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Responding to Climate Change Risk

Setting a meaningful and Achievable GHG Reduction Goal  
   
Many companies are developing a greenhouse gas (GHG) mitigation strategy to prepare for imminent cap-and-trade legislation and capitalize on environmentally conscious consumers. A 2007 McKinsey global survey indicates that more than 50 percent of corporate executives view climate change as a central consideration within product development, investment planning, and purchasing and supply management.  
   
Setting a GHG reduction goal is an integral part of any mitigation strategy, allowing your company to:

1) Garner the attention and support of executive-level management
2) Identify cost-effective opportunities for GHG reduction
3) Secure funding for energy-efficiency and GHG-reduction projects
4) Galvanize shareholder support while increasing public recognition
5) Encourage employee commitment, collaboration, and innovation
 
   
Getting Started: Your GHG Inventory  
   
Knowing your emissions and where they come from is a critical first step in setting a viable GHG reduction goal. You should start by performing a high-quality GHG inventory, which quantifies emissions of the six major greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).

CO2 occurs naturally in the air, but its concentration is rising due to fossil fuel combustion and the clearing and burning of forests. Methane is the main constituent of natural gas and is released from leaks in gas pipelines, compressors, and coal mines; it also comes from livestock flatulence, rice production, animal manure, sewage, and landfills. The largest source of N2O comes from agricultural synthetic fertilizers; other sources include vehicle exhaust, sewage treatment, and animal manure. HFCs are used as refrigerants and get released through leaks or while recharging and disposing of air-conditioning equipment. PFCs are used in aluminum and semiconductor manufacturing. SF6 is used as an insulator in transformers and other electrical equipment, from which it can leak into the atmosphere.

For most companies, the most significant emission sources include facility fuel consumption, vehicle fuel consumption, process-related emissions, and indirect emissions from electricity and steam purchases. Performing a detailed and comprehensive inventory allows your company to identify its principal emission sources and prioritize its reduction efforts appropriately.

“Once businesses have an inventory in place, they can use that to evaluate where their reduction opportunities are and see where they can get the most bang for their buck within their corporation,” explains Bella Tonkonogy, program manager for the U.S. Environmental Protection Agency (EPA) Climate Leaders program. In addition, it’s important to document facility information, data sources, and quantification methods. This record promotes transparency and accountability, facilitates third-party verification, and ensures consistency as your company tracks progress toward its goal.
 
   
Reducing Your Carbon Footprint  
   
Having identified your main emission sources, the next step is to establish projects that capitalize on the many opportunities for GHG reduction. Corporate strategies typically include four approaches to GHG curtailment:

1. Improving energy efficiency

2. Installing on-site cogeneration or renewable energy generation

3. Purchasing green power or renewable energy credits

4. Investing in carbon offsets

Energy efficiency is the most cost-effective route toward emission reductions. John Parodi, director of energy management for Roche, reports that efficiency efforts helped his company cut 10 percent of its U.S. GHG emissions two years before its targeted deadline. “What’s nice about energy-efficiency projects is that they simultaneously reduce energy, carbon, and cost,” says Parodi.
“It gets past this myth that saving carbon has to cost you money; I believe there are ways that you can save all three simultaneously.”
 
   
Goal-Setting Organizations and Parameters  
   
GHG reduction goals vary depending on the nature of the business and the reason for curtailing emissions. EPA Climate Leaders is one of several voluntary programs that provides guidelines for setting a meaningful and achievable reduction goal (Figure 1).

To match the EPA’s standards, a reduction target has to be:

1) Companywide (including a minimum of all U.S. operations)
2) Based on the most recent base year for which data are available
3) Achieved over 5 to 10 years
4) Expressed as an absolute GHG reduction or as a normalized decrease in GHG intensity
 
Aggressive compared to the projected GHG performance of that specific sector Voluntary organizations such as EPA Climate Leaders, the California Climate Action Registry, and the Carbon Disclosure Project have their own unique guidelines for GHG management and goal setting. However, program participation offers similar advantages across the board. Member companies can receive consultative support for GHG inventories and reporting; they gain access to networking opportunities and the latest information resources; and, most importantly, they gain public recognition through a recognized third-party organization.
 
   
   
   
Determining Time frame and Target Type  
   
A critical step in defining your reduction target is choosing a base year against which progress toward your goal can be measured and normalized over time. It’s important that you select a recent base year for which you have complete data. In subsequent years, you should adjust the baseline emissions to account for any structural changes like acquisitions, mergers, and divestitures.

Having established a base year inventory, companies must decide whether to express their GHG reductions in absolute or normalized terms. An absolute target relates total GHG emissions in a given year to those in the specified base year. This metric is generally favored because it records an actual, concrete decline in the amount of GHGs released into the atmosphere.

A normalized target refers to a reduction in GHG intensity and is expressed as a ratio of emissions relative to some economic or production metric. For example, businesses may express their goal in terms of metric tons of CO2 equivalent reduced per dollar of revenue or per unit of production—such as tons of concrete. This approach allows companies to accommodate organic growth; however, it doesn’t necessarily decrease the atmospheric concentration of GHGs.

The relative advantages of absolute and normalized goals depend on the company and the nature of its business. “Absolute reductions are often easier for companies to
communicate, both to employees as well as external stakeholders,” says Tonkonogy. “An intensity goal will help you measure your efficiency improvements—how efficient you are per product produced—but absolute goals tend to be viewed more favorably by the public.”
 
   
 Picking a Target Level  
   
GHG reduction goals are often issued by executive-level management to demonstrate leadership and accommodate the growing influence of socially conscious consumers and investors. Unfortunately, going green overnight can result in unrealistic targets that might compromise your company’s image and reputation. Picking an aggressive yet achievable GHG reduction goal is indeed a daunting task; however, many companies are doing just that and taking the first steps toward a more sustainable future (Table 1).  
   
 
   
Bottom-Up Diagnostics  
   
Businesses that are considering setting a GHG reduction goal should begin by looking for unexploited opportunities in energy efficiency. Low-hanging fruit of this kind is abundant but sometimes hard to identify without detailed knowledge of your operations and energy consumption.  
   
Get input. Employees working on the facility level can help specify which efficiency projects should form the basis of your reduction strategy. Retrofits using proven technologies such as upgrading HVAC systems, improving insulation, and replacing outdated T12 and incandescent lighting with T8 systems are the best places to start. Parodi attributes Roche’s overachievement to the motivation and contribution of its employees: “It’s not one size fits all because every facility is different. How did we make it happen? It’s the individuals at the site.”

Make a list. Many businesses initially calculate their targets on a project-by-project basis. To assess the feasibility of your reduction target, make a list of all the efficiency measures you could undertake and discuss with your contractor or utility what reasonable energy reductions can be expected. For most companies, forecasted energy savings of 10 percent can translate into a similar reduction in GHG emissions. Estimating the emission reduction potential of projects planned or already in place gives companies at least an idea of their lower bound for GHG curtailment.

Assess returns. You can narrow down your project list based on cost-effectiveness. The most important directive within Roche’s GHG reduction strategy, according to Parodi, is to evaluate all projects pertaining to energy on a life-cycle cost basis while assuming a 5 percent annual escalation in the price of energy. “Life-cycle pricing requires you to look at all of the costs associated with an investment—not just the initial cost of purchase, but the ongoing costs of energy over the life of the measure, maintenance, and all other factors,” Parodi says.

Pilot test projects. To understand costs and risks associated with deployment, test out projects on a smaller scale. According to Tonkonogy, large corporations will “pilot projects in certain places, see that they work, and then expand to other locations. A lot of businesses build upon their initial experiences, moving procedures and technologies throughout their company as they progress.” Pilot programs allow your company to estimate project costs, anticipate implementation issues, and gauge overall product performance.
 
   
Project Approval and Expansion  
   
After you’ve identified a portfolio of efficiency projects and gauged its range of deployment, the next step is to discuss possible target levels with senior management. In this type of discussion, the staff typically presents a level of reduction that they believe can be reasonably achieved. Senior management can then decide whether to stretch the goal by providing more resources and support, or to reduce the proposed target and decrease the chance of failure.

If your company chooses to pursue a more ambitious target, you can go beyond efficiency by pursuing on-site renewable energy or cogeneration projects, purchasing green power or renewable energy credits, or investing in carbon offsets. An increasing number of businesses are using distributed generation from photovoltaics, wind turbines, and small hydropower systems to decrease their carbon footprints. Some facilities use solar thermal technologies to reduce the emissions associated with space and water heating. Such projects will eventually pay for themselves in energy savings, but you can shorten paybacks by applying for federal tax incentives, taking advantage of state or local government incentive programs, or obtaining financial assistance from your utility.
 
   
Communicating Your Goal  
   
The last step in setting a GHG reduction goal is communicating your chosen target to employees, shareholders, and customers. Companies can publicize their goals through web sites, annual sustainability reports and press releases, and accredited voluntary program memberships. Whatever the means, such communications should highlight your action plan for achieving the established goal while encouraging interested parties to get involved. Setting a GHG reduction goal sends a message of action and leadership: A company-wide initiative can instill a sense of greater purpose and motivation within your organization and among your supporting customers and shareholders.  
   
© 2008 E Source Companies LLC. Click here for printable article  
 
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