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Responding to Climate Change Risk II

Basics of Greenhouse Has Emission Inventories  
Regulations on carbon dioxide (CO2) emissions are in place or in development in many countries, including Canada, and at the state level in the U.S. Perhaps more significantly in the short term, many large companies are facing increasing pressure from shareholders, customers, and concerned citizens to develop an appropriate corporate response to the climate change issue.

Facilities affected by CO2 regulations, including large industrial ones in the European Union and Canada, are developing compliance plans. For other facilities orcompanies, an appropriate corporate response could include reporting emissions and risks to shareholders, developing a plan for reducing emissions, and perhaps joining a voluntary climate
change program. A greenhouse gas (GHG) emissions inventory is the foundation for these and other steps, and conducting such an inventory is not as difficult as it might seem.
Completing a GHG emissions inventory allows your company to:  
1) Estimate its financial risks under future state, regional, or national
    climate change policies and regulations;
2) Report GHG emissions and risks to shareholders;
3) Identify opportunities to reduce emissions; and
4) Evaluate whether or not to join a voluntary climate change
    program or emissions registry.
Inventory Basics: Five Easy Steps  
A basic GHG inventory, which can be refined later to fit the needs of specific voluntary programs or other reporting requirements, can be completed through five main steps:

1. Define the organizational boundaries (which facilities to include).
2. Define the operational boundaries (scope of any indirect emissions sources to include).
3. Identify the specific emissions sources for your company.
4. Gather the data needed (for example, fuel-use data) to quantify emissions for each source identified.
5. Calculate the emissions, using data gathered and appropriate emissions factors.
1. Organizational Boundaries  
The first step is to decide on the organizational boundaries for the inventory; in other words, which facilities and operations will be included. The Greenhouse Gas Protocol (see the “ForMore Information” section at the end of this document)encourages companies to include all major facilities that are owned or leased and, in addition, to at least estimate the emissions from smaller facilities. Emissions from partially owned facilities should also be included, based on either the “control” or “equity-share” approach.

Most end users choose the control approach, which means that if the company has operational or financial control (makes the important operating or financial decisions) at any partially owned or leased facility, then 100 percent of that facility’s emissions are included in the company’s inventory.

Most utilities choose the equity-share approach for partiallyowned facilities. “Equity share” refers to claiming the percentage of emissions that corresponds with the percentage of ownership in a facility. For example, if a utility owns 30 percent of the equity of a generating plant, then the utility takes responsibility for 30 percent of the emissions from that facility in its inventory.

Where do you go to find a list of all the facilities owned, leased, or partially owned by your company? Many larger companies have a real estate office that tracks this information. For companies with smaller numbers of facilities (20 or less), the firm’s accounting office probably tracks this information. Documenting the choice of ownership approach and which facilities are included in the inventory is very important. Over time the company may sell facilities or acquire new ones, and if the company is tracking emissions relative to a baseline, it will need to adjust the baseline year’s emissions by subtracting the emissions of facilities that have been sold and adding emissions for facilities that have been acquired.
2. Operational Boundaries  
Setting the operational boundaries means deciding whether to include any indirect emissions in addition to the company’s direct emissions. The GHG Protocol refers to direct emissions from sources the company owns or controls as Scope 1 emissions. These include emissions from fuel burned in boilers or other heating equipment, process emissions, fuel burned in companyowned vehicles, and fugitive emissions (leaks). There are several types of indirect emissions that are classified as Scope 2 or Scope 3. Following are the categories or scopes of emissions sources according to the GHG Protocol:

Scope 1. Direct emissions from on-site fuel combustion, emissions from fuel combustion by company owned or leased vehicles, process emissions, or fugitive emissions.
Scope 2. Indirect emissions from purchased electricity, steam, or chilled water that is consumed by company owned or controlled equipment.
Scope 3. Indirect emissions from embedded energy in raw materials used in production processes, from the use phase of products, from end-of-life disposal of products,
from employee travel (not in company-owned vehicles),and from outsourced operations.

E SOURCE feels that it is usually not worthwhile to spend the extra time and effort needed to track Scope 3 emissions. It is very unlikely that any future regulations of
CO2 would include Scope 3 emissions because of the double-counting issues. In addition, most voluntary climate change programs focus only on Scope 1 and Scope 2 emissions sources.
3. Emissions Source Identification  

Within the boundaries chosen in steps 1 and 2, step 3 of the inventory process is identifying specific emissions sources for the six major types of greenhouse gases. The
six types of GHGs and their common sources are listed in Table 1.

If you are just beginning a GHG inventory, we suggest that you focus on your major facilities and major emissions sources, at least initially. In most cases, these will account for 80 to 90 percent of your company’s total emissions, which will be more than adequate for estimating financial risks from a potential new regulation or
for identifying the main emissions sources and opportunities for reductions.

What are these major sources? The majority of emissions for most industrial companies and other end users come from:

1) On-site fossil fuel usage
2) Purchased electricity or steam

Process emissions can be significant for some industries, including steel (CO2 emissions from flux usage) and electronics (emissions from perfluorocarbons [PFCs] used to make semiconductors). In addition, fuel usage for company-owned vehicles may be significant for some companies, such as those with large fleets for product delivery.
4. Data Gathering  
The next step is to gather the data needed to quantify emissions for the sources identified earlier. The most common types of data are fuel-purchase records and electricity bills, which are normally tracked at the facility level on a monthly basis by an entity such as the accounting or purchasing office. Sometimes these bills are handled at the corporate level by the purchasing office. Purchases of chemicals related to any process emissions (such as PFCs) are usually handled through the purchasing department or through the specific department that uses the chemical(s) in question, either regionally or at the facility level.  
5. Emissions Factors  
The last step is to calculate the emissions using the appropriate emissions factors. Emissions factors for the most common fuels are shown in Table 2. To calculate emissions from purchased electricity, you need to apply the appropriate regional electricity emissions factor. These emissions factors are based on the mix of generation
sources in the region. Both the U.S. Department of Energy’s 1605b and Climate Leaders programs recommend using the emissions factors from the U.S. Environmental Protection Agency’s (EPA’s) Emissions and Generation Resource Integrated Database (eGRID). For details about these resources, see the “For More Information” section at the end of this document.

However, for companies that have many facilities and are not planning to join the Climate Leaders program, it is much simpler (and nearly as accurate) to use the state average electricity emissions factors available from the U.S. Energy Information Administration (EIA). It is much easier to assign a state to each facility than to assign an eGRID subregion. Emissions factors for Canadian provinces are available through the Canadian GHG Registry Challenge. Average electricity emissions factors for most other countries are available from the World Resources Institute.
Energy Costs and Climate Risks  
After completing the five steps listed earlier, a company will have a good handle on its total GHG emissions and the main opportunities for emissions reductions. For most industrial or commercial companies, the most costeffective way to reduce GHG emissions is through improved energy efficiency.Many companies have found that the inventory process can be a helpful catalyst for developing a better system to manage their energy use data, which is key to reducing energy use and costs. Reporting progress on reducing emissions—through efficiency or other measures—is a good way to win public relations points with shareholders and customers.  
© 2006 E Source Companies LLC. Click here for printable article  
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