The GHG Protocol Corporate Standard…The dog that caught the car?
If your work involves issues of corporate sustainability or carbon offset markets, then here is news that you should be aware of. The WRI/WBCSD GHG Protocol Corporate Standard and associated guidance on Scope 2 and Scope 3 are being reopened for revision.
This decision by the GHG Protocol program is good news. Improvements are much needed. But it does mean there will be an extended period of elevated uncertainty regarding proper GHG accounting rules. After which, I am hopeful this period will conclude with guidance that is better and more narrowly tailored for the specific application of corporate GHG emission and removal metrics.
To kick off this multi-year improvement process, the GHG Protocol team is asking the GHG accounting community for their suggestions and ideas. Specifically, to gather this input from all of us, WRI has just released four background papers and associated surveys, with responses due 28 February 2023. In brief, you should engage in this survey process. Read the background papers and then consider submitting survey responses. Here is the link to learn more. If you want the longer version, then keep reading.
You may be aware of my history critiquing (some) aspects of the GHG Protocol Corporate Standard, especially its Scope 2 reporting guidance. Although I helped author parts of the revised Corporate Standard (2004) as a “core advisor”, a decade later I co-lead a “revolt” against the adoption of the GHG Protocol’s Scope 2 guidance (2015). We argued then that this new guidance had deep-rooted flaws and should not be used by companies. I continue to stand by every argument we made at that time. Since then, we have built a stronger evidence base proving valid our critiques of the guidance, as well as this user-friendly FAQ to broaden the understanding of Scope 2 issues.
More recently, I shared some thoughts on structural problems with the GHG Protocol and other GHG standards. The principle of “relevance” is poorly prescribed in the GHG Protocol. Are you precisely clear on what applications a corporate inventory in keeping with the GHG Protocol would and would not be relevant for? Or can you recite precisely which inventory design choices are and are not appropriate for a given intended application of inventory results? Don’t feel bad, because no one really is. Companies are on their own to make these determinations. An illustration of the poorly understood relevance principle is readily available when investment ESG rating firms use corporate inventory reports to compare the GHG performance of companies even though corporate inventories are not “comparable” by design. Ideally, we would have a corporate GHG accounting standard that produced comparable disclosures, but that is not what the GHG Protocol (or ISO 14064-1) achieves.
Another structural problem is finally beginning to be more widely recognized. The market-based method endorsed in the GHG Protocol Scope 2 guidance opened Pandora’s box of trouble because of the flawed thinking it endorsed – that effectively a company can buy an emission factor and use it in place of a factor which actually represents their emitting activities. Now we see the same sort of flawed market-based GHG accounting being undertaken for direct (Scope 1) and indirect (Scope 3) emission categories (e.g., biofuels[1], “green” steel, and “sustainable” coffee or palm oil).[2] We are hurtling full steam ahead to an increasingly misleading system in which a company’s GHG inventory is more about what imaginary certificates they purchase than what their activities physically emit into the atmosphere. The purpose of a corporate GHG inventory is not to create a market mechanism for trading emissions or even to maximally incentivize emission reduction actions. The purpose of a corporate GHG inventory is to quantify, over time, the emissions to the atmosphere a company is responsible for.
To be honest, for most of my career, I have treated corporate GHG accounting as less important than reporting at other levels—the national level in support of international treaties, facility level in support of regulatory compliance, and project-level for emission reduction crediting markets. However, despite all their uncertainties and other problems, corporate GHG disclosures have begun taking on more significance with governments adopting corporate GHG reporting and the GHG Protocol as the basis for regulation (e.g., U.S. Securities and Exchange Commission proposed rulemaking, European Commission Corporate Sustainability Reporting Directive (CSRD), Federal Supplier Climate Risks and Resilience Proposed Rule) as well as investors demanding Scope 3 reporting data from companies. In reaction to these trends, I have been directing more attention to corporate GHG accounting, primarily in the form of research. Stay tuned to the GHGMI newsletter, as we will be publishing further blogs and research studies on these topics along with updates regarding the GHG Protocol revision process. You can also keep track of the revision process by directly subscribing to the GHG Protocol email list.
Again, I encourage you to engage with WRI’s survey. It is a complicated set of questionnaires, presented in four parts, each with an accompanying background memo. You should read each memo before responding to the survey questions. Here are the direct links:
Survey process introduction memo
- Corporate Accounting and Reporting Standard survey
- Scope 2 Guidance survey
- Scope 3 Standard and Scope 3 Calculation Guidance survey
- Market-based accounting approaches survey
WRI is also offering stakeholders an opportunity to submit materials that can go beyond the structured survey questions. These materials could include, for example, a new research study on Scope 2 emissions accounting or a proposal for a different approach to Scope 3 accounting for purchased products. Here is the template for submitting proposals.
So, what about the title of this blog? Corporate GHG reporting has, up until now, been a pretty loosey-goosey affair. Just spend some time trying to decipher and analyze the CDP database and you will get a taste of this. The GHG data reported by companies really has not mattered much before, so the fact that the GHG Protocol (and ISO standards) lacked precision and rigor and were vague on their precise application constraints, was easier to ignore. But the stated intent of the GHG Protocol, CDP, and others was for corporate GHG disclosures to be influential. Well, that dog may have caught that car…now what is it going to do with it?
[1] See Annex B page 129 in the draft GHG Protocol Land Sector and Removals Guidance for a counter example of the GHG Protocol attempting to push back against this trend, at least for direct (scope 1) emissions. “Biomethane certificates or credits cannot be used to adjust scope 1 emissions resulting from the combustion of gas (in company owned/controlled sources) delivered via a common carrier pipeline. Companies may report purchases of certificates or credits separately from the scopes in a GHG inventory report.” (p.130 in draft)
[2] I am intentionally omitting links with examples because I do not wish to advertise these flawed efforts to sell new types of certificates claiming to represent “attributes” and zero or lower value emission factors.
It appears the perfect has become the enemy of the good, driving companies to create their own standards. The conflicted policies toward biomethane and RNG are inconsistent and biased, and real example of attacking something that is working as we develop better gaseous fuels like hydrogen. When good ideas are killed while we demand the perfect, we get neither.
Paul, I assume you are referring to Annex B in draft GHG Protocol land use and removals guidance that addresses biofuel certificates. I would encourage you, if you have not already, to look at the background memo from WRI on market-based approaches. The thinking in the memo is incomplete, but it does advance the discussion. Stay tuned to this channel (i.e., newsletter) as we will have more to say on this topic in the coming months.
-Michael
I’m thinking do a course of scope 3 emissions. Do you believe that is not a good time to invest in this course?
Carla,
I cannot say whether the unspecified course you are considering is useful or not. But, in general, yes, understanding scope 3 is useful. But, with the caveat of being critical about it and recognizing that as currently presented in the GHG Protocol probably is not necessarily how GHG accounting should be done and that it is likely (or at least needs) to change.
Hope that helps,
Michael
Also plan on taking a course on GHG accounting. Learning to not only apply the knowledge but to critique flaws is a great way to learn. I will ensure the take the courses bearing this in mind.
Thank you so much this article and also the suggestion. I will be looking forward to others.
It’s great to see this kind of thing is being called out and seems that it’s being addressed but I don’t like the “I told you so” tone to the article.
Fair point Ryan. We do have a policy of being respectful in our discussions (see our Experts Forum). So, if you found anything specific that was not respectful, please say so.