Accounting for China’s carbon

Developing a system to quantify energy use and greenhouse-gas emissions will help China meets its ambitious targets, write Lucia Green-Weiskel and Robyn Camp. Plus: Isabel Hilton discusses a proposal for a new standard for carbon disclosure.

Since the 1990s, there has been a growing interest in identifying and quantifying emissions of greenhouse gases in order to understand their impact on the global atmosphere. People have begun better understand the origin and impacts of different greenhouse gases. Emissions today are determined through a variety of methods including macro-level models, direct measurement, calculations and estimations. Understanding of the accuracy, value and applicability of each of these is increasing with experience and time.

China – which, according to the Netherlands Environmental Assessment Agency, is now the number one emitter of carbon emissions – is a natural next centre for infrastructure related to greenhouse-gas measuring and reporting. It is clear that China will benefit greatly from transforming into a resource-efficient and largely energy self-sufficient economy. China also stands to gain significantly by becoming a leader of environmentally friendly technologies and policies. This reality is reflected by Beijing’s ambitious energy-efficiency targets, which – if implemented – stand to be some of the most environmentally progressive policies in the world.

However, to meet those targets, China will need to develop a system to quantify energy use and greenhouse-gas emissions. This system must be growth-oriented, transparent, accurate and reliable, in line with international standards and accompanied by a system of third-party verification. An online carbon and energy registry will support China’s drive to meet its own energy targets, facilitate bilateral cooperation between China and the US on climate change and support China’s participation in international agreements on carbon reduction. This registry needs to come online soon if China will be able to meet its targets for the next five to 10 years. But questions remain about how to implement such a tool, who should administer it and the methodology to use.

How to best measure emissions may depend on the reasons for asking. For instance, national governments may use top-down assessments, based on economy-wide assumptions to inform national climate-change policies. Regional trading systems rely on precise calculation and measurement of discrete activities associated with specific emissions reduction projects at a relatively small geographic location. Regulators want comparable data to evaluate performance of similar facilities: for example, comparing one manufacturing plant to another to understand reductions over time. Companies may want to understand the footprint – including any associated liability or risk – from the full scope of their operations in order to be good corporate citizens.

There is a very strong case for such a website-based voluntary reporting program in China. Over the last 12 years, a growing number of the world’s largest companies have incorporated greenhouse-gas accounting into their standard business practices in order to understand their own contribution to global emissions. And they are looking to their suppliers, competitors and customers to do the same. In China, such efforts are nascent, presenting an opportunity to build on existing experience and start with strong, rigorous accounting. The best way to do this is to follow the model developed in California by the Climate Registry and the California Climate Action Registry, which together have 500 members, including some of the biggest emitters in the United States.

This model is based on The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (known as “the GHG Protocol”), created by the World Resources Institute and the World Business Council on Sustainable Development. The GHG protocol provides programme-neutral, high-level accounting standards that are widely considered international best practice for determining a corporation’s responsibility for greenhouse-gas emissions. Different from the traditional pollution-control approach of tracking emissions on a unit or facility basis, the GHG Protocol takes precedent from financial accounting standards and assigns responsibility for emissions activities to a corporation, according to ownership of different sources or facilities. Given the global nature of greenhouse gases, this approach acknowledges that each company’s footprint may result from a wide number of activities that it can directly or indirectly control, including mobile sources and electricity use, in addition to activities like power generation and heavy manufacturing.

The GHG Protocol establishes a language of greenhouse-gas accounting. This includes setting the reporting boundaries around a corporation (“entity”) and defining what is to be reported or not. This is based on the entity’s operational or financial control or sources, or its equity share in each source. Perhaps most significantly, the GHG Protocol defines scopes for counting purposes. When considering an entity’s footprint, there may be:

* Scope 1 – Direct emissions: emissions that are within the control of the entity, defined as from stationary combustion, mobile combustion, chemical or manufacturing processes, or fugitive sources (unintentional releases).

* Scope 2 – Indirect emissions: emissions of which the consumption is controlled by the entity, but the generation is not: purchases of electricity, steam, heating or cooling.

* Scope 3 – Indirect emissions from everything else: emissions associated with the use of products that are manufactured, employees commuting to work, performing business travel and so on.

By breaking emissions responsibility into scopes, an organisation can build up its entire footprint. Every Scope 2 emission from electricity consumed by an end-user may also be counted as a Scope 1 emission by the electricity generator. Breaking emissions into scopes helps assure that emissions are not double-counted on a broad scale.

In addition to a solid methodology, a registry must have a good business model. There should be a strong incentive for businesses to disclose their energy use and greenhouse-gas emissions data – information that is usually not identified or shared. There are many business-friendly arguments for joining a greenhouse-gas registry. First, by reporting to a registry, enterprises in China can promote and publicise a green image. Second, while increasing transparency and putting in place internal systems to measure and monitor energy use, some companies can reduce energy costs and get a head start on reducing carbon emissions.

Business for Social Responsibility has pointed out that many of the concerns the business community has about joining a registry are unfounded. For example, businesses that worry about the administrative cost of generating accurate data usually find that the benefits of tracking data are greater than the cost. Businesses that worry about unnecessarily revealing information about their operations, or having that information used against them, find that fears about disclosure are often exaggerated: disclosure leads to stakeholders having more confidence in the company and view it as less of a risky investment. Finally, for those that worry that this type of data-sharing will violate privacy and open floodgates for other requests, find instead that collaborating with stakeholders holds an opportunity to set beneficial terms in the future.

To conclude, a China-based registry to quantify carbon emissions in a measurable, consistent and verifiable way is the necessary first solid step toward any larger climate-change solution and an important prerequisite of both bilateral and multilateral cooperation on climate change. A registry will move China away from its negative image as the biggest polluter in the world – towards being seen as a responsible, resource-efficient, energy self-sufficient country, which can become a leader in green technology. China stands to gain a lot from this development.

Lucia Green-Weiskel is a project officer at the Innovation Center for Energy and Transportation in Beijing. Robyn Camp is vice president of programmes at the Climate Registry in Los Angeles. iCET and TCR are currently working in partnership to develop the Energy and Climate Registry: the first web-based voluntary reporting greenhouse gas and energy efficiency registry in China. For more information on the China-based registry, please contact Lucia at [email protected]

A common standard

In a move that underlined the growing importance of carbon disclosure to business, the Climate Disclosure Standards Board – founded in 2007 at the World Economic Forum, Davos – last month unveiled its proposals for a common, international standard for carbon disclosure. The draft was produced by a group that includes some of the world’s leading accounting firms and launched at the World Business Summit on Climate Change in Copenhagen in May.

The practice of voluntary carbon disclosure has been growing rapidly as companies come to understand that their carbon emissions expose them to risk, including future penalties and negative publicity. Increasingly, big investors demand reliable carbon accounting as one of the factors considered when deciding whether or not to invest.

Effective emissions reduction also demands that emissions be measured, but many companies still do not have the capacity or the will to learn how to account for their emissions. Since reporting emissions is still largely voluntary, comparisons across borders or within sectors are difficult to make.

Reporting is mandatory within trading systems such at the European Emission Trading System. As carbon markets expand, different schemes have developed with different accounting practices. Now, the board argues, a common, principles based accounting standards, similar to a financial accounting standard, is essential to allow investors and companies accurately to assess their risks. Carbon accounting, the board believes, will soon be a standard component of annual reports. For a global carbon market to function properly, accounting standards must be global.

The draft proposals have been published here [pdf] and its authors are inviting comments before September.

— Isabel Hilton

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