the partnership for climate action · guidance for internal actions .....16 2.3.2. guidance for...
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The Partnership for Cl imate Action
A Discussion Paper / March 2002
Alcan• BP • DuPont • Entergy • Environmental DefenseOntario Power Generation •Pechiney • Shell InternationalSuncor Energy
Advanced Greenhouse GasManagement Programs
C o m m o n E l e m e nt s A m o n g
Contributors Contact
Alcan Ronald Nielsen
BP Michael McMahon
DuPont Edwin Mongan
Entergy Marty Smith
Environmental Defense Andrew Aulisi
Ontario Power Generation Gillian Salter
Pechiney Michel LaBarre
Shell International Anita Burke
Suncor Energy Geoffrey Johns
© 2002 Partnership for Climate Action
100% post-consumer recycled papertotally chlorine free
Advanced Greenhouse GasManagement Programs
C o m m o n E l e m e nt s A m o n g
F o r e w o r d ................................................................................................... ii
P a r t 1 I n t r o d u c t i o n1.1. The PCA’s Work in Context ..................................................................... 1
1.1.1. The business community ................................................................ 1
1.1.2. The policy community.................................................................... 2
1.1.3. The environment and the public .................................................... 3
1.2. Voluntary Programs.................................................................................. 6
P a r t 2 A F r a m e w o r k f o r P r o g r a m R e v i e w 2.1. Target Setting........................................................................................... 7
2.1.1. Coverage, or defining boundaries ................................................... 8
2.1.2. Baseline.......................................................................................... 9
2.1.3. Targets, or emissions limitations ..................................................... 10
2.2. Emissions Measurement .......................................................................... 11
2.2.1. Internal, direct emissions ............................................................... 12
2.2.2. External, indirect emissions ........................................................... 12
2.2.3. Verification ................................................................................... 13
2.3. Actions to Reduce Emissions .................................................................... 14
2.3.1. Guidance for internal actions ........................................................ 16
2.3.2. Guidance for emissions trading ..................................................... 16
2.3.3. Guidance for external actions ......................................................... 17
2.4. Accountability ....................................................................................... 19
2.4.1. Reporting ..................................................................................... 19
2.4.2. Reconciliation ............................................................................. 20
P a r t 3 P r a c t i c e s3.1. Setting goals .......................................................................................... 21
3.2. Inventory .............................................................................................. 23
3.3. Fungibility ............................................................................................ 24
3.4. Verification ........................................................................................... 26
3.5. Evaluating projects ................................................................................ 2 8
3.6. Incentives .............................................................................................. 29
Next Steps ................................................................................................. 31
References ................................................................................................ 32
A n n e x M a t r i x o f C o m p a n y P r o g r a m s ...................................... 3 3
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Foreword
I N NOVEMBER 2001, delegates in Marrakech finished designing an unprecedented treaty,one that embraces a market-based framework to reduce global greenhouse gas emis-sions. To those who share the vision of harnessing the engine of free markets in theservice of environmental protection, congratulations: we have achieved a critical mile-
stone. But our job is far from over. A host of questions confronts each country positioned toratify the Kyoto Protocol. Now, as the focus shifts away from international negotiations andtoward the details of domestic ratification and implementation, these countries will need todraw on a body of practical experience to guide their policy development.
Environmental Defense believes strongly in the value of “learning by doing” and has been partof innovative partnerships over the last two decades. These partnerships have taught us thattransparency, accountability, flexibility, and environmental integrity add the most value to envi-ronmental management systems and that policies that are good for the market go hand in handwith policies that are good for the environment. Through this process we have found a placewhere industry and environmentalists can stand together and work collaboratively for positivechange and a sustainable future for all of us.
The Partnership for Climate Action (PCA) is such a partnership. It provides a special forum, aplace to achieve real emissions reductions while learning by doing. Although such voluntaryprograms are not enough by themselves to enable us to achieve the overarching objective ofstabilizing the climate, they are an important step in that direction. The PCA companies—Alcan, BP, DuPont, Entergy, Ontario Power Generation, Pechiney, Shell International, andSuncor Energy—represent part of the vanguard of new thinking on the environment; they areleaders in their respective fields and in the new field of carbon management.
Our partnership is informing the terms of the international debate over climate change policy,and in our efforts, we are not alone. Through other organizations, formal and informal networks,trading simulations, workshops, and conferences, we have found ways to work together to buildthe knowledge base that will guide businesses around the world through the transition to acarbon-constrained future. Farsighted companies around the globe have made the decision toanticipate, rather than react to, policy changes. These companies are helping shape the futureinstead of being shaped by it. Their collective experience is a tremendous asset, and it will bemost needed during the upcoming months as many countries and other stakeholders withoutexperience in emissions markets look to draw on the experience of business in this changingenvironment.
The foundation of effective emissions markets lies on the basic building blocks of targetsetting, measurement, rules governing reduction activities, and accountability. This report illus-trates how the PCA companies have incorporated these characteristics into their own programsand sheds light on the experience they have gained as they have implemented, evaluated, andimproved their GHG programs over time. Environmental Defense is pleased to be workingwith these companies as they grapple with the issues that arise in the day-to-day operation ofthese programs. We invite others to join in this effort.
Fred Krupp Executive DirectorEnvironmental Defense
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P a r t 1 I n t r o d u c t i o nClimate change is a major global environmental issue that will require a response from virtuallyevery sector of the economy. As the international debate on the Kyoto Protocol evolves fromdevelopment of the rules to implementation by countries, we anticipate more efforts at thelocal level to design programs that can help meet the protocol’s targets. These efforts currentlyrange from debating policies to initiating specific programs. Amid this work, one thing hasbecome clear: there is no simple policy fix and no “one size fits all” program to meet thischallenge.
The members of the Partnership for ClimateAction (PCA) have a common philosophy ofaddressing climate change. They representdifferent industrial sectors, geographicdomains, and sizes, and accordingly, thedetails of their programs differ as well.Individually, each member company is imple-menting an independently establishedprogram to limit emissions of greenhousegases (GHGs). All these programs are distin-guished by their comprehensive nature: acomplete and interconnected set of practicesthat allow for an accurate and credibleanalysis of past, present, and future emissionsperformance, including publicly stated, quan-tified reduction targets.
The PCA’s intent is to increase understandingof GHG issues through an exploration of thebasic and interconnected building blocks of acredible GHG management program. Thisreport presents the results of the group’s workto identify common elements and key prac-tices and to highlight other areas for programdevelopment.
1.1. The PCA’s Work in ContextIn order to effectively manage the complexities and challenges posed by climate change, it isimportant to recognize the issues and roles faced by different audiences. The work of the PCAhas the potential to complement other areas of work and to inform many interested stake-holders in the debate about and response to climate change.
1.1.1. The business communityDesigning and implementing a companywide infrastructure to measure and report GHGemissions is a relatively new and complex task. The work must be integrated into a company’sexisting environmental management systems, resulting in greater demands on human resources
About the PCA Launched in October 2000, the PCA provides aforum for world-class companies to gain furtherexperience with GHG management so that they canhelp to ensure that the emerging policies are botheconomically and environmentally sound.
All PCA Partners share a dedication to protectingthe earth’s climate and have committed to thefollowing actions:
• Publicly declare and implement goals and relatedtimetables to improve global greenhouse gasemissions performance;
• Measure, track, and publicly report net greenhousegas emissions performance;
• Employ innovative, low-cost strategies to reducegreenhouse gas emissions; and,
• Lead through example, positive engagement, andsharing of experience and knowledge.
and finances. The measurement of GHGs also presents technical challenges. Even though thereis a growing legion of consultants, engineers, and accountants who can help companies developa GHG strategy, there are only a handful of corporations that have substantial hands-on experi-ence implementing these strategies. By working together, the PCA members are moving beyondbroad concepts, learning from one another about what works, and gaining insights into howGHG management is evolving across the private sector.
A proactive management stance toward GHGs is important to business analysts, including thosewho regard environmental performance as a component of investment criteria. Several recenttrends support the notion that sound environmental management is also good business andenhances financial performance. These trends include growth in socially responsible investing,the advent of specialized stock indices (Dow Jones sustainability index, FTSE 4 Good), thegrowth of assets managed by those indices, an increase in corporate environmental reporting,and the development of financial quantification methods for environmental risk.
PCA companies agree that there is a strong business case for environmental management,including GHG management, which has potentially far-reaching economic implications forclimate change itself as well as for the policy options for limiting GHG emissions. In thiscontext, one reason for identifying the principal aspects of a comprehensive GHG managementprogram is that it helps educate analysts and investors about the value and role of specificefforts to reduce emissions.
1.1.2. The policy communityPolicymakers want to know what industry can do. The debate over crafting a public policyresponse to climate change has often turned to the ability of private industry to reduce GHGemissions in a cost-effective manner. Consequently, when a group of world-class companies areactively engaged in GHG management and can determine the crucial practices, this informationcan help steer policymakers away from making regrettable policy decisions.
Lessons provided by the private sector may be particularly important to the use of marketmechanisms. In the debate on climate change policy, the option of using flexible market mecha-nisms has gained support and is likely to be incorporated to some degree in most publicprograms for reducing GHGs. Likewise, the PCA intends to examine the issues surroundingemissions trading. Accordingly, the practices that stand out may help determine a credibleapproach to employing market-based programs and therefore guide policymakers as they tailorGHG reduction plans for their own jurisdictions.
The PCA’s efforts may inform the work of participants in the nascent carbon-trading market—buyers, sellers and intermediaries in carbon credit transactions. Market participants need to beconfident that the credits described on paper correspond to a specific measure of GHG reductionand that the reductions are “fungible.” Unlike typical commodities that can be physicallyinspected, carbon credit commodities are only as good as the measurement, reporting, andverification protocols that support their creation and accuracy. The PCA’s identification of keypractices may answer some of the questions surrounding the fungibility of GHG reductionsacross industries and nations.
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1.1.3. The environment and the publicMan-made, or “anthropogenic,” GHG emissions are believed to contribute to climate change,and the stated goal of the 1992 United Nations Framework Convention on Climate Change isto achieve “stabilization of greenhouse gas concentrations in the atmosphere at a level thatwould prevent dangerous anthropogenic interference with the climate system” (UNFCCC,article 2). Scientists suggest that to reach this goal we need to establish a global equilibriumbetween the quantity, or mass, of GHGs entering the atmosphere and the quantity of GHGsleaving the atmosphere during a comparable period of time. This will require a sustainedreduction in GHG emissions from current levels.
The 1997 Kyoto Protocol is the first step on the path toward long-term emissions reductions. Acentral aspect of the protocol is the emissions “budget,” or cap, that it assigns to industrializedcountries. Importantly, each country retains the authority to decide for itself how to meet thebudget it has negotiated. In the past, countries have used a variety of approaches to reducedifferent types of air pollution. Generally, any approach should seek to balance the emissionsprofile of affected sources with both the environmental objective and economic growth. This isnot a simple task for governments, no matter what approach they may take, since it includesbroad emissions inventories, emissions projections, data collection, oversight, and associatedprotocols.
A common approach is requiring specific technology standards, which tend to focus on eitherregulatory prescriptions for pollution control equipment or a lower rate of emissions per unit ofproduction. These attempts have had mixed results and are criticized for being relativelyexpensive and inflexible.1 Furthermore, assigning specific technological solutions for each plantrequires extensive knowledge, which may burden the resources and capabilities of a centralizedregulatory agency. In addition, the challenge in setting emissions rates is setting rates thataccount for economic growth.2 Otherwise, the environmental gains may be offset by growth.That is, even though the allowable rate of emissions drops, the total amount of emissionsincreases as a result of an increase in the number of sources and the number of hours that theyoperate. In order to address this problem, emission rates either must be set at very low levels ormust be regularly revised based on growth. An alternative approach to technology standards isrelying on economic incentives and market mechanisms, such as emissions trading.
Attempts to control air pollution have had to contend with the assumption that the environmentand the economy must be in opposition. Early experience in the United States with “commandand control” regulation involved expensive technology solutions designed to meet emissionsrates, which frequently failed to achieve the air quality goals. In response, the United Statesbegan experimenting with market-based programs. At first, these programs were incorporatedinto existing regulations and so relied on emissions rates as the targets. Problems with thisapproach, stemming from limited flexibility and high transaction costs, ultimately led to theexperiment known as the U.S. Acid Rain Program, which relies on a fixed emissions cap andunlimited emissions trading for sulfur dioxide. The result has been a steep drop in emissions atrelatively low cost (Ellerman et al. 2000). The program did entail some design, administrative,and economic expenses.
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1. See, for example, Ackerman and Stewart 1988, Hahn and Stavins 1991, and Wiener 1999. For a discussion on the relative shortcomings of technologystandards in spurring technological innovation and diffusion, see Jaffe, Newell, and Stavins 2001. For a discussion specifically of sulfur dioxide controlsin the United States, see Ellerman et al. 2000.
2. This criterion applies when the objective is to reduce the absolute amount of emissions for a specific set of sources. Different emissions rates can beused, however, for different sources or sectors within an economy, and therefore the challenge of accounting for emissions growth does not preclude differentiating requirements among sources, including the possibility that some sources may be allowed to increase their emissions over time.
Experiences like these show that market-based programs can significantly reduce emissions ina cost-effective manner and, moreover, that environmental and economic goals can be aligned.Looking to climate change and the steep emissions reductions that will be required for GHGequilibrium, market mechanisms are likely to be important; in fact, most GHG policy proposalsto date include some form of emissions trading. The PCA also is examining how these marketswould function, including the quantification, valuation, and transfer of carbon credits.
In part because economic incentive programs are so new, some people question whether emis-sions trading actually improves air quality. In fact, since an emissions trading program can bedesigned to limit emissions while providing flexibility to emissions sources, it can have thehighest measure of environmental integrity. The performance of these programs, however,relies on both an effective market and adequate market oversight. Market participants thusmust be able to gauge the value of emissions credits, which requires a transparent and timelyassessment of emissions measurement, reporting, and verification methods.
The PCA believes that appropriately designed market-based programs can deliver superiorenvironmental performance in a cost-effective manner. As a result, the partners are developingGHG management programs that rely on credible techniques for achieving and demonstratingreductions in GHG emissions, which in turn may eventually support markets for emissionstrading. The partners are committed to publicly reporting their performance and sharing theirlearning.
Fungibility: Connecting Environmental and Program PerformanceFungibility is the interchangeability of bearer instruments, securities, or goods. In the financial futures market, forexample, futures contracts for the same commodity and delivery month are fungible, because such contracts havestandard specifications. In the context of air pollution control programs, particularly emissions trading, fungibilityrefers to the extent to which emissions reductions can be exchanged, which is affected by environmental impact andthe ability to quantify emissions.
Because tradable emissions reduction credits are a unique commodity—essentially certificates that codify an amount ofpotential or avoided emissions—the task of proper quantification is of central importance. Emissions can be measured bya variety of means, ranging from actual sampling to estimation. As a result, the accuracy of the reported emissions andemissions reductions may vary, which in turn may lead to variances in the actual reductions achieved.
Despite these technical challenges, fungibility has persisted as a prerequisite to market-based environmental programsand can be traced to the earliest attempts at emissions trading in the United States. In the late 1970s and early 1980s,the U.S. Environmental Protection Agency (EPA) drew up a policy for trading variants known as bubbles, netting,banking, and offsets. The EPA was concerned about the comparability of emissions on two levels: their impact onhuman health and emissions control performance (Liroff 1986).
A lack of fungibility can reduce trading opportunities, drive up regulatory costs, and raise transaction costs. Whenfungibility is not clearly evident, a regulator may be forced to conduct a case-by-case review and approval of projectsto ensure that the benefits achieved are equivalent. Such a review is expensive. Early experiences in emissions tradingin the United States led to the observation that “high transaction costs are the single most important determinant of[emissions trading] program performance. A large part of these costs result from regulatory restrictions on trading and
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from administrative requirements that prolong the approval of trades” (Hahn and Hester 1989, p. 376; also see Harrison1998). In early credit-based trading, regulators had to review each transaction as though it were custom-built.
Clearly, a demonstration of comparability among “tons” is beneficial for both environmental protection and the effectivedevelopment and use of market-based mechanisms, a conclusion supported by the performance of the most extensiveemissions-trading program to date, the U.S. sulfur dioxide (SO2) cap and trade program. Although this program is far lesscomplex than an international GHG program, it has demonstrated in practice the ability of emissions trading to deliverenvironmental benefits and cost effectiveness. The comparability of tons in the SO2 trading program is ensured by severalfeatures: a single pollutant, a nearly uniform set of sources (primarily electricity generators), and legislative requirementsfor continuous emissions-monitoring systems, reporting protocols, verification procedures, and a single tracking system forallowances and emissions. In turn, these provisions support a strong compliance mechanism with clear rules for liabilityand enforcement, which are essential “demand drivers” for SO2 emissions reductions. Not surprisingly, the market forSO2 allowances has been robust, growing rapidly year after year with increasing liquidity. Most important, actual emis-sions have been reduced to levels significantly lower than the annual targets (Environmental Defense 2000).
In contrast, a separate U.S. cap-and-trade program for oxides of nitrogen (NOx) has been less active than the SO2program. The structure of the NOx program, which is used in an area known as the Ozone Transport Region, allows fordifferentiation among the NOx allowances. This differentiation has reduced the fungibility of the allowances, thus helpinglower the volume of trading and raise the volatility of the market (McLean 2002).
In regard to greenhouse gases, the Kyoto Protocol on climate change has outlined a cap-and-trade system for industrial-ized countries. For developing countries, which are not required to set caps, the so-called Clean Development Mechanism(CDM) was added to the protocol as a means of controlling the growth of emissions as the countries industrialized.The CDM allows investors to carry out projects in developing countries to reduce or avoid GHG emissions. The reducedand/or avoided emissions may be quantified and then traded among industrialized countries; that is, they may be usedfor compliance with the protocol. In this way, the rate of emissions growth in developing countries is lowered (i.e., theirindustrial development is “cleaner” than what it otherwise would have been), and the industrialized countries gain ameans for low-cost emissions reduction projects.
One of the main concerns about the CDM is the matter of fungibility: how can the avoided emissions from a discrete,“off-system” project be made comparable to the tradable credits established under a fixed cap-and-trade system? Manyobservers point to the necessity of the CDM as a way of engaging the developing world and providing incentives to lowerthe trajectory of its substantial and growing emissions inventory. Furthermore, the CDM is flexible enough to allow invest-ments that are appropriate to each nation’s development goals. The project-based approach has presented many chal-lenges, though, including demonstrations that emissions reductions are not credited if they result from “business asusual” activities, a subjective concept indeed. As a result, international discussions of the operation of the CDM haveincluded various rules for administrative review, approval, and restriction of use.
In summary, although there is no single way of establishing fungibility, it is a crosscutting issue in an emissions reductionprogram that affects both environmental and economic performance. In a complicated market like international carbontrading, the market participants themselves may help to define the exchangeability of different GHG “currencies.”Maximizing fungibility is a worthwhile goal, and its technical challenges will be part of the PCA partners’ work.
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1.2. Voluntary ProgramsMany voluntary GHG programs involving the private sector have recently been implemented.They serve a number of important purposes, such as analyzing policy issues related to new,cleaner energy sources; increasing energy efficiency; developing new technologies; andengaging the business community in a dialogue on climate change. Each of these programscontributes to our understanding of climate change issues and to the general policy debate.
Each corporate partner of the PCA has independently and voluntarily designed an action-oriented GHG management program backed up by the company’s resources and dedicated toprinciples of transparency, accuracy, accountability, and environmental integrity. An importantfocus is on integrated systems for measuring, recording, and managing the significant amountof GHGs directly emitted by the companies into the atmosphere, as well as the broader set ofGHG emissions that are indirectly related to their operations.
Participation in this effort is voluntary, but once committed to reductions, the companiesare applying rigorous measurement and reporting practices that in many ways mirror what aregulatory program might require. Not only will the PCA effort help show how some policymechanisms work, but it also will benefit the environment by actually reducing emissions.
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Par t 2 A F ramework fo r P rog ram Rev iewEach corporate partner of the PCA has independently and voluntarily designed its own GHGmanagement program. These programs have been influenced by factors like industrial sector,types of emissions, business growth, geographic distribution of operations, and corporateculture. The programs also have been launched at different times and are therefore at differentstages of implementation.
A review of the programs reveals their principal elements, which in combination comprise auniversal framework for program design. These elements are (1) target setting, (2) emissionsmeasurement, (3) actions to reduce emissions, and (4) accountability. All the elements of aGHG program are connected, so that the design of one will affect the others. A comprehensiveprogram that is strong in all four elements is most likely to deliver both economic and environ-mental performance.
The PCA arrived at its framework by initially evaluating the provisions and organization ofthe U.S. Acid Rain Program for sulfur dioxide emissions trading, determining how that designcould be applied to international GHG control, and considering the companies’ experiencesin starting up their own programs. Further discussions took into account the nature of theemerging GHG programs, both regulatory and voluntary.
Once the initial framework was in place, each of the companies’ programs was mapped onto theframework, resulting in a matrix of topics (see Annex). It is important to note that this matrixrepresents a snapshot of the programs at a particular point in time. The programs are stillevolving, and typically each year the companies assess their progress and decide on the changes,if any, for the coming year. Where it is known that a company is planning to make changes, thisis indicated in Annex.
2.1. Target SettingA distinguishing feature of all the PCA members’ programs is that they have established amass-based GHG emissions limitation, or target. These targets are expressed in accordancewith four parameters: start date, target achievement date, base year (or reference year), and aspecific quantity of targeted emissions based on a percentage of the reference year’s emissions.This does not mean that all companies set the same target. Rather, each sets a target that limitsits emissions at some predetermined and measurable amount, representing a downward trendand delivering some guaranteed environmental performance.
In choosing its targets, each company decides on feasibility based on the company’s operations,the particular factors influencing its industrial sector, and the commitments made by othercompanies or the sector itself. In addition, the targets are designed to show that each companytakes seriously the issue of climate change and that each is committed to reducing emissionsover time.
The PCA partners established their targets at a time when few, if any, formal regulatoryprograms were in place. All the PCA members intend to comply with regulatory programsas they are developed and implemented. One of the benefits of voluntarily choosing a targetis that it allows companies to gain experience with managing GHG emissions, to make earlyreductions, to prepare for possible regulation, and to help inform the regulatory process. Suchan initiative is not without risks, however, particularly if future regulation fails to recognizethese early actions and essentially punishes companies that choose a proactive stance(Margolick and Russell 2001).
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Figure 1 shows some of the topics considered when setting targets.
2.1.1. Coverage, or defining boundariesCoverage refers to which greenhouse gases a program will include and the company’s boundarylines for setting and reporting targets.
The PCA member companies permit all the “Kyoto gases”3 to be included in their programs andfocus on those that are the most relevant to their operations. This approach recognizes theimportance of having both internal and, in some cases, external flexibility to find cost-effectivereductions and to engage employees or sectors of businesses that otherwise would not beengaged in this work. The consideration of all gases recognizes that each is part of the problemof climate change and presents opportunities for GHG management. In some cases, however, itis difficult to measure certain gases accurately, because there are no measurement protocols orthe total volume of the gas is very small. In either case and for technical or cost-related reasons,companies have sometimes delayed measuring some non-CO2 gases to a later phase in theirprograms. When evaluating their emissions, PCA companies thus are judging the significance,or materiality, of small sources, though there is no standard for a materiality threshold.
Companies may categorize GHGs in two different but related ways. The first is by source type,or the physical apparatus or operation that generates the emissions, such as machinery or automo-biles. A review of source types usually leads to further consideration of issues such as data qualityand materiality, which in turn may affect decisions about including sources in a company’s target.
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3. Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
f ig. 1 Topics in Target Setting
Coverage
Baseline
Target
Target Setting
gases
source type (e.g., physical plant, transportation,offsets, materiality, data quality, etc.)
emmissions type (direct/indirect, internal/external)
base year
level of confidence in data
rules for adjustments (increase or decrease)
target articulation (limitation relative to base year, timing and/or interim steps)
allocation method (address equity and timing)
eligible reductions (e.g., can offsets be used?)
rationale for target (additionality, company exposure,economic opportunity)
Emissions Measurement
Allocation to Reduce Emissions
Accountability
The second category is emissions type, which is divided between direct emissions emanatingfrom a company’s physical plants and facilities and indirect emissions caused by the productionand delivery of energy, fuel, raw materials, services, and the like or by the delivery and use orrecycling of the company’s products.
Among many important coverage issues, one that is particularly interesting is the relationshipbetween direct and indirect emissions, which may be illustrated by the case of electric andsteam energy. Companies that purchase power from the grid do not see the commensurateGHG emissions on their own premises as direct emissions. For example, if a company buildsa highly efficient combined heat-and-power (CHP) energy production unit on its property, itwould see an increase in direct GHG emissions, even though it might be using energy thatemitted fewer GHGs than did the power it purchased from the grid. One could argue that theintroduction of the CHP unit and the displacement of the original energy source resulted in anet reduction of GHGs. Determining a benefit (the reduction of emissions) would requireresolving a number of issues, though, such as the measurement and accuracy of baseline emis-sions from purchased power; “ownership” of the reduction; and “leakage,” meaning that thedisplaced power might be used by someone else, in which case there would be no net reduction.
Conversely, a company that is generating power on its premises could buy power from the grid,in which case its direct emissions would appear to drop, even though the emissions someplaceelse might rise or fall. A similar situation could arise, for example, if a steel maker bought addi-tional foreign steel to supplement its domestic production. That is, its domestic GHG emissionsmight fall, but the GHG emissions in the country that produced and supplied the foreign steelmight rise.
Regulatory programs to control GHG emissions probably will address “location shifts” likethese. Voluntary programs offer a tougher challenge and no single solution. Generally, the PCAmember companies are trying to avoid perverse outcomes like “outsourcing emissions” ordiscouraging the introduction of newer, cleaner energy sources such as combined heat andpower, or cogeneration. Of the PCA companies, five out of eight include only direct emissionsin their targets, and most track indirect emissions from electricity purchases.
2.1.2. BaselineThe baseline, or the level of emissions in a given year, is one of the building blocks for settinga target. Because the Kyoto Protocol uses 1990 as the base year and sets targets as percentagesof 1990 emissions, several PCA companies use 1990 as their base year. The results have beenmixed. An important concern is the quality of the data, and in many cases the data simply donot exist or are based on estimates, thereby introducing uncertainty that could be as large as thetarget itself. In other words, the potential margin of error in the baseline estimate could exceedthe margin of emissions that a company pledges to reduce, thereby undermining the credibilityof the company’s performance. Consequently, a company might choose a more recent baselineto increase the accuracy and reliability of the information used to establish its target.
Another issue is that some companies have changed so much since 1990 that the 1990 emissionshave no relevance to its target today. This may be true in cases of an unusual growth of emis-sions, an unusual decline in emissions, or changes in emissions among business units. Even if acompany can obtain a good 1990 estimate, it may find that historic emissions are not appropriateto assigning internal present-day emissions responsibility. Of the PCA member companies, sixout of eight are using 1990 as their baseline year for their target, and the rest are using more
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recent data. None of the PCA companies has used 1990 data to assign internal responsibility forreducing emissions.
A business’s growth and contraction are other important considerations for the emissions base-line. Companies grow by acquiring existing assets (acquisition), building new ones (greenfieldgrowth), or expanding existing facilities (organic growth). Similarly, they contract by shuttingdown assets, selling them to another company (divestiture), or simply decreasing throughput orcapacity (organic decline). All these situations need to be addressed in the baseline. Some PCAcompanies are raising or lowering their baseline for acquisitions of existing assets or divestiture,respectively, but are not making adjustments for shutdowns, greenfield growth, or organicchanges in emissions. Some companies note at the outset of their programs the exceptions tothese adjustment procedures. Accurate accounting and disclosure are used to track such adjust-ments so that PCA companies can fully substantiate their claims of performance.
2.1.3. Targets, or emissions limitationsThe emissions limitation is generally set as some percentage of the baseline emissions achievedby a target date, as shown in Table 1. Although voluntary target setting is somewhat arbitrary,certain practical considerations can help companies set the level of their target. One of theprimary goals for the PCA companies seems to be setting a target that helps them prepare forcarbon constraints in the future. That is, they want to make internal changes now in order toestablish their GHG emissions profile and to determine their opportunities and costs for makingreductions. This goal also should be balanced against the practical realities of competitivemarkets. The PCA member companies cover a number of different sectors, operate all over
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Table 1 PCA TargetsCompany Target
Alcan Achieve annual reductions of 500,000 tonnes by 2004, with future targets set on a yearly basis*
BP 10% below 1990 by 2010
DuPont 65% below 1990 by 2010
Entergy Stabilize at 2000 levels for 2001—2005 (interim target)
Ontario Power Gen. Stabilize net GHG emissions at 1990 levels starting in 2000
Pechiney 15% below 1990 by 2012
Shell International 10% below 1990 by 2002
Suncor Energy 6% below 1990 levels by 2010, consistent with Canadian federal commitments
Notes:* This recent initiative is in addition to a reduction in annual GHG emissions by 2 million tonnes compared
with 1990, which has been achieved despite increases in overall production capacities during the same period.
the world, and produce a range of products, of which some are subject to regional or globalcommodity market price fluctuations.
Targets act as inducements for emissions reductions. When setting a target, companies usuallytry to create a “stretch,” perhaps defined as a quantity of emissions reductions that the companycurrently does not know how to achieve. When establishing such a target, the company createsa driver to discover opportunities for reduction and internal change.
Another factor in setting the emissions limitation is present and future competitive positioning.PCA companies have set their targets in part because they have a business case for reducingemissions, such as sound long-term planning and investors’ demands. A voluntary commitmentshould not hurt the company’s competitiveness. Nonetheless, over time, the potential financialbenefits of environmental management are likely to give proactive companies an advantageover those that wait.
Because emissions limitation commitments are generally set for five to ten years, each companyshould periodically track its progress in meeting its target. And although the PCA companies’targets do vary, as shown in Table 1, they all illustrate the seriousness of the company’s commit-ment and the potentially beneficial impact on the environment.
2.2. Emissions MeasurementMeasurement is a key factor in GHG management systems because it is linked to setting base-lines, determining the extent to which targets are met, supporting credible emissions trades,and ultimately demonstrating accountability. As a result, issues of accuracy and uncertainty areparamount. Figure 2 illustrates the topics considered when measuring emissions.
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f ig. 2 Topics in Emissions Measurement
Internal, directemissions
External, indirectemissions
Verification
EmissionsMeasurement
measurement protocols:direct measurement versusestimation or calculation;factors and other standards
accounting standards, data quality
internal audits
third party verification
measurement protocols; criteria(e.g., project baseline criteria)
Actions to Reduce Emissions
Accountability
Target Setting
2.2.1. Internal, direct emissionsAll PCA companies use methods for direct measurement (e.g., continuous emissionsmonitoring) or estimation (e.g., use of emission factors and fuel usage data) that arerecognized as best practices by the industrial associations and/or countries in whichthey operate. Furthermore, they have established systems to ensure the accuracy,completeness, and consistency of these data as well as the integrity of the data basedon collection and handling methods. Seven PCA companies have tested the “GHGProtocol” developed by the World Resources Institute and the World Business Councilfor Sustainable Development (WRI & WBCSD 2001) and are consistent with thatguidance to varying degrees.
Conformity with the GHG Protocol or other practices, however, does not mean thatall the PCA companies take the same approach to measurement. For example, theGHG Protocol allows companies to make decisions that significantly affect the data’scomparability. This flexibility may be relevant to the extent that PCA companies tradeemissions and thus is another issue that the PCA will explore.
For certain GHG emissions that are emitted in relatively small quantities, the costof voluntary measurement can be prohibitively expensive. Although there is no setthreshold for measurement cutoff, the gases not fully measured seem to share certaincharacteristics:
• They are emitted in very small amounts (i.e., pounds).• They are emitted from fugitive sources or sources that are difficult to reach.• They are non-CO2 gases.• The emissions factors or estimation methods are very uncertain.
In cases in which a company is omitting a GHG from its measurement protocol, itfrequently is trying to include it in future inventories and/or to track emissions indicatorsat least in order to review emissions trends.
Even with the best practices, measuring emissions is uncertain, and guidance onaddressing this uncertainty is just beginning to emerge. Lessons can be drawn fromfinancial accounting and environmental regulatory practices. To date, a common practiceis simply to disclose the uncertainty and, if possible, to quantify it. Another option is to“wall off” or track separately those emissions sources that are highly uncertain so thatthe uncertainty of one group of sources does not diminish the reliability of other measure-ments. Most companies that have identified areas of uncertainty are also trying to reducethat uncertainty over time.
2.2.2. External, indirect emissionsIndirect emissions offer an additional opportunity to reduce emissions farther “up thevalue chain,” thereby extending the reach and potential impact of any single organizationand engaging other entities in the process. Indirect emissions also pose an interestingchallenge, which may best be illustrated in the case of energy efficiency. On the onehand, incremental improvements in energy efficiency are difficult to achieve throughtraditional “command and control” regulation because it requires the regulator to acquireand maintain a high level of knowledge about any company’s operations and potential for
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improvement. Alternatively, a market-based program would give a company credit forestimated changes in its emissions profile based on improvements in energy efficiency.One way of doing this is to establish an average emissions factor for the power supply,measure the company’s reduction in power usage, and then calculate the equivalentreduction in GHG emissions.
There are challenges with this approach. For example, the average grid emissions factormust be obtained for the period during which the energy efficiency takes place. Also, theactual reduction in emissions occurs at the power plant (or plants) that lowered its outputas a result of the drop in energy demand from the company. This outcome leads to dualconcerns of leakage and double counting if the power plant does not actually reduce itsoutput but instead shifts it to another customer or if the power plant is already partici-pating in a GHG control program and therefore also wishes to claim credit for reducedemissions.
One option is to track improvements in indirect emissions separately from improvementsin direct emissions. All the PCA companies have created measurement systems that allowdata to be separated. Or in an overall program, separate targets can be created for directand indirect emissions, as DuPont has done. This allows the company to track itsperformance separately and transparently on more than one dimension and providesthe raw data to support its position on a variety of regulatory approaches.
2.2.3. VerificationQuality control of emissions data begins on the shop floor and is further supported byan internal audit, a process that is centrally managed by all the PCA companies. Thisprocess can be similar to, and in fact part of, a financial audit.
A second quality check is made during a third-party review, or verification, which iscommon and increasingly used by the PCA companies. Although all PCA companiesuse or intend to use third-party verification, there is no standard guidance for conductingsuch reviews, partly because they are relatively new, as reflected in the few experiencedthird-party verifiers. One examination of various public and private verification proce-dures suggests, however, that they typically include an evaluation of the data manage-ment systems for developing the GHG inventory; a confirmation that the inventoryreflects actual operations and covers the material sources of GHG emissions; and aconfirmation of the estimates and reductions of emissions, including the consistencywith which a company or organization has applied its protocol (Loreti, Foster, andObbagy 2001).
Although third-party verification is recognized by all PCA companies as important tomanaging their programs and building credibility, there are some trade-offs. Third-partyverification of emissions as a prerequisite to trading poses a procedural condition thatcould impede market activity. In addition, the use of third-party auditors adds a transac-tion cost to emissions trading, and there are currently no standards regulating the accredi-tation of auditors.
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Table 2 summarizes the PCA companies’ emissions measurement practices.
Table 2: Emissions Measurement Practices
Quantificationa
GHG IPCC Internal ExternalProtocol factors audit verification
CO2 CH4 N2O HFC PFC SF6 (tested) used
Alcan D,E — — — b E D No Yesc
Yes Planned
BP D,E D,E — — — — Yes Yesc
Yes Yes
DuPont D,E E D,E D,E E E Yes Yes Yes Yes
Entergy D — — — — — Yes No Yes Planned
Ontario Power D,E E E E — — b Yes Yes Yes Yes
Pechiney E — — — D,E E Yes Yes No Yes
Shell Int’l D,E D,E D,E D,E D,E D,E Yes Yes Yes Yes
Suncor Energy D D,Ed
D,Ed
—e
—e
—e
Yes n/af
Planned Planned
Notes:a D=direct measurement, E=estimation. e Emissions from business units do not exist or occur at trace levels.b Not a significant source and may be examined in the future. f Methods and specific emissions factors are not standardized across (andc IPCC factors are the default choice, but more accurate factors are used where available. sometimes within) the business units. The Natural Gas & Renewable Energy unitd Emissions are directly measured in the Natural Gas & Renewable Energy unit, but when uses some factors provided by the Canadian Association of Petroleum Producers.
estimation is used, emissions are estimated based on total CO2 emissions. Global warming factors for CH4 and N20 are consistent across business units.
2.3. Actions to Reduce EmissionsPCA companies have designed and implemented programs that are meant to be flexible andinnovative, programs that maximize their options for reducing GHGs and encourage new ideasand new thinking. As a result, many competing projects and activities should be evaluated, andas illustrated in Figure 3, a key step for organizing a company’s effort is developing various typesof guidance.
The guidance that a company develops depends on the level of centralization in the programdesign and the extent to which the company will accept reductions from outside its operations.There is no fixed approach, and in fact several different options have emerged:
(a) Explicit internal targets or technology requirements are assigned to each business unit (BU):In this approach, a company begins to make capital investments to improve efficiency andpossibly to make significant innovations that reduce GHG emissions. Typically the target isset in a bottom-up fashion and represents the best that the company can do given its currentunderstanding of costs and technology options.
(b) Explicit internal targets with internal emissions trading at the BU level: In this approach, acompany uses an internal emission-trading program to encourage innovation and perhaps even
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to create competition for “making” reductions. Typically the target represents something of astretch in that it pushes the company to go beyond what it “knows” it can do. It leaves openthe possibility that employees will be able to meet the targets in ways not envisioned when thetarget was set. In most cases, companies using internal trading have chosen not to exchange realcurrency because of tax and other legal concerns. Instead, the programs look for other incentivesfor encouraging business unit leaders to find low-cost reductions.
(c) Explicit internal targets with internal and external emissions trading at the BU level: In thisapproach, a company delegates responsibility for meeting targets down to the BU level and givesthe units flexibility for meeting those targets. To date, none of the PCA companies has moved tothis level of implementation or decentralization. In this approach, a company might have optimalflexibility in meeting BU targets and might also find itself in the awkward position of having oneBU selling tons externally when another is having difficulty meeting its target.
(d) Explicit internal targets and centralized acquisition of offsets or sale of internal reductions: Withthis option, BUs are given guidance to improve their GHG intensity. Targets can be set through abottom-up or top-down approach and therefore may represent more or less of a “stretch” for thecompany. At the same time, a centralized group reviews external offset projects in order to get asense of the “market price” of carbon (today there is, at best, a weak market price signal, as themarket is in an early development stage). The centralized group could also buy offsets if thecompany might not be able to meet its target through internal actions and, conversely, might nego-tiate for the business units the sales of reductions that exceed the self-imposed emission target.
(e) Internal performance goals and centralized acquisition of offsets: In this approach, targets at theBU level are not prescribed, but incentives are provided to improve emissions performance.This approach might be used by a company that has already tried to optimize its operations froma carbon perspective, so that new targets will create additional burdens on the BU staff. Rewards
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f ig. 3 Topics in Actions to Reduce Emissions
Actionsto ReduceEmissions
Guidancefor internal
actions
Guidancefor emissions
trading
Guidancefor external
actions
project approval:capital allocation, clearing house functions
use, selection and evaluationof emissions offset projects
product lifecycle assessment;customer and supplier outreach
definition of credible reductions;rules for trading and banking
internal administration,information systems
Target Setting
Emissions Measurement
Accountability
might be offered for reductions, such as more investment capital, but the BU should notbe pressured to deliver such reductions. At the same time, the company may acquireexternal emission reductions to offset growth or ensure that it will meet its self-imposedtargets despite changes in operations.
2.3.1. Guidance for internal actionsBesides communicating the structure of the program, a company’s guidance can helpidentify, screen, and select internal emissions reduction opportunities. These guidelinesare shaped according to the company’s overall business strategy and may be integratedwith other objectives, such as sustainable development.
Typically a company is interested in developing a carbon abatement cost curve to help itbetter understand its own operations and to reduce emissions and the associated costs.Such a curve may require that business units determine the cost of reducing carbon in bothexisting sources and planned investments even if the investments are not ultimately made.Based on a review of these data, a company can encourage those investments that best fitthe company’s long-term planning.
Another option is to require a company’s business units to include some centrally deter-mined cost of carbon in their project evaluation. As the assumed cost of carbon rises, invest-ments that reduce carbon become more attractive and, likewise, investments that greatlyincrease carbon emissions become less attractive. Another way of looking at this is that thecost of carbon contributes to the rate of return expected from an investment and thus canbecome one of the deciding factors in whether or not to go forward with a project. A companycan integrate into its operations some of its environmental or sustainability commitmentsby altering the assumed cost of impacts such as carbon emissions, other pollutants, andeven social costs. Companies can also achieve greater efficiency or modernize their plantsby promoting internal investments to reduce carbon.
All PCA companies have substantial emissions inventories, and as a group they possess awide range of emissions types and sources, so the actions they can take are many. In sum,the steps that the PCA companies already have taken include manufacturing processchanges, upgrades and improved energy efficiency at power-generating stations, fuelswitching, coal blending, methane capture, diversion of wood waste, fuel efficiencymeasures, cogeneration, and project-based offsets.
2.3.2. Guidance for emissions tradingThe PCA companies agree that appropriately designed market-based strategies are a cost-effective means to reduce GHG emissions and to protect against climate change, and theyare committed to exploring the issues around emissions trading. The GHG programs of twoPCA partners (BP and Shell) are based on systems for internal trading among BUs, whereasother programs focus on external, intercompany trades. In each case, trading raises issuesof credit creation, fungibility, transfer, use, and verification.
An accepted criterion for a tradable emissions credit is that the credit must be “surplus,”that it represents a reduction in emissions below some targeted level. More broadly, theU.S. EPA’s definition of surplus may be described as a reduction in emissions that is not
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already required. In a regulatory program such as the U.S. cap-and-trade program for sulfurdioxide, all credits (or “allowances,” in regulatory parlance) are automatically surplus, in a sense,because they represent allowed emissions below the regulatory cap. Regardless of the amountof trading in a cap-and-trade program, the target level for total emissions is always preserved.
In contrast, in a voluntary program, the creation of surplus reductions is somewhat arbitrary butcan be made contingent on the achievement of voluntary targets. The possibility for near-termtrading suggests the existence of near-term targets, which in turn raises the issue of comparabilityof near-term targets among market participants. These are topics for further discussion by thePCA members, particularly in their examination of tracking and reporting emissions and demon-strating progress.
2.3.3. Guidance for external actionsAs used here, external actions has two meanings. First, external actions are those actions takento reduce emissions in projects external to a company’s operations, that is, project-based offsets.Despite the interest in and work being done on external offsets, there is no comparable orconsistent approach to evaluating them. At some point, an agreed-on set of criteria for screening,selecting, and evaluating offset projects would be useful. Such criteria could be based on thoseused to choose internal investments for emissions reductions, with a comparable level of rigor.
Second, a company’s GHG program may include external actions to reduce emissions that arenot intended to count toward the company’s voluntary target, meaning that they are external tothe defined boundary. As a hypothetical example, a program could include efforts to reduce andquantify downstream indirect emissions stemming from product use, even though the company’sGHG target and reduction strategy is based on direct emissions only. Furthermore, even thoughsuch external actions may begin in a parallel or complementary fashion to a company’s GHGtarget, this would not preclude them from later being integrated into the target articulation.
Table 3: Actions to Reduce Emissions
Actions Taken to Date Trading Offsets
Alcan • PFC reduction program through computer controls External Yesand alumina feeder installation.
• Energy efficiency activities.
BP • Established annual emission reduction targets Internal No*at group level since 1999.
• Numerous examples of cost-effective reductions inemissions of CO2 and CH4 from existing operations.
DuPont • Thermal oxidation of N2O. External No
• Source reduction of HFC-23.
Entergy • Improvement in power plant efficiency. External Yes
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Ontario Power • Issued RFPs to develop end use energy efficiency to reduce External Yescustomer electric energy use between 1998 and 2000.
• In-house energy efficiency projects to achieve energy savings from all generating stations; also reduces carbon intensity (CO2/TWh rate).
• Continue tree planting; 1.6 million trees in southern Ontario by 2005.
• Committed to increase supply of green power by 2005.
• Working to return nuclear units to service to reduce carbonintensity of generation mix.
• Committed to add more low-emission vehicles to OPG fleet.
• With E7 partners, improve power plant energy efficiency inJordan (AIJ project).
• Acquisition of ~12.6 MT CO2eq (4 of 6 gas types) from projectsacross Canada, the U.S., and Europe, for application to net out2000 emissions to commitment level.
Pechiney • Successful voluntary agreement on aluminum Internal Noproduction in France, 1990—2000.
• Target setting at the BU level.
• Technical & managerial programs: technological change orupgrading, fuel switching, cogeneration, energy efficiency,continuous improvement policy.
• Third-party verification, 1990 and 2000.
• Partnership with automaker.
Shell Int’l • Exploration & Production committed to eliminate Internal Yesventing and flaring, globally.
• Investing in CO2 mitigation and capture technologies.
• $500 million investment in renewable technology.
• Target setting at the BU level.
• Ongoing focus on energy efficiency and ecoefficiencyat existing operations.
• Include the impact of the cost of carbon in theinvestment appraisal of major projects.
• Active implementation of the CDM program around the world.
• Strategic solar and hydrogen technology acquisitionsand joint ventures.
Suncor Energy • New steam turbine at Oil Sands facility to provide External Yesheat more efficiently for extraction process.
• Continually improving energy management programs at the business unit level.
• increase in the amount of ethanol-blended gasoline in downstream business unit.
• Including offset reduction activities in 2000, reductions totaled 604,000 tonnes
Notes: This list is for illustration purposes only and is not intended to be comprehensive. * Piloting credit-based trading in 2002.
2.4. AccountabilityThe final core element of a GHG program is accountability, and Figure 4 shows its two principalcomponents, reporting and reconciliation. Together these activities demonstrate a company’scommitment to report its progress publicly and to achieve its environmental goals.
2.4.1. ReportingEach PCA program includes the preparation of annual public reports on emissions performance.The audiences to which the reports are directed are the general public, employees, share-holders, policymakers, and business analysts. One of the report’s goals is to show the strengths
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f ig. 4 Topics in Accountabil ity
Accountability
Reporting
Reconcil iation
basics: format, frequency, level of detail,level of aggregation
length of time to generate an emissionsreport, reporting cycle
access to data: internal, external
external registration of data
process for true-up: timing, role of banking
liability: mechanism to address deficit
Target Setting
Emissions Measurement
Actions to Reduce Emissions
of a company’s program in order to enhance its credibility. Another goal is to support the businesscase for GHG management, particularly by showing analysts and investors how emissionsperformance has positioned the company to succeed under future carbon constraints.
Although all PCA companies submit reports, their formats differ in their treatment of emissionsperformance, their use of emissions trading, and their use of external offsets. Likewise, thefrequency of reporting varies as generating an emissions report can take anywhere from onemonth to one year, including the internal collection and auditing of data.
Despite the differences among PCA companies, some suggested guidelines for minimumreporting include the following:
• Global emissions by company.• Distinction among the different types of GHGs.• Distinction between direct and indirect emissions.• Offsets and transaction activities.• Geographic distinctions (particularly between industrialized and developing countries).• Progress relative to base year and recent emissions.
Other items for consideration are emissions by business unit and/or country, comparative statisticsfor emissions from other companies and/or countries, statistics for transactions by each company(number, tons traded, etc.), innovations and success stories, profiles of company programs, bench-marks such as energy efficiency, information that can be obtained from the company and how toget it, efforts made toward sustainable growth, and a description of challenges.
To register their emissions data and performance with an independent third party, five of theeight PCA companies use or are planning to use some form of external registration, mainlyunder voluntary agreements with governments.
2.4.2. ReconciliationIn a regulated emissions-trading program, reconciliation refers to the comparison of a regulatedsource’s actual emissions with its allowed emissions. If the emissions exceed the allowed amount,the source must obtain additional credits to offset the difference. If the source fails to obtainthese credits, it will not be in compliance and thus will face whatever penalties are prescribed inthe regulations, such as a financial fine and a deduction of credits from its upcoming allotment.
The notion of reconciliation has a different meaning in a voluntary program. Typically the PCAcompanies use a reconciliation period to compare their performance with their stated goals.However, rather than impose regulatory penalties, the PCA companies use other incentives suchas salary or management inducements and peer pressure. For example, a business unit that meetsits target might find it easier to compete internally for capital to invest in more reductions. Or theleader of a BU that fails to meet its target might have to explain the failure during her annualsalary review. Because all the PCA companies have agreed to report their progress publicly, acompany that fails to meet its target would therefore be committed to reporting that failure.
A topic for further discussion is how any deficit relative to specific voluntary commitments will beredressed, including issues such as “environmental compensation” and insurance practices forreconciliation failures. To date, though, the focus has been internal, getting programs up andrunning rather than imposing penalties. The PCA companies have found that this is important interms of engaging employees at broad levels.
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P a r t 3 P r a c t i c e s
In this section we describe in greater detail some of the PCA companies’ specific practices.
Each company’s program is different. In some companies, the decision making is highlycentralized, whereas in others, the business units are relatively autonomous. Other factorsare the size of the company, its growth plans, and the trends within its industry sector, andsince these affect a company’s emissions trajectory, they also influence the time frame for theemissions reduction target, the types of technology solutions that are promoted, and whethertrading and/or offsets are used for meeting goals.
The practices described here are meant to show how a company’s particular circumstances haveshaped its choices and how experience has led to improved implementation. In some cases,companies have arrived at similar practices, while in other cases there is a divergence in tech-nique. In any event, none of the programs are fixed in time, but in fact are likely to evolve asnew information and ideas emerge. Since regulatory programs are beginning to take shape in anumber of industrialized countries, company programs may need to shift to meet new require-ments. Conversely, regulators might take notice of what companies have opted to do in a volun-tary setting and shape their policies to match that experience.
Because there are many different GHG programs under development—at corporate, national,regional and global levels—it is difficult to determine at this time which practices can beconsidered “best practices.” At the very least, certain practices can demonstrate how specificchallenges have been overcome. With time and experience, some of these techniques willendure and eventually gain wide support to be deemed “best practice.”
The PCA identified six topics for discussion in this section—goal setting, inventory, fungibility,verification, project evaluation and incentives. While each topic is an important considerationin any GHG program, this set of issues is not comprehensive nor prioritized. Rather, thesetopics are selected because they are thought to be challenging, interesting and useful inconveying the ongoing work and experience of the PCA companies.
3.1. Setting goalsOne key challenge in goal setting is defining the “stretch”: that part of the target that drives acompany to be innovative while imparting credibility to a voluntary commitment. When findingthe stretch and deciding on a target, a company must determine how its emissions will changeover time.
In 2000, Pechiney, a multinational aluminum company with its headquarters in France, adopteda companywide target. The company had already gained experience by participating in a volun-tary program of negotiated agreements with France’s Environment Ministry. In 1995, Pechineynegotiated a set of rate-based targets for its aluminum production facilities in France. Thesetargets, which had a base year of 1990 and a target year of 2000, were for CO2 emissions (-18%),PFC emissions (-72%), and energy consumption (-4%), and each was expressed as an amount perton of aluminum produced. Pechiney ultimately achieved success towards its commitments witha 24% reduction in its CO2 rate, a 72% reduction in its PFC rate, and a 3.5% reduction in its rateof energy consumption. In addition, an absolute, mass-based target was set at -39.5% based on“CO2 equivalent” emissions,4 taking into consideration a production growth forecast of +30%over 10 years. The actual production was roughly equal to the forecast, and the absolute targetwas met with a 41% reduction.
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4. For PFCs, a global warming potential of 7,500 was used.
Beginning in 2000, Pechiney moved to an absolute, mass-based target for its worldwide opera-tions, specifically a reduction in GHG emissions to 15% below its 1990 level by 2012 (on aCO2-equivalent basis). Only direct emissions were included, in contrast to the previous volun-tary agreement that included indirect emissions from purchased electricity. In setting its target,Pechiney predicted the global production of aluminum to 2012, decided its own organic growthobjective, and then projected the company’s “business as usual” emissions path. The projectedemissions were assessed by type of emission (PFC, CO2 from processes, CO2 from combustion)and geographic distribution (industrialized countries versus developing countries). Severalemissions scenarios were considered, and the company eventually based its 2012 target on an“average growth, targeted production, best effort” scenario, in which “best effort” meantachieving predictable “best available technology” emission rates in all operations. The companyalso considered the emerging technologies in the aluminum sector, particularly new smeltingtechnologies. In this overall analysis, Pechiney foresees that by 2012, it will still need to find anadditional 3% reduction in GHGs in order to meet its companywide target.
Taking a day to day, business-oriented approach, interim targets are internally “negotiated” andestablished for business units on a plant by plant basis. These apply from 2001 to 2004, whichmarks the timeframe when newly decided major investments cannot come into operation in thealuminum industry. The targets hold each unit to either a “best available technology” standardor a “best practice” standard /benchmark. This approach typically results in a CO2 equivalentstabilization target for plants that have projected business-as-usual production creep on theorder of +10%, barring any major technology change. In addition to Pechiney’s absolute targets,its business units still are using the target rates (by ton of aluminum produced) for the criticalparameters such as PFC emissions, process carbon emissions, and electricity consumption. Thisshort-term approach will be repeated in 2004 and succeeding years.
Similar to Pechiney, the U.S.-based company DuPont, a global manufacturer classified in thechemicals sector, also had its first experience in a voluntary government program, the ClimateWise program administered by the U.S. Environmental Protection Agency. After participatingin this program for several years, DuPont adopted an absolute, mass-based target, whichapplied to all company operations and included both direct emissions and indirect emissionsfrom purchased power and steam. Because DuPont found that it could greatly reduce itsprocess emissions of nitrous oxide, a relatively powerful GHG, and HFC-23, also a powerfulGHG, the company was able to adopt an aggressive target that called for a 65% reduction below1990 levels, to be achieved by 2010.
DuPont’s program also includes CO2 and other HFCs, but the special case of nitrous oxideemissions presented the company with a compelling business argument for reducing emissions.DuPont already had analyzed the intersection between business and environmental objectivesin phasing out its chlorofluorocarbon production in response to the depletion of stratosphericozone. One lesson it learned was that addressing environmental issues up front through volun-tary actions could be up to five times less expensive as reacting to regulations after they wereimposed.
For GHG emissions, DuPont’s analysis of its abatement cost curve pointed to one particularaction that substantially and cost effectively reduced emissions: a retrofit of adipic acid plantswith thermal oxidation units to reduce nitrous oxide emissions. Having completed this retrofitat its facilities in the United States, Canada, and the United Kingdom, DuPont has already
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reduced 40 million metric tonnes of CO2-equivalent emissions, with a potential market value of$80 million, assuming a minimum selling price of $2.00 per metric tonne. To date, DuPont hasspent about $50 million on reducing GHG emissions.
Given this steep reduction in emissions, DuPont does not plan on meeting its target bypurchasing credits externally. In fact, if and when there is an international carbon market forcomplying with regulatory programs, DuPont will likely be a net seller of credits.
3.2. InventoryWhen building up an inventory, companies balance resource constraints with the goals of maxi-mizing inclusion and accuracy. In other words, companies try to be as comprehensive and accu-rate as possible while at the same time striving for data collection, analysis, and managementsystems that are simple, efficient, and affordable. With each year of experience, a company mayfind ways to streamline the inventory process while expanding its scope at the same time.
An important factor in determining the range of emissions to be considered in a companyprogram is “influence,” or what a company can reasonably do. Part of this discussion concernswhich emissions to consider but which typically are not viewed as part of a company’s responsi-bility. These can be both upstream and downstream emissions.
Suncor Energy, an expanding energy company in Canada, has four integrated business units:oil sands, the core of its operations; natural gas and renewable energy; energy marketing andrefining; and major projects, which is responsible for engineering, procurement and construc-tion for large projects. Suncor has been tracking its GHGs and publicly reporting emissions toCanada’s Voluntary Challenge & Registry (VCR) since its inception in 1995. Suncor alsopublishes a report on sustainable development every two years.
Suncor’s analysis of sustainable development highlighted the need for a credible assessment ofGHG performance. It also led to the observation that there is no standard for GHG monitoringand reporting (M&R) and that a global benchmark for GHG inventory methodology would beuseful. The company then joined the consulting firm CH2M Hill to examine the documentedand operational components of its M&R system. This inventory project demonstrated the needfor corporatewide procedures and direction for managing GHGs, including an accountingmethod for direct and indirect GHGs at the BU level. Suncor subsequently began work todefine significant, measurable, and de minimis emissions sources.
Suncor’s project also included a gap analysis of seven guidelines for GHG inventory method-ology,5 and the outcome was a set of recommendations for best practices in inventory develop-ment, the most robust requirements for the oil and gas industry. One reason for undertakingthis gap analysis is that Suncor uses its GHG data to support a variety of objectives and obliga-tions and therefore wants an inventory process that is comprehensive and flexible enough tomeet multiple demands, such as supporting the International Organization for Standardizationmodel on environmental management (ISO 14000) and meeting generally accepted accountingprinciples for GHGs. Furthermore, Suncor has several internal and external reporting obliga-tions, both voluntary and regulatory:
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5. The standards reviewed were (1) WRI & WBCSD GHG Protocol, (2) VCR reporting requirements, (3) CAPP GHG reporting requirements, (4) ERT desktopreview of Suncor’s 1997 GHG reporting practices and procedures for the 1997 carbon trade with the Niagara Mohawk Power Company, (5) PCA survey ofcompany practices, (6) API Compendium of Greenhouse Gas Emissions Estimation Methodologies for the Oil and Gas Industry, and (7) an internal modelrequired for tracking, estimating, and developing GHG emission reductions.
• Voluntary, external reporting: We Care report, VCR report, and miscellaneous surveys and audits.
• Internal reporting: quarterly reports, long-range planning, climate change strategy, internal audits, and emissions trading.
• Regulatory reporting: National Pollutant Release Inventory reporting (Canada) and Ontario’s Air Emissions Monitoring & Reporting regulations.
As Suncor develops its system for GHG tracking and reporting, the system will be integratedinto its broader program on Sustainable Development Management.
Entergy Corporation is a multinational power company known for its substantial electric gener-ation capacity (approximately 30,000 megawatts). Entergy has been complying with mandatoryCO2 reporting for a relatively long time. Under the U.S. Clean Air Act Amendments (CAAA) of1990, Section 821, sources regulated by Title IV regarding acid rain are required to report CO2emissions to the U.S. EPA, together with nitrogen oxide and sulfur dioxide emissions. During1993–1994, Entergy installed continuous emissions monitoring systems, or CEMs, and fueltelemetry equipment to comply with the monitoring and reporting requirements published inthe U.S. Code of Federal Regulation, 40 CFR part 75.
In addition, Entergy has been reporting CO2 emissions to the U.S. Department of Energy aspart of the Voluntary Reporting of Greenhouse Gases Program, a required program underSection 1605(b) of the Energy Policy Act of 1992. The company also plans to report CO2 emis-sions publicly each year, consistent with its new program to stabilize CO2 emissions. Includedin this new report will be emissions from the power plants that Entergy owns and operates inother countries that have not been previously reported.
3.3. FungibilityFungibility refers to the ability to exchange one type of emissions credit for another, much likeconverting currencies. Fungibility becomes an issue when a regulatory or voluntary programdistinguishes among emissions sources and subsequently assigns different “currencies” tothem. Likewise, restrictions on banking (saving credits for later use) also raise the issue offungibility, since such restrictions generally discriminate against older credits. In the case of theKyoto Protocol, two currencies have generated the most interest in the topic of fungibility,namely emissions allowances which are allocated to industrial countries, known as AAUs, andcertified emissions reduction credits, or CERs, which are generated by separate projects indeveloping countries.
The distinction between emissions reductions in industrial and developing countries has drawnthe attention of every company in the PCA. In particular, BP and Shell are using internal emis-sions trading programs that involve a closed system of trading within the companies’ globaloperations. BP’s program applies to all facilities without distinguishing among geographic loca-tions. Consequently, BP’s program has no fungibility obstacles; that is, any emissions allowanceallocated to any facility can be exchanged with any other allowance in the program.
In contrast, Shell’s trading program6 distinguishes between industrial and developing countriesbased on the framework of the Kyoto Protocol’s Annex I, which lists the industrial countries.
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6. Shell’s internal trading program is experimental and a pilot for learning. The program is under review in 2002 and being assessed for improvements priorto determining its future role and rules. Shell also has a team that focuses on external trading in actual environmental commodities.
Shell’s target—10% below 1990 levels by 2002—applies to all its facilities around the world,but only the facilities in the Annex I countries participate in the cap-and-trade program usingannual allocations of emissions allowances. Non–Annex I units can participate in the programby undertaking emissions reduction projects and selling certified credits to the Annex I partici-pants, a process analogous to the Kyoto Protocol’s Clean Development Mechanism.
At Shell, there is no limit to the number of CER-type credits that a BU can create, providedthat the project is properly validated and the emissions reduction is properly certified. CERprojects may be initiated by non-Annex participants by either (1) undertaking specific emis-sions reduction projects, including forestry sequestration, or (2) accepting binding emissionstargets for existing operations and then reducing the emissions below the target levels. Theemissions reduction project must first be verified by the program’s steering group, and theparticipant must demonstrate that the project will deliver emissions reductions that would nototherwise occur in its absence. Any emissions reductions resulting from the CER project mustbe certified and verified according to standards established by external reports. After certifica-tion, the reductions can be sold into the program as CER credits. Through this process, CERsgain credibility and are viewed as exchangeable with the fixed allowances. Shell does notrestrict their sale or use in the program; that is, the allowances and CERs are fungible.
Ontario Power Generation (OPG) also has a procedure for assessing project-based credits, butnot in an internal trading system. Instead, OPG buys project-based credits that are generatedexternally by other companies or organizations and are sold on the international carbon market.OPG intends to use these credits to help meet its program target, but not until they have beenindependently verified and subjected to an internal audit. Records are posted on thePERT/CleanAir Canada Inc. online registry.
When buying emissions reduction credits, or ERCs, OPG enters into a contract with the ERCsupplier only if the project meets predetermined criteria, which include the credits’ vintage, in-service date, location, and review by a third party. This contract also has a section on verification,which requires that the credits be accompanied by a verification report to satisfy due diligence.Each verification report must be prepared by an independent, professional third party, who maybe selected by the seller of the credits but must be preapproved (before the verification) by OPG.The seller must allow the verifier to visit the site and examine the seller’s records in order toconfirm the quantity, validity, and acceptability to OPG of the emissions reduction credits.
Generally, the ERC verification report should cover the ERC creator’s core business, the base-line equipment before the ERC project’s implementation, the project that led to the creation ofthe subject ERCs, and a summary of the report findings. More specifically, the report should:
• Describe the project, the vintage years, and the ERC protocols.
• Comment on the accuracy of assumptions used by the project developer when creating the ERCs.
• Address any ownership issues that may affect the seller’s claim to ERC ownership.
• Calculate the baseline emissions rates from the operating data.
• Calculate the emission rates after the ERC project.
• Calculate the creation of ERCs during the vintage years.
• Discuss any information about the nature of the ERCs claimed by the seller, like the certificate of approval, executive orders, and regulations.
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• Indicate whether any emission reductions have previously been claimed from the ERC project.
• Explain those points where the report’s findings differ from the seller’s ERC claim.
• Sign a statement of verification, certified by a registered professional, verifying that the ERCs meet the listed criteria.
The verification report is produced at the seller’s expense and must be delivered to OPGbefore the credits are delivered. If OPG finds that the credits are deficient, then it typicallyprovides a three-week period in which the deficiencies may be addressed; otherwise the trans-action is canceled. If the ERCs are satisfactory and OPG approves the transaction, the ERCsare subject to an annual internal audit to determine whether and how they count toward thecompany’s target, information that is eventually reported to the board of directors. This rigorousprocess ensures that the off-system, project-based reductions are real and acceptable forexchange with other emissions reductions “currencies.”
3.4. VerificationAs the preceding discussion shows, the demonstration of fungibility is supported by verifica-tion. In addition, verification helps hold together all the elements of a GHG managementprogram: setting targets, measuring emissions, reducing emissions, and accounting for thereductions. Much like the audit process in financial accounting, verification imparts credibility,which is important when dealing with a commodity (emissions and emissions reductions) thatcannot be physically inspected.
During 2000, BP continued with the audit process it had begun in 1999 when KPMG, DetNorske Veritas, and ICF Consulting conducted an independent audit of the reported green-house gases emissions for the 1990 baseline and the 1998 inventory. This approach incorporatedprinciples from financial and environmental auditing practices. In 2000, BP’s audit and verifica-tion process focused on 2000 GHG data, which had been prepared in accordance with BP’sgroup reporting guidelines (as revised in 2000).
Making Progress Towards Improved Data QualityIn 1999, the audit team of KPMG, Det Norske Veritas and ICF Consulting reviewed BP’s 1990 baselineand 1998 inventory. The audit opinion was qualified for six reasons and in 2000 the auditors revisitedthose qualifications and made the following assessment:
Audit issues raised in 1999 for 1990 and 1998 baselines Status in 2000 (statements by the auditors)
There was no detailed guidance for estimation of Methane emissions guidance is now providedmethane emissions, hence there was significant in the Guidelines and has been applied at thosevariation in reporting of methane. business units tested by us in 2000.
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There were inconsistencies in the methods In line with recommendations made by us, of apportionment of emissions data from shared the guidelines were revised to reduce the level facilities to determine BP’s equity share. of inconsistency in apportionment.
The 2000 audit included the investigation of selectedbusiness units with complex production sharing agreements. The knowledge gained through this work will inform further clarification to the guidelines.
There was considerable uncertainty associated Uncertainty remains over data from some non-BP sites. with data from some facilities that are owned However, the GHG contribution from these sites is suchbut not operated by BP (‘non-BP operated sites’). that this uncertainty does not impact on our opinion
on the group data. Issues concerning non-BP operatedsites are elaborated in the Discussion section.
There was variability in the sources included On the basis of the sites visited in 2000, we have in the boundary definition and the treatment concluded that BP has considerably improved the of emissions from contracted services. consistency of sources included in the boundary definition.
There were inherent uncertainties associated This issue mainly related to the 1990 data and is not with the retrospective estimation of emissions relevant to 2000 data.where source data are unavailable.
Quality assurance procedures, documentation Information quality has improved as a result of greater and management reviews for GHG reporting awareness of the role of GHG data in assessing group’s were variable. and business units’ performance, and its implications
for financial and individual performance appraisals.
Requirements for data management and control have beenexpanded within the BP reporting guidelines, particularly with respect to formally documenting reasons from changes in emissions on a yearly basis, so that real reductions can be distinguished from other changes(e.g. divestments).
BP commissioned the 2000 audit for several reasons: to show its progress toward reaching itstarget, thereby underscoring BP’s commitment to mitigating climate change and establishingthe credibility of emission reductions to internal and external stakeholders; to provide valuablelessons in auditing GHGs across a diverse business and to make this experience available to allinterested organizations; to help ensure that GHGs are traded credibly within BP’s internalsystem; and to help other parts of industry to understand some of the issues in emissions tracking.
BP also believes that improving the quality of GHG data arising from the findings of theverification project will support the further development of its internal trading system andwill prepare the company for external emissions trading should the opportunity develop.
Once the 2000 review was completed, the auditors expressed their opinion that as reported inaccordance with the BP group 2000 reporting guidelines, the GHG emissions data for 2000
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were free from material misstatement, where materiality is defined by the threshold of 5% ofgroup emissions. The auditors also noted that BP’s GHG data reporting processes had improvedsince 1999 and that progress had been made mainly by establishing more precise guidelinesand encouraging higher standards of data management and control.
Verification practices have also been the subject of attention at Suncor Energy, which has astretch target of reducing its GHG emissions to 6% under 1990 levels, consistent with Canadianfederal commitments. While Suncor’s first priority is to reduce its own emissions, the companyis also committed to developing opportunities outside its operations to reduce GHGs throughoutthe world. In 1998 Suncor was the buyer in a pioneering carbon emissions trade with NiagaraMohawk Power Corporation, and part of the transaction was the environmental integrity andcredible reporting of the reductions that Suncor purchased or will opt to purchase in comingyears.
The parties used Environmental Resources Trust (ERT) to verify the components of the trans-action. Emission reductions were recorded in serialized one metric tonne of CO2 equivalents inaccordance with the results of validated emissions performance on a net direct emissions basis.Serialized reductions were created when net direct emissions fell below a specified baseline.
The registration of reductions with ERT included:
• The development of a reporting guideline that defined the methods and procedures to quantify net direct emission reductions. This guideline was subject to review.
• The development of an emissions target against which performance is based.
• The development of an annual emissions report and the provision of supporting documentation according to the reporting guideline.
• The issuance of a statement of accounting by ERT.
If and when emissions trading comes into effect as one of the suite of market-based mecha-nisms to address climate change, it is important at this early stage to determine what is beingtransacted and that a quantifiable environmental benefit has been independently verified.
3.5. Evaluating projectsIn business management circles, project evaluation might be termed managerial accounting.Similar to cost-benefit analysis, it is a process for making management decisions about projectsthat have been approved and implemented versus those that have not. These decisions mayinvolve substantial investments by a company in its core operations. A system of evaluatingGHG reduction projects is necessary to prioritize the vast number of project opportunities thatexist, especially when factoring in the external offset options. GHG evaluation could be inte-grated into a company’s existing system of project approval and thus directly integrated into itsstrategic business planning. Alternatively, and particularly in the case of external offsets, projectevaluation could be a separate, parallel process centering on GHG emissions.
Shell International is widely recognized as a pioneer in the use of scenario analysis to evaluatethe impact of various risks on project performance. This approach uses several differentscenarios to examine the possibility of certain policy, economic, or technological events. Theeffects of these scenarios on a project’s rate of return can be calculated and used for a sensitivityanalysis to determine the robustness of a capital investment.
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Shell is using this approach to evaluate the possible effects of a carbon constrained future. Forprojects exceeding a particular size threshold, Shell requires its investment analysis to include arange of “shadow prices” for GHG emissions–$5, $20, and $40 per tonne of carbon equivalent.The size threshold is either 100,000 tonnes of CO2-equivalent emissions annually or, for proj-ects specifically in the chemicals sector, $10 million in capital costs. By using various potentialcosts, Shell can explore the potential return of a long-term investment under various scenarios.This analysis shows the relative economic value (or risk) of the carbon intensity of near-terminvestment options. In turn, this can help Shell explain to investors the value of its investmentstoday, and indeed, it can help explain the competitiveness of Shell’s business strategy. In thisway, Shell is applying standard business practices to the relatively new issue of climate change.
In addition, Shell’s use of shadow pricing is complemented by its analysis of marginal GHGabatement costs and its companywide cap-and-trade system, known as the Shell TradableEmissions Permit System (STEPS). Together, these tools give Shell not only a wide base ofknowledge about projects’ relative carbon costs but also a system for using that knowledge ininvestment decisions throughout the company.
Similar principles are also evident at Ontario Power Generation. The company established acentral corporate function in its emissions trading department to work with facilities to deter-mine the need for external offsets to achieve OPG’s stabilization target. Credits are linked withcost of fuel so that dispatch automatically includes consideration of the reduction of CO2 andoffset costs. The direction in which accounting is taking suggests that capital investment deci-sions ultimately will include the avoided cost of offsets in determining the internal rate ofreturn of investments.
3.6. IncentivesEven though voluntary programs do not have the legal compliance obligations found in regula-tory programs, they still represent a significant public commitment by companies and drivecompanies to change the way they operate. A company creates a risk for itself when it adoptsa target, namely, that failing to achieve the target must be publicly reported, and so programsgenerally institute some kind of “internal compliance” that keeps the program on track. Tomotivate employees, and thereby optimize a program’s success, companies trend toward incen-tives to foster a positive atmosphere.
One example is Entergy. Beginning in 2001, the company established a special corporatefunding mechanism, called the Environmental Initiatives Fund (EIF), to provide incentivesfor internal and external reduction projects designed to help the company meet its CO2 target.A major part of this new $25 million fund will be allocated to efficiency upgrades and perform-ance improvements at Entergy power plants using a competitive internal application process.Individual operating facilities securing funds from the EIF through the competitive process willbe able to improve plant heat rates (efficiency), reduce generating costs, and in other waysimprove profitability, so as to meet or exceed plant operating targets which are linked tocompany compensation programs.
Another PCA partner, Pechiney, has assigned interim targets each year to its business units,and reaching them has become one of the plant manager’s objectives. In fact, the commit-ment to achieve the target is written into both the three-year business plan for BUs and themanager’s job description (a BU generally is made up of one or two plants, with the upper
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level a “business group,” for example, primary aluminum, where the targets are set andreviewed). In order to raise the BU’s awareness of GHG management, a shadow price of $10per tonne of CO2 equivalent is set for emissions gaps, or the difference between actual emis-sions and target emissions. Missed targets are reported to the top management and correctionshave to be taken after discussion and allocation of resources, if needed. In other words, reconcil-iation will be done on the basis of case-by-case review, and while the basis for penalties exists,i.e., the carbon shadow price, Pechiney will not yet incorporate an emissions gap in the profitmargin of a BU.
A business unit’s achievements are rewarded according to Pechiney’s “Continuous ImprovementPolicy,” which includes an annual celebration of “success stories,” travel awards and distributionof gifts to teams involved in outstanding achievement. Likewise, nonperforming managersare held accountable, usually in their performance appraisal and compensation arrangements.Consequences are automatic if target achievement is one of the few key elements in the annual,negotiated “bonus” contract of the manager.
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N e x t S t e p s
With the successful conclusion of the Seventh Conference of the Parties to the UnitedNations Framework Convention on Climate Change in November 2001, the climate policyfocus is likely to shift from international negotiations to national ratification. Many nationswill continue to design or develop new GHG management programs while they considerratification. During this time, the PCA companies will continue to implement, evaluate,and improve their own GHG management programs.
This paper is the culmination of an early phase of the PCA’s work, a project to establish acommon framework and understanding of each company’s program and to highlight theconnections and dependence among program elements. The PCA will distribute this workto policymakers, companies, and stakeholders in order to find out their reactions and deter-mine the strengths and weaknesses of its approach. The PCA will work with the compa-nies to see how this framework applies to different operations and circumstances.
The next phase is a closer comparison of the programs. The PCA will continue to examinebest practices, elaborate on those practices of particular interest to the group, and work onemissions trading. Important topics for consideration include drawing up criteria forproject-based reductions and for transactions and collecting emissions data to supportmarket development.
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R e f e r e n c e sAckerman, Bruce, and Richard Stewart. 1988. “Reforming Environmental Law: The Democratic Case forMarket Incentives.” Columbia Journal of Environmental Law 13:171.
Ellerman, A. Denny, Richard Schmalensee, Elizabeth M. Bailey, Paul L. Joskow, and Juan-Pablo Montero. 2000.Markets of Clean Air: The U.S. Acid Rain Program. Cambridge: Cambridge University Press.
Environmental Defense. 2000. From Obstacle to Opportunity: How Acid Rain Emissions TradingIs Delivering Cleaner Air. New York: Environmental Defense.
Hahn, Robert W., and Gordon L. Hester. 1989. “Marketable Permits: Lessons for Theory and Practice.” Ecology Law Quarterly 16:361–406.
Hahn, Robert W., and Robert N. Stavins. 1991. “Incentive-Based Environmental Regulation: A New Erafrom an Old Idea?” Ecology Law Quarterly 18:1–42.
Harrison, David. 1998. “Tradable Permits for Air Pollution Control: The United States Experience.” Paper prepared for the Organization for Economic Cooperation and Development, National Economic ResearchAssociates, Cambridge, MA.
Jaffe, Adam B., Richard G. Newell, and Robert N. Stavins. 2001. “Technological Change and the Environment.”In The Handbook of Environmental Economics, ed. Karl-Göran Mäler and Jeffrey Vincent. Amsterdam:North-Holland / Elsevier Science.
Liroff, Richard A. 1986. Reforming Air Pollution Regulation: The Toil and Trouble of EPA’s Bubble.Washington, DC: Conservation Foundation.
Loreti, Christopher P., Scot A. Foster, and Jane E. Obbagy. 2001. “An Overview of Greenhouse Gas EmissionsVerification Issues.” Report prepared for the Pew Center on Global Climate Change. Cambridge, MA. (Arthur D. Little)
Margolick, Michael, and Doug Russell. 2001. “Corporate Greenhouse Gas Reduction Targets.” Report preparedfor the Pew Center on Global Climate Change. Cambridge, MA. (Global Change Strategies International)
McLean, Brian J. 2002. “Emissions Trading: U.S. Experience Implementing Multi-State Cap and Trade Programs.”In Bringing Business on Board: Sustainable Development and the B-School Curriculum, ed. Peter N.Nemetz. Vancouver: Journal of Business Administration Press.
Wiener, Jonathan B. 1999. “Global Environmental Regulation: Instrument Choice in Legal Context.” Yale Law Journal 108:677-800.
World Resources Institute and World Business Council for Sustainable Development (WRI & WBCSD). 2001.The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard. Washington, DC,and Geneva: WRI & WBCSD.
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A n n e x M a t r i x o f C o m p a n y P r o g r a m sAs of March 2002 Information on company programs is based on practices and circumstances in place at thetime this report was developed. All information contained herein is subject to change.
I. Target SettingA. Coverage
1. gases2. source type: physical plant, transportation, offsets, materiality, data quality, etc 3. emissions type: direct / indirect, internal / external
B. Baseline1. base year2. level of confidence in data3. rules for adjustments (increase or decrease)
C. Target1. target articulation (limitation relative to base year, timing and/or interim steps)2. allocation method (address equity and timing)3. eligible reductions (e.g., can offsets be used?)4. rationale for target (additionality, company exposure)
II. Emissions MeasurementA. Internal, direct emissions
1. measurement protocols: direct measurement vs. estimation or calculation; factors and other standardsB. External, indirect emissions
1. measurement protocols; criteria (e.g., project baseline criteria)C. Verification
1. accounting standards; data quality2. internal audits3. third party verification
III. Actions to Reduce EmissionsA. Guidance for internal actions
1. project approval: capital allocation, clearing house functionsB. Guidance for emissions trading
1. definition of credible reductions, rules for trading and banking, internal administration and information systems
C. Guidance for external actions1. use, selection and evaluation of emissions offset projects;
product lifecycle assessment; customer and supplier outreach
IV. AccountabilityA. Reporting
1. basics: format, frequency, level of detail, level of aggregation2. length of time to generate an emissions report, reporting cycle3. access to data: internal, external4. external registration of data
B. Reconciliation1. process for true-up: timing, role of banking2. liability: mechanism to address deficit
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I.A.1. gases
Alcan The Alcan GHG management program TARGET covers the three greenhouse gases related the aluminum andpackaging businesses, CO2, PFC and SF6. CH4, N2O and HFCs are not significant sources and may beexamined in the future.
BP CO2 and CH4
DuPont CO2, CO, N2O, HFCs, PFCs, CH4
Entergy Internal target addresses domestic (U.S.) CO2, reductions can come from any of KP bundle of six gases:CO2, CH4, N2O, HFCs, PFCs, SF6.
OPG CO2, CH4, N2O, HFCs, SF6. A verifiable corporate inventory system was put in place by end of 2000 thatincluded all Kyoto gases.
Pechiney CO2 (including CO in CO2 equivalent), CF4 (GWP = 6,500), C2F6 (GWP = 9,200), SF6 (GWP=23,900)
Shell STEPS (Shell Tradable Emission Permit System) includes CO2 and CH4. Corporate reporting includes CH4,VOCs, NOx, SOx, CO2, CFCs, Halon, TCE, HCFCs, HFCs, PFCs and SF6.
Suncor Current gases measured, estimated and reported—CO2, CH4, N2O
I.A.2. source type: physical plant, transportation, offsets, materiality,data quality, etc:
Alcan All facilities (in Annex B and Non-Annex B countries) report on consumption of energy, other carbonconsumption, other SF6 consumption and PFC emissions. This includes all of their transformation andtransportation to next point of use. Where there is joint ownership, emissions are assigned on an equitybasis. All data is qualified by emissions source and data quality. Data quality is assessed according to athree point scale (measured, calculated, estimated).
BP BP’s reduction goal is based on equity share and similarly, all reporting units report carbon dioxide andmethane emissions on equity share basis (representing ownership in both operated and non-operated partsof business).
DuPont Physical plant—Yes; Transportation—No; Purchased electricity and purchased steam. Regarding materiality,there is no threshold for fuels consumed or electricity purchased—all is reported. However, we do have athreshold for process (non-energy related) CO2 emissions of 40,000 tons and a threshold of 2,000 tons ofmethane emissions, each of which represents about 0.04% of our total global greenhouse gas emissions.
Entergy Power generating facilities owned and operated by Entergy in the United States.
OPG Facilities owned and operated by OPG. Future divestitures to be subtracted; future acquisitions to be added.
Pechiney Aluminum activities: aluminum smelters, alumina refineries, remelting and recycling, rolling, ferro-alloysplants. Transportation: internal (on site) only, but monitoring of raw material tons*km (cargo/rail/road).Separate monitoring of key upstream parameters (electricity and key raw material consumption) and somekey downstream parameters (CO2 savings from uses of aluminum in vehicles, recycling of end-of-life prod-ucts). Only CO2 intensive activities are included (packaging and small manufacturing units excluded);possible new inclusion when ready and if management constraints consistent with stakes.
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Shell Data are reported for entities that are under Shell’s operational control. This is defined as companies inwhich a member of the Royal Dutch/Shell Group has full authority to introduce and implement the Group’sHSE policy. Companies not under Shellís operational control may agree to report to the relevant BusinessOrganization.
The Group’s practice is to report data on a 100% basis (i.e. as operated), even where the Group interestis less than 100%. Data from companies which were disposed of or acquired during a reporting year areincluded only for the period that the companies were under Shell operational control, if such data areavailable and required by local regulators. There is no materiality clause.
Corporate HSE Reporting is generated from: Flaring; Combustion; Storage; Loading; Transit Losses; FugitiveEmissions; Venting; Wastewater Treatment Processes and drains; FCC Regeneration; Sulfur Recovery;Shipping; Carbon Sequestration.
STEPS program includes only Annex I countries. Businesses representing 30% of GHG emissions from theGroup’s operations in chemicals, refining and upstream oi l—32 million tonnes a year—are participating inthe STEPS. STEPS does allow for offsets in the form of verified CERs from non-Annex I countries. These CERsare treated as “tradable permits” within the STEPS system. CO2 and CH4 emission calculations are basedupon the HSE corporate reporting requirements.
Note: eligibility is based in the data quality assessment (through audit) and then followed by opt-in—so only certain facilities qualify and of those they have to choose to be part of STEPS, otherwise policiesand measures apply.
Suncor See attached table in Appendix I. Each BU measures and reports emissions based upon primary functionsor emissions by source that occur. Oil Sands—Energy services, upgrading, extraction and bitumen produc-tion. NG—combustion of NG for treatment of crude production, flaring of solution and blowdown gas, fugi-tive emissions from storage tanks—CAPP guidelines are based on “operatorship”, independent (100%reporting) of equity ownership. Sunoco—reforming, retail, aromatics, cracking, distillation, reporting is“operatorship”, in this case it is 100%. Oil Sands operations are 100% owned by Suncor.
I.A.3. emissions type–direct / indirect, internal / external
Alcan Direct and indirect emissions from internal and external sources are included in the emissions accounting.Indirect emissions includes energy supply and transportation related emissions. Emission factors are usedto determine these indirect emissions.
BP All direct emissions are included. There is no materiality threshold applying to individual sources or sourcecategories. Note: Emissions from contractor activity is included when work is performed on BP operatedassets if work is performed within boundary of the asset or if the work is material to the performance ofthe asset (e.g., drilling rigs, product transport). Indirect emissions related to energy purchases and gener-ation are tracked for purposes of avoiding perverse incentives to outsource emissions and to accuratelytrack BP’s total emissions “footprint”.
DuPont Direct (facility) and Indirect (includes offsite electricity and steam). Includes all fuels consumed and allelectricity used on-site and this would include any activities of contractors on-site.
Entergy Target and baseline includes direct emissions of CO2 from domestic assets. Company is exploring optionsfor including energy efficiency and renewables projects in its reporting. Sources of GHG emissions notincluded in baseline: fleet vehicles, employee business travel, transportation of fuel, coal piles, and
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emissions from purchased electricity (baseline emissions are adjusted to reflect purchased energy; thisprevents “exporting” of emissions). International assets will be included for purposes of reporting CO2emissions but are not included in the target or in the baseline used to evaluate performance against thetarget. As it becomes practical, other GHG emissions will be included.
OPG Emissions of CO2 from fossil generation are responsible for almost 100% of OPG’s greenhouse gas emis-sions. OPG’s stabilization target and 1990 baseline are based only on direct emissions. Indirect emissionsassociated with electricity purchases have been tracked and included in the carbon intensity target, butonce the Ontario electricity market is deregulated on May 1, 2002, the issue of emissions from purchasedelectricity will no longer be relevant to OPG. Annual reporting of OPG’s GHG emissions does not include:fleet vehicles, employee business travel, transportation of fuel, coal piles, OPG-operated landfills.
Pechiney Only direct emissions (scope 1) are considered in the 15% reduction commitment. Scope 2 (purchasedenergy) is monitored and managed separately. However indirect emissions from co-generation dedicated tosteam supply in alumina refineries are considered for further inclusion. Other significant indirect, upstreamand downstream (including product uses), increasingly monitored and managed, with possible later inclusionvia innovating flexible mechanisms.
Shell Both STEPS and HSE Corporate reporting require reporting of direct emissions only.
Suncor All 3 groups (Oil Sands, NG and Sunoco) gather detailed information regarding fuel consumption and fueluse, electricity consumption, and process emissions.
I.B.1. base year:
Alcan The base year is established annually using the most recent complete year’s performance.This is currently two year’s previous (i.e.; 1999 data provides the base year for 2001).
BP The base year for the target is 1990. The base year for the allocation is 1998.
DuPont 1990 globally
Entergy 2000
OPG 1990 (unless future acquisitions have data limitations that can only be referenced by aseparate base-year for them)
Pechiney 1990. In some limited instances 1993/94 when 1990 data not available (ex.: PFC at 2 plants)
Shell The baseline for the company-wide target is 1990. Within STEPS, the baseline year against which emissionswill be compared is 1998. The baseline emissions in STEPS are the sum total of verified actual emissionsof carbon dioxide and methane (reported as CO2 equivalent emission in tCO2eq) of all participating unitsin 1998 as reported to HSE Management.
Suncor All business units use 1990. NG—currently being recalculated due to property acquisitions anddivestitures; Sunoco— fuel analysis average of 1989, 1990, and 1991; OSG—based on 1990 emissions.
I.B.2. level of confidence in data:
Alcan The level of confidence in the data being used in Alcan’s program (1999 to present) ranges fromhigh to acceptable.
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BP High
DuPont Very good for U.S. data, good for non-U.S. data
Entergy To be determined—Entergy is currently in the process of hiring a third party reviewer. Once review iscomplete, expected confidence level will be high.
OPG High
Pechiney According to third-party verification and GHG Protocol reference: “Good quality (year 2000)”, “Good startingreference (1990)” , “Likely very good quality (2001+) if efforts continue and methodological improvementtakes place.”
Shell STEPS and HSE Corporate Reporting baseline data: medium to high
Suncor Average
I.B.3. rules for adjustments (increase or decrease):
Alcan Adjustments will be made to the baseline on an annual basis to reflect changes in capacity and capacityutilization, reflecting both increases and decreases in overall emissions. Adjustments for acquisitions anddivestitures are based on equity ownership and will be determined using established rules.
BP 1990 company-wide baseline changes only with major acquisition and divestiture. Organic growth (i.e.,greenfield developments and shutdowns) does not trigger an adjustment at any level. On a business unit(BU) level, there is no materiality threshold for acquisition and divestiture adjustment. Adjustments aremade to the BU baseline allocation to account for acquisitions and divestitures and this may or may nottrigger a global reallocation (burden sharing) on an annual basis to ensure that the group annual targetis maintained.
DuPont For divestitures, we subtract the last full year’s emissions that DuPont owned the business from all prioryears including the baseline, and for acquisitions, we add the current full year’s (as a DuPont business)emissions to all prior years and to the baseline.
Entergy 2000 company-wide baseline changes only with (1) adjustments for purchased power, and (2) acquisitionand divestiture of fossil-fired units.
OPG GHG emission targets are reviewed annually. Key steps in this management review include: reviewprevious year’s performance, identify target, review of proposed target, issue planning document to businessunits, and incorporate final target into business plans. OPG is currently developing guidelines for theadjustment of the 1990 baseline as decontrol of the Ontario electricity sector progresses— this will includeadjustments for both divestiture and acquisitions. Since setting the 1990 baseline in 1995, OPG hasmodified the list of sources for which GHG emissions are reported. The methodology used to estimate theseemissions is consistent with guidelines in the WRI GHG Protocol.
Pechiney Changes in published CO2 equivalent factors (PFC) or IPCC rules. Correction of flaws (e.g., emission factors)following initial third-party audit. For acquisitions or divestments, the baseline is adjusted (back to 1990or at the time of the transaction, that is a question including practical difficulties). In contrast, changesin production capacities such as greenfield , brownfield, expansions, debottlenecking, partial or totalclosures do not involve any change to the baseline.
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Shell Acquisition/ Divestiture: Adjust the baseline by the actual emissions that were generated in 1990 by theentity acquired/ divested. Emissions for that entity are reported/not reported in the year it was acquiredaccording to the process as outlined in the summary table. For the year that the entity is divested oracquired we do not pro rate the emissions based upon the date of acquisition or divestiture. We report ordeduct the entire years emissions for the year the acquisition or divestiture occurs. This also applies inthe event that we sell a portion of an entity resulting in us no longer holding an equity share of that entityleaving us in a position of not having operational control even though we may still have a non-equityholding in the entity.
Permits for late entrants into STEPS: The Steering Group will adjust emissions cap (Sections 4.6.1, 4.7 ofSTEPS guidelines) accordingly and allocate permits to the late entrant on as the same basis as for otherSTEPS participating units.
Status of permits associated with divestment/closure after system startup: The permit allocation of thedivesting unit will be prorated by the reduction in emissions due to divestment (weighted by number ofmonths the unit was operational) and the excess permits will be retired. The emissions cap will beadjusted accordingly for the following years.
Allocation of permits in case of joint ownership of a site: Permits will be allocated on the basis of thereported emissions of each participating owner. Alternatively, the Steering Group may allow anotherarrangement on a case-by-case basis.
Allocation of permits in joint ventures between Shell & external parties: Permits will be allocated on thebasis of equity share. Alternatively, the Steering Group may allow an another arrangement on a case-by-case basis, e.g., in the case of incorporated joint ventures.
Adjustments to Overall / Individual Cap: The STEPS Steering Group may adjust the overall cap and indi-vidual permit allocations (i.e. implicit individual caps) when required to keep system performance on tracktowards stated objectives. Thus the caps may be adjusted to reflect material changes such as, (1) entryinto/exit from STEPS by participating units after system goes online, (2) significant portfolio changesamong STEPS participants between 1998 and 2000, (3) significant portfolio changes during STEPS lifetime,and (4) revisions in verified 1998 baseline emissions.
Suncor Unspecified
I.C.1. target articulation (limitation relative to base year, timing and /orinterim steps):
Alcan The company-wide emissions target, a set amount of tonnes of CO2e emissions for a year, is establishedannually. Prior to the beginning of the year, the corporation will establish the target for that year, usingthe most recent full year of data (e.g., the 2001 target is established using 1999 as the base yearadjusted for changes in 2001).
BP 10% below 1990 in 2010 based on equity share. In the interim BP is establishing a firm target at leastbefore the start of each year.
DuPont 65% reduction of greenhouse gases as measured by total CO2 emitted plus CO2 equivalents of non-CO2gases. Base year is 1990, goal year is 2010. Interim target is 40% reduction in the U.S. from 1990 to2000. Additional goals: Hold energy flat (1990–2010) and source 10% of energy needs from renewables.
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Entergy Entergy will stabilize net CO2 emissions to the 2000 level for the period 2001-2005. It will set a longerterm target for additional reductions by end of 2004.
OPG OPG will continue to stabilize net greenhouse gas emissions at levels equivalent to the 1990 baselinebeyond 2000. Plans from 2001 forward are to allow for a 7-year “true-up” of net emissions vs commitmentbalance. Replaces an annual true-up mechanism. A monetary cap has also been placed on total CO2e tobe purchased over the 7 year period.
Pechiney 2012 as final target (–15%). This goal is based on market forecast, targeted organic growth, BAT achieve-ment in all operations and a “remaining gap to close”. 2001 to 2004 internal milestones are established(limited uncertainty on volumes and new investments on stream). On the same “business plan” period,annual interim targets are set up plant by plant for internal end-of-year clearing and trading purposes.Annual KPI (key process indicators) targets by plant for technical management purposes.
Shell The Shell group of Companies committed to reducing emissions from operations by 10 % in 2002 over1990 levels. Aggregate annual emissions in each year from 2000 to 2002 are capped at 97.7% of theaggregate 1998 emissions of STEPS participants. This is a 2.3% reduction over 1998 emission levels.
Suncor 1990 emissions levels less 6% (commensurate with Canada’s commitment) by 2010. Suncor has set upinternal guidelines on a BU basis, and will manage total GHG emissions at a corporate level. Currently inthe preliminary stages of setting up a systems of incentives to achieve enhanced efficiencies from internaloperations.
I.C.2. allocation method (address equity and timing):
Alcan The company-wide target is developed based on specific annual business group performance targets.
BP BP initially used a burden sharing method and has migrated to granting allocations based on historical(1998) emissions.
DuPont All of our site emissions are allocated to the responsible business unit, including sites where it is dividedbetween multiple businesses.
Entergy Business units are undergoing capital investment under normal operating conditions. In addition, Entergyhas endowed a fund of $5M/yr ($25M total) which will be used to fund additional internal projects thatwould otherwise have not gone forward as well as external offsets as required to meet target.
OPG Corporate target will be achieved on a company wide basis, adjusted for divestitures and acquisitions.
Pechiney No initial allocation of final target by business group or business units (level of strategic and businessplanning). Allocation of the next four years targets by BUs and plants without constraint on total. Thisallocation is based on budgeted productions, achievement of “best practice levels” over 4 years andalready granted investments.
Shell Permits will be allocated for each of the three years 2000-2002 in January 2000. Allocation for eachparticipant is in proportion to its verified 1998 emissions reported to HSE management. Since permitallocation for all three years is known in advance, participants can incorporate future allocations in theirtrading strategies, e.g., they can trade year 2002 permits in year 2000. Permit allocation for each partici-pant in each year equals 97.7% of its reported 1998 emissions. Since the BAU trajectory is different foreach participant, the individual “bites” or expected reduction relative to the individual BAU emission, willalso be different. Appendix A shows the range of individual bites for participants.
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A small percentage of the allocation in each year must be immediately returned to the Trading Managerto be held in reserve for auction. This holdback is for purposes of generating liquidity in the market.The holdbacks in 2000, 2001, and 2002 are 5%, 3% and 1% respectively of the permit allocation.
Suncor Company wide —Suncor has not established internal interim caps and is not planning to trade internally.Target will be achieved on a corporate-wide basis.
I.C.3. eligible reductions (e.g., can offsets be used?):
Alcan Company-wide emissions from all facilities will be compared to the target to determine eligible reductions.The business groups are not using third party offsets (e.g., via the CDM or from sinks or sequestration).Future use of third party offsets is being examined.
BP Offsets are not currently eligible to qualify as tradable reductions in the program. Credit based trading isto be piloted during 2002.
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Entergy Entergy is open to any type of internal reductions as well as any type of external reductions. The emphasisis placed on achieving internal reductions. Entergy is also using an evolving process to screen externalinvestments for risk, policy alignment, fit with corporate goals and other factors.
OPG Strategy for reaching target includes displacing (avoiding) CO2 (i.e., with nuclear, wind and solar), reducingGHG emissions with operational upgrades to improve the performance of fossil units and offsetting CO2(i.e., through emission reduction credit trading, carbon offsets, and improving energy efficiency).
Pechiney All reductions from eligible sources; CO2 credit from co-generation yield improvement compared to standardcombined cycle. No sinks or sequestration. To be examined: CDM offsets; credit sharing (i.e. with energysuppliers or aluminum users) for an additional scope.
Shell Along with caps on emissions, STEPS incorporates two of the three “flexible mechanisms” provided in theKyoto protocol Articles 17 and 12 respectively: International Emissions Trading (IET), i.e. trading of emis-sions permits and Clean Development Mechanism (CDM), i.e., creating CERs through emissions reductionprojects in non-Annex I countries. (Note that the short duration of STEPS mitigates against explicit inclusionof the third Kyoto mechanism, Joint Implementation). Permit Trading: STEPS is primarily a “cap-and-trade” emission permit trading system. Participants undertake binding emissions caps and are allocatedemission permits (Section 4.6) which can be freely traded among themselves. Trading is limited to partici-pants from Annex I countries, and trading procedures are discussed in Section 8. Certified EmissionsReduction (CER) Credits: Non-Annex I units can choose to participate in STEPS by undertaking valid emissionsreduction projects and selling certified credits for the reduction generated through such projects to Annex Iparticipants. The CER project mechanism is analogous to the Kyoto Protocol’s Clean DevelopmentMechanism. There is no limit to the number of credits a business can create provided the project is prop-erly validated and the emissions reduction is properly certified. Rules governing CER projects and creditsare being developed by the Steering Group, following which non-Annex I countries will be able to participatein STEPS.
Suncor BUs are encouraged to achieve reductions through internal actions targeted first through technology andenergy efficiencies. Offsets are included in the corporate strategy and are managed at the corporate level.Pilot scale domestic and international offset projects have been implemented.
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I.C.4. rationale for target (additionality, company exposure):
Alcan The corporate GHG management initiative supports the corporate commitment to responsible managementpractices that seek to minimize the company’s impact on the environment. It is established on the basisof ongoing emission reductions, in a context that recognizes growth.
BP Corporate responsibility and business case; the business case includes addressing customer and hostgovernment concerns over climate change and managing risks from carbon management policies. See1997 Sir John Brown speech at Stanford.
DuPont Recognize company is significant source of greenhouse emissions and major energy consumer—believeearly action will better position us for future requirements and potential competitive advantage.
Entergy Corporate responsibility to begin taking action.
OPG OPG is publicly committed to become a sustainable energy company and intends to achieve sustainabilityby reducing its impact on the environment, while providing good shareholders value. OPG made thecommitment in 1995 in support of Canada’s commitment to reduce GHG emissions and will continue to doits share to reduce GHG emissions while evaluating the potential impact of actions on climate change onits core business. OPG’s support for international efforts to cost-effectively address the climate changeissue is long term.
Pechiney Rationale: sustainable development. Final target: market growth scenario, targeted worldwide organicproduction growth (strategy); best achievable technologies and best practices at all operations; -3% stillneeded to close the gap to –15%. Interim mid-term targets (3/4 years): road map to best environmentalpractices for existing plants with basic technology in place and granted investments.
Shell Shell’s scenario planning and strategic business analysis firmly identifies a future carbon constrainedglobal energy market place. In this context, it is simply good business and market risk management thatdrive this effort. Additionally, Shell believes that there is a human contribution to GHGs and that there areimpacts from this imbalance in the atmosphere—making it morally appropriate to make these commitments.
Suncor Goal is to meet or exceed relevant national and international commitments to limit greenhouse gases inthe atmosphere. The rationale is to demonstrate progress on a voluntary basis and to help shape thefuture policy environment while enhancing the firms societal consent to operate and grow.
II.A.1. measurement protocols: direct measurement vs. estimation orcalculation; factors and other standards:
Alcan Facilities provide process and consumption data to the TARGET group. This data is subsequently convertedcentrally by the TARGET Team into tonnes of CO2e using recognized emission factors. All data is qualifiedby emissions source and data quality. Data quality is assessed using a three point scale (measured,calculated, estimated). Emission factors for the program are developed using IPCC standards, as well asindustry specific figures where required.
BP A hierarchy of methods is presented in Reporting Guidelines. Reporting Units are encouraged to use thehighest possible methodology. Representative sample for stationary combustion sources: (1) Undertakecontinuous emissions monitoring; (2) Undertake periodic monitoring; (3) Undertake monitoring over a rangeof plant operating conditions and derive emissions factors relating mass emission of pollutant to quantity
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of fuel consumed; (4) Estimate emissions using emissions factors provided by equipment vendors; (5) Useemissions factors provided by local authorities; (6) Apply USEPA Air Pollutant Emission Factors; and (7)Aggregate all combustion sources on an installation and apply an overall emission factor for each pollutantto the total fuel consumption.
Other Direct sources include Process vents (conduct a carbon mass balance on the process) and flaring(use measurements of flare gas flow and composition (carbon content), if the flared gas is not metereddirectly the flow is estimated from process parameters).
Fuel factors: Carbon dioxide emission factors based on energy input: default— IPCC emissions factors.Where actual fuel properties are available, custom emissions factors should be calculated. It is not satis-factory to use the “closest” IPCC factor i.e. using natural gas factors for refinery fuel gas or separator gas
DuPont HFCs —direct measurement of amount captured, destroyed or emitted. N2O—Estimated based on limitedmeasurements and using production and emission factors for adipic acid process. CO2—calculated basedon fuel purchases and standard emissions factors for on-site.
Entergy Continuous Emission Monitor (CEM) data where available; where CEMs are not available or not installedestimates will be based on carbon content of the fuels burned. Measurement protocols based on require-ments for providing third party verified emissions data to US EPA.
OPG Emissions from Fossil Generation: Emissions from coal combustion are estimated using a direct massbalance calculation based on the amount of coal burned, the carbon content of the coal, and the carboncontent of the ash. Estimates of the emissions of CO2 from combustion turbine units, including standbyand emergency power generators, are based on consumption of No. 2 fuel oil with an emission rate of 1.1Tg CO2/TWh. Emissions from natural gas combustion are based on an emission rate of 0.7 Tg CO2/TWhand emissions from oil combustion are based on an emission rate of 0.8 Tg CO2/TWh.
Emissions related to Nuclear Generation: Bruce Nuclear Power Development Steam Plant emits CO2, acombustion by-product, as a result of burning No. 6 fuel oil to produce process steam. Estimates of CO2emissions are derived from figures for monthly fuel consumption, plant emission test results, and thenumber of operating hours at high and low load. Combustion turbine units operate periodically at thenuclear facilities for reliability testing and to provide both on-site Class III power and peaking power to thegrid. These units burn No. 2 fuel oil and with an emission rate of 1.1 Tg CO2/TWh. The Waste VolumeReduction Facility at Bruce Nuclear Power Development incinerates low level radioactive waste andproduces combustion gases such as CO2—and these emissions are estimated from direct emission testresults and number of operating hours. SF6 emissions are estimated on the basis of the amount of SF6used for condenser lake water in-leakage detection at nuclear facilities. Because of the relatively smallquantities SF6 emissions are not included in the GHG emissions inventory at this time.
Emissions Related to Hydroelectric Generation: GHG emissions from OPG’s hydroelectric system reservoirsare no longer included in the inventory because the reservoirs of the plants are over sixty years old, somebeyond 100 years, and the methane emissions from the reservoirs are no different than emissions fromnatural lakes. Diesel generators at hydroelectric sites are used for emergencies. GHG emissions for thesegenerators are not reported because of their small size and infrequent use.
Pechiney Calculations only; agreement on protocols with national authorities is nearly achieved. CO2: standardemission factors applied to fuel and carbon material consumption; fuel EF based on IPCC guidelines andlocal supply; unchanged unless significant supply change; consumption based on plant technical reports(consistency with accounting to be verified). PFC: IPCC guidelines; the calculation formula based onprocess parameters (“anode effects”) was found by direct measurement campaigns at plants using
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different technologies. New measurement campaigns ongoing to adjust and give more robustness to theformula. Continuous PFC measurement is sought and could replace calculation in the next decade.
Shell Within the Corporate Reporting guidelines (which STEPS emissions calculations are based) the Group’satmospheric emissions are determined using the following tiered approach, where Tier 5 represents thehighest accuracy: Tier 5—Continuous direct measurement; Tier 4—Site specific correlation’s; Tier 3—Intermittent (periodic) direct measurement; Tier 2—Use of models; Tier 1—Use of default emission factors.There are extensive and process specific measurement guidelines, protocols, model acceptability andacceptable emission factors identified in the corporate reporting guidelines that can be discussed.
Suncor Currently re-defining its M&V protocols based on a survey of several protocols. Suncor picked the “best ofbreed” from the list, performed a desktop gap analysis, and is in the process of corporately addressingthese gaps.
II.B.1. measurement protocols (indirect); criteria (e.g., project baseline criteria):
Alcan As noted above, process, consumption and transportation data are converted to CO2e emissions usingrecognized emission factors, which include most indirect emissions. The business groups are not usingthird party offsets (e.g., via the CDM or from sinks or sequestration). Future use of third party offsets isbeing examined.
BP Indirect emissions: (a) Import of electricity from grid; the carbon dioxide emissions factor should be theannual average factor for the entire grid, including transmission losses; (b) Import of electricity fromgenerator; calculated according to the actual fuel mix and efficiency of generation
DuPont CO2—Use average grid factors for off-site electricity.
Entergy Treat projects on a case by case basis. As experience grows, this process will be modified.
OPG Indirect Emissions- Emissions Related to Electricity Purchases: OPG includes indirect emission in thecalculation of the carbon intensity of the electricity supplied to meet Ontario’s electricity demand. Allelectricity purchased from Ontario-based suppliers, non-utility generators (NUGs), is assumed to be gener-ated from the combustion of natural gas—and a rate of 0.34 Tg CO2/TWh is used. CO2 from electricityfrom US generators is estimated with a rate of 1.0 Tg CO2/TWh. Indirect emissions are not included in thecalculation of total CO2e mass emissions. With an open electricity market, data on emissions of othergenerators into the Ontario market will have to come from the Independent Electricity Market Operator(IEMO), a corporation unrelated to OPG.
Pechiney CO2 from external cogeneration: fixed emission factors applied to steam consumption; EF established forstandard production and operation at the cogeneration unit, including credit for “improved” electricityproduction yield.
Shell Shell is currently establishing guidelines for a Shell-internal CDM scheme by which their companies caninvest in emission reduction projects located in non-Annex I countries, accrue CERs that can then besubsequently utilised within STEPS in equivalency to the permit allocations.
Suncor Only indirect emissions calculated from electricity suppliers including TransAlta, Ontario Power Generation,Dow Chemical (supplies steam to Sarnia refinery). Supplier specific factors when available, otherwise gridaverages. CDM/JI offset projects will reduce the net emissions by approximately 700,000 tonnes CO2eover the period 2000-2005. The “new” corporate GHG strategy effort is going to use the generation of an
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internal cost curve for the generation of GHG emission reductions (this will include technology, processefficiencies, energy efficiencies and A&RE projects). We will concurrently evaluate the cost of reductionsfrom CDM type projects as well at trading to determine where and how we will get the most “bang for ourbuck” in meeting our GHG targets.
II.C.1. accounting standards; data quality:
Alcan Internal accounting standards are applied as appropriate. Data quality, as noted above, is determinedusing a three point scale (measured, calculated, estimated).
BP BP annual GHG inventory is subject to external audit against a criterion of less than 5% misstatement.This was achieved for the 2000 annual inventory.
DuPont blank
Entergy To be determined.
OPG Internal quality/quantity audit (reporting to Board of Directors), Internal financial audit as part ofpurchasing audit & external financial audit. Meets WRI/WBCSD GHG Protocol guidelines.
Pechiney Formal verification of consistency between technical and accounting data (energy and material consump-tion) to be established. Central registration of data managed by the Corporate environmental affairs.
Shell blank
Suncor Currently re-defining its M&V protocols based on a survey of several protocols. Suncor picked the ‘best ofbreed’ from the list, performed a desktop gap analysis, and is in the process of corporately addressingthese gaps.
II.C.2. internal audits:
Alcan Efforts under TARGET (setting of objectives, emissions measurement, monitoring and reporting progress,evaluation of performance) will be assessed as part of Alcan’s existing internal financial and environmentalaudit/review programs.
BP BP is looking at reducing the cost of external verification by incorporating GHG emissions into existinginternal audit processes.
DuPont Annual energy survey by engineering, some review during second party environmental audits
Entergy To be determined.
OPG Direct emissions estimates, external project quality and corresponding due diligence reports are subject tointernal audit and reported to board of directors. Same audit reviews all offset projects and determinesif/how they count towards goal.
Pechiney Yes (to be set up)
Shell Yes
Suncor Our reporting is coordinated at a corporate level by the Sustainable Development department and isdocumented in an annual report to the VCR.
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II.C.3. third party verification:
Alcan Alcan will make use of a third party verification. Specific arrangements will be determined.
BP To date, GHG inventories for 1990, 1998, 2000 and 2001 have been subject to external audit and verification.The external audit team of KPMG, DNV and ICF provided an audit opinion that the emissions data for2000, as reported against the BP group reporting guidelines 2000, is free from material misstatement.
DuPont Limited to date—some local verification and piloted global verification using SGS.
Entergy CH2M Hill retained to provide third party verification. Entergy intends to use Environmental ResourcesTrust for registration of emissions data, emissions offset reductions and additional external review.
OPG In 1999, OPG achieved ISO 14001 certification of the corporate, nuclear, fossil and major hydroelectricstation environmental management systems, and in 2000 certification of small hydro units, which coversall of OPG’s operational areas. The GHG target and CO2 emissions are third party reviewed as part of thepreparation of the annual environmental progress report and the auditing of the Achievement IncentivePlan targets. OPG publishes its greenhouse gas emissions yearly in the annual environmental progressreport audited by Ernst and Young. In 2000 OPG’s submission to the Canadian Electricity Association’senvironmental commitment and responsibility report was audited as part of its membership in that program.
Pechiney In place for 1990 and 2000 by Price Waterhouse Coopers (or equivalent according to local connections).Then year after year.
Shell 12 key areas of HSE annual report verified by KPMG and PricewaterhouseCoopers, including CO2, methane,and global warming potential.
Suncor Currently using ERT for external emissions trading activities. It is undecided if Suncor will use ERT toregister all data or just external projects.
III.A.1.guidance for internal actions: project approval, capital allocation,clearing house functions:
Alcan Internal actions are determined by the business groups as part of their normal planning cycle and aresubject to standard project approval / capital request processes.
BP In general, GHG reduction projects must compete for capital using normal business criteria and financialhurdle rates. There is regular review of performance against target and processes are in place to ensurethat value generating GHG reduction projects are being identified and funded. One example is theUpstream Environmental Forum that tracks performance against target and can allocate capital to GHGreduction projects meeting certain value/environmental criteria. A planning assumption for the cost ofcarbon is being developed to facilitate long term investment analysis.
DuPont Corporate environmental plan, projects must generally meet competitive hurdle rates, but some are drivenby corporate mandates and goals—use 80/20 process to ensure most cost effective application of capital.
Entergy Established in-house screening process involving core team of environmental management staff. Candidateprojects also reviewed by Entergy’s Executive Environmental Forum. Working with 3rd parties to obtainopinion about integrity of offsets being considered.
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OPG In 1999 an in-house climate change working group, now with VP and Director level representation, wasestablished to coordinate and report on initiatives to manage greenhouse gas emissions among departmentsand to evaluate the potential impact of actions on climate change on OPG’s core business. Credits arelinked with cost of fuel so that dispatch automatically includes consideration of CO2 reduction and offsetcosts. The direction accounting is taking suggests that capital investment decisions ultimately will includethe avoided cost of offsets in determining IRR of investments.
Pechiney Capital projects approved by the management of business groups; formal procedure to be established inorder to consider PCA targets in the decision and allocation making process. Non-capital projects are rele-vant to the management of plant operations with support from the industrial management of their businessgroup including R&D and technical assistance. Annual clearing by the central registration body. Note: Themain reduction programs (direct emissions) will remain of technical and managerial nature. A lot of themis already identified but economical assessments need to be done thoroughly and a significant gap is stillto be closed. A great deal of uncertainty lies in the nature of production growth (organic or inorganic).
Shell Shell includes consideration of the effect of a carbon price penalty in investment calculations for newprojects, and existing major assets, with major GHG emissions.
Suncor Suncor is developing an overarching GHG management system which will include banking, technologyadvancements (this includes energy efficiency) and offset projects as per the gap audit.
III.B.1. guidance for emissions trading: definition of credible reductions, rules,internal administration and information systems:
Alcan In TARGET, surplus, or emission reductions / credits, are created when actual emissions are below theemissions target. This surplus can be banked for future use within the Alcan internal program. TheTARGET Team maintains the database that tracks performance against emissions targets. Policies andrules for external trading are currently under development.
BP Banking is allowed but is constrained. A maximum of 5% of an individual BU’s allocation may be bankedfor the following year. This policy is designed to aid market liquidity. BP does not allow BUs to borrowfuture allocations to attain compliance. All trading goes through a centralized desk with real time pricing.
DuPont A company standard for emissions trading is being prepared. The standard will cover rules for classification,verification, registration, allocation, retirement, donation, sale or other actions to be taken with emissionsreduction credits.
Entergy No internal trading (except for intra-company bubble approach to setting & meeting targets and reporting).External projects reviewed on case by case basis. Corporate banking can occur.
OPG The Emission Trading department has responsibility to contract for CO2 equivalent emission reductions—the budget is approved by Corporate Finance. External projects are reviewed on a case-by-case basis.Previously all internal and external projects were reviewed through the PERT process, now operated byClean Air Canada Inc., and with OPG requiring a third-party verification report. Modified so now testingprojects through other processes on a limited basis including GERT, NESCAUM, and the Chicago ClimateExchange. 10% of all internal and external reductions continue to be retired up-front as an environmentalnet benefit guarantee during the early stages of trading so that only 90% of the emission reduction creditscan be used to meet emission reduction targets.
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Pechiney Credible reduction according to third-party verification. Internal (within Pechiney) clearing prior to externalET (i.e., within PCA): C market price needed ? External ET rules to be established according to common“PCA rules” if possible. Internal administration to be established. Banking likely to be allowed to acertain extent.
Shell Because of its earlier trading experience, Shell Energy (an operating entity that manages energy trading forthe global businesses; single individual within the organization has been designated as the focal point andmanager of STEPS) will serve as STEPS Trading Manager. The Trading Manager will function as broker,recorder, and market maker. All trades are channeled through the Trading Manager, who maintains tradingrecords, and publishes volumes and process on the Shell intranet. To encourage liquidity in the system, asmall fraction of the permit allocation that is held back will be auctioned by the Trading Manager. Thiswill also help establish an early price for carbon.
Suncor Developing the GHG management system, a part of which is an environmental management informationsystem. Emissions trading and any other external activity will be performed in an effort to address ourcommitments at least cost after internal efforts, within reason, have been exhausted.
III.C.1. guidance for external actions: offset projects, product lifecycleassessment, customer and supplier outreach:
Alcan Developing credible emissions reduction opportunities for customers and end users of our products is partof the program. This includes recognizing the emissions reductions that are realized over the full lifecycleof a product, and through product stewardship activities such as recycling. This recognition will be developedwith recognized authorities in jurisdictions.
BP No external trading at this time. BP is working with the UK Emissions Trading Group to develop tradingrules for the UK trading system. Guidance is being developed to allow reporting units to participate inboth the internal and external trading system simultaneously.
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Entergy To meet CO2 target, Entergy anticipates needing roughly 5 million tons of reductions. It expects to achieveroughly 80% of those internally and will seek roughly 1 million tons from external sources. To that end,Entergy is actively pursuing domestic and international emissions reduction trading through variousprograms. Most external offsets are being reviewed by a third party and that review is a condition of theoffset contracts. Formal registries will be used where available as a means of ensuring project integrity.
OPG To meet CO2 target for 2000, OPG needed to offset 12.6 million tonnes of CO2 through ERC trading, andabout 11 million tonnes are needed to help net 2001 CO2 emissions. To that end, OPG is activelypursuing domestic and international emissions reduction trading through various programs. Additionally,OPG has announced a Carbon Sequestration and Biodiversity Management Program and a commitment toplant 1.6 million native tress and shrubs in southern Ontario over the next 5 years. OPG also committedto quadruple its green power supply to 500 MW. OPG, through the E7 group of electricity companies, iscurrently participating in three Activities Implemented Jointly (AIJ) under the UNFCCC. The goal of theseprojects is to demonstrate the value of energy sector projects in developing countries in reducing globalgreenhouse gas emissions. OPG’s annual commitment implementation has recently been changed fromannual net true-up to a 7-year net true-up vs. commitment. A net monetary cap has also been placed ontotal CO2e acquisition expenditures.
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Pechiney No such action identified within the “direct emissions” program (apart those resulting from usual businessand normal operation). To be defined within future “indirect emission” programs (e.g., technology saleswithin CDM, benefit sharing of reductions from product uses).
Shell Shell has developed a CDM demonstration program, which has identified eight potential CDM projects inSouth America, Africa and Asia. They are varied and include rural electrification in South Africa and thePhilippines, geothermal energy in Central America, pyrite replacement in acid production in China, gasavoiding coal in China and South Africa, a vent-to-flare project in Malaysia and selling excess refinery fuelgas to a third party, also in Malaysia.
Suncor Currently developing a corporate GHG strategy that will include CDM/JI and other external activitiesexcluded by emissions trading.
IV.A.1. reporting basics: format, frequency, level of detail, level of aggregation:
Alcan Reporting on corporate emissions performance will be undertaken annually. Each facility, via their busi-ness group, will report on consumption of energy, other carbon consumption, other SF6 consumption andPFC emissions for the year to the TARGET Team. Each business group establishes its own reporting require-ments to track progress towards its annual target.
BP GHG emissions data is collected and compiled at Group level on a quarterly basis, but reported externallyannually. Carbon dioxide (direct and indirect) and methane are reported separately, but source or activitydata is not collected. The data is reported by Reporting Units that usually correspond to physical sites orassets. There are currently more than 340 active Reporting Units.
DuPont Format = 1) Quantity of fuels purchased, converted to CO2 emissions. 2) Quantity of electricity andsteam purchased, converted to CO2 emissions based on how they were generated. 3) Pounds of emissionsof greenhouse gases other than CO2, converted to CO2 equivalents. Total annual emissions reported yearly.Reported by business unit at each site, rolled up to site totals, U.S. and global region business totals.U.S. and global region corporate totals.
Entergy CEM data is collected continuously at the site; all emissions data is collected quarterly for central review.Public reporting occurs on an annual basis.
OPG CO2 emissions by month and year-to-date are reported in the monthly environmental performance reportprovided to the president and CEO. This report is compiled by Corporate Environment with input from thebusiness units. Annually OPG published the Towards Sustainable Development progress report, and the OPGGreenhouse Gas Action Plan to Canada’s Climate Change Voluntary Challenge and Registry. OPG publiclyreports emissions by station, but not by individual unit.
Pechiney Format to be established with help of third-party verifier. Frequency will be once per year. Gases(CO2/PFC/others) ; origin (process/combustion) ; external/internal (to avoid double accounting in nationalinventories). Aggregation by activity and by country; by plant if needed.
Shell HSE data are aggregated from the individual data returns of Shell Operating Companies to the BusinessOrganizations within the Service Companies. Includes companies that are under Shell’s operationalcontrol, which means entities in which a member of the Royal Dutch/Shell Group has full authority tointroduce and implement the Group’s HSE commitment and policy.
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Suncor Primary external document is annual (October) report to the Voluntary Challenge and Registry. Current levelof detail is orientated to reported structure, not what is reported or how. Implementation of new method-ology for GHG monitoring and reporting will enhance this. On a BU level, current internal reporting occursquarterly or semi-annually.
IV.A.2. length of time to generate an emissions report, reporting cycle:
Alcan Data will be analyzed and compiled in the first quarter of the following year. Corporate reportingwill take place annually.
BP Approximately one month to collect, aggregate and Q/A quarterly and annual emissions data. Externalverification of the annual inventory takes place during the year with the final checks on the consolidatedannual data. Reports generated Feb/May/Aug/Nov.
DuPont It takes about four to six months to generate a report and the current cycle is to collect and enter sitedata in July-August, roll-up corporate totals in September, conduct quality assurance in October-Novemberand prepare external report in December.
Entergy CEM reports are available quickly but it takes 3-4 months to compile and validate the annual emissionsreport that will be used to track progress towards the target. Data is assembled in January and the reviewis completed usually in March.
OPG Monthly, by 10 days after month end have “actual” CO2 calculations.
Pechiney 3 months ; can be reduced with time and experience
Shell The general understanding is that it takes approximately two people two person months. It takes eachfacility approximately two people over two man months to compile the data. Once the data has beencompiled at the facility level it is then sent to the corporate center in late February here in the Hague fromevery facility in the world. The data is then collated and reviewed for accuracy. It is then reported out inthe annual Shell Report in April.
Suncor Yearly. The intent is to change this before the next VCR report (Oct. 2001) through use of WRI GHG PIprotocols (Scope 2) and tying in all GHG data via the intranet.
IV.A.3. access to data: internal, external:
Alcan Company wide performance, relative to the annual target, and actions taken to achieve emission reductions,will be reported on each year. Internally, business group performance will be reported, and sharing of bestpractices will be promoted by ongoing reporting of emission reduction initiatives that are taken within eachbusiness group. Each business group has access to the TARGET database, which contains data on annualindividual facility performance.
BP Externally, aggregate data is available on the web. Internally, data is aggregated at the Business Streamlevel (e.g., Exploration and Production) and shared with reporting units and their respective senior leadership.
DuPont Internal—available on web via corporate environmental plan database. Externa l—Available on companyweb site, limited hard copy distribution.
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Entergy Externally, there is a commitment to report progress but no plans on how that data might be used.Internally, emissions data is used to help encourage additional applications to the internal reductions fund(i.e., the environmental initiatives fund).
OPG Company web site, hard copy reports, and Canada’s Voluntary Challenge & Registry updates can be foundon their web site. Also, the PERT/CleanAir Canada Inc. online Registry has quantification protocol informationfor each project that reduced emissions.
Pechiney All providers and users of data, via Intranet or equivalent. Relevant governmental agencies if requested.Annual public reports (EHS aluminum sector report ; Corporate annual report ?).
Shell Aggregate data is available externally through the Shell web site and the Shell Report- 2000.
Suncor Data is generated from business unit level and reported to corporate at unique periods for each unit.Currently being redesigned to be made available on company intranet. Externally, report is availablethrough the VCR and Suncor web sites.
IV.A.4. external registration of data:
Alcan There is external registration of data where required by law or under voluntary government agreements e.g.VCR (Canada), CIPEC (Canada), VAIP (USA).
BP BP does not have a centralized effort to externally register their reductions. BP America has participatedin the US DoE voluntary reporting program.
DuPont None at this time.
Entergy Entergy plans to use Environmental Resources Trust to record emissions and to account for reductionsand offsets.
OPG Data is initially registered with the PERT/CleanAir Canada Inc. online Registry. OPG publishes its green-house gas emissions yearly in the annual environmental progress report (audited by Ernst and Young), inits annual GHG Action Plan submitted to Canada’s Climate Change Voluntary Challenge and Registry Inc.,and in the Canadian Electricity Association Environmental Commitment and Responsibility Report.
Pechiney PCA registry to be put in place by Environmental Resources Trust (?). Regional registries if needed (Europe,Australia, N. America).
Shell None at this time.
Suncor Annual reporting to the VCR. The intent of data collection and measurement is that one report will meet all3rd party reporting requirements.
IV.B.1. reconciliation process: timing, role of banking:
Alcan The corporate true up of emissions is completed in the first quarter of the following year. Emissionscredits will be tracked in the TARGET database. Third party participation in verifying and registeringemissions is being examined.
BP No true-up period currently. Each BU can bank up to 5% of their current year allocations for use in thefollowing compliance year. At the end of the year, the trading desk receives emissions data from HSE,
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reconciles it with the BU allocation accounts and determines if each BU has adequate allocations to covertheir emissions inventories.
DuPont Review with sites and businesses for discrepancies, unusual changes year to year, missing data, makecorrections if needed—occurs during October—November time frame.
Entergy System does not rely on internal trading. Centralized offset acquisition and focus is on reaching cumulativetarget. The basis for performance evaluation is to look at the entire budget. In other words, Entergy mayacquire more reductions than it needs in a given year and save those for use in a later year. Final recon-ciliation will occur in 2005.
OPG Corporate banking for future use can occur. OPG is targeting to complete notices of use on the CleanAirCanada Inc. online Registry and report on project credits to meet net CO2 emission targets to be submittedto the VCR registry by the following quarter after year end. The updated GHG implementation strategyextends net true-up from an annual basis to a seven year basis. This means GHG purchases will be spreadout over the period 2001 to 2007, with times of net deficit carried forward to final true-up date in 2007.
Pechiney To be established according to “PCA standards” if possible.
Shell Annually, the Trading Manager will reconcile emission and permit positions and levy penalties for non-compliance. If a company’s emissions are lower than its permit levels, the difference can be banked tocover emissions in future years.
Suncor Currently being redesigned and addressed as part of the GHG management system.
IV.B.2. liability: mechanism to address deficit:
Alcan In the case of a corporate deficit in emissions, the corporation may use internal surplus emission reductionsor engage in external trading to meet its commitment.
BP Business Unit Leaders are accountable for their targets on an annual basis through performance contracts.There are no non-compliance penalties at this time (financial or allocations) and no processes foraddressing deficits.
DuPont No deficits are anticipated at this time.
Entergy The Entergy Environmental Forum was established to oversee this program. If it appears that Entergywould fall short of making its target, the Forum would be charged with addressing that problem. Entergy isobligated to consult with the Forum by December 31 of each year on that year’s performance. Entergy isexploring insurance options.
OPG In 1999, the rate of greenhouse gas emissions from the fossil generation system was one of the parame-ters in the performance contract for the Senior VP, Electricity Production. In 2000, OPG’s corporate-wideenvironmental performance targets, which are part of the incentive compensation package for seniormanagers, included the net greenhouse gas emissions target of 26 million tonnes CO2 and the annual in-house energy efficiency target. Each generating station has an in-house energy efficiency threshold, targetand stretch target, with corresponding levels of bonuses for each performance tier. Achievement incentivePlan targets are reviewed annually, recommended by the President and approved by the board of Directors.
Pechiney To be established according to “PCA standards” if possible.
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Shell The Trading Manager will impose a fine of three times the average fourth quarter trade for each permitshortfall if the year-end reconciliation shows that a company owns fewer permits than is needed to coverits year’s GHG emissions. Mechanism to address deficit: the current DRAFT program relies on the penaltiesas incentives.
Suncor No mechanisms currently exist.
Appendix I :Suncor–Emissions source types under the Suncor program.
Emission source Sunoco Natural Gas Oil Sands
Fuels combusted on-site X X XNatural gas—outside purchases – X XNatural gas—inside consumption X – XProcess gas X – –Residual fuel oil X – –Stack oil X – –Gas oil – – XPetroleum coke X – XProcess flare gas – X XRaw flare gas – X –Diesel &/or kerosene – – XPropane X – –Gasoline – – X
External Energy Purchases
Electricity X X XSteam – – X
Tank farms – – XFugitive emissions – X ?Mine face emission – – XTailing ponds – – XGHG offsets – – –
X = source of emission & measured– = no emission from this source
The Partnership for Climate Action
For more information,please contact:
Environmental Defense257 Park Avenue SouthNew York, New York 10010
phone: 2 12.505. 2 100e-mail: [email protected]
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