GHG Accounting

Definition

GHG Accounting. A means of measuring the direct and indirect emissions to the Earth’s Biosphere of CO2 and its equivalent gases from industrial activities

Principles

The GHG Protocol Principles stipulate:

Relevance

Ensure the GHG Inventory appropriately reflects the GHG Emissions of the company and serves the decision-making needs of users - both internal and external to the company.

For an organization's GHG Report to be relevant means that it contains the information that users —both internal and external to the company—need for their decision making. An important aspect of relevance is the selection of an appropriate GHG Inventory Boundary that reflects the substance and economic reality of the company’s business relationships, not merely its legal form. The choice of the inventory boundary is dependent on the characteristics of the company, the intended purpose of information, and the needs of the users. When choosing the inventory boundary, a number of factors should be considered, such as:

• Organizational structures: control (operational and financial), ownership, legal agreements, joint ventures, etc.
• Operational boundaries: on-site and off-site activities, processes, services, and impacts
• Business context: nature of activities, geographic locations, industry sector(s), purposes of information, and users of information

Completeness

Account for and report on all GHG Emission Sources and activities within the inventory boundary. Disclose and justify any specific exclusions.

All relevant emissions sources within the chosen inventory boundary need to be accounted for so that a comprehensive and meaningful inventory is compiled. In practice, a lack of data or the cost of gathering data may be a limiting factor. Sometimes it is tempting to define a minimum emissions accounting threshold (often referred to as a GHG Materiality Threshold) stating that a source not exceeding a certain size can be omitted from the inventory. Technically, such a threshold is simply a predefined and accepted negative bias in estimates (i.e., an underestimate).

Although it appears useful in theory, the practical implementation of such a threshold is not compatible with the completeness principle of the GHG Protocol Corporate Standard. In order to utilize a materiality specification, the emissions from a particular source or activity would have to be quantified to ensure they were under the threshold. However, once emissions are quantified, most of the benefit of having a threshold is lost.

A threshold is often used to determine whether an error or omission is a material discrepancy or not. This is not the same as a de minimis for defining a complete inventory. Instead companies need to make a good faith effort to provide a complete, accurate, and consistent accounting of their GHG emissions. For cases where emissions have not been estimated, or estimated at an insufficient level of quality, it is important that this is transparently documented and justified. GHG Verification can determine the potential impact and relevance of the exclusion, or lack of quality, on the overall inventory report.

Consistency

Use consistent methodologies to allow for meaningful performance tracking of emissions over time. Transparently document any changes to the data, inventory boundary, methods, or any other relevant factors in the time series.

Users of GHG information will want to track and compare GHG emissions information over time in order to identify trends and to assess the performance of the reporting company. The consistent application of accounting approaches, inventory boundary, and GHG Calculation Methodology is essential to producing comparable GHG emissions data over time. The GHG information for all operations within an organization’s inventory boundary needs to be compiled in a manner that ensures that the aggregate information is internally consistent and comparable over time. If there are changes in the inventory boundary, methods, data or any other factors affecting emission estimates, they need to be transpar- ently documented and justified.

Transparency

Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and make appropriate references to the accounting and calculation methodologies and data sources used.

Transparency relates to the degree to which information on the processes, procedures, assumptions, and limita- tions of the GHG inventory are disclosed in a clear, factual, neutral, and understandable manner based on clear documentation and archives (i.e., an Audit Trail).

• Information needs to be recorded, compiled, and analyzed in a way that enables internal reviewers and external verifiers to attest to its credibility.
• Specific exclusions or inclusions need to be clearly identified and justified
• Assumptions disclosed, and
• Appropriate references provided for the methodologies applied and the data sources used.

The information should be sufficient to enable a third party to derive the same results if provided with the same source data. A transparent report will provide a clear understanding of the issues in the context of the reporting company and a meaningful assessment of performance. An independent external verification is a good way of ensuring transparency and determining that an appropriate audit trail has been established and documentation provided.

Accuracy

Ensure that the quantification of GHG emissions is systematically neither over nor under actual emissions, as far as can be judged, and that uncertainties are reduced as far as practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable confidence as to the integrity of the reported information.

See Also

• PCAF GHG Accounting and Reporting Requirements