www.defra.gov.

uk

Draft guidance on how to measure and report your greenhouse gas emissions

5th June 2009

Department for Environment, Food and Rural Affairs Nobel House 17 Smith Square London SW1P 3JR Telephone 020 7238 6000 Website: www.defra.gov.uk Crown copyright 2009 Copyright in the typographical arrangement and design rests with the Crown. This publication (excluding the royal arms and departmental logos) may be reused free of charge in any format or medium provided that it is re-used accurately and not used in a misleading context. The material must be acknowledged as crown copyright and the title of the publication specified.

Information about this publication and further copies are available from: Defra Area 5C Ergon House London Tel: 0207 238 1524 Email: [email protected]

Published by the Department for Environment, Food and Rural Affairs

Contents
Part 1: Introduction ....................................................................................................4 Part 2: Overview of process ....................................................................................10 Section A...................................................................................................................12 Part 3: Do I report on all parts of my organisation? .............................................12 Part 4: Which activities in my organisation release greenhouse gas emissions? ...................................................................................................................................14 Part 5: Which greenhouse gases should I measure? ...........................................17 Part 6: What information should I collect to calculate my greenhouse gas emissions? ...............................................................................................................18 Part 7: How do I calculate my greenhouse gas emissions? ................................21 Part 8: What do I need to report? ...........................................................................23 Section B...................................................................................................................30 Part 9: Should I set an emissions reduction target? ............................................30 Section C...................................................................................................................32 Annex A: Small Business Worked Example ..........................................................32 Annex B: GHG Accounting and Reporting principles ..........................................35 Annex C: Relationship of this Guidance to the Carbon Reduction Commitment (CRC) .........................................................................................................................36 Annex D: Which of my businesses do I include? .................................................38 Annex E: Do I include leased assets and activities I have outsourced? ............46 Annex F: Which other indirect emissions should I measure and calculate? .....52 Annex G: What can I count as an emission reduction? .......................................58 Annex H: How to make emissions data more useful? ..........................................66 Annex I: Example format for detailed emissions data ..........................................70 Annex J: How do I set my emissions target? ........................................................73 Section D...................................................................................................................76 Summary of recommendations ..............................................................................76 Glossary ....................................................................................................................77

Part 1: Introduction
The climate change challenge
Climate change is a global problem and the United Nations Framework Convention on Climate Change (UNFCCC) sets an overall framework for intergovernmental efforts to tackle the challenges posed by climate change. The Kyoto Protocol is an international agreement 1 linked to the UNFCCC which sets binding targets for industrialised countries to reduce their greenhouse gas (GHG) emissions. There is increasing evidence that early and rapid reductions in GHG emissions are needed to avoid the significant impacts of climate change. Moreover, the Stern report 2 on the Economics of Climate Change provided evidence that, the benefits of strong and early action far outweigh the economic costs of not acting. Within the UK, business produces a significant amount of the UKs GHG emissions [see chart below 3 ] and so has a direct influence over the management of these gases.

The Kyoto agreement came into force in 2005 and committed signatories to a reduction in greenhouse gas (GHG) emissions to between 20-24 billion tonnes by 2050 (about 50-60% below 1990 global levels)
2

Stern Review on the Economics of Climate Change published October 2006

Committee on Climate Changes report Building a low carbon economy - the UKs contribution to tackling climate change

What is government doing to respond to the threat of climate change?

The UK Governments Climate Change Act 2008 sets the framework for how the UK will manage and respond to the threat of climate change. Under the Act, the UK must reduce total GHG emissions by at least 80% below 1990 levels by 2050. The Climate Change Act introduced legally binding carbon budgets which set a ceiling on the level of UK GHG emissions and in order to meet these budgets, we will have to collectively reduce our total UK GHG emissions. Government recognises that for organisations to take action to reduce their GHG emissions they must have the appropriate tools and guidance. Measuring GHG emissions is the first step to effectively managing GHG emissions. The Climate Change Act requires Government to: 1. Publish guidance 4 on the measurement or calculation of GHG emissions to assist with the reporting of emissions. 2. Carry out a review in 2010 to evaluate the contribution that reporting on GHG emissions is making to the achievement of Governments climate change objectives.
4

Part 5, section 83 of the Climate Change Act

3. Introduce regulations requiring the mandatory reporting of GHG emissions information under the Companies Act 2006 5 by the 6th of April 2012 or lay a report to Parliament explaining why this has not happened. There will be a further consultation on this guidance before a decision is made to introduce mandatory reporting requirements. This guidance is focussed on supporting UK organisations to reduce their contribution to climate change by helping them to measure their emissions. The guidance also explains how organisations may set emission reduction targets. You are not required to submit or otherwise make available the data produced in accordance with this guidance to the Government. Nonetheless you are encouraged to publicly report your emissions as this will be of interest to your stakeholders, for example, your customers and possibly to other businesses in your supply chain.

How will this guidance help me?

This guidance sets out broad general principles for how to measure and report your GHG emissions. This guidance is based on the Greenhouse Gas Protocol the internationally recognised standard for the corporate accounting and reporting of GHG emissions 6 . This guidance is primarily aimed at large and medium sized businesses but can be used by all UK organisations that wish to measure and report their total GHG emissions (also known as corporate carbon footprint) for either internal or external reporting purposes. If you wish to measure and calculate the emissions generated by one of your goods or services you will wish to refer to separate guidance on calculating product footprints 7 . If you are a small business you might find it helpful to start by looking at the flow chart in Part 2 (page 10) and the worked example at Annex A (page 32) for how this guidance can be applied to a small business. Publicly listed companies already report information and analysis on environmental matters in their Annual Report and Accounts (to the extent it is necessary for an understanding of the development, performance or position of the companys business) 8 .
5

Part 5, section 85 of the Climate Change Act

World Resources Institute / World Business Council for Sustainable Developments Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition)

For organisations wishing to calculate their product carbon footprint, please refer to the Publically Available Specification 2050 (PAS 2050).
8

Parts 5 and 6, section 417 of the Companies Act 2006

It is recommended that all organisations publicly report their GHG emissions in the format set out below. This guidance document will explain how to do this. Example Corporate Carbon Footprint GHG emissions data for period 1 October 2009 to 30 September 2010 Tonnes of CO2e 2010 Scope 1 Scope 2 Standard practice total gross emissions Scope 3 Best practice total gross emissions 1,000 1,625 2,625 9,410 12,035 2009 990 1,400 2,390 10,415 12,805

Carbon offsets Green tariff Total annual net emissions (optional) Biologically sequestered carbon Non-Kyoto GHG emissions Intensity ratio

(500) (500) 11,035 560 130 0.5

(980) 11,825 560 0 0.6

Some organisations may already report some of their total GHG emissions data for regulatory schemes such as the EU Emissions Trading System (EU ETS), Climate Change Agreements (CCAs), as well as the forthcoming Carbon Reduction Commitment (CRC). These schemes only cover some of an organisations total GHG emissions as illustrated in the diagram below. Our guidance covers an organisations total GHG emissions (also known as its corporate carbon footprint). The diagram below illustrates the scenario where an organisation is required to report on some of its emissions for regulatory schemes such as the Carbon Reduction Commitment 9 ; whilst also choosing
9

Please refer to Relationship of this Guidance to the Carbon Reduction Commitment (CRC) (Annex C, Page 36)

to report on its total corporate carbon footprint to allow a better understanding of its overall GHG emissions. Emissions reported under regulatory schemes form part of an organisations total corporate carbon footprint.

Where your organisation reports GHG emissions data for regulatory schemes you may wish to use this data for the purposes of calculating and reporting your organisations total GHG emissions. Alternatively, you may choose to follow this guidance to measure and report all your organisations total global emissions. For organisations that are new to measuring and reporting GHG emissions, we recommend that you follow this guidance because it will help you to identify and reduce your emissions; and make cost savings. Moreover a number of organisations in the supply chain are seeking information from their suppliers on GHG emissions, so following this guidance should enable you to meet their requests. As some organisations are more experienced in measuring, calculating and reporting GHG emissions than others the guidance includes a standard practice and a best practice approach. Standard practice is what UK Government recommends organisations should be doing as a minimum. UK government recommends best practice for organisations that are experienced in reporting and want to show leadership in this area. Best practice is in addition to the minimum set by standard practice. Where your method of measuring, calculating or reporting your GHG emissions differs from the recommended approach you should state the differences and explain the reasons for them. Generally accepted accounting and reporting principles are used in financial reporting to ensure that the financial data reported by companies is a true and fair reflection of that company. We recommend that you follow the 10 principles set out at GHG Accounting and Reporting Principles (Annex B, Page 35) when you are deciding what data to collect, how to measure this data and how to report your emissions. If you have any questions on this guidance, please contact Defra at [email protected].

10

Principles sourced from WRI / WBCSD The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition)

Part 2: Overview of process

Which parts of your organisation do I need to collect data from? (Part 3, page 12)

I do not own 100% of my organisation

I own 100% of my organisation

Identify the operations to collect data from

Which activities in my organisation release GHG emissions? (Part 4, page 14)

Identify which activities release GHGs

Categorise activities into scopes

Calculate emissions from activities which fall into scopes 1 (e.g. boiler; owned vehicles) and 2 (e.g. purchased electricity)

What information should I collect from these activities to calculate my GHG emissions? (Part 6, page 18)

10

Collect activity data e.g. electricity use and fuel from bills, invoices and receipts use, vehicle mileage

Collect information for a 12 month period

How do I calculate my GHG emissions? (Part 7, page 21; Part 5, page 17)

Convert activity data into GHG emissions by multiplying activity data by DECC / Defras emissions factors (on Defras website)

Calculate emissions for all six GHGs

Now what? I want guidance on how to report my emissions (Part 8, page 23) I want guidance on how to set an emissions reduction target (Part 9, page 30)

11

Section A
Part 3: Do I report on all parts of my organisation?11
To calculate your total GHG emissions, you need to identify from which parts of your organisation you need to collect information. Organisations vary in structure from sole traders to complex multi-nationals with large numbers of subsidiaries and joint ventures. The more complex the structure of the organisation, the more difficult it is to identify who has responsibility for the emissions produced by different operations. If you have a simple organisational structure and you own 100% of your operations, you do not need to read the rest of Part 3 but can move to Part 4 which advises on identifying activities that release greenhouse gases. If you own less than 100% of the operations in which you have some business involvement, you will need to identify the operations or share of operations for which GHG emissions need to be calculated. You can do this by reference to one of three established approaches. These are: The equity share approach under which a company accounts for GHG emissions from operations according to its share of equity in the operation. The control approach under which a company accounts for 100% of the GHG emissions from operations over which it has control. It does not account for GHG emissions from operations in which it owns an interest but has no control. Control can be defined in either financial or operational terms. o The financial control approach a company has financial control over an operation if the company has the ability to direct the financial and operating policies of the operation with a view to gaining economic benefits from its activities. o The operational control approach a company has operational control over an operation if the company or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operation.

11

This is referred to as setting your organisational boundary

12

Recommendation 1
Standard practice: Use the financial control approach. Once you have chosen your approach, apply this consistently.

The financial control approach is the recommended approach because it is the approach which aligns most consistently to financial accounting 12 . For more detailed definitions of these three approaches and further benefits to using the financial control approach, please refer to Which of my businesses do I include? (Annex D, page 38) However, it may be the case that the equity share approach or operational control approach is more appropriate for how you operate your businesses and you may wish to use either of these approaches instead. Many UK organisations have operations and businesses overseas and therefore to get an understanding of total emissions you should include emissions related to overseas activities.

Recommendation 2
Standard practice: Measure or calculate your total emissions on a global basis.

For further guidance on how to determine which businesses / operations / facilities you need to collect data from please refer to Which of my businesses do I include? (Annex D, page 38)

12

The Financial Control approach is most closely aligned to the CRC approach which is based on legal ownership. However, there will still be some differences in organisational boundaries. These difference and others are highlighted in Relationship of this Guidance to the Carbon Reduction Commitment (CRC), (Annex C, Page 36)

13

Part 4: Which activities in my organisation release greenhouse gas emissions? 13

You need to identify which activities in your organisation / organisations are responsible for GHG emissions being released into the atmosphere. The most widely accepted approach is to identify and categorise emissionsreleasing activities into three groups (known as scopes 14 ). The three scopes are: Scope 1 (Direct emissions): Activities owned or controlled by your organisation that release emissions straight into the atmosphere. They are direct emissions. Examples of scope 1 emissions include emissions from combustion in owned or controlled boilers, furnaces, vehicles owned or controlled; emissions from chemical production in owned or controlled process equipment. Scope 2 (Energy indirect): Emissions being released into the atmosphere associated with your consumption of purchased electricity, heat, steam and cooling. These are indirect emissions that are a consequence of your organisations activities but which occur at sources you do not own or control. Scope 3 (Other indirect): The final category is all other activities that release emissions into the atmosphere as a consequence of your actions, which occur at sources that you do not own or control and which are not classed as scope 2 emissions, i.e., do not result from the purchase of electricity, heat, steam and cooling. Examples of scope 3 emissions are business travel by means not owned or controlled by your organisation, waste disposal, use of sold products or services. Please note that the direct emissions of carbon dioxide from the combustion of biomass should be accounted for separately from these scopes 15 . The diagram overleaf identifies the main types of emissions sources under each scope:

13

This is referred to as defining your operational boundary

14

WRI / WBCSD The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition) This is because biomass absorbs carbon dioxide when it is growing, increasing the complexity of accounting for it. Therefore it is accounted for separately.
15

14

In some instances, it may be difficult to identify whether emissions should be categorised as scope 1 or scope 3 emissions. For example, this may be because your emissions sources come from outsourced activities, leased assets or tenanted buildings. For further guidance on emissions from leased assets or outsourced activities, please refer to Do I include leased assets and activities I have outsourced? (Annex E, page 46) For some organisations, emissions within scope 3 may be the largest proportion of total emissions. By calculating your scope 3 emissions, you will get a more complete understanding of your organisations total impact on climate change. Identifying your organisations scope 3 emissions will also help increase your awareness of where your organisation sits within the supply chain and enable you to engage with other organisations in the supply chain. However it is acknowledged that it can be difficult to measure and calculate your scope 3 emissions so we recommend you focus on your significant scope 3 emissions. For further guidance on deciding what scope 3 emissions to measure and calculate, please refer to Which other indirect emissions should I measure and calculate? (Annex F, page 52)

15

Recommendation 3
Standard practice: Measure or calculate emissions that fall into your scopes 1 and 2

Best practice: Measure or calculate your significant scope 3 emissions in addition to your scopes 1 and 2

16

Part 5: Which greenhouse gases should I measure?

A number of gases contribute to climate change and the six main GHGs are covered by the Kyoto Protocol: carbon dioxide (CO2), methane (CH4), hydrofluorocarbons (HFCs), nitrous oxide (N2O), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). 16 Different activities emit different gases, for example, burning fossil fuels releases carbon dioxide, methane and nitrous oxide into the atmosphere, while producing aluminium releases carbon dioxide and perfluorocarbons. Organisations should refer to Defra / DECCs Company Reporting Guidelines to see which emissions they are most likely to emit. Please note that these tools are currently under development as part of our annual update to Defra / DECCs Company Reporting Guidelines emission factors. These will be ready for final publication of this guidance. There are a number of other greenhouse gases that enter the atmosphere because of human activities not covered by the Kyoto Protocol. There are relatively few organisations that emit these gases 17 . A list of both GHGs covered by the Kyoto Protocol and those that are not covered by the Kyoto Protocol and the sources which release them can be found in Defra / DECCs Company Reporting Guidelines.

Recommendation 4
Standard practice: Measure or calculate emissions from all six GHGs covered by the Kyoto Protocol.

Best practice: Measure or calculate emissions from other gases in addition to the six covered by the Kyoto Protocol.

16

The UK GHG reduction targets which align to the Kyoto Protocol cover all six gases

17

Greenhouse gases covered by the Kyoto Protocol account for over 99% of global greenhouse gas emissions

17

Part 6: What information should I collect to calculate my greenhouse gas emissions?

The most common approach used to calculate GHG emissions is to apply documented emission factors to known activity data from the organisation 18 . Activity Data x Emission Factor = GHG emissions Activity data is information used to calculate GHG emissions from combustion and other processes, for example, this could be litres of fuel consumed by your organisations car fleet. Most activity data is easy to obtain, accurate and can be found on bills, invoices and receipts. The table below sets out common types of activity data and the units of measurement you will need to get to change this data into GHG emissions. It is best to collect activity data by volume or mass (e.g. litres of petrol used) as emissions can be calculated more accurately. Common Activity Data Measurement Units

Fuel use (e.g. natural gas, petrol, diesel, coal, LPG) Electricity use Vehicle mileage Passenger travel Freight transport (road, rail, shipping and air) Water supplied and water treated Waste disposal / Recycling

Litres, Kilowatt hours (kWh), Cubic Metres (m3), Therms, Tonnes Kilowatt hours (kWh) Miles, Kilometres (km) Miles, Kilometres (km) Tonne Kilometres (km) or Vehicle Kilometres (km) Cubic metres (m3) or million litres Tonnes of waste treated by waste type (e.g. paper and card, glass)

There are a number of ways to collect and manage this activity data at a corporate level. For example, this could include direct entry of activity data by operational staff onto secure Internet or Intranet databases; or standard spreadsheet templates completed and emailed to head or divisional office where data can be processed. Ideally, GHG reporting should be integrated into existing reporting tools and processes of your organisation.
18

Other approaches are: A) Direct monitoring and measurement of GHG emissions. This is expensive and may not be appropriate. B) Calculating emissions based on mass balance or theoretical combustion specific to a facility or process. This is most applicable to process related emissions such as those from cement, aluminium, waste processing.

18

When collecting data at a corporate level, using a standardised reporting format is recommended to ensure that data received from different business units and operations is comparable. You may wish to establish a quality management system to ensure that you produce a high quality corporate carbon footprint. A quality management system provides a systematic process for preventing and correcting errors in your organisations carbon footprint 19 . If it is not possible for you to calculate your emissions from activity data, you will need to use estimates: Estimated Activity Data x Emission Factor = GHG emissions If you do estimate, we recommend that you are transparent about the estimation technique used and apply quality measures such as comparing your estimated data to historical data to ensure that it falls within a reasonable range.

Can I use existing emissions data?

Where your organisation reports GHG emissions data for regulatory schemes (e.g. EU ETS, CCAs, the forthcoming CRC, and regulatory schemes in other administrations), you may wish to use this data for the purposes of reporting your organisations total GHG emissions. As there are some differences 20 in approach between the regulatory schemes and this reporting guidance you should provide information on the calculation approach and conversion factors used for those emissions reported for regulatory purposes. Where your GHG emissions data reported for existing regulatory schemes does not cover all the emissions sources or greenhouse gases that your organisation is responsible for, you should use the approach outlined in this guidance to measure or calculate those remaining emissions. You should also use the recommended format for reporting this emissions data. However, given the differences in approaches between the regulatory schemes and this reporting guidance you may wish to measure, calculate and report all your total global GHG emissions, for purposes other than reporting for the regulatory schemes, using the approach in this guidance.

For further practical advice on data collection at a corporate level, please refer to Chapter 6 of the GHG Protocol: A Corporate Accounting and Reporting Standard (Revised Edition) or Section 3 of the Institute of Environmental Management and Assessment (2005) Environmental Data Management: for emissions trading and other purposes.
20

19

Please refer to Relationship of this Guidance to the Carbon Reduction Commitment (CRC) (Annex C, Page 36)

19

What period should I collect data for?

The period for which you collect the data must suit your internal and external reporting needs. We recommend that your reporting period should be for 12 months. If you produce financial statements we recommend that the end date for your 12 months reporting period for your GHG emissions data ends within the period covered by your most recent financial year.

20

Part 7: How do I calculate my greenhouse gas emissions?

This guidance provides web links to a range of simple excel spreadsheets with Defra / DECC emissions factors 21 and supporting guidance that converts the data you have collected into GHG emissions. In the automated spreadsheets, you simply need to add activity data to the appropriate emissions factor and this will calculate your emissions data for you. These should only be used for UK emissions and overseas electricity use. Those organisations which have global operations should use overseas emissions factors to give a more accurate account of their emissions data. It is standard practice to report GHG emissions in tonnes of CO2 equivalents (CO2e) 22 . The Defra / DECC spreadsheets available convert data by source into emissions of CO2e for each GHG separately. Please click on the link below for the tool you wish to use. Please note that these tools are currently under development as part of our annual update to Defra / DECCs Company Reporting Guidelines emission factors. These will be ready for final publication of this guidance. The current Defra conversion factors can be found here. Scope 1: Direct Emissions Fuels combustion Owned transport Scope 2: Energy Indirect Emissions Electricity - UK Electricity Overseas Scope 3: Other Indirect Emissions Business Travel Waste Disposal Water Use and Wastewater Disposal Commuting Travel Transport Delivery and Distribution
21

Biomass

Biomass / Biofuels

Process Emissions

Fugitive Emissions

Some organisations may have site specific emission factors which they should use if they will give a more accurate measurement of GHG emissions
22

A universal unit of measurement used to indicate the global warming potential of a greenhouse gas, expressed in terms of the global warming potential of one unit of carbon dioxide

21

If Defra has not been able to provide the appropriate spreadsheet for your activity data, or you have overseas operations we recommend you refer to the emissions factors in the GHG Protocol calculation tools 23 .

Recommendation 5
Standard practice: Where your organisation is using standard emission factors, you should use the Defra / DECC emission factors for UK emissions. If you require other emission factors, you should refer to the emission factors in the GHG Protocol calculation tools.

23

If you are unable to identify appropriate emission factors please e-mail the Defra team for assistance at [email protected].

22

Part 8: What do I need to report?

What emissions data do I need to report?
You should report GHG emissions as a gross figure in tonnes of CO2e. Gross emissions are your total GHG emissions before accounting for any emission reductions that you have purchased or sold. This should be your reported headline figure.

Recommendation 6
Standard practice: Report total GHG emissions as a gross figure in tonnes of CO2e. Where your organisation has purchased or sold emission reductions (i.e. carbon offsets and green tariffs) that meet Defras emission reduction criteria, we recommend that you report on these purchased or sold emissions reductions. For Defras emission reduction criteria please refer to What can I count as an emission reduction? (Annex G, page 58) We recommend that organisations then account for these emissions reductions against their gross figure to report a net figure in tonnes of CO2e. This net figure should be additional to your gross figure and should not replace it. For further guidance on Defras criteria and worked examples on how to apply this, please refer to What can I count as an emission reduction? (Annex G, page 58)

Recommendation 7
Optional: Report where applicable on purchased or sold emissions reductions that meet Defras emission reduction criteria. Then report a net figure in tonnes of CO2e, in addition to the gross figure. Organisations should normalise their total global scope 1 and 2 emissions using an intensity ratio. Intensity ratios compare emissions data with an appropriate business metric or financial indicator, such as sales revenue or square metres of floor space. Using an intensity ratio allows you to compare your performance over time and with other similar types of organisations. For further guidance on which intensity ratios to use, please refer to How to make emissions data more useful? (Annex H, page 66)

Recommendation 8
Standard Practice: Report on total scopes 1 and 2 emissions using an intensity ratio. 23

We recommend you report a summary table of your GHG emissions data for your chosen annual reporting period and your previous years performance. An example of this summary table is shown at page 7. More detailed information on GHG emissions should be provided elsewhere (e.g. Corporate Social Responsibility report or website). Example reporting format for this more detailed information are provided at Example format for detailed emissions data (Annex I, Page 70). Gross emissions data we recommend you report Total annual gross global Scope 1 GHG emissions in tonnes of CO2e (standard practice) Total gross global Scope 2 GHG emissions in tonnes of CO2e (standard practice) Significant gross global Scope 3 GHG emissions in tonnes of CO2e (best practice) Total annual gross global GHG emissions in tonnes of CO2e (standard practice) Format of the information

Broken down by Kyoto GHG type (e.g. carbon dioxide, methane, nitrous oxide) Broken down by Kyoto GHG type (e.g. carbon dioxide, methane, nitrous oxide) Broken down by Kyoto GHG type (e.g. carbon dioxide, methane, nitrous oxide) Scope 1 and 2 (standard practice) Scope 1,2 and 3 (best practice)

Comparative emissions data from previous reporting year in tonnes of CO2e (standard practice)

Organisations can report on emission reduction activities (i.e. carbon offsets and green tariffs) that meet Defras good quality criteria. Below we outline the format in which you should report this information. For further guidance on the emission reduction activities eligible and the good quality criteria these must meet, please refer to What can I count as an emission reduction? (Annex G, Page 58) Net emissions data we recommend you report (where applicable) Total tonnes of CO2e associated with purchased or sold emission reductions (optional) Total net global GHG emissions in tonnes of CO2e (optional) Format of the information

Broken down into specific external GHG reduction projects. Reported separately from total gross global figure 24

Organisations should report on emissions from the combustion of biomass, emissions of non-Kyoto GHGs and normalised emission data separately. Other emissions data we recommend Format of the information you report Total global direct carbon dioxide emissions in tonnes of CO2e from combustion of biomass (standard practice) 24 Total (non-Kyoto) GHG emissions in tonnes of CO2e (best practice) An intensity measurement for your total global gross emissions for scope 1 and 2 emissions combined (standard practice) Reported separately from total gross global figure

Reported separately from total gross global figure Reported separately from total gross global figure

Where it aids your management of emissions you may wish to further subdivide the emissions data collected and reported by business units / facilities, country, source types (e.g. stationary combustion, process emissions), and activity types (e.g. production of electricity, transportation). A worked example on how to present this type of information is provided at Example format for detailed emissions data (Annex I, Page 70).

What supporting explanations do I need to provide?

We recommend that you provide some written explanations when you report your greenhouse gas emissions. This will help to explain how these figures have been calculated and provide context for the data. The following worked examples are provided to help clarify the type of reporting expected of companies using this guidance.

24

The reporting of carbon dioxide emissions in tonnes of CO2e from combustion of biomass may not be applicable to your organisation

25

Recommended supporting explanations State the approach chosen to identify the businesses you collected data from Provide a brief explanation of why you have chosen that approach

Worked example for Large PLC an oil company 25 Financial control approach

Worked example for SME Co a printer 26

N/A

We have followed Defra (2009) Guidance on how to measure and report your greenhouse gas emissions

I own 100% of my operations

Provide detail of any The following emissions specific exclusions of have been excluded: emissions from scopes 1 and 2 (including Emissions from estimation of the % this is facilities in of the total scopes 1 and Mongolia. We 2 emissions data) estimate that this is less than 2% of total scopes 1 and 2 emissions.

N/A

Emissions from air conditioning and refrigeration units in office buildings. We estimate that emissions from air conditioning and refrigeration units in our offices account for less than

Some parts of the recommended supporting explanation may not be relevant to your organisation.
26

25

Some parts of the recommended supporting explanation may not be relevant to your organisation.

26

<0.5% of total scopes 1 and 2 emissions. Provide a brief No emissions data explanation for the available for facilities in reason for any exclusions Mongolia as these are newly acquired operations. Emissions from air conditioning and refrigeration units have been excluded as capturing this information is too expensive at this current time. Provide detail of any specific exclusions of countries if a global total is reported State the activities your significant scope 3 emissions relate to Emissions from Mongolia have been excluded.

N/A

N/A

Business travel Employee commuting Products in use

Purchased products (i.e. paper for printing) Transport delivery and distribution (i.e. delivery of printed materials)

State the non Kyoto gases you have emissions data on. Report separately from scopes. State the period covered by your emissions data State the calculation approach used State the conversion

N/A

N/A

1st October 2009 30th September 2010 EU ETS methodology Refineries in

1stJanuary 2010 31st December 2010 DECC / Defra emission factors applied to activity 27

tools / factors you have used

Europe Fuels combustion Large Plc site specific emission factors Mobile combustion and fugitive emissions DECC / Defra emission factors

data

State the reason for any significant changes in emissions since previous year

N/A This is our first The organisation has disposed of our facilities year of reporting and operations in Kazakhstan. Emissions from these facilities account for 250,000 tonnes of CO2e emissions. In addition, the organisation has outsourced operation of its refining capacity in the UK to Global Refineries Inc. This accounts for 500,000 tonnes of CO2e emissions.

State the reason for your intensity measurement choice

We have chosen: Tonnes of CO2e per tonne of output as this is a common business metric for the oil industry.

I have chosen per million sales as this is the metric which I have data for and is the metric I expect to grow

State the reason for any significant changes in your intensity measurement from the previous year

Outsourcing our refining N/A see above capacity in the UK to Global Refineries Inc. has reduced our carbon intensity significantly. In addition, we have 28

invested 50 million in more energy efficient process equipment in our operations in the USA. State your target and target completion date We aim to reduce our global GHG emissions per million tonnes of output of oil by 2 percent each year from 2009 to 2014. I aim to reduce my total GHG emissions by 25% from 2010 to 2015.

State the scopes covered Scopes 1 and 2 by the target emissions and scope 3 emissions currently measured (excluding fugitive emissions from air conditioning and refrigeration in our offices) State the name of the person and their position in your organisation that has responsibility for achievement of this target State the base year chosen and explain your rationale for this Joe Bloggs Chief Operating Officer.

Scopes 1 and 2 emissions and scope 3 emissions currently measured

Stan Long Owner

1st October 2009 30th September 2010. We chose this base year as it was reflective of previous years and there were no unusual fluctuations in emissions.

1stJanuary 2010 31st December 2010 I have chosen this base year because it will be the first complete year of emissions data I have collected, measured and reported. Fixed base year approach

State the approach chosen to set the base year State the total gross tonnes of CO2e in the base year

Rolling base year approach

30 million tonnes of CO2e (Mt CO2e)

75,000 tonnes of CO2e (Mt CO2e)

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Section B
Part 9: Should I set an emissions reduction target?
Why should I set a target?
Once you have measured and calculated your total GHG emissions, setting an emission reduction target is the logical next step. There are a number of good business reasons to do this:

To improve cost efficiency - cost savings can be made by identifying opportunities to increase resource and energy efficiency. This may help to improve your competitive advantage. To demonstrate leadership - by setting ambitious targets, measuring, managing, reporting and reducing GHG emissions. To improve brand recognition in an increasingly environmentally conscious marketplace consumers and employees have a greater awareness of corporate social responsibility and expect business to a take a leadership role in the management of GHG emissions.

What kind of target should I set?

Organisations can set: an absolute GHG reduction target which compares total GHG emissions in the target year to those in a base year; or a target based on a decrease in GHG emissions intensity using an appropriate normalising factor (e.g. tonnes / CO2e per tonne of product, floor space or Full Time Equivalent). This takes into account increases or decreases in production over time.

Recommendation 9
Standard practice: Set a reduction target and choose the approach to use. The target should be: Organisation-wide (including all UK and overseas emissions); Inclusive of all emissions (scope 1, 2 and 3) that you measure and report on; Based on the most recent base year data is available; and Achieved over 5 to 10 years. 30

Best practice: Set an absolute target.

For further guidance on setting a GHG reduction target, please refer to How do I set my emissions target? (Annex J, page 73)

31

SectionC
Annex A: Small Business Worked Example
This is a worked example for a small business to show how they may follow the guidance document. For more information, please click on the links to take you to the relevant sections in the guidance. The Smith Family own a small Bed and Breakfast (B&B) in Whitby. Their B&B is a registered company and they want to work out the carbon footprint of their business. Their B&B has six double rooms which they rent out all year except for when they are closed for a month over Christmas. They also have a company-owned car which they use to transport guests and collect food and supplies for their B&B. To measure and report their carbon footprint, they follow the six step process below: Step 1: Do I report on all parts of my organisation? The Smith Family owns 100% of their B&B. Therefore they account for all of the emissions related to the activities of their B&B. Step 2: Which activities in my organisation release GHG emissions? They then identify and categorise the business activities from their B&B into 3 categories (known as scopes). The B&B activities which release GHG emissions are:

32

After categorising their B&Bs emissions, the Smith Family follow Defras standard practice approach and calculate their scope 1 and 2 emissions. Step 3: What information should I collect from these activities to calculate my GHG emissions? First, they decide which recent 12 month period they want to measure their emissions for. They decide to choose a 12 month period that matches their utility bill dates. Once they have done this, they collect data that covers this 12 month period. To calculate their emissions from their gas boiler which they use for central heating and hot water in their B&B, they use information from their gas bill in kilowatt hours (kWh). To calculate their emissions from their company-owned car (an MPV) which they use to transport guests and to collect food and supplies for the guests, they keep a record of their business mileage. To calculate their emissions from the consumption of electricity, they use information from their electricity bill in kilowatt hours (kWh).

There is no information they can currently use to calculate their emissions from their fridge. As a result, they do not measure this. Step 4: How do I calculate my GHG emissions? Once they have collected this information, they convert this into GHG emissions. To do this, they select the appropriate worksheets on the Defra website. They enter the amount used per year for electricity, gas and car mileage into the correct cells on these worksheets. They check to see that the information they enter corresponds with the correct units (i.e. kWhs and miles). The worksheets automatically calculate the emissions for each relevant GHG and add these GHGs to produce a total GHG figure. Calculation of my emissions from my gas boiler (using gross calorific values):
Amount used per year 40,000 Units CO2 x kg CO2 per unit x 0.18358 Total kg CO2 7343.2 CH4 x kg CO2e per unit x 0.00028 Total kg CO2e 11.2 N2O x kg CO2e per unit x 0.00011 Total kg CO2e 4.4 Total GHG Total kg CO2e 7358.4

kWh

Calculation of my emissions from consumption of electricity (at 2007 figures):

Amount used per year 10,000 Units CO2 x kg CO2 per unit x 0.54303 Total kg CO2 5430.3 CH4 x kg CO2e per unit x 0.00025 Total kg CO2e 2.5 N2O x kg CO2e per unit x 0.00339 Total kg CO2e 33.9 Total GHG Total kg CO2e 5441.8

kWh

33

Calculation of my emissions from my multi-purpose vehicle:

Total units travelled 2130 Units CO2 x kg CO2 per unit Total kg CO2 CH4 x kg CO2e per unit x 0.0005 Total kg CO2e N2O x kg CO2e per unit Total kg CO2e Total GHG Total kg CO2e

miles

x 0.3836

817

x 0.00030

824

Step 5: What do I need to report? Once they have calculated their emissions for their 12 month period they put this into the table below. They make this information publically available on their B&B website and in a framed display in their doorway to show customers that they are managing their emissions. The Smith Family B&B Carbon Footprint GHG emissions data for period 1 October 2009 to 30 September 2010 Tonnes of CO2e Scope 1 Scope 2 Standard practice total gross emissions Intensity Ratio1
1

8.18 5.44 13.62 0.0454

The Smith Family has used square metres to calculate their intensity ratio.

Step 6: How do I set my emissions reduction target? The Smith Family now know the total scope 1 and 2 emissions that their B&B business is responsible for. As a result, they feel confident in setting and disclosing a target. They treat 2010 as their base year against which to compare their future emissions and set the following target:

The Smith Family B&B pledges to reduce its total scope 1 and 2 GHG
emissions by 25% from 2010 to 2015.

34

Annex B: GHG Accounting and Reporting principles

Relevance: Ensure the GHG emissions you report appropriately reflect the emissions of your organisation and serves the decision-making needs of usersboth internal and external to the organisation. Completeness: Measure and report on all GHG emissions sources and activities from the businesses / operations for which you are collecting GHG data 27 . Disclose and justify any specific exclusions. Consistency: Use consistent methodologies to allow for meaningful comparisons of emissions over time. Transparently document any changes to the data, changes in your organisational boundary, methods, or any other relevant factors. Transparency: Address all relevant issues in a factual and coherent manner, keeping a record of all assumptions, calculations, and methodologies used. Report on any relevant assumptions and make appropriate references to the accounting and calculation methodologies and data sources used. Accuracy: As far as can be judged, ensure that your reported GHG emissions data is systematically neither over nor under your actual emissions. Seek to reduce uncertainties in your reported GHG emissions where practical. Achieve sufficient accuracy to enable users to make decisions with reasonable assurance as to the integrity of the reported information.

27

It may not be possible for you to measure and report all emissions see page 19.

35

Annex C: Relationship of this Guidance to the Carbon Reduction Commitment (CRC)

The Carbon Reduction Commitment is a mandatory emissions trading scheme that covers groups of organisations consuming more than 6000MwH of electricity through half hourly meters. This scheme requires specific detailed reporting of emissions from energy use, and is therefore narrower in scope than this guidance. It has specific requirements on treatment of organisations, for example, the relationship between landlords and tenants. For further information see http://www.defra.gov.uk/environment/climatechange/uk/business/crc/index.ht m We have aligned the requirements of the CRC and the approach in this guidance as far as possible in order to reduce reporting burdens, but recognise there are differences in some areas. This guidance document explains how organisations should measure and report their GHG emissions and aligns with the Greenhouse Gas Protocol - the internationally recognised standard for corporate accounting and reporting - to ensure consistency with international reporting schemes, whilst the CRC will be a UK statutory scheme with specific objectives. We will be taking the outcomes of the recent CRC consultation into account in developing the final guidance. This guidance differs from the CRC in the following ways: This guidance covers all UK organisations and there is no size threshold for inclusion. Government encourages all organisations to use the guidance to measure and report on their greenhouse gas emissions; This guidance does not specify a minimum level of reporting. Organisations are encouraged to follow the completeness principle and account for 100% of emissions. Under this guidance the organisations that you have to measure and report on may be different from those under CRC. Please refer to Do I report on all parts of my organisations for more guidance on establishing your organisational boundary; This guidance covers global emissions. Please refer to Do I report on all parts of my organisations for further information; This guidance covers a larger number of emission sources. Organisations can measure and report on all emissions that they are responsible for both direct emissions and indirect emissions. Please 36

refer to What activities in my organisation release greenhouse gas emissions to find out what emissions are covered; This guidance covers all 6 Kyoto greenhouse gases. Please refer to Which greenhouse gases should I measure for further information on these greenhouse gases; Under this guidance, greenhouse gas conversion factors are updated annually. Please refer to How do I calculate my greenhouse gas emissions for further information on which conversion factors to use;

Under this guidance, responsibility for emissions under landlord / tenant agreements is determined by the terms and conditions of the lease. For more guidance on how to account for these emissions, please refer to Do I include leased assets and activities I have outsourced;

37

Annex D: Which of my businesses do I include?

Step 1: Work out your organisational structure
If you wholly own all operations and businesses within your organisation you will measure and account for all the GHG emissions from all of these entities. Where you have operations and businesses which you do not wholly own you will need to identify the financial reporting relationship between the parent operation and the other entities to identify how much of the GHG emissions from these other entities you are responsible for and should report. To identify the financial reporting relationship you will need to identify the accounting definition for the businesses and operations in your organisation (i.e. is it a subsidiary or a joint venture?). Your finance department should be able to provide you with the information you need to do this.

Step 2: Choose an approach to identify which GHG emissions you have responsibility for in the business and operations in your organisation
Once you have identified the accounting definition for the businesses and operations, you need to decide which approach is best to use to identify the GHG emissions you have responsibility for in your organisation. There are three established approaches: Equity Share The equity share reflects the extent of the rights a company has to the risks and rewards from a business or operation. Equity share will normally be the same as the ownership percentage but where this is not the case, in accordance with international financial reporting standards, the economic substance of the relationship the company has with the operation overrides the legal ownership. The equity share will then reflect the economic interest rather than the legal ownership. Control approach Control can be defined in either financial or operational terms. In most cases, whether an operation is controlled by the company or not does not vary based on whether the financial control or operational control criterion is used. A

38

notable exception is the oil and gas industry, which often has complex ownership/operator structures. Financial Control An organisation has financial control over the operation if the former has the ability to direct the financial and operating policies of the latter with a view to gaining economic benefits from the operations activities. For example, financial control usually exists if the organisation has the right to the majority of benefits of the operation. Similarly, an organisation is considered to financially control an operation if it retains the majority risks and rewards of ownership of the operations assets. A company has financial control over an operation for GHG accounting purposes if the operation is considered as a group company for the purpose of financial consolidation, i.e., if the operation is fully consolidated in financial accounts. This approach follows the guidance set out in international financial reporting standards so that the economic substance of the relationship takes precedence over the legal ownership. Therefore an organisation may have financial control over an operation even if it has less than a 50 percent interest in that operation. Operational Control An organisation has operational control over an operation if the former or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operation. This criterion is consistent with the current accounting and reporting practice of many companies that report on emissions from facilities, which they operate (i.e., for which they hold the operating licence). It is recommended that organisations use the financial control approach. The financial control approach is recommended for the following reasons: An organisation takes full ownership of all GHG emissions that it can directly influence and reduce The accounting for the GHG emissions is aligned to international financial accounting standards Managers can only be held accountable for the activities and hence the GHG emissions under their control and therefore performance management schemes can be used effectively Companies will have better access to GHG emissions data and will have greater control over its quality when collecting it from operations they control 39

Companies will have more ability to demonstrate completeness of reporting as the information needed to determine organisational structure will already exist for financial reporting purposes Closer alignment with Carbon Reduction Commitment

However you should use the equity approach or the operational control approach if that is more appropriate to your organisation.

Step 3: Apply your chosen approach

The approach you choose to consolidate your organisations GHG emissions must be applied consistently to all your businesses and operations. Financial control approach For each entity you have identified in your organisational structure you need to identify if you have financial control over that entity. Your finance department should be able to provide you with this information. The fourth column in table 1 sets out for each type of accounting category the percentage of GHG emissions which should be included in the total amount when reporting at the organisational level using the financial control approach. Operational control approach For each entity you have identified in your organisational structure you need to identify if you have operational control over that entity. Your finance department should be able to provide you with this information. The fifth column in table 1 below sets out for each type of accounting category the percentage of GHG emissions which should be included in the total amount when reporting at the organisational level using the operational approach. Equity share approach For each entity you need to identify your share of the equity in the operation which will normally be the same as your share ownership in the business. However given that economic interest may not be the same as legal ownership you will need to consult with your accounting or legal staff to ensure that the appropriate equity share percentage is applied for each joint operation. The third column in table 1 below sets out for each type of accounting category the percentage of GHG emissions which should be included in the total amount for the organisational level using the equity share approach.

40

Table 1: Accounting for GHG emissions Accounting for GHG Emissions Control Approach Equity Financial Operational share control control approach Equity 100% of 100 percent share of GHG of GHG GHG emissions emissions (if emissions operational control) 0 percent of GHG emissions (if no operational control) Equity share of GHG emissions 0% of GHG emissions 100 percent of GHG emissions (if operational control) 0 percent of GHG emissions (if no operational control)

Accounting category Group Companies/ Subsidiaries

Financial accounting definition The parent company has the ability to direct the financial and operating policies of the company (the subsidiary) with a view to gaining economic benefits from its emissions activities. Typically, more than 50% of the subsidiarys equity is owned by the parent company. Typically, the parent company owns less than 50% of the associated company's stock (or otherwise does not have financial control), but still has influence over its operations and financial policies. This includes incorporated and nonincorporated joint ventures and partnerships over which the parent company has significant influence, but not financial control. A joint venture, partnership, or operation where each partner accounts for their proportion of the joint venture's income, expenses, assets, and liabilities. Each partner has joint financial control.

Associated/ Affiliated Companies

Nonincorporated joint ventures / partnerships / operations where partners have joint financial

Equity share of GHG emissions

Equity share 100 percent of GHG of GHG emissions emissions (if operational control) 0 percent of GHG emissions (if no 41

control Fixed asset investments The parent company has neither significant influence nor financial control. This category also includes incorporated and nonincorporated joint ventures and partnerships over which the parent company has neither significant influence nor financial control. A franchise is a separate legal entity usually not under the financial or operational control of its franchiser, which gives rights to sell a product or service. Should the terms of a franchise grant equity or financial or operational control to the franchiser, then emissions accounting should be consistent with the rules provided above. 0% of GHG emissions 0% of GHG emissions

operational control) 0% of GHG emissions

Franchises

Equity share of GHG emissions (if the franchiser has equity rights)

100% share of GHG emissions (if the franchiser has financial control) 0% share of GHG emissions (if the franchiser does not have financial control)

100% share of GHG emissions (if the franchiser has operational control) 0% of GHG emissions (if the franchiser does not have operational control)

42

Worked Example
Diagram 1 outlines the organisational structure for ABC Industries based on the economic interest held by ABC Industries.

Table 2 sets out those GHG emissions for which ABC industries has responsibility. The table demonstrates how you would apply the three established approaches for consolidating organisational wide emissions.

43

Table 2: Accounting for GHG Emissions within ABC Industries Entities within ABC Industries Economic interest held by ABC Industries 100% 95% 50% by ABC Overseas Treatment in ABC Industries financial accounts Wholly owned subsidiary Subsidiary Joint venture via ABC overseas. Partner AN Other has joint financial control Subsidiary via ABC Overseas Proportionally consolidated joint venture (two other partners have financial control) Associated company Fixed Asset investment Control of operating policies Treatment in ABC Industries financial accounts Wholly owned subsidiary Subsidiary Equity share Financial Control Operational Control

ABC Co ABC Overseas XXX

ABC Industries ABC Industries Franco

100% 95%

100% 100% 50% (50% x 100%)

100% 100% 0%

Joint venture via 47.5% ABC overseas. (50% x 95%) Partner AN Other has joint financial control

YYY

75% by ABC Overseas 33.3%

ABC Overseas

Subsidiary via ABC Overseas

71.25% (75% x 95%)

100%

100%

DEF

ABC Industries

Proportionally 33.3% consolidated joint venture (two other partners have financial control) Associated company Fixed Asset investment 43% 0%

33.3%

100%

TIS LOS

43% 1%

ABC Industries Alfredo Co

0% 0%

100% 0%

Step 4: Disclose the approach used

You should disclose the approach you are taking to inform the user of the information and so that any double counting of emissions can be avoided. This could occur when two or more companies hold interests in the same joint operation and use different consolidation approaches.

Additional guidance

Leases

If you own leased assets you should follow the same consolidation approach for including the GHG emissions from the leased assets as you used for your organisational boundary. However you will need to know what type of lease applies to your assets. For further information on leases please go to Do I include leased assets and activities I have outsourced? (Annex E, page 46)

45

Annex E: Do I include leased assets and activities I have outsourced?

Leased assets
Many companies lease assets, for example, office space and vehicles. This annex sets out how to account for GHG emissions associated with leased assets.

Step 1: Identify the type of contract used to obtain the leased assets
Leases can be classified into either finance or operating leases. The distinction between a finance lease and an operating lease will usually be evident from the terms of the contract between the lessor and the lessee. A finance lease transfers substantially all the risks and rewards of ownership of an asset to the lessee. The asset leased will be treated as an asset wholly owned by the lessee as defined in financial accounting standards and are recorded as such on the companys balance sheet. An operating lease is a lease other than a finance lease. The lessee will have operational control but not ownership or financial control.

If you are unclear if your assets are leased under a finance lease or an operating lease your company accountant or the Leasing Company will be able to provide you with this information.

Step 2: Apply your chosen organisational boundary

The approach you have chosen to determine your organisations boundary will determine the emissions you report from your leased assets and if they should be categorised as scope 1, 2 or 3. (See part 3, page 12) For a lessee Using financial control 28 or equity approach: you should account for emissions from assets that you are leasing if the lease is a finance lease. If the lease is an operating lease it is optional whether you include your emissions from the assets obtained from this lease depending upon which scopes of emissions
28

Financial control is the recommended approach

46

you are reporting. This is because the emissions from these assets which you are not deemed to own or have financial control over are classified as indirect emissions (scope 3). This is discussed in more detail later. If you do include these emissions from the operating lease you should disclose this. Using operational control: You should only account for emissions from assets that you are leasing if the operational criterion applies: the lessee has the ability to track energy use and / or emissions from the lease. This criterion applies to assets hired under a finance lease and those assets hired under an operating lease. Type of lease Finance Equity share Financial control Operational control Include Include Include Operating Optional Optional Include

It is recommended that you follow the financial control approach. Therefore you would record the GHG emissions for your assets hired under a finance lease in the total for your organisation wide emissions but it is optional whether you include those hired under an operating lease depending upon which scopes of emissions you are reporting. For a lessor Using financial control or equity approach: you should account for emissions from assets that you are leasing to another organisation if the lease under which they have been hired is an operating lease. If the lease is a finance lease it is optional whether you include your emissions from the assets obtained from this lease depending upon which scopes of emissions you are reporting. If you do include these emissions from the finance lease you should disclose this. Using operational control: it is optional whether you include your emissions from the assets obtained from both finance and operating leases depending upon which scopes of emissions you are reporting. If you do include these emissions you should disclose this.

47

Type of lease Finance Equity share Financial control Operational control Optional Optional Optional Operating Include Include Optional

It is recommended that you follow the financial control approach so you would include those emissions from assets leased out under an operating lease in the total for your organisation wide emissions but it is optional whether you include those emissions from assets leased out under a finance lease.

Step 3: Determine in which scope direct emissions should be reported

For a lessee Using financial control or equity approach: you should report direct emissions as scope 1 if the assets have been hired under a finance lease. If the assets were hired under an operating lease the direct emissions should be reported as scope 3 emissions. Using operational control: you should report direct emissions as scope 1 for both finance and operating leases.

Type of lease Finance Equity share Financial control Operational control Scope 1 Scope 1 Scope 1 Operating Scope 3 Scope 3 Scope 1

It is recommended that you follow the financial control approach. You should record the direct emissions for the assets you have leased under a finance lease in scope 1 and the emissions for the assets leased under an operating lease in scope 3 if you are reporting your scope 3 emissions.

48

For a lessor Using financial control or equity approach: you should report direct emissions as scope 3 if the assets have been hired under a finance lease. If the assets were hired under an operating lease the direct emissions should be reported as scope 1 emissions. Using operational control: you should report direct emissions as scope 3 for both finance and operating leases. Type of lease Finance Equity share Financial control Operational control Scope 3 Scope 3 Scope 3 Operating Scope 1 Scope 1 Scope 3

It is recommended that you follow the financial control approach. You should record the direct emissions for the assets you have leased out under a finance lease in scope 3 if you are reporting your scope 3 emissions and record the GHG emissions for the assets leased out under an operating lease in scope 1.

Step 4: Determine in which scope purchased electricity should be reported

For a lessee Using financial control or equity approach: you should report emissions from purchased electricity as scope 2 if the assets have been hired under a finance lease. If the assets were hired under an operating lease the emissions should be reported as scope 3 emissions. Using operational control: you should report emissions as scope 2 for both finance and operating leases.

49

Type of lease Finance Equity share Financial control Operational control Scope 2 Scope 2 Scope 2 Operating Scope 3 Scope 3 Scope 2

It is recommended that you follow the financial control approach. You should record the GHG emissions from purchased electricity associated with the assets you have leased out under a finance lease in scope 2, and record the emissions from purchased electricity, associated with the assets leased out under an operating lease in scope 3, if you are reporting your scope 3 emissions. For a lessor Using financial control or equity approach: you should report direct emissions as scope 3 if the assets have been hired under a finance lease. If the assets were hired under an operating lease the direct emissions should be reported as scope 2 emissions. Using operational control: you should report direct emissions as scope 3 for both finance and operating leases. Type of lease Finance Equity share Financial control Operational control Scope 3 Scope 3 Scope 3 Operating Scope 2 Scope 2 Scope 3

It is recommended that you follow the financial control approach. You would therefore record the GHG emissions from purchased electricity associated with the assets you have leased out under a finance lease in scope 3, if you are reporting your scope 3 emissions and record the emissions from purchased electricity associated with the assets leased out under an operating lease in scope 2. 50

Outsourcing
There are certain arrangements that do not take the legal form of a lease but convey rights to use items for an agreed time period for payment, e.g. the outsourcing of an activity to be run by a third party which was previously done by the business. Common examples include HR services, IT services, Security, Call Centres. Outsourcing is characterised by a multitude of different types of contractual arrangements. Therefore to categorise the emissions from an outsourced activity reference must be made back to the specific contract for that activity. Typically an outsourcing arrangement will have a principal (one who employs another to act for him) and an agent (a person who acts for or represents another). For example, a law firm may outsource their IT function to an external IT company. In this case, the law firm will be the principal and the IT company will be the agent. If the law firm has delegated total authority to the IT company for them to make all arrangements in relation to the IT function the emissions from the IT function will be in included in the law firms scope 3 emissions, (rather than in the law firms scopes 1 and 2) to prevent the double-counting of emissions as the IT company will include the emissions in its scopes 1 and 2.

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Annex F: Which other indirect emissions should I measure and calculate?

Other indirect emissions (scope 3) are from activities which release emissions into the atmosphere as a consequence of your actions, which occur at sources which you do not own or control. Other indirect emissions (scope 3) are harder to measure than direct (scope 1) and energy indirect (scope 2) because the data and tools needed are often not available. However, if you also measure your organisations scope 3 emissions 29 , you will get a more complete understanding of your organisations total carbon footprint and potential exposure to climate change risks. It will help you to understand the relative magnitude of, and possible changes in your scope 3 emissions. Identifying your organisations scope 3 emissions and increasing your awareness of where your organisation sits within the supply chain will enable you to engage with other organisations in that supply chain. If you choose to calculate your scope 3 emissions, you should focus on those emissions that are most significant for your organisation (Significant is explained below). To identify and calculate your scope 3 emissions, you might find it helpful to follow the process set out below:

Step 1: Identify where your organisation sits in the supply chain

To start with, you should identify where your organisation sits in the supply chain. This will help you to determine the activities which are relevant to your organisation and from where you may need to collect data. A supply chain is the system of organisations, activities, technologies, information and resources that move a product or service from supplier to customer. Your organisation may sit in one specific area or within a number of different areas depending on the complexity of the supply chain. The diagram below should help you to determine where you sit in your supply chain:

29

Excluding consumption of purchased electricity, heat, steam or cooling which should be reported as a minimum requirement

52

An example supply chain:

Step 2: Map out activities connected with the operations of your organisation that you do not own or control
Once you have identified where you sit in your supply chain this should help you to map out the activities at operations which you do not own or control. This will help you to understand where you need to get activity data from for your scope 3 emissions and also enable you to engage with other organisations in your supply chain. It may be easier to do this in the form of a flow chart or process map. The following table provides a checklist which should help you do this. Please note that this list is not exhaustive and there may be other GHG related activities that your organisation is connected with:

53

Emissions Category Purchased assets, materials and fuels

Sub-Category

Extraction of materials and fuels (e.g. mining or drilling) Production of goods and services that are purchased or used by your organisation (e.g. buildings, plant & machinery, office equipment, vehicles, IT services) Water supply Transportation of purchased materials or goods Transportation of purchased fuels Employee business travel by non-owned means (e.g. public transport, passenger air travel) Employees commuting to and from work Distribution of finished goods Transportation of waste Extraction, production, and transportation of fuels consumed in the generation of electricity Purchase of electricity that is sold to an end user (reported by utility company) Generation of electricity that is lost in a transmission and distribution to the end user (reported by end user) 30 Emissions from contractual relationships that are not included within your minimum required emissions due to the consolidation approach chosen (e.g. leased vehicles, tenanted buildings, IT data centres) For more guidance on treatment leased assets, please refer to Do I include leased assets and activities I have outsourced?

Transportrelated activities Electricityrelated activities not included in scope 2

Leased assets, franchises and outsourced activities

30

Other electricity related activities are accounted for in the UK grid rolling average factor including transmission and distribution to the end user

54

Sold goods and services Waste disposal

Use of goods or services by consumer downstream.

Disposal of waste generated in operations Disposal of waste generated in the production of purchased materials and fuels Disposal of sold goods and services at the end of their life Waste water

Step 3: Identify which categories of emissions are most significant

Only some types of emissions will be significant for your organisation. In order to determine which emissions are significant to your organisation, you should make an assessment of your other indirect emissions using the following 5 criteria: Scale: What are the largest indirect emissions-causing activities with which your organisation is connected? Importance to your business: Are there any sources of GHG emissions that are particularly important to your business or increase the companys climate change risk, (e.g. electricity consumption in the case of consumer use of energy using products or emissions from vehicle use for motor manufacturers)? Stakeholders: Which emission causing activities do your interested parties e.g. customers, suppliers, investors expect you to report? Potential for reductions: Where is there potential for your company to influence or reduce emissions from indirect emission activities? Ability to influence data gathering: How easy / cost effective will it be for you to get activity data or emissions data from your suppliers / customers?

Step 4: Collect activity / emissions data

The level of data availability and reliability may be a limiting factor when you try to calculate your other indirect GHG emissions. This is because you will often be relying on other people and organisations to measure and calculate their emissions in a transparent and consistent manner. As a result, data accuracy may be lower. 55

Where possible, it is better to use actual activity / emissions data to calculate your emissions but emission estimates are acceptable where: you are transparent about your estimation approach; and the data used is adequate to support the objectives for which you are measuring and reporting your GHG emissions.

Step 5: Quantify optional indirect emissions

Defra provides a range of spreadsheets to help you calculate your indirect emissions. This is not an exhaustive list. As a result, both you and your suppliers may not be able to calculate all of your other indirect emissions. Defra will continue to develop further calculation tools that will help your organisation to quantify your other indirect emissions.

Worked example
In this example, Alpha Software Ltd is an office-based organisation that develops bespoke computer software and, using a sales force, sells their software directly to their customers. Therefore they sit in both manufacturing and retailing areas of their supply chain. They decided to carry out the mapping exercise to identify their immediate other indirect GHG emissions (both upstream and downstream) associated with their operations.

56

Source: Defra

They decide that that their most significant emissions are associated with their product when it is being used (i.e. their bespoke computer software). This is because: Emissions connected to the use of their software is comparatively large compared to their other scope 3 emissions; It is the most customer-facing component of their business and affects the amount of electricity used by customers; There is considerable scope for emissions reductions through developing their software application to run more efficiently; It is relatively easy for them to collect activity data / estimate the use of their online software application as they can determine how much their software application is used by their customers and they can carry out a sample of the IT equipment (hardware) used by their customers.

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Annex G: What can I count as an emission reduction?

When you report on your emissions reductions, it is important to be transparent about how you have done this. Transparency will help to promote greater credibility around your emission reduction claims.

Step 1: Reduce your own GHG emissions first

To reduce your GHG emissions, your organisation may carry out projects within your own operations or within your supply chain (e.g. energy efficiency measures, installation of on-site renewables, behaviour change programmes, supplier engagement initiatives). We would recommend that organisations focus initially on these reductions as you can achieve cost savings by doing this. Such internal GHG reductions will be accounted for in your reported gross CO2e tonne figure as these internal projects will reduce emissions from within your own operations. You may choose to provide supporting explanations on these internal GHG reduction activities. Where your organisation generates and consumes electricity from renewable sources backed by Renewable Energy Guarantees of Origin (REGOs) 31 certificates, you should account for this in the following way: You should account for all of the electricity you use in your reported scope 2 emissions at the Grid Rolling Average factor (unless you do not receive a subsidy see below). You may report an emissions reduction in your reported net CO2e figure for electricity at the Grid Rolling Average factor. The amount reported in this way should not exceed your actual electricity use 32 . For a worked example of this, please refer to Box 1 (page 64).

Where subsidies are not received (and your generation capacity may therefore be unmetered), you may include both the consumption and generation in Scope 1 gross emissions as zero carbon. Where your organisation reduces its emissions through internal projects that could not take place without the carbon finance from selling carbon credits,
Renewable Energy Guarantees of Origin (REGOs) are certificates which demonstrate that electricity has been produced from a renewable source of energy. One REGO is issued for each kilowatt hour (kWh) of eligible renewable electricity generated. REGOs are evidence of who has generated the electricity, and as such back the claim of the generator.
32 31

This means that total emissions reductions from generated renewable electricity (and green tariffs if appropriate) would not be greater than reported scope 2 emissions.

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these emission reductions will be accounted for in your reported gross CO2e tonne figure. To promote transparency, you should account for any sold carbon credits in your reported net CO2e tonne figure. For a worked example of this, please refer to Box 2 (page 65).

Step 2: Decide whether or not to purchase external emission reductions

In some situations, your organisation may choose to reduce your emissions through external GHG reduction projects that reduce GHG emissions outside your operations or your supply chain. This may be because GHG reductions can be achieved more practically or cost effectively from these external sources. We recommend organisations list separately external GHG reduction activities which are not accounted for in their reported gross CO2e tonne figure and provide a net CO2e tonne figure. You may do this where these external reduction activities meet Defras good quality criteria set out below. For a worked example of this, please refer to Box 3 (page 65).

Step 3: Assess the quality of these external emission reduction projects

Defra has listed the different types of external GHG reduction activities and the good quality criteria these reductions must meet to report on them as an external emission reduction. These are listed in the table below. GHG Reduction Activity Carbon Offsetting Good Quality Criteria Defra Recommendation Where your organisation purchases carbon credits directly, you should purchase Kyoto-compliant carbon credits. These are credits that are covered by one of the flexibility mechanisms under the Kyoto Protocol. This includes Certified Emission Reductions (CERs) and other credits 33 .

Carbon credits should meet the following criteria for organisations to count them as a genuine emissions reduction. Organisations should carry out due diligence to see how carbon credits meet these criteria: Additionality Projects must demonstrate that they have produced a saving in carbon that would not have happened otherwise i.e. the project could not take place without the carbon finance from selling credits. The project must not be required by legislation or to demonstrate compliance against legally binding targets. This should be demonstrated via a project methodology developed by a

33

For more information on the Kyoto Protocol, the flexibility mechanisms and the different types of credits see http://unfccc.int/kyoto_protocol/items/2830.php

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recognised body. Avoiding leakage The project must demonstrate that it has not caused an increase in carbon emissions elsewhere. Leakage is when the carbon saving made at a project/location/time increase emissions elsewhere. An assessment must be made of any effects from the project whether up stream or downstream. This must be taken into account in determining the total emissions that can be sold from that project. Permanence - If the project could be impermanent, (e.g. forestry projects are at risk of disease or fire) then this must be addressed by the project developer or offset provider. To achieve this, impermanent projects must be periodically independently reviewed and, if necessary, credits must be replaced when they expire or cease to be valid. Validation and verification - The project must receive independent verification. The verifier must be an accredited and recognised independent third party. Purchasers of credits should also ensure that robust, independent validation and verification procedures were in place to check project were implemented according to the methodology and subsequently monitored to ensure that emission reductions were properly measured. Timing Carbon credits should be ex-poste, that is, they must only have been issued from the project after the emissions reduction has taken place. Avoiding double counting A registry must be used to register, track and permanently cancel credits to avoid double counting or double selling. Project must not be double counted against another policy or mandatory targets.

The purchase of Kyoto-compliant credits will ensure that the Good Quality criteria are met. The purchase of credits meeting any of the voluntary offset standards will not meet these criteria automatically. Where your organisation uses an offset provider (rather than purchasing credits direct from a broker), you should purchase offsets that meet the Governments Quality Assurance Scheme for Carbon Offsetting. Under the scheme, only Kyoto-compliant carbon credits are eligible for approval. The Scheme also requires offset providers to calculate emissions accurately, to offer transparent information about the projects involved, about the role of offsetting in tackling climate change and about pricing.

Transparency - Credits should be supported by publically available project documentation Your organisation on a registry to set out the underlying projects should not fund (when they were considered approved and domestic projects implemented), the quantification methodology 60

offsetting applied and independent validation and for verification procedures and reports for project purposes. and credits. No domestic projects - Domestic projects are unlikely to meet the requirements of a genuine offset (most probably in terms of additionality and avoiding double-counting). The carbon value of carbon credits originating from domestic projects is therefore not clear cut. As such, it is recommended that organisations do not purchase offsets relating to domestic projects or directly fund domestic projects for offsetting purposes unless they can demonstrate that the projects in question do meet the required standard. This does not mean that it is always inappropriate to finance domestic projects; indeed doing so would be of benefit in helping the UK to meet its targets efficiently. But unless all the genuine offsetting tests are met, organisations funding such projects should find another means of communicating their contribution. For an example of how organisations may choose to communicate domestic projects that they fund, please refer to page 63. Green Tariffs (SMEs as defined under OFGEMs Final Green Supply Guidelines) To be considered an emission reduction, green tariffs should be certified under the independent certification scheme based on OFGEMs green supply guidelines 34 . Your electricity supplier will be able to provide you with the level of additional carbon savings achieved through their tariff. It is recommended that organisations only claim an emission reduction where your electricity tariff is certified under the independent certification scheme based on OFGEMs Final Green Supply Guidelines.

The Independent Certification Scheme is still under development and is due to be completed in Summer 2009. We will confirm our guidance once the scheme, and its rules on the type and quality of other additionality measures, have been fully established. In addition, we would It is recommended welcome comments on the Good Quality that organisations criteria specified as part of our consultation. only claim an
34

For OFGEMs Final Green Supply Guidelines please refer to http://www.ofgem.gov.uk/Sustainability/Environment/Policy/Documents1/Green%20supply%2 0guidelines%20final%20proposals%20open%20letter.pdf

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emission reduction based on the level of the additional carbon savings from the tariff (e.g. 50% offsetting would be a 50% reduction of emissions against the corresponding emissions reported in the gross scope 2 figure). Green Tariffs (All other organisations not defined as SMEs under OFGEMs Final Green Supply Guidelines) Green tariffs should meet the following criteria for an organisation to consider them an emissions reduction. Organisations should check with their renewable electricity tariff supplier to see how they meet these criteria: Evidence of supply You should check with your electricity supplier to ensure that they are able to provide evidence of supply, equivalent to that required in OFGEMs Final Green Supply Guidelines (paras 1.16 to 1.18). Additionality There must be an additional carbon saving (CO2e) achieved through the purchase of a green tariff that would not have happened otherwise. The measure of additionality that qualifies is carbon offsetting. The conditions are: The tariff supplier can only offset using Kyoto-compliant carbon credits. The tariff supplier must offset at least 50% of the carbon emissions from the tariff 35 . Where the tariff supplier purchases Kyoto-compliant credits through an offset provider, the offsets used must be compliant with the Governments quality It is recommended that organisations should only claim an emission reduction where electricity purchases meet the Good Quality criteria and, in this case, the reduction recognised should be based on the percentage of the tariff which is offset (e.g. 50% offsetting would be a 50% reduction of emissions against the corresponding emissions reported in the gross scope 2 figure).

35

The tariff supplier should apply a Grid Rolling Average factor to the electricity supplied under the tariff to determine the GHG emissions associated with the tariff. Tariff suppliers should not account for GHG emissions based on the fuel supply mix.

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assurance scheme for carbon offsetting. You should check with your electricity supplier to ensure that they are able to provide evidence of the percentage and quality of carbon offsetting undertaken. While domestic greenhouse gas reduction projects do not count as an emission reduction against Defras good quality criteria and therefore cannot be used to give a net CO2e tonne figure, organisations that choose to support domestic projects may choose to communicate the benefits of this in the following way: Rather than offset our unavoidable emissions and claim the credit for these emission reductions, [organisation name] has contributed [cost] to [project name] in [location] in the UK. This project is expected to help the UK to meet its national target by reducing emissions by [number] tonnes of CO2e from [start date] to [end date].

Step 4: Report on these external emission reductions to promote greater transparency

Where GHG reduction activities meet the good quality criteria listed in step 3, it is recommended that organisations provide supporting explanation on external GHG reduction projects to support emission reduction assertions. Where your organisation is carbon offsetting, you should provide the following information as a minimum: The reduction in tonnes of CO2e per year Type of carbon credit (Kyoto-compliant or non-Kyoto compliant credit) o If carbon credits are Kyoto-compliant, organisations should provide the name of the supplier and a hyperlink to the project documentation where possible o If carbon credits are non-Kyoto compliant, organisations should provide the name of the supplier, a hyperlink to the project documentation where possible, details of who developed the quantification methodology, how the project was validated and verified, and how other good quality criteria were met. Where your organisation is purchasing a green tariff, you should provide the following information as a minimum: The reduction in tonnes of CO2e per year The supplier The name of the tariff The percentage (%) of the tariff that is offset using Kyoto-compliant carbon credits. 63

Worked examples

BOX 1 In this example, an IT services company decides to reduce their emissions through installing and generating 5,000 MWh of renewable electricity from wind turbines on their sites. This renewable electricity is backed by REGOs. The company has a total electricity consumption of 20,000 MWh. The company applies the Grid Rolling Average emission factor to this electricity, giving 10,884 tonnes of CO2e per year. This is reported in scope 2 emissions (for simplicity, it is assumed that the company has no other scope 2 emissions in this example). To account for their 5,000 MWh of generated renewable electricity, they apply a Grid Rolling Average emission factor. This gives 2,721 tonnes of CO2e per year. This is then deducted from their gross emissions figure. This is shown as generated renewable electricity in the table below. Scope 1 emissions Scope 2 emissions Total annual gross emissions (tCO2e/year) Generated renewable electricity Total annual net emissions (tCO2e/year) 10,000 10,884 20,884 (2,721) 18,163

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BOX 2 reduction in emissions will be accounted for in their gross figure. To finance the wind
farm project, the project developer sells 10,000 carbon credits to other organisations. These other organisations use these carbon credits to offset some of their emissions. To promote greater transparency, the project developer shows the sale of these 10,000 carbon credits in their reported net CO2e tonne figure. Scope 1 emissions Scope 2 emissions Total annual gross emissions (tCO2e/year) Sold carbon credits Total annual net emissions (tCO2e/year) 5,000 10,000 15,000 10,000 25,000 In this example, a project developer buys land in China and builds a wind farm. The

BOX 3 In this example, a clothing manufacturer decides to reduce their emissions through purchasing carbon offsets and a green tariff that meet the good quality criteria set out by Defra. This does not impact on their reported gross figure where they apply a Grid Rolling Average emission factor to their purchased green tariff electricity (scope 2). Scope 1 Scope 2 Total annual gross emissions (tCO2e/year) Purchased Carbon Offsets1 Purchased Green Tariff2 Total annual net emissions (tCO2e/year)
1

15,000 10,000 25,000 (5,000) (5,000) 15,000

We purchased 5,000 carbon credits from Carbon Offsetting Ltd. The credits are from Project 0939: Yutan Hydroelectric Project. The credits are Kyoto-compliant Certified Emission Reductions (CERs) covered by the Clean Development Mechanism (CDM). Project documentation can be found here: http://cdm.unfccc.int/Projects/DB/DNV-CUK1171524749.54/view

We purchased all our electricity from Green Electricity Ltd. We use their Eco + green tariff. This tariff is certified under the independent certification scheme based on OFGEMs Final Green Supply Guidelines. The Eco + tariff offsets 50% of the carbon emissions from the tariff using Kyoto-compliant Certified Emission Reductions (CERs). Therefore we have reduced our emissions from the consumption of purchased electricity by 50%. This equates to a carbon saving of 5,000 tonnes of CO2e per year.

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Annex H: How to make emissions data more useful?

Normalising your emissions data is useful because it facilitates: Comparison over time

Comparison across different business sectors and products

Emissions data can be normalised by dividing your emissions by an appropriate activity metric (e.g. floor space, Full Time Equivalents) or financial metric ( million sales). The resulting normalised data is called an intensity ratio. It is recommended that an organisation uses an intensity ratio. This can be either an activity ratio or a financial ratio. Intensity ratios express GHG impact per unit of physical activity or unit of economic output. An activity ratio is suitable when aggregating or comparing across businesses that have similar products. A financial ratio is suitable when aggregating or comparing across businesses that produce different products. This guidance sets out below some examples, by sector, of activity and financial intensity ratios 36 . We recommend you use the intensity ratio which is most relevant to your organisation and will provide the most context to users of this information: Sector All Intensity measurement Tonnes of CO2e per m sales revenue Example CO2e tonnes million sales 75,000 CO2e tonnes 1 million sales = 0.075 intensity ratio Tonnes of CO2e per m Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) CO2e tonnes million EBITDA 20000 CO2e tonnes 1 million sales = 0.02 intensity ratio
36

A number of these intensity ratios have been sourced from the Carbon Disclosure Project (CDP)

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Integrated oil and gas

Tonnes of CO2e per tonne of output, broken down for: Exploration and production Refining Petrochemicals

CO2e tonnes Tonnes output For refining only: 8,000 tonnes CO2e 10,000 tonnes of output = 0.8 intensity ratio

Transport sectors

Tonnes of CO2e per revenue tonne kilometre (RTK revenue from transporting one tonne over a distance of one kilometre)

CO2e tonnes Revenue tonne kilometres 55,000 CO2e tonnes 10,000 tonne kilometres

= 5.5 intensity ratio

Passenger carrying sector

Grammes of CO2e per passenger kilometre

CO2e grammes passenger kilometres 9,000 CO2e grammes 450 passenger kilometres = 20 intensity ratio

Beverages

Grammes of CO2e per litre

CO2e grammes Litres 10,000 CO2e grammes 1,000 Litres = 10 intensity ratio

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Retail

Tonnes of CO2e per square metre of sales area

CO2e tonnes Square metre of sales area 16,000 CO2e tonnes 10,000 square metre of sales area = 1.6 intensity ratio

Banking

Tonnes of CO2e per full time equivalent

CO2e tonnes full time equivalent 800 CO2e tonnes 800 full time equivalents = 1 intensity ratio

Tonnes of CO2e per million of income

CO2e tonnes million of income 500 CO2e tonnes 600 million of income = 0.833 intensity ratio

Postal services

Grammes of CO2-e per 1000 items

CO2e grammes 1000 items 5500 CO2e grammes 1,000 items = 5.5 intensity ratio

Water utilities

Grammes of CO2e per litre broken down by clean and wastewater. You may wish to use tonnes of CO2e per megalitre instead.

Clean water CO2e grammes Litres 40,000 CO2e grammes 10,000 Litres = 40 intensity ratio Wastewater CO2e grammes Litres 68

350,000 CO2e grammes 10,000 Litres = 35 intensity ratio

Telecommunications, internet software and services

Tonnes of CO2-e per gigabyte transmitted

CO2e tonnes Gigabytes 1,200 CO2e tonnes 10,000 Gigabytes

= 0.12 intensity ratio Property sector Tonnes of CO2e per square metre CO2e tonnes Square metres 1,000 CO2e tonnes 10,000 square metres = .01 intensity ratio

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Annex I: Example format for detailed emissions data

GHG emissions data for period 1 October 2009 to 30 September 2010 Emissions broken down by GHG type 2010 CO2 700 1,500 8,900 CH4 1 1 20 Tonnes of CO2e HFCs N2O 17 10 0 9 181 22 PFCs 0 0 4 SF6 0 0 0

Scope 1 Scope 2 Scope 3 2009

Scope 1 Scope 2 Scope 3

CO2 850 1,110 10,005

CH4 2 1 34

Tonnes of CO2e HFCs N2O 21 12 0 7 210 28

PFCs 0 0 5

SF6 0 0 0

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Example format for detailed emissions data GHG emissions data for period 1 October 2009 to 30 September 2010 Geographical breakdown 2010 Total China UK Europe 2009 Tonnes of CO2e Scope 1 Scope 2 990 1,400 400 590 350 530 240 280 Scope 3 10,415 1,500 7,065 1,850 Tonnes of CO2e Scope 1 Scope 2 1,000 1,625 450 520 300 670 250 435

Scope 3 9,410 1,760 6,420 1,230

Total China UK Europe

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Example format for detailed emissions data GHG emissions data for period 1 October 2009 to 30 September 2010 Scope 3 emissions broken down by activity type Tonnes of CO2e 2010 2009 Employee business travel Transportation of purchased goods Disposal of waste generated in the production of purchased materials and fuels Total 1,780 3,000 2,000 3,680

4,630 9,410

4,735 10,415

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Annex J: How do I set my emissions target?

In order to set a robust and achievable reduction target, organisations should follow Defras recommended approach below: Step Obtain senior management commitment Guidance Engaging senior management will be necessary in order to: Establish internal accountability for your targets, Create an incentive system, and Provide resources to meet your target. There are two types of emissions reduction targets that you can set - absolute or intensity based. Advantages of absolute targets include: Environmentally robust as it achieves a reduction in overall emissions (which is not necessarily the case with an intensity target) Addresses stakeholder concerns about the need to manage absolute emissions downwards. Advantages of an intensity target include: Reflects GHG performance improvements independent of organic growth or decline in your organisation Target base year recalculations for structural changes (e.g. acquisitions or divestments) are not usually required Organisations that set an intensity based target should also report the absolute emissions from sources covered by the target. Decide on the target boundary The target boundary defines which GHGs, geographic operations, sources and activities are covered by the target. Organisations should set an organisation-wide Defra Recommendation A member of the senior management team takes responsibility for the reduction target Organisations set an absolute target (best practice)

Decide on the target type

The target and your carbon footprint boundary may be identical or the target may only cover a specific subset of your carbon footprint. For example, you may decide to focus only on regulated emissions under emissions trading schemes. Choose the target base year There are two approaches to setting your base year: Using a fixed target base year. Most targets are defined against a fixed target base year. Using a rolling target base year. Organisations roll forward their base year at regular intervals, usually one year, so that emissions are always compared to the previous year.

target that covers your whole carbon footprint.

Organisations should use the fixed base year approach (best practice)

It is important to ensure that the emissions data for your target base year is reliable and verifiable. Define the target completion date This determines whether the target is short or long term. A five year target period may be the most practical for organisations with shorter planning cycles whereas a ten year target may help future planning for large capital investments. Decide on the use of GHG offsets or credits Organisations should set a target completion date 5-10 years from their target base year.

You can meet your GHG target either through reducing emissions within your own Organisations should operations and your supply chain or through purchasing credits from emission prioritise reducing reduction projects (i.e. carbon offsets). emissions within your own operations and your supply chain. For further information on carbon offsetting, you should refer to What can I count as an emission reduction? (Annex G, page 58) Organisations use offset 74

providers covered by the Governments Quality Assurance Scheme for Carbon Offsetting Decide on target level In determining what target levels to set, you should consider the key drivers affecting GHG emissions in your organisation by looking at: Track and report progress The relationship between GHG emissions and your other business metrics (e.g. number of employees, sales, revenue) Emissions projections based on different reduction strategies Existing initiatives or business targets that will affect your GHG emissions (e.g. capital investments, product / service changes, environmental or energy plans) The future of the organisation as it relates to GHG emissions (e.g. factoring in growth factors such as new production plans) Benchmarking your organisation with similar organisations. You should set more challenging targets if you have not previously invested in energy or other GHG reductions.

You should carry out regular performance checks to track performance against your target. An interim target may help you to keep a closer track on your performance. A rolling target base year will automatically include interim targets every year. For further guidance on what you should report, please refer to Part 8: What do I need to report?

Organisations should report on progress against their target annually.

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Section D
Summary of recommendations
1 Standard practice: Use the financial control approach. Once you have chosen your approach, apply this consistently. Standard practice: Measure or calculate your total emissions on a global basis. Standard practice: Measure or calculate emissions that fall into your scopes 1 and 2. Best practice: Measure or calculate your significant scope 3 emissions in addition to your scopes 1 and 2. Standard practice: Measure or calculate emissions from all six GHGs covered by the Kyoto Protocol. Best practice: Measure or calculate emissions data from other gases in addition to the six covered by the Kyoto Protocol. Standard practice: Where your organisation is using standard emission factors, you should use the Defra / DECC emission factors for UK emissions. If you require other emission factors, you should refer to the emission factors in the GHG Protocol calculation tools. Standard practice: Report total GHG emissions as a gross figure in tonnes of CO2e. Optional: Report on, where applicable, purchased or sold emissions reductions that meet Defras emission reduction criteria. Then report a net figure in tonnes of CO2e, in addition to the gross figure. Standard Practice: Report on total scopes 1 and 2 emissions using an intensity ratio. Standard practice: Set a reduction target and choose the approach to use. Best practice: Set an absolute target.

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Glossary
Absolute target. A target defined by reduction in absolute emissions over time, e.g. reduce CO2 emissions by 25 percent below 1994 levels by 2015. Activity data. Information on material flow, volume and rates of fuel consumption, input materials, or production output that is used to calculate GHG emissions. Additionality. A criterion for assessing whether a project has resulted in GHG emission reductions or removals compared to what would have occurred in its absence. This is an important criterion when the goal of the project is to offset emissions elsewhere. Associated/affiliated company. The parent company has significant influence over the operating and financial policies of the associated/affiliated company, but not financial control. Base year. A historical specific year against which a companys emissions are tracked over time. Base year emissions. GHG emissions in the base year. Best Practice. The level of emissions measurement and reporting that an organisation may choose to meet if it wants to show leadership in this area as recommended by UK Government. Best practice is additional to standard practice. Biofuels. Fuel made from plant material, e.g. wood, straw, and ethanol from plant matter. Biologically sequestered carbon. Carbon that resides in a carbon pool. These pools include: above ground biomass (e.g. vegetation) on forests, farmland, and other terrestrial environments; below ground biomass (e.g. roots) and bio-mass products (e.g. wood products) both while in use and when stored in a landfill. Boundaries. GHG accounting and reporting boundaries can have several dimensions, i.e., organisational, operational, geographic, business unit, and target boundaries. The boundary determines which emissions are measured or calculated and reported by the organisation. Calculation tools. Tools that automate the calculation of GHG emissions. Cap and trade system. A system that sets an overall emissions limit, allocates emissions allowances to participants, and allows them to trade emissions credits with each other. Carbon dioxide equivalent (CO2e). A universal unit of measurement used to indicate the 77

global warming potential of a greenhouse gas, expressed in terms of the global warming potential of one unit of carbon dioxide. It is used to evaluate the releasing (or avoiding releasing) of different greenhouse gases against a common basis. Carbon reduction commitment. A legally binding climate change and energy saving scheme. Climate Change Act 2008. The worlds first long term legally binding framework to tackle the dangers of climate change. The Climate Change Bill was introduced into Parliament on 14 November 2007 and became law on 26th November 2008. Co-generation unit/combined heat and power (CHP). A facility producing both electricity and steam/heat using the same fuel supply. Consolidation. Combination of GHG emissions data from separate operations that form part of one company or group of companies. Control. The ability of a company to direct the operating policies of another operation. More specifically, it is defined as either operational control (the organisation or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operation) or financial control (the organization has the ability to direct the financial and operating policies of the operation with a view to

gaining economic benefits from its activities). Corporate carbon footprint. The total direct and indirect GHG emissions that an organisation is responsible for as a result of its business activities. Direct GHG emissions. Emissions from sources that are owned or controlled by the reporting company. Direct monitoring. Direct monitoring of exhaust stream contents in the form of continuous emissions monitoring (CEM) or periodic sampling. Double counting Two or more reporting companies take ownership of the same emissions or reductions. Energy indirect. Emissions released into the atmosphere associated with the consumption of purchased electricity, heat, steam and cooling. These are indirect emissions that are a consequence of an organisations activities but which occur at sources not owned or controlled by the organisation. Emission factor. A factor allowing GHG emissions to be estimated from a unit of available activity data (e.g. tonnes of fuel consumed, tonnes of product produced) and absolute GHG emissions. Emissions. The release of GHGs into the atmosphere.

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Equity share. The equity share reflects economic interest, which is the extent of rights a company has to the risks and rewards flowing from an operation. Typically, the share of economic risks and rewards in an operation is aligned with the companys percentage ownership of that operation, and equity share will normally be the same as the ownership percentage. EU ETS. European Union Emissions Trading System. This is a Europe wide scheme which puts a price on carbon that businesses use and creates a market for carbon. It has been in place since 2005. Finance lease. A lease which transfers substantially all the risks and rewards of ownership to the lessee and is accounted for as an asset on the balance sheet of the lessee. Also known as a Capital or Financial Lease. Leases other than Capital/Financial/Finance leases are Operating leases. Fixed asset investment. Equipment, land, stocks, property, incorporated and non-incorporated joint ventures, and partnerships over which the parent company has neither significant influence or control. Fugitive emissions. Emissions that are not physically controlled but result from the release of GHGs. They commonly arise from the production, processing transmission storage and use of fuels and other chemicals, often

through joints, seals, packing, and gaskets. Global warming potential. A factor describing the radiative force impact (degree of harm to the atmosphere) of one unit of a given GHG relative to one unit of CO2. Greenhouse gases (GHGs). In this guidance reference to GHGs are to the Kyoto gases. GHG Protocol. The accounting and reporting standard for GHG emissions. Comprising the GHG Protocol Corporate Accounting and Reporting Standard and the GHG Protocol Project Quantification Standard. Developed by a multistakeholder collaboration convened by the World Resources Institute and the World Business Council for Sustainable Development . Group company/subsidiary. The parent company has the ability to direct the financial and operating policies of the group company/subsidiary with a view to gaining economic benefits from its activities. Indirect emissions. Emissions that are a consequence of the operations of the reporting company, but occur from sources owned or controlled by another company. These will be either scope 2 emissions or scope 3 emissions. Intensity ratios. Ratios that express GHG impact per unit of physical activity or unit of economic 79

value (e.g. tonnes of CO2 emissions per electricity generated). Intensity target. A target defined by reduction in the ratio of emissions and a business metric over time, e.g. reduce CO2 per tonne of cement by 12 percent between 2000 and 2015. Intergovernmental Panel on Climate Change (IPCC). International body of climate change scientists. The role of the IPCC is to assess the scientific, technical and socio-economic information relevant to the understanding of the risk of humaninduced climate change. Kyoto gases. These are the gases covered by the Kyoto Protocol: Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydroflurocarbons (HFCs), perflurocarbons (PFCs), and sulphur hexafluoride (SF6). Kyoto Protocol. A protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC). The Kyoto Protocol establishes legally binding commitments for the reduction of the Kyoto gases which came into force in 2005 and committed signatories to a reduction in greenhouse gas (GHG) emissions to between 20-24 billion tonnes by 2050 (about 50-60% below 1990 global levels). Mobile combustion. Burning of fuels by different types of transportation such as cars, trucks, trains, airplanes, ships.

Offset. Offsets are discrete GHG reductions used to compensate for (i.e. offset) GHG emissions elsewhere, for example to meet a voluntary GHG target or cap. Offsets are calculated relative to a baseline that represents a hypothetical scenario for what emissions would have been in the absence of the mitigation project that generates the offsets. To avoid double counting, the reduction giving rise to the offset must occur at sources or sinks not included in the target or cap for which it is used. Operation. A generic term used to denote any kind of business, irrespective of its organisational, governance, or legal structures. An operation can be a facility, subsidiary, affiliated company or other form of joint venture. Operational boundaries. The boundaries that determine the core direct and indirect emissions associated with operations owned or controlled by the reporting company. This assessment allows a company to establish which operations and sources cause direct and indirect emissions, and to decide which other indirect emissions to include that are a consequence of its operations. Operating lease. A lease which does not transfer the risks and rewards of ownership to the lessee and is not recorded as an asset in the balance sheet of the lessee. Leases other than Operating leases are Capital/Finance leases. 80

Organisational boundaries. The boundaries that determine the operations owned or controlled by the reporting company, depending on the consolidation approach taken (equity or control approach). Other indirect: All other activities that release emissions into the atmosphere as a consequence of your actions, which occur at sources that you do not own or control and which are not classed as scope 2 emissions. Outsourcing. The contracting out of activities to other businesses. Process emissions. Emissions generated from manufacturing processes, such as cement or ammonia production. Renewable energy. Energy taken from sources that are inexhaustible, e.g. wind, water, solar, geothermal energy and biofuels. Reporting. Presenting data to internal management and external users such as regulators, shareholders, the general public or specific interested groups. Scope. GHG Protocol definition which defines the operational boundaries in relation to indirect and direct GHG emissions. Scope 1. Emissions from sources that are owned or controlled by the reporting company. Also known as direct emissions. Scope 2. Emissions that are a consequence of the operations of the reporting company, but occur from sources owned or controlled

by another company, e.g., as a consequence of the import of electricity, heat, cooling or steam. Also known as indirect emissions or energy indirect emissions. Scope 3. Emissions that are a consequence of all other activities which release emissions into the atmosphere as a consequence of your actions, which occur at sources which you do not own or control and which are not classed as scope 2 emissions. Also known as other indirect emissions. Standard Practice. The minimum level of emissions measurement and reporting that an organisation should meet as recommended by UK Government. Stationary combustion. Burning of fuels to generate electricity, steam, heat, or power in stationary equipment such as boilers, furnaces. Stern Review. Stern Review on the Economics of Climate Change released on 30 October 2006. Sir Nick Stern was asked to lead a major review of the economics of climate change, to understand more comprehensively the nature of the economic challenges and how they can be met, in the UK and globally. Target base year. The base year used for defining a GHG target, e.g., reduce CO2 emissions 25 percent below the target base year levels specified by the target base year 2015. 81

Target boundary. The boundary that defines which GHGs, geographic operations, sources and activities are covered by the target. Target completion date. The date that defines the end of the target period. Supply chain emissions. Emissions from the upstream and downstream activities associated with the operations of a reporting company.

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