Base year recalculation methodologies for

structural changes
Appendix E to the GHG Protocol Corporate Accounting and
Reporting Standard Revised Edition

Version January 2005

Introduction

Making meaningful comparisons of emissions data over time is an integral part of any
corporate GHG report that aims to be credible, transparent and useful to
stakeholders.

A prerequisite for such meaningful comparisons is a consistent data set over time, or
in other words, comparisons of like with like over time. In order for this condition to
be fulfilled, the inventory boundary must be held consistent between those data sets
that are used for a direct comparison over time.

A base year is a reference point in the past with which current emissions can be
compared. In order to maintain the consistency between data sets, base year
emissions need to be recalculated when structural changes occur in the company
that change the inventory boundary (such as acquisitions or divestments).

In practice this task is often more complicated than it appears on the face of it. This
guidance document is an appendix to the GHG Protocol Corporate Standard
Revised Edition (March 2004), and clarifies some of the issues around base year
recalculations that often create confusion.

Firstly, this guidance document deals with GHG inventory recalculations under the
so-called fixed base year approach, which is essentially a fixed historical reference
with which to compare current emissions (see chapter 5 of the revised Corporate
Standard). Different options for making recalculations are presented, and it is argued
that under the fixed base year approach, the overall comparison over time is not
affected by the choice of option, while one option is more practicable than the other.

The second part of this document describes the application of the different options
identified in the previous section under the so-called rolling base year approach
(see step 4 of chapter 11 of the revised Corporate Standard ( Setting GHG targets ).
It investigates the implications of different methods and concludes that the choice of
method can have a bearing on which emission sources are included or excluded
from the overall emissions comparison over time.

Thus, it will be important to transparently document the choice of method when a

rolling base year is used, especially as this can be relevant for the compliance with a
corporate target.
 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

1 Base year recalculation methodologies for structural changes

using a fixed base year

Chapter 5 ( Tracking emissions over time ) of the revised Corporate Standard

describes how to establish a fixed base year and recalculate the emissions from
that year in case of structural changes.

After recalculations under the fixed base year approach, emissions sources from an
acquired company are included both with their emissions in the base year (when the
acquiring company didn t control these sources yet) and in the current years.
Similarly, emission sources from divested facilities/companies are excluded both with
their emissions in the base year (when they were still controlled by the divesting
company) and the current years.

As recommended in chapter 5, emissions should be recalculated for the entire year

( all-year option), rather than only for the remainder of the reporting period after the
structural change occurred (the pro-rata option). The all-year option avoids having
to recalculate base year emissions again in the succeeding year.

This can be described as the all-year option, since the inventory includes emissions
from all facilities from January to December at all times.

In contrast, the pro-rata option operates on a step-by-step basis. After making the
first recalculation, the inventory excludes a portion of the acquired or divested facility
in at least the base and current year s inventories, until the full recalculation is made
in the following year.

To illustrate, Figure 1 describes example Z: the acquisition by a company A of a

company B in the middle of the year on 30 June. Example Z assumes that emissions
from January to June are always the same as emissions from June to December.

Company A with boundaries as before the acquisition has emissions of 10 t CO2

from year 1 (the base year) through to year 4. The operations which were Company
B in year 1 (but are acquired by A in the middle of year 2), have 1t of emissions in
year 1, 2t in year 2, and 3t in year 3 and 4.

Figure 1:
Company B

Example Z
2 3 3
(acquisition) 1

Company A
10 acquires
Company B
in June of
Company A

Emissions

year 2

1 2 3 4
Year

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 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

Using this example, Figure 2 then compares the all-year option with the pro-rata
option, when using a fixed base year. It illustrates that there have to be two
recalculations when using the pro-rata option, after which the resulting time series of
emissions and thus the comparison over time, is equivalent to the all year option,
which only requires one recalculation.

Figure 2: An acquisition (example Z) under different fixed base year options

a) Pro-rata b) All-year

.5
1 2 3 2
110 10 1 10 1
Emissions

1 2 1 2 3 1 2
Year 2 Report Year 3 Report Year 2 Report

Under the fixed base year approach, the pro-rata and

all-year methods have the same result. The timing of
the recalculation also ultimately does not matter.

Using the pro-rata option, illustrated on the left of Figure 2, company A would when
first reporting its year 2 emissions, report 11t, including only the emissions of B from
June to December in year 2 (assumed to be 1t for simplicity). In order to compare like
with like, it recalculates its base year emissions to 10.5 t, including in its base year
emissions again only B s emissions from June to December (in year 1).

When reporting on year 3, A would then include emissions from January to

December from B, and in order to keep comparing like with like, would have to make
a second recalculation to its base year emissions, to include B s emissions from
January to June in year 1. This results in exactly the same time series and
comparison over time (in the middle) as under the all-year option, which is illustrated
on the right (see also the shaded rows in table 1 to see that both approaches arrive
at the same result). The all-year option is thus clearly more practicable than the pro-
rata one.

Table 1: An acquisition (example Z) under different fixed base year options

Year 1 Year 2 Year 3 Year 4

(Base year)
Company A s emissions 10 10 10 10
(boundaries as in year 1)
Company B s emissions 1 2 3 3
(boundaries as in year 1)

Pro-rata approach
Company A s year 2 report 10.5 11
Company A s year 3 report 11 12 13

All-year approach

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 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

Company A s year 2 report 11 12

Company A s year 3 report 11 12 13

Further differentiating methods for recalculation is possible when taking into account
the timing of recalculation. It is possible to make the recalculation only in the report
for the year after the structural change, i.e., as if the structural change had occurred
at the end of the year (this could be termed the year-after option). The default
option (if sufficient data is available) would be to make the recalculation already in
the report for the year of the structural change, i.e. as if the structural change had
occurred at the beginning of the year ( same-year option). Switching between these
two options does not influence the ultimate comparison over time under the fixed
base year, just as when comparing the pro-rata and the all-year options.

2 Target base year recalculation methodologies for structural

changes using a rolling base year

As described in chapter 11 of the revised Corporate Standard, the rolling base year
approach requires making recalculations of base year emissions only for the previous
year, since the base year with which current emissions are compared on a like with
like basis is always the previous year. The rolling base year is another title for
establishing a new base year every year.

As mentioned above, after recalculations under the fixed base year approach,
emissions sources from an acquired company are included both with their emissions
in the base year (when the acquiring company didn t control these sources yet) and
in the current years. Similarly, emission sources from divested facilities/companies
are excluded both with their emissions in the base year (when they were still
controlled by the divesting company) and the current years.

This makes for an important difference to the rolling base year, since the rolling base
year minimizes both the inclusion of emissions data from non-controlled sources
(e.g., before these sources were acquired) and the exclusion of data from controlled
sources (e.g., before these sources were divested). In this way, under the rolling
approach, any comparison over time is purely focussed on emissions that were
actually controlled or owned by the reporting company. 1

However, the extent to which this is achieved is not exactly the same for each of the
possible rolling base year recalculation methods.

The point of this section is firstly to describe the application of each of these possible
methods, and to show that each of them has slightly different implications for which
data is included or excluded. Thus, unlike under the fixed base year, it does make a
difference to emissions comparisons whether the pro-rata or all-year method is used.
In addition, the timing of recalculations (using the year-after vs. the same-year
option) can also change emissions comparisons over time.

The combination of these different options results in four possible methods for rolling
base year recalculations. The next two sub-sections describe the application and

1
These and other differences are described in Figure 14 of the revised Corporate Standard
(p.81)

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 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

implications of these four methods, for an acquisition and for a divestment

respectively.

2.1 Recalculating a rolling base year for acquisitions

Table 2 builds on example Z and illustrates the four different methods of how a rolling
base year is recalculated to account for an acquisition.

Table 2: Methods for recalculating a rolling base year (acquisitions)

Pro-rata All-year
Same- The new reporting boundaries apply The new reporting boundaries
year from the year 2 report onwards, but apply fully from the year 2 report
year 2 emissions (and the recalculated onwards, and year 2 emissions
emissions from the base year 1) (and the recalculated emissions
exclude Jan-June of B s emissions. from the base year 1) include all of
The full recalculation is made in the B s emissions
year 3 report.
Year- The new reporting boundaries only The new reporting boundaries only
after apply from the year 3 report onwards; apply fully from the year 3 report
year 3 emissions (and the recalculated onwards, and year 3 emissions
emissions from the base year 2) (and the emissions from the
exclude Jan-June of B s emissions. recalculated base year 2) include
The full recalculation is made in the all of B s emissions
year 4 report.

Figure 3 illustrates how each of the four recalculation methods outlined in Table 2
would be applied to example Z. Figure 3 also shows that each of the methods has
different implications for the overall comparison of emissions over time (comparisons
from year to year is what the arrows are indicating).

5
 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

Figure 3: An acquisition (example Z) under different rolling base year methods

a) Pro-rata/ same year b) All-year/ same year

adjustment adjustment

.5
1 2 3 1 2 2 3
10
10
Emissions

Emissions
1 2 2 3 1 2 2 3

Year 2 Year 3 Year 2 Year 3

Report Report Report Report

c) Pro-rata/ year after d) All-year/ year after

adjustment adjustment

3 3 2 3
1.5
1
10 10

1 2 2 3 3 4 1 2 2 3

Year 2 Year 3 Year 4 Year 2 Year 3

Report Report Report Report Report

Emissions reported by Company A after the acquisition

Why do the differences between methods matter under the rolling base year
approach? An explanation is given in Table 3 below. It shows that each method has
different implications in terms of whether the company includes emissions from
sources that were not owned or controlled by it.

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 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

Table 3 illustrates these implications by comparing what is included in A s inventory

reports under each method and what was really owned or controlled by A (see Figure
4 for emissions from sources that A did control in respective years in example Z).

As a basis for the comparison in table 3, figure 4 describes the emissions from
sources that A did control in respective years in example Z. The actual emissions
from sources owned or controlled by A are 10 in year 1 before the acquisition and 11
in year 2: only half of company B s annual emissions were controlled by A since it
was acquired in June of year 2. From year 3 onwards, company A fully controlled its
own operations and those of company B.

Figure 4: Emissions from sources controlled by A in respective years in

example Z

13

11
10

1 2 3 4
Year

Table 3: Implications of different rolling base year recalculation methods for

acquisitions
Pro-rata All-year
Same- Half a year s data from B when not One and a half year s data from B
year controlled are included; when not controlled is included;
(No data from B when controlled (No data from B when controlled are
are excluded) excluded)
Year- No data from B when not Half a year s data from B when not
after controlled are included; controlled are included;
(No data from B when controlled (No data from B when controlled are
are excluded) excluded)

These differences in what is included or excluded can in turn result in different

comparisons over time under different methods. Thus, especially when setting and
reporting in relation to a GHG target using a rolling base year, it is important to be
transparent about which method is used, and to be consistent in the application of
that method.

In addition to making a difference to the overall comparison over time, the choice of
method also has implications for data requirements (the year-after methods usually
require data from the acquired company at a later stage than the same-year
methods).

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 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

2.2 Recalculating a rolling base year for divestments

The analysis of section 2.1 is repeated here for the case of divestments. Example Y
(Figure 5) is used in analogy to example Z: Company A divests a facility C to
company B in the middle of year 2 on 30 June.

Figure 5: Example Y (divestment)

2 3 3
Company
A divests
10 1 Facility C
to Emissions
Emissions

Company from Facility

C
B in June
of year 2
Emissions
from
1 2 3 4 Company A
Year excluding
Facility C

Table 4 builds on example Y and illustrates the four different methods of how a rolling
base year is recalculated to account for a divestment.

Table 4: Methods for recalculating a rolling base year (divestments)

Pro-rata All-year
Same- The new reporting boundaries apply The new reporting boundaries
year from the year 2 report onwards, but apply fully from the year 2 report
year 2 emissions (and the recalculated onwards, and year 2 emissions
emissions from the base year 1) still (and the recalculated emissions
include Jan-June of facility C s from the base year 1) exclude all
emissions. The full recalculation is of C s emissions
made in the year 3 report
Year- The new reporting boundaries only The new reporting boundaries
after apply from the year 3 report onwards; apply fully only from the year 3
and year 3 emissions (and the report onwards, but year 3
recalculated emissions from the base emissions (and the emissions from
year 2) still include Jan-June of C s the recalculated base year 2)
emissions. The full recalculation is exclude all of C s emissions
made in the year 4 report

Figure 6 shows how each of the recalculation methods would be applied in the case
of a divestment.

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 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

Figure 6: A divestment (example Y) under different rolling base year methods

a) Pro rata/ same b) All-year / same

year adjustment year adjustment

.5
1
10 10
Emissions

Emissions
1 2 2 3 1 2 2 3

Year 2 Year 3 Year 2 Year 3

Report Report Report Report

c) Pro-rata/ year after d) All year/ year

adjustment after adjustment

1.5
2
1 1 1 2
10 10
Emissions

Emissions

1 2 2 3 3 4 1 2 2 3

Year 2 Year 3 Year 4 Year 2 Year 3

Report Report Report Report Report

Emissions reported by Company A after the divestment.

Each year is compared to the previous year s emissions.

Table 5 shows that each method has different implications in terms of whether the
company excludes emissions from sources that were actually owned or controlled by
it (and in fact in terms of whether the company includes emissions from sources that
were not actually owned or controlled by it any more).

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 Base year recalculation methodologies for structural changes
Please send your comments and questions to Simon Schmitz at [email protected]

It illustrates these implications by comparing what is included in A s inventory reports

under each method and what was really owned or controlled by A.

As a basis for the comparison in table 5, figure 7 describes the emissions from
sources that A did control in respective years in example Y. The actual emissions
from sources owned or controlled by A in example Y are 11 in year 1 before the
divestment and also 11 in year 2: half of facility C s emissions were controlled by A in
year 2 since the facility was divested in June of year 2. From year 3 onwards
company A only controlled its own operations without facility C.

Figure 7: Emissions from sources controlled in respective years by A in

example Y

11
10

1 2 3 4
Year

Table 5: Implications of different rolling base year recalculation methods for

divestments
Pro-rata All-year
Same- No data from C when not controlled No data from C when not
year are included; controlled are included;
Half a year s data from C when One and a half year s data from C
controlled are excluded; when controlled are excluded;
Year- One year s data (two halves) from C Half a year s data from C when
after when not controlled are included; not controlled are included;
No data from C when controlled are No data from C when controlled
excluded are excluded;

These differences in what is excluded or included can in turn result in different

comparisons over time under different methods (as shown in Figure 5). Thus,
especially when setting and reporting in relation to a GHG target using a rolling base
year, it is important to be transparent about which method is used.

10