The Definitive Guide To Carbon and Climate Commitments:
How to Choose and Report on Your Sustainability Initiatives
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Every day we hear something new about climate change, greenhouse gases, carbon credits, cap-and-trade markets, carbon footprints, sequestration, environmental regulation, and so on. And we hear the names of many organizations that are taking action: the UN releasing a report; the California Air Resources Board setting emission rules for cars sold in California; Apple or PepsiCo saying they will reduce their greenhouse gas inventory by half in 10 or 15 years; or a power generation company using carbon credits to offset a portion of their emissions to meet requirements under a cap-and-trade system.
How do all of these organizations and systems relate to each other? As a representative for your company, which pieces of the puzzle matter most to you? What can you expect when your company needs to take action on its emissions?
The general principles for decreasing greenhouse gas emissions and carbon footprints are simple and straightforward. However, until recently, implementation was always the challenge. While improvements to ease and accelerate adoption of GHGe and CO2e reducing initiatives are ongoing, new standards and organizations continue to emerge.
For much of the last 30 years, the focus has been on reducing the negative impact of power generation and transportation. Now, CIBO Technologies and others are working to bring principles and practical implementation programs to life for agriculture. In this publication, we explore how the pieces all fit together.
To understand how climate protocols and environmental awareness are organized today it helps to look at where we have been. There are three different phases of environmental awareness and protocols for action:
For this primer, we will start in the mid-1980s, when the world was taking action to reverse damage to the ozone layer. This layer of the earth’s stratosphere absorbs more than 95% of the sun’s high-frequency ultraviolet light that might otherwise be harmful to life on earth. Researchers first observed in 1973 that ozone in this layer was being depleted.
In the following years, more evidence was collected, and an understanding of why it was happening was developed: man-made gases released into the atmosphere — including chlorofluorocarbons (CFCs) used in refrigeration systems — were steadily destroying atmospheric ozone. In 1987 the Montreal Protocol, a treaty designed to protect ozone by phasing out the use of CFCs and other ozone-depleting substances, was universally ratified by the members of the UN. This was huge, and by UN standards very fast: only 14 years from the first discovery to a worldwide treaty. By 2012, 98% of the ozone-depleting substances targeted in the Montreal Protocol had been phased out, ozone levels in the stratosphere were shown to be improving, and climate models showed the ozone layer was expected to return to its 1980 levels by 2070.
This was one of the earliest signals that humanity could work together through regulation, incentive and innovation to help restore the environment and reverse some aspects of climate change.
By the time the Montreal Protocol was signed, other human-induced atmospheric changes were also being observed. Researchers were warning of climate change in general and global warming in particular caused by other common gas emissions: carbon dioxide, methane, nitrous oxide, and several other gases that became collectively known as “greenhouse gases” (GHG) and their equivalents (GHGe). These gases worked either directly or indirectly to enhance the greenhouse effect, which caused more of the sun’s energy to be retained in the atmosphere, effectively warming the planet.
On the heels of the Montreal Protocol, the Intergovernmental Panel on Climate Change (IPCC) was formed by the UN in 1988. The IPCC’s mission was to report on the science of climate change: data collection and reporting; climate change causes; how can we expect things to change in the future; etc. Two of the main products of the IPCC have been a series of six Assessment Reports (1990-2021) that provide assessments of the latest data and model predictions available from the scientific community, and three Guidelines for National Greenhouse Gas Inventories (1996, 2006, 2019) that provide a framework for calculating a country’s greenhouse gas inventory.
The Montreal Protocol was a single agreement negotiated through the UN. To handle the broader needs of negotiating new treaties for addressing climate change the United Nations Framework Convention on Climate Change (UNFCCC) was established in 1992. After several years of discussion and negotiation guided by the UNFCCC, the Kyoto Protocol was signed in 1998. The Kyoto Protocol laid the groundwork for many future carbon programs, both public and private:
The gases other than CO2 were included because they are far more powerful as greenhouse gases than CO2, so even small amounts of them can have a dramatic impact. Methane, for example, has a 100-year “global warming potential” of ~25, meaning a ton of emitted methane will absorb about 25 times as much energy as a ton of emitted CO2. Thus, the global warming potential of SF6 is nearly 23,000.
Until the late ‘90s, most climate change activities had focused on growing the scientific body of knowledge and developing international cooperation frameworks. Since then, those activities have continued and even accelerated. The Kyoto Protocol became effective in 2005, and its first “commitment period” — the window in which signatories were to meet the emission targets they had agreed to under the treaty — began in 2007. After that, the CDM and JI began operating, enabling funding for emission reduction projects worldwide.
During the early 2000s, other carbon trading systems were also being established. The EU Emissions Trading System became active in 2005, new regulatory schemes went into effect for California (2004), and in certain industries in the northeastern U.S. (2009), and many others.
But attention was also shifting to action in the corporate world. In 2001 the Greenhouse Gas Protocol, which had been founded in 1998 by the World Resources Institute and the World Business Council for Sustainable Development, published the GHG Protocol Corporate Standard. This standard created a framework for corporations (or any organization) to use in creating robust, transparent, and meaningful greenhouse gas inventories (also known as carbon footprints).
The Corporate Protocol also introduced the concept of emission scopes (described later) that became a widely-adopted shorthand for classifying a company’s emissions. After several years of publishing foundation standards establishing rules and language, the ISO began publishing the first of its greenhouse gas accounting standards in 2006, followed by more from the British Standards Institution in 2008. Since then, the standards published by these groups have converged and today are very similar in most respects.
Another organization formed in 2000 was the Carbon Disclosure Projects, now known simply as CDP. CDP provides a platform through which organizations can publish their greenhouse gas inventories and scores for companies and cities. Those whose carbon disclosures score highest are included in annual “A-Lists”.
The early 2000s also saw the formation of several new greenhouse gas registries, such as Climate Action Reserve, Gold Standard, and Verified Carbon Standard (now called Verra). The American Carbon Registry had been founded in 1996 as a private carbon trading system, but its published protocol documents appear to date from 2009.
Early on, these registries played important roles in regulatory programs, especially in California. They also created voluntary programs where emission-reduction projects could be funded by organizations looking to voluntarily offset any emissions they were unable to eliminate. These markets started off slowly due to a lack of demand.
Offsets are most known as tools in regulated markets where organizations are legally compelled to comply with emission limits. The Kyoto Protocol, EU Emissions Trading System, and California cap-and-trade programs were the first large-scale regulated markets, but now there are many others all over the world. In regulated markets, carbon credits often play a significant role since in theory, they provide an efficient means to reduce emissions across organizations and nations.
In voluntary markets, emissions reductions are driven not by legal requirements but by other factors:
A company that is not legally bound to reduce its emissions might still seek to reduce its emissions to entice investors or make its products more appealing to environmentally conscious consumers. In the mid 2010s, it was hypothesized that corporate sustainability goals could help business. These hypotheses have since been proven. Forbes outlines 6 ways in which corporate sustainability helps business. These include creating additional brand value and competitive advantage, especially as more than 65% of consumers have demonstrated willingness to pay more for similar, sustainably produced products. Harvard Business Review has performed even deeper analysis and found that incorporating sustainability and regeneration into business decreases risk, improves financial performance and fosters innovation. Such companies will face the same insetting vs. offsetting options as a company in a regulated market. But lately, organizations looking to reduce their emissions voluntarily are being called upon to achieve reductions without the use of offsets.
Consider this thought experiment: You are the Chief Sustainability Officer of Acme, Inc., an electricity producer in California. Your main responsibility is to lower Acme’s emissions below the limits assigned to Acme under rules set by the California Air Resources Board (CARB). Last year Acme performed an audit of all of its greenhouse gas emissions. When performing this audit you learned a lot about where Acme’s emissions are coming from. As expected, they are dominated by Acme’s various production plants. So what will you do?
The simplest approach would be to use insetting first to reduce emissions when costs and investment for internal changes are reasonable, then offsetting for the rest. Let’s look at a couple of simple examples.
Insetting means making changes in the company’s value chain that reduce its own greenhouse gas emissions. An example might be closing a coal-fired power plant that emits more CO2 per megawatt-hour than any other plant in Acme’s portfolio. Or if this plant still has a lot of usable life left in it, converting it to use natural gas, which emits much less CO2 per megawatt-hour than coal.
Offsetting means paying others to reduce their emissions, then discounting your emissions by the same amount. Let’s say you have done all the insetting that your schedule and budget will allow this year, but Acme is still above its CARB-mandated emissions cap. You have learned of a relatively inexpensive opportunity to pay for a project that promotes the use of regenerative agriculture practices. The project was created specifically to provide these “carbon credits” for companies like Acme, and it is administered through a CARB-certified registry (Verra, Climate Action Reserve, or American Carbon Registry) that ensures the project and its greenhouse gas reductions are genuine. You buy enough of these credits from the project proponent and then “retire” them to offset Acme’s emissions below the cap set by CARB.
This brings us to the early 2010’s. The Kyoto Protocol was in effect and would be renewed in 2013 (though without some of the initial parties) and standards bodies and registries continued to develop new standards and protocols while also refining older ones based on new information and lessons learned.
In 2014 the IPCC published its Fifth Assessment Report (or “AR5”). The AR5 described many findings from recent climate change research and drew a number of conclusions that would prove pivotal in the coming years:
At about the same time, a new treaty was being negotiated under the auspices of the UNFCCC. This treaty, which was intended as a successor to the Kyoto Protocol, became known as the Paris Agreement and was signed in 2016. The main outcome of the Paris Agreement was a commitment to keep the increase of average global temperature “well below 2°C” relative to pre-industrial levels. A strong push had been made to make this “below 1.5°C”, but that was unsuccessful.
Then in 2018, the IPCC published another report, Special Report on Global Warming of 1.5°C. Among other things, the report warned of dire consequences if the average global temperature increases more than 1.5°C above pre-industrial levels: rising sea levels, dramatic weather changes, collapsing ocean ecosystems, etc.
Meanwhile, efforts to encourage corporate action gained momentum. In 2015 an organization called Science Based Targets (SBT) was formed by several international organizations. SBT provides a platform on which organizations can publicly declare their intentions to reduce their emissions. If SBT determines that the declarations are science-based — that is, that they are aligned with scientifically-supported recommendations for limiting climate change — then the company is certified as having a science-based target. SBT quickly adopted terms from IPCC recommendations and the Paris Agreement to identify specific targets.
For example, as of August 2021, a company’s emissions reduction target must be consistent with limiting the global temperature rise to “well below 2.0°C” to be considered science-based. These criteria (there were 24 as of April 2021) are modified over time based on the latest climate science. A reduction target declared after June 2022 will be certified as science-based only if it is consistent with recommendations to limit global warming to 1.5°C.
One of the main motivations for the use of carbon credits came from a simple economic argument: they provide an efficient mechanism to fund emission reduction projects that a) deliver larger emission reductions at less cost than other alternatives; and b) would not happen without the injection of additional funding.
Consider another example for Acme, Inc. Let’s say Acme finds that the best option for reducing its own emissions would cost $50 per tonne-year of reduced emissions, and that another organization, Trash Removal Services (TRS), has a proposal to reduce their emissions at a cost of only $10 per tonne but cannot fund the project itself. So for the same cost of reducing their own emissions by one tonne, Acme’s $50 could instead pay for TRS to reduce their emissions by five tonnes. That’s a lot more efficient, right? Simple!
As often happens, it’s not that simple:
Dealing with these questions and ambiguities has led to the creation of standards and practices that attempt to level the field for all players.
Nearly every corner of modern industry is affected by general standards that allow regulators, investors, companies, consumers, and other entities to easily exchange products and information.
Consider a few examples:
With the rising importance of environmental accounting over the last 20 years, standards have also been developed for defining, measuring, and monitoring environmental processes, including emissions and CO2e equivalents. Consider a partial list of questions that stakeholders must address when accounting for and reducing emissions:
Without standards, entities will answer these questions in different ways, making it much more difficult for one entity (e.g., an investor) to understand the emissions report of another (e.g., the greenhouse gas inventory released by a company). To fix this a wide variety of standards and protocols have been published to answer these questions in a consistent way and ensure that everyone is speaking the same language:
Let’s continue our Acme, Inc. example. Acme needs to know that the credits it is buying from TRS to offset its own emissions represent actual emission reductions (i.e., that there is real value behind the asset it is purchasing). The simplest way to do this is by buying the credits from a third-party registry (Verra, American Carbon Registry, Climate Action Reserve, etc.) that has done the work to insure the credits are genuine (because an independent third party has certified that the credits were created through strict adherence to one of the registry’s protocols).
The process would look like this:
As with most asset valuing systems, ensuring trust is vital to most greenhouse gas programs, especially those involving carbon credits. Modern programs include extensive checks and validation requirements to reduce the risk of confidence-sapping events caused by methodological errors and bad actors that have been seen as programs have matured over the last 30 years.
But who ensures that the rules are followed? How do we know that all of those checks and validation requirements were faithfully followed? The most common features of programs looking to secure the trust of all stakeholders are transparency and third-party audits.
Consider some examples:
These registries also require independent third-party verification at several stages of their processes:
These registries generally publish a list of accepted independent third-party verifiers and criteria that must be satisfied to add new organizations to the list.
As mentioned earlier, the “scopes” originally defined by the Greenhouse Gas Protocol have become a popular way of categorizing emissions.
The three scopes are:
In all cases the “Kyoto Seven” gases described earlier must be tracked. Standards and protocols allow optional tracking of other emissions as well.
When discussing greenhouse gas accounting three types of document are frequently cited: a corporate greenhouse gas inventory, a product inventory, or a reduction project report. Note that “footprint” is often used as a synonym for “inventory”.
A corporate inventory is an accounting of the greenhouse gas emissions a company is responsible for. One of the first requirements in documenting the inventory is to choose the organizational and operational boundaries:
Once the boundaries are selected, the work of actually measuring and reporting the emissions begins. Many organizations provide guidance on how to do this, and a wide array of consultancies are available to accelerate the learning and execution processes. And new approaches and technologies — such as those developed at CIBO for agriculture — are being developed to independently quantify and validate ag-related emissions and simplify the process of assessing Scope 3 emissions.
In most cases, a company that meets one of these standards will also meet the other. If you are pursuing certification under one of these standards, the additional cost of certifying yourself under both is likely minimal and might placate stakeholders that prefer one over the other.
A product inventory — often called a product carbon footprint, or PCF — is an accounting of the greenhouse gas emissions required in the lifecycle of a product. Which parts of the life cycle are included depends on the type of inventory.
The most common types are these:
Because these inventories include emissions both upstream (cradle) and downstream (grave, or back-to-cradle) of the company that makes the product, they effectively include portions of the company’s Scope 1, 2, and 3 emissions. In theory, combining product inventories from all of a company’s products and services should give the corporate inventory. But in practice, this is difficult and not required.
Corporate and product inventories are designed to assess the total emissions associated with their subjects. An emission reduction project is intended to measure how much emissions are reduced when specific actions are taken. This is an important difference: projects are designed to connect a cause (e.g., reduced fertilizer use in agriculture) with its effect (reducing NO2 emissions).
As used in the emissions reductions world, a project is something that can be funded in order to reduce emissions. They are used extensively in carbon credit systems that tie the cost of changes (such as reducing fertilizer for growing corn, including any impacts on crop yield) to the value of resulting carbon credits (the effect). Whenever cost is less than the resulting value, there is potential for carbon credit buyers to fund these projects to reduce emissions.
Any credits that emerge from a project are real assets. Real money is spent to buy them. Buyers and auditors must be assured that the credits are worth what they are paying for, namely an assurance that the project lowered net emissions. To provide this assurance, most carbon programs delivering credits require that each project satisfy several criteria before getting started:
Let’s say Acme, Inc. needs to reduce its net emissions. After reporting its own greenhouse gas inventory it has a deep understanding of its own emissions and where they originate. Think about the short- and long-term differences between these two scenarios:
Note option 1 corresponds to “insetting” and option 2 would be “offsetting”. One benefit of the insetting approach is that it avoids the extensive bureaucracy required by carbon credit programs to ensure the authenticity of the credits. And it is not subject to policy-related concerns like additionality.
What should Acme do? In reality, there will be many more facets to the decision, but recent developments in climate science tell us it is increasingly important to ensure all organizations adopt long-term zero-emission targets. This suggests it is important for Acme to embark on reducing its own emissions, and for finding ways to fund emission-reduction measures in businesses that otherwise would not be able to make those changes.
Acme is doing it! You have started down the road to reducing emissions. You have a plan to cut them in half in 10 years and have even discussed net-zero targets by 2045. Great!
One of the benefits of reducing emissions is having other people know about it. Investors, consumers, and other stakeholders often want to know whether a business is active enough in reducing its emissions. How do you realize the benefits of your investments?
Aside from conventional marketing and making sure your story is told, many organizations funded by nonprofits and NGOs have been created to give leading companies a stage from which to declare their progress. Here we will look at two, the Carbon Disclosure Project (now branded as just “CDP”) and the Science Based Targets initiative (SBTi).
CDP was founded in 2000 as a platform for organizations to publicly disclose their greenhouse gas inventories and progress toward reduction commitments. CDP now also accepts public disclosures on forests and water security. It has a scoring system for each area and publishes annual “A Lists” for companies and cities that earn an “A”.
CDP Climate Change disclosures take the form of questionnaires that explore the details of the company’s activities. It provides a description of its scoring system which includes factors relating to completeness, awareness, management, and leadership. To earn an “A” a company has to score well in all areas and publicly disclose a greenhouse gas inventory that has been certified by an accredited, independent third-party auditor.
The Science Based Targets initiative was founded in 2015 in the leadup to the approval of the Paris Agreement. The organizations behind it include the World Resources Institute, World Wildlife Fund, the UN Global Compact, and CDP.
While the CDP accepts public disclosures of a company’s current status and progress toward goals, the SBTi provides a platform for companies to declare future targets for reducing their emissions. SBTi then judges whether the company’s targets are science-based, meaning they satisfy criteria that prove the targets are “in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement – to limit global warming to well-below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C.” Companies whose targets pass the SBTi acceptance criteria are recognized publicly by SBTi.
The specific targets needed for a target to be “science-based” are subject to change based on new climate change research. And in the future, companies will need to revise their targets every five years to satisfy the then-current criteria. This has already happened at least twice:
As of April 2021 there are 24 criteria and 13 recommendations for determining whether a target is science-based. For example, to be science-based a target must…
The SBTi is also a sponsor of Business Ambition for 1.5°C, an initiative to promote aggressive emission reduction targets, in particular for net-zero emissions by 2050.
This primer is intended to provide a high-level overview of greenhouse gas programs. You probably know there is an entire industry of organizations who play a role in these programs, and that many of these organizations offer consulting services to assist you with developing plans for reducing emissions. Many times these services are required, such as third-party certification by companies like Aster Global, SCS Global, or dozens of others. Most can readily supply a list of partners they work with.
Hopefully this primer into greenhouse programs has been helpful in understanding some of the history and the relationships between different organizations and processes when taking action on climate change. Many specific organizations have been referenced here, mostly as helpful examples and to make connections to names you are likely to have heard already. We do not specifically endorse those organizations and encourage readers to learn about alternatives before engaging with any of them.