The Greenhouse Gas Protocol - WRI

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The GreenhouseGas Protocola corporate accounting and reporting standardWorld Resources Institute

PROJECT DIRECTORSJanet RanganathanWorld Resources InstituteDave MoorcroftWorld Business Council for Sustainable DevelopmentJasper KochWorld Business Council for Sustainable DevelopmentPankaj BhatiaWorld Resources InstitutePROJECT MANAGEMENT TEAMBryan SmithInnovation AssociatesHans Aksel HaugenNorsk HydroVicki Arroyo CochranPew Center on Global Climate ChangeAidan J. MurphyShell InternationalSujata GuptaTata Energy Research InstituteYasuo HosoyaTokyo Electric Power CompanyRebecca EatonWorld Wildlife FundCORE ADVISORSMike McMahonBPDon HamesDow Chemical CanadaBruno VanderborghtHolcimMelanie EddisKPMGKjell ØrenNorsk HydroLaurent SegalenPricewaterhouseCoopersMarie MarachePricewaterhouseCoopersRoberto AcostaUNFCCCVincent CamobrecoU.S. EPACynthia CummisU.S. EPAElizabeth CookWorld Resources Institute

Table of contentsTable ofcontents2INTRODUCTION6CHAPTER 110CHAPTER 214CHAPTER 320CHAPTER 426CHAPTER 530CHAPTER 634CHAPTER 740CHAPTER 844CHAPTER 948CHAPTER 1051References52Appendices56Glossary60List of contributors64About WRI and WBCSDThe Greenhouse Gas Protocol InitiativeGHG accounting and reporting principlesBusiness goals and inventory designSetting organizational boundariesSetting operational boundariesAccounting for GHG reductionsSetting a historic performance datumIdentifying and calculating GHG emissionsManaging inventory qualityReporting GHG emissionsVerification of GHG emissions1

IntroductionThe Greenhouse GasProtocol InitiativeThe mission of the Greenhouse Gas Protocol Initiative (GHG Protocol) isto develop and promote internationally accepted greenhouse gas(GHG) accounting and reporting standards through an open andinclusive process.Jointly convened in 1998 by the World Business Council forSustainable Development (WBCSD) and the World Resources Institute(WRI), the GHG Protocol is a unique multi-stakeholder partnership ofbusinesses, NGOs, and governments that serves as the premier sourceof knowledge about corporate GHG accounting and reporting.This corporate accounting and reporting standard draws on theexpertise and contributions of numerous individuals andorganizations from around the world. The resulting standard andguidance are supplemented by a number of user-friendly GHGcalculation tools on the GHG Protocol website (www.ghgprotocol.org).The standard, guidance, and tools will help companies andother organizations: develop a credible GHG inventory underpinned by GHGaccounting and reporting principles account and report information from global operations in a waythat presents a clear picture of GHG impacts, and facilitatesunderstanding as well as comparison with similar reports provide internal management with valuable information on whichto build an effective strategy to manage and reduce GHG emissions provide GHG information that complements other climateinitiatives and reporting standards, including financial standards2

The Greenhouse Gas Protocol InitiativeIntroductionFirstly, the time and cost of developing GHG accounting andThis first edition of the GHG Protocol comprises GHGreporting systems must be kept as low as possible. The GHGaccounting and reporting standards, and guidelines forProtocol helps to meet this objective by providing user-companies and other types of organizations . It addresses thefriendly and systematic guidance. Secondly, a corporateaccounting and reporting of the six greenhouse gases2GHG inventory must be developed in such a way as to becovered by the Kyoto Protocol.compatible with requirements and standards which may be1developed nationally in the future. At present, the diversityUnlike for financial accounting and reporting, there are noof accounting and reporting practices makes it harder to‘generally accepted accounting and reporting practices’ fordevelop such an inventory, and reduces the comparability,corporate GHG emissions. The GHG Protocol is a significantcredibility, and utility of GHG information.milestone on the journey toward generally accepted GHGaccounting and reporting practices. It builds on extensivedialogue, which has taken place between diverse stakeholdergroups over the last three years; on the road testing of anearlier draft by more than 30 companies in 10 countries; andon extensive peer reviews. It is intended that in the future theGHG Protocol will be revised using feedback from itsapplication.The GHG Protocol builds on the experience and knowledgeof many organizations, practitioners, and stakeholders topromote convergence of GHG accounting practices. In thisway, it will reduce costs, improve comparability, andstrengthen the capacity of managers to make informeddecisions on GHG risks and opportunities. The GHG Protocolwill also render reported information credible and reliable inthe eyes of external stakeholders.GHG emissions – a business issueMany governments are taking steps to reduce GHG emissionsAs national regulatory schemes governing GHGs are stillthrough national policies. These include the introduction ofevolving, it is not possible to predict the exact accountingpermit trading systems; voluntary reduction and reportingprograms; carbon or energy taxes; and regulations andstandards on energy efficiency and emissions.In recent years, global warming and climate change havebecome international issues for both industrialized anddeveloping countries. They will undoubtedly continue to beimportant politically and economically for generations tocome. Increasingly, companies will need to understand andmanage their GHG risks in order to maintain their license tooperate, to ensure long-term success in a competitive businessand reporting requirements of the future. The GHG Protocol,however, will help companies better understand their ownposition as regulatory programs are debated and developed.Buy-in and flexibilityAn important starting point for a company contemplatingGHG performance measurement is to understand where themeasures link with the company’s business drivers, and whattheir relevance to company performance will be. This willalso encourage buy-in to the system from employees andsenior management who may be faced with a range ofcompeting objectives. The guidelines have been assembledenvironment, and to comply with national or regional policiesto reflect these needs and to suit a variety of organizations.aimed at reducing corporate GHG emissions.Since the GHG Protocol is concerned with accounting foremissions at the corporate level, it covers a number of issuesMeasuring and reporting GHG emissionsPerformance measurement plays an essential role in strategydevelopment and evaluating to what extent organizationalthat are not touched upon by other reporting schemes andguidelines, such as how to draw organizational andoperational boundaries for a GHG inventory.objectives have been met. Credible GHG accounting will be aprerequisite for participation in GHG trading markets and fordemonstrating compliance with government regulations. At anRelation to other measurement and reportingguidelinesoperational level, GHG emissions performance may be relevantThe GHG Protocol is compatible with most other emergingto eco-efficiency involving dematerialization of products andGHG reporting schemes since emissions data accounted forprocesses, energy efficiency, and the reduction of waste.on the basis of the GHG Protocol will meet the reportingrequirements of most of these. The GHG calculation toolsThe benefits of a common standardavailable on the website (www.ghgprotocol.org) areIn addition to ensuring that GHG performance measures areconsistent with those proposed by the Intergovernmentalrelevant and useful, their success will also depend on ensuringPanel on Climate Change (IPCC) for the compilation ofthat benefits outweigh costs. To achieve this, two objectivesemissions at the national level (IPCC, 1996a). Many aremust be met.refined to be user-friendly for non-technical company staff,3

The Greenhouse Gas Protocol Initiativeand to increase the accuracy of emissions data at companyFrequently asked questionslevel.Below is a list of frequently asked questions, with directions torelevant sections of the document.Thanks to help from many companies, organizations, andindividual experts through an intensive road test and peer What should I consider when setting out to account forreview phase, these tools represent current best practice in theand report GHG emissions?evolving area of corporate GHG accounting.Chapter 2 Future activities of the GHG ProtocolHow do I deal with complex company structures andshared ownership?The GHG Protocol will continue to serve as a process by which toChapter 3improve and further develop accounting and reportingstandards in the future, and to broaden the base of users and What is the difference between direct and indirectstakeholder input. This includes building bridges with existingemissions and what is their relevance?and emerging climate initiatives.Chapter 4 Feedback is invited and encouraged from organizations usingthese guidelines to account and report on their GHGemissions, as well as from users of reported information. TwoChapter 5 What is a base year and why do I need one?Chapter 6additional accounting modules are under development thataddress accounting for GHG emissions in the value chain andHow do I account for GHG reductions? My GHG emissions will change with acquisitions andproject-based GHG reduction activities. Further information isdivestitures. How do I account for these?available at www.ghgprotocol.orgChapter 6 How do I identify my company’s GHG emissions sources?Chapter 7 What data collection activities and data managementissues do my operational facilities have to deal with?Chapter 7 What kinds of tools are there to help me calculate GHGemissions?Chapter 7 What determines the quality and credibility of my GHGemissions information?Chapter 8 What information should I report?Chapter 9 What data must be available to obtain external verificationof the inventory data?Chapter 104

The Greenhouse Gas Protocol InitiativeNavigating your way through thisdocumentWhilst every effort has been made to keep this document asconcise as possible, the diversity and complexity of GHGaccounting and reporting issues necessitate comprehensivecoverage. This section will help you navigate your waythrough the document.The GHG Protocol comprises three types of sections: GHGaccounting and reporting standards (blue pages), guidanceon applying standards (orange pages), and practical adviceranging from designing a GHG inventory to verifyingemissions data (green pages).The order of contents presented below demonstrates a logicalprogression for companies aiming to implement the GHGProtocol.CHAPTER 1GHG accounting and reporting principlesGuidance on GHG accounting and reporting principlesCHAPTER 2Business goals and inventory designCHAPTER 3Setting organizational boundariesGuidance on setting organizational boundariesCHAPTER 4Setting operational boundariesGuidance on setting operational boundariesCHAPTER 5Accounting for GHG reductionsCHAPTER 6Setting a historic performance datumGuidance on setting a historic performance datumCHAPTER 7Identifying and calculating GHG emissionsCHAPTER 8Managing inventory qualityCHAPTER 9Reporting GHG emissionsGuidance on reporting GHG emissionsCHAPTER 10Verification of GHG emissionsNOTES12Throughout the rest of this document, the term ‘company’ is used as shorthand for‘companies and other types of organizations’.Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), Hydrofluorocarbons(HFCs), Perfluorcarbons (PFCs) and Sulphur Hexafluoride (SF6).5

Chapter 1GHG accountingand reporting principlesAs with financial reporting, generally accepted GHG accountingprinciples are intended to underpin GHG accounting and reportingto ensure that: the reported information represents a true and fair account of anorganization’s GHG emissions the reported information is credible and unbiased in its treatmentand presentation of issuesGHG accounting and reporting is evolving and is new to many. Theprinciples outlined in this chapter are the outcome of a collaborativeprocess involving a wide range of technical, environmental, andaccounting disciplines.6

GHG accounting and reporting principlesGHG accounting and reporting should be based on the following principles: RelevanceDefine boundaries that appropriately reflect the GHGemissions of the business and the decision-making needsof users. CompletenessAccount for all GHG emissions sources and activitieswithin the chosen organizational and operationalboundaries. Any specific exclusions should be stated andjustified. ConsistencyAllow meaningful comparison of emissions performanceover time. Any changes to the basis of reporting shouldbe clearly stated to enable continued valid comparison. TransparencyAddress all relevant issues in a factual and coherentmanner, based on a clear audit trail. Importantassumptions should be disclosed and appropriatereferences made to the calculation methodologies used. AccuracyExercise due diligence to ensure that GHG calculationshave the precision needed for their intended use, andprovide reasonable assurance on the integrity ofreported GHG information.7

Guidance on GHG accounting and reporting principlesGuidance on GHG accountingand reporting principlesRelevanceConsistencyIt is necessary to define accounting and reportingUsers of GHG information will often want to track andboundaries that appropriately reflect the GHG emissions ofcompare GHG emissions information over time in order toyour business. The choice of appropriate boundariesidentify trends and to assess the performance of thedepends on the characteristics of the company, thereporting organization. Conformity over time, with theintended purpose of the GHG information, and the needssame approach and practices in the calculation andof the users. When choosing such boundaries, a number ofpresentation of data, is essential. If there is a change in thedifferent dimensions need to be considered such as:basis of reported information, this should be clearly stated. organizational structures: operating licenses, ownership,legal agreements, joint ventures, etc.In addition, when presenting GHG information, it isoperational boundaries: on-site and off-site activities,important to provide sufficient economic/business contextprocesses, services and impactsto justify and explain any significant changes. This enablesthe business context: nature of activities, geographiccontinued comparison of like with like. The way in whichlocations, industry sector(s), purpose of information,data and activities are described will affect users’ ability tousers of informationunderstand GHG information. Technical and scientificspecific exclusions or inclusions and their validity andterms should be used carefully. Since GHG accounting andtransparencyreporting is new to many companies and stakeholders, thelevel of knowledge of different user groups of GHGThe boundaries should represent the substance andemissions data may be quite varied.economic reality of the business, and not merely its legalform.More information on setting appropriate boundaries isMore information on this is provided in: Chapter 6: Setting a historic performance datum Chapter 9: Reporting GHG emissionsprovided in: Chapter 2: Business goals and inventory designTransparency Chapter 3: Setting organizational boundariesTransparency relates to the degree to which reported Chapter 4: Setting operational boundariesinformation is seen as being reliable. It entails being openwith relevant issues and data. Information is usually judgedCompleteness‘transparent’ when it conveys a good understanding of theIdeally all emissions sources within the chosenissues in the context of the reporting company, and whenorganizational and operational boundaries should beit provides a meaningful assessment of performance. Anreported. In practice, a lack of data or the cost ofindependent external verification is a good way ofgathering data may be a limiting factor. If specific sourcesincreasing transparency.are not reported, this needs to be clearly stated in thereport. Sometimes it is tempting to define a materialityMore information on this is provided in:threshold, i.e. stating that sources not exceeding a certain Chapter 9: Reporting GHG emissionssize are omitted. However, the materiality of a source can Chapter 10: Verification of GHG emissionsonly be established after it has been assessed. This impliesthat some data is available and can be included in the GHGAccuracyinventory – even if it is just an estimate. What is consideredAccurate data is important for making decisions. Poormaterial will also depend on the needs of users and theinternal calculation/reporting systems and the inherentsize of a company and its emissions sources.uncertainties in the calculation methodology applied canjeopardize accuracy. In an emissions inventory, a poorcalculation/reporting system (i.e. a systemic error) canresult from an emissions calculation process in which some8

Guidance on GHG accounting and reporting principlesaspect of real-world emissions production is misstated or isnot taken into account. In contrast to a poor reportingsystem, inherent uncertainties result from the intrinsicvariability in the process causing the emissions and theassociated calculation methodology. Adhering toprescribed and tested GHG calculation methodologies, andputting in place a robust accounting and reporting systemwhich has appropriate internal and external controls, canimprove data accuracy.More information on how to increase your inventory’saccuracy and on how to minimize data uncertainties isprovided in: Chapter 8: Managing inventory qualityVolkswagen: Maintaining relevance andcompleteness over timeWhile working on its 2000 GHG inventory, Volkswagenrealized that the structure of its emissions sources hadundergone considerable changes over the last five years.Emissions from production processes, which wereconsidered to be irrelevant at a corporate level in 1996,were assessed and found to constitute almost 20 percent ofaggregate corporate GHG emissions.New sites for engine testing and the investment intomagnesium die-casting equipment at certain productionsites were examples of growing emissions sources.Volkswagen’s experience demonstrates that emissionssources have to be regularly re-assessed to maintain acomplete and relevant inventory over time.9

Chapter 2Business goalsand inventory designImproving your understanding of your company’s GHG emissions bycompiling a GHG inventory makes good business sense. The fourcategories of business goals most frequently listed by companies asreasons for compiling a GHG inventory are the following: GHG risk management public reporting/participation in voluntary initiatives GHG markets regulatory/government reporting10

Business goals and inventory designGHG risk managementGHG risk management identifying GHG risks and reduction opportunities in theFor companies developing a GHG inventory for the first time,value chaininformation that helps them more effectively manage the setting internal targets, measuring and reporting progressbusiness risks and opportunities associated with potential GHG identifying cost effective reduction opportunitiesconstraints can be an important motivator. developing process/product innovations internal/external benchmarkingAn inventory of direct GHG emissions, as well as emissionsoccurring up- and downstream of operations, will provide anPublic reporting/participation in voluntary initiativesassessment of the company’s GHG exposure. It will help the stakeholder reporting, e.g. Global Reporting Initiativecompany respond more effectively to any move toward voluntary non-governmental organization (NGO)regulations and caps governing GHG emissions, as well asprograms, e.g. Climate Neutral Network, WWF Climatetoward shifts in consumer preferences based on corporateSavers Program, Environmental Resources TrustGHG performance and reputation. Policies that increase thevoluntary government programs, e.g. Canadian Climateprice of fossil fuels and electricity may have a profound impactChange Voluntary Challenge and Registry, Australianon the future competitive performance of companies in theGreenhouse Challenge Program, California Climate ActionGHG intensive sectors. Registry, and US EPA Climate Leaders Initiative eco-labeling and certificationConducting a rigorous GHG inventory is also a prerequisite forsetting GHG reduction goals and for identifying opportunitiesGHG markets buying or selling emissions credits cap and trade allowance trading programs, e.g. UKfor reductions.Rio Tinto: Setting a GHG reduction targetEmissions Trading Scheme, Chicago Climate ExchangeRio Tinto mines and processes natural resources. In 1999, itRegulatory/government reportingpublished a three-year five percent improvement target and directives, e.g. European Integrated Pollution Preventionhas subsequently reported positive annual progress. Theand Control Directive, European Pollutant EmissionGHG reduction goal was set for two reasons. Firstly, it wasRegisterrealised that targets would increase the company’s rate ofreporting under national or local regulations, e.g.environmental performance improvement and, secondly, Canadian National Pollutant Release Inventorystakeholders were asking which direction the company carbon taxeswanted to go. The reduction target was developed in a baseline protectionmanner that the company believed measured actualperformance, and was aligned with business improvement.This list is not exhaustive – companies may have otherIt was only developed after confidence in the GHGimportant goals for an inventory. In practice, most companiesaccounting methodology had been gained throughhave multiple goals. It therefore makes sense that, from thepreparing a number of annual inventories and projections.outset, the inventory is designed to provide information for avariety of different uses and users. To this end, informationshould be collected in ways that it can be subsequentlyPublic reporting/participation in voluntary initiativesaggregated and dis-aggregated for different operational andCompanies with global operations may want to develop aorganizational boundaries, and for different businesssingle corporate GHG inventory that enables them togeographic scales, e.g. state, country, Annex 1 countries, non-participate in a number of NGO and government schemes inAnnex 1 countries, facility, business unit, and company.different locations. Companies preparing sustainability reportsusing the Global Reporting Initiative guidelines will need toThe guidance on operational boundaries in Chapter 4: Settingreport information on their GHG emissionsoperational boundaries, provides information on setting(GRI, 2000).boundaries for different inventory goals and uses.Adoption of the GHG Protocol standard provides sufficientinformation to meet the GHG accounting requirements ofmost of these voluntary initiatives. Appendix 1 provides anoverview of the GHG accounting and reporting requirements11

Business goals and inventory designof different voluntary programs on climate change.generally be required. Indirect emissions are difficult to verifyand present particular challenges in terms of avoiding doubleSince the accounting guidelines of many voluntary schemescounting of emissions. To facilitate independent verification,are periodically updated, companies planning to participateemissions trading may require that participating companiesare advised to contact the scheme administrator to checkestablish an audit trail for emissions data (see Chapter 10:what the current requirements are. Some schemes may makeVerification of GHG emissions). Over time, as the importancemore demands on the company than others.of emissions trading grows, emissions inventories will becomeincreasingly transparent, comparable, and accurate.The Australian Greenhouse Challenge Program, for example,requires participants to develop an action plan of GHGreduction measures as well as a forecast of GHG emissionswith and without implementation of the action plan. TheWWF Climate Savers Program requires participants to commitFord Motor Company: Experiences roadtesting the GHG Protocolto an overall GHG reduction goal and to obtain anWhen Ford Motor Company embarked on an effort toindependent verification of current CO2 emissions as aunderstand and reduce its GHG impacts, it wanted to trackbaseline for performance.emissions with enough accuracy and detail to managethem effectively. An internal cross-functional GHG inventoryGHG markets and regulatory/government reportingteam was formed to accomplish this goal. Although theGHG markets and regulatory approaches to greenhouse gascompany was already reporting basic energy and carbonemissions are beginning to emerge in some parts of thedioxide data at the corporate level, a more detailedworld. Shell and BP have already established internal GHGunderstanding of these emissions was essential to set andemissions trading programs as part of their overall GHGmeasure progress against performance targets and evaluatemanagement strategy. It is not possible, however, at this earlypotential participation in external trading schemes.stage, to design a comprehensive GHG accounting systemthat will meet the future requirements of all the differentFor several weeks, the team worked on creating a moreregulatory and market based mechanisms. Different schemescomprehensive inventory for stationary combustionwill evolve with different inventory requirements. With this insources, and quickly found a pattern emerging. All toomind, the GHG Protocol standard has been designed tooften the team left meetings with as many questions asprovide GHG information building blocks that can be used asanswers, and the same questions kept coming up from onethe foundation for supporting a variety of informationweek to the next. How should the company drawrequirements, including those resulting from regulatory orboundaries? How could acquisitions and divestitures bemarket based systems.accounted for? What emissions factors should be used?And perhaps most importantly, how could theIt is likely that future regulatory and trading schemes willmethodology be deemed credible with stakeholders?impose additional layers of accounting specificity relating toAlthough the team had no shortage of opinions, there alsowhich facilities are included; which GHG sources areseemed to be no right or wrong answers – until the teamaddressed; how base years are established; the type ofdiscovered the GHG Protocol.calculation methodology used; the choice of emissions factors;and the monitoring and verification approaches employed.The GHG Protocol provided guidance on answering many ofHowever, the broad participation and best practicesthe questions. Although at the time, still a road test draft,incorporated into the GHG Protocol are likely to inform thethe GHG Protocol offered a framework upon which to baseaccounting requirements of future schemes. Chapter 4:decisions, one supported by a diverse set of stakeholders,Setting operational boundaries, describes the GHG reportingand with the promise of becoming a global standard.requirements under the European Pollutant Emissions RegisterBecause of its flexible and progressive nature, the GHGand Integrated Pollution Prevention Control Directive. Again,Protocol could be applied at the company’s own pace andit is important to check the specific requirements, as these aretailored to meet its specific needs. As a result of the GHGsubject to change.Protocol, Ford Motor Company now has a more robustinventory of GHGs from stationary sources, one that can beFor emissions trading, where compliance is to be judged bycontinually improved to fulfill rapidly emerging GHGcomparing the inventory with the emissions cap, it is likelymanagement needs.that a rigorous and accurate inventory of direct emissions will12

Chapter 3Settingorganizational boundariesBusinesses vary in their legal and organizational structures – theseinclude incorporated and non-incorporated joint ventures,subsidiaries and others. Companies may operate globally andencompass a number of autonomous business streams and businessunits.When accounting for GHG emissions from partially-ownedentities/facilities, it is important to draw clear organizationalboundaries, which should be consistent with the organizationalboundaries which have been drawn up for financial reportingpurposes.14

Setting organizational boundariesFinancial reporting is based upon the concepts of ‘control’incurred if the asset was impaired. However, it is recognizedand ‘influence’. The concepts of ‘control’ and ‘influence’ arethat GHG emissions are different in their nature and it may beoften defined and applied differently according to aappropriate for these to be reported to properly reflect thecompany’s specific financial accounting and reportingcompany’s overall GHG emissions. If this is the case it ispolicies/practices. Where possible, it makes sense to followimportant to state this in the public report.company-specific distinctions already in place for financialaccounting, provided these are explicitly explained andCompanies should preferably account for and report theirfollowed consistently. When applying these concepts theGHG emissions according to the framework presented inunderlying assumption of ‘substance over form’ should beTable 1. This framework is set out to provide GHG emissionsfollowed. This assumption is based on the premise that GHGinformation in a transparent manner on the basis ofemissions should be accounted and reported in accordancecontrol/influence and equity share basis. Equity share iswith the company’s substance and economic reality and notdefined as the percentage of economic interest in/benefitmerely its legal form

accounting and reporting standards, and guidelines for companies and other types of organizations1. It addresses the accounting and reporting of the six greenhouse gases2 covered by the Kyoto Protocol. Unlike for financial accounting and reporting, there are no 'generally accepted accounting and reporting practices' for corporate GHG emissions.