As part of the net-zero transition, companies now need to take action and mitigate climate change beyond the scope of their value chains. EcoAct Senior Consultant, Lau Tambjerg looks at the emerging concept of avoided emissions and how it could benefit your company.
Beyond Scope 3
The Science Based Targets initiative’s (SBTi) global standard for setting net-zero targets was launched just before COP26 last year. This Net-Zero Standard establishes best-practice for companies to set emissions reductions targets and remove residual emissions. Rapid and significant reductions in operational and value-chain emissions are essential for limiting global temperature rise to 1.5°C. EcoAct’s 2021 research of publicly listed companies found that almost two thirds (65%) are committed to net-zero but much more action is needed to avoid the worst impacts of climate change.
Now in addition to setting reductions target for emissions within the value chain, the SBTi is asking companies to consider their ability to reduce society’s emissions beyond their Scope 3. The WRI defines these ‘avoided emissions’ as emission reductions that occur outside of a product’s life cycle or value chain, but as a result of the use of that product. This can include activities such as manufacturing a catalyst to improve production efficiency, providing services enabling energy savings, or selling digital technologies that reduce the need for business travel. These types of activities lead to avoided emissions as they reduce, or avoid completely, emissions from activities that fall outside the company’s Scope 3. Other terms used for avoided emissions include Carbon Handprint, Scope 4, and Climate Positive.
Benefits of setting avoided emissions targets
Actively setting targets for avoided emissions has several benefits:
- Commercial opportunities
New goods and services that avoid greenhouse gas (GHG) emissions are a huge opportunity for businesses to meet the growing demand from stakeholders who want to reduce their climate impact. Setting a target is a way of clearly articulating how your company is taking responsibility and becoming a positive contributor to society, which in turn can attract new customers and enable you to stand out from your competitors. For example, IKEA describes how it wants to become climate positive by supporting and collaborating with suppliers to reduce its total footprint, not just emissions associated with IKEA products. It also wants to enable customers to save energy and generate their own renewable energy. (e.g. with solar panels).
- Innovation and productivity
Providing employees with clear climate targets and the empowerment to contribute to them can be a powerful motivator for employees and can encourage eco-innovation. A study of Japanese manufacturing companies found that green research and development investment for eco-innovation not only led to lower emissions, but also improved financial performance. Similarly, it has been found that the clearer the link between employees’ work and its impact on the society and planet, the greater the motivation to improve productivity.
- Stand out as a climate leader
Carbon measurement and reporting is now a standard requirement and expectation. While this is a very positive step in providing transparency and accountability, it conversely no longer represents a differentiator for a company. Instead identifying avoided emissions targets articulates how a company can do more than its competitors and help society decarbonise.
What does emissions avoidance involve?
Currently, there is no set standard for calculating avoided emissions or for setting avoided emissions targets. Therefore, companies interested in defining their own targets rely on varying guidance. Here are two examples and their implications for setting avoided emissions targets:
1 . The Avoided Emissions Framework – Mission Innovation
The Avoided Emissions Framework (AEF ) developed by Mission Innovation provides an excellent overview of the calculation methodology for avoided emissions along with several useful references.
In its most basic form, the calculation of avoided emissions takes the same form as any other carbon footprint calculation. This is multiplying activity data (“volume”) with an “avoidance factor” to determine the total GHG emissions avoided. The “avoidance emissions factor” reflects the net avoided emissions per unit of activity. This approach is taken for each solution, product and service which avoids emissions.
Figure 1: Basic CO2e Avoidance Calculation
The calculation of the avoidance factor is complex and should be based on existing academic or industry studies, or otherwise based on relevant data and reasonable assumptions. The AEF identifies eight general steps for quantifying avoided emissions. It is illustrated linearly, but in practice is likely to be an iterative process in collecting and refining data and identifying applicable studies and methodologies.
In the calculation, the AEF expects the assessment of avoided emissions to follow the GHG Protocol accounting and reporting principles of relevance, accuracy, completeness, consistency, and transparency. This in turn follows the principles of Life Cycle Assessment (LCA) as set out in ISO 14040 and ISO 14044.
The net avoided emissions factor is determined by enabling effects and rebound effects as illustrated below:
Enabling effects cover two main aspects:
- Primary enabling effects of immediate reduction of Business-As-Usual (BAU) emissions occurring as result of implementing the product or service
- Secondary enabling effects are those expected to reduce emissions relative to the BAU system, but which occur over a longer timeframe or as a result of increased scale of adoption.
- Rebound effects occur when carbon emissions increase due to often unintended or ancillary use of the enabling solution.
The avoided emissions factor always include primary enabling effects. Secondary enabling effects and rebound effects can be included if these can be robustly measured and monitored over time, but should be acknowledged and documented.
2. World Resources Institute (WRI) – Estimating and reporting the comparative emissions impacts of products
This paper from WRI provides procedures, recommendations, and guidance for estimating individual products and the comparative emissions of these and hence the avoided emissions from the use of such products.
The guidance discusses many of the methodological challenges associated with calculating avoided emissions and a number of key recommendations for dealing with these.
Additionally, 4 types of targets are identified by WRI as:
No set method for setting these targets exist and it therefore depends on the nature of the company and the preferences of stakeholders in terms of the type and terminology of the target.
The different types of targets have various pros and cons. For example
- Absolute targets can be straightforward to communicate but there is less certainty they will be achieved and so they require a robust measurement methodology
- Ratio targets, in addition to requiring a robust assessment of avoided emissions, also require a comprehensive Scope 1, 2 and 3 emissions inventory, but provide an excellent reference of scale and enable clear communication
- A revenue-based target provides a quantifiable measure for increases in sales of products but lacks quantification of emissions
- Finally, product development targets, indicate ambition, but can be hollow as they do not directly reflect quantified sales nor avoided emissions.
The nature of the target should therefore be carefully considered when setting it, as this will identify which employees will engage with the target and in what manner. Similarly, the different targets will also be understood differently by various external stakeholders. It is important also to consider what internal requirements and resources are needed to measure, track and meet the target.
The target methodology
As no standard is available to directly reference when establishing an avoided emissions target, we believe it is important to clearly document and potentially communicate the emissions calculation and target methodology. BASF for example provide a summary of their method and Walmart has published an extensive accounting methodology. Within this target methodology we recommend considering and articulating as a minimum:
- Organisational boundary of the target: (groups of) products/services covered by the target
- For example, Product groups X, Y, Z or business unit A
- Emissions boundary: what is the scope of the emissions to include
- For example, full cradle-to-grave assessment or simply a boundary that specifies where material differences exist between product and counterfactual
- Functional unit: describing characteristics delivered by the solution and ensuring equivalency to the counterfactual
- For example, 1 km driven by passenger car (i.e. in either electric or ICE vehicle)
- The counterfactual: relevance as benchmark and definition both current and future situation
- For example, ICE vehicle as opposed to an equivalent EV
- Allocation: consideration of qualitative or quantitative attribution of avoided emissions impact across value-chain partners
- For example, 25% to electric charging infrastructure provider, 5% to battery manufacturer etc.
- Disclosure & target wording: what and how is the target and methodology communicated
- For examples, see below
Some good examples of avoided emissions targets
Many different companies have set targets for and communicated their avoided emissions. Below are some well-known and interesting approaches:
Walmart’s Project Gigaton was established in 2017 and is an example of an absolute avoided emissions target. The target seeks to avoid one billion metric tonnes of emissions from Walmart’s global value chain by 2030. The extensive methodology is a good example of how emissions can be considered from an extensive and heterogeneous value chain.
- Trane Technologies
Trane’s Gigaton Challenge resembles Walmart’s target and represents a significant ambition for a purely B2B company. Different to Walmart, the target represents an ambitious vision with most of Trane’s emissions being downstream, the onus is on the company themselves to innovate and develop the solutions to meet the target.
Neste is another example of an absolute avoided emissions target aiming for 20 m tonnes CO2e annually by 2030. The company’s target aligns with the Carbon Handprint methodology which represents another defined way of assessing avoided emissions.
BT set an avoided emissions ratio target of helping customers save three times the emissions of BT’s own end-to-end operations. In its 2021 report, the company reported that they had met the target a year early, representing around 13m tonnes of CO2e emissions avoided. And further BT has commissioned research to discover how BT can further play a role in a net-zero emissions world.
Linde, the multinational chemical company, could in 2020 report an avoided emissions ratio of 2.3, with GHG emissions (Scope 1 & 2) of 37.2 m tonnes CO2e versus 85 avoided.
Setting your avoided emissions target
In conclusion, avoided emissions can represent a way your company can do more for the global transition to a net-zero world beyond reducing your own Scope 1, 2 and 3 emissions. Setting a target for doing this can provide an effective way of demonstrating leadership, accelerating climate action, encouraging innovation, and your value chain.