how to carbon footprint

8/3/2019 How to Carbon Footprint

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Draft guidance on how to measure andreport your greenhouse gas emissions

5th June 2009

www.defra.gov.uk


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Department for Environment, Food and Rural AffairsNobel House17 Smith SquareLondon SW1P 3JR

Telephone 020 7238 6000Website: www.defra.gov.uk

Crown copyright 2009Copyright in the typographical arrangement and design rests with the Crown.

This publication (excluding the royal arms and departmental logos) may be re-used free of charge in any format or medium provided that it is re-usedaccurately and not used in a misleading context. The material must beacknowledged as crown copyright and the title of the publication specified.

Information about this publication and further copies are available from:

DefraArea 5CErgon HouseLondon

Tel: 0207 238 1524

Email: [email protected]

Published by the Department for Environment, Food and Rural Affairs


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Contents

Part 1: Introduction ....................................................................................................4Part 2: Overview of process ....................................................................................10Section A ...................................................................................................................12Part 3: Do I report on all parts of my organisation? .............................................12Part 4: Which activities in my organisation release greenhouse gas emissions?

................................................................................................................................... 14Part 5: Which greenhouse gases should I measure? ...........................................17Part 6: What information should I collect to calculate my greenhouse gas

emissions? ...............................................................................................................18Part 7: How do I calculate my greenhouse gas emissions? ................................21Part 8: What do I need to report? ...........................................................................23Section B ...................................................................................................................30Part 9: Should I set an emissions reduction target? ............................................30Section C ...................................................................................................................32Annex A: Small Business Worked Example ..........................................................32Annex B: GHG Accounting and Reporting principles ..........................................35Annex C: Relationship of this Guidance to the Carbon Reduction Commitment

(CRC) .........................................................................................................................36Annex D: Which of my businesses do I include? .................................................38Annex E: Do I include leased assets and activities I have outsourced? ............46Annex F: Which other indirect emissions should I measure and calculate? .....52Annex G: What can I count as an emission reduction? .......................................58Annex H: How to make emissions data more useful? ..........................................66Annex I: Example format for detailed emissions data ..........................................70Annex J: How do I set my emissions target? ........................................................73Section D ...................................................................................................................76Summary of recommendations ..............................................................................76Glossary ....................................................................................................................77


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Part 1: Introduction

The climate change challenge

Climate change is a global problem and the United Nations FrameworkConvention on Climate Change (UNFCCC) sets an overall framework forintergovernmental efforts to tackle the challenges posed by climate change.The Kyoto Protocol is an international agreement1 linked to the UNFCCCwhich sets binding targets for industrialised countries to reduce theirgreenhouse gas (GHG) emissions.

There is increasing evidence that early and rapid reductions in GHGemissions are needed to avoid the significant impacts of climate change.

Moreover, the Stern report2 on the Economics of Climate Change providedevidence that, the benefits of strong and early action far outweigh theeconomic costs of not acting.

Within the UK, business produces a significant amount of the UKs GHGemissions [see chart below3] and so has a direct influence over themanagement of these gases.

1 The Kyoto agreement came into force in 2005 and committed signatories to a reduction in

greenhouse gas (GHG) emissions to between 20-24 billion tonnes by 2050 (about 50-60%

below 1990 global levels)

2Stern Review on the Economics of Climate Change published October 2006

3Committee on Climate Changes report Building a low carbon economy - the UKscontribution to tackling climate change


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hat is government doing to respond to the threat of climatehange?

WcThe UK Governments Climate Change Act 2008 sets the framework for howthe UK will manage and respond to the threat of climate change. Under the

Act, the UK must reduce total GHG emissions by at least 80% below 1990levels by 2050.

The Climate Change Act introduced legally binding carbon budgets which seta ceiling on the level of UK GHG emissions and in order to meet thesebudgets, we will have to collectively reduce our total UK GHG emissions.

Government recognises that for organisations to take action to reduce theirGHG emissions they must have the appropriate tools and guidance.Measuring GHG emissions is the first step to effectively managing GHGemissions.

The Climate Change Act requires Government to:

1. Publish guidance4 on the measurement or calculation of GHGemissions to assist with the reporting of emissions.

2. Carry out a review in 2010 to evaluate the contribution that reporting onGHG emissions is making to the achievement of Governments climatechange objectives.

4

Part 5, section 83 of the Climate Change Act

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3. Introduce regulations requiring the mandatory reporting of GHGemissions informatio 5 thn under the Companies Act 2006 by the 6 ofApril 2012 or lay a report to Parliament explaining why this has nothappened. There will be a further consultation on this guidance before

a decision is made to introduce mandatory reporting requirements.

This guidance is focussed on supporting UK organisations to reduce theircontribution to climate change by helping them to measure their emissions.The guidance also explains how organisations may set emission reductiontargets.

You are not required to submit or otherwise make available the dataproduced in accordance with this guidance to the Government.Nonetheless you are encouraged to publicly report your emissions as this willbe of interest to your stakeholders, for example, your customers and possibly

to other businesses in your supply chain.

How will this guidance help me?

This guidance sets out broad general principles for how to measure and reportyour GHG emissions. This guidance is based on the Greenhouse GasProtocol the internationally recognised standard for the corporateaccounting and reporting of GHG emissions6. This guidance is primarilyaimed at large and medium sized businesses but can be used by all UKorganisations that wish to measure and report their total GHG emissions (also

known as corporate carbon footprint) for either internal or external reportingpurposes. If you wish to measure and calculate the emissions generated byone of your goods or services you will wish to refer to separate guidance oncalculating product footprints7.

If you are a small business you might find it helpful to start by looking at theflow chart in Part 2 (page 10) and the worked example at Annex A (page 32)for how this guidance can be applied to a small business.

Publicly listed companies already report information and analysis onenvironmental matters in their Annual Report and Accounts (to the extent it is

ecessary for an understanding of the development, performance or positionnof the companys business)8.

5Part 5, section 85 of the Climate Change Act

uncil for Sustainable Developments

nhouse Gas Protocol: A Corporate Accounting and Reporting Standard

6World Resources Institute / World Business CoGree (Revised Edition)

Publically Available Specification 2050 (PAS 2050).

7For organisations wishing to calculate their product carbon footprint, please refer to the

068Parts 5 and 6, section 417 of the Companies Act 20


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anisations publicly report their GHG emissionsthe format set out below. This guidance document will explain how to do

It is recommended that all orginthis.

Example Corporate Carbon Footprint

ber 2009 to 30 September010

Tonnes of CO2e

Scope 1

Scope 2 1,625 1,400

practice total gross emissions

GHG emissions data for period 1 Octo2

2010 2009

1,000 990

Standard 2,625 2,390

Scope 3 9,410 1

tice total gross emissions 1

0,415

Best prac 2,035 12,805

Carbon offsets (500)

Green tariff (500) (980)

l net emissions (optional) 1 1Total annua 1,035 1,825

Biologically sequestered carbon 560 560

Non-Kyoto GHG emissions 130 0

Intensity ratio 0.5 0.6

Some organisations may already report some of their total GHG emissionsdata for regulatory schemes such as the EU Emissions Trading System (EUETS), Climate Change Agreements (CCAs), as well as the forthcomingCarbon Reduction Commitment (CRC). These schemes only cover some ofan organisations total GHG emissions as illustrated in the diagram below. Ourguidance covers an organisations total GHG emissions (also known as itscorporate carbon footprint). The diagram below illustrates the scenario wherean organisation is required to report on some of its emissions for regulatoryschemes such as the Carbon Reduction Commitment9; whilst also choosing

9Please refer to Relationship of this Guidance to the Carbon Reduction Commitment (CRC)(Annex C, Page 36)


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to report on its total corporate carbon footprint to allow a better understandingof its overall GHG emissions.

Emissions reported under regulatory schemes form part of anorganisations total corporate carbon footprint.

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Where your organisation reports GHG emissions data for regulatory schemesyou may wish to use this data for the purposes of calculating and reportingyour organisations total GHG emissions. Alternatively, you may choose tofollow this guidance to measure and report all your organisations total globalemissions.

For organisations that are new to measuring and reporting GHG emissions,we recommend that you follow this guidance because it will help you toidentify and reduce your emissions; and make cost savings. Moreover anumber of organisations in the supply chain are seeking information from theirsuppliers on GHG emissions, so following this guidance should enable you tomeet their requests.

As some organisations are more experienced in measuring, calculating andreporting GHG emissions than others the guidance includes a standardpractice and a best practice approach. Standard practice is what UK

Government recommends organisations should be doing as a minimum. UKgovernment recommends best practice for organisations that are experiencedin reporting and want to show leadership in this area. Best practice is inaddition to the minimum set by standard practice.

Where your method of measuring, calculating or reporting your GHGemissions differs from the recommended approach you should state thedifferences and explain the reasons for them.

Generally accepted accounting and reporting principles are used in financialreporting to ensure that the financial data reported by companies is a true andfair reflection of that company. We reco

10mmend that you follow the

rinciples set out at GHG Accounting and Reporting Principlesp (Annex B,Page 35) when you are deciding what data to collect, how to measure thisdata and how to report your emissions.

If you have any questions on this guidance, please contact Defra [email protected].

10Principles sourced from WRI / WBCSD The Greenhouse Gas Protocol: A Corporate

Accounting and Reporting Standard (Revised Edition)


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Part 2: Overview of process

Which parts of your organisation do I need to collect data from?(Part 3, page 12)

I do not own 100%of my organisation

I own 100% ofmy organisation

Identify the

operations to collectdata from

Which activities in my organisation release GHG emissions?(Part 4, page 14)

Identify whichactivities release

GHGs

Categoriseactivities into

scopes

Calculate emissions fromactivities which fall intoscopes 1 (e.g. boiler;

owned vehicles) and 2(e.g. purchased electricity)

10What information should I collect from theseactivities to calculate my GHG emissions?

(Part 6, page 18)


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Collect activity data e.g.electricity use and fuelfrom bills, invoices andreceipts use, vehicle

mileage

How do I calculate my GHG emissions?(Part 7, page 21; Part 5, page 17)

Convert activity data intoGHG emissions by

multiplying activity databy DECC / Defras

emissions factors (onDefras website)

Calculate emissionsfor all six GHGs

Collect information for a12 month period

Now what?

I want guidance on how to set

an emissions reduction target(Part 9, page 30)

I want guidance on how toreport my emissions

Part 8, a e 23


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Section A

Part 3: Do I report on all parts of myorganisation?11

To calculate your total GHG emissions, you need to identify from which partsof your organisation you need to collect information. Organisations vary instructure from sole traders to complex multi-nationals with large numbers ofsubsidiaries and joint ventures. The more complex the structure of theorganisation, the more difficult it is to identify who has responsibility for theemissions produced by different operations.

If you have a simple organisational structure and you own 100% of your

operations, you do not need to read the rest of Part 3 but can move toPart 4 which advises on identifying activities that release greenhouse gases.

If you own less than 100% of the operations in which you have some businessinvolvement, you will need to identify the operations or share of operations forwhich GHG emissions need to be calculated. You can do this by reference toone of three established approaches. These are:

The equity share approach under which a company accounts forGHG emissions from operations according to its share of equity in the

operation.

The control approach under which a company accounts for 100% ofthe GHG emissions from operations over which it has control. It doesnot account for GHG emissions from operations in which it owns aninterest but has no control. Control can be defined in either financial oroperational terms.

o The financial control approach a company has financial controlover an operation if the company has the ability to direct thefinancial and operating policies of the operation with a view to

gaining economic benefits from its activities.

o The operational control approach a company has operationalcontrol over an operation if the company or one of itssubsidiaries has the full authority to introduce and implement itsoperating policies at the operation.

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This is referred to as setting your organisational boundary


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Recommendation 1

Standard practice:Use the financial control approach. Once you havechosen your approach, apply this consistently.

The financial control approach is the recommended approach because it isthe approach which aligns most consistently to financial accounting12. Formore detailed definitions of these three approaches and further benefits tousing the financial control approach, please refer to Which of my businessesdo I include? (Annex D, page 38)

However, it may be the case that the equity share approach or operational

control approach is more appropriate for how you operate your businessesand you may wish to use either of these approaches instead.

Many UK organisations have operations and businesses overseas andtherefore to get an understanding of total emissions you should includeemissions related to overseas activities.

Recommendation 2

Standard practice:Measure orcalculate your total emissions on aglobal basis.

For further guidance on how to determine which businesses / operations /facilities you need to collect data from please refer to Which of my businessesdo I include? (Annex D, page 38)

12The Financial Control approach is most closely aligned to the CRC approach which isbased on legal ownership. However, there will still be some differences in organisational

boundaries. These difference and others are highlighted in Relationship of this Guidance to

the Carbon Reduction Commitment (CRC), (Annex C, Page 36)

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Part 4: Which activities in my organisationrelease greenhouse gas emissions?13

You need to identify which activities in your organisation / organisations areresponsible for GHG emissions being released into the atmosphere.

The most widely accepted approach is to identify and categorise emissions-releasing activities into three groups (known as scopes14). The three scopesare:

Scope 1 (Direct emissions): Activities owned or controlled by yourorganisation that release emissions straight into the atmosphere. Theyare direct emissions. Examples of scope 1 emissions includeemissions from combustion in owned or controlled boilers, furnaces,

vehicles owned or controlled; emissions from chemical production inowned or controlled process equipment.

Scope 2 (Energy indirect): Emissions being released into theatmosphere associated with your consumption of purchased electricity,heat, steam and cooling. These are indirect emissions that are aconsequence of your organisations activities but which occur atsources you do not own or control.

Scope 3 (Other indirect): The final category is all other activities thatrelease emissions into the atmosphere as a consequence of youractions, which occur at sources that you do not own or control andwhich are not classed as scope 2 emissions, i.e., do not result from thepurchase of electricity, heat, steam and cooling. Examples of scope 3emissions are business travel by means not owned or controlled byyour organisation, waste disposal, use of sold products or services.

Please note that the direct emissions of carbon dioxide from the combustionof biomass should be accounted for separately from these scopes15.

The diagram overleaf identifies the main types of emissions sources under

each scope:

13This is referred to as defining your operational boundary

14WRI / WBCSD The Greenhouse Gas Protocol: A Corporate Accounting and Reporting

Standard (Revised Edition)

15This is because biomass absorbs carbon dioxide when it is growing, increasing the

complexity of accounting for it. Therefore it is accounted for separately.


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In some instances, it may be difficult to identify whether emissions should becategorised as scope 1 or scope 3 emissions. For example, this may bebecause your emissions sources come from outsourced activities, leasedassets or tenanted buildings. For further guidance on emissions from leasedassets or outsourced activities, please refer to Do I include leased assets andactivities I have outsourced? (Annex E, page 46)

For some organisations, emissions within scope 3 may be the largestproportion of total emissions. By calculating your scope 3 emissions, you willget a more complete understanding of your organisations total impact onclimate change. Identifying your organisations scope 3 emissions will alsohelp increase your awareness of where your organisation sits within the

supply chain and enable you to engage with other organisations in the supplychain. However it is acknowledged that it can be difficult to measure andcalculate your scope 3 emissions so we recommend you focus on yoursignificant scope 3 emissions. For further guidance on deciding what scope3 emissions to measure and calculate, please refer to Which other indirectemissions should I measure and calculate? (Annex F, page 52)

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Recommendation 3

Standard practice:Measure or calculate emissions that fall into your scopes

1 and 2

Best practice: Measure or calculate your significantscope 3 emissions inaddition to your scopes 1 and 2


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Part 5: Which greenhouse gases should Imeasure?

A number of gases contribute to climate change and the six main GHGs arecovered by the Kyoto Protocol: carbon dioxide (CO2), methane (CH4),hydrofluorocarbons (HFCs), nitrous oxide (N2O), perfluorocarbons (PFCs) andsulphur hexafluoride (SF6).

16 Different activities emit different gases, forexample, burning fossil fuels releases carbon dioxide, methane and nitrousoxide into the atmosphere, while producing aluminium releases carbondioxide and perfluorocarbons. Organisations should refer to Defra / DECCsCompany Reporting Guidelines to see which emissions they are most likely toemit. Please note that these tools are currently under development aspart of our annual update to Defra / DECCs Company ReportingGuidelines emission factors. These will be ready for final publication of

this guidance.

There are a number of other greenhouse gases that enter the atmospherebecause of human activities not covered by the Kyoto Protocol. There arerelatively few organisations that emit these gases17.

A list of both GHGs covered by the Kyoto Protocol and those that are notcovered by the Kyoto Protocol and the sources which release them can befound in Defra / DECCs Company Reporting Guidelines.

Recommendation 4Standard practice: Measure or calculate emissions from all six GHGscovered by the Kyoto Protocol.

Best practice:Measure or calculate emissions from other gases in additionto the six covered by the Kyoto Protocol.

16The UK GHG reduction targets which align to the Kyoto Protocol cover all six gases

17Greenhouse gases covered by the Kyoto Protocol account for over 99% of global

greenhouse gas emissions


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Part 6: What information should I collect tocalculate my greenhouse gas emissions?

The most common approach used to calculate GHG emissions is to applydocumented emission factors to known activity data from the organisation18.

Activity Data x Emission Factor = GHG emissions

Activity data is information used to calculate GHG emissions from combustionand other processes, for example, this could be litres of fuel consumed byyour organisations car fleet. Most activity data is easy to obtain, accurate andcan be found on bills, invoices and receipts. The table below sets out commontypes of activity data and the units of measurement you will need to get to

change this data into GHG emissions.

It is best to collect activity data by volume or mass (e.g. litres of petrol used)as emissions can be calculated more accurately.

Common Activity Data Measurement Units

Fuel use (e.g. natural gas,petrol, diesel, coal, LPG)

Litres, Kilowatt hours (kWh), Cubic Metres(m3), Therms, Tonnes

Electricity use Kilowatt hours (kWh)Vehicle mileage Miles, Kilometres (km)

Passenger travel Miles, Kilometres (km)

Freight transport (road, rail,shipping and air)

Tonne Kilometres (km) or VehicleKilometres (km)

Water supplied and watertreated

Cubic metres (m3) or million litres

Waste disposal / Recycling Tonnes of waste treated by waste type (e.g.paper and card, glass)

There are a number of ways to collect and manage this activity data at acorporate level. For example, this could include direct entry of activity data byoperational staff onto secure Internet or Intranet databases; or standardspreadsheet templates completed and emailed to head or divisional officewhere data can be processed. Ideally, GHG reporting should be integratedinto existing reporting tools and processes of your organisation.

18Other approaches are: A) Direct monitoring and measurement of GHG emissions. This is

expensive and may not be appropriate. B) Calculating emissions based on mass balance or

theoretical combustion specific to a facility or process. This is most applicable to process

related emissions such as those from cement, aluminium, waste processing.

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When collecting data at a corporate level, using a standardised reportingformat is recommended to ensure that data received from different businessunits and operations is comparable. You may wish to establish a qualitymanagement system to ensure that you produce a high quality corporate

carbon footprint. A quality management system provides a systematicprocess for preventing and correcting errors in your organisations carbonfootprint19.

If it is not possible for you to calculate your emissions from activity data, youwill need to use estimates:

Estimated Activity Data x Emission Factor = GHG emissions

If you do estimate, we recommend that you are transparent about the

estimation technique used and apply quality measures such as comparingyour estimated data to historical data to ensure that it falls within a reasonablerange.

Can I use existing emissions data?

Where your organisation reports GHG emissions data for regulatory schemes(e.g. EU ETS, CCAs, the forthcoming CRC, and regulatory schemes in otheradministrations), you may wish to use this data for the purposes of reportingyour organisations total GHG emissions. As there are some differences20 in

approach between the regulatory schemes and this reporting guidance youshould provide information on the calculation approach and conversion factorsused for those emissions reported for regulatory purposes.

Where your GHG emissions data reported for existing regulatory schemesdoes not cover all the emissions sources or greenhouse gases that yourorganisation is responsible for, you should use the approach outlined in thisguidance to measure or calculate those remaining emissions. You should alsouse the recommended format for reporting this emissions data.

However, given the differences in approaches between the regulatoryschemes and this reporting guidance you may wish to measure, calculate andreport all your total global GHG emissions, for purposes other than reportingfor the regulatory schemes, using the approach in this guidance.

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19For further practical advice on data collection at a corporate level, please refer to Chapter 6

of the GHG Protocol: A Corporate Accounting and Reporting Standard (Revised Edition) or

Section 3 of the Institute of Environmental Management and Assessment (2005)

Environmental Data Management: for emissions trading and other purposes.20Please refer to Relationship of this Guidance to the Carbon Reduction Commitment (CRC)(Annex C, Page 36)


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What period should I collect data for?

The period for which you collect the data must suit your internal and externalreporting needs. We recommend that your reporting period should be for 12months. If you produce financial statements we recommend that the end date

for your 12 months reporting period for your GHG emissions data ends withinthe period covered by your most recent financial year.


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Part 7: How do I calculate my greenhouse gasemissions?

This guidance provides web links to a range of simple excel spreadsheetswith Defra / DECC emissions factors21 and supporting guidance that convertsthe data you have collected into GHG emissions. In the automatedspreadsheets, you simply need to add activity data to the appropriateemissions factor and this will calculate your emissions data for you. Theseshould only be used for UK emissions and overseas electricity use.

Those organisations which have global operations should use overseasemissions factors to give a more accurate account of their emissions data.

It is standard practice to report GHG emissions in tonnes of CO2 equivalents(CO2e)22. The Defra / DECC spreadsheets available convert data by source

into emissions of CO2e for each GHG separately. Please click on the linkbelow for the tool you wish to use. Please note that these tools arecurrently under development as part of our annual update to Defra /DECCs Company Reporting Guidelines emission factors. These will beready for final publication of this guidance. The current Defra conversionfactors can be found here.

21

Scope 1: DirectEmissions

Scope 2: EnergyIndirect

Emissions

Scope 3:Other Indirect

Emissions

Biomass

Fuels combustion Electricity - UK BusinessTravel

Biomass /Biofuels

Owned transport Electricity -Overseas

Waste Disposal

Process EmissionsWater Use andWastewaterDisposal

Fugitive Emissions CommutingTravel

Transport Delivery andDistribution

21Some organisations may have site specific emission factors which they should use if they

will give a more accurate measurement of GHG emissions22A universal unit of measurement used to indicate the global warming potential of a

greenhouse gas, expressed in terms of the global warming potential of one unit of carbon

dioxide


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Part 8: What do I need to report?

What emissions data do I need to report?

You should report GHG emissions as a gross figure in tonnes of CO2e.Gross emissions are your total GHG emissions before accounting for anyemission reductions that you have purchased or sold. This should be yourreported headline figure.

Recommendation 6

Standard practice: Report total GHG emissions as a gross figure in tonnesof CO2e.

Where your organisation has purchased or sold emission reductions (i.e.carbon offsets and green tariffs) that meet Defras emission reduction criteria,we recommend that you report on these purchased or sold emissionsreductions. For Defras emission reduction criteria please refer to What can Icount as an emission reduction? (Annex G, page 58) We recommend thatorganisations then account for these emissions reductions against their grossfigure to report a net figure in tonnes of CO2e. This net figure should beadditional to your gross figure and should not replace it. For further guidanceon Defras criteria and worked examples on how to apply this, please refer to

What can I count as an emission reduction? (Annex G, page 58)

Organisations should normalise their total global scope 1 and 2 emissionsusing an intensity ratio. Intensity ratios compare emissions data with anappropriate business metric or financial indicator, such as sales revenue orsquare metres of floor space. Using an intensity ratio allows you to compareyour performance over time and with other similar types of organisations. Forfurther guidance on which intensity ratios to use, please refer to How to makeemissions data more useful? (Annex H, page 66)

23

Recommendation 7

Optional: Report where applicable on purchased or sold emissionsreductions that meet Defras emission reduction criteria. Then report a netfigure in tonnes of CO2e, in addition to the gross figure.

Recommendation 8

Standard Practice: Report on total scopes 1 and 2 emissions using anintensity ratio.


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We recommend you report a summary table of your GHG emissions data foryour chosen annual reporting period and your previous years performance.An example of this summary table is shown at page 7.

More detailed information on GHG emissions should be provided elsewhere

(e.g. Corporate Social Responsibility report or website). Example reportingformat for this more detailed information are provided at Example format fordetailed emissions data (Annex I, Page 70).

Gross emissions data we recommendyou report

Format of the information

Total annual gross global Scope 1 GHGemissions in tonnes of CO2e (standardpractice)

Broken down by Kyoto GHG type(e.g. carbon dioxide, methane,nitrous oxide)

Total gross global Scope 2 GHGemissions in tonnes of CO2e (standardpractice)


Significant gross global Scope 3 GHGemissions in tonnes of CO2e (bestpractice)


Total annual gross global GHG emissionsin tonnes of CO2e (standard practice)

Scope 1 and 2 (standardpractice)

Scope 1,2 and 3 (best practice)

Comparative emissions data from previousreporting year in tonnes of CO2e (standardpractice)

Organisations can report on emission reduction activities (i.e. carbon offsetsand green tariffs) that meet Defras good quality criteria. Below we outline theformat in which you should report this information. For further guidance onthe emission reduction activities eligible and the good quality criteria these

must meet, please refer to What can I count as an emission reduction?(Annex G, Page 58)

Net emissions data we recommend youreport (where applicable)


Total tonnes of CO2e associated withpurchased or sold emission reductions(optional)

Broken down into specificexternal GHG reduction projects.

Total net global GHG emissions in tonnesof CO2e (optional)

Reported separately from totalgross global figure


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Organisations should report on emissions from the combustion of biomass,emissions of non-Kyoto GHGs and normalised emission data separately.

Other emissions data we recommendyou report


Total global direct carbon dioxideemissions in tonnes of CO2e fromcombustion of biomass (standardpractice)24


Total (non-Kyoto) GHG emissions intonnes of CO2e (best practice)


An intensity measurement for your totalglobal gross emissions for scope 1 and 2emissions combined (standard practice)


Where it aids your management of emissions you may wish to furthersubdivide the emissions data collected and reported by business units /facilities, country, source types (e.g. stationary combustion, processemissions), and activity types (e.g. production of electricity, transportation). Aworked example on how to present this type of information is provided atExample format for detailed emissions data (Annex I, Page 70).

What supporting explanations do I need to provide?

We recommend that you provide some written explanations when you reportyour greenhouse gas emissions. This will help to explain how these figureshave been calculated and provide context for the data. The following workedexamples are provided to help clarify the type of reporting expected ofcompanies using this guidance.

24The reporting of carbon dioxide emissions in tonnes of CO2e from combustion of biomass

may not be applicable to your organisation


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Recommendedsupporting

explanations

Worked example forLarge PLC an oil

company25

Worked example forSME Co a printer26

State the approachchosen to identify thebusinesses you collecteddata from

Financial controlapproach

N/A

Provide a briefexplanation of why youhave chosen thatapproach

We have followedDefra (2009) Guidanceon how to measure andreport your greenhouse

gas emissions

I own 100% of myoperations

Provide detail of anyspecific exclusions ofemissions from scopes 1and 2 (includingestimation of the % this isof the total scopes 1 and2 emissions data)

The following emissionshave been excluded:

Emissions from

facilities in

Mongolia. We

estimate that this

is less than 2%

of total scopes 1

and 2 emissions.

Emissions fromair conditioningand refrigerationunits in officebuildings.We estimate that

emissions from

air conditioningand refrigeration

units in our

offices account

for less than

N/A

25Some parts of the recommended supporting explanation may not be relevant to your

organisation.

26Some parts of the recommended supporting explanation may not be relevant to your

organisation.


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tools / factors you haveused

Europe

Fuels

combustion

Large Plc site

specific emission

factors

Mobile

combustion and

fugitive

emissions

DECC / Defra

emission factors

data

State the reason for anysignificant changes inemissions since previousyear

The organisation hasdisposed of our facilitiesand operations inKazakhstan. Emissionsfrom these facilitiesaccount for 250,000tonnes of CO2eemissions.

In addition, the

organisation hasoutsourced operation ofits refining capacity inthe UK to GlobalRefineries Inc. Thisaccounts for 500,000tonnes of CO2eemissions.

N/A This is our firstyear of reporting

State the reason for yourintensity measurement

choice

We have chosen:Tonnes of CO2e per

tonne of output as thisis a common businessmetric for the oilindustry.

I have chosen per million sales as this is

the metric which I havedata for and is themetric I expect to grow

State the reason for anysignificant changes inyour intensitymeasurement from theprevious year

Outsourcing our refiningcapacity in the UK toGlobal Refineries Inc.has reduced our carbonintensity significantly.

In addition, we have

N/A see above


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invested 50 million inmore energy efficientprocess equipment inour operations in theUSA.

State your target andtarget completion date

We aim to reduce ourglobal GHG emissionsper million tonnes ofoutput of oil by 2percent each year from2009 to 2014.

I aim to reduce my totalGHG emissions by 25%from 2010 to 2015.

State the scopes coveredby the target

Scopes 1 and 2emissions and scope 3emissions currently

measured (excludingfugitive emissions fromair conditioning andrefrigeration in ouroffices)

Scopes 1 and 2emissions and scope 3emissions currently

measured

State the name of theperson and their positionin your organisation thathas responsibility for

achievement of thistarget

Joe Bloggs ChiefOperating Officer.

Stan Long Owner

State the base yearchosen and explain yourrationale for this

1st October 2009 30t September 2010.

We chose this baseyear as it was reflectiveof previous years andthere were no unusualfluctuations in

emissions.

1stJanuary 2010 31stDecember 2010

I have chosen this baseyear because it will bethe first complete yearof emissions data Ihave collected,

measured and reported.

State the approachchosen to set the baseyear

Rolling base yearapproach

Fixed base yearapproach

State the total grosstonnes of CO2e in thebase year

30 million tonnes ofCO2e (Mt CO2e)

75,000 tonnes of CO2e(Mt CO2e)


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Section B

Part 9: Should I set an emissions reductiontarget?

Why should I set a target?

Once you have measured and calculated your total GHG emissions, settingan emission reduction target is the logical next step. There are a number ofgood business reasons to do this:

To improve cost efficiency - cost savings can be made by identifyingopportunities to increase resource and energy efficiency. This may

help to improve your competitive advantage.

To demonstrate leadership - by setting ambitious targets, measuring,managing, reporting and reducing GHG emissions.

To improve brand recognition in an increasingly environmentallyconscious marketplace consumers and employees have a greaterawareness of corporate social responsibility and expect business to atake a leadership role in the management of GHG emissions.

What kind of target should I set?Organisations can set:

an absolute GHG reduction target which compares total GHGemissions in the target year to those in a base year; or

a target based on a decrease in GHG emissions intensity using anappropriate normalising factor (e.g. tonnes / CO2e per tonne ofproduct, floor space or Full Time Equivalent). This takes into accountincreases or decreases in production over time.

Recommendation 9

Standard practice: Set a reduction target and choose the approach to use.The target should be:

Organisation-wide (including all UK and overseas emissions);

Inclusive of all emissions (scope 1, 2 and 3) that you measureand report on;

Based on the most recent base year data is available; and

Achieved over 5 to 10 years.

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Best practice: Set an absolute target.

For further guidance on setting a GHG reduction target, please refer to Howdo I set my emissions target? (Annex J, page 73)

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SectionCAnnex A: Small Business Worked ExampleThis is a worked example for a small business to show how they may followthe guidance document. For more information, please click on the links totake you to the relevant sections in the guidance.

The Smith Family own a small Bed and Breakfast (B&B) in Whitby. Their B&Bis a registered company and they want to work out the carbon footprint of theirbusiness. Their B&B has six double rooms which they rent out all year exceptfor when they are closed for a month over Christmas. They also have acompany-owned car which they use to transport guests and collect food andsupplies for their B&B. To measure and report their carbon footprint, they

follow the six step process below:

Step 1: Do I report on all parts of my organisation?The Smith Family owns 100% of their B&B. Therefore they account for all ofthe emissions related to the activities of their B&B.

Step 2: Which activities in my organisation release GHG emissions?They then identify and categorise the business activities from their B&B into 3categories (known as scopes). The B&B activities which release GHGemissions are:

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Calculation of my emissions from my multi-purpose vehicle:

CO2 CH4 N2O Total GHGTotalunits

travelled

Units x kg CO2per unit

Total kgCO2

x kgCO2e

per unit

Total kgCO2e

x kg CO2eper unit

Total kgCO2e

Total kgCO2e

2130 miles x 0.3836 817 x 0.0005 1 x 0.00030 6 824

Step 5: What do I need to report?Once they have calculated their emissions for their 12 month period they putthis into the table below. They make this information publically available ontheir B&B website and in a framed display in their doorway to show customersthat they are managing their emissions.

34

The Smith Family B&B Carbon FootprintGHG emissions data for period 1 October 2009 to 30 September 2010

Tonnesof CO2e

Scope 1 8.18

Scope 2 5.44

Standard practice total gross emissions 13.62

Intensity Ratio1 0.0454

1The Smith Family has used square metres to

calculate their intensity ratio.

Step 6: How do I set my emissions reduction target?The Smith Family now know the total scope 1 and 2 emissions that their B&Bbusiness is responsible for. As a result, they feel confident in setting anddisclosing a target. They treat 2010 as their base year against which to

ompare their future emissions and set the following target:c

The Smith Family B&B pledges to reduce its total scope 1 and 2 GHGemissions by 25% from 2010 to 2015.


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Annex B: GHG Accounting and Reportingprinciples

Relevance: Ensure the GHG emissions you report appropriately reflect theemissions of your organisation and serves the decision-making needs ofusersboth internal and external to the organisation.

Completeness: Measure and report on all GHG emissions sources andactivities from the businesses / operations for which you are collecting GHGdata27. Disclose and justify any specific exclusions.

Consistency: Use consistent methodologies to allow for meaningfulcomparisons of emissions over time. Transparently document any changes tothe data, changes in your organisational boundary, methods, or any other

relevant factors.

Transparency: Address all relevant issues in a factual and coherent manner,keeping a record of all assumptions, calculations, and methodologies used.Report on any relevant assumptions and make appropriate references to theaccounting and calculation methodologies and data sources used.

Accuracy: As far as can be judged, ensure that your reported GHGemissions data is systematically neither over nor under your actual emissions.Seek to reduce uncertainties in your reported GHG emissions where practical.Achieve sufficient accuracy to enable users to make decisions with

reasonable assurance as to the integrity of the reported information.

27

It may not be possible for you to measure and report all emissions see page 19.


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Annex C: Relationship of this Guidance to theCarbon Reduction Commitment (CRC)

The Carbon Reduction Commitment is a mandatory emissions tradingscheme that covers groups of organisations consuming more than 6000MwHof electricity through half hourly meters. This scheme requires specificdetailed reporting of emissions from energy use, and is therefore narrower inscope than this guidance. It has specific requirements on treatment oforganisations, for example, the relationship between landlords and tenants.For further information seehttp://www.defra.gov.uk/environment/climatechange/uk/business/crc/index.htm

We have aligned the requirements of the CRC and the approach in thisguidance as far as possible in order to reduce reporting burdens, butrecognise there are differences in some areas. This guidance documentexplains how organisations should measure and report their GHG emissionsand aligns with the Greenhouse Gas Protocol - the internationally recognisedstandard for corporate accounting and reporting - to ensure consistency withinternational reporting schemes, whilst the CRC will be a UK statutory schemewith specific objectives. We will be taking the outcomes of the recent CRCconsultation into account in developing the final guidance.

This guidance differs from the CRC in the following ways:

This guidance covers all UK organisations and there is no sizethreshold for inclusion. Government encourages all organisations touse the guidance to measure and report on their greenhouse gasemissions;

This guidance does not specify a minimum levelof reporting.Organisations are encouraged to follow the completeness principle andaccount for 100% of emissions.

Under this guidance the organisations that you have to measureand report on may be different from those under CRC. Please referto Do I report on all parts of my organisations for more guidance onestablishing your organisational boundary;

This guidance covers global emissions. Please refer to Do I report onall parts of my organisations for further information;

This guidance covers a larger number of emission sources.Organisations can measure and report on all emissions that they are

responsible for both direct emissions and indirect emissions. Please


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refer to What activities in my organisation release greenhouse gasemissions to find out what emissions are covered;

This guidance covers all 6 Kyoto greenhouse gases. Please refer toWhich greenhouse gases should I measure for further information on

these greenhouse gases;

Under this guidance, greenhouse gas conversion factors are updatedannually. Please refer to How do I calculate my greenhouse gasemissions for further information on which conversion factors to use;

Under this guidance, responsibility for emissions under landlord / tenantagreements is determined by the terms and conditions of the lease. Formore guidance on how to account for these emissions, please refer to Do Iinclude leased assets and activities I have outsourced;


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Annex D: Which of my businesses do I include?

Step 1: Work out your organisational structure

If you wholly own all operations and businesses within your organisation youwill measure and account for all the GHG emissions from all of these entities.Where you have operations and businesses which you do not wholly own youwill need to identify the financial reporting relationship between the parentoperation and the other entities to identify how much of the GHG emissionsfrom these other entities you are responsible for and should report.

To identify the financial reporting relationship you will need to identify theaccounting definition for the businesses and operations in your organisation(i.e. is it a subsidiary or a joint venture?).

Your finance department should be able to provide you with the informationyou need to do this.

Step 2: Choose an approach to identify which GHG emissionsyou have responsibility for in the business and operations inyour organisation

Once you have identified the accounting definition for the businesses and

operations, you need to decide which approach is best to use to identify theGHG emissions you have responsibility for in your organisation.There are three established approaches:

Equity Share

The equity share reflects the extent of the rights a company has to the risks

and rewards from a business or operation. Equity share will normally be the

same as the ownership percentage but where this is not the case, in

accordance with international financial reporting standards, the economicsubstance of the relationship the company has with the operation overrides

the legal ownership. The equity share will then reflect the economic interest

rather than the legal ownership.

Control approach

Control can be defined in either financial or operational terms. In most cases,

whether an operation is controlled by the company or not does not vary based

on whether the financial control or operational control criterion is used. A


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notable exception is the oil and gas industry, which often has complex

ownership/operator structures.

Financial Control

An organisation has financial control over the operation if the former

has the ability to direct the financial and operating policies of the latterwith a view to gaining economic benefits from the operations activities.

For example, financial control usually exists if the organisation has the

right to the majority of benefits of the operation. Similarly, an

organisation is considered to financially control an operation if it retains

the majority risks and rewards of ownership of the operations assets.

A company has financial control over an operation for GHG accounting

purposes if the operation is considered as a group company for the

purpose of financial consolidation, i.e., if the operation is fully

consolidated in financial accounts. This approach follows the guidanceset out in international financial reporting standards so that the

economic substance of the relationship takes precedence over the

legal ownership. Therefore an organisation may have financial control

over an operation even if it has less than a 50 percent interest in that

operation.

Operational Control

An organisationhas operational control over an operation if the former

or one of its subsidiaries has the full authority to introduce and

implement its operating policies at the operation.

This criterion is consistent with the current accounting and reporting

practice of many companies that report on emissions from facilities,

which they operate (i.e., for which they hold the operating licence).

It is recommended that organisations use the financial control approach.

The financial control approach is recommended for the following reasons:

An organisation takes full ownership of all GHG emissions that it

can directly influence and reduce

The accounting for the GHG emissions is aligned to internationalfinancial accounting standards

Managers can only be held accountable for the activities and hencethe GHG emissions under their control and therefore performancemanagement schemes can be used effectively

Companies will have better access to GHG emissions data and willhave greater control over its quality when collecting it fromoperations they control


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Companies will have more ability to demonstrate completeness ofreporting as the information needed to determine organisationalstructure will already exist for financial reporting purposes

Closer alignment with Carbon Reduction Commitment

However you should use the equity approach or the operational controlapproach if that is more appropriate to your organisation.

Step 3: Apply your chosen approach

The approach you choose to consolidate your organisations GHG emissions

must be applied consistently to all your businesses and operations.

Financial control approach

For each entity you have identified in your organisational structure you needto identify if you have financial control over that entity. Your financedepartment should be able to provide you with this information.

The fourth column in table 1 sets out for each type of accounting category thepercentage of GHG emissions which should be included in the total amountwhen reporting at the organisational level using the financial control approach.

Operational control approachFor each entity you have identified in your organisational structure you needto identify if you have operational control over that entity. Your financedepartment should be able to provide you with this information.

The fifth column in table 1 below sets out for each type of accounting categorythe percentage of GHG emissions which should be included in the totalamount when reporting at the organisational level using the operationalapproach.

Equity share approachFor each entity you need to identify your share of the equity in the operationwhich will normally be the same as your share ownership in the business.

However given that economic interest may not be the same as legalownership you will need to consult with your accounting or legal staff toensure that the appropriate equity share percentage is applied for each jointoperation.

The third column in table 1 below sets out for each type of accountingcategory the percentage of GHG emissions which should be included in thetotal amount for the organisational level using the equity share approach.


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Table 1: Accounting for GHG emissions

Accounting for GHG EmissionsControl Approach

Accountingcategory

Financial accountingdefinition

Equityshareapproach

Financialcontrol

Operationalcontrol

GroupCompanies/Subsidiaries

The parent company hasthe ability to direct thefinancial and operatingpolicies of the company(the subsidiary) with aview to gaining economic

benefits from itsemissions activities.Typically, more than 50%of the subsidiarys equityis owned by the parentcompany.

Equityshare ofGHGemissions

100% ofGHGemissions

100 percentof GHGemissions (ifoperationalcontrol)

0 percent ofGHGemissions (ifnooperationalcontrol)

Associated/AffiliatedCompanies

Typically, the parentcompany owns less than50% of the associatedcompany's stock (orotherwise does not havefinancial control), but stillhas influence over itsoperations and financialpolicies. This includesincorporated and non-incorporated jointventures andpartnerships over whichthe parent company has

significant influence, butnot financial control.


0% of GHGemissions


0 percent ofGHGemissions (ifnooperationalcontrol)

Non-incorporatedjoint ventures/partnerships/ operationswherepartnershave joint

financial

A joint venture,partnership, or operationwhere each partneraccounts for theirproportion of the jointventure's income,expenses, assets, andliabilities. Each partnerhas joint financial control.


Equity shareof GHGemissions


0 percent ofGHGemissions (if

no


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control operationalcontrol)

Fixed assetinvestments

The parent company hasneither significantinfluence nor financial

control. This categoryalso includesincorporated and non-incorporated jointventures andpartnerships over whichthe parent company hasneither significantinfluence nor financialcontrol.

0% ofGHGemissions

0% of GHGemissions

0% of GHGemissions

Franchises A franchise is a separatelegal entity usually notunder the financial oroperational control of itsfranchiser, which givesrights to sell a product orservice. Should the termsof a franchise grantequity or financial oroperational control to the

franchiser, thenemissions accountingshould be consistent withthe rules provided above.

Equityshare ofGHGemissions(if thefranchiserhas equityrights)

100%shareof GHGemissions (ifthefranchiserhas financialcontrol)

0% share ofGHG

emissions (ifthefranchiserdoes nothavefinancialcontrol)

100%shareof GHGemissions (ifthefranchiserhasoperationalcontrol)

0% of GHG

emissions (ifthefranchiserdoes nothaveoperationalcontrol)


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Worked Example

Diagram 1 outlines the organisational structure for ABC Industries based on

the economic interest held by ABC Industries.

Table 2 sets out those GHG emissions for which ABC industries has

responsibility. The table demonstrates how you would apply the three

established approaches for consolidating organisational wide emissions.

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Table 2: Accounting for GHG Emissions within ABC Industries

Entitieswithin ABCIndustries

Economicinterest heldby ABCIndustries

Treatment inABCIndustriesfinancialaccounts

Control ofoperatingpolicies

Treatment inABCIndustriesfinancialaccounts

Equity share

ABC Co 100% Wholly ownedsubsidiary

ABC Industries Wholly ownedsubsidiary

100%

ABCOverseas

95% Subsidiary ABC Industries Subsidiary 95%

XXX 50% by ABCOverseas

Joint venturevia ABCoverseas.Partner ANOther has joint

financialcontrol

Franco Joint venture viaABC overseas.Partner ANOther has jointfinancial control

47.5%

(50% x 95%)

YYY 75% by ABCOverseas

Subsidiary viaABC Overseas

ABC Overseas Subsidiary viaABC Overseas

71.25%

(75% x 95%)

DEF 33.3% Proportionallyconsolidatedjoint venture(two otherpartners have

financialcontrol)

ABC Industries Proportionallyconsolidatedjoint venture(two otherpartners have

financial control)

33.3%

TIS 43% Associatedcompany

ABC Industries Associatedcompany

43%

LOS 1% Fixed Assetinvestment

Alfredo Co Fixed Assetinvestment

0%


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Step 4: Disclose the approach used

You should disclose the approach you are taking to inform the user of the

information and so that any double counting of emissions can be avoided.

This could occur when two or more companies hold interests in the same joint

operation and use different consolidation approaches.

Additional guidance

Leases

If you own leased assets you should follow the same consolidation approach

for including the GHG emissions from the leased assets as you used for your

organisational boundary. However you will need to know what type of lease

applies to your assets. For further information on leases please go to Do I

include leased assets and activities I have outsourced? (Annex E, page 46)


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46

Annex E: Do I include leased assets andactivities I have outsourced?

Leased assets

Many companies lease assets, for example, office space and vehicles. Thisannex sets out how to account for GHG emissions associated with leasedassets.

Step 1: Identify the type of contract used to obtain the leasedassets

Leases can be classified into either finance or operating leases. Thedistinction between a finance lease and an operating lease will usually beevident from the terms of the contract between the lessor and the lessee.

A finance lease transfers substantially all the risks and rewards of

ownership of an asset to the lessee. The asset leased will be treated as

an asset wholly owned by the lessee as defined in financial accounting

standards and are recorded as such on the companys balance sheet.

An operating lease is a lease other than a finance lease. The lesseewill have operational control but not ownership or financial control.

If you are unclear if your assets are leased under a finance lease or anoperating lease your company accountant or the Leasing Company will beable to provide you with this information.

Step 2: Apply your chosen organisational boundary

The approach you have chosen to determine your organisations boundary will

determine the emissions you report from your leased assets and if they shouldbe categorised as scope 1, 2 or 3. (See part 3, page 12)

For a lessee

Using financial control28 or equity approach: you should account for emissions

from assets that you are leasing if the lease is a finance lease. If the lease is

an operating lease it is optional whether you include your emissions from the

assets obtained from this lease depending upon which scopes of emissions

28

Financial control is the recommended approach


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you are reporting. This is because the emissions from these assets which you

are not deemed to own or have financial control over are classified as indirect

emissions (scope 3). This is discussed in more detail later. If you do include

these emissions from the operating lease you should disclose this.

Using operational control: You should only account for emissions from assets

that you are leasing if the operational criterion applies: the lessee has the

ability to track energy use and / or emissions from the lease. This criterion

applies to assets hired under a finance lease and those assets hired under an

operating lease.

Type of lease

Finance Operating

Equity share Include Optional

Financial control Include Optional

Operational control Include Include

It is recommended that you follow the financial control approach. Therefore

you would record the GHG emissions for your assets hired under a finance

lease in the total for your organisation wide emissions but it is optional

whether you include those hired under an operating lease depending upon

which scopes of emissions you are reporting.

For a lessor

Using financial control or equity approach: you should account for emissions

from assets that you are leasing to another organisation if the lease under

which they have been hired is an operating lease. If the lease is a finance

lease it is optional whether you include your emissions from the assets

obtained from this lease depending upon which scopes of emissions you arereporting. If you do include these emissions from the finance lease you

should disclose this.

Using operational control: it is optional whether you include your emissions

from the assets obtained from both finance and operating leases depending

upon which scopes of emissions you are reporting. If you do include these

emissions you should disclose this.

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Type of lease

Finance Operating

Equity share Optional Include

Financial control Optional Include

Operational control Optional Optional

It is recommended that you follow the financial control approach so you

would include those emissions from assets leased out under an operating

lease in the total for your organisation wide emissions but it is optional

whether you include those emissions from assets leased out under a financelease.

Step 3: Determine in which scope direct emissions should bereported

For a lessee

Using financial control or equity approach: you should report direct emissions

as scope 1 if the assets have been hired under a finance lease. If the assets

were hired under an operating lease the direct emissions should be reported

as scope 3 emissions.

Using operational control: you should report direct emissions as scope 1 for

both finance and operating leases.

Type of lease

Finance Operating

Equity share Scope 1 Scope 3

Financial control Scope 1 Scope 3

Operational control Scope 1 Scope 1

It is recommended that you follow the financial control approach. You should

record the direct emissions for the assets you have leased under a finance

lease in scope 1 and the emissions for the assets leased under an operating

lease in scope 3 if you are reporting your scope 3 emissions.

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For a lessor



were hired under an operating lease the direct emissions should be reportedas scope 1 emissions.



Type of lease

Finance Operating

Equity share Scope 3 Scope 1Financial control Scope 3 Scope 1


It is recommended that you follow the financial control approach. You

should record the direct emissions for the assets you have leased out under

a finance lease in scope 3 if you are reporting your scope 3 emissions and

record the GHG emissions for the assets leased out under an operating

lease in scope 1.

Step 4: Determine in which scope purchased electricityshould be reported

For a lessee

Using financial control or equity approach: you should report emissions from

purchased electricity as scope 2 if the assets have been hired under a finance

lease. If the assets were hired under an operating lease the emissions shouldbe reported as scope 3 emissions.

Using operational control: you should report emissions as scope 2 for both

finance and operating leases.

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Type of lease

Finance Operating




It is recommended that you follow the financial control approach. You

should record the GHG emissions from purchased electricity associated

with the assets you have leased out under a finance lease in scope 2, and

record the emissions from purchased electricity, associated with the assetsleased out under an operating lease in scope 3, if you are reporting your

scope 3 emissions.

For a lessor



were hired under an operating lease the direct emissions should be reported

as scope 2 emissions.



Type of lease

Finance Operating




It is recommended that you follow the financial control approach. You would

therefore record the GHG emissions from purchased electricity associated

with the assets you have leased out under a finance lease in scope 3, if you

are reporting your scope 3 emissions and record the emissions from

purchased electricity associated with the assets leased out under an

operating lease in scope 2.

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Outsourcing

There are certain arrangements that do not take the legal form of a lease but

convey rights to use items for an agreed time period for payment, e.g. the

outsourcing of an activity to be run by a third party which was previously done

by the business. Common examples include HR services, IT services,

Security, Call Centres.

Outsourcing is characterised by a multitude of different types of contractual

arrangements. Therefore to categorise the emissions from an outsourced

activity reference must be made back to the specific contract for that activity.

Typically an outsourcing arrangement will have a principal (one who employs

another to act for him) and an agent (a person who acts for or represents

another). For example, a law firm may outsource their IT function to an

external IT company. In this case, the law firm will be the principal and the IT

company will be the agent.

If the law firm has delegated total authority to the IT company for them to

make all arrangements in relation to the IT function the emissions from the IT

function will be in included in the law firms scope 3 emissions, (rather than

in the law firms scopes 1 and 2) to prevent the double-counting of emissions

as the IT company will include the emissions in its scopes 1 and 2.


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Annex F: Which other indirect emissions shouldI measure and calculate?

Other indirect emissions (scope 3) are from activities which release emissionsinto the atmosphere as a consequence of your actions, which occur atsources which you do not own or control. Other indirect emissions (scope 3)are harder to measure than direct (scope 1) and energy indirect (scope 2)because the data and tools needed are often not available.

However, if you also measure your organisations scope 3 emissions29, youwill get a more complete understanding of your organisations total carbonfootprint and potential exposure to climate change risks. It will help you tounderstand the relative magnitude of, and possible changes in your scope 3

emissions. Identifying your organisations scope 3 emissions and increasingyour awareness of where your organisation sits within the supply chain willenable you to engage with other organisations in that supply chain. If youchoose to calculate your scope 3 emissions, you should focus on thoseemissions that are most significant for your organisation (Significant isexplained below).

To identify and calculate your scope 3 emissions, you might find it helpful tofollow the process set out below:

Step 1: Identify where your organisation sits in the supply

chain

To start with, you should identify where your organisation sits in the supplychain. This will help you to determine the activities which are relevant to yourorganisation and from where you may need to collect data. A supply chain isthe system of organisations, activities, technologies, information andresources that move a product or service from supplier to customer. Yourorganisation may sit in one specific area or within a number of different areasdepending on the complexity of the supply chain. The diagram below shouldhelp you to determine where you sit in your supply chain:

29Excluding consumption of purchased electricity, heat, steam or cooling which should be

reported as a minimum requirement


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An example supply chain:

Step 2: Map out activities connected with the operations ofyour organisation that you do not own or control

Once you have identified where you sit in your supply chain this should helpyou to map out the activities at operations which you do not own or control.This will help you to understand where you need to get activity data from foryour scope 3 emissions and also enable you to engage with otherorganisations in your supply chain. It may be easier to do this in the form of aflow chart or process map.

The following table provides a checklist which should help you do this. Pleasenote that this list is not exhaustive and there may be other GHG relatedactivities that your organisation is connected with:

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EmissionsCategory

Sub-Category

Purchasedassets,materialsand fuels

Extraction of materials and fuels (e.g. mining or drilling)

Production of goods and services that are purchased or

used by your organisation (e.g. buildings, plant &

machinery, office equipment, vehicles, IT services)

Water supply

Transport-relatedactivities

Transportation of purchased materials or goods

Transportation of purchased fuels

Employee business travel by non-owned means (e.g.

public transport, passenger air travel)

Employees commuting to and from work

Distribution of finished goods

Transportation of waste

Electricity-relatedactivitiesnotincluded inscope 2

Extraction, production, and transportation of fuels

consumed in the generation of electricity

Purchase of electricity that is sold to an end user

(reported by utility company)

Generation of electricity that is lost in a transmission and

distribution to the end user (reported by end user)30

Leasedassets,

franchisesandoutsourcedactivities

Emissions from contractual relationships that are not

included within your minimum required emissions due to

the consolidation approach chosen (e.g. leased vehicles,

tenanted buildings, IT data centres)

For more guidance on treatment leased assets, please

refer to Do I include leased assets and activities I have

outsourced?

30Other electricity related activities are accounted for in the UK grid rolling average factor

including transmission and distribution to the end user


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Sold goodsandservices

Use of goods or services by consumer downstream.

Wastedisposal

Disposal of waste generated in operations

Disposal of waste generated in the production ofpurchased materials and fuels

Disposal of sold goods and services at the end of their

life

Waste water

Step 3: Identify which categories of emissions are most

significantOnly some types of emissions will be significant for your organisation. Inorder to determine which emissions are significant to your organisation, youshould make an assessment of your other indirect emissions using thefollowing 5 criteria:

Scale: What are the largest indirect emissions-causing activities with

which your organisation is connected?

Importance to your business: Are there any sources of GHG

emissions that are particularly important to your business or increasethe companys climate change risk, (e.g. electricity consumption in thecase of consumer use of energy using products or emissions fromvehicle use for motor manufacturers)?

Stakeholders: Which emission causing activities do your interested

parties e.g. customers, suppliers, investors expect you to report?

Potential for reductions: Where is there potential for your company to

influence or reduce emissions from indirect emission activities?

Ability to influence data gathering: How easy / cost effective will itbe for you to get activity data or emissions data from your suppliers /

customers?

Step 4: Collect activity / emissions data

The level of data availability and reliability may be a limiting factor when youtry to calculate your other indirect GHG emissions. This is because you willoften be relying on other people and organisations to measure and calculatetheir emissions in a transparent and consistent manner. As a result, data

accuracy may be lower.


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Where possible, it is better to use actual activity / emissions data to calculateyour emissions but emission estimates are acceptable where:

you are transparent about your estimation approach; and

the data used is adequate to support the objectives for which you are

measuring and reporting your GHG emissions.

Step 5: Quantify optional indirect emissions

Defra provides a range of spreadsheets to help you calculate your indirectemissions. This is not an exhaustive list. As a result, both you and yoursuppliers may not be able to calculate all of your other indirect emissions.Defra will continue to develop further calculation tools that will help yourorganisation to quantify your other indirect emissions.

Worked example

In this example, Alpha Software Ltd is an office-based organisation thatdevelops bespoke computer software and, using a sales force, sells theirsoftware directly to their customers. Therefore they sit in both manufacturingand retailing areas of their supply chain. They decided to carry out themapping exercise to identify their immediate other indirect GHG emissions(both upstream and downstream) associated with their operations.


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Source: Defra

They decide that that their most significant emissions are associated withtheir product when it is being used (i.e. their bespoke computer software).This is because:

Emissions connected to the use of their software is comparatively largecompared to their other scope 3 emissions;

It is the most customer-facing component of their business and affectsthe amount of electricity used by customers;

There is considerable scope for emissions reductions throughdeveloping their software application to run more efficiently;

It is relatively easy for them to collect activity data / estimate the use oftheir online software application as they can determine how much theirsoftware application is used by their customers and they can carry outa sample of the IT equipment (hardware) used by their customers.

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4).

Annex G: What can I count as an emissionreduction?

When you report on your emissions reductions, it is important to betransparent about how you have done this. Transparency will help topromote greater credibility around your emission reduction claims.

Step 1: Reduce your own GHG emissions first

To reduce your GHG emissions, your organisation may carry out projectswithin your own operations or within your supply chain (e.g. energy efficiencymeasures, installation of on-site renewables, behaviour change programmes,supplier engagement initiatives).

We would recommend that organisations focus initially on these reductions asyou can achieve cost savings by doing this. Such internal GHG reductionswill be accounted for in your reported gross CO2e tonne figure as theseinternal projects will reduce emissions from within your own operations.You may choose to provide supporting explanations on these internal GHGreduction activities.

Where your organisation generates and consumes electricity from renewablesources backed by Renewable Energy Guarantees of Origin (REGOs) 31certificates, you should account for this in the following way:

You should account for all of the electricity you use in your reportedscope 2 emissions at the Grid Rolling Average factor (unless you donot receive a subsidy see below).

You may report an emissions reduction in your reported net CO2efigure for electricity at the Grid Rolling Average factor. The amountreported in this way should not exceed your actual electricity use32.For a worked example of this, please refer to Box 1 (page 6

Where subsidies are not received (and your generation capacity maytherefore be unmetered), you may include both the consumption andgeneration in Scope 1 gross emissions as zero carbon.

Where your organisation reduces its emissions through internal projects thatcould not take place without the carbon finance from selling carbon credits,

31Renewable Energy Guarantees of Origin (REGOs) are certificates which demonstrate thatelectricity has been produced from a renewable source of energy. One REGO is issued for

each kilowatt hour (kWh) of eligible renewable electricity generated. REGOs are evidence of

who has generated the electricity, and as such back the claim of the generator.

32This means that total emissions reductions from generated renewable electricity (and green

tariffs if appropriate) would not be greater than reported scope 2 emissions.


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these emission reductions will be accounted for in your reportedgross CO2etonne figure. To promote transparency, you should account for any soldcarbon credits in your reported net CO2e tonne figure. For a workedexample of this, please refer to Box 2 (page 65).

Step 2: Decide whether or not to purchase external emissionreductions

In some situations, your organisation may choose to reduce your emissionsthrough external GHG reduction projects that reduce GHG emissions outsideyour operations or your supply chain. This may be because GHG reductionscan be achieved more practically or cost effectively from these externalsources. We recommend organisations list separately external GHGreduction activities which are not accounted for in their reported grossCO2e tonne figure and provide a net CO2e tonne figure. You may do thiswhere these external reduction activities meet Defras good quality criteria set

out below. For a worked example of this, please refer to Box 3 (page 65).

Step 3: Assess the quality of these external emissionreduction projects

Defra has listed the different types of external GHG reduction activities andthe good quality criteria these reductions must meet to report on them as anexternal emission reduction. These are listed in the table below.

GHGReductionActivity

Good Quality Criteria DefraRecommendation

CarbonOffsetting

Carbon credits should meet the followingcriteria for organisations to count them as agenuine emissions reduction. Organisationsshould carry out due diligence to see howcarbon credits meet these criteria:

Additionality Projects must demonstratethat they have produced a saving in carbonthat would not have happened otherwise i.e.the project could not take place without thecarbon finance from selling credits. Theproject must not be required by legislation or todemonstrate compliance against legallybinding targets. This should be demonstratedvia a project methodology developed by a

Where yourorganisationpurchases carboncredits directly, youshould purchaseKyoto-compliantcarbon credits.These are credits

that are covered byone of the flexibilitymechanisms underthe Kyoto Protocol.This includesCertified EmissionReductions (CERs)and other credits33.

33For more information on the Kyoto Protocol, the flexibility mechanisms and the differenttypes of credits see http://unfccc.int/kyoto_protocol/items/2830.php


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recognised body.

Avoiding leakage The project mustdemonstrate that it has not caused an increasein carbon emissions elsewhere. Leakage is

when the carbon saving made at aproject/location/time increase emissionselsewhere. An assessment must be made ofany effects from the project whether up streamor downstream. This must be taken intoaccount in determining the total emissions thatcan be sold from that project.

Permanence - If the project could beimpermanent, (e.g. forestry projects are at riskof disease or fire) then this must be addressed

by the project developer or offset provider. Toachieve this, impermanent projects must beperiodically independently reviewed and, ifnecessary, credits must be replaced when theyexpire or cease to be valid.

Validation and verification - The project mustreceive independent verification. The verifiermust be an accredited and recognisedindependent third party. Purchasers of creditsshould also ensure that robust, independent

validation and verification procedures were inplace to check project were implementedaccording to the methodology andsubsequently monitored to ensure thatemission reductions were properly measured.

Timing Carbon credits should be ex-poste,that is, they must only have been issued fromthe project after the emissions reduction hastaken place.

Avoiding double counting A registry mustbe used to register, track and permanentlycancel credits to avoid double counting ordouble selling. Project must not be doublecounted against another policy or mandatorytargets.

Transparency - Credits should be supportedby publically available

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