PCAF Methodology for Project Finance
- 1 PCAF Methodology for Project Finance
- 2 Scope
- 3 Approach
- 4 Attribution
- 5 Attribution Factor Formula
- 6 Financed Emissions
- 7 Project Emissions Calculation
- 8 Data Quality Score
- 9 Notes
PCAF Methodology for Project Finance
The PCAF methodology that is specifically for accounting and reporting GHG emissions linked to the financing provided to projects such as energy, power, industrial, infrastructure, and agricultural projects that rely primarily on the project’s cash flow for repayment (See PCAF Methodology for other domains).
This asset class includes all loans or equities to projects for specific purposes (i.e., with known use of proceeds as defined by the GHG Protocol) that are on the balance sheet of the financial institution. The financing is designated for a defined activity or set of activities, such as the construction and operation of a gas-fired power plant, a wind or solar project, or energy efficiency projects.
- Financial institutions shall report the absolute scope 1 and 2 emissions of the project.
- Scope 3 emissions should be covered if relevant.
- Avoided and removed emissions may be reported if relevant but must be reported separately from absolute emissions.
In Project Finance the Use of Proceeds is assumed known. To calculate emissions, only the financed (ring-fenced) activities are included. Emissions and financials related to existing activities outside the financed project but within the financed organization are not considered. This leads to the concept of Financed GHG Emissions.
As a basic attribution principle, the financial institution accounts for a portion of the annual emissions of the financed project determined by the ratio between the institution’s outstanding financed amount (numerator) and the total equity and debt of the financed project (denominator). This ratio is called the attribution factor.
The attribution factor calculation is, in principle, only possible for project finance where project-specific financial data is available. For project finance where such data is unavailable, the attribution factor cannot be calculated but rough estimations on attribution can still be made based on region and sector specific average financial data and the outstanding amount. This is explained in more detail in the Project Emissions Calculation section and the list of available options.
Attribution Factor Formula
The core principle of the PCAF methodology is to attribute emissions proportionally to the the fraction of capital structure financing provided by the financial intermediary:
- p is the project
- The Outstanding Amount in the numerator is the amount of debt or equity provided by the individual financier
- In the case of debt, the outstanding amount is defined as the value of the debt the borrower owes to the lender (i.e., disbursed debt minus any repayments).
- In the case of equity, the outstanding amount is the outstanding value of equity the financial institution holds in the project. It is calculated by multiplying the relative share of the financial institution in the respective project by the total equity of the respective project according to its balance sheet
- At the start of the project, the total equity and debt in the denominator is the total financing available for the project (total debt plus equity to realize the project). In subsequent years, it is expected that projects will report annually on their financials, including balance sheet information (i.e., the total equity and debt within the project). The value of total equity and debt in the denominator can then be used to calculate the attribution factor.
The financed emissions from a single project are calculated (in general - for all calculation options) by multiplying the attribution factor by the emissions of the respective project.
The total financed emissions from multiple projects is simply the sum
Project Emissions Calculation
The PCAF Methodology for Project Finance offers a number of options for calculating and reporting attributed GHG emissions for a project. The different options get assigned different Data Quality scores, with score 1 indicating highest data quality and score 5 indicating lowest data quality
Option 1 utilizes reported emissions, where verified or unverified emissions are collected from the project directly or indirectly through independent third parties.
Verified GHG emissions data of the project in accordance with the GHG Protocol
Unverified GHG emissions data calculated by the project in accordance with the GHG Protocol
Option 2 uses physical activity-based emissions, where emissions are estimated based on primary physical activity data collected from the project (e.g., fuel consumed or megawatt-hours of electricity produced). The emissions data should be estimated using an appropriate calculation methodology or tool with verified emission factors expressed per physical activity (e.g., tCO e/MWh) issued or approved by a credible independent body such as the IEA.
Primary physical activity data for the project’s energy consumption by energy source (e.g., megawatt-hours of electricity) plus any process emissions. Emission factors specific to that energy consumption primary data (e.g., energy source-specific emission factors). Where this option is used, process emissions must be added to the calculated energy consumption emissions before multiplying by the attribution factor.
- NB 1: Supplier-specific emission factors (e.g., from electricity provider) for the respective primary activity data are always preferred over non-supplier-specific emission factors.
- NB 2: The quality scoring for Option 2a is only possible for/applicable to scope 1 and scope 2 emissions as scope 3 emissions cannot be estimated by this option. Other options can be used to estimate the scope 3 emissions, however.
Primary physical activity data for the project’s production. Emission factors specific to production primary data (e.g., emission factor per production activity)
Option 3 uses economic activity-based emissions, where emissions are estimated based on economic activity data collected from the project (e.g., revenue or assets). The emissions data should be estimated using official statistical data or acknowledged EEIO tables providing region or sector-specific average emission factors expressed per economic activity (e.g., tCO2e/€ of revenue or tCO2e/€ of asset)
Outstanding amount in the project, total project equity plus debt, and the project’s revenue are known. Emission factors for the sector per unit of revenue or from similar projects is known (e.g., tCO e per euro of revenue earned in a sector)
Outstanding amount in the project is known. Emission factors for the sector per unit of asset or economic activity-based emission factors from similar projects (e.g., tCO e per euro of asset in a sector) are known.
Outstanding amount in the project is known. Emission factors for the sector per unit of revenue (e.g., tCO e per euro of revenue earned in a sector) and asset turnover ratios for the sector or from similar projects are known.
Data Quality Score
|Option 1a||Score 1|
|Option 1b||Score 2|
|Option 2a||Score 2|
|Option 2b||Score 3|
|Option 3a||Score 4|
|Option 3b||Score 5|
|Option 3c||Score 5|
Guarantees have no attribution until they are called and turned into a loan. Financial institutions should either use the calendar or financial year-end outstanding amount, provided the approach is communicated and used consistently.