Unlocking Business Opportunities Through Avoided Emissions

After roughly two centuries of economic growth powered by fossil fuels, anthropogenic climate change has become one of the greatest threats to our planet. In this context, greenhouse gases such as carbon dioxide (CO2) emissions figure as the great villains, being one of their largest sources in the energy sector. 

When we think about how often we use electricity (and other forms of energy) to satisfy our basic human needs, we quickly understand their immense value to us. This is undeniable. Also is its environmental impact, which has been challenging current and new energy systems to be designed in ways that enable emission reductions, thus unlocking business value.

Earlier this year, the Solar Impulse Foundation was invited to join the Decarbonisation of Clients (DoC) Leadership Group – an initiative started by ENGIE Impact to develop a definition and accounting methodology for avoided emissions. ENGIE's methodology includes general accounting principles applicable to any industry, as well as specific accounting guidelines for products and services in the energy sector. Basically, the group strategy is to encourage a more holistic thinking about the benefits of each player involved in a project. In this sense, each player involved shall only claim “contribution” to the decarbonisation of clients, even if only one player is responsible for the delivery of the project.

Decarbonisation as a Business Opportunity

The transition to a low-carbon economy will require problem-solving technologies and, therefore, will create business opportunities. One such opportunity is providing goods and services that avoid greenhouse gas (GHG) emissions and decarbonise the supply chain. For instance, via innovation or by providing a low-emission version of existing products. Last year, UNEP’s Emissions Gap Report presented the great potential for improving energy efficiency and use of renewable sources – particularly in the power, transport and building sectors (UNEP, 2019). Besides reducing greenhouse gas emissions, such improvement would also help with meeting many other societal goals.

For more than a decade, businesses have realised the environmental and economic benefits of measuring their greenhouse gas emissions using GHG Protocol standards and tools, setting emission reduction goals, and achieving those reductions. In this sense, companies can focus on reducing emissions under their direct ownership or operational control (scope 1), from their purchase of electricity, heat and steam (scope 2) and from indirect emissions along their value chain (scope 3). In most sectors, this third scope of emissions make up the majority of a company’s inventory but are often left unabated.

The differentiation between emission sources for accounting purposes has also been used by certain companies as justification for not taking responsibility for scope 3 emissions as they fall outside of the company’s direct ownership. Plus, the difficulty of collecting high quality data can create barriers for reducing these emissions. Another critical problem is the multiple counting. In fact, Scope 3 emissions are also very frequently accounted for by several different companies, which leads to the question of who is responsible for reducing them.

What About Avoided Emissions?

Reducing carbon footprints is only one part of the solution and, as customer awareness for sustainability-related issues increases, companies have also become interested in claiming that their products can help avoid greenhouse gas emissions in comparison to market competitors. Disclosing avoided emissions is very positive, as they have an incentive to develop and promote low-carbon products to their customers, while guaranteeing credibility and trust. On the other hand, when quantifying avoided emissions, companies are left to develop their own approaches, which have led to inconsistencies in terms of terminology and scope of application. Furthermore, many players do not share the detailed underlying calculation, creating a lack of transparency in the account methods.

In 2019, the World Resources Institute (WRI) conducted a comprehensive review of claims made by more than 300 companies from a wide range of sectors and sizes and found considerable variation and widespread methodological problems in the way avoided emissions were measured and reported. For instance, while all the companies we evaluated reported that their products avoided emissions, none of them explicitly considered how their products might increase emissions (Russell, 2019). As a consequence, final consumers end up relying on inconsistent information to make their purchasing decisions, letting them question the credibility of such avoided emissions claims. 

According to the WRI Working Paper, companies should first calculate and report scope 1, 2 and 3 emissions and set science-based reduction targets for these emissions before making any claims about avoided emissions. Furthermore, accounting and reporting of emissions should adhere to the following criteria:

• Relevance: Ensure that the comparative assessment appropriately reflects the GHG effects of the assessed product (in relation to the base case) and serves the decision-making needs of users and stakeholders

• Completeness: Include all lifecycle GHG emissions (under an attributional approach) or all changes in emissions arising from the assessed product (consequential approach) in the assessment.

• Consistency: Use consistent accounting approaches, data collection methods, and calculation methods for the assessed product and base case.

• Transparency: Provide clear and complete information to allow stakeholders to assess the credibility and reliability of the results, especially related to key methodological issues, such as the choice of the base case.

• Accuracy: Reduce uncertainties as far as possible

To create the necessary demand, downstream customers need to understand the benefit of products that enable emission reductions and, more importantly, they need to trust the information. In order to guarantee that, we need consistency in definition, credible measurement and transparent reporting. An effective way to do so would be via international standardisation. But how?

An International Standard to Quantify Avoided Emissions

There is a global need for transparency, consistency and credibility on avoided emissions from sold products and services. This could be enabled by standardisation. However, to this date, no international standard on avoided emissions quantification is available. Standards are documents, established and approved by a recognised international body, usually involving consensus of technical experts. Such normative documents aim at the achievement of the optimum levels of order in a given context through common rules, guidelines or characteristics for activities and their outcomes. 

International standards are increasingly recognized as an essential part of the climate action toolbox as it allows organisations to measure their greenhouse gas emissions (GHG) and take appropriate measures to reduce them. For instance, ISO 14067 (on carbon footprint of products) and ISO 14090 (on adaptation to climate change). Last year, at COP25, ISO experts discussed the proposal for a new project, which aimed at providing the requirements and principles to achieve carbon neutrality through the quantification, management, avoidance, reduction and compensation of GHG emissions (Naden, 2019).

The Solar Impulse Foundation has contributed to the DoC Leadership Group as an influencer and, between June and July 2020, two of our independent Experts, Benjamin Demma and Marcin Malicki, participated in the review of the DoC guidelines.

"The target is to increase the demand for lower emissive products/processes/services. In this case, a player such as ENGIE deciding to create guidelines for the decarbonisation represents a big step. At this stage, I think the Leadership Group is already composed by crucial actors. Of course, in the future, I believe it will be important to engage final users which are going to be decarbonised." (M. Malicki)

By bringing together standard developing organisations (SDOs), companies and NGOs, ENGIE is also looking into inspiring and attracting funding for a standard-setting body (or bodies) to eventually establish formal protocols. According to our Experts, the difficulty in creating such a standard is having all the involved players agree on a common best method to measure the avoided emissions. Even though, they emphasise the importance of developing a common method to quantify avoided emissions as this can lead us to more strict regulations, enabling environmental protection.

"In my opinion, the key stakeholders are carbon producers (e.g, power plants, cities, car manufacturers etc). Also, it is extremely important to involve public authorities, as they are the ones that can change regulations. In the case of the Engie Leadership Group, I can say that it already comprises a lot of important stakeholders and their idea is to prepare guidelines that are credible and agreed by different big companies to potentially involve public authorities and create a standard in the future." (B. Demma) 

Decarbonisation is essential and it takes the initiative of relevant stakeholders. Along with governments, the private sector and civil society play an important role in it. Being one of our partners since 2017, ENGIE is committed to accelerate the transition towards a carbon-neutral economy, through reduced energy consumption and renewable energy solutions. Currently, 19 of ENGIE Solutions have already been awarded the Solar Impulse Efficient Solution Label, including Targeo, District Cooling System, Charge&Go, Livin’In, DERMS Mobile Storage and PowerCorner.