With the talks in Paris currently under way, a number of organisations are looking at the implications of the post 2020 targets on their operations and at setting themselves meaningful GHG emission targets to stay within a global temperature increase of 2°C.
By Neil Salisbury
With the talks in Paris currently under way, a number of organisations are looking at the implications of the post 2020 targets on their operations and at setting themselves meaningful greenhouse gas emission targets to stay within a global temperature increase of 2°C from pre-industrial levels. The purpose of science-based targets is to inform business stakeholders on their “fair share” of effort required to achieve the 2°C pathway and the associated implications on company greenhouse gas reduction targets and business activities .
What is a science-based Target?
Targets adopted by companies to reduce GHG emissions are considered “science-based” if they are in line with the level of decarbonisation required to keep global average temperature increase below 2°C compared to pre-industrial temperatures, as described in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).
TIPS ON SETTING A SCIENCE BASED TARGET
I outline below a few tips to help organisations develop meaningful science based greenhouse gas emission targets for their companies. Some of the steps below are valid for any target setting process and Tip#3 is quite specific to science based targets.
Tip#1: Mapping your Activities – determine emissions boundary
It is important to identify what activities are responsible for GHG emissions released into the atmosphere. Therefore, one of the first steps is to map your activities across your supply chain and identify the Scope1, Scope 2 and material Scope 3 emissions relevant to your organisational boundary. A number of guidelines and standards provide definitions and processes for setting your organisational boundary. In Australia the NGER Act refers to operational control and includes all corporate group members including all facilities under the operational control of the corporate group members. Internationally the ISO standard and the GHG protocol can assist you in determining your activities and emissions boundary.
Tip#2: Setting a Base and Target Year
Another important step is to determine the right commitment period for setting specific reduction targets. This means picking appropriate base and target years to track your reduction efforts. When setting a base year, organisations can use either a fixed or rolling base year. However, it is easier to communicate an organisation’s reduction against a fixed base year. In setting a base year, you should either select the earliest historical base year for which verifiable carbon emissions data are available or a multi-year average, if a single year’s data is unrepresentative of the company’s typical emission profile.
In setting a target year, organisations should look to facilitate longer term planning by setting both a long term target and interim short term reduction targets to track progress. Balancing the target level with the target year horizon is a risk management exercise for most organisations. There are pros and cons for setting long term targets. For example, a more distant target may carry greater risks, associated with changes in technology and markets, but it can encourage better planning for large capital investments with longer term GHG reduction benefits.
The methodology or standard you will use to develop your science based targets (see Tip#3 below) may have some bearing on the base year or commitment period. For instance, the sectoral decarbonisation approach (to develop a science based target) has a minimum base year of 2010.
Tip#3: Determine science based target methodology
Various methods can be used to develop a science based target. You need to carefully consider each risks and limitations associated with each method in light of your organisation’s goals and growth projections. The main differentiator between the main approaches described below is that they consider absolute targets or relative targets. based on expected economic growth. The following is a summary of the outline proposed in “Science Based Targets”, an initiative by CDP, WRI and WWF:
– The sectoral decarbonisation approach (SDA): This is probably the most comprehensive of approaches at it provides a sector-based approach for companies to set GHG reduction targets necessary to keep to a global 2°C temperature rise. The SDA has a subsector-level approach that differentiates it from other methods and global least- cost mitigation perspectives. The SDA allocates the 2°C carbon budget to different sectors: using the detailed sector-scenarios from the International Energy Agency’s 2°C Scenario (IEA 2DS) model, it is possible to estimate the 2°C-compatible carbon intensity for any sector by dividing the total direct emissions of the sector in any given year by the total activity of the sector in the same year.
– C-Fact: This method recommends that organisations should divide the company’s GHG footprint by its contribution to the world’s GDP. This is measured by dividing the company’s gross profit (or EBITDA + Operating Expenditures for non-profits or start-ups and when a company is not generating revenue) by the world GDP. Targets are then determined using approximate growth rates through 2050 using analyst or internal financial forecasts to derive the Carbon Intensity Reduction Rate for each company.
– MARS Method: MARS’ approach was to compare the group’s emissions to global GHG emissions and to scale it down linearly required world emissions to their group; i.e. the target is proportional to the overall world’s target, regardless of sector or any other consideration (The world’s emissions are at ~35 GT/yr. and need to come down 80% and MARS is ~14 MT and needs to come down 80%). This is based on absolute and not intensity metrics.
– GEVA (greenhouse gas emission per unit of value add): This approach proposes that if all nations reduce their “GHG emissions per unit of GDP” by 5% per year, global GHG emissions will be 50% lower in 2050 than in 2010, as long as the global economy continues to grow at its historical rate of 3.5% per year. The suggested 5% per year decrease can be translated directly into a corporate resolution to reduce corporate “GHG emissions per unit of value added” (GEVA) by 5% per year.
Tip#4: Setting a target
A study of the world’s largest 100 companies (by CDP) found that absolute targets are almost twice as popular as intensity targets, with many companies having both absolute and intensity metrics targeting different parts of the business. Among the group going for intensity based targets, half used a normalization measure based on a unit of production and a third used an intensity measure linked to revenue. Regardless of your choice, you should consider the following in setting a target:
- The development of a projected baseline emissions scenario under a business as usual scenario taking into account the companies investment and operations plan.
- The development and modelling of compatible emission pathways based on the identified methodology to assess the potential for organisations to meet these targets.
- Include, where possible, identified and potential emission reduction actions in the options analysis to determine overall likelihood, uncertainty and potential gap to meet the nominated targets.
- The scale of potential emissions reductions likely for your organisation,
- Factors outside your control in relation to emissions or energy use,
- The potential impact of setting targets on the growth of your organisation,
- The opportunity for cost-effective emissions or energy reductions, and
- Undertake detailed stakeholders’ consultations.
Tip#5: Track and report progress against target
Once you have established your targets and once implementation of measures to meet these targets is in train, it is important to track progress towards the targets. This will allow the adjustment of management and mitigation strategies and targets to reflect changes in context and business conditions. Typically, an action plan that provides a roadmap will be developed to help your organisations achieve set targets in an efficient way. While specific targets and business considerations will dictate the specific measures that will go into the action plan, it is actually important to include annual metrics to track progress. The plan can then be adjusted to incorporate new reduction measures, new technologies becoming available, and enabling policies that are put in place.
TiP#6: Verify emissions reductions
At a minimum, internal processes must be in place to check that expected emissions reductions eventuate as a result of implemented measures. This is essential to good governance and will enable organisational learning. While this is typically seen as a cost to the bottom line, it is important that you receive independent assurance/verification over the reported GHG emissions. Independent verification can enhance the credibility of an organisation’s progress towards its targets but it can also highlight any issues / risks that the organisation faces in achieving its targets.
For any questions on science based targets or to register your interest, contact our sustainability team
Point Advisory is an integrated sustainability consultancy. We have advised a large number of corporates and government agencies on target setting.