Avoiding the worst effects from climate change requires countries to collectively limit warming to around 1.5°C (2.7°F) by 2100. The path to reaching this goal includes global greenhouse gas (GHG) emissions peaking before 2025, and then being reduced by 43% by 2030. At the same time, methane needs to be reduced by about a third.
So how do we start making these critical reductions? The key to answering that question lies in the data of where emissions come from in the first place.
Source: U.S. EPA
Nearly every modern human activity generates some form of GHG emissions, so there are a lot of areas to address. Examining the largest sources of emissions, however, keeps reduction efforts focused and impactful.
In the U.S., over 75% of emissions stem from a combination of transportation (of all varieties — planes, trains, automobiles, trucks, and more), electric power generation (from all sources — coal, gas, hydroelectric, wind, solar, and more), and industrial processes. Given their large concentration of emissions, many companies, government agencies, and experts are focusing their reduction efforts here in order to achieve the 1.5°C goal.
Emissions Regulations & Requirements
Companies across industries have numerous motivations to reduce GHG emissions, including moral responsibilities, financial incentives, and long-term business security. There are also an increasing number of regulations that mandate companies to take emissions reductions seriously.
In March 2022, The Securities and Exchange Commission (SEC) proposed a rule change that would require publicly traded companies to include certain climate-related disclosures in their registration statements and periodic reports. A key component of this new rule is the requirement for companies to disclose their GHG emissions. The goal is to provide investors with detailed information about possible climate risks, which can impact a company’s financial performance, both in the near and long terms. This rule is still in its proposal phase so it’s unclear what the final version will entail. The mere presence of the proposal, however, is an undeniable signal to industries that the finance and investment communities will be applying an additional, climate-related lens to all analyses in the future.
Making climate-related disclosures mandatory would be a significant change for many organizations, but the reality is that many publicly traded companies already disclose much of the information the SEC’s new rule would require. Over 70% of S&P 500 companies already disclose GHG emissions in their annual reports, sustainability reports, or company websites. These actions are motivated by multiple factors, including the rise of “conscious consumers.” A recent PwC survey revealed that 83% of consumers believe companies should actively develop ESG (environmental, social, and governance) strategies. Employees, too, want the companies they work for to do more to address climate-related concerns — 91% of business leaders believe their company should act on ESG issues.
Managing What’s Measured
Developing corporate climate-related strategies is serious business and each year more and more companies are undertaking this work both voluntarily and because of new regulatory requirements. Creating these plans requires a company to have an understanding of their specific environmental risks, which are informed by a detailed accounting of a company’s GHG emissions.
Calculating a company’s environmental impact is more complex than just looking at the energy consumed by its operations. Thorough analyses — the kinds required for meaningful climate planning and compliant disclosures — document GHG emissions across the entire value chain from raw material extraction and production to end-of-life product disposal.
Source: U.S. EPA
The GHG Protocol Corporate Standard has created three emissions categories — Scope 1, 2, and 3 — to make GHG emissions accounting more complete and universal. Scope 1 emissions document a company’s emissions related to on-site energy production, on-site manufacturing, and emissions from fleet vehicles. Scope 2 emissions apply to the electricity purchased from a generator or utility and used to power a company’s business. Scope 3 emissions account for all emissions that happen outside of a company’s direct control. This includes upstream activities (those related to the production of goods and services purchased by a company, like steel, fuel, and natural gas) and downstream activities (the emissions that are generated after a product is sold).
Decreasing GHG Emissions
Only once a company has properly accounted for its Scope 1, 2, and 3 emissions, can it begin the process of systematically reducing its environmental impact. Mitigating each emissions type, however, requires different tactics because companies have varying degrees of control over each category.
Scope 1 emissions, which originate from on-site energy production and manufacturing, and company vehicles, can be mitigated by constructing renewable energy or switching to an electric fleet. Scope 2 emissions stemming from purchased electricity can be mitigated by procuring market-based environmental attributes from an energy producer with lower emissions (if they are available). Reducing Scope 3 emissions, which often represent a large percentage of a company’s environmental footprint, requires more work because many of these emissions are far outside of a company’s direct control. Addressing upstream emissions often involves working with supply partners to make their operations and products more sustainable, or switching to a more environmentally friendly supplier entirely. Mitigating downstream emissions can require redesigning products to reduce their long-term environmental impacts and changing the ways customers use and discard products.
Some reductions solutions are relatively straightforward, like swapping in recyclable product packaging. Others, like switching to a more sustainable mining process for raw materials, can be far more complex. In fact, some industries rely on processes or systems that have no current alternatives, which makes near-term, direct reductions related to these activities nearly impossible. When a company finds themselves in this situation, they have the option to financially support sustainable activities in other industries to offset the impact of their own operations until more environmentally-friendly alternatives are directly available to them.
EarnDLT is one way companies can do exactly that. Our platform for quantified emissions makes it easy for companies to purchase environmental attributes from responsible energy producers. These producers’ processes generate fewer GHG emissions than traditional energy production, creating an opportunity for companies to buy these emissions reductions and count them against their own emissions reductions efforts.
Buying & Selling Environmental Attributes
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