Greenhouse Gases – GHG Accounting

Curbing Global Consumption of HFCs

On 15 October 2016, 197 countries struck a landmark deal to reduce the emissions of hydrofluorocarbons (HFCs), a category of highly potent greenhouse gases (GHG). It is anticipated that this agreement could prevent up to 0.5 degrees Celsius of global warming by the end of this century. The amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer that was endorsed in Kigali is considered to be the single largest contribution the world has made towards keeping the global temperature rise “well below 2 degrees Celsius”, a target agreed at the Paris climate conference in 2015.

HFCs, currently the world’s fastest growing GHG, are commonly used in refrigeration and air conditioning as substitutes for ozone-depleting substances. According to the United Nations, emissions from HFCs are increasing by up to 10% each year as global demand for cooling, particularly in developing countries with a fast-expanding middle class and hot climates, grows rapidly. The Kigali amendment provides that developed countries will start to phase down HFCs by 2019. Developing countries will follow with a freeze of HFC consumption levels in 2024, with some countries freezing consumption in 2028. By the late 2040s, all countries are expected to consume no more than 15-20% of their respective baselines.

Countries also agreed to provide adequate financing for HFCs reduction, the cost of which is estimated at billions of dollars globally. The exact amount of additional funding will be agreed at the next meeting in 2017. While alternatives to HFCs with a smaller impact on the climate are available (such as ammonia or carbon dioxide), they remain more expensive than HFCs. As a result, grants for research and development of affordable alternatives to HFCs will be the most immediate priority for countries to pursue.

Regulatory Additionality

Regulatory additionality is a quality requirement for an emission reduction to be recognized as such.

In order for an emission reduction to be recognized, a project proponent must provide evidence that the project activities and all equipment and substances involved in the achievement of the emission reduction are beyond what is required based on applicable regulatory requirements. Only those emission reductions that are achieved beyond regulatory requirements are considered additional and therefore meet the regulatory additionality requirement test. Reductions that only meet the regulatory required levels are not considered to be real emission reductions.

European Parliament Approves New Rules for Monitoring GHG emissions, including Forestry and Agriculture

On March 12, 2013, the European Parliament approved two new laws to improve EU rules on monitoring and reporting of greenhouse gas (GHG) emissions, including those from forestry and agriculture. It is expected that the Council will adopt these laws, after which they will be published in the Official Journal and enter into force.

Connie Hedegaard, European Commissioner for Climate Action, said: “These new rules will help Europe develop robust evidence-based climate policies and keep better track of progress towards meeting our emission targets. They improve transparency, coordination and the quality of data reported, and forest and agriculture emissions will now be accounted for in a harmonised way. We hope that these new rules will also set an example in the context of the international climate negotiations and serve as a benchmark for transparency of climate action by other countries.”

Monitoring Mechanism

The Monitoring Mechanism Regulation enhances the current reporting rules on Member States’ GHG emissions in order to meet requirements arising from current and future international climate agreements, as well as the 2009 climate and energy package. In particular, the revised Monitoring Mechanism aims to help the EU and Member States keep track of progress towards meeting their emission targets for the period 2013-2020 and to facilitate further development of the EU climate policy mix. The EU and Member States already cooperate to monitor and report GHG emissions, producing annual GHG inventories which are used to assess progress towards meeting Kyoto Protocol emission targets. In addition, information is compiled on GHG projections and on policies and measures to reduce emissions.

The revised rules aim to improve the quality of data reported and introduce some new elements, such as:

reporting of emissions and removals from land use, land use change and forestry (LULUCF);
reporting of Member States’ adaptation to climate change;
reporting of Member States’ and the EU’s low-carbon development strategies;
reporting on financial and technical support provided to developing countries, and commitments arising from the 2009 Copenhagen Accord and 2010 Cancún Agreements;
reporting on Member States’ use of revenues from the auctioning of allowances in the EU emissions trading system (EU ETS). Member States have committed to spend at least half of the revenue from such auctions on measures to fight climate change in the EU and third countries.

LULUCF

The second law approved by the European Parliament establishes common rules for accounting for GHG emissions and removals of carbon from the atmosphere resulting from activities related to land use, land use change and forestry (LULUCF). This represents a first step towards incorporating the forestry and agriculture sectors – the last major sectors without common EU-wide rules on GHG emissions – into EU climate policy. Forests and agricultural lands cover more than three-quarters of the EU territory and naturally hold large stocks of carbon, preventing its escape into the atmosphere. If their capacity to “trap” carbon were improved by just 10 percentage points (for example through improved forest or grassland management), this would remove the equivalent of annual emissions of 10 million cars from the atmosphere.

This decision requires Member States to report on their actions to increase removals of carbon and decrease emissions of greenhouse gases from forests and soils. While the law does not currently include national emission reduction targets for these sectors, such targets may be introduced at a later stage once the accounting rules have proven robust.

More information is available from the European Commission

Accounting for your Footprint / GHG Inventory

A fundamental key to effectively managing your business risk and cost in an increasingly carbon-constrained world is an understanding of your organization’s carbon footprint, which covers emissions generated by your products and supply chain. In order to calculate your carbon footprint, an analysis of your organization’s GHG inventory is essential. A “carbon footprint” represents a measure of the total amount of GHG emissions that are directly and indirectly caused by an activity, organisation or is accumulated over the lifecycle of a product. The carbon footprint captures activities of individuals, communities, companies, processes, or industry sectors and takes into account all direct and indirect emissions. A carbon footprint can be broken down into two parts, the primary footprint and the secondary footprint.
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What is considered “green” or not has always had, and will always have, different meanings depending on a particular point of view as well as the point in time. At the beginning of the green movement, issues such as forest conservation, protection of wildlife and recycling were the focal points. However this has evolved to encompass more comprehensive strategies which we now understand are required to enable meaningful change. These strategies include more holistic approaches to sustainability, biodiversity and climate change. One of the most interesting things in recent years has been the realisation that these strategies make good business sense and result in positive impacts. Examples of these positive impacts include better yields due to crop diversity, lower energy costs due to energy savings, and lower risks and costs associated with having a smaller carbon footprint.

A fundamental key to effectively managing your business risk and cost in an increasingly carbon-constrained world is an understanding of your organization’s carbon footprint, which covers all greenhouse gas (“GHG”) emissions generated by all human direct or indirect activities within the boundaries of direct (Scope 1) or indirect control (Scope 2) of your organisation. In order to calculate your carbon footprint, an analysis of your organization’s GHG inventory is essential.

What is a “Carbon Footprint”?

A “carbon footprint” represents a measure of the total amount of GHG emissions that are directly and indirectly caused by an activity, organisation or is accumulated over the lifecycle of a product (Product footprint). The carbon footprint captures activities of individuals, communities, companies, processes, or industry sectors and takes into account all direct and indirect GHG emissions. A carbon footprint can be broken down into two parts, the primary footprint and the secondary footprint.

The primary footprint is the sum of direct GHGemissions and includes activities such as energy consumption and transportation.

The secondary footprint is the sum of indirect GHG emissions from the entire lifecycle of products used by an individual or organization.

Although carbon footprints are reported in tons of carbon dioxide equivalent (CO₂e) emissions, they actually represent a measure of total GHG emissions. GHGs that are regulated include CO₂, nitrous oxide, methane, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride. CO₂ is used as the reference gas against which the other GHGs are measured and the impact of all GHGs is measured in terms of equivalency to the impact of CO₂by way of global warming potentials. For example, methane is a far more potent GHG than CO₂, so one metric tonne of methane is measured as 21 metric tons of carbon dioxide equivalent, or CO₂e.

The accurate calculation of an organization’s carbon footprint is important in ensuring that GHG emissions are not under-counted or double-counted, particularly where emission reductions will be used in carbon trading and carbon off-setting transactions. A careful review of a organization’s methodology for calculating its carbon footprint will play a significant role in reducing the risks inherent in carbon trading and carbon off-setting, as well as ensure the credibility of carbon transactions.

GHG Inventories

A GHG inventory is a breakdown of emissions by activity for an organization, expressed in terms of CO₂e. GHG inventories provide the basis for (i) identifying organizational, geographic, temporal and operational GHG inventory boundaries, (ii) identifying all direct and indirect emissions sources, and (iii) determining appropriate methods to calculate emissions through protocols.

The effective accounting and management of carbon requires unambiguous, verifiable specifications. This will ensure that a tonne of carbon can be consistently calculated. To that end, an internationally agreed upon standard for measuring, reporting and verifying GHG emissions was introduced in 2006 by the International Organization for Standardization (ISO) and is referred to as ISO 14064.

ISO 14064 Standard

ISO 14064 consists of three standards, which provide guidance at the organizational and project levels, as well as for validation and verification:

ISO 14064-1 specifies the requirements for designing and developing GHG inventories.
ISO 14064-2 sets out requirements for quantifying, monitoring and reporting emission reductions and removal enhancements from GHG projects.
ISO 14064-3 sets out guidance for conducting GHG information validation and verification.

What GHG Accounting Can Do For You

GHG Accounting Services Ltd. (GHG Accounting) provides specialized GHG consulting and accounting services, including (i) emissions reporting and footprint inventory quantification, (ii) emissions reduction project planning, and (iii) quantification, documentation and carbon offset credit registration.

Canadian Federal Government Issues Notice for Reporting of 2010 GHG Emissions

On August 14, 2010, the federal government published a notice in the Canada Gazette requiring all persons who operate a facility emitting 50,000 tonnes of carbon dioxide equivalent or more per year to report their 2010 emissions to Environment Canada no later than June 1, 2011.

On August 14, 2010, the federal government published a notice (the Notice) in the Canada Gazette requiring all persons who operate a facility emitting 50,000 tonnes of carbon dioxide equivalent or more per year to report their 2010 emissions to Environment Canada no later than June 1, 2011. This information will be collected through Environment Canada’s Single Window Reporting System, which was launched in early 2010.

Pursuant to section 46(8) of the Canadian Environmental Protection Act, 1999 (CEPA 1999), persons subject to the Notice are required to keep copies of this information, together with any calculations, measurements and other data on which the information is based, at the facility to which the calculations, measurements and other data relate, or at the facility’s parent company, located in Canada, for a period of three years from the date the information is required to be submitted.

The Minister of the Environment intends to publish greenhouse gas emission totals by gas by facility. Pursuant to section 51 of CEPA 1999, any person subject to the Notice who provides information in response to the Notice may submit, with their information, a written request that it be treated as confidential based on the reasons set out in section 52 of CEPA 1999. The person requesting confidential treatment of the information is required to indicate which of the reasons in section 52 of CEPA 1999 applies to their request. However the Minister may disclose, in accordance with subsection 53(3) of CEPA 1999, information submitted in response to the Notice. Any person who fails to comply with CEPA 1999 may be subject to a maximum fine of $1,000,000 and/or three years’ imprisonment.

Saskatchewan to Move Forward with Proposed GHG Program

Saskatchewan is planning to move forward with its proposed greenhouse gas (GHG) management program, with draft offset program methodologies expected to be released in September 2010.

Saskatchewan is planning to move forward with its proposed greenhouse gas (GHG) management program, with draft offset program methodologies expected to be released in September 2010. These draft guidance documents will supplement the previously released Management and Reduction of Greenhouse Gases Regulations which are anticipated to be approved in fall 2010.

Saskatchewan has set a target of reducing GHG emissions to 20% below 2006 levels by 2020. The proposed threshold for regulated emitters is 50,000 tonnes of CO2 equivalent (CO2e) per year, and regulated emitters will be required to reduce emissions by 2% per year from 2010 to 2019 to meet the 20% reduction goal. In order to meet compliance obligations, regulated emitters will be able to purchase offset credits created from activities that have reduced and sequestered GHG in Saskatchewan and that occurred after January 1, 2006. In addition, regulated emitters will be able to contribute “carbon compliance payments” to the Saskatchewan Technology Fund Corporation, the proceeds of which will be used to invest in GHG reduction initiatives and research.

The proposed Saskatchewan GHG management program is similar to the one currently operating in Alberta, where the emissions threshold for regulation is also 50,000 tonnes of CO2e. Alberta and Saskatchewan are considering linking their GHG programs in order to increase the liquidity of the markets.

Canadian Provinces Forge Ahead on Cap-and-Trade System

Canada’s three largest provinces – Québec, Ontario and BC – are moving forward with a cap-and-trade system designed under the Western Climate Initiative (WCI) to reduce greenhouse gas (GHG) emissions. This decision comes after plans for a cap-and-trade system have been abandoned by the U.S. Senate.

The cap-and-trade system, scheduled to begin trading in January 2012, would cap emissions on large industrial facilities in Ontario, Québec and BC, as well as in California and New Mexico. The five jurisdictions forging ahead are part of the WCI (other group members, such as Utah and Arizona, have not committed to the system). On Tuesday July 27, 2010, the WCI released its comprehensive design strategy (for more information on the design document, please see our overview: link

The WCI’s commitment is to reduce industrial GHG emissions at the regional level from 15% below 2005 levels by 2020.

Each jurisdiction continues to weigh the pros and cons of moving ahead with the WCI system. In BC, any industrial operation emitting more than 25,000 tonnes of greenhouse gas per year will be subject to the system. This threshold will capture 40 operations in the province. While the regulatory framework for a cap-and-trade program has been put in place (under the Greenhouse Gas Reduction (Cap and Trade) Act and its associated Reporting Regulation), the details of the program as they will apply in BC have not yet been settled.

WCI Releases Comprehensive Strategy to Address Climate Change and Stimulate Clean Energy Economy

On July 27, 2010, the partner jurisdictions of the Western Climate Initiative (WCI) released a comprehensive strategy designed to reduce greenhouse gas (GHG) emissions, stimulate development of clean energy technologies, create green jobs, increase energy security and protect public health.

The Design for the WCI Regional Program (the Design Document) is the product of two years of work by seven U.S. states and four Canadian provinces (including Québec, Ontario, Manitoba and BC). The objective of the WCI is to reduce regional GHG emissions to 15% below 2005 levels by 2020. This regional goal will be achieved by:

• creating a market-based system that caps GHG emissions and uses tradable permits to incent the development of renewable and lower-polluting energy sources;

• encouraging GHG emission reductions in industries not covered by the emissions cap, thus reducing energy costs region-wide; and

• advancing policies that expand energy efficiency programs, reduce vehicle emissions, encourage energy innovation in high-emitting industries, and help individuals transition to new jobs in the clean-energy economy.

A recently updated economic analysis by the WCI indicates that this plan can achieve the regional GHG emissions reduction goal and realize a cost savings of approximately US$100 billion by 2020.

Overview of the Design Document

The primary policy recommendations in the Design Document address some of the following key issues:

WCI Cap-and-Trade Program: The central component of the WCI’s comprehensive strategy is a regional cap-and-trade program that will be composed of WCI member jurisdictions’ cap-and-trade programs implemented through state and provincial regulations. The WCI program design encompasses almost 90% of economy-wide emissions in WCI jurisdictions. Each member jurisdiction implementing a cap-and-trade program will issue “emission allowances” to meet its jurisdiction-specific emissions goal. The total number of available allowances serves as the “cap” on emissions. A regional allowance market is created by the member jurisdictions accepting one another’s allowances for compliance. The allowances can be sold between and among covered entities as well as by third parties. This “trading” of emission allowances keeps costs low because it provides flexibility in how and when reductions are made. For example, entities that reduce their emissions below the number of allowances they hold can sell their excess allowances or “bank” them for later use. Selling excess allowances allows entities to recoup some of their emissions reduction costs, while banking allowances will lessen future compliance costs.

The WCI program design also includes important features to ensure that the program achieves regional emissions in a cost-effective way. For instance, emission offsets from sources not covered by the program can be used in limited quantity along with emission allowances to comply with the program. Allowing entities to turn in allowances in three-year periods provides flexibility as to when emissions reductions are made. To address unforeseen circumstances that could lead to increased program costs, WCI member jurisdictions are considering a number of options including an allowance reserve in the event of high-price conditions, increased flexibility regarding compliance periods, and special purpose mechanisms to address specific local conditions.

Not all WCI member jurisdictions will be implementing the cap-and-trade program when it is scheduled to start trading in January 2012, however those expected to move ahead (including Québec, Ontario, BC, New Mexico and California) comprise approximately two-thirds of total emissions in the WCI. According to the WCI, this represents a critical mass and a robust market for achieving significant GHG emissions reductions.

Between now and the planned program start date of January 2012, WCI member jurisdictions will address remaining program design issues and take the steps necessary to make regional trading operational. In addition, they will expand their efforts to develop and implement other core policies and programs to increase energy efficiency and fuel diversification in order to reduce GHG emissions.

Relying on High-Quality Emissions Data from Rigorous Reporting: The WCI understands that accurate, timely and consistent GHG emissions data is essential for effective GHG reductions. As a result, WCI member jurisdictions have developed a reporting program that specifies quantification methods that are rigorous, technically feasible, cost-effective and sufficiently accurate to support the cap-and-trade program. To minimize the reporting burden in the U.S., reporting requirements have been harmonized with U.S. EPA Mandatory Reporting Rule for GHG emissions.

For further information on the EPA’s GHG reporting requirements, please see Link

This way a facility will be able to submit a single report satisfying both WCI and EPA requirements. WCI member jurisdictions in Canada (including Québec, Ontario and BC) have developed their own reporting requirements, which will likely be set up as a one-window GHG emissions reporting interface with Environment Canada. This one-window reporting would meet the requirements of both the federal and provincial governments, thus eliminating the need for duplicate reporting.

Designing for High Quality Offsets: The proposed WCI cap-and-trade system includes offsets to reduce compliance costs by introducing a broader range of emission reduction opportunities. A particular emphasis has been placed on assuring the quality of offsets. The WCI recommend the following for the definition of an offset and criteria to evaluate an offset project:

• Definition: A GHG offset is a reduction or removal of GHG emissions as a result of a project or activity that occurs outside the sectors regulated by the cap-and-trade program. An offset certificate issued by a WCI Partner jurisdiction represents a reduction or removal of one metric ton of CO2e. To be issued an offset certificate by a WCI Partner jurisdiction, each reduction or removal must meet all recommended offset criteria, have clearly identified ownership, follow an accepted protocol, and result from a project located in Canada, the U.S., or Mexico.

• Criteria: Offset projects approved by WCI Partner jurisdictions will meet the criteria described in the Offset System Essential Elements Final Recommendations (June 2010). The criteria recommended by WCI Partner jurisdictions are consistent with the leading offset systems in use worldwide, and will allow the adoption of protocols that produce consistent offsets across the WCI region. The other North American emissions trading systems – RGGI and the Midwestern Greenhouse Gas Reduction Accord – share the goal of ensuring the quality of offsets. The three regional programs released a paper on offset quality (Ensuring Offset Quality: Design and implementation Criteria for a High Quality Offset Program, May 2010) that is consistent with the offset criteria recommended by the WCI Partner jurisdictions.

The Design Document indicates that WCI member jurisdictions will leverage existing protocols to align with the essential criteria and will continue to establish key protocol components for each priority project type. The process of offset project approval through certificate issuance contains important features to ensure offset quality. These processes, which continue to be finalized, will include specific requirements for registration, validation, monitoring, quantification, reporting, verification, certification and issuance of offsets.

Other policy recommendations addressed in the Design Document include:

• setting program emissions limits;

• enhancing compliance flexibility and program adaptability to manage compliance costs;

• maintaining competitiveness and preventing emissions leakage;

• electricity sector;

• designing a fair and transparent auction;

• ensuring a well-functioning market;

• linking programs; and

• coordinating program administration.

To access the complete Design Document, please refer to the WCI Link on this site.

U.S. EPA Issues Final Rule for GHG Emissions from Large Emitters

On May 13, 2010, the U.S. Environmental Protection Agency (EPA) issued a final rule for addressing greenhouse gas (GHG) emissions from stationary sources under permitting programs of the Clean Air Act (CAA). This rule follows the EPA finding in late 2009 that GHG emissions endanger human health, which allows the EPA to regulate GHGs under the CAA. The final rule sets thresholds for GHG emissions that define when permits under the New Source Review Prevention of Significant Deterioration (PSD) and title V Operating Permit programs are required for new and existing industrial facilities. In particular, regulated facilities would be required to obtain permits showing they are using the best available technology to cut emissions when building new plants or modifying existing ones. The final rule is also referred to as the “tailoring rule” because it tailors the requirements of CAA permitting programs to limit which facilities will be required to obtain PSD and title V Operating Permits.

Starting in January 2011, facilities responsible for almost 70% of U.S. GHG emissions from stationary sources will be subject to permitting requirements. These facilities will include power plants, refineries, factories and cement production facilities that emit 75,000 metric tonnes or more of carbon dioxide equivalent, but will exclude small emitters such as farms, restaurants, hospitals and schools. Without the tailoring, small emitters would also be caught by the rule.

Waste landfills and factories that are not already covered by the CAA that emit at least 100,000 metric tonnes of GHGs per year would get a 6 month extension and would not be regulated until July 2011. Sources that pollute less than 50,000 metric tonnes per year would not be regulated until 2016, if ever, according to the EPA.

The final rule is aimed at giving momentum to the climate bill that was introduced by Senators John Kerry and Joseph Lieberman on May 12, 2010. A number of industry lawsuits have been launched which call into question the EPA’s authority to regulate GHG emissions, however it is President Obama’s hope that the final rule will push lawmakers in states heavily dependent on fossil fuels to support the Kerry-Lieberman bill. As currently drafted, the Kerry-Lieberman bill pre-empts automatic EPA regulations; in the event the Kerry-Lieberman bill is not passed by the Senate, the final rule sets up future regulations for large emitters.

For more information, please refer to the Fact Sheet (Final Rule: Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule) issued by the EPA: link

IPCC

IPCC is the acronym widely used to refer to “Intergovernmental Panel on Climate Change“.

The Intergovernmental Panel on Climate Change is a body established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) for the assessment of climate change and its potential environmental and socio-economic consequences.

Website: www.IPCC.ch