Sunday, June 23, 2024

The Need to Develop a Robust Industry Standard on Decarbonisation of Customers

Clemence Fischer, Senior Manager, Sustainability Solutions EMEA, and Nicolas Lefevre-Marton, Managing Director Sustainability Solutions, at ENGIE Impact

With more and more companies announcing stringent carbon goals to address the climate crisis, expectations for decarbonisation strategies have swiftly evolved from a ‘nice to have’ to being front and centre of the C-suite agenda. As well as assessing and reducing their own carbon footprint, companies must also develop and bring to the market products and services to decarbonise their customers and the global economy.

While investments and developments of these new products and solutions is well underway, there is a lack of a coherent, recognised methodology to evaluate their impact which could hinder the creation and adoption of much needed solutions to limit emissions. Rather than passing over the issue or making non-defensible claims, ENGIE created a Leadership Group on decarbonisation of customers consisting of three founding companies: ENGIE, Saint-Gobain and SUEZ, supported by experts from various entities such as Entreprises pour l’Environnement (EpE), the Solar Impulse Foundation and the World Business Council for Sustainable Development (WBCSD), among others.  

The group has co-developed a methodology through a set of principles to measure the contribution to decarbonisation of customers (also known as avoided emissions from a product or service). The aim of this methodology is to enable progressive companies to accelerate their climate journey by measuring and increasing the decarbonisation impact of their products and services, as well as contributing to the creation of a common cross-sectoral and international standard on the decarbonisation of customers.

The following principles were co-developed through an iterative and agile process, constantly challenging and testing them using real projects, to ensure they are business-ready and scalable. Each of these principles aim to be:

  • Practical – to be easily adopted by companies across industries, regardless of size, to design measurement guidelines specific for their products and services
  • Simple – to be understood and adopted at all business levels of a company, including by employees who are not versed in carbon accounting but are directly involved in designing and delivering solutions to customers.

Principle 1: Scope of Assessment

Products or services that contribute to the decarbonisation of customers are the products and services that have a direct and measurable impact on emissions, and those that are unique to their value chains. For all products and services in the same value chain, the contribution should be 100% of the emissions avoided through usage of the product or service that has the direct and measurable impact. All products and services in the same value chain should refer to their ‘contribution’ to decarbonisation of customers.

‘Direct and measurable’ serves as a pragmatic test to identify which products and services should be considered when measuring avoided emissions of a value chain. This approach recognises products and services that have a direct and measurable impact on emissions are typically part of complex value chains, often with many associated products and services that are critical to achieving the decarbonisation impact. Deciding which product or service contributes to avoided emissions and by how much is usually a difficult question with no obvious answer and we consider only the products and services that are unique to the value chain as contributors to avoided emissions. By contrast, raw inputs, or standard products and services which are not unique to their value chain, aren’t considered to contribute to avoided emissions. In addition, to avoid arbitrarily assigning an impact to specific products and services in a value chain, we propose to consider 100% of avoided emissions from the product or service that has the direct and measurable impact and always refer to their ‘contribution’ to decarbonisation of customers.

For example, when considering wind power, the product or service that has a direct and measurable impact on emissions is the windfarm itself. The windfarm should therefore be used to measure the avoided emissions. However, a windfarm involves numerous products and services unique to the windfarm value chain. These include parts, such as wind turbine blades and generators, but also services, such as project development and installation. All such products and services can claim to contribute to 100% of the decarbonisation impact of the windfarm.

Principle 2: Credible Baseline

To ensure credibility and avoid overstating the impact of the product or service provided, the most conservative baseline can be selected from the three options below:

  • Baseline that is defined by or in collaboration with the customer, specific to a given project/contract.
  • Baseline that represents the local Minimum Regulatory Requirements (MRR) for a newly commercialised or commissioned product/service.
  • Baseline representing the average performance of existing technologies used in the country.

For example, a company replaces an existing boiler that has a remaining lifespan of two years. The company should select the MRR as a baseline over the entirety of the new boiler’s lifetime if the MRR is more conservative than the average installed technologies in the country of operation.

When calculating decarbonisation of customers over time – including for the purpose of target setting – such baseline options should be projected into the future. For instance, the decarbonisation impact of a low-carbon product may be greater now than in 2030 as the economy progressively decarbonises. Thus, a conservative baseline trajectory relevant to the product should be used.

Principle 3: Calculation Consistency

The emissions calculations should be consistent between the baseline and the product/service delivered by the company. Companies should account for the full life cycle GHG emissions (that can be assessed as part of a Life Cycle Assessment, or LCA) whenever possible and should use direct emissions as a default when LCA data is not available.

A company installing insulated glass produced from post-consumer recycled content, for example, should use life cycle GHG emissions from the insulating glass being installed compared to the life cycle GHG emissions of a non-recycled glass defined as baseline, provided data is available for both the new and baseline solutions over their lifecycle.

Principle 4: Pragmatic Accounting

For products and services involving an ongoing contract, account for the actual avoided emissions on an annual basis until the end of the contract.

For products and services consumed via one-off transactions, account at the time of the transaction for the estimated avoided emissions over the lifetime of the product/service. In this case, the baseline should be a forecasted trajectory based on one of the options identified under Principle 3. When calculating such ex-ante cumulated impact, attention should be paid to avoid any overestimations. Indeed, it has been shown across industries that the average actual performance of products/services in use phase may be lower than manufacturing data or ex-ante assumptions. We therefore encourage the use of a systematic correction factor specific to the product and services considered.

For example, if a company installs an energy-efficient lighting system in a building or factory and has a contract to operate it for 10 years, the company should account for avoided emissions on an annual basis for the 10 years of the contract. In contrast, if a company produces energy-efficient lighting equipment, the company should account for the estimated decarbonisation of customers impact over the lifetime of the product (using a baseline trajectory) at the time of the transaction, and adopt a conservative correction factor based on known performance data.

Principle 5: Managing Double Counting

Double counting of avoided emissions may exist across a value chain when several companies are contributing to a common decarbonisation impact. This is similar to the GHG Protocol’s approach regarding double counting of a single emission by more than one company as Scope 3.

When consolidating and reporting on decarbonisation of customers at company level, the company should mitigate the risk of double counting its contribution to avoided emissions by (1) excluding the contributions of products/services delivered to other entities of the reporting company; and (2) when several company entities deliver products/services that lead to a common decarbonisation impact, retaining only the decarbonisation impact of the entity that generates the highest product/service value.

For example, if a company’s business unit A designs and installs a solid waste recycling plant while another business unit B operates the same plant under a 15-year contract, the company should only account for the decarbonisation impact of the waste recycling plant as calculated by the entity generating the highest revenue from the project.

Principle 6: Transparent, Verifiable, and Separate Communication

Decarbonisation of clients can become an important indicator of how companies contribute to decarbonise the economy beyond their own footprints. It is therefore critical to have transparent and verifiable communication with regard to avoided emissions from products and services. Information supporting calculations – including baseline, data used, and how the above principles were applied – should be made available to third parties.

The systematic measurement of avoided emissions from products and services is yet to be scaled. Therefore, a ramp-up period may be required to deploy such calculations within a company. Companies are encouraged to adopt a ‘learning by doing’ approach to continuously improve their calculation scope and accuracy over time.

It should also be recognised that decarbonisation of customers is distinct from the assessment of a company’s own emissions. Its measurement is based on the notion of ‘contribution’ estimated at 100% of total impact and cannot be combined, added, or removed from a company’s Scope 1, 2, or 3 emissions.

Scaling the Adoption of Decarbonisation of Customers Across Industries

Through these principles for the measurement of decarbonisation of customers, the Leadership Group is aiming to set the foundation for the development of a standard on how to calculate a company’s contribution to the decarbonisation of customers. The next step will be to scale the adoption of these common principles by companies across industries and develop sector-specific guidelines based on these principles.  A working group, named “Climate Value Accounting for products, technologies and services” co-founded by ENGIE, is being set up within the WBCSD to broaden and scale up the initiative through a collaborative approach within different sectors.

It’s clear that companies can no longer take a back seat when it comes to decarbonisation strategies, but without adequate, consistent frameworks for companies to observe, follow and adapt to, the decarbonisation game becomes a matter of experiment and guesswork that climate change and carbon goals simply cannot wait for.

Further Articles