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Seven ways to reduce emissions in your supply chain – demystifying Scope 3 greenhouse gas emissions

In most cases, over 60% of a company’s emissions lies outside its own operation, in the supply chain. New guidance released by the Science-Based Targets initiative aims to help demystify Scope 3 greenhouse gas emissions, supporting companies to make material emission reductions.

What are Scope 3 emissions and why are they important?

To help avoid the worst impacts of climate change, companies must reduce their greenhouse gas (GHG) emissions as much and as quickly as possible. This includes emissions from across the value chain (i.e. scope 3) emissions.

Scope 3 emissions often represent the largest portion of companies’ GHG inventories but due to challenges around data quality and degree of control, it can be difficult to know how to make meaningful Scope 3 emission reductions.

Despite the challenges, addressing Scope 3 emissions can lead to substantial business benefits. For example, companies can mitigate climate-related risks within their value chains, unlock new innovations and collaborations, and respond to mounting pressure from investors, customers and society.

How do you calculate Scope 3 emissions?

Calculating Scope 3 emissions can be complicated. The first step is to conduct a Scope 3 gap analysis or screening, to understand what is relevant and determine the materiality of each emission source. The GHG Protocol Scope 3 Standard outlines the components of a company’s value chain (upstream in the supply chain and downstream) that make up a Scope 3 footprint.

Did you know?

The Science-Based Target Initiative (SBTi) requires companies submitting targets to undertake a Scope 3 screening. If Scope 3 emissions make up over 40% of total Scope 1, 2, and 3 emissions then at least 66% of Scope 3 emissions must be included in the target.  Read a blog by our technical lead on science-based targets to understand more.

7 ways to reduce Scope 3 emissions

Once you’ve conducted a screening and have a good understanding of emission hotspots in your value chain the next step is to build a strategy to reduce Scope 3 emissions. This can be difficult due to the global scale and complexity of corporate supply chains. Recent guidance by the SBTi highlights some key levers companies can use to tackle Scope 3 emissions.

 

Scope 3 management is not easy, but new technologies such as data analytics, smart sensors, and blockchain will help by offering powerful insight into complex, global value chains. These technologies will play a key role in business innovation and offer exciting opportunities to improve a company’s environmental footprint, but also its bottom line.

Demonstrating the impact of Scope 3 management?

Complexities around data availability can make it difficult to show the positive impact of Scope 3 reduction strategies. A new standard is under development which aims to help companies account for emissions ‘interventions’ (i.e.  programmes and decisions that reduce emissions in key areas of their supply chain) and include them in reporting in a credible way.  The approach is to be used in conjunction with the accounting methodology provided in the GHG Protocol Scope 3 Standard.

We will keep you updated on the guidance as it develops.

What next?

Whether you’re are the start of your Scope 3 journey or looking to build a strategy to monitor and reduce key Scope 3 emission sources – we can help. Please get in touch at: info@carboncredentials.com

UPCOMING BLOG: Scope 3 biogenic carbon and ‘Net Emissions Change’ – requirements for science-based targets

CRC electricity emissions factor forecast to fall by 17%

Each year CRC participants have the opportunity to participate in a forecast sale where companies can take advantage of cheaper allowance prices. The problem with this is two-fold; it is difficult to know not only how much energy your organisation will consume in the upcoming year, but also what the emission factors will be for that year. Through this piece of research, Carbon Credentials aims to help by providing an understanding of what the emission factor might look like for 2017.

Companies who wish to participate in the forecast sale in order to take advantage of lower allowance prices must order their allowances each April. The forecast takes into account three elements:

  • Predicted energy consumption for the year;
  • The forecast allowance prices, which are published online;
  • Emissions factors.

Because the government emissions factors upon which the allowances will be calculated are not published until June each year, for the past three years we have conducted this piece of research to provide greater clarity around what this emission factor might be[1]. The natural gas emission factors tend to remain steady year to year, so we have focused on what the electricity factor might look like.

Figure 1: An illustration of the factors needed to in order to forecast CRC allowances. Known factors are shaded in green, estimated factors are shaded in blue.

The motivation for this piece of work came during CRC Phase 2 Year 1, when participants were first required to use the most up-to-date emission factors for CRC reporting each year. In the previous phase of CRC, participants had been required to use the 2008 DECC/Defra company reporting factor for electricity for all four years.

When Defra released the emission factors for Phase 2 Year 1 of the CRC in June 2014, the electricity emission factor had increased by approximately 11% from the 2013 figure to 0.5331 kg/CO2. This meant the electricity emissions factor was at its highest level in over a decade.

Figure 2: Electricity generation in TWh by fuel type from 2003 to 2016.

As I explained in my previous blog, in 2012 an unexpected peak in coal powered electricity generation occurred. This was due to the shale gas boom in the US which caused an increase in coal exports and a subsequent drop in European coal prices. Burning coal emits more emissions than natural gas, so the rise in its use caused the emission intensity of UK electricity to increase.

This increase in the grid electricity emissions factor meant that CRC participants who used the government 2013 emissions factor in the 2014/2015 forecast sale had under-calculated the number of allowances they would need.

Methodology & Results

Using data on fuel used in electricity generation and supply, which is published by the Department for Business, Energy & Industrial Strategy (BEIS), we have predicted an electricity emission factor for CRC compliance year 2017/18. By calculating the fuel mix of UK electricity for 2016, as well as the fuel mix for the previous reporting year, we can then estimate the emissions factor for Phase 2 Year 3.

The output of this analysis was a predicted emissions factor of approximately 0.371 kg CO2/kWh, which is equivalent to a decrease of 17% from the previous year. Although this is a significant decrease, some important highlights as published by BEIS in their Provisional 2016 Greenhouse Gas Emissions Trends and Energy Trends support this change:

  • In 2016 coal had a record low generation for the second year in a row of 30.7 TWh (vs. 76.3 TWh in 2015) due to the closure of coal sites and the conversion of a unit at Drax from coal to high-range co-firing (85% to <100% biomass).
  • Low carbon electricity’s share of electricity generation experienced a marginal increase in 2016, reaching a record high, also for the second year in a row, of 45.6% (vs. 45.4% in 2015).
  • Emissions from energy supply decreased by 19% from 2015 to 2016

Figure 3 below illustrates these points and shows that the proportion of coal powered electricity supply, which was the main contributing factor towards the increase in the emission factor we saw in 2014/15, has decreased its share in supply by 59% from 2015 to 2016. Coal is the most emissions intensive fuel that supplies our grid, so this has a noticeable impact on our electricity emissions intensity. In addition to this, the proportion of nuclear produced electricity has increased and there was a small decrease in the percentage share of electricity supplied from oil.

Figure 3: The contribution of each fuel type to total electricity supply by reporting year using data from BEIS, 2016

Despite this, we have seen a 0.1% decrease in the share of renewables in the last year which occurred due to lower wind speeds, less rainfall and fewer sun hours[2], as well as an increase in the portion of electricity produced by gas. Although gas is a fossil fuel, it is roughly half as emissions intensive as coal, so by replacing gas with coal we would still expect emissions to decrease.

Which emissions factor should be used to estimate CO2 emissions in the 2017/2018 forecast sale?

Although the figure of 0.371 kg CO2/kWh for CRC Phase 2 Year 3 is an estimate, it gives a clearer picture of what we are likely to expect when the emissions factors are published later this year. By using this emissions factor to forecast CRC allowances, we can estimate emissions more accurately so participants do not over purchase allowances in forecast sale.

For the forecast allowances to be ordered by the end of April 2017, participants might choose to use the June 2016 emission factors or the emission factor as predicted by this piece of research based on current year data. There is a significant (17%) difference between the two emissions factors, which we have attributed to the important changes in fuel used for electricity generation in the last year.

CRC 2016/2017 Estimated 2017/2018 Percentage difference
0.447 0.371 -17%

As we have highlighted in previous years, we advise being cautious when forecasting allowances. However, from this piece of analysis we believe it is fair to say that the electricity emission factor published later this year will show a decrease[3].

Using the Defra 2016/2017 emission factor as a proxy, however, will result in forecasting generously so that there will be surplus in the account to use for 2018/2019. This will result in a greater saving overall, and means that the budget set aside for forecasting this financial year is fully used. Participants must simply then ensure that this time next year the surplus allowances are taken into account so that they under-forecast for the final reporting year 2018/2019 and then top-up in the buy-to-comply sale so that there aren’t any allowances left over at the end of the Phase.

The 28th of April marks the final working day to purchase your CRC allowances. Before then, you need to forecast your energy consumption based on a predicted emissions factor to give your total emission amount. From this, the best business decision needs to be made on which option to choose.

 

Emma Watson

Corporate Reporting Consultant

 

 

 

[1] It should be noted, however, that actual emissions factors for the 2017/2018 CRC year will not be published until June 2017

[2] It must also be noted that there is no guarantee that either of these emission factors will be an accurate indication of the June 2017 figure. Predicted emissions conversion factors are only a guide to aid forecasting and are not to be taken as the actual emissions conversion factors that will be used to determine final allowance obligations

[3] Read our followup blog on the actual CRC electricity emission factor the government released in July 2017 here: carboncreds.wpengine.com/crc-electricity-emissions-factor-falls-15/