GHG Accounting Fundamentals

September 29, 2009

Presentation Overview

Background and Greenhouse Gases

Framework of GHG Inventory and Reduction Plans

Inventory Concepts

• Emission Source Categories

• Boundaries

• Absolute vs. Intensity-Based

Existing Protocols

Greenhouse Gases

Background: The Greenhouse Gas Effect

Background: The Science

From the Intergovernmental Panel on Climate Change (IPCC), Fourth Assessment Report:

“Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level”

“Global atmospheric concentrations of CO2, methane (CH4) and nitrous oxide (N2O) have increased markedly as a result of human activities since 1750 and now far exceed pre-industrial values determined from ice cores spanning many thousands of years.”

“Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic GHG concentrations. It is likely that there has been significant anthropogenic warming over the past 50 years averaged over each continent (except Antarctica)”

Whether one agrees or disagrees with the findings of the IPCC is in some ways

irrelevant. This is the issue that has captured the attention of national and local

government leaders, regulators, the public, shareholders, insurance

companies, and lenders and other financial institutions. Response is

becoming less and less voluntary.

Background: Greenhouse Gases

6 GHGs Typically Covered by Existing Regulations / Protocols:

Carbon Dioxide - CO2

Methane - CH4

Nitrous Oxide - N2O

Sulfur Hexafluoride - SF6

Hydrofluorocarbons - HFC’s

Perfluorocarbons - PFC’s

Additional GHGs / Factors Impacting Climate:

Other “F-gases”

• CFCs / HCFCs, typically not counted because regulated by Montreal Protocol mechanisms

• NF3 included in proposed Federal cap & trade legislation

• Other fluorinated gases such as HFEs included in recent EPA mandatory reporting rule

Water Vapor

Ground Level Ozone

Carbon Black

Aviation Contrails

Ongoing debate regarding whether high-altitude emissions (aircraft) have greater impact than ground-level emissions

Background: Global Warming Potential

Global Warming Potential (GWP) Definition:

“The ratio of radiative forcing (degree of warming to the atmosphere) that would result from the emission of one unit of a given GHG compared to one unit of carbon dioxide (CO2).“

1

i.e., a measure of the climate impact of a given mass of one GHG relative to an equal mass of release of CO2, based on a defined time horizon

1 Source: The Climate Registry General Reporting Protocol, Version 1.1

Global Warming Potential Estimates

Global Warming Potential Estimates

GWP (100-year)

SAR TAR AR4

CO2 1 1 1

CH4 21 23 25

N2O 310 296 298

SF6 23,900 22,200 22,800

HFCs 140 – 14,800

PFCs 6,500 – 12,200

Source: Intergovernmental Panel on Climate Change, Second Assessment

Report (1995), Third Assessment Report (2001), and Fourth Assessment

Report (2007)

Setting the Framework for a GHG Reduction Program

The Pathway to GHG Reduction

Climate Change Drivers Converging

The risks and effects of climate change have been accepted by the scientific, regulatory

community and a growing number of public stakeholders

Driver Private Sector Federal Sector

Regulatory Risk New GHG legislation

New rules and regulation

New GHG legislation

New rules and regulation

Physical Risk Transportation Networks

Intense Storm Events

Energy demand and delivery

Energy demand and delivery

Impacts to Infrastructure

Intense Storm Events

Drought

Financial Risk Redefining “materiality” to include Climate Change

Availability of insurance and investment capital

Fiduciary responsibility

Rising energy prices

Efficiency requirements

Base infrastructure rework

New Market Opportunity

Growth in carbon credit trading

Building a “green energy” economy

Environmental Stewardship

Inventory Concepts

Reporting Principles

Relevance Reflects GHG emissions, serves decision-making needs

Completeness Report everything within the boundary, state exclusions clearly

Consistency Support meaningful comparisons over time, document change

Transparency Clear audit trail

Accuracy Minimize uncertainties as far as practicable, reasonable assurance for uses

Emission Sources

Scope 1: Direct Emission Sources

• Stationary Combustion (e.g. boilers for comfort heating, boilers for electricity generation)

• Mobile Combustion (e.g., vehicles)

• Process Related Emissions (e.g. N2O byproducts of ozone generation)

• Fugitive Emissions (e.g., methane from WWTP surfaces, leaks of natural gas from pipelines)

Scope 2 – Indirect Emission Sources

• Use of electricity, steam, and/or hot/chilled water

• Use of electricity intentionally double counted in context of Scope 1 emissions (ownership by another entity)

Scope 3 – Optional Indirect Emission Sources

• Upstream or downstream activities

• Examples: raw material transport, waste removal and disposal, product transport, landscaping, employee commute

• Generally considered part of GHG “footprint” rather than “inventory”

Emission Scopes

Emission Scopes & Life Cycle Considerations

A water utility’s inventory includes GHG emissions within its

organizational boundary. A footprint includes lifecycle GHG

emissions, and is typically far broader.

Inventory

Stationary combustion, indirect electrical emissions, etc. from facilities owned or

controlled by the utility

Water conveyance to utility systems

Off-site GAC

regeneration

Footprint Other emissions indirectly

resulting from utility operations

Outsourced solids handling

and transport

Emissions from production of

purchased LOX

Organizational Boundaries

Determining the breadth of facilities and operations to include in the emission inventory

Two common methods specified for organizational boundary definition

• Equity share approach (all owned or partially owned facilities or emission sources included, pro-rated based on fraction owned)

• Control approach (all facilities or emission sources under the control of the entity are included 100%)

• Approach must be commonly applied across entire scope

• consider shared, co-located and outsourced operations

Addressing mergers and acquisitions

• Boundaries change over time, and procedures are specified for how current and prior year inventories are adjusted based on organizational changes

Also may consider geographic boundaries

Organizational BoundariesOrganizational Boundaries

Choose:

Report by Ownership or

Control

Test Control: If Own (>50%),

or control HS&EThen: Report 100%

Else: Report 0%

Report by Ownership Report by Control

Report by Equity Share

Organizational Boundaries- Leased Sources

Finance/ Capital Leases- treated as an asset on the balance sheet

Operational Leases- Everything else

• Control is defined as the ability to pay electricity bills, control H&SE policy, etc.

Choose:Report by Ownership or

Control

Test Control:

If Pay utility bills

Report by Ownership Report by Control

Finance Leases

Operational Boundaries

GHGs Relevant to Water Utilities - Group Discussion

GHG Relevant Sources

CO2, N20, CH4 Stationary-

Mobile-

Process-

Indirect-

HFCs

PFCs

SF6

De Minimis Emissions

Latin origin meaning, “of little importance” or “at a level that is too small to be concerned with.”

Historically, de minimis emissions were excluded from inventories. By most current protocols, all identified emission sources must be included whether de minimis or not – however sources shown to be de minimis are held to a lower standard of rigor for data quality

De Minimis threshold ranges from 3 – 5% of overall emissions total, depending on the referenced protocol

WaterRF study showed that most water utility sources not currently defined in existing protocols are likely de minimis

Absolute Emissions: Simply the sum of emissions from all sources (ex. tons of CO2-e)

Emissions Intensity: Total emissions correlated to a production or output metric (i.e., absolute emissions / normalization metric)

• Example: tons of CO2-e per million gallons of water treated

• Allows benefits of projects or progress towards reduction goals to be recognized even in light of organization growth or mergers

Absolute VS. Intensity Based Reporting

Baseline Emissions

For entity-wide emission inventories, baseline or base-year emissions typically refer to the total emissions in the first year of a period over which a reduction effort is planned

• Used as the baseline against which progress towards a reduction goal is assessed

• Base-year emissions may be adjusted based on organizational boundary changes, in particular for mergers or divestitures

For specific emission reduction projects, baseline is the projected emissions “but not for” the project

• May be defined as “static” – assuming no changes but not for the project, or “dynamic” – acknowledging that other changes would have occurred

• Discussed more in afternoon session

Benchmarking

Purpose of Benchmarking

• Evaluation of emissions over time in relation to targets or industry benchmarks

• Facilitation of comparisons between similar businesses, processes, or products

• Improving public understanding of an entity’s emissions profile over time, even as the business activity changes, expands, or decreases

Benchmarking

Sum emissions depending on how benchmarking will be used

• facility type (source, treatment, distribution, buildings/infrastructure, fleet, and other)

• emission source type (stationary equipment vs. generators, mobile fleet vs. handling equipment, electricity usage for offices vs. electricity usage for transfer pumps, etc.)

• source category (direct, indirect, and other indirect)

• CO2-e

Inventory Management Plan (IMP)

Why develop an IMP?

• Institutionalize the process

• Minimize workload

• Prepare for audits and certification

• Increase credibility under reporting programs

• Roadmap for the inventory

• Achieve the Reporting Principles

What does the IMP look like?

Could be a single document that spells out all requirements

Could be an overview document (or web-based tool) that links to:

• existing or new SOP’s

• software data base user guides

• job descriptions

• etc.

IMP Outline

• Organizational Boundaries

• Operational Boundaries

• Quantification Methods and Factors

• Data Management- Type of data, process flow, Quality Assurance

• Adjustment procedures

• Management Tools- Training, Roles &Responsibilities

• Auditing and Verification

Existing Protocols

Organizations Publishing Existing Protocols

World Resource Institute / World Business Council on Sustainable Development (WRI/ WBCSD)

EPA – Climate Leaders / National Greenhouse Gas Registry

DOE 1605b

The Climate Registry (TCR)

California Climate Action Registry (CCAR)

International Council for Local Environmental Initiatives (ICLEI) –Local Governments for Sustainability

Chicago Climate Exchange (CCX)

ISO 14064

United Kingdom Water Industry Research (UKWIR) – Workbook for Quantifying Greenhouse Gas Emissions

WRI/ WBCSD GHG Protocol

Starting point for virtually every protocol that is available today

Consists of 2 separate but interrelated modules:

• GHG Protocol—Corporate Accounting and Reporting Standard

• GHG Protocol—Project Accounting

WRI/ WBCSD GHG Protocol

GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6

Sources of GHGs - Scope 1 (direct), Scope 2 (indirect), Scope 3 (optional indirect) emissions

Materiality Threshold (uncertainty error range potentially causing material misstatement) is defined

Emission factors based on IPCC and international energy data sources (except US energy is based on e-GRID)

Includes guidance and calculation tools for:

• Stationary Combustion, Indirect Emissions, Mobile Combustion, HFC usage, and Sector specific modules for the Cement Industry, Aluminum Production, Iron & Steel, Pulp & Paper, Ammonia Production, etc.

Does not include a registry

EPA Climate Leaders /

National Greenhouse Gas Inventory

GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6

Sources- Direct, Indirect, Optional

Materiality or de minimis threshold is not defined – all GHG sources must be included in baseline

Emission factors are based on US Sources- e-GRID, DOE/EIA

Includes guidance for:

• Stationary Combustion, Indirect Emissions, Mobile Combustion, HFC usage, and Sector specific modules for the Iron & Steel, MSW Landfilling, HFC manufacturing. Others are drafted- Cement Industry, Aluminum Production, Pulp & Paper.

DOE 1605b

The U.S. Department of Energy (DOE) set up a voluntary reporting program to help organizations and individuals measure and record the actions they have taken to reduce GHGs or to increase carbon sequestration.

The program is based on General Guidelines for the Voluntary Reporting of Greenhouse Gases [Section 1605(b) of the Energy Policy Act of 1992].

DOE 1605b

GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6

Sources- Direct, Indirect

De minimis threshold defined as 3% of total GHG inventory

Provides a methodology rating approach

• Stationary

– Monitoring

– Mass balance using Carbon content of fuel

– IPCC for CH4 and N2O

• Indirect

– Generator specific factors

– EIA

– e-GRID

Includes guidance for:

• Stationary Combustion, Indirect Emissions, Mobile Combustion, Process emissions, geologic sequestration, forestry, agriculture

The Climate Registry (TCR)

The Climate Registry is policy-neutral collaboration among 40 states; 9 Canadian provinces; 6 Mexican states; and 3 Native American tribes aimed at developing and managing a common greenhouse gas emissions reporting system.

• Goal is to improve consistency

and transparency between

programs and establish a high

level of integrity in emissions

accounting and reporting.

The Climate Registry (TCR)

GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6

Sources- Direct, Indirect, Optional Indirect

De minimis threshold defined as 5%

Emission factor sources- EPA, IPCC, Climate Leaders, e-GRID

Protocols are equivalent to WRI/WBCSD

California Climate Action Registry (CCAR)

The California Climate Action Registry (CCAR) was established by California statute as a non-profit voluntary registry for GHG emissions. The purpose of the CCAR is to help companies and organizations with operations in the state to establish GHG emissions baselines against which any future GHG emission reduction requirements may be applied.

Participants include businesses, non-profit organizations, municipalities, state agencies, and other entities.

CCAR staff were instrumental in establishing TCR

CCAR to be eventually superseded by TCR, and CCAR will change its

mission to focus on the management and tracking of GHG emission reduction

projects via the Climate Action Reserve (CAR)

California Climate Action Registry (CCAR)

GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6

Sources- Direct, Indirect

De minimis threshold defined as 5%

Emission factors sources- California Specific, DOE/EIA, IPCC, e-GRID

Includes guidance for:

• Stationary Combustion, Indirect Emissions, Mobile Combustion, and Sector specific modules for Cement Industry, Forest Products, and Power/Utility

NOTE- CA Mandatory Program (AB32) started in 2008

International Council for Local Environmental Initiatives

(ICLEI) – Local Governments for Sustainability

more than 700 cities, towns, and counties worldwide

provides resources, tools, and information exchange services for reduction of GHG emissions.

February 2008, ICLEI released a draft of the ICLEI Protocol for inventory of municipal operations. Guidance on inventory of community emissions forthcoming

similar to the WRI/WBCSD GHG Protocol, but with additional guidance relative to information management for municipalities

International Council for Local Environmental Initiatives

(ICLEI) – Local Governments for Sustainability

Sources- Direct, Indirect

adds “conservativeness” as a guiding principle

• that is, assumptions, values, and procedures used to quantify GHG emission levels should overestimate, not underestimate

Tiered approach to emission factors and activity data

• Tier 1: Basic

• Tier 2: Intermediate

• Tier 3: Most accurate/complex (Try to use best)

Chicago Climate Exchange (CCX)

Established in response to a feasibility study conducted by Environmental Financial Products and funded by the Chicago-based Joyce Foundation.

• concluded “a North American private-sector pilot GHG trading market was feasible”

“North America’s only, and the world’s first, GHG emission registry, reduction and trading system for all six GHGs”

Chicago Climate Exchange (CCX)

voluntary, legally binding commitment to reduce direct GHG emissions below an emissions baseline.

inventories based upon the WRI/WBCSD GHG Protocol guidance and tools.

CCX hires a third party, the Financial Industry Regulatory Authority, for verification of inventory data, unlike most other registries that require the member to hire an independent third party from a list of pre-certified verification parties.

ISO 14064

The ISO 14064 comprises three standards:

• ISO 14064-1, Greenhouse gases – Part 1: Specification with guidance at the organization level for the quantification and reporting of greenhouse gas emissions and removals.

• ISO 14064-2, Greenhouse gases – Part 2: Specification with guidance at the project level for the quantification, monitoring and reporting of greenhouse gas emission reductions and removal enhancements.

• ISO 14064-3, Greenhouse gases – Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions.

Closely follows WRI GHG Protocol

GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6

Sources- Direct, Energy Indirect, Other indirect

Specific emission factors or quantification methodologies are not provided

United Kingdom Water Industry Research (UKWIR) –

Workbook for Quantifying Greenhouse Gas Emissions

Finalized in February 2005

Specifically on estimating individual water company GHG emissions

• Drinking water treatment and pumping

• Sewage treatment and pumping

• Sludge treatment and disposal

• Administrative activities

• Transport

• Use of purchased electricity

• Production and use of self-generated electricity from biogas, sludge, or other fuels

• Fuel use, including use in process and transport

Microsoft Excel Spreadsheet Tool

2004 UK Department for Environment, Food, and Rural Affairs (Defra) Guidelines for Company Reporting

Questions?

Extra Material

CO2 Emissions Since Industrial Revolution

GHG Atmospheric Concentrations

IPCC 4th Report

Figure Observed changes in (a) global average surface temperature; (b) global average sea level from tide gauge (blue) and satellite (red) data and (c) Northern Hemisphere snow cover for March-April. All differences are relative to corresponding averages for the period 1961-1990. Smoothed curves represent decadal averaged values while circles show yearly values. The shaded areas are the uncertainty intervals estimated from a comprehensive analysis of known uncertainties (a and b) and from the time series (c).

Physical and Infrastructure Risks

Increase in flood related

injuries and deaths

More migration related health

problems

Salinization of irrigation water,

estuaries and freshwater

systems

Shortages of fresh water

Movements of populations

and infrastructure

Property loss

Withdrawal of risk coverage

by insurers

Rise in sea levels

More food and water

shortages

Higher incidence of water and

food borne disease

Land degradation

Lower crop yields

Wildfires

Shortages of water for

industry

Reduced hydropower

Population migrations

More areas affected

by drought

Increases in flood-related

injuries and deaths

Higher incidence of infectious

(e.g., Malaria), respiratory and

skin diseases

Crop, tree and reef damage

Soil erosion

Water logging of soil and

inhibition of cultivation

Flooding of transportation and

commerce networks

Property loss

Withdrawal of risk coverage

by insurers

Power outages

More frequent heavy

precipitation, intense

hurricane and cyclone

activity

Increase in heat-related

deaths and illnesses

Decrease in deaths and

illnesses from cold

Increased water demand

Increased insect infestation

Lower crop yields in warmer

climates

Higher energy demand

Fewer disruptions to transport

from snow and ice

Reduced winter tourism

More hot days, more

frequent heat waves

Human HealthAgriculture, Forestry

and Water

Industry, Human

Settlements and

Society

Projected Changes

This Century

Increase in flood related

injuries and deaths

More migration related health

problems

Salinization of irrigation water,

estuaries and freshwater

systems

Shortages of fresh water

Movements of populations

and infrastructure

Property loss

Withdrawal of risk coverage

by insurers

Rise in sea levels

More food and water

shortages

Higher incidence of water and

food borne disease

Land degradation

Lower crop yields

Wildfires

Shortages of water for

industry

Reduced hydropower

Population migrations

More areas affected

by drought

Increases in flood-related

injuries and deaths

Higher incidence of infectious

(e.g., Malaria), respiratory and

skin diseases

Crop, tree and reef damage

Soil erosion

Water logging of soil and

inhibition of cultivation

Flooding of transportation and

commerce networks

Property loss

Withdrawal of risk coverage

by insurers

Power outages

More frequent heavy

precipitation, intense

hurricane and cyclone

activity

Increase in heat-related

deaths and illnesses

Decrease in deaths and

illnesses from cold

Increased water demand

Increased insect infestation

Lower crop yields in warmer

climates

Higher energy demand

Fewer disruptions to transport

from snow and ice

Reduced winter tourism

More hot days, more

frequent heat waves

Human HealthAgriculture, Forestry

and Water

Industry, Human

Settlements and

Society

Projected Changes

This Century