Greenhouse Gas Emissions Learn how to correctly analyse this topic.

Sarah Simon

16 min Read Time | August 10th 2021

Key Takeaways

1

When assessing a company’s GHG emissions, make sure to look at the different Scopes (1, 2, and 3), and be critical when evaluating the disclosed information.

2

Different gases have different effects; therefore, it is essential to evaluate how much of the gas is released into the atmosphere, how long it will last/its persistence, and how strong is its effect.

3

GHG emissions are an output; however, it is essential to include the impact of these emissions in the analysis. This will improve the analysis’s readability and enable readers to rate it easily. For instance, information on how and how much these emissions contribute to climate change, if the industry's emissions are in line with the Paris Agreement, or/and natural catastrophes, or/and biodiversity loss will improve the impact analysis.

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What Are They?

Greenhouse gases (GHG) are gases that contribute to the greenhouse effect on Earth by trapping gases into the atmosphere.

By order of abundance in the atmosphere, GHG are:

  • Water vapour (H2O)

  • Carbon dioxide (CO2)

  • Methane (CH4)

  • Nitrous oxide (N2O)

  • Ozone (O3)

  • Chlorofluorocarbons (CFCs)

  • Hydrofluorocarbons (includes HCFCs and HFCs)

Most of these gases are naturally present in the atmosphere. They are not directly harmful to humans or animals’ health (except ozone (O3) above concentrations of about 0.1 ppm). However, human activity has increased their concentration, creating a warming effect with rippled effects on the environment and society.

Others are pure products of human activity (CFCs, HCFCs & HFCs).

According to the EPA, the impact of these gases on climate change depends on three key factors:

How much is in the atmosphere?

  • Concentration is the quantity of a particular gas in the air - increased emissions of GHG emissions result in higher concentrations in the atmosphere.

  • When measuring GHG emissions, two measures are commonly used:

1. “CO2 equivalent” units of CO2 (CO2e)

2. Another measure is the atomic weight, typically “carbon.”

However, converting GHGs to kg of carbon is not helpful as it does not compare different GHGs.

Please use CO2e. Make sure that the metrics are actually comparable to GHG emissions (such as by looking at CO2e and not CO2). CO2 emissions make up 76% of the CO2e.

Companies in their reports mention their data in CO2e, while some sites that give per capita emissions use CO2 metrics. Therefore, please convert CO2 to CO2e (equivalents) for an accurate comparison.

How long do they remain in the atmosphere?

  • These gases can stay in the atmosphere for different amounts of time, ranging from a few years to thousands of years. However, these gases remain in the atmosphere long enough to become well mixed, so the amount measured in the atmosphere is equivalent worldwide, regardless of the emissions’ location.

How strongly do they impact the atmosphere?

  • Some gases are more effective than others at warming the planet. For each greenhouse gas, a Global Warming Potential (GWP) has been calculated to reflect how long it stays in the atmosphere on average and how strongly it absorbs energy. Gases with a higher GWP absorb more energy, per unit of mass, than gases with a lower GWP, thus contributing more to warming Earth.

The IPCC considers 6 GHGs to be relevant for human-caused climate change:

Greenhouse Gas

Global Warming Potential

Carbon dioxide (CO2)

1

Methane (CH4)

25

Nitrous oxide (N20)

298

Hydrofluorocarbons (HFCs)

124 - 14,800

Perfluorocarbons (PFCs)

7,390 - 12,200

Sulfur hexafluoride (SF6)

22,800

Nitrogen trifluoride (NF3)

17,200



Caution
  • “CO2e” (e standing for “equivalent”) takes into account the various greenhouse effects of these gases in terms of warming and lasting. This is a simple unit that agglomerates ALL GHG.
  • Even if the individual warming effect can be mentioned in an analysis, it can be misleading to state that, for example, methane (CH4) has 25 times more GH effect than CO2, as this is already accounted for in the CO2e reporting.


Sources:

https://en.wikipedia.org/wiki/Greenhouse_gas

https://www.epa.gov/ghgemissions/overview-greenhouse-gases

E SDG PRINT 13

SDG Choice

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Introduction

The introduction should describe the broader impact issue to set the stage for the reader.

Provide context information about the impact of greenhouse gas emissions on the planet and the urgent need to reduce emissions to mitigate climate change. Then, dive into the contribution of the particular industry to global GHG emissions.

Core Analysis

Mention the total amount of greenhouse gases emitted by the company in a year. Ensure to report on the most recent year for which data has been disclosed by the company or external sources.

Since the Kyoto Protocol and many mandatory reporting initiatives from governments, most companies disclose their GHG emissions (although not always fully*) in their annual CSR/Sustainability report or sometimes CDP report (you can use it if it is publicly available).


When analysing a business's emissions, you should segment the emissions by the three Scopes.

Scope 1 – All Direct Emissions from a company's activities or under its control. It includes fuel combustion on sites, such as gas boilers, fleet vehicles, and air-conditioning leaks.

Scope 2 – Indirect Emissions from electricity purchased and used by the company.

Market vs. location-based emissions

  • Location-based emissions are calculated through the average of all the emissions from energy production sources that supply the grid a company uses in a specific country or region.

  • Market-based emissions are claimed through certificates to specify what kind of energy the company is buying.
    • It is worth mentioning that these certificates can be from non-renewable sources. For example, a company can deal with an energy company that produces energy through coal to buy an x amount of power at a fixed price for a year. They would then issue a certificate to show the company's energy was this specific energy that the company supplied to the grid.

    • Market-based emissions can tell us how committed a company is to reducing energy-related CO2 emissions. If its market-based emissions are higher than location-based, it probably buys non-renewable energy certificates (cheaper in some instances). And if market-based CO2 emissions are lower, that means the company is making an effort to purchase renewable energy.

    • When companies report both location and market-based emissions, please report the market-based emissions.

Scope 3 – All Other Indirect Emissions from activities of the company occur from sources that they do not own or control.

  • These are usually the most significant share of the carbon footprint, covering emissions associated with business travel, procurement, waste, and water.

*Often, companies do not disclose their Scope 3 emissions fully. You must be critical in your analysis and go beyond the company's CSR report. Explain whether their Scope 3 emissions should be higher than reported. For example, a bank reports its Scope 3 emissions as business travel, commuting emissions, etc. However, it often does not consider the emissions from its investments, which can be carbon-intensive.


For Financial Institutions:
CDP reports that Scope 3 emissions are 700x their direct emissions (Scope 1) here. If companies disclose part of their Scope 3 (like through business travel for their employees), then the analysis can state that it is just the tip of the iceberg, but it is Scope 1*700. We can trust their numbers for the few companies that report all of their Scope 3 emissions, like the company ABN AMRO in partnership for carbon accounting financials. This will allow us to have consistency in reporting GHG emissions for companies in this sector.


If the company only reports on CO2 and not CO2e (or GHG emissions), you can use a proxy to estimate total GHG emissions.

This source shows that carbon dioxide makes up 76% of the total GHG emissions.

After reporting the company's overall emissions, you should benchmark these emissions. This will help readers assess the scale and value of the impact.


How can you do that?

  • Translate the company's emissions to an easier-to-understand unit by using the EPA Equivalencies calculator or comparing it to countries, corporations, or households' GHG emissions.

For example:

    • World annual GHG emissions = 50 billion tonnes
    • Switzerland's total yearly emissions = 40 million tonnes

    Source: https://ourworldindata.org/

  • Then, compare the company's emissions with the industry average or a close competitor if that number is not available*. Learn more about the types of comparisons in this article.

  • If possible, analyse what share the company's emissions represent in the overall industry's emissions.

*Please always check that Scope 3 is comparable. There are 15 categories within Scope 3, and not all companies report on each.

For instance, we cannot compare a company's Scope 3 emissions to that of its competitor if the former only included emissions from commuting and the latter on commuting, use of sold products, and others.


Thresholds: There are no thresholds for this topic. GHG emissions are a critical impact that all companies have across all industries.

Caution

Avoid comparing the company's year-on-year GHG emissions, which leads to writing about remediation measures. Always remember to give the broader impact first.

Sources

https://www.epa.gov/ghgemissions/overview-greenhouse-gases

https://ghgprotocol.org/calculationg-tools-faq

https://www.ghgprotocol.org/sites/default/files/ghgp/standards/Scope3_Calculation_Guidance_0.pdf (image)

https://ghgprotocol.org/sites/...

https://www.msci.com/www/blog-...

https://cdn.cdp.net/cdp-produc...

How to Calculate Scope 3 Emissions when not Reported

*It is essential to make an extrapolation of the company’s Scope 3 emissions, which often represent the majority of the company’s total GHG emissions. There are a few options you can choose from to make this calculation.


IMPORTANT ! When making your own estimations, it should be very clear in the analysis that an educated assumption was made based on competitor information or proxies. The analysis should never allude to the calculations being 'facts'. 

Instead, it should say something like "As the Scope 3 emissions were not disclosed by the company or external sources, [using a competitor comparison] or [based on proxies], Scope 3 can be estimated to amount to X tonnes of CO2e emissions...".


Option 1

[average of top three competitors in the industry’s Scope 3 emissions / the average percentage of Scope 3 out of the total Scopes = tonnes of CO2e (if possible, per unit of production)]

ABSOLUTE IMPACT:

Competitor 1: 80 Mn tonnes of CO2e per unit of production
Competitor 2: 95 Mn tonnes of CO2e per unit of production
Competitor 3: 120 Mn tonnes of CO2e per unit of production
(80 + 95 + 120) / 3 = 98.3 Mn tonnes of CO2e per unit of production

RELATIVE IMPACT:

Competitor 1: Scope 3 accounts for 92% of total emissions
Competitor 2: Scope 3 accounts for 95% of total emissions
Competitor 3: Scope 3 accounts for 99% of total emissions
(92 + 95 + 99) / 3 = 95.3% of total emissions

Company:

Scope 1 emissions: 5 Mn tonnes of CO2e
Scope 2 emissions: 2 Mn tonnes of CO2e

Total Scope 1 + 2: 7 Mn tonnes of CO2e
[7 Mn/x = (100% - 95.3%)/100%]

Scope 3 emissions = 148.9 Mn tonnes of CO2e

Option 2

For extractive activities, you can take the total extracted fuel source (coal, oil, gas, etc.) and estimate how much emissions were emitted from their use.

Or, for fossil fuel companies, Scope 1 and 2 only make up for 5-10% of their emissions, the rest is their Scope 3 emissions.

For the financial sector, portfolio emissions are about 700x higher than their own (source)

Option 3

Scope 3 is 11.4x higher than scope 1+2 (source, page 3)

Or, Scope 3 accounts for 80% of total emissions (source)


Option 4

If the company mentioned the total GHG emissions but did not break it down per Scope, here is how you can estimate the bifurcation (as shown in the Model Anaysis):

Competitor 1:
Scope 1: 6,006,643 tonnes
Scope 2: 55,442 tonnes
Scope 3: 1,943,939 tonnes

TOTAL: 7,955,000 Mn tonnes

Therefore, in terms of scopes:
Scope 1: 75.08%
Scope 2: 0.69%
Scope 3: 24.29%


Competitor 2
:
Scope 1: 14,590,452 tonnes
Scope 2: 214,233 tonnes
Scope 3: 3,177,865 tonnes 

TOTAL: 17,982,550

Therefore, in terms of scopes:
Scope 1: 81.14% of the total
Scope 2: 1.19% of the total
Scope 3: 17.67% of the total


Competitor 3
:
Scope 1: 12,637,870 tonnes
Scope 2: 231,308 tonnes 
Scope 3: 3,105,988 tonnes

TOTAL: 15,975,166

Therefore, in terms of scopes:

Scope 1: 79.12% of the total
Scope 2: 1.45% of the total
Scope 3: 19.44% of the total

TO FIND THE AVERAGE % PER SCOPE FOR THE COMPANY:

Scope 1: 75.08% + 81.14% + 79.12% / 3 = 78.5% on average for Scope 1 in this industry
Scope 2: 0.69% + 1.19% + 1.45% / 3 = 1.1% on average for Scope 2 in this industry
Scope 3: 24.29% +17.67% +19.44% / 3 = 20.4% on average for Scope 3 in this industry

Apply the above averages per scope to the total emissions of the company being investigated:

78.5% of 3,236,848 = 2,540,926 tonnes
1.1% of 3,236,848 = 35,605 tonnes
20.4% of 3,236,848 = 660,317 tonnes

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