By definition, a carbon footprint refers to the sum of all greenhouse gas emissions caused by a company, an individual, a household, an entire country, a product or an event that has taken place. In all cases, the quantification of these emissions is entirely dependent on the boundary that is set as a limit, up to which the carbon footprint can be defined. Since carbon footprinting is relatively new to some, there is often uncertainty surrounding the use of appropriate boundaries for greenhouse gas accounting, and at which part of the process they should be established.
The functional roles, organisational and legal structures of business operations vary in terms of ownership, subsidiaries and various aspects of control over activities. For this reason, one of the first steps involved in greenhouse gas accounting is to clearly define an organisation’s boundaries within the context of a selected emissions consolidation approach, before proceeding with data collection, accounting and monitoring of emissions. It is imperative to have the correct definitive boundaries in place before attempting to quantify emissions in any meaningful way.
As an example:
South Africa’s 2010 FIFA World Cup emitted over 2.7 million tonnes of carbon dioxide equivalent. The breakdown of the emission sources include: the energy consumption by stadiums and accommodation, stadium construction processes, materials used, transport in and between South African cities, and a considerable 67% of emissions were actually attributed to international travel to the games. This illustrates how dependent the accounting process is on establishing the correct operational boundary. A boundary is more easily defined than in some cases than in others. In terms of greenhouse gas accounting for businesses, which are often logistically and economically complex systems, a boundary must be applied carefully.
Set the right carbon footprint boundaries
Greenhouse gas accounting involves the selection of two types of boundaries:
- Organisational boundaries
This is the first boundary to be established, and it dictates which businesses and operations constitute the company for the purpose of accounting and reporting on greenhouse gas emissions (subsidiaries, factories, depots, warehouses, economic interests, etc.)
- Operational boundaries
- Now that the organisational boundaries are set, what emissions within that boundary are associated with, or are a result of the business’s operations? Are they direct or indirect emissions?
To ensure an effective and valuable assessment process, both of these boundaries must be clearly established at an early stage.
Where to draw the line: Organisational boundary
Emissions can be consolidated using two basic approaches, which dictate the extent of the organisational boundary:
- The equity share approach, which dictates that emissions are accounted for based on a company’s share of equity in operations
- The control approach, with which a company accounts for all emissions under its controlThe selected approach must be consistently applied to define which businesses and operations constitute the company for the purpose of the carbon footprint.
Which emission sources to include: Operational boundary
For any company, setting comprehensive operational boundaries will improve its ability to manage a full range of potential greenhouse gas risks and opportunities. After first setting the organisational boundary, the direct and indirect emission sources can be identified based on the chosen approach for consolidating emissions:
- Direct emissions are from sources that are owned or controlled by the company
- Indirect emissions are a consequence of the company’s activities that take place at sources owned or controlled by another company
For reporting purposes, direct and indirect emission sources are classified according to three different ‘Scopes’, which are clearly defined to ensure that companies do not report on the same emission sources. Together, the three scopes provide a comprehensive accounting framework for managing and reducing emissions.
The allocation of emission sources to Scope 1 (direct emissions), Scope 2 (electricity indirect emissions) or Scope 3 (all other indirect emissions) depends on whether emissions are consolidated based on equity share or control. With these variables entrenched in the accounting process, a decisive set of boundaries is vital to a meaningful and valuable inventory.
How it works
Depending on which approach is applied, the scope of an assessment can vary. For example: a distribution company owns a fleet of vehicles which is leased to a client who is responsible for their daily operation. If the company chooses the equity share approach to account for emissions, the emissions associated with the vehicles are included in their direct emissions (Scope 1) because they are wholly-owned company assets. If the company chooses the operational control approach, the vehicles are included in their indirect emissions (Scope 3) because the vehicles are controlled by the client.
Often companies include only their direct emissions and emissions from purchased electricity. More comprehensive corporate value chain assessment approaches track total emissions across a company supply chain. Using the more narrow approach can lead to significant underestimations of emissions, and/or limit guidance for managing emissions. A wider scope can reveal far more opportunities for emission reductions and allow for more sustainable decisions going forward regarding activities, products and services.
It is important to remember that all Scope 3 (indirect) emissions are another entitiy’s Scope 1 (direct) emissions, and drawing the appropriate boundaries must take this into consideration to avoid double accounting. Confidently setting up the right boundaries before embarking on emissions accounting will ensure a more beneficial data set, with information for managing and reducing organisational risks and impacts associated with climate change.
GCX Africa adheres to the international best practice of using the GHG Protocol: Corporate and Accounting Standard (WRI & WBCSD, 2004), which provides detailed and comprehensive guidance on setting organisational and operational boundaries for any organisation.
Written by: Caroline Reay, Sustainable Business Analyst at GCX