GHG Inventories: from compliance to performance - the roadmap for corporate responses to climate change

16 October 2012

by Braulio Pikman

It is now 15 years since climate change was included on the agendas of the largest corporations on the planet. In the beginning, it was a race to identify mitigation projects that could result in enhanced profits (carbon credits) with little understanding of the risks represented by the stakeholders’ perceptions of climate issues. Later, it was a matter of understanding “where do we sit?” by starting to track “scope 1” emissions (direct emissions from operations).

In 2002 the WBCSD/WRI published the first version of the GHG protocol that represented a milestone for guidelines on the preparation of a comprehensive GHG inventory introducing, among many other valuable concepts, the role of the supply chain (indirect emissions) in a more holistic view of the climate impacts. This supply chain approach is still a matter for discussion and development.

Large multinational companies that were more exposed to what was to be known as “the climate risk,” such as the oil and gas, power, cement and mining sectors, dedicated significant energy and investments to implement tracking tools and systems that could monitor and deliver their GHG inventory on a near real-time basis. In this period, Europe and Japan were deciding on National Allocation Plans and demanding the preparation of annual inventories at a national level to comply with Kyoto agreements.

The compliance phase (for regulation or for internal corporate standards) started with corporations in developed countries and spread worldwide as a self-regulating effort in countries that had no policies or regulations.

Conflicting Opinions & Actions

In recent years, conflicting opinions and actions arose alongside the growing perception that climate risk is real.  The U.S. mandated a comprehensive emissions tracking process (USEPA’s Mandatory Reporting Rule or MRR).  There was a deterioration of the carbon markets, the defection of Japan and Canada from the Kyoto Protocol, and the resistance of the U.S. in joining Kyoto. 

However, at the corporate level, the broader understanding of how GHG inventories contribute to managing risks and opportunities related to efficient and rational use of energy, use of renewable energy, and sustainable performance, led to a new level of attention, complexity and detail in their inventories. In the U.S. the USEPA MRR triggered this more detailed and comprehensive approach by incorporating requirements at the individual equipment level that were not explicitly required in any other guidance; either national or prepared by international organizations (e.g. GHG Protocol, ISO 14064, etc.). 

The adoption of information technology tools was the natural trend to deal with this new level of complexity and is now allowing for:  faster and more comprehensive coverage of corporate performance, the adoption of methods that are based on bottom-up approaches with maximum granularity, and verified information on a process or equipment basis that was not possible using spreadsheet tools. Finally, linking GHG emissions and other parameters that are relevant and critical for corporate-wide operations has resulted in company-wide actions such as the introduction of GHG key performance indicators that reflect on every employee’s performance.  The most robust corporate systems tend to track GHG plus the whole suite of environmental and social indicators with the same level of accuracy as they track financial performance, meaning that environmental and social issues will soon have, if not already have, explicit monetary value.

Enhanced management practice

IT tools are a fundamental step and form the foundation for a new and enhanced management practice.  Once the effort for granular data acquisition is overcome and maintained, EHS managers are dedicating themselves to developing performance indicators that in many cases (GHG being one of them) are extensively linked to operational parameters.  For example, in the case of GHG from combustion, the calculations require fuel properties and flow, so the GHG inventory must be linked to the material balance for fuels and may allow for energy balances for many thermal processes.

ERM is involved in all phases of this journey together with several global corporations.  Make no mistake, this is not a one year task.  It involves significant change in the culture of the business. The investment pays off.  We have already observed consistent results in some of the companies with which we work.

We have observed GHG inventories being used to organize and optimize the use of combustion equipment corporate-wide (e.g. 200 gas turbines distributed across a continent being relocated to sites where the power demand is best suited with the machine design and capacity) or scaling up measures that do not appear to be significant when implemented in a single plant, but that give material results if applied globally (e.g. the adoption of a new generation of combustion controls in refineries or steel mills, corporate-wide).

The list has no end and the opportunities are immense. ERM’s experience is that most plant engineers have the knowledge to improve performance and with the appropriate operational information and tools (automated global and granular inventories, material and energy balances, etc.), they will be able to transform these data into investment opportunities and indicators that can further stimulate performance improvement.

New era

It is a completely new world and level of control for corporate-wide management, with full vertical clarity from the highest level of management down to the individual equipment in a plant.  In this new era, it is not only possible to track operational, environmental and social performance as is currently done with financial parameters, but it is also possible to attribute financial value to them. Further, it is also possible to convert complex technical data into graphics and pictures that managers will surely understand (e.g. Sankey diagrams for material, energy and GHG emissions).
Decision makers love these concepts: control and performance.

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