Carbon Accounting in Small and Medium Sized Enterprises

Chaired by:

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Rachel DunkAcademic Director

Crichton Carbon Centre

Lisa GibsonResearch Assistant

Crichton Carbon Centre

Outline/Objective of workshop

Welcome and introductions Scene setting presentations

– What is a SME?

– Standards and methodologies

Key questions Wrap up and Close Lunch

About ICARB

ICARB: The Initiative for Carbon Accounting Sponsored by the Scottish Government A group of stakeholders (industry representatives,

politicians, academics, consultants, public, private and third sector) working together to create a set of transparent, consistent and accurate rules for carbon accounting across the Scottish economy

Resource base at www.icarb.org

Objectives...

Form and shape a SME Stakeholder group Make the first steps in developing the SME carbon

accounting rule book– SME categories

– Which scope 3 emission sources?

Identify next steps/points for future discussion

Introductions

What is a SME?

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Definition...

“The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro.”

2003/361/EC, Article 2

SME categories

Enterprise Category Headcount Annual

TurnoverAnnual Balance

Sheet Total

Medium <250 ≤ €50 million ≤ €43 million

Small <50 ≤ €10 million ≤ €10 million

Micro <10 ≤ €2 million ≤ €2 million

OR

Why SMEs...?

number of enterprises business-related emissions

UK Climate Change Policy

2020 ↓34%2050 ↓80%

UK ClimateChange Act

2020 ↓42%2050 ↓80%

Climate Change(Scotland) Act

Drivers to Reduce Emissions

SME

Regulation

Costs

New Business

StakeholderPressures

Barriers to Emission Reduction

Time

Cost

KnowledgeBusiness as Usual SME

SMEs – Sub-sectors

Standards and Methodologies

What…

“The total set of greenhouse gas emissions caused directly and

indirectly by an individual, organisation, event or product”

Carbon Trust

The purpose of C accounting in SMEs...

• To enable accurate emissions reporting?If accurate emissions reporting is required, then we need a rigorous approach that complies with relevant guidelines & standards.

&/or• To provide information for carbon management?

If for internal carbon management a less rigorous approach that provides management level information and allows identification of lowest hanging fruit may prove sufficient.

The purpose of C accounting in SMEs...

• Provides baseline information that enables: Reporting of emissions

• Mandatory • Voluntary

Comparison to benchmark standards• e.g. Office energy efficiency

Correct identification of emission reduction targets • Savings• No Cost• Low Cost

Level against which future performance is measured• Quantify emissions abatement achieved• Project reporting

International Standards

• The Greenhouse Gas Protocol – www.ghgprotocol.org

• ISO 14064 Climate Change Standard– www.iso.org

UK Voluntary Reporting

• Guidance on how to measure and report your greenhouse gas emissions

In combination with:

• Guidelines to Defra/DECC’s GHG Conversion Factors for Company Reporting

www.defra.gov.uk/environment/business/reporting/index.htm

UK Government Recommendation:

3 to 5 Step Process

Define the boundaries

Collect the activity data

Calculate emissions & total footprint

Independent verification (optional)

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2

3

4

5Public reporting (optional)

Boundary setting

ORGANISATIONALQ: What do you own/control?

OPERATIONALQ: What are you including?

Equity Share

Control Approach

Financial Operational

identify ALL emissions within organisational

boundary & then select which to include

?

Scope 1 & Scope 2

Scope 3This is your consolidation approach

Boundary Setting

Footprint Assessment Boundary

Within Companies Control

Water supply & treatment

Waste disposal & recycling

Staffcommuting

Company vehicles diesel

Gas consumption

Company vehicles petrol

Purchased electricity

Other business travel

The Sources – Scope 1, 2 & 3Scopes improve transparency & prevent double counting of emissions for GHG programs

The GHG Protocol requires reporting of Scope 1 & Scope 2 as a minimum

Source: GHG Protocol – A Corporate Accounting & Reporting Standard, Revised Edition

The Sources – Scope 1, 2 & 3

Scope 1: Direct GHG emissions from sources that are owned or controlled by the company.

• e.g. emissions from combustion in owned or controlled boilers, furnaces and vehicles (combustion of biomass is reported separately). Process emissions and fugitive emissions are also Scope 1.

Scope 2: Energy Indirect GHG emissions from purchased electricity, heat steam & cooling consumed by the company.

Scope 3: Other indirect GHG emissions (optional for the GHG protocol discretionary in UK Govt guidance)

• arise as a consequence of the activities of the company, but occur from sources not owned or controlled by the company.

• both the upstream & downstream supply chains • e.g. extraction, production of purchased materials, transportation of purchased fuels, use of sold

products and services, waste disposal, employee travel to and from work, employee business travel.

Others: Emissions of other GHGs not included in the Kyoto Protocol (optional for the GHG Protocol, include if material in UK Govt guidance)

• e.g. CFCs (regulated by the Montreal Protocol), NOx

Source: GHG Protocol – A Corporate Accounting & Reporting Standard, Revised Edition

The Sources – Scope 1, 2 & 3

• An approach often taken is to tackle the easiest emissions to quantify first (Scope 1 & Scope 2) – developing a more detailed approach at a later date (e.g. Scope 3 - examining the supply chain).

• HOWEVER – an analysis limited to direct and indirect energy emissions may account for only a small fraction of an entities total carbon footprint.

• Developing a carbon management plan based on limited information could be worse than useless.

Which Scope 3 Sources? ISO 14064-1

The organization may quantify other indirect GHG emissions based on requirements of the applicable GHG programme, internal reporting needs or the intended use for the GHG inventory.

The organization may exclude from quantification direct or indirect GHG sources or sinks whose contribution to GHG emissions or removals is not material or whose quantification would not be technically feasible or cost effective.

The organization shall explain why certain GHG sources or sinks are excluded from quantification.

Materiality: concept that individual or an aggregate of errors, omissions and misrepresentations could affect the greenhouse gas assertion and could influence the intended users’ decisions

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Which Scope 3 Sources? Defra/DECC

Small Business User Guide Water supply/waste water disposal Waste disposal/recycling Business travel Staff commuting

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Which Scope 3 Sources? Carbon Trust

Carbon Trust - Baseline Tool for SMEs pilot – being trialled in 2011/12 Water Waste (general mixed – no breakdown) Business Travel

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What is a tiered methodology

In the IPCC GPG, there is a hierarchy of estimation methods – Tier 1, Tier 2 and Tier 3 methods – with Tier 1 being the simplest (highest uncertainty) and Tier 3 being the most complex (greater confidence).

This approach is also evident in Defra/DECC guidance – which provides basic guidance on how to estimate emissions from some sources in absence of complete data sets.

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What is a tiered methodology

Tier 1: simplest - equations and default parameters provided - e.g. Scotland specific...

Tier 2: as Tier 1 but higher temporal and spatial resolution – more disaggregated data – e.g. Region specific...

Tier 3: higher order methods – based on high quality activity data (in combination with modelling) – e.g. Enterprise specific...

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Key Questions

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Discussion Groups

Osbert Lancaster

Rob Carlow

George Foster

Lowellyne James

Iain McMickan

Jim Robinson

Jessica Russell

Andrew Millson

John Crawford

Norman Hutcheson

Reza Kouhy

Matthew Lawson

Hiroyuki Murakami

Sue Roaf

Sheila Scott

Neil Kitching

Matthew Aitken

Samuel Chapman

David Crawford

Ahmad Foruzan

Mary Goodman

Dave Gunn

Q1: Boundaries and sub-categories

1. Size and turn-over based classification systems– Are different guidelines needed for different sized enterprises? If so,

what are the appropriate size classifications?

2. Organisation type (SME or SMO?)– Can the same rules be applied to for profit/not-for-profit/charitable/

social enterprises/organisations?

3. Can a single rule set be applied to all 18 SME sectors, or will different guidance (e.g. which scope 3’s to include) be required?

– Please group the 18 SME sectors into the number of sub-groups that you think most appropriate (anywhere from 1 to 18...)

Q2: Scope 3 Sources

1. For the sub-categories formulated by your group– Identify the significant scope 3 sources– Do you think inclusion of these sources should be recommended or

required (shall/may)?– Can you identify any standard data sets/methodologies/tools used in

estimating emissions from these sources (e.g. the ICE database for embodied C of building materials)

– What other data sets/tools would it be essential/useful to have in order to enable a tier 1 type method to be developed/applied?

2. Do you think it would it be better to provide tiered methodologies and leave it to each SME to decide which tier to use, or to set out the minimum tier that should be used by SME sub-category?