I hear constantly from well-meaning but frustrated companies struggling to prioritize the various carbon reduction opportunities in front of them. At its simplest level, the problem is best broken down into three steps:
- Quantifying and categorizing a company's carbon footprint or GHG inventory;
- Determining what mitigation strategies are most credible and relevant; and,
- Prioritizing the most cost-effective of those strategies to deploy.
The GHG community has largely settled on the WRI/WBCSD GHG Protocol as a means of achieving the first step. In short, it identifies three "scopes" or emissions categories that define a corporate GHG inventory:
- Scope 1: Direct Emissions - a company's direct GHG emissions from equipment and processes owned or directly controlled by the company.
- Scope 2: Indirect / Energy-Related Emissions - GHG emissions related to electricity or steam purchased from third parties.
- Scope 3: Indirect / Other Emissions - GHG emissions related to a company’s activities, but from sources not owned or controlled by the company. Scope 3 emissions can include upstream emissions from suppliers and raw materials industries, downstream emissions from customers that result from the use of a company product, or even employee travel.
(Mark Trexler has an interesting post on this that is well worth reading, particularly as he addresses some of the thornier issues associated with Scope 3 emissions definition and potential for double-counting between Scopes.)
For this discussion, the important point is that most companies will focus their efforts on Scope 1 and Scope 2 emissions--because those are the emissions most directly connected to a company's controllable operating activities and those that are most likely to be subject to future regulation.
Furthermore, according to the EPA, "generating electricity is the single largest source of CO2 emissions in the United States, representing 38 percent of all CO2 emissions." And, for the majority of non-industrial businesses in the US, electricity usage is the largest driver of their GHG inventories. This leads to an interesting insight, which is that most US companies will find the biggest opportunity for GHG mitigation focused on reducing and/or greening their electricity consumption.
This is in part why there has been so much attention and skepticism around the use of RECs. As companies have sought to quickly and easily green their energy consumption, some have ended up calculating their Scope 2 emissions and then addressing them by just offsetting their inventory with a bulk REC purchase. While this has the allure of being easy, it raises a number of questions about the quality of GHG inventory reduction achieved. The ironic result is that companies that are trying to do something good end up running the risk of damaging their credibility.
A more robust Scope 2 mitigation strategy should focus on (1) reducing energy consumption through elimination of waste and inefficiency and (2) displacing third-party energy sources with clean on-site energy (usually solar power). Offsetting with RECs should be applied only to the remaining energy balance after all efficiency and on site energy opportunities have been exhausted.
Historically, the main challenge for companies engaging in efficiency and energy projects has been challenge of allocating capital to various projects because of the complexities of calculating project returns that incorporate tax benefits, utility incentives, and performance risk. The development of energy service performance contracts and solar PPA's removes this hurdle, enabling companies to make efficiency and solar power commitments on a pay-as-you-go basis with predictable pricing and no capital investment. From my perspective, these innovations play a key role in enabling companies to achieve robust Scope 2 mitigation with a lot more certainty that they are taking the right steps in the right order.