What Companies Need to Know About Reporting Scope 2 Emissions
When companies disclose their emissions to environmental disclosure reporting organization CDP (formerly Carbon Disclosure Project) this year, they will need to calculate their scope 2 emissions from purchased electricity differently, using the new GHG Protocol Scope 2 Guidance. Getting a handle on how to report scope 2 emissions now will make it easier for organizations to complete their CDP climate change reports, due June 30.
“And even if they are not responding to CDP, if they are publicly disclosing their greenhouse gas emissions, they should be reporting both location-based and market-based scope 2 emissions totals because that’s what the rest of the world will be doing, so you’ll want to have both numbers in your sustainability report,” said Lisa Barnes, Bureau Veritas practice line leader for sustainability and climate change services, in an interview. “That’s what the GHG Protocol, which almost everyone uses, requires. And if you want to say you are following the GHG Protocol, you will need to report both numbers.”
Scope 2 is Now 2 Numbers
Companies’ scope 2 emissions used to be just one number. However, last year the World Resources Institute and World Business Council for Sustainable Development modified their reporting requirements relating to emissions from energy usage. The new scope 2 guidance, an amendment to the widely used Greenhouse Gas (GHG) Protocol Corporate Standard, gives companies a way to show how different types of electricity purchases — such as renewables — count toward their emissions targets by introducing the “market-based method.” Now companies need to report two numbers for scope 2 emissions: a location-based scope 2 total, which represents the GHG intensity of the grids where its sites operate; and a market-based total, which takes into account emissions from energy contracts and instruments (such as renewable energy credits).
“In the past there was no guidance regarding location-based or market-based reporting,” Barnes explains. “Each company could interpret the standard and decide how to report. Companies reported differently and that was one of the reasons that the scope 2 guidance and the new requirements for location-based and market-based were developed.
“The market-based total takes into account dirty energy or clean energy — where you are purchasing your energy and if you are making conscious effort to purchase from a specific supplier as opposed to just buying off the grid,” Barnes continuess. “A lot of times this green energy, clean energy.”
The new guidance means reporting programs will require companies to provide this additional information about their scope 2 emissions. CDP updated its annual climate change questionnaire to reflect the new guidance; The Climate Registry also updated its General Reporting Protocol per the scope 2 reporting changes. In 2014, 86 percent of Fortune 500 companies that responded to the CDP used the GHG Protocol.
Every year CDP asks companies to respond to its climate change questionnaire and then publishes a report that grades companies efforts to mitigate climate change. It also publishes a list of companies that refuse to respond to its questionnaire. Though companies’ disclosures, CDP has amassed what it says is the most comprehensive set of global corporate environmental data.
Investment in Renewable Energy on the Rise
The old reporting requirement wasn’t an effective way to report on scope 2 emissions because it doesn’t take into account the choices companies have for low-carbon electricity supply, like power purchase agreements, electricity contracts, on-site versus off-site projects, and renewable energy certificates, all of which can vary by country.
Investment in renewable energy has expanded to $310 billion in 2014, compared to $60 billion a decade ago, according to the World Resources Institute. But, the research organization says, uncertainty on how to report emissions from purchased renewable energy has impeded corporate investment in, and demand for renewable energy.
But the new guidance does present new challenges to reporting companies.
“The main challenge is reading and understanding the scope 2 guidance — it’s about 125 pages — and the other major challenge for market based is getting supplier-based emissions factors,” Barnes says.
Many companies have purchase agreements with several suppliers, which, traditionally, do not provide emissions factors specific to the energy they provide. “So companies are struggling with how far do I need to go to get that,” Barnes says. “ Come companies are doing a deep dive and contacting every single one of their suppliers. But based on our discussions with WRI, the GHG Protocol preparers, they don’t need to go that large or to that extent. It’s going to be hard to get that information from suppliers for while.”
Despite challenges, some companies including Mars, Facebook, Google and EDF Energy are already using the new scope 2 guidance. “With the wide range of options for supplying renewable energy both on and offsite, this updated guidance is a welcome addition to the GHG Protocol that will accelerate progress,” says Kevin Rabinovitch, global sustainability director, Mars Incorporated. “Case in point, this guidance helped Mars decide to create a 200 MW wind farm in the United States last year.”
Mars’ wind farm also shows how the new scope 2 guidance can help companies set sustainability goals.
“If companies plan to invest in RECs or some other kind of green-power agreement, then they may want to set their goal based on their market-based emissions,” Barnes says. “If they are really focused on reduction and efficiency, they may want to set their goal based on location-based.”
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