gri conference- 28 may - busch- carbon performance and measurement panel
TRANSCRIPT
Corporate Carbon Performance Indicators
The Amsterdam Global Conference on Sustainability and Transparency
Academic Conference / Carbon Performance and Measurement
26-28 May 2010, Amsterdam
Timo Busch | Group for Sustainability & Technology
May 7, 2010 Timo Busch | Group for Sustainability & Technology 2
You can't manage what you don't measure
Increasing Stakeholder request for carbon
disclosure: Financial markets: carbon matters financially Climate policy: policy evaluation
How to assess corporate carbon performance?
May 7, 2010 Timo Busch | Group for Sustainability & Technology 3
Assessing a company’s carbon performance
Which scope is important?
How to deal with inputs and outputs?
May 7, 2010 Timo Busch | Group for Sustainability & Technology 4
3 scopes and 2 dimensions of carbon usage from a LCA perspective
May 7, 2010 Timo Busch | Group for Sustainability & Technology 5
Assessing a company’s carbon performance
Which scope is important?
How to deal with inputs and outputs?
Physically or monetary?
Performance now or in future?
Relatively or in absolute terms?
May 7, 2010 Timo Busch | Group for Sustainability & Technology 6
CARBON INTENSITY• extent to which the business
activities are based on carbon usage for a defined scope and fiscal year
BM
CInC
O
k
K
ktO
tiO
1
,
,
0
0
CARBON DEPENDENCY• change in physical carbon
performance within a given time frame
1000
1
,
,,
tiO
tiOtiO InC
InCDeC
CARBON EXPOSURE• monetary implications of the
business activities due to carbon usage for a defined scope and fiscal year
CARBON RISK• change in monetary carbon
performance within a given time frame
BM
pCpCCEx
O
kk
I
kk
K
ktOtO
K
ktItI
ti
1
,,1
,,
,
0000
0
4 corporate carbon performance indicators
10010
1
,
,,
ti
titi CEx
CExCRi
Dynamic
May 7, 2010 Timo Busch | Group for Sustainability & Technology 77
Assessing a company’s carbon performance
Which scope is important?
How to deal with inputs and outputs?
Physically or monetary?
Performance now or in future?
Relatively or in absolute terms?
If relative: what is an adequate denominator?
Which scope should be covered?
May 7, 2010 Timo Busch | Group for Sustainability & Technology 8
5 pillars for standardizing carbon accounting
Sector focus Carbon usage
(Numerator)
Business Metric
(Denominator)
Carbon- and energy-intense
industries
Scope 1, 2 and upstream scope 3 Sales
Energy utilities Scope 1, 2 and upstream scope 3 Energy (MWh)
Commerce and service industries Scope 1, 2, and transport & traveling Sales
Industries with products and services
that are carbon-intensive during the
usage phase
Direct and indirect emissions in
usage phase
Product or service unit
Financial institutions Amount of assets, investments and
loans screened for
a) carbon intensity
b) carbon risk
c) low-carbon efforts
Sum of lending and
investment portfolios
May 7, 2010 Timo Busch | Group for Sustainability & Technology 9
Contact: Dr. Timo BuschDept. for Management, Technology, and EconomicsETH Zurich [email protected] www.sustec.ethz.ch
Literature: Busch, T. (2010). Carbon performance indicators revisited. Journal of Industrial Ecology, (in press).
Busch, T., & Hoffmann, V. H. (2007). Emerging carbon constraints for corporate risk management. Ecological Economics, 62(3-4), 518-528.
Hoffmann, V. H., & Busch, T. (2008). Corporate Carbon Performance Indicators: Carbon Intensity, Dependency, Exposure, and Risk. Journal of Industrial Ecology, 12(4), 505-520.
Hoffmann, V. H., & Busch, T. (2007). Carbon Constraints in the 14th and 21st century. Journal of Industrial Ecology, 11(2), 4-6.
May 7, 2010 Timo Busch | Group for Sustainability & Technology
Empirical example
10
May 7, 2010 Timo Busch | Group for Sustainability & Technology 11
06
3128
07
43
3425
9
8079
Coal[per short ton]
Petroleum (RFO)[per barrel]
Natural Gas[per mega cubic feet]
CO2[per metric ton]
2004
2030 – Business as usual; EIA AEO07 Reference Case
2030 – Carbon Constraints Scenario; EIA Analysis of S.1766 Limited Alternative Case
2’309
3’338
2’803
361
789710
122
1'979
519
896937
107
3'330
671896
1'383
67
2'550
Natural Gas Nuclear RenewablesCoal Petroleum
US electricity production [TWh]US CO2 from electricity production [million tonnes]
US carbon in- and output prices [2005 US$]
The numbers in detail
May 7, 2010 Timo Busch | Group for Sustainability & Technology 12
Results in detail
May 7, 2010 Timo Busch | Group for Sustainability & Technology 13
Business metric Description
Unit of production Business output in non-monetary terms
Total costs Expenses for generating the business output
Costs of goods sold Direct expenses incurred in producing the company’s output; excludes indirect costs such as office expenses or advertising
Value addedValue of the company’s production step; emphasis is on one part of the value chain
Turnover resp. salesValue of the company’s production step and all upstream business activities; allows valid comparison regardless of the size of different businesses
Market capitalization or equity Market value of a company or value of private equity
EBIT resp. EBITDA Approximate measure of a company's operating cash flow
Business metrics that can be applied
May 7, 2010 Timo Busch | Group for Sustainability & Technology 14
Cost approaches that can be applied
Approach Costs to be determined (e.g.) Source (e.g.)
a) costs based on market prices
Crude oil and natural gas http://www.wtrg.com
Coal http://cr.mccloskeycoal.com
EU ETS allowances http://www.pointcarbon.com
b) costs based on the company’s internal cost accounting
Fossil fuel and energy consumption
Company’s cost accounting
Shortage of EU ETS allowances
Company’s cost accounting
c) abatement costs based on mitigation options
Efficiency increase Comparisons of costs in different industries: Metz et al. (2001); Llewellyn (2007)
Substitution Cost estimates for fossil fuel alternative energy technologies: Barker et al. (2006)
Offsetting 2006 average prices for a ton of CO2-eq generated by a CDM project: US$ 10.70 primary market; US$ 17.76 secondary market (Capoor & Ambrosi, 2007); cost for avoiding a ton of CO2 via CCS: US$ 40-220 (IPCC, 2005)
d) internalization costs of external effects
price to the depletion of fossil energy resources
Weitzman (1999): prices the depletion of resources such as oil Sabour (2005): external costs of exploitation of oil
damage costs Clarkson et al. (2002): £70 per ton in 2000 and an annual increase by £1 per ton Nordhaus (2006): $20 in 2000 and $80 in 2100 as optimal costs for carbon
May 7, 2010 Timo Busch | Group for Sustainability & Technology 15
Management: get started & keep the ball rolling
define the scope of system boundaries & measurement level for
carbon usage
chose adequate business metrics
determine carbon intensity
define cost approach for carbon usage
determine carbon exposure
define time frame for dynamic analysis & carbon and energy market scenarios
determine carbon dependency
analyze corporate sensitivity towards carbon related changes in the business
environment
derive optimization strategies & use
results for reporting
Carbon ManagementFramework
derive carbon risk