Broadening the scope
What happens when companies are required by law to report not just the carbon emissions they generate themselves, but those of their suppliers and partners? Something close to panic to judge by the fact that regulators are fighting shy of including these Scope 3 emissions in their plans for carbon disclosure.
The US Securities and Exchange Commission is moving closer to requiring corporate carbon disclosures in response to investor concerns about the impact of climate change on financial performance, but may opt to exclude Scope 3 emissions.
Some major US companies have backed the idea of a comprehensive carbon disclosure agreement but according to CNBC, the SEC thinks Scope 3 may be a step too far.
For companies which have never needed to know – or chosen not to think about – the GHG emissions from companies in their value chain, the subject is problematic. The majority of industrial carbon emissions are Scope 3, which are also furthest away from a company’s operations. Research for the Carbon Trust shows that for most companies, Scope 3 emissions represent from 65% to 95% of their broader carbon impact.
For the SEC to adopt Scope 3 would put it in line with the existing GHG Protocol which provides tools for businesses to track and calculate emissions and advises all organizations to quantify Scope 1 and 2 emissions when reporting and disclosing emissions. Calculation of Scope 3 emissions is currently considered optional even though it notes that these emission sources may represent the majority of an organization’s GHG emissions.
Overlooking their impact – or being unable to collect the data – implies that as more and more companies set ambitious targets for carbon reduction and announce net zero carbon goals by 2030 or 2040, there will be no way to hold them accountable if Scope 3 tracking and reporting does not improve.
Cynthia Cummis, director of private sector climate mitigation for the World Resources Institute told CNBC that companies “will eventually be held accountable for these targets, and they usually include Scope 3, so this has to be solved”. Other environmental scientists agree that while many companies are not ready for this level of scrutiny it would be illogical to leave Scope 3 emissions out of mandatory reporting given their importance to the overall picture.
The failure of large corporates to address how to track carbon emissions through the supply chain has been a point of frustration for climate experts who have been working on science-based carbon targets, tracking and accounting for decades.
The announcement of the coZEV coalition of cargo owners suggests that some charterers are now serious about reducing their carbon emissions, but whether they can get a good enough handle on the problem remains to be seen. Their carriers continue to rely on a combination of fuel oil, sulphur scrubbers and LNG, with only Maersk so far actually committing to net zero carbon for the ships it will run on renewable Methanol.
Though they may not wish to admit it, shipowners will be relying on fossil fuels and energy efficiency measures for some years to come. However, there’s no reason for their customers not to understand the emissions of the ships that carry their stuff.
A shipowner who drydocks a ship to recoat the hull, fit a Mewis duct, contra-rotating propeller or air bubble lubrication can use the Arctos-1 to measure the improvements in emissions and report them in near real-time.
For all the noise and important statements being made ahead of COP, the fact remains that relying on historical data to estimate emissions based on MRV or DCS or running calculations of fuel consumption based on hindcast weather conditions does nothing to make a serious contribution to understanding Scope 3 emissions.
As Cummis told CNBC there are 600 valid Scope 3 targets aligned with the GHG Protocol but the assumption of a decade ago that there was demand for high transparency supply chain emissions has not been proven in practice. So far, third-party databases offering broad estimates for sectors and kinds of businesses are more common.
“It is fine to get an estimate to understand a relative proportion of emissions by activity,” she said. “But now we have targets and we have to track progress, and it is hard to use average emissions databases for that.”