At a Pew Center conference on Early Action held in September 1999, DuPont announced plans to reduce its greenhouse gas emissions 65 percent from 1990 levels by 2010. BP Amoco intends to reduce greenhouse gas emissions by 10 percent of 1990 levels by 2010 and has implemented an emissions trading system across all of its businesses. United Technologies Corporation has announced targets to reduce energy and water usage by 25 percent per dollar of sales by 2007.

Motivated by factors ranging from a desire to monitor and reduce energy consumption to concern for the environment to anticipation of future requirements to cut emissions that contribute to climate change, a growing number of companies are voluntarily undertaking action to reduce their greenhouse gas emissions. This report provides an overview of how greenhouse gas emissions are estimated and reported in emissions inventories. It highlights a variety of approaches taken by companies to identify, track, and curb their emissions, and provides insights from their experiences.

This Pew Center report is the first in a new series aimed at identifying practical solutions to address climate change. The Solutions series is aimed at providing individuals and organizations with tools to evaluate and reduce their contributions to climate change. This first report, prepared by Christopher Loreti, William Wescott, and Michael Isenberg of Arthur D. Little, Inc., identifies credible approaches and offers a set of principles for conducting emissions inventories. The authors identify key decision points in efforts to conduct an emissions inventory. They note that the purpose of an inventory should influence the approach, pointing out, for example, the tension that exists between encouraging consistency in reporting practices and providing flexibility to reflect a specific company’s unique circumstances.

In the absence of a comprehensive climate policy regime, voluntary efforts to identify and reduce greenhouse gases at the source are critical. Ensuring that such efforts are ultimately recognized under future policy regimes is equally important and only likely to be possible if greenhouse gas emissions reductions are found to be real, quantifiable, and verifiable. A subsequent Pew Center report will address key issues in the verification of emissions inventories and emissions reductions.

The authors and the Pew Center would like to thank the companies featured in this report for sharing their stories and insights, and acknowledge the members of the Center’s Business Environmental Leadership Council, as well as Janet Raganathan and others involved in the Greenhouse Gas Measurement & Reporting Protocol Collaboration, for their review and advice on a previous draft of this report.

Executive Summary

There is great interest today in the inventorying of greenhouse gas (GHG) emissions by corporations — perhaps more than there has ever been for a voluntary environmental initiative. This interest is part of the general trend among corporations towards increased reporting of environmental performance. In addition, many organizations have concluded that enough is known to begin taking action now to understand, to manage, and to reduce their GHG emissions. The possibility of earning credit for taking voluntary actions to reduce emissions is also a motivating factor for many companies to conduct inventories. Conducting an inventory is a necessary first step in managing greenhouse gas emissions.

This paper provides an overview of key issues in developing greenhouse gas emissions inventories, with particular emphasis on corporate-level inventories. It illustrates the range of current activities in the field and the experience of major corporations that conduct GHG emissions inventories. Areas of general agreement, as well as unresolved issues in emissions inventorying, are described. More specifically, the paper discusses:

• How national level emissions inventories relate to corporate and facility inventories,
• How companies conduct their inventories,
• Inventory accuracy,
• How companies decide which emissions to include (drawing boundaries),
• Baselines and metrics,
• Challenges for corporations in conducting global inventories, and
• Learning from similar measurement approaches.

One important issue this paper does not address is the verification of emissions inventories and emissions reductions. Verification is the subject of another paper being prepared by Arthur D. Little, Inc. for the Center.

This review of GHG emissions inventory issues is based on meetings and discussions with the Center’s Business Environmental Leadership Council, a survey of selected major corporations on their greenhouse gas inventory practices, and a review of pertinent literature. It is also informed by the participation of the Center and Arthur D. Little, Inc. in a collaborative effort led by the World Resources Institute and the World Business Council for Sustainable Development to develop an internationally accepted protocol for conducting GHG emissions inventories.

The intent of this paper is not to advocate any specific methodology or approach for conducting GHG emissions inventories, nor to promote any particular policy positions. The review of the experience to date and issues surrounding GHG emissions inventories, however, suggests several general principles for developing effective GHG emissions inventory programs:

1. Start by understanding your emissions. Knowing the relative magnitude of emissions coming from various sources is necessary to understand whether or not they are material contributors to a firm’s total emissions. Understanding the nature and the number of the emissions sources will facilitate the use of the inventory development guidance that is becoming available.

2. Understand the likely uses of the emissions inventory. Companies conduct GHG emissions inventories for purposes that range from internal goal-setting to external reporting to obtaining financial benefits. These different uses of the inventory information imply different levels of completeness, accuracy, and documentation in the inventory. Each organization will need to reach its own conclusion as to the cost/benefit balance of developing its inventory, depending upon its set of likely uses.

3. Decide carefully which emissions to include by establishing meaningful boundaries. Questions of which emissions to include in a firm’s inventory and which are best accounted for elsewhere are among the most difficult aspects of establishing GHG emissions inventories. Since the purpose of conducting an inventory is to track emissions and emissions reductions, companies are encouraged to include emissions they are in a position to significantly control and to clearly communicate how they have drawn their boundaries.

4. Maximize flexibility. Since requirements to report or reduce greenhouse gas emissions under a future climate policy regime are uncertain, companies should prepare for a range of possibilities. By maximizing the flexibility in their emissions inventories — for example, by being able to track emissions by organizational unit, location, and type of emission or by expressing emissions in absolute terms or normalized for production — organizations will be prepared for a wide range of possible future scenarios.

5. Ensure transparency. Transparency in reporting how emissions and emissions reductions are arrived at is critical to achieving credibility with stakeholders. Unless the emissions baseline, estimation methods, emissions boundaries, and means of reducing emissions are adequately documented and explained in the inventory, stakeholders will not know how to interpret the results.

6. Encourage innovation. Now is the time to try innovative inventory approaches tailored to a company’s particular circumstances. The range of experience and lessons learned will be invaluable as voluntary reporting protocols are developed or as possible regulatory requirements are established. Learning what works best — and doing it before any requirements for reporting are in place — will be as important as learning what does not work.