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:
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.
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.
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.
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.
CIBO achieves the sustainability goals of our partners by leveraging our scaled software platform to develop, deploy and manage sustainability programs that combine advanced, science-based, ecosystem modeling, AI enhanced computer vision, MVR capabilities, and the most complete programs engine to connect growers, enterprises and ecosystems.