In these posts we've talked before about the value of knowing the carbon footprint for your organization (LINK). Getting to the point where that data is actionable, you're first going to have to get the raw data and break down where you're greatest carbon liability lays. There's a good chance that the majority of your calculations will be for one or two sectors of your operations (supply chain or facilities for example) but there's some language you should know first so you can look at the data and know what you're seeing. What are "Scope 2" emissions? How does employee travel get calculated? How would you even know what kind of power comes into your building over the electric lines?
Hello and welcome to Climate|Money|Policy where we explore climate change as a business issue and an opportunity to grow your organization. Today we're going to get into the details of these and other questions with enough depth to create clarity for the average executive. In doing that we'll lay out some ways to think about the numbers and how they could impact your decision making. First the basics:
The 3 Classes of Emissions
Reasonable people have long recognized a difference between the kinds of liability you're responsible for and the kind you're simply downstream from. For that reason there are three classes or Scopes of emission. You can think of theses as concentric circles with your organization at the heart of them. You have more influence over the close circles and less over the far ones.
Scope 1- These are the emissions created by the organization directly. Fuel burned in company owned vehicles is a good example.
Scope 2- In the second circle you have indirect emissions. The carbon emissions created at the power plant whose electricity you use fit into this category.
Scope 3- Here you have the indirect emissions that are created by someone else but which only come into being when you need a service (usually someone else's scope 1 emissions). Think airline emissions from flights you're on or the emissions of your suppliers.
There's our groundwork. Now the details.
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Scope and Strategy
Scope-1: "Emissions You Have Receipts For"
A quick test for scope-1 emissions is whether you've been given a receipt for the fuel being burned. If you're organization paid directly for the gasoline/natural gas/oil/propane/wood etc. then it falls under scope-1. There are exceptions to this rule. Companies that deal in chemistry and materials manufacturing being the two that come most quickly to mind. Of the three types, you have the most control over scope-1 emissions but you'll find that they're often difficult to get control of. The reason for this is that you're going to have to make some kind of organizational change to move the needle. You'll have to replace vehicles with ones with better mpg ratings or outsource your deliveries or change how much water you heat.
A concrete manufacturer or a foundry however will have a much tougher time. Here they run up against the practical limitations of not just their operation but of the technology of their industry. To make a change here you need to innovate an entirely new process or product for your industry or sector. No easy task but the market advantage on the other side of that innovation is huge. Right now several companies are racing to get the edge on new types of masonry materials that are made with a fraction of the emissions.
Scope-2: "Emissions From Your Utilities"
One circle removed from emissions you create on-site are those that are created off-site for energy used on-site. When a power plant burns coal or natural gas to generate electricity and transmits that power to you, the emissions created fall in your scope-2. This accounting also applies in the case of heating, cooling, hot water, steam or any other utility product that gets piped into your facility from somewhere else. What's good about scope-2 emission is that although you don't have as much control over the facility creating the emission, it's simple to get them off your ledger. In most of the country power has been deregulated so you can switch providers tomorrow. Better still if you have the space you can install on-site renewable power in the form of solar, wind, geo etc.. Unfortunately, in many parts of the country renewables haven't reached equality in their pricing with fossil fuel power but that's changing. By 2020 it will be cheaper to buy wind or solar in nearly every state (this is called grid-parity).
Scope-3: "What You Can Influence But Not Change"
By far the trickiest of the three to deal with are scope-3 emissions. It's extremely common for an organization to have a tough time calculating this number, let alone influencing it. The general rule here is that when you have a partner, provider or employee who creates scope-1 emissions in order to fulfill their obligations to you, those emissions are part of your scope-3. Here are a few examples
- The burning of gas when your employees commute to work
- Emissions from air travel for business
- Your suppliers scope-1 emissions relative to services they provide you
- Your entire value chain's scope-1 emissions relative to products they provide you
- The emissions of your distribution channels relative to your products or services
As you can imagine this can get challenging. Think about a company like Wal-Mart and how difficult it must be for them to calculate the emissions of their 1M+ employees world wide. At some point that number has to be calculated as an aggregate. As discussed in other posts (HERE) you can learn a lot about your suppliers by working this calculation. That kind of knowledge can help you improve the business model of your partners and secure the long term sustainability of your supply chain. It's also a good measure of other more subtle data points.
How is this useful? Answer: Risk, Waste, & Things More Subtle.
By now you should understand that the calculation is an important optic in risk management. Carbon legislation and stranded assets are a big topic in their own right so I won't cover them here but suffice to say that reducing the final numbers is a good thing for stability. Past that there's the general issue of waste. Carbon is almost a direct corollary to energy and lowering the number means leaning out your process.
Then there are other things. Your suppliers or distributors may not be as sophisticated as your operation and they may not take as long a view for their future as you take to yours. This is a good metric to help you get a better look at their operation and thereby make yours more sustainable. Finally, consider this example in the category of "other benefits": two different business units which create the same work product but have vastly different employee carbon footprints relative to commuting. There's likely going to be a high correlation there with other data like employee happiness and labor costs. Why? Think about it. People who have to travel a long distance and use a lot of gas want to get paid more. They often have a different view of what's important in a work/life balance. There are lots of ways to tease out interesting facts from analysis of the data. If only you'll take the time to look at it.