Climate change has become an important strategic issue for many operating companies throughout the chemical process industries (CPI). Public interest is increasing,1 shareholder interest continues to mount,2 and climate policy discussions are actively taking place at the state, regional, and federal levels.3 Developing an effective corporate strategy for managing climate change, to measure, track, and reduce company-wide greenhouse gas (GHG) emissions, is an essential element for any organization to begin addressing this critical environmental issue. As the saying goes: “You cannot manage what you are not measuring.”
Fortunately, thanks to comprehensive engineering and accounting efforts in this regard over recent years, the development of an effective climate-change business strategy has become a fairly straightforward process, and today there are many resources available to assist companies. More than 130 leading U.S. companies, including DuPont, General Electric, 3M, Dell, and Eastman Kodak,4 have road-tested the process that is discussed here, working with the U.S. Environmental Protection Agency’s (EPA) Climate Leaders program. Through the program, EPA provides technical assistance and marketing support to these companies, helping them to develop, maintain and communicate a credible engineering, business and public policy strategy related to their voluntary efforts to reduce of carbon dioxide (COâ‚‚) emissions and those of the five other GHGs (these are discussed below).
There are many benefits to developing an effective corporate GHG-management strategy. For one, a well-developed strategy can help to focus corporate attention on the most cost-effective and technically feasible existing GHG-reduction opportunities. Many companies have been working on energy-efficiency and process-improvement projects for years, due to their high return on investment, and direct impact on the bottom line. Rolling these efforts into a more comprehensive GHG-reduction strategy can help garner senior-management attention and increase funding for these types of reduction projects.
Formalizing a GHG-reduction goal also helps the company to institutionalize and focus attention on tracking the progress of corporate efficiency and GHG-reduction efforts over time. Aggressive corporate targets encourage innovation and usually lead to the identification of many additional reduction opportunities.
An increasing number of companies are also publicizing these efforts to demonstrate environmental leadership among their competitors and garner public support among the community. In addition, a proactive environmental strategy can improve employee morale and can help in the recruitment and retention of qualified employees (For more, see Box 1, entitled Business goals served by GHG inventories, p. 35).
This article discusses the three critical elements of an effective GHG-management strategy, to assist companies that are committed to undertaking the process:
• Establish a comprehensive, corporate-wide GHG inventory
• Develop an Inventory Management Plan (IMP)
• Set a corporate-wide GHG reduction goal and track progress toward achieving it
Step 1.
Establish a comprehensive, corporate-wide GHG inventory
EPA’s Climate Leaders program inventory protocols are based on the World Resources Institute (WRI) and World Business Council for Sustainable Development’s (WBCSD) “Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard,” which was initially released in 2001, and revised in 2004. The WRI/WBCSD GHG Protocol is the most widely used international accounting tool that is available today for businesses to understand, quantify, and manage GHG emissions.5
Under Climate Leaders and most other GHG reporting programs, only “core” emissions are required to be reported. Core emissions are made up of all direct and indirect emissions of the six major GHGs,6 which are also referred to as “Scope 1” and “Scope 2” emissions, respectively. Direct emissions are those emanating from sources that are owned or controlled by the company or organization, such as fuel combustion, process emissions or vehicle emissions (for more, see Box 2, entitled Scope 1: Direct GHG emissions, above). Indirect emissions are those emissions that are produced as a consequence of the company’s operations, but are owned or controlled by another company, such as emissions produced during the purchase of electricity or steam.
Companies may also track and report “optional” or “Scope 3” emissions, which are those emanating from activities that are not owned or controlled by the reporting company, and are thus not classified as core emissions. Examples of optional emissions include those associated with employee business travel, employee commuting, and product transportation.
Direct and indirect emissions can either be estimated from the use of emission factors based on a measured metric (such as the quantity of fuel combusted in a boiler), or based on mass balance methods. The majority of GHG emissions for most companies fall into the following four categories:
• Direct emissions from stationary combustion sources
• Direct emissions from mobile combustion sources
• Direct emissions from use of refrigeration and air conditioning equipment
• Indirect emissions from purchases of electricity and steam
Each is discussed in greater detail below.
Case 1. Calculating direct emissions from stationary combustion sources. The combustion of fossil fuels in stationary combustion sources results in GHG emissions of COâ‚‚, CHâ‚„ and Nâ‚‚O. Sources under this category include boilers, heaters, furnaces, kilns, ovens, flares, thermal oxidizers, dryers, generators and any other equipment that combusts carbon-bearing fuels. These emissions are generally calculated by applying factors relating GHG emissions to a proxy measure of activity (such as fuel use). If direct-measurement data are available, such as from a continuous-emission-monitoring (CEM) system, they should be used in lieu of any calculated data.
The calculation of COâ‚‚ emissions from stationary combustion sources based on a fuel analysis approach involves applying an appropriate factor (representing carbon content and fraction of carbon oxidized) to the fuel quantity that is actually combusted. Specifically, Equation (1) is used for estimating COâ‚‚ emissions:
where:
Fueli = Mass or volume of fuel type i combusted
HCi = Heat content of fuel type i (energy / mass or volume of fuel)
Ci = Carbon content coefficient of fuel type i (mass C / energy)
FOi = Fraction oxidized of fuel type i
COâ‚‚(m.w.) = Molecular weight of COâ‚‚
C(m.w.) = Molecular weight of carbon
Fuel characteristics, such as heat content and carbon coefficient, are typically obtained from the fuel supplier, or can be approximated with average default values that are provided in the Climate Leaders program guidance.7 The fraction of fuel oxidized is generally assumed to be 99% for petroleum and coal, and 99.5% for natural gas.
Unlike COâ‚‚ emissions, CHâ‚„ and Nâ‚‚O emissions depend not only on fuel characteristics, but also on technology characteristics (related to such things as equipment age, type, and efficiency), the existence of combustion-control or pollution-control equipment, and ambient environmental conditions. These emissions are estimated using emission factors based on fuel type and typical equipment components that are used by the sector (residential, commercial, industrial, electricity generation, for instance). Emission factors for CHâ‚„ and Nâ‚‚O (on a mass-per-fuel-energy basis) can be found in the Climate Leaders program guidance. These emission factors are then simply multiplied by the actual amount of fuel combusted, in terms of energy usage.
Not all stationary combustion systems burn standard fuels. Rather, today, an increasing array of combustion sources burn waste fuels or bio fuels8 instead of, or in conjunction with, standard fossil fuels. Emission factors for some waste fuels and bio- fuels are available in the same source as for standard fuels (such as the Climate Leaders program guidance). However, in cases where the fuel mixtures are varied and do not have default carbon content coefficients (such as those used with flares or thermal oxidizers), a more general emissions calculation method is required.9
Equation (2) details a molar analysis of the fuels combusted that can be conducted to determine a COâ‚‚ emission factor for waste fuels. CHâ‚„ and Nâ‚‚O emissions are typically not calculated for these fuel mixtures.
where:
MFi = Molar fraction of gas component i (lbmole i / Moles)
Moles = Total number of Moles in a specific volume of gas mixture (lbmole / scf)
m.w.i = Molecular weight of gas component i (lb i / lbmole i)
CFi = Carbon fraction of gas component i (lb C / lb i)
Table 1 provides an example of the application of Equation (2) to a combustion process involving a waste gas stream as the fuel. This methodology requires a determination of the total number of moles per volume (standard cubic feet) of the waste gas. For this example, 2.55E-3 lbmole per scf of gas is assumed, which is based on a gas at atmospheric conditions (1 atm and 25oC). Also, the total mole% of the gas stream should be equal to 100%, including non-carbon components (Table 1).
Based on the results in Table 1, the carbon-content emission factor for the entire gas waste stream is 0.0934 lb C per scf. This factor can then be used in Equation (3), which is a modified version of Equation (1) to determine the total COâ‚‚ emissions from the gas waste stream.
Emission
Factor = Carbon content emission factor of gas waste stream (lb C/scf)
Q = Volume of waste gas waste stream combusted (scf)
FO = Fraction oxidized of gas stream
COâ‚‚(m.w.) = Molecular weight of COâ‚‚
C(m.w.) = Molecular weight of Carbon
Case 2. Calculating direct emissions from mobile combustion sources. COâ‚‚, CHâ‚„ and Nâ‚‚O are emitted directly via the combustion of fossil fuels in different types of mobile equipment. The types of vehicles for which GHG-emissions reporting is required as part of a corporate inventory include highway, non-road, waterborne, rail and air vehicles. In these cases, COâ‚‚ emissions can be reasonably estimated by applying an appropriate carbon-content value and a factor for the fraction of carbon oxidized, to the fuel quantity consumed.
Typically the COâ‚‚ emissions are estimated from an energy approach of fuel combusted (in terms of volume), as provided in Equation (1).
If the heat content of the fuel is not known, the fuel density (mass/volume) can be substituted for the fuel heat content in Equation (1). If fuel density is used, a different carbon content coefficient (mass C/mass fuel) should be used. The heat content, fuel density and carbon content (in terms of energy or mass) may be available from the fuel supplier, or can be obtained from the Climate Leaders program guidance.10
CHâ‚„ and Nâ‚‚O emissions depend largely on the emissions-control equipment used (for instance, the type of catalytic converter) and the total number of vehicle-miles traveled. These emissions also vary with the efficiency and vintage of the combustion technology used by the vehicle, as well as maintenance and operational practices that are used.
Emission factors (mass per miles driven), which are based on type of vehicle and type of control technology, are commonly used to estimate these emissions. If the ability to determine the specific control technologies in use is not possible, then emission factors (mass per miles driven) based on the vehicle type and model year may be used (again, these are available in the Climate Leaders program guidance). The emission factors are then multiplied by the total miles traveled by each vehicle type.
Case 3. Calculating direct emissions from use of refrigeration and air conditioning equipment. In air conditioning and refrigeration equipment, HFCs and PFCs are widely used as substitutes for regulated ozone-depleting-substance (ODS) materials. However, these substitute gases have high global warming potential (GWP) values and thus their potential impact on climate change can be significant.
Fugitive emissions of HFC and PFC from air conditioning and refrigeration equipment occur over the life of the equipment, and additional leakage to the atmosphere often occurs after disposal, at the end of the useful life of the equipment. Table 2 shows the most widely used of these chemicals, and provides GWP values for each.
Emissions of HFC and PFC from air conditioning and refrigeration equipment are estimated using a material balance method. The specific equation for a material balance of each chemical is provided below:
Emissions = IB – IE + P – S + CB – CE (4)
where:
IB = Refrigerant in inventory (storage, not equipment) at the beginning of reporting period
P = Refrigerant purchased during the reporting period
CB = Total capacity of refrigerants in equipment at the beginning of the reporting period
IE = Refrigerant in inventory (storage, not equipment) at the end of reporting period
S = Refrigerant sold or otherwise disposed of during the reporting period
CE = Total capacity of refrigerants in equipment at the end of the reporting period
A simplified version of the mass balance approach for the estimation of HFC and PFC emissions from air conditioning and refrigeration equipment tracks the amount of refrigerant used to service new and existing equipment. The equation for this simplified mass balance method is provided below:
Emissions = PN – CN + PS + CD – RD (5)
where:
PN = Purchases of refrigerant used to charge new equipment (omitted if the equipment has been pre-charged by the manufacturer)
CN = Total full capacity of the new equipment (omitted if the equipment has been pre-charged by the manufacturer)
PS = Quantity of refrigerant used to service equipment
CD = Total full capacity of retiring equipment
RD = Refrigerant recovered from retiring equipment
Each of the mass balance approaches discussed above is carried out for each refrigerant and requires information from purchase records, disposal records, repair reports, service reports, and so on. If this information is not available, emission factors can be used to estimate emissions based on the type of equipment. The Climate Leaders program provides emission factors to estimate HFC and PFC emissions from air conditioning and refrigeration equipment as a screening method.11
Case 4. Calculating indirect emissions from purchases of electricity and steam. Indirect emissions are those that result from a company’s activity, but are actually emitted from sources owned by other entities. A major source of indirect emissions occurs through the use of purchased electricity or steam, which produces COâ‚‚, CHâ‚„ and Nâ‚‚O emissions from the burning of fossil fuels. In this case, emissions rates are derived from multiplying the amount of electricity purchased by appropriate emission rates, which are typically provided in terms of mass per energy unit (such as mass COâ‚‚/MWh).
Emission rates for electricity production are available either directly from the supplier or from published documents. These rates depend greatly on the method/type of fuel used and the efficiency of converting the fuel into electricity. Also, most electrical supply is not from a single supplier but from an electrical grid mix that may have many suppliers burning any combination of fuels at different rates depending on the season or even time of day.
Under EPA’s Climate Leaders program, an emission rate that best represents the average emissions from the electricity generation purchased should be used. Suppliers may have an average emission factor based on all electricity-providing units (base-load and peaking units) and fuels consumed. EPA’s Emissions & Generation Resource Integrated Database (eGRID) provides default emission rates in varying level of detail, available by generating company, states, North American Electric Reliability Council (NERC) regions, and U.S. averages.12 The default emission rates to calculate indirect emissions from electricity purchases for Climate Leaders Partners are the eGRID subregion grid factors.13
Emission rates for steam are also highly dependent on the type of fuel burned. Since purchased steam is typically produced very close to the facility where it is used, it should be possible to determine both the source of the steam and which fuels were combusted for its production. Therefore, the steam supplier should be able to provide a proper emission rate value.
Step 2.
Develop an inventory
management plan
An inventory management plan (IMP) is a system to institutionalize the development and management of a proper GHG inventory. The IMP is not a rigid set of requirements, but instead is a protocol developed by each company to address its unique procedures for creating and maintaining a credible corporate-wide GHG emissions inventory on an annual basis. EPA has developed an IMP checklist,14 which includes the following seven major sections (each is discussed briefly below):
1. Partner information
2. Boundary conditions
3. Emissions quantification
4. Data management
5. Base year adjustments
6. Management tools
7. Auditing and verification
1. Partner information. This section provides general corporate information, such as company name, corporate address, and inventory contact information.
2. Boundary conditions.15 Emission sources to be included in a GHG inventory depend greatly on the boundary conditions selected by a corporation. A corporation can select either an equity share approach or a control approach to define its organizational boundaries and then must consistently apply the selected approach.
The equity share approach requires that a corporation consider emissions sources according to its economic interest in the operation to which those sources belong. Typically the economic interest is aligned with the percentage of ownership. Essentially, under this scenario, a company reports a percentage of the GHG emissions, based on its share of financial ownership of an operation or facility (for example, if a company has a 40% equity share in an operation, it would report 40% of the emissions from that operation in its inventory). In the case of a GHG inventory, economic ownership takes precedence over legal ownership.
The control approach requires all emission sources to be included that fall within the control of the corporation. If a company has no control over the operation or facility, then no emissions are reported from those sources. Control is defined as either financial or operational control.
Typically, a company that has financial control over an operation or facility also has operational control. However, this may not be the case with complex ownership structures such as joint ventures. Financial control reflects the ability to direct the financial and operational policies toward the goal of achieving an economic benefit from the operations. For example, if a company wholly owns the operation, considers the operation to be a group company or subsidiary, governs the financial policies of a joint venture, or retains the right to the majority of the economic benefit from the operation then the company has financial control.
Operational control reflects the ability to fully introduce and implement operating policies at the operation. For example, if a company wholly owns the operation of and has full authority to implement operational and health, safety and environmental policies then the company has operational control.
The section of the IMP that described boundary conditions should describe which type of approach was selected for organizational boundary (such as equity share, operational control, or financial control) and why it was chosen. A list of all operations or facilities that are sources of GHG emissions should also be included, as well as the procedures used to identify each source and the specific GHG- emissions type applicable to each of the identified sources.
3. Emissions quantification. This section lists the specific methodologies and emission factors that are being used to estimate all of the company’s GHG emissions. A credible GHG inventory requires accurate data and verifiable quality-assurance procedures. The Climate Leaders program has instituted inventory protocols that are based on the existing corporate GHG-inventory protocol developed by WRI/WBCSD, and default emissions factors based on Intergovernmental Panel on Climate Change (IPCC) methodologies. These protocols require the collection and reporting of the six major GHG emissions. All emissions are reported as COâ‚‚ equivalents that are based on the GWP value of each gas.
4. Data management. A description for each data source should be included in the IMP as well as information on how the data are gathered from that data source, and where the data are maintained. The data sources may be specific operations, or may be emission categories (for example, mobile sources, refrigerants, electrical usage, and so on). Details on any normalization factors used, quality assurance procedures, as well as information on data security and storage procedures, should also be included for each data source.
5. Base-year adjustments. A company will choose a base year for its emissions inventory, which is the benchmark against which its GHG- emissions reduction goal will be measured, reflecting the most recent year that data are available when they join the program. When a significant change occurs that might compromise the integrity of the emissions inventory or the relevance toward goal achievement, then the company may retroactively recalculate their base-year emissions. This recalculation may be carried out in the event of significant changes to the data, inventory boundary, methods, or any other relevant factors.
For example, if, after the company base year, the company acquires an operation that existed during the base year, then the base year and all subsequent year inventory data are adjusted to add the emissions from the acquired operation. This adjustment is done to allow comparison of the current-year inventory data to base-year data, in order to properly track a GHG-reduction goal. The company’s best judgment may be used to define the significance of any changes that could trigger a base-year adjustment.
Significant changes that may trigger a base-year recalculation include:
• Structural changes to ownership or control (such as mergers, acquisition, divestiture, and outsourcing and insourcing of emitting activities)
• Changes in status of leased assets (ending leases or obtaining new leases)
• Changes in calculation methodology or improvement in the accuracy of emission factors or activity data
• Discovery of significant errors
Base year emissions are not recalculated if the company makes an acquisition or divests operations that did not exist in its base year. There should be a recalculation of historic data back to the year in which the acquired company came into existence. The same applies to cases where the company makes a divestment of (or outsourced) operations that did not exist in the base year.
Base-year emissions and any historic data are not recalculated for organic growth or decline. This includes any increase or decrease in production output, changes in product mix, and closures and openings of operating units that are owned or controlled by the company.
The specific corporate policies for base-year adjustments due to structural or methodology changes should be outlined in this section of the IMP.
6. Management tools. The management tools serve to identify the roles and responsibilities, training procedures and file maintenance procedures of the corporation.
7. Auditing and verification. This section identifies procedures for auditing (internal and external), management review, and how corrective actions will be taken.
Step 3.
Set a corporate-wide GHG-reduction goal and track progress toward achieving it
Setting a GHG-emissions-reduction goal is a tangible, accountable action that communicates a company’s climate strategy and commitment to all stakeholders. To ensure credibility, companies should set a goal that is:
• Corporate-wide, based on robust inventory data
• Forward-looking (able to be achieved over 5 to 10 years)
• Able to be consistently tracked over the goal period
• Aggressive compared to the sector
• Vetted with an independent third party
A credible GHG inventory is a critical prerequisite to setting a public GHG-reduction goal. Completing a comprehensive inventory is equally important to help the company fully assess its potential climate risk, and to identify all reduction opportunities that are available.
Goals should be set for 5 to 10 years out from the base year, in order to allow time for affecting real corporate change, while still establishing an endpoint that is early enough to ensure that action starts now. EPA allows goals to be expressed either as an absolute GHG-emissions reduction, or as a decrease in GHG intensity.
Absolute GHG-reduction goals compare total GHG emissions in the goal year to those in the base year. GHG intensity goals allow a company to account for increases or decreases in production over time (For more, see the box entitled “Comparing absolute and intensity targets,” p. 39).
Measuring progress toward meeting such a goal requires a robust tracking system of the corporate inventory data. In cases where a company’s GHG-reduction goal is based on GHG intensity (GHG emissions over an appropriate normalizing factor, such as units produced) the production metric used as the normalizing factor should also be included in the tracking system. The IMP described earlier helps participants to ensure that the goal is being tracked effectively.
What the EPA considers an aggressive goal may vary for different sectors and for different companies depending on a variety of factors.16 Therefore, ensuring a credible company GHG-reduction goal can be difficult. Setting a goal that demonstrates true climate change leadership is best viewed as an iterative process that requires the buy-in of senior management, involvement from staff at all levels of the company, and the input of an independent third party. To guides its efforts, the company should:
• Seek input from individual business units
• Develop business, engineering, and GHG-emissions scenarios
• Conduct benchmarking research on the climate strategies of similar companies
• Explore public relations and business implications of various goal proposals
• Develop a risk estimate and plan for managing that risk
Finally, the input of an independent third party — such as nongovernmental organizations (NGOs), and voluntary government initiatives such as EPA’s Climate Leaders — can lend credibility to the goal-setting and tracking process, and can provide valuable impartial advice for the participants. For example, third-party experts might have their own benchmarking tools,17 experience working with other companies in the same sector, or a strong understanding of public relations that the company might not have considered before.
Final thoughts
By following the steps outlined here, companies can create a meaningful corporate climate-change strategy that is relevant, complete, consistent, transparent and accurate, in accordance with standard GHG-inventory and management practices. Partnering with a third party, such as EPA, helps lend credibility (and can be a useful source of technical guidance) to corporate climate-change efforts. The Climate Leaders program, in particular, provides participants not only a framework for developing a robust corporate strategy, but also extensive technical assistance and guidance documents for estimating emissions, developing an IMP, and setting appropriate goals to ensure that each company establishes accurate GHG inventories, and realizes verifiable and meaningful reductions. Readers are encouraged to visit the Climate Leaders website, for more information and technical guidance: http://www.epa.gov/climateleaders.