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Carbon Accounting in Small and Medium Sized Enterprises Chaired by: Rachel Dunk Lisa Gibson Academic Director Research Assistant Crichton Carbon Centre Crichton Carbon Centre 1
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 ICARBICARB: The Initiative for Carbon Accounting Sponsored by the Scottish Government A group of stakeholders (industry representatives, politicians, academics, consultant s, 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
Definition...“The category of micro, small and medium-sizedenterprises (SMEs) is made up of enterprises whichemploy fewer than 250 persons and which have anannual turnover not exceeding 50 millioneuro, and/or an annual balance sheet total notexceeding 43 million euro.”2003/361/EC, Article 2
SME categories OR Annual Enterprise Annual Headcount Balance Category Turnover Sheet Total Medium <250 ≤ €50 million ≤ €43 million Small <50 ≤ €10 million ≤ €10 million Micro <10 ≤ €2 million ≤ €2 million
Why SMEs...? number of enterprises business-related emissions
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 ReportingUK Government Recommendation: Guidance on how to measure and report your greenhouse gas emissionsIn combination with: Guidelines to Defra/DECC’s GHG Conversion Factors for Company Reportingwww.defra.gov.uk/environment/business/reporting/index.htm
3 to 5 Step Process Define the boundaries 1 Collect the activity data 2 Calculate emissions & total footprint 3 Independent verification (optional) 4 Public reporting (optional) 5
Boundary setting ORGANISATIONAL OPERATIONAL Q: What do you own/control? Q: What are you including? identify ALL emissions within organisational Equity Control boundary & then select Share Approach which to include Scope 1 & Scope 2 Financial Operational This is your consolidation approach Scope 3 ?
Boundary Setting Within Companies Control Footprint Assessment Boundary Other business Purchased Company Waste disposal travel electricity vehicles petrol & recycling Staff Gas Company Water supply & commuting consumption vehicles diesel treatment
The Sources – Scope 1, 2 & 3 Scopes improve transparency & prevent double counting of emissions for GHG programsThe 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 & 3Scope 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 26
Which Scope 3 Sources? Defra/DECCSmall Business User Guide Water supply/waste water disposal Waste disposal/recycling Business travel Staff commuting 27
Which Scope 3 Sources? Carbon TrustCarbon Trust - Baseline Tool for SMEspilot – being trialled in 2011/12 Water Waste (general mixed – no breakdown) Business Travel 28
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. 29
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... 30
Discussion Groups Neil Kitching Osbert Lancaster Andrew Millson Matthew Aitken Rob Carlow John Crawford Samuel Chapman George Foster Norman Hutcheson David Crawford Lowellyne James Reza Kouhy Ahmad Foruzan Iain McMickan Matthew Lawson Mary Goodman Jim Robinson Hiroyuki Murakami Dave Gunn Jessica Russell Sue Roaf Sheila Scott
Q1: Boundaries and sub-categories1. 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 Sources1. 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?