist in year one when the baseyear of Teta was set. The base year emissions datum of Tetatherefore remains at 50 tonnes CO 2 .Figure 5Emissions (tonnes CO2)10080604020050B25A25year one(base year)C1560B30A30year two(increase inproduction)80C20year three(acquisition offacility C)No adjustment for ‘outsourcing’ reported underscope 2 and/or scope 3Structural change due to ‘outsourcing/contractmanufacturing’ is not considered a condition for base yearemissions adjustment if the company is reporting its indirectemissions from relevant ‘outsourcing’ activities under scope 2(outsourcing of energy for use) or under scope 3(outsourcing/contract manufacturing). The same rule appliesto ‘in-sourcing’. An example of ‘in-sourcing’ is when acompany starts its own generation of electricity and thusreduces its use of imported electricity.NOTESB30A30No adjustment:base year emissions50 tonnes CO 21 ‘Significant threshold’ is a qualitative or quantitative criteria used to define asignificant structural change. It is the responsibility of the company/verifier todetermine the ‘significant threshold’ for considering base year emissions adjustment.In most cases the ‘significant threshold’ depends on the use of the information, thecharacteristics of the company, and the features of structural changes.33

Identifying and calculating GHG emissionsIdentify GHG emissions sourcesTo facilitate the selection of applicable calculation tools,emissions of GHGs are categorized here in terms of keysources. Appendix 2 relates emissions sources with theactivities identified in Chapter 4: Setting operationalboundaries.Emissions of GHGs typically occur from the following sourcecategories:• stationary combustion: combustion of fuels in stationaryequipment such as boilers, furnaces, burners, turbines,heaters, incinerators, engines and flares• mobile combustion: combustion of fuels in transportationdevices such as automobiles, trucks, trains, aeroplanes,and ships• process emissions: emissions from physical or chemicalprocesses, e.g. CO 2 from the calcination step in cementmanufacturing, CO 2 from catalytic cracking in apetrochemical processing, PFC emissions from aluminumsmelting, etc.• fugitive emissions: intentional and unintentional releasessuch as equipment leaks from joints, seals, packing andgaskets, etc. This may also include fugitive emissions fromcoal piles, wastewater treatment, pits, cooling towers,fugitive CH 4 emissions from gas processing facilitiesEvery business has some processes, products or services thatgenerate direct and/or indirect emissions from one or more ofthe above source categories. Appendix 2 provides an overviewof direct and indirect GHG emissions sources organized byscopes and industry sectors. It may be used as an initial guideto identify your major GHG sources.Identifying scope 1 emissionsAs a first step in identifying GHG sources, a company shouldundertake an exercise to track down its direct emissionssources in each of the four broad categories described above– stationary combustion, mobile combustion, process, andfugitive. The power industry has direct emissions from all themain source categories, except process emission sources.Process emissions are specific to certain industry sectors like oiland gas, aluminum, cement, etc. Manufacturing companiesthat generate process emissions and also own or control apower production facility, will have direct emissions from allthe main source categories. Office based organizations maynot have any direct GHG emissions except in cases wherethey own or operate a combustion device or refrigeration andair-conditioning equipment. Often companies are surprised torealize that a significant amount of emissions come fromsources which are not initially obvious (see UTC box).Identifying scope 2 emissionsThe next step is to identify indirect emissions sources from theuse of purchased electricity, heat, or steam. Almost allbusinesses generate indirect emissions due to the use ofimported electricity for their processes or products/services.Identifying scope 3 emissionsThis step is needed if a company also plans to report its scope3 emissions. It involves identification of other indirectemissions from the reporting company’s upstream anddownstream activities. All companies use raw materials orgoods that have generated emissions during their mining orprocessing phases. Indirect emissions due to transportationare also common to all businesses. These includetransportation in vehicles owned or controlled by anotherorganization, e.g. transport of raw materials/goods andproducts, employees commuting to and from work, andbusiness-related travel by employees. Product use is animportant category of indirect emissions for companiesmanufacturing automobiles, appliances, and fuels.United Technologies Corporation (UTC):More than meets the eyeBack in 1996, the team responsible for setting boundaryconditions for UTC’s new Natural Resource Conservation,Energy and Water Use Reporting Program, met to decidewhat sources of energy were going to be included in theprogram’s annual report of energy consumption. The teamdecided to include jet fuel in the annual report; jet fuel wasused by a number of UTC divisions for engine and flighthardware testing and for test firing. Although the amountof jet fuel used in any given year was subject to widevariability due to changing test schedules, the total amountconsumed in an average year was not expected to be large.Jet fuel consumption reports, however, proved that UTC’sinitial belief was wrong. Jet fuel had accounted for betweennine and 13 percent of the corporation’s total annual use ofenergy since the program commenced. Had UTC notincluded the use of jet fuel in annual data collection efforts,a significant energy source would have been overlooked.A comprehensive identification of indirect emissions sourcesalso includes accounting for GHGs associated with‘outsourcing/contract manufacturing’ or franchises, e.g.drilling operations, building construction, facilitiesmanagement, printing, waste management, retail outlets, etc.By looking at scope 3 emissions, businesses are encouraged toexpand their inventory boundary across their value chain and35

Identifying and calculating GHG emissionsto identify all relevant GHG emissions. Figure 2 in Chapter 4:Setting operational boundaries (guidance), provides anoverview of activities that generate GHG emissions along acompany’s value chain.Identification of emissions sources does not imply that abusiness will be able to calculate emissions for all indirectemissions sources. In some cases it may be difficult to obtaingood quality data from contractors/suppliers. Nevertheless,identification of GHG sources along the value chain provides abroad overview of various linkages and possible opportunitiesfor GHG reductions.Select an emissions calculation approachDirect measurement of GHG emissions by monitoring exhaustgas concentration and flow rate is rare. In most instancesaccurate estimates can be obtained by using appropriatecalculation methods employing derived emissions factors.Table 5 in Chapter 8: Managing inventory quality, provides acomparison of various calculation methods. The IPCCguidelines (IPCC, 1996b) refer to several calculationapproaches or techniques ranging from the application ofderived emissions factors, through to direct monitoring. Oneimportant exception to this hierarchy is the calculation of CO 2emissions from fuel use data. In many instances, even smallusers know both the amount of fuel consumed, and thecarbon content of the fuel. CO 2 emissions can then becalculated with an accuracy of two to three percent. This is farbetter than the accuracy achieved by direct monitoring ofCO 2 emissions.Apart from some process emissions, which can be calculatedbased on a mass balance, the most common approach forcalculating GHG emissions is through application of emissionsfactors. Emissions factors are documented information relatingGHG emissions to some characteristic of the emissionssources. The emissions are calculated by multiplying theemissions factor by an appropriate activity factor (fuelconsumed, quantity of output produced, etc.). Activity factorsrelating to transportation include: total fuel consumed, vehiclemiles traveled, passenger miles traveled, or volume of goodstransported. Usually activity data based on fuel use willprovide the most accurate estimate of GHG emissions fortransportation sources.Collect activity data and choose emissions factorsFor most small to medium-sized companies and for manylarger companies, scope 1 emissions will be calculated basedon the purchased quantities of commercial fuels (such asnatural gas and heating oil) using published emissions factors.Scope 2 emissions will be calculated from metered electricityconsumption using published emissions factors. Scope 3emissions will be calculated from activity factors such aspassenger miles and published or third-party emissionsfactors. In all these cases, if source/facility specific emissionsfactors are available, it is preferable that they be used. Userfriendlycalculation tools are available on the GHG Protocolwebsite to assist in these calculations.Companies involved in fuels extraction and processing,chemicals, minerals, waste management, and primary metalswill be faced with a wider range of alternativeapproaches/methodologies. They should seek guidance fromthe sector specific guidelines on the GHG Protocol website(where available) or from their industry associations, e.g.International Aluminium Institute, American PetroleumInstitute, WBCSD project: Toward a Sustainable CementIndustry, etc.Apply calculation tools to estimate GHG emissionsThis section provides an overview of the GHG calculation toolsavailable on the GHG Protocol website(www.ghgprotocol.org). Use of these tools is encouraged asthey have been peer reviewed by experts and industry leadersand are believed to be the best available. The tools, however,are optional. Companies may use their own GHG calculationtools, provided they are consistent with the approachesdescribed.There are two main categories of calculation tools:• cross-sector tools that can be applied to many differentsectors: stationary combustion, mobile combustion, andHFC use in refrigeration and air-conditioning• sector-specific tools, e.g. aluminium, iron and steel,cement, etc.Most companies will need to apply more than one calculationtool to cover all their GHG sources. For example, to calculateGHG emissions from an aluminium smelter, the companywould use the calculation tools for aluminium production,stationary combustion (for any import of electricity, steam andheat, generation of energy on-site), and mobile combustion(for transportation of materials and products, vehiclesemployed on-site, and employee business travel).Structure of calculation toolsAll cross-sector and sector-specific calculation tools are basedon a similar structure and offer step-by-step guidance onmeasuring and calculating emissions data. Each calculationtool comprises of a guidance section and automatedworksheets with explanations on how to use them.36

Identifying and calculating GHG emissionsThe general structure of the guidance section is as follows:• overview: provides an overview of the purpose and scopeof the tool, the calculation method used in the tool, and aprocess description• choosing activity data and emissions factors: providesgood practice guidance and references for defaultemissions factors• calculation methods: describes different calculationmethods depending on the availability of site-specificactivity data and emissions factors• quality control: provides good practice guidance• internal reporting and documentation: provides guidanceon internal documentation to support emissions calculationsIn the automated worksheet section, it is only necessary toinsert activity data into the worksheets and to select theappropriate emissions factors. Default emissions factors areprovided, but it is also possible to insert customized emissionsfactors if more accurate emissions factors are available. Theemissions of different GHGs are calculated separately and thenconverted to CO 2 equivalents on the basis of their globalwarming potential.Some of the tools take a tiered approach, offering a choicebetween a simple and a more advanced calculation approach.The more advanced approach results in more accurateemissions data but usually require a higher level of data detailTable 4: Overview of GHG calculation tools available on the GHG Protocol websiteCross-sector toolsCalculation toolsStationary combustionMobile combustionHFC from air conditioningand refrigerationMain features• calculates direct and indirect CO 2 emissions from combustion of fuels in stationaryequipment• provides two options for allocating emissions from a co-generation facility• default emission factors provided for different fuels, and country averages for grid electricity• calculates direct and indirect GHG emissions (CO 2 ) from mobile sources• mobile sources included are road, air, water, and rail transport• default emission factors provided• calculates direct HFC emissions during manufacture of refrigeration and air-conditioning(RAC) equipment, and use of RAC equipment in commercial applications• two calculation methodologies are provided: a sales-based approach, and an emissionfactor based approachAluminium and other nonferrousmetals production• calculates direct GHG emissions from aluminium production (CO 2 from anode oxidationand PFC emissions from the ‘anode effect’)• guideline and calculation approach provided for emissions of SF 6 used in non-ferrousmetals production as a cover gasIron and steel• calculates direct GHG emissions (CO 2 ) from oxidation of the reducing agent andcalcination of the flux used in steel production and from the removal of carbon from theiron ore and scrap steel usedNitric acid manufacture• calculates direct GHG emissions (N 2 O) from the production of nitric acidSector-specific toolsAmmonia manufactureAdipic acid manufactureCement• calculates direct GHG emissions (CO 2 ) from ammonia production. This is for the removalof carbon from the feedstock stream only; combustion emissions are calculated with thestationary combustion module.• calculates direct GHG emissions (N 2 O) from adipic acid production• calculates direct GHG emissions from cement manufacturing (CO 2 from the calcinationprocess)• two calculation methodologies are provided: cement-based approach and clinker-basedapproachLime• calculates direct GHG emissions from lime manufacturing (CO 2 from the calcination process)HFC-23 from HCFC-22production• calculates direct HFC-23 emissions from production of HCFC-22Semiconductors • calculates direct PFC emissions from production of semiconductor wafers37

Identifying and calculating GHG emissionsand a more thorough understanding of the technologies usedin the business operations.Site levelCorporate levelTable 4 provides an overview of the calculation tools availableat the GHG Protocol website, and their main features. Inaddition, a user-friendly guide for calculating GHG emissionsfrom small office-based organizations is under development.Roll-up GHG data to corporate levelTo report a corporation’s total GHG emissions, companies willusually need to gather and summarize data from multiple sites,possibly in different countries and business divisions. It isimportant to plan this process carefully to minimize thereporting burden, and to reduce the risk of random errors thatmight occur while compiling data. Ideally, corporations willintegrate GHG reporting with their existing reporting tools andprocesses, and take advantage of any relevant data alreadycollected or reported by sites to division or corporate offices.The tools and processes chosen for a site to report data willdepend upon the information and communicationinfrastructure already in place (i.e. how easy is it to include newdata categories in corporate databases). It will also dependupon the amount of detail that corporate headquarters wish tobe reported from sites. Data collection and management toolscould include:• secure databases available over the company intranet orinternet, for direct data entry by sites• spreadsheet templates filled out and e-mailed to a corporateor division office, where data is processed further• paper reporting forms faxed to a corporate or division officewhere data is re-entered in a corporate database. However,this method will increase the likelihood of random errors.Activity dataxemissions factor=GHG emissionsActivity dataSites report GHGemissionsSites report activity dataGHG emissions are calculatedat corporate level:activity dataxemissions factor=GHG emissionsIndividual sites collect GHG emissions dataAsking facilities to calculate GHG emissions themselves willhelp to increase their awareness and understanding of theissue. However, it may also lead to resistance, increasedtraining needs, an increase in calculation errors, and a greaterneed for auditing of calculations. Requesting that facilitiescalculate GHG emissions themselves may be the preferredoption if:• emissions calculations require detailed knowledge of thekind of equipment being used at facilities• emissions calculations are not standardized across anumber of facilities• process emissions (in contrast to emissions from burningfossil fuels) make up an important share of total GHGemissions• resources are available to train facility staff to conductthese calculations and to audit them• a user-friendly tool is available to simplify the calculationand reporting task for site-level staffFor internal reporting up to the corporate level, it isrecommended that standardized reporting formats be used toensure that data received from different business units andfacilities is comparable, and that internal reporting rules areobserved (see BP box). Standardized formats can significantlyreduce the risk of random errors.There are two basic approaches for gathering data on GHGemissions from a corporation’s sites:• individual sites directly calculate their GHG emissions andreport this data to the corporate level• individual sites report activity/fuel use data (such as quantityof fuel used) to the corporate level, where GHG emissionsare calculatedThe difference between these two approaches is where theemissions calculations occur, i.e. where activity data ismultiplied by the appropriate emissions factors.Individual sites collect activity/fuel use dataThis approach may be particularly suitable for office-basedorganizations. Requesting that facilities report their ownactivity/fuel use data may be the preferred option if:• the staff at the corporate or division level can calculateemissions data in a straightforward manner on the basis ofactivity/fuel use data• emissions calculations are standardized across a number offacilitiesThe choice of collection approach depends on the needs andcharacteristics of the reporting company. Corporations havetaken different approaches. BP provides sites with acalculation protocol, requests that they calculate and reporttheir total GHG emissions, and follows up with audits toensure calculations are correct and documented. UnitedTechnologies Corporation requests that its sites report fueland travel details, leaving the choice of emissions factors and38

Identifying and calculating GHG emissionscalculations to corporate staff. The two approaches shouldproduce the same result and they are not mutually exclusive.To maximize accuracy and minimize reporting burdens, somecompanies combine both approaches. A small number oflarge, complex sites with process emissions are asked tocalculate their emissions at the site level, and these calculationsare carefully reviewed. Larger numbers of small sites withuniform emissions from standard sources are asked only toreport fuel use and travel activity. The corporate database orreporting tool then calculates total emissions for each of thesestandard activities.Even when facilities calculate their own emissions, corporatestaff may still wish to gather activity/fuel use data to doublecheckcalculations and to better understand the opportunitiesfor emissions reductions. Corporate staff should also verify thatfacility-reported data is based on approved reporting periods,units, and inventory boundaries.Clear records of calculations undertaken to derive emissionsdata should be kept for any future internal or externalverification.Individual sites report activity/fuel use data tocorporate levelIn addition to the aforementioned common categories ofreporting data, facilities using this approach should also reportthe following details:• fuel use data (fuel types used at facility and electricityconsumption)• activity data for freight and passenger transport activities(e.g. freight transport in tonnes x kilometers)• activity data for process emissions (e.g. tonnes of fertilizerproduced, tonnes of waste landfilled)• clear records of calculations undertaken to deriveactivity/fuel use data• any other conversion factors necessary to translate fuel useinto CO 2 emissionsInternal reporting of emissions data to corporate levelReports from site level to corporate or division offices shouldinclude all relevant information as specified in Chapter 9:Reporting GHG emissions, and a number of additionalreporting categories. Some reporting categories are commonto both facility level data collection approaches. These include:• a brief description of the emissions sources• a list and justification of specific exclusion or inclusion ofsources• comparative information from previous years• the reporting period covered• any trends seen in data• progress toward any business targets• an estimation of accuracy of activity/fuel use data reported• a description of events and changes that have an impacton reported data (acquisitions, divestitures, closures,technology upgrades, changes of reporting boundaries orcalculation methodologies applied, etc.)Individual sites report GHG emissions data tocorporate levelIn addition to the aforementioned common categories ofreporting data, facilities using this approach should also reportthe following details:• description of GHG calculation methodologies, and anychanges made to methodologies relative to previousreporting periods• ratio indicators (see Chapter 9: Reporting GHG emissions)• details on any data references used for the calculations, inparticular information on emissions factors usedBP: A standardized system for internalreporting of GHGsBP has been collecting GHG data from the different parts ofits operations for more than four years and has recentlyconsolidated its internal reporting processes into onecentral database system. The responsibility for reportingemissions lies with about 320 individual BP facilities andbusiness departments, which are termed ‘reporting units‘.All reporting units have to complete a standard Excelreporting pro-forma every quarter stating actual emissionsfor the preceding three months, and updates to forecastsfor the current year and the next two years. In addition,reporting units are asked to account for all significantvariances, including sustainable reductions. The reportingunits all use the same BP reporting guidelines (BP, 2000) forquantifying their emissions of carbon dioxide and methane.All pro-forma spreadsheets are e-mailed automatically bythe central database to the reporting units, and thecompleted e-mail returns are uploaded into the databaseby a corporate team, who check the quality of theincoming data. The data is then compiled, by the end ofthe month following each quarter end, to provide the totalemissions inventory and forecasts for analysis against BP’sGHG targets. Finally the inventory is reviewed by a team ofindependent external auditors to provide assurance on thequality and accuracy of the data.39

Chapter 8Managinginventory qualityThere are several reasons why companies should plan and implementappropriate activities to address inventory quality:• to temper their decisions and conclusions when numbersare ‘soft‘• to identify opportunities to improve the accuracy of theirinventory• to provide defensible data of relative certainty when, and if, theseare required by government regulation, emissions trading plans,or eco-labeling programs• to avoid costs if the inventory development has to be redone40

Managing inventory qualityFor public reporting, it may be sufficient to documentinventory assumptions and to note major sources ofuncertainty. Other inventory uses may require calculation andreporting of relative uncertainty. It is possible that for futurecap and trade systems, participation in the market may belimited to those firms that can meet minimum inventory andbase year emissions standards. This is because performanceagainst a target is impossible to gauge if either the base yeardata or the inventory is unreliable. In fact, reductions achievedby companies or projects whose inventories are seen as lessreliable may be heavily discounted in credit-based trading.Emissions trading, eco-certification and labeling may require ahigher degree of accuracy than general stakeholder reporting.This is because the success of such programs depends onreliably differentiating between small changes in GHGperformance, and between companies competing in the samemarkets.Ensuring inventory qualityTo develop a high quality inventory, it is essential to plan aninventory quality system that includes suitable reviews andaccuracy checks for activity data, emissions factors, emissionscalculations, and that applies uncertainty analysis tools toqualify data. There are two main sources of uncertainty in anyemissions inventory:Systemic uncertainty is a consistent difference between ameasurement and its true value that is not due to randomchance. Systemic uncertainty depends on the internal systemadopted to calculate and report emissions data to corporatelevel. Usually a company has direct control over the choiceand management of calculation protocols and internalreporting system. Therefore, companies can ensure lowsystemic uncertainty by adopting appropriate qualityassurance practices (see the section on ‘steps to improveinventory quality’ in this chapter).Inherent uncertainty is a difference due to random error, ordue to fluctuations between a measurement and its truevalue. Inherent uncertainty depends on the calculationmethodology used, and the measurement ofactivity/emissions data. In all methods for inventorydevelopment, some sources of inherent uncertainty will alwaysbe present.Broadly speaking, there are two calculation methodologiesthat can be used to generate emissions data:• Emissions factor method: emissions factors applied in thisapproach are either obtained from published sources, orderived from site-specific and/or source-specific data. Useof derived emissions factors is always preferred as it leadsto higher certainty in emissions data. Activity data usuallyhave lower uncertainties as they are linked with economicactivity and so there are generally financial incentives tokeep accurate records. In cases where activity data aremeasured using instruments, uncertainty is a function ofinstrument capabilities and proper calibration.• Direct monitoring system: inventory quality proceduresrequired for a direct monitoring system are more detailed.Precision in direct monitoring of GHG emissions mayrequire measurement of both the exit stream and theuncontrolled stream. The sources of uncertainty in thiscase are due to instrument capabilities and calibration.The need for appropriate tools to characterize uncertainty isdiscussed in the section on ‘Undertaking an uncertaintyanalysis’. In order to minimize uncertainties, the companiesdeveloping inventories should employ consistent inventoryquality procedures.Steps to improve inventory quality1. Adopt and apply GHG accounting and reportingprinciplesThe first step toward increasing credibility is to implicitlyfollow the GHG accounting and reporting principles in allphases of the inventory development process (see Chapter1: GHG accounting and reporting principles).2. Use a standardized system for calculation and internalreporting of GHGs across multiple businessunits/facilities (see Chapter 7: Identifying and calculatingGHG emissions).3. Select an appropriate calculation methodologyThe desired level of inventory quality relates to inventoryend uses. For an overall assessment of GHG emissions forinternal management purposes, published emissionsfactors may be acceptable. If the inventory goal, however,is to participate in an emissions trading scheme, emissionsfactors may need to be derived from site-specific fuel andequipment data, or, for certain sources, on a continuousemissions monitoring system. Table 5 provides acomparison of various calculation methods.4. Set up a robust data collection systemDesigning a good data collection can greatly reducepossible sources of errors such as data inaccuracy and/ordata input mistakes. Some good practices in the datacollection process are provided below:• request data in familiar unit/s (e.g. natural gas data involume units)41

Managing inventory qualityTable 5: Comparison of calculation approachesCalculation approachesPublished emission factorsDerived emission factorsEmissions or parameters monitoringInventory quality Data requirements CostFair – Good 1 Low LowHigh Moderate ModerateGood – High High High• request data from metered or measured sources as theymay be more accurate than purchase records• establish internal control systems to catch errors (e.g.request both activity use data and activity cost data toenable a cross check for data errors, compare and checkwith previous year(s) data)Where fuel activity data is provided in other units (currency,mass, volume) it should preferably be converted to energyunits before calculating the carbon content. The CO 2emissions from burning a unit of a specific fuel will be moreexactly determined if the amount of energy units burned isknown.5. Establish appropriate information technology controlsTo ensure authorized use of relevant computer applications,such as calculation protocols, databases, internal andexternal reporting files, and back-up information.6. Undertake regular accuracy checks for technical errorsTechnical errors can result from various sources such as:• incomplete identification of emissions sources• use of incorrect methods or assumptions• errors in converting measurement units• use of incorrect data• mistakes in data entry• incorrect use of spreadsheets or calculation tools• mathematical miscalculations8. Ensure management review of the GHG informationTo help in the identification of additional issues ofmisreporting and inaccuracies, and to enhance utility ofthe GHG inventory.9. Organize regular training sessions for inventorydevelopment team members10. Perform uncertainty analysisQualifying and/or calculating the error range of anemissions estimate should be carried out to evaluate thequality of emissions estimates. Uncertainty, its sources, andmethods for its quantification are discussed in followingsections.11. Obtain independent external verificationUndertaking an uncertainty analysisUncertainty analysis is normally undertaken to help identifyareas where accuracy needs to be improved, and to prioritizeinventory quality efforts. The uncertainty estimates can also beuseful in reviewing the choice of calculation methodology. Forsome inventory end-uses, it may be necessary tocommunicate the actual reliability of the emissions data. Insuch cases, companies may need to carry out an uncertaintyanalysis as an essential element of the complete inventory.The inventory development process should includenumerous quality checks on a regular basis to spot any ofthe technical errors listed above. The quality checks cantake various forms, such as:• track and verify data input• check spreadsheet formulae• compare derived emissions factors with publishedfactors• compare facility level fuel purchase with total fuel usefrom all identified combustion emissions sources7. Conduct periodic internal audits and technical reviewsInternal experts who are not directly involved in theinventory development process should carry out periodictechnical reviews and audits.Vauxhall Motors: The importance of regularaccuracy checksWhen setting up GHG information collection systems it isimportant to pay attention to detail as illustrated by thefollowing example from UK automotive manufacturer,Vauxhall Motors. The company wished to calculate GHGemissions from staff air travel. However, when determiningthe impact of flight travel, it is important to make sure thatthe round trip distance is used when calculating emissions.Fortunately, Vauxhall realized this fact early on and avoidedreporting emissions that were 50 percent lower than theactual value.42

Managing inventory qualityIdentifying sources of uncertaintyAs discussed in the previous section on ‘Ensuring inventoryquality’, uncertainty in emissions estimates can be either dueto systemic errors or inherent errors, or a combination ofboth.Systemic uncertainty results from choices such as follows:• use of factors that are poorly researched and uncertain(e.g. factors for CH 4 and N 2 O from combustion processes)• use of ‘average case‘ factors not perfectly matched tospecific and varying circumstances (e.g. average miles pergallon, average kgCO 2 /MWh generated)• deliberate estimation to compensate for missing data (e.g.non-reporting facilities, or missing fuel bills)• assumptions that simplify calculation of emissions fromhighly complex processesInherent uncertainty results from random errors such as:• imprecise measurement of emissions-producing activity(e.g. miles traveled in aeroplanes or rental vehicles, hoursper year specific equipment is used)• insufficient frequency of measurement to account fornatural variability• poor calibration of measuring instruments• human errors of calculation and omissionApproaches for characterizing uncertaintyThe first step toward characterizing uncertainty associatedwith emissions data is to understand and quantify thedifferent sources of variability and inaccuracies in the databeing used. This analysis should include an assessment ofboth systemic and inherent uncertainty. Depending on thedesired level of quality, companies should then work towardminimizing both sources of uncertainty. They can choose fromthree different methods to characterize uncertainty ofemissions totals. In an emissions inventory these can beapplied to specific line items, subtotals, or grand totals.individual company. For instance, an ordinal rankingsystem could take the following form:• high certainty – actual emissions likely to be within+/- 5% of reported total• good certainty – actual emissions likely to be within+/- 15% of reported total• fair certainty – actual emissions likely to be within+/- 30% of reported total• poor certainty – actual emissions could vary by morethan +/- 50% from reported total3. Finally, companies can use numerical estimates forconfidence intervals (e.g. plus or minus seven percent) toprovide a quantitative uncertainty value for emissionsdata. Numerical estimates may be based on professionalexperience, or they may be calculated from availablestatistics. This approach usually requires considerable effortand data.Quantifying uncertainty at emissions source level andcorporate levelA facility’s reported emissions total is usually computed byadding together several single-source subtotals such as:emissions from combustion of natural gas, emissions fromelectricity use, and emissions from vehicle fleet operation.If needed by regulatory schemes, certainty judgements can bemade for each reported subtotal and for the grand total. If afirm has multiple sites, its corporate total is the result offurther addition across sites. Companies aiming to calculate orrank certainty therefore need to employ two methods – onefor single-source subtotals and the other for sums combiningthese subtotals. These methods are explained in detail in theguidelines on quantification of uncertainty available at theGHG Protocol website: www.ghgprotocol.org1. The simplest approach for estimating uncertainty is tonote the main sources of systemic and inherentuncertainty in the inventory. If possible, the direction(over- or underestimates) of any systemic uncertainty andan estimate of the relative magnitude (e.g. 30 percent) ofthe specific source of uncertainty should be stated. Thiswill usually be sufficient for internal management andpublic reporting purposes.2. Alternatively, companies can use an ordinal ranking systemto characterize uncertainty of emissions data (semiquantitativeranking). The number of levels and theconfidence intervals used are left to the discretion of theNOTES1 For commonly used fossil fuels, the inventory quality can be good.43

Chapter 9ReportingGHG emissionsReported information should be ‘relevant, complete, consistent,transparent and accurate‘. The GHG Protocol specifies reporting to aminimum of scopes 1 and 2.GHG reports should be based on the best data available at the time ofpublication. At the outset, it is better to be open about anylimitations, and over time, correct and communicate anydiscrepancies identified in subsequent years.44

Reporting GHG emissionsA public GHG emissions report should include thefollowing information:Description of the reporting organization andits boundaries• provide an outline of the organization and the reportingboundaries chosen• specify the reporting period covered• justify specific exclusions of sourcesInformation on emissions and performance• report emissions data both on a control-based and anequity share-based approach• report emissions data separately for each scope• report emissions data for all six GHGs separately (CO 2 ,CH 4 , N 2 O, HFCs, PFCs, SF 6 ) in metric tonnes and in metrictonnes of CO 2 equivalent• illustrate performance over time and, if appropriate,relative to a base year datum and a target• subdivide emissions data further, where this aidstransparency, e.g. by business units/facilities, country,source types (optional)• report relevant ratio performance indicators (optional)• illustrate performance against internal and externalbenchmarks (optional)Supporting information• describe the methodologies used to calculate and accountfor emissions, or provide a reference or link to thecalculation tools used• provide appropriate context for any significant emissionschanges, such as extended process shut downs,acquisitions/divestitures, outsourcing/insourcing, plantclosures/openings, process changes, changes in reportingboundaries or calculation methodologies• report any emissions reduction credits that are banked,purchased from, or sold to a third party. Specify if thereduction is verified/certified and provide appropriatesupporting information (see Chapter 5: Accounting forGHG reductions)• report emissions from biologically-sequestered carbon(e.g. CO 2 from burning biomass/biofuels)• report emissions attributable to the generation ofexported electricity and steam (by a non-electric utility)(see Chapter 4: Setting operational boundaries)• outline any GHG management/reduction programs orstrategies, as well as information on GHG reductionprojects accruing outside the reporting boundaries,subdivided for sinks and sources reduction projects.Specify if the project is verified/certified and provideappropriate supporting information (see Chapter 5:Accounting for GHG reductions) (optional)• report emissions from GHGs not covered by the KyotoProtocol, e.g. CFCs, NO x, etc. (optional)• outline external assurance provided over the reportedemissions data (optional)• provide a contact person45

Guidance on reporting GHG emissionsGuidance on reportingGHG emissionsBy following the GHG Protocol reporting requirements, usersadopt a comprehensive standard with the necessary detail forcredible public reporting. For national or voluntary GHGreporting, trading, and regulatory schemes, or for internalmanagement purposes, reporting requirements may vary or beless detailed (Appendix 1 summarizes the requirements of severalvoluntary GHG initiatives).from previous years. If improved measurement, calculation andcollection procedures lead to significant differences in reportedGHG data, companies are encouraged to adjust the datareported for previous years. Chapter 6: Setting a historicperformance datum, describes how corporate base yearemissions should be adjusted to account for structural changessuch as mergers, acquisitions, divestitures or closures.For public reporting, it is important to differentiate betweenfrontline reports that are, for example, published on the internetor in brochures, and background reports that contain allnecessary data. Not every frontline report must contain allinformation as specified by the GHG Protocol standards, but itshould provide a link or reference to a publicly availablebackground report where all the required information is available.In addition to the six Kyoto gases, companies may also want toprovide emissions data for other GHGs (e.g. Montreal gases) toput changes in the emissions levels of Kyoto gases into context.Switching from CFCs to HFCs, for example, will increaseemissions of Kyoto gases. Information on the emissions of GHGs,other than the six Kyoto gases, should be reported separately in apublic report as supporting information (see Texaco box).Emissions from bio-fuels such as wood should also be reportedseparately under supporting information.For some companies, providing emissions data for specific GHGsand business units, or reporting ratio indicators, may compromisebusiness confidentiality. If this is the case, the data need not bepublicly reported, but can be made available to those auditingthe GHG emissions data, assuming confidentiality is secured.It takes time to develop a rigorous and complete inventory ofGHG emissions. Knowledge will improve over several years ofestimating and reporting data. It is therefore recommended thatthe GHG report:• is based on the best data available at the time of publication,while being open about its limitations• openly communicates any discrepancies identified insubsequent yearsWhen reporting changes to boundaries or emissions calculationmethodologies, and when mergers, divestitures, acquisitions orclosures occur, it is important to provide additional information tousers. This allows current emissions data to be compared to dataTexaco: Reporting non-Kyoto GHGsOne objective of the independent review of Texaco’s GHGemissions inventory was to make recommendations forenhancing the accuracy and completeness of the company’sinventory.A key finding from the review of the company’s protocolrelated to the types of GHGs included. By taking into accountthe Kyoto gases which concern the oil and gas industry (CO 2 ,CH 4 , and N 2 O), as well as other non-Kyoto gases such as NO x ,CO, VOCs, H 2 S, and SO x , Texaco obtained the flexibility toparticipate in potential multi-pollutant trading scenarios whichare likely to develop in the future, such as those proposed inthe U.S. However, combining these emissions in a CO 2equivalent total could provide an inconsistent comparison forbenchmarking Texaco’s emissions against other petroleumindustry companies.This theory was tested by examining the relative impact ofNO x , CO and VOC on total GHG emissions from commonlyused natural gas-fired combustion equipment. The assessmentindicated that the contribution of NO x to the total CO 2equivalent GHG emissions represented three to four percent ofthe total emissions from gas heaters, nine to ten percent ofemissions from natural gas turbines, and 50 percent ofemissions from natural gas IC engines. Emissions of CO andVOC are negligible (< 0.2 percent) for gas heaters andturbines, and < one percent for IC engines. Therefore,inclusion of NO x in the GHG inventory does, for some sources,have a significant impact on the total estimated emissions;while CO and VOC are unlikely to be material to gas-firedcombustion source GHG emissions. Based on these findings,the URS/KPMG team recommended that CO 2 , CH 4 and N 2 Oemissions be tracked separately from the criteria pollutants tomaintain consistency between Texaco’s emissions reportingand other industry and international practices.46

Guidance on reporting GHG emissionsUse of ratio indicatorsThere are two principal aspects of GHG performance, whichare of interest to management and stakeholders. Oneconcerns the overall GHG impact of a company or anorganization – that is the absolute quantity of GHG emissions.The other concerns the performance in reducing GHGemissions, measured in ratio indicators.Ratio indicators provide information on relative performance.Ratios can facilitate comparison between similar products andprocesses. However, it is important to recognize the inherentdiversity of businesses, and the circumstances of individualcompanies. Apparently minor differences in process, productor location can be significant in terms of environmental effect.It is necessary to know the business context in order to beable to interpret ratio indicators correctly. Companies maychoose to report GHG ratio indicators for a number ofreasons. These include:• looking at performance over time, i.e. relating figures fromdifferent years, and in relation to targets and base years• establishing a relationship between figures from differentcategories, e.g. the relation between the value that anaction provides compared to its impact on society or onthe environment• improving comparability between different sizes ofbusiness and operations by normalizing figures , i.e. byassessing the impact of different sized businesses on thesame scaleIntensity ratiosIntensity ratios express the GHG impact per unit of activity orunit of value. A declining intensity ratio reflects a positiveperformance improvement. Many companies historicallytracked environmental performance with intensity ratios.Intensity ratios are often called ‘normalized’ environmentalimpact data. Examples of intensity ratios include emissionsintensity (e.g. tonnes of CO 2 emissions per electricity unitgenerated) and resource intensity (e.g. GHG emissions perfunction or per service).PercentagesA percentage indicator is a ratio between two similar issues(with the same physical unit in numerator and denominator).Examples of percentages that can be meaningful inperformance reports include current GHG emissions expressedas a percentage of base year GHG emissions.For further guidance on ratio indicators refer to Verfaillie, H.and Bidwell, R., 2000; ISO 1999; NRTEE, 1999; and GRI,2000.Corporations should form ratios using the performance datathat make sense for their business and that supports theirdecision-making. They should select ratios for externalreporting that permit a better understanding andinterpretation of their performance for their stakeholders. It isimportant to provide some perspective on issues such asscope and limitations of indicators in such a way that usersunderstand the nature of the information provided.Corporations should think about what ratio indicators couldbest capture the benefits and impacts of their business, i.e. itsoperations, its products, and its effects on the marketplaceand on the entire economy. Some examples of different ratioindicators are provided below.Productivity/efficiency ratiosProductivity/efficiency ratios express the value or achievementof a business related to its GHG impact. Increasing efficiencyratios reflect a positive performance improvement. Examplesof productivity/efficiency ratios include resource productivity(e.g. sales per GHG), and process eco-efficiency (e.g.production volume per amount of GHGs).47

Chapter 10Verificationof GHG emissionsVerification is the objective and independent assessment of whetherthe reported GHG inventory properly reflects the GHG impact of thecompany in conformance with the pre-established GHG accountingand reporting standards.Verification involves testing certain assertions of the GHG inventory,such as accuracy and completeness. Verification also requiresevaluating and testing the ‘supporting’ evidence (in the form of anaudit trail) of how the GHG inventory was generated,compiled/aggregated and reported.48

Verification of GHG emissionsThe practice of verifying corporate GHG inventories is still inits infancy, and the absence of generally accepted GHGaccounting and reporting standards means that reportingstandards against which verifications have taken place havevaried from company to company.With the emergence of generally accepted accounting andreporting standards, such as the GHG Protocol, verificationpractices should become more uniform, credible, and widelyaccepted. This section provides guidance on conducting anindependent verification of a GHG inventory. Even if acompany decides not to conduct an independent verificationat this time, it should still develop its inventory so that it maybe verified in the future.ObjectivesBefore commissioning and planning an independentverification, the reporting company should clearly define itsobjectives (more information in Chapter 2: Business goals andinventory design), and decide whether an external verificationis the best way to enhance those. Reasons for undertaking averification include:• to add credibility to publicly reported information andreduction goals, and to enhance stakeholder trust in thereporting organization• to increase management and board confidence inreported information• to improve internal GHG accounting and reportingpractices (data calculation, recording and internalreporting systems, application of GHG accountingprinciples, e.g. checks for completeness, consistency,accuracy), and to facilitate learning and knowledgetransfer within the organization• to meet or anticipate the requirements of future tradingprogramsA key driver for the independent verification of BP’s GHGinventory was to demonstrate to outside stakeholders thecompany’s commitment to its reduction target, and also toprovide a sound basis for its internal emissions tradingprogram.BP’s verification involved a team of third-party reviewers fromseveral consulting, verification and financial auditing firms,supported by an independent expert panel which includedrepresentatives from government, NGOs, academia, and theUnited Nations. There are other ways to improve the quality,reliability, and usefulness of GHG information, such as thosedescribed in Chapter 8: Managing inventory quality.Scope of verificationThe scope of an independent verification and the level ofassurance it provides should be influenced by the companygoals and verification objectives. It is possible to verify eitherthe entire inventory data or specific parts of it. Parts may bespecified in terms of geographic location, business units andfacilities, and type/scope of emissions.The verification process should also examine more generalmanagerial issues, such as internal control procedures,managerial awareness, availability of resources, clearly definedresponsibilities, segregation of duties, and internal reviewprocedures. The reporting company and the verifier mustreach an agreement up-front on the level of assurance to beprovided. This addresses issues such as: should the auditorsimply review the data (low level of assurance) or actuallyaudit it (high level of assurance); and whether the verificationshould involve site visits or be limited to a desktop review ofdocumentation. Companies such as BP and Texaco haveconducted independent verifications that have focused solelyon GHG emissions, while others, such as Shell, haveincorporated the verification of their GHG emissions into theverification of environmental reporting.Selecting a verifierThe selection and engagement of a verifier should take placeduring the GHG reporting period in question, not at the end.Defining the inventory scope and designing the processes fordata collection and internal documentation are much easierwhen it is known in advance that the inventory must beverifiable.Some factors to consider when selecting a verifier include:their experience in GHG verification, their understanding ofGHG issues and the company’s operations and theirobjectivity and independence. The knowledge andqualifications of the individual(s) conducting the verification ismore important than those of the organization they comefrom.The reporting company and the selected verifier should jointlydefine an appropriate approach on which to base the designand subsequent execution of the work plan. This also includesdeciding what type of information is necessary to completethe verification. The verifier and the organization usuallydiscuss the approach before the external verification iscommissioned.49

Verification of GHG emissionsMaterial needed for a GHG verification1. All information as specified by Chapter 9: ReportingGHG emissions2. Information about the company:• information about the company’s main activities andtheir GHG emissions (type of GHG produced,description of activity that causes GHG emissions)• company group organization (list of subsidiaries andtheir geographic location, ownership structure)3. Data sources used for calculating GHG emissions.This might, for example, include:• energy consumption data (invoices, delivery notes,weigh-bridge tickets, meter readings for electricity, gaspipes, steam and hot water)• production data (tonnes of material produced, kWh ofelectricity produced)• raw material consumption data for mass balancecalculations (invoices, delivery notes, weigh-bridgetickets)• activity data to calculate indirect emissions (invoicesfor employee travel, invoices from shippingcompanies)routinely measuring and recording GHG emissions data, anexternal verification cannot be undertaken.Reporting entities need to guarantee the existence, qualityand retention of documentation so as to create an audit trailof how the inventory was compiled. Reporting entitiesdesigning and implementing the processes and procedures forcreating an inventory should, therefore, make a point ofcreating a clear audit trail.Information that underpins GHG inventory data should berecorded in an electronic database or in another systematicmanner. Some of the required information for a GHG inventorymay already be in normal management/account records, or inenvironmental management systems such as ISO 14001 andthe EU Eco-Management and Audit Scheme (EMAS).While emissions reported under scopes 1 and 2 can beverified fairly easily, verifying scope 3 emissions is morecomplex since this usually requires access to data held byanother company or organization.4. Description of how GHG emissions data have beencalculated:• emissions factors used and their justification• assumptions on which estimations are based5. Information gathering process:• description of the systems used to collect, document andprocess GHG emissions data at the facility and corporatelevel• description of internal control procedures applied(internal audits, comparison with last year’s data,recalculation by second person, etc.)6. Other information:• consolidation spreadsheets• list of persons responsible for collecting GHG emissionsdata at every site and at the corporate level (e-mailand telephone numbers)• information on uncertainties, quantified or otherwiseDocumentationAppropriate evidence needs to be available to support theinformation in the GHG inventory being subjected to externalverification. Assertions by management for which there is noavailable supporting evidence cannot be verified. Where areporting organization has not yet implemented systems for50

ReferencesReferencesAPI (2001), Compendium of Greenhouse Gas EmissionsMethodologies for the Oil and Gas Industry, Final Draft,American Petroleum InstituteIPCC (1996b), Revised IPCC Guidelines for National GHGInventories: Reference Manual, Intergovernmental Panel onClimate ChangeBP (2000), Environmental Performance: Group ReportingGuidelines, Version 2.2DEFRA (2001), Guidelines for the Measurement and Reporting ofEmissions in the UK Emissions Trading Scheme, UK Departmentfor Environment, Food and Rural Affairs, UK ETS(01)05DEFRA (1999), Environmental Reporting: Guidelines forCompany Reporting on Greenhouse Gas Emissions, UKDepartment for Environment, Food and Rural Affairs, LondonEC-DGE (2000), Guidance Document for EPER Implementation,European Commission Directorate-General for EnvironmentEIA (1999), Voluntary Reporting of Greenhouse Gases, DOE/IEA-0608(95), U.S. Energy Information Administration,Department of EnergyEIA (1997), Mitigating Greenhouse Gas Emissions: VoluntaryReporting. U.S. Energy Information Administration,Department of Energy, Washington DCISO (1999), International Standard on EnvironmentalPerformance Evaluation, (ISO 14031), International StandardOrganization, GenevaLoreti, C., Wescott, W., and M. Isenberg (2000), An Overviewof Greenhouse Gas Emissions Inventory Issues, Pew Center onGlobal Climate Change, Washington DCNRTEE (1999), Measuring Eco-efficiency in Business: Feasibility ofa Core set of Indicators, National Roundtable on theEnvironment and Economy, OttawaThomas, C., Tennant, T., and J. Rolls (2000), The GHGIndicator: UNEP Guidelines for calculating Greenhouse GasEmissions for Business and Non-commercial Organizations,United Nations Environment ProgrammeVerfaillie, H., and R. Bidwell (2000), Measuring Eco-efficiency:A Guide to Reporting Company Performance, World BusinessCouncil for Sustainable Development, GenevaEPA (1999), Emission Inventory Improvement Program, VolumeVI: Quality Assurance/Quality Control. U.S. EnvironmentalProtection AgencyGRI (2000), Global Reporting Initiative, Sustainability ReportingGuidelines on Economic, Environmental, and Social Performance,Global Reporting InitiativeIEA (2000), International Energy Agency, Paris (personalcommunication with Karen TreantonIPCC (2000), Good Practice Guidance and UncertaintyManagement in National Greenhouse Gas Inventories,Intergovernmental Panel on Climate ChangeIPCC (1996a), Revised IPCC Guidelines for National GHGInventories: Reference Manual, Intergovernmental Panel onClimate Change51

Appendix 1Appendix 1Appendix 1 provides an overview of the GHG accounting and reporting requirements of different voluntary GHG initiatives.Voluntary initiativeFocusentity (company) orprojectGases coveredOperational boundaries(direct/indirect emissions)OrganizationalboundariesAustralian GreenhouseChallengeEntity (Australianoperations)Six Kyoto gases Scopes 1 and 2 Distinguishes betweenGHGs the entitycontrols and those itinfluences, reductionsfrom influencedactivities are reportedseparatelyCalifornia GHG RegistryEntity (see legislation fordetails)Six Kyoto gasesScopes 1 and 2 required,scope 3 to be determinedConsistent with GHGProtocolCanada Climate ChangeVoluntary Challenge andRegistryEntityCO 2 required, otherKyoto gases optionalFlexible (scopes 1, 2, or 3)100 percent ofemissions fromoperated facilitiesEnvironmental ResourcesTrust – GHG RegistryEntity and project (withverifiable baseline)Six Kyoto gases Scope 1 Case-by-case basis,depending uponownership structureand operating controlUS EPA Climate LeadersInitiativeEntity (US operationsrequired, globaloperations optional)Six Kyoto gasesScopes 1 and 2 required,scope 3 optionalConsistent with GHGProtocolUS Voluntary Reportingon GHG (1605bProgram)Entity or project (US andinternational operationsof any US company)Six Kyoto gases andozone precursorsFlexible (scopes 1, 2, or 3)Identification of otherpotential reporters tosame emissionreduction requiredWorld Wildlife FundClimate Savers ProgramEntity Energy related CO 2 ,other gases on anegotiated basisScopes 1 and 2 required,scope 3 optionalConsistent with GHGProtocol52

Appendix 1Provision of GHGcalculation worksheetsReportingrequirementsBase yearIndependentverificationNotesWorkbooks (paper form)with emissions factorsand methodologiesaddressing most GHGsourcesEntity GHG emissionswith base year, reportsare confidential, butcompany profiles andsummary informationare publicly reported,standard reportingformats are beingintroducedMost recent year priorto joining, it isencouraged to report1990, 1995 and/or2000, uses a static(frozen) efficiencycalculation to assessperformanceRandom independentverification conductedby third party verifiersmanaged by theprogramParticipants must preparean action plan for GHGreductions and a forecastof emissions with andwithout implementationof action plan,information:www.greenhouse.gov.auPlannedStandard reportingformat (see legislationfor details)On or after 1990,adjustment rulesconsistent with GHGProtocolRequiredInformation:www.climateregistry.orgNoOptional templateprovided, three-tieredreporting scheme (gold,silver, or bronze), statusdepending on the levelof reportingMust select a base year,but choice of yearflexible, no guidance onbase year emissionsadjustmentNot requiredInformation:www.vcrmvr.caWork with clients todevelop appropriatereporting protocolSufficient detail to verifyentity-level emissionsEarliest reasonablyverifiable yearRequiredInformation: www.ert.netwww.ecoregistry.orgConsistent with GHGProtocolStandard reportingforms, facility and gasspecificreporting, datanot publicBase year defined as theyear when companyjoins programNot requiredCompany must set tenyearreduction targetbased on the year it joinsthe program, companiesmay record inventory backto 1990, information:cummis.cynthia@epa.govCalculation instructionsand selected worksheetsfor project-basedanalysisStandard reportingforms (short and longversions), information ismade available viapublic databaseFlexibleNot required, althoughreporters are required toself-certify informationInformation:www.eia.doe.gov/oiaf/1605/frntvrgg.htmlConsistent with GHGProtocolCorporate levelinformation on fuel usehistoryAny year from 1990 Required Must set five or ten- yearGHG reduction target,program goal is todemonstrate GHGreductions can be costeffective,information:www.worldwildlife.org/climate53

Appendix 2Appendix 2Appendix 2 indicates examples of GHG emissions by scopes and industry sectors. These examples are not exhaustive and thereporting company should refer to Chapter 4 and interpret the relevant emissions for its own situation.Sector Scope 1 emission sources Scope 2 emissionsourcesScope 3 emission sources 1EnergyEnergy generation• stationary combustion (production ofelectricity, heat or steam)• mobile combustion (transportation offuels)• fugitive emissions (fugitive leakages,transmission losses, HFC emissions inuse of a refrigeration and airconditioningequipment)• stationarycombustion(import ofelectricity andsteam for sale toend usecustomers)• stationary combustion (import of fuels)• process emissions ( SF 6 emissions 2 , production ofimported fuels)• mobile combustion (transportation of fuels/waste,employee business travel, employee commuting)• fugitive emissions (CH 4 and CO 2 from waste landfills)Oil and gasindustry 3• stationary combustion (production ofelectricity, heat and steam)• process emissions• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (CH 4 releases intransportation of natural gas, HFCuse)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (product use as fuel)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting, product use as fuel)• process emissions (product use as feedstock)• fugitive emissions (CH 4 and CO 2 from waste landfills)Coal mining• stationary combustion (production ofelectricity, heat or steam)• mobile combustion (transportation ofcoal)• fugitive emissions (CH 4 emissions fromcoal mines and coal piles)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (product use as fuel)• mobile combustion (transportation of products/waste,employee business travel, employee commuting)MetalsAluminium• stationary combustion (production ofelectricity, heat or steam)• process emissions• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (HFC use)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of importedmaterials, waste combustion)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (CH 4 and CO 2 from waste landfills)Iron and steel• stationary combustion(production ofelectricity, heat or steam)• process emissions• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (HFC use)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of importedmaterials)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (CH 4 and CO 2 from waste landfills)Other non-ferrousmetals• stationary combustion (production ofelectricity, heat or steam)• process emissions• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (HFC use)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of importedmaterials, waste combustion)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (CH 4 and CO 2 from waste landfills)ChemicalsNitric acid,ammonia, adipicacid, urea, andpetrochemicals• stationary combustion (production ofelectricity, heat or steam)• process emissions• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (HFC use)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of importedmaterials, waste combustion)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (CH 4 and CO 2 from waste landfills)MineralsCement and lime 4• stationary combustion (production ofelectricity, heat or steam)• process emissions• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (HFC use)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of importedmaterials, waste combustion)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (CH 4 and CO 2 from waste landfills)54

Appendix 2Waste 5Landfills, wastecombustion, andwater servicecompanies• stationary combustion (production ofelectricity, heat or steam, wastecombustion)• fugitive emissions (CH 4 and CO 2emissions from waste landfills)• mobile combustion (transportation ofwaste/products)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (recycled waste used as a fuel)• process emissions (recycled waste used as a feedstock)• mobile combustion (transportation of waste/products,employee business travel, employee commuting)Pulp and paper 6Pulp and paper• stationary combustion (production ofelectricity, heat or steam)• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (HFC use, landfillCH 4 and CO 2 emissions)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of imported materials,waste combustion)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (landfill CH 4 and CO 2 emissions)HFC, PFC, SF 6 and HCFC 22 production 7HCFC 22production• stationary combustion(production ofelectricity, heat or steam)• process emissions• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (HFC use)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of imported materials)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (fugitive leaks in product use, CH 4 andCO 2 from waste landfills)Other sectors 8Generalmanufacturing andconsumerproducts• stationary combustion (production ofelectricity, heat or steam)• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (mainly HFCemissions in refrigeration and airconditioningequipment, foamblowing)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of imported materials,product use, waste combustion)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting, product use)• fugitive emissions (CH 4 and CO 2 from waste landfills, HFCemissions in foam blowing)Retailing• stationary combustion (production ofelectricity, heat or steam)• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (mainly HFCemissions during use of refrigerationand air-conditioning equipment)• stationarycombustion(import ofelectricity andsteam• stationary combustion (production of imported materials)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)Food retailing• mobile combustion (transportation ofraw materials/products/waste)• fugitive emissions (mainly HFCemissions during use of refrigerationand air-conditioning equipment)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of imported materials,waste combustion)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)• fugitive emissions (CH 4 and CO 2 from waste landfills)Service sector andoffice basedorganizations• stationary combustion (production ofelectricity, heat or steam)• mobile combustion (transportation ofraw materials/waste)• fugitive emissions (mainly HFCemissions during use of refrigerationand air-conditioning equipment)• stationarycombustion(import ofelectricity andsteam)• stationary combustion (production of imported materials)• process emissions (production of imported materials)• mobile combustion (transportation of rawmaterials/products/waste, employee business travel,employee commuting)NOTES1 Scope 3 activities of outsourcing, contract manufacturing and franchises are notaddressed in this table as specific GHG sources depend on the nature of theoutsourced activity.2 Guidelines on ‘SF 6 use’ are to be developed.3 Guidelines on ‘oil and gas sector’ are to be developed. The American PetroleumInstitute has published a compendium of GHG emissions estimation methodologiesfor this industry (API, 2001).4 The WBCSD project: Toward a Sustainable Cement Industry, has developed guidelinesand tools to calculate GHG emissions from the Cement sector.5 Waste sector guidelines are under development.6 Guidelines for pulp and paper sector are under development.7 Guidelines for HFC, PFC and SF 6 production are to be developed.8 Businesses in ‘other sectors’ can calculate GHG emissions using the cross-sectoralcalculation tools – stationary combustion, mobile(transportation) combustion, HFCuse, and waste.55

GlossaryGlossaryAccountingCovers the company-internal compilation of GHG data.AdditionalityRefers to a situation where a project results in emissions reductions additional to those thatwould have taken place in the absence of the project activity (see also Chapter 5:Accounting for GHG reductions).Annex 1 countriesDefined in the International Climate Change Convention as those countries taking onemissions reduction obligations: Australia, Austria, Belgium, 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.Base year A historic datum (a specific year) for comparing emissions over time (see also Chapter 6:Setting a historic performance datum).Base year emissionsGHG emissions in the base year (see also Chapter 6: Setting a historic performance datum).BaselineA reference point for what emissions would have been without the intervention of the GHGreduction project (see also Chapter 5: Accounting for GHG reductions).BiofuelsFuels made from plant material, e.g. wood, straw and ethanol from plant matter.BoundariesGHG accounting and reporting boundaries can have several dimensions, i.e. organizational,operational, geographic, sectoral, business unit, and other.Calculation toolsA number of cross-sector and sector-specific tools that calculate GHG emissions on the basisof activity data and emissions factors (available at www.ghgprotocol.org).Cap and trade systemA system that sets an overall emissions limit, allocates emissions allowances to participants,and allows them to trade emissions credits with each other.Co-generation unit/combinedheat and power (CHP)A facility producing electricity and steam/heat using the waste heat from electricity generation.ControlThe ability of a company to direct the operating policies of another company ororganization (see also Chapter 3: Setting organizational boundaries).CO 2 equivalentThe quantity of a given GHG multiplied by its global warming potential. This is the standardunit for comparing the degree of harm which can be caused by emissions of differentGHGs.Cross-sector calculation toolA GHG calculation tool that addresses GHG sources common to various sectors, e.g.emissions from stationary or mobile combustion (see also calculation tools).Direct GHG emissionsEmissions from sources that are owned or controlled by the reporting company (see alsoChapter 4: Setting operational boundaries).56

GlossaryDirect monitoringDirect monitoring of exhaust stream contents in the form of continuous emissionsmonitoring (CEM) or periodic sampling (see also Chapter 8: Managing inventory quality).EmissionsThe intentional and unintentional release of GHGs into the atmosphere.Emissions creditA commodity giving its holder the right to emit a certain quantity of GHGs. Emissionscredits will, in the future, be tradable between countries and other legal entities.Emissions factorA factor relating activity data (e.g. tonnes of fuel consumed, tonnes of product produced)and absolute GHG emissions (see also Chapter 7: Identifying and calculating GHGemissions).Equity shareThe percentage of economic interest in/benefit derived from an operation.Fugitive emissionsIntentional and unintentional releases of GHGs from joints, seals, packing, gaskets, etc. (seealso Chapter 7: Identifying and calculating GHG emissions).GHG accounting principles General accounting principles to underpin GHG accounting and reporting (See also Chapter 1:GHG accounting and reporting principles).GHG Protocol Initiativeand GHG ProtocolA multi-stakeholder collaboration convened by the World Resources Institute and theWorld Business Council for Sustainable Development to design, develop and promote theuse of an international standard for calculating and reporting business GHGs.Global warming potential (GWP)A factor describing the radiative forcing impact (degree of harm to the atmosphere) of oneunit of a given GHG relative to one unit of CO 2 .Green powerIncludes renewable energy sources and specific clean energy technologies that reduce GHGemissions relative to other sources of energy that supply the electric grid. Includes solarphotovoltaic panels, geothermal energy, landfill gas, and wind turbines.Greenhouse gases (GHGs)For the purposes of this standard/guidance, GHGs are the six gases listed in the KyotoProtocol: carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2 O), hydroflurocarbons(HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF 6 ).Heating valueThe amount of energy released when a fuel is burned completely. Care must be taken notto confuse higher heating values (HHVs), used in the US and Canada, and lower heatingvalues, used in all other countries (for further details refer to the calculation tool forstationary combustion available at www.ghgprotocol.org).Indirect GHG emissionsEmissions that are a consequence of the activities of the reporting company, but occur fromsources owned or controlled by another company (see also Chapter 4: Setting operationalboundaries).Intergovernmental Panelon Climate Change (IPCC)International body of climate change scientists. The role of the IPCC is to assessthe scientific, technical and socio-economic information relevant to the understanding ofthe risk of human-induced climate change (www.ipcc.ch).InventoryA list of an organization’s GHG emissions and sources.57

GlossaryInventory quality The extent to which an inventory provides accurate information (see also Chapter 8:Managing inventory quality).Kyoto ProtocolA protocol to the International Convention on Climate Change – once entered into force itwill require countries listed in its Annex B (developed nations) to meet reduction targets ofGHG emissions relative to their 1990 levels during the period 2008-12.Mobile combustionBurning of fuels by transportation devices such as cars, trucks, trains, aeroplanes, ships etc.(see also Chapter 7: Identifying and calculating GHG emissions).Non-Annex 1 countriesDefined in the International Convention on Climate Change as those countries not takingon emissions reduction obligations (see also Annex 1 countries).Offset An emissions reduction achieved by undertaking a GHG reduction project (see also Chapter 5:Accounting for GHG reductions).Organic growth/declineIncreases or decreases in GHG emissions as a result of changes in production output,product mix, plant closures and the opening of new plants (see also Chapter 4: Settingoperational boundaries).OutsourcingThe contracting out of activities to other businesses (see also Chapter 4: Setting operationalboundaries)PermitA marketable instrument giving its holder the right to emit a certain quantity of GHGsProcess emissionsEmissions generated from manufacturing processes, such as cement or ammonia production(see also Chapter 7: Identifying and calculating GHG emissions)Project reduction moduleAn additional module of the GHG Protocol covering GHG emissions accounting for GHGreduction projects. This is work in progress. More information is available atwww.ghgprotocol.orgRatio indicatorIndicators providing information on relative performance, e.g. GHG emissions perproduction volume (see also Chapter 9: Reporting GHG emissions).Renewable energyEnergy taken from sources that are inexhaustible, e.g. wind, solar and geothermal energy,and biofuels.ReportingPresenting data to internal management and external users such as regulators, shareholders,the general public or specific stakeholder groups.Reporting for controlAn approach for setting organizational boundaries. This requires reporting 100 percent ofGHG emissions from controlled entities/facilities (see also Chapter 3: Setting organizationalboundaries).Reporting for equity shareAn approach for setting organizational boundaries. This requires reporting the equity shareequivalent of GHG emissions from entities/facilities under control and significant influence(see also Chapter 3: Setting operational boundaries).ScopeDefines the operational boundaries in relation to indirect and direct GHG emissions (see alsoChapter 4: Setting operational boundaries).58

GlossaryScope 1 inventoryA reporting organization’s direct GHG emissions (see also Chapter 4: Setting operationalboundaries).Scope 2 inventoryA reporting organization’s emissions from imports of electricity, heat, or steam (see alsoChapter 4: Setting operational boundaries).Scope 3 InventoryA reporting organization’s indirect emissions other than those covered in scope 2 (see alsoChapter 4: Setting operational boundaries).Sector specific calculation toolsA GHG calculation tool that addresses GHG sources that are unique to certain sectors, e.g.process emissions from aluminium production (see also Calculation tools).SequestrationThe uptake and storage of CO 2 . CO 2 can be sequestered by plants and inunderground/deep sea reservoirs.Significant influenceFor definition, refer to Chapter 3: Setting organizational boundaries.Significant thresholdA qualitative or quantitative criteria used to define a significant structural change. It is theresponsibility of the company/verifier to determine the ‘significant threshold’ for consideringbase year emissions adjustment. In most cases the ‘significant threshold’ depends on theuse of the information, the characteristics of the company, and the features of structuralchanges.SinkPlace where carbon is stored, mostly used for forests and underground/deep sea reservoirsof CO 2 .SourceAny process or activity, which releases GHGs into the atmosphere.Stationary combustionBurning of fuels to generate electricity, steam or heat (see also Chapter 7: Identifying andcalculating GHG emissions).Structural change A significant change in the size or kind of operation of a business (see also Chapter 6:Setting a historic performance datum).Uncertainty The likely difference between a reported value and a real value (see also Chapter 8:Managing inventory quality).Value chain moduleAn additional module of the GHG Protocol covering GHG emissions accounting for activitieshappening upstream and downstream from a business. This is work in progress. Moreinformation available at www.ghgprotocol.orgVerificationVerification is the objective and independent assessment of whether the reported GHGinventory properly reflects the GHG impact of the company in conformance with the preestablishedGHG accounting and reporting standards (see also Chapter 10: Verififcation ofGHG emissions).59

List of contributorsList of contributorsROAD TESTERSBaxter InternationalBPCODELCODow Chemical CanadaDuncans IndustriesDuPont CompanyFord Motor CompanyFortum Power and HeatGeneral Motors CorporationHindalco IndustriesIBM CorporationMaihar CementNikeNorsk HydroOntario Power GenerationPetro-CanadaPricewaterhouseCoopers road tested with companies in theEuropean non-ferrous metal sectorPublic Service Electric and GasShree CementShell CanadaSuncor EnergyTokyo Electric Power CompanyVolkswagenWorld Business Council for Sustainable DevelopmentWorld Resources Institute500 PPM – road tested with several small and medium sizedcompanies in GermanyCONTRIBUTORSDawn FentonABBDavid CahnCalifornia Portland CementPaul-Antoine LacourAFOCELMolly TirpakCalifornia Climate Action RegistryRon NielsenSteve PomperKenneth MartchekDavid JaberAlain BillWalter C. RetzschDale LoudaTom CarterTed GullisonJohn MolburgFiona GaddAlcanAlcanALCOAAlliance to Save EnergyAlstomAmerican Petroleum InstituteAmerican Portland Cement AllianceAmerican Portland Cement AllianceAnovaArgonne National LaboratoryArthur AndersenDavid OlsenAlan D. WillisEllina LevinaSteve WinkelmanPaul BlacklockMark FallonLisa NelowetCharlene R. GarlandDonna BoysenJennifer DuBoseCalifornia Climate Action RegistryCanadian Institute of CharteredAccountantsCenter for Clean Air PolicyCenter for Clean Air PolicyCalor Gas LimitedCH2M HillCH2M HillClean Air-Cool PlanetClean Energy GroupClimate Neutral NetworkScot FosterArthur D. LittleSue HallClimate Neutral NetworkMike IsenbergArthur D. LittleMichael BurnettClimate TrustChris LoretiBill WescottThomas E. WerkemDavid HarrisonLinda PowellJames ShevlinBronwyn PollockJean-Bernard CarrascoWilliam WorkRonald E. MeissenArthur D. LittleArthur D. LittleAtofina ChemicalsAustralian Greenhouse OfficeAustralian Greenhouse OfficeAustralian Greenhouse OfficeAustralian Greenhouse OfficeAustralian Greenhouse OfficeBASF CorporationBaxter InternationalElizabeth ArnerFernando E. ToledoBruce SteinerLynn PrestonAnnick CarpentierSonal PandyaMichael TottenDominick J. MormileSatish MalikCO2e.com/Cantor FitzgeraldCODELCOCollier Shannon ScottCollins & AikmanConfederation of European PaperIndustriesConservation InternationalConservation InternationalConsolidated Edison CompanyCTI ProjectNick HughesBPFred ZobristCTI ProjectJoAnna BullockBusiness for Social ResponsibilityIan LewisCumming Cockburn Limited60

List of contributorsRaymond P. Cote Dalhousie UniversityMarkus Lehni Deloitte & Touche ExpertaMr. TostDeloitte & ToucheEinar TelnesDet Norske VeritasPhilip ComerDet Norske VeritasScott Noesen Dow Chemical CompanyPaul CicioDow Chemical CompanyFrancesco Balocco Dow Chemical CompanyFrank Farfone Dow Chemical CompanyStephen Rose Dow Chemical CompanyR. Swarup Duncans IndustriesJohn B. Carberry DuPont CompanyDavid ChildsDuPont CompanyTom JacobDuPont CompanyEd MonganDuPont CompanyRon ReimerDuPont CompanyFred WhitingDuPont CompanyMack McFarland DuPont CompanyBrian Glazebrook EcobalanceAlan TateEcos CorporationJustin GuestEcoSecuritiesPedro Moura Costa EcoSecuritiesKyle DavisEdison Mission EnergyMarcus Schneider Energy FoundationPatrick Nollet Entreprises pour l’EnvironnementJames L. Wolf EnvintaKenneth Olsen Environment CanadaAdrian Steenkamer Environment CanadaMillie ChuEnvironmental Defense FundSarah WadeEnvironmental Defense FundSatish KumarEnvironmental Energy TechnologiesJohn CowanEnvironmental InterfaceAlice LeBlancEnvironmental Financial ProductsEdward W. Repa Environmental Research and EducationFoundationWilliam B. Weil Environmental Resources ManagementBarney Brannen Environmental Resources TrustBen FeldmanEnvironmental Resources TrustAl DailyEnvironmental SynergyAnita M. Celdran Environmental Technology EvaluationCenterWilliam E. Kirksey Environmental Technology EvaluationCenterJuerg Fuessler Ernst Basler & PartnersAlan B. ReedEPOTECJames Bradbury EPOTECStefan Larsson ESABLutz BlankEuropean Bank for Reconstruction andDevelopmentAlke Schmidt European Bank for Reconstruction andDevelopmentChris EversUrs BrodmannMichael SavonisAnu KaressuoTod DelaneyJames D. HeerenJames T. WintergreenKevin BradyDuncan NobleSteven YoungRob FrederickChad McIntoshLarry MerrittJohn SullivanDan BlomsterArto HeikkinenJussi NykanenSteven HellemJudith M. MullinsTerry PritchettRichard SchneiderRobert StephensKristin ZimmermanMark StarikMichael RumbergJeffrey C. FrostMr. ImaiJoseph RommArthur H RosenfeldRichard TipperMatthew DeLucaRalph TaylorGlenna FordNickolai DenisovMo LoyaRavi KuchibhotlaEdan DionneThomas A. CortinaPaul E. BaileyRichard LeeMarcia M. GowenAlyssa TippensWilly BjerkeJerry MarksAndrei MarcuGeorge ThomasAkira TanabeCarl GagliardiEuropean CommissionFactor Consulting and ManagementFederal Highway AdministrationFinnish Forest Industries FederationFirst EnvironmentFirst EnvironmentFirst EnvironmentFive Winds InternationalFive Winds InternationalFive Winds InternationalFord Motor CompanyFord Motor CompanyFord Motor CompanyFord Motor CompanyFortum Power and HeatFortum Power and HeatFortum Power and HeatGEMIGeneral Motors CorporationGeneral Motors CorporationGeneral Motors CorporationGeneral Motors CorporationGeneral Motors CorporationGeorge Washington UniversityGerling Group of InsurancesGHG SpacesGlobal Environment and Energy GroupGlobal Environment and TechnologyFoundationGlobal Environment and TechnologyFoundationGreenergy ECCMGreen Mountain EnergyGreenleaf Composting CompanyGreenWare Environmental SystemsGRID-Arendal / Hindalco IndustriesHoneywell Allied SignalIBM CorporationIBM CorporationICCPICF ConsultingICF ConsultingICF ConsultingInterface Research CorporationInternational Aluminium InstituteInternational Aluminium InstituteInternational Emissions TradingAssociationInternational Finance CorporationInternational Finance CorporationInternational Paper Company61

List of contributorsDanny L. AdamsInternational Paper CompanyDavid B. SussmanPoubelle AssociatesThomas C. JorlingInternational Paper CompanyBill KytePowergen UKJulie C. BrautigamInternational Paper CompanyMelissa CarringtonPricewaterhouseCoopersMark E. BatemanInvestor Responsibility Research CenterLen EddyPricewaterhouseCoopersMichael NesbitJAN ConsultantsDennis JenningsPricewaterhouseCoopersChris HunterJohnson & JohnsonTerje KronenPricewaterhouseCoopersLisa GibsonKPMGCraig McBurniePricewaterhouseCoopersChi Mun WooJed JonesIain AlexanderDavid W. CarrollEd VineMichael E. CanesMichael J. BradleyBrian JonesMaria WellischMargriet KuijperSukumar DevottaGarth EdwardRobert YoungmanDale S. BrykJeff FiedlerReid A. MinerTimothy J. RoskelleyAtulya DhunganaMatthew W. AddisonDavid H. KingMartin A. SmithJim GoddardAmit MeridorKarina AasHans GoosensTore K. JenssenHalvor KvandeBernt MalmeLillian SkogenJon Rytter HasleJos van DanneMorton A. BarlazGeir HusdalGard PedersenAnda KalvinsJan Corfee-MorlotStephane WillemsKen HumphreysKathy ScalesJudi GreenwaldDaniel L. ChartierOrestes R. AnastasiaKPMGKPMGKPMGLafarge CorporationLawrence Berkeley National LaboratoryLogistics Management InstituteM.J. Bradley & AssociatesM.J. Bradley & AssociatesMWA ConsultantsNAMNational Chemical LaboratoryNatsourceNatsourceNatural Resources Defense CouncilNatural Resources Defense CouncilNCASINESCAUMNexantNexantNiagara Mohawk Power CorporationNiagara Mohawk Power CorporationNikeNILITNorsk HydroNorsk HydroNorsk HydroNorsk HydroNorsk HydroNorsk HydroNorsk HydroNorsk HydroNorth Carolina State UniversityNovatechNovatechOntario Power GenerationOECDOECDPacific Northwest National LaboratoryPetro-CanadaPew Center on Global Climate ChangePG&E GeneratingPlanning and DevelopmentCollaborative InternationalOlivier MullerDorje MundleThierry RaesAlain SchilliHans WarmenhovenPedro MaldonadoAlfredo MunozMark S. BrownsteinJames HoughSamuel WolfeJennifer LeeAlan SteinbeckKatie SmithChris LotspeichThomas RuddyJulie DohertyRichard Y. RichardsGareth PhillipsEdwin AaldersIrma LubrechtAntoine deLa RochefordiereSean KolleeMurray G. JonesRick WeidelAnita M. BurkeRobert K. HamJeremy K. O’BrienGwen ParkerPhilippe LevavasseurSue HallGeoffrey JohnsChristopher WalkerGregory A. NorrisVivek SharmaRobert GraffSivan KarthaAllen L. WhiteWill GibsonRanjana GangulyAshwani ZutshiSonal AgrawalPricewaterhouseCoopersPricewaterhouseCoopersPricewaterhouseCoopersPricewaterhouseCoopersPricewaterhouseCoopersPRIENPRIENPSEGPSEGPSEGResources for the FutureRio TintoRMC GroupRocky Mountain InstituteRuddy ConsultantsScience Applications Intl. Corp.Science Applications Intl. Corp.SGS Product & Process CerificationSGS Product & Process CerificationSGS Product & Process CerificationSGS Global Trading SolutionsShell CanadaShell CanadaShell CanadaShell Oil CompanySolid & Hazardous Waste EngineeringSolid Waste Association of NorthAmericaStanford UniversitySTMicroelectronicsStrategic Environmental AssociatesSuncor EnergySwiss ReSylvaticaTata Energy and Research InstituteTellus InstituteTellus InstituteTellus InstituteTetra Tech Em IncorporatedTetra Tech IndiaTetra Tech IndiaTetra Tech India62

List of contributorsWilliam C. McLeodArthur LeeDavid W. CrossMark D. CrowdisTinus PullesRalph TorrieEugene SmithartLaura KosloffMark TrexlerWalter GreerHussein AbazaLambert KuijpersGary NakaradoMark RadkaStelios PesmajoglouAlden MeyerJudith BayerFred KellerPaul PatlisEllen J. QuinnBill WaltersGary BullZoe HarkinGerard AllengJacob ParkNao IkemotoStephen CalopedisGregory H. KatsDick RichardsArthur RosenfeldArthur RypinskiMonisha ShahTatiana StrajnicKenneth AndraskoWiley BarbourLisa H. ChangEd CoeAndrea DennyMichael GillenwaterReid HarveyKathleen HoganDina KrugerPam Herman MilmoeRoy HuntleyBill N. IrvingSkip LaitnerBeth MurrayHeather TanseySusan ThorneloeChloe WeilTexacoTexacoThermoRetec CorporationThink EnergyTNO MEPTorrie Smith AssociatesTrane CompanyTrexler & AssociatesTrexler & AssociatesTrinity ConsultantsUNEPUNEPUNEPUNEPUNFCCCUnion of Concerned ScientistsUnited Technologies CorporationUnited Technologies CorporationUnited Technologies CorporationUnited Technologies CorporationUnited Technologies CorporationUniversity of British ColombiaUniversity of British ColumbiaUniversity of DelawareUniversity of MarylandU.S. Asia Environmental PartnershipU.S. Department of EnergyU.S. Department of EnergyU.S. Department of EnergyU.S. Department of EnergyU.S. Department of EnergyU.S. Department of EnergyU.S. Department of EnergyU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAU.S. EPAPhil J. Wirdzek U.S. EPATom WirthU.S. EPAMarguerite Downey U.S. Postal ServiceAngela Crooks USAIDM. Michael Miller U.S. Geological SurveyValentin V. Tepordei U.S. Geological SurveyHendrik G. van Oss U.S. Geological SurveyCyril CoillotVivendi EnvironmentEric LesueurVivendi EnvironmentMichael Dillman VolkswagenStephan Herbst VolkswagenC.F. Schneider Westvaco CorporationGary RisnerWeyerhauserThomas F. Catania Whirlpool CorporationEric OlafsonWilliams CompanyJohannes Heister World BankChristine Elleboode WBCSDMargaret Flaherty WBCSDAl FryWBCSDSusanne Haefeli WBCSDKija KummerWBCSDMarkus Ohndorf WBCSDKevin Baumert World Resources InstituteFran IrwinWorld Resources InstituteNancy KeteWorld Resources InstituteBill LaRocque World Resources InstituteJim MacKenzie World Resources InstituteEmily Matthews World Resources InstituteSridevi Nanjundaram World Resources InstituteJim PerkausWorld Resources InstituteSamantha Putt del Pino World Resources InstituteJason SnyderWorld Resources InstituteJennifer Morgan World Wildlife FundIngo Puhl500 PPMMonica GalvanKaran CapoorPauline MidgleyWRI and WBCSD would also like to thank the followingorganizations for their generous financial support: EnergyFoundation, Spencer T. and Ann W. Olin Foundation, John D.and Catherine T. MacArthur Foundation, Charles Stewart MottFoundation, the US Environmental Protection Agency,Anglo American, Baxter International, BP, Det Norske Veritas,DuPont, General Motors, Lafarge, International Paper,Norsk Hydro, Ontario Power Generation, Petro-Canada,PowerGen, SGS, Shell, Statoil, STMicroelectronics, Sulzer,Suncor, Swiss Re, Texaco, The Dow Chemical Company,Tokyo Electric Power Company, Toyota, TransAlta andVolkswagen.63

About WRI and WBCSDAbout WBCSDAbout WRIThe World Business Council for Sustainable Development(WBCSD) is a coalition of 150 international companies unitedby a shared commitment to sustainable development via thethree pillars of economic growth, environmental protectionand social equity. Our members are drawn from more than 30countries and 20 major industrial sectors. We also benefit froma global network of 30 national and regional business councilsand partner organizations involving some 700 business leadersglobally.The World Resources Institute (WRI) is an environmental thinktank that goes beyond research to create practical ways toprotect the Earth and improve people's lives. Inside the WRI,the GHG Protocol Initiative is managed by the SustainableEnterprise Program. For more than a decade, WRI's SustainableEnterprise Program has harnessed the power of business tocreate profitable solutions to environmental and socialchallenges. WRI is the only organization that brings togetherfour influential forces to accelerate change in business practice– corporations, entrepreneurs, investors, and business schools.The Sustainable Enterprise Program improves people's livesand the environment by helping business leaders and newmarkets thrive.Ordering publicationsWBCSDWBCSD, c/o E&Y DirectTel: (44 1423) 357 904Fax: (44 1423) 357 900e-mail: wbcsd@e-ydirect.comWRIHopkins Fulfillment ServiceTel: (1 410) 516 6956Fax: (1 410) 516 6998e-mail: hfscustserv@mail.press.jhu.eduPublications are available at WBCSD’s website:http://www.wbcsd.orgPublications can be ordered from WRI’s secure online store:http://www.wristore.comDisclaimerThis report is released in the name of WRI and WBCSD. It isthe product of a collaborative effort, however, this does notmean that every participating organization or every membercompany of the WBCSD agrees with every word.Copyright © World Business Council for SustainableDevelopment and World Resources Institute, September 2001ISBN 2-940240-18-3Printed in Switzerland64

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