Let’s calculate the carbon footprint of a 4.5-mile roundtrip drive to the grocery store. Imagine we drive a 1979 station wagon that gets 16 miles per gallon in city driving. This trip consumes gallon, or 0.56 gallons, of gas. Doing some online research, we see that combusting a gallon of gasoline (breaking the gasoline’s chemical bonds to create carbon-oxygen bonds) creates 19.4 pounds of carbon dioxide, the main greenhouse gas. So we can calculate that the carbon footprint of this drive creates 0.56 × 19.4 = 10.9 pounds of carbon dioxide (CO₂).

What about some of the other emissions not accounted for in that calculation? For example, a small fraction of that gasoline did not combust properly (especially in such an old clunker!) and was emitted into the atmosphere as methane—a greenhouse gas with more than 20 times the global warming power of CO₂! Not to mention manufacturing that 1979 station wagon required huge amounts of energy in the form of natural gas, electricity, and more, all of which created greenhouse gases. So is 10.9 pounds of CO₂ the real carbon footprint?

While technical debates continue, national and international standards have emerged and continue to emerge to help guide us through these issues.

If you think determining the carbon footprint of a car trip to the grocery store is difficult, you can imagine how challenging it could be to determine a company’s carbon footprint. Thankfully, some wise folks got together in 1998 to give the world’s companies a consistent standard and guidance on calculating their carbon footprints. The World Resources Institute (WRI), an environmental think-tank based in Washington, D.C., and the World Business Council for Sustainable Development (WBCSD), a Swiss organization made up of businesses committed to sustainability, developed the Greenhouse Gas (GHG) Protocol, which has become the foundation of nearly all business carbon footprinting.

Before discussing how to measure greenhouse gases, it is worth asking these questions: Why conduct an emissions inventory? Why should a business care about its carbon footprint? Without getting into anything too philosophical, we do have a good business case for conducting an emissions inventory. Boiled down, this business case is simple: reduce costs, sell more, and manage risk.

To the first point, GHG reduction investments are often great business investments. This is not theory; it is documented fact. For example, Johnson & Johnson disseminates energy efficiency best practices throughout its hundreds of facilities and requires retrofits with simple paybacks of less than five years to be implemented. It uses a $40 million annual rotating fund to help facilities finance retrofits with longer paybacks. It has seen an average return on investment (ROI) of 16 percent on these GHG reduction investments. Taking a proactive stance toward measuring and managing their carbon footprint has allowed Johnson & Johnson to reduce costs while growing sales.

Learning from the sustainability initiatives of larger corporations is a great way for small- and medium-size businesses to shape their own sustainability programs.

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Don’t think you have to start with a giant capital investment in a solar array or all-new manufacturing equipment to green your business. It’s a mistake to start anywhere other than the “low-hanging fruit”—this means no-cost or low-cost measures like behavioral and housekeeping changes, or hardware store fixes like lavatory faucet aerators. Building efficiency into your business from the bottom-up will be the most cost-effective and lasting approach.

The recent explosion of green products in the marketplace is evidence that product manufacturers are seeing genuine consumer interest in buying climate-friendly items. And major retailers, most notably Wal-Mart, are starting to recognize efforts from supply chain companies to reduce emissions. Wal-Mart’s packaging scorecard, a tool for measuring the environmental impact of product packaging, takes into account the greenhouse gas emissions required to produce a product’s packaging. Small- and medium-size businesses that make up Wal-Mart’s supply chain are now being held accountable for their product packaging decisions.

As new climate policies take force in the United States and throughout the world, emitting greenhouse gases is quickly going from free to pricey. Companies or supply chains with large greenhouse gas emissions are facing a risk of cost increases. Early action to measure your carbon footprint and assess this risk makes a whole lot of sense both for the environment and your bottom line.

To help us along, let’s imagine a mid-size company, Little Red Wagon, Inc. (LRW), that has a single industrial facility with some office space. When a manager at LRW sits down to calculate her company’s carbon footprint, she ponders all the different emissions sources:

The LRW manager first needs to decide what types of emissions she wants to include in her calculations. In the parlance of the GHG Protocol, she has to decide what emissions “scopes” she wants to inventory. There are three scopes:

Generally the first two scopes are required for most reporting protocols, while the third is optional. This is fortunate, as scope 1 and scope 2 emissions are vastly easier to quantify than scope 3.

Scope 1 emissions are greenhouse gases that actually exit from your company’s property. Called “direct” emissions, these come mostly from the combustion of fuels, although they can include other types of emissions. In the case of LRW, this includes its natural gas usage to heat space and water, as well as the propane to run forklifts and emissions from those company-owned LRW vans. In all these cases, fuel in the forms of propane, natural gas, and gasoline is entering company property, and the greenhouse gas CO₂ is leaving company property.

Going Green

Lighting is a huge energy user in industrial facilities, particularly those with fixtures using hundreds of watts each. When considering lighting, remember that what you need is a certain amount of illumination on the work surface—not a certain quantity of light fixtures. Think of the most efficient way to meet your target illumination beginning with free natural light, which has been shown to benefit productivity.

Sometimes greenhouse gases other than CO₂ from fuel combustion leave a company’s property. For example, during LRW’s annual air conditioner servicing, its units require a recharge of 1 pound of hydro fluorocarbon (HFC) refrigerant. These so-called fugitive emissions should be included in the scope 1 inventory. These can be important: 1 pound of a particular type of HFC packs the global warming potential of 14,800 pounds of CO₂!

LRW’s electricity use produces no on-site greenhouse gas emissions, but surely somewhere a power plant is supplying energy for their needs. In fact, generating electric power to run our homes and businesses is an enormous source of greenhouse gas emissions. According to the U.S. Energy Information Administration, electricity generation produces 40 percent of total U.S. greenhouse gas emissions.

The GHG Protocol dedicates scope 2 to purchased electricity. The GHG Protocol authors write, “For many companies, purchased electricity represents one of the largest sources of GHG emissions and the most significant opportunity to reduce these emissions.”

So how can LRW figure its carbon footprint resulting from electricity use? Of course this depends on how much electricity it consumes, but it also depends on where LRW is located. We can generate electricity in many ways, some of which create no greenhouse gas emissions (such as Wyoming wind turbines) and some of which create a lot of emissions (such as Wyoming coal). The EPA, using its database of virtually every power plant in the country, publishes the greenhouse gas intensity (pounds of CO₂/megawatt-hour) for each region. This is why most greenhouse gas calculators ask you where your facility is located.

Scope 3 emissions are a catch-all category, as the GHG Protocol authors describe them as “optional,” and they are seldom included in emissions inventories in any kind of systematic way. In LRW’s case, business flights, employee commuting, and shipping products via a third-party vendor would all be treated as optional scope 3 emissions. Other noteworthy sources of scope 3 emissions include emissions from the creation of purchased materials (like emissions from making steel and paint in the case of LRW), use of products by consumers, and emissions resulting from waste disposal.

Measuring a business’s carbon footprint can be quite complicated for a large multinational organization, but fortunately for small- and medium-size enterprises, the task is fairly straightforward. The most important criteria of a good emissions inventory are that it is comprehensive in its coverage and transparent in its assumptions. After a company answers the question, “Why are we measuring our carbon footprint?”, it should determine what its carbon footprint assessment is going to include. In most cases, businesses look at their scope 1 and scope 2 emissions, which include direct fuel consumption, special emissions (if any), and electricity purchases. Create a comprehensive list of these scope 1 and 2 emissions sources at the outset.

The time period over which you will measure emissions is also critical. The GHG Protocol provides guidance on this topic, but for most small- and medium-size companies, you can use the last full year for which all the necessary data is available.

Data gathering often starts with accounts payable. Natural gas bills contain the total quantity of natural gas purchased either in energy terms (usually therms) or in volume terms (often hundreds of cubic feet). Similarly, electricity bills contain the quantity of electricity purchased, generally in units of kilowatt-hours. Always contact customer service at your major utilities to ask for what is already organized into monthly usage; in some cases, utilities can even provide carbon footprint information for consumption of their energy on your site. Propane, fuel oil, and other fuel invoices should contain mass or volume information. You may need to aggregate company fleet fuel receipts to determine how much gasoline and diesel was purchased to run company-owned vehicles.

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Include only fuel use or miles traveled for company-owned vehicles in a scope 1 and scope 2 inventory. Fuel use from employee commuting and business travel may be worth calculating and taking action on, but it should be treated in the separate category of scope 3 emissions.

After you list each fuel type and other emissions sources and tally the amount consumed during the measurement year, you need an emissions factor. These emissions factors are at the heart of carbon footprinting because they convert the raw number associated with an emissions source—for example, kilowatt-hours of electricity in Macon, Georgia; pounds of fuel oil; or therms of natural gas—into kilograms of carbon dioxide equivalents. The term is “carbon dioxide equivalents” rather than just “carbon dioxide” because sometimes an emissions source creates multiple types of emissions. (Remember our station wagon that produced CO₂ and a bit of methane?) Again, the GHG Protocol is our one-stop shop for emissions factors, as it offers emissions factors for every fuel imaginable as well as electricity throughout the United States and the world.

If you enter the term “carbon footprint” into any online search engine, you’ll see loads of online calculators that help compute carbon footprints. Unfortunately, these calculators often lack consistency and rarely give the same result. A University of Washington study found unacceptable levels of variation (a single household’s footprint calculators varied by 32,800 pounds of CO₂!) when using 10 online calculators to assess a carbon footprint.

Some online calculators include some GHG Protocol scope 3 emissions like business travel, employee commuting, and even materials management. Most companies willing to invest a bit of time (or hire a consultant) can calculate their carbon footprint on their own using the GHG Protocol guidance and tools. Others choose to hire a consultant to help them. Going through the process of gathering data internally is highly educational and revelatory. It is during the information-gathering process that opportunities for GHG reductions may come to light.

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Before using the GHG Protocol’s emissions factors, users may have to do a bit of unit conversion. Your invoices may give propane use in pounds, whereas the GHG Protocol gives an emissions factor in metric tons. Use an online unit conversion tool such as www.onlineconversion.com to get all your units consistent with the GHG Protocol’s.

One motivation for a company to conduct a greenhouse gas emissions inventory is the ability to report its inventory with a recognized reporting agency and get recognition for early action and reductions. This improves public image and provides a “trial run” for mandatory greenhouse gas reporting. In some countries and some types of businesses, reporting is mandatory because country-wide greenhouse gas emissions are capped and certain businesses are given a set quantity of allowed emissions. These types of businesses generally include only the major emitting industries, such as power generation, petroleum refining, and other heavy manufacturing.

Presently in the United States, companies can report to several reporting agencies or registries and gain recognition. Some of these are through federal or state government, and others are through nonprofit organizations. The two major voluntary federal registries are the EPA’s Climate Leaders and the Department of Energy’s Voluntary Reporting of Greenhouse Gases Program (usually referred to as “1605(b)” after the section in the law that created it). Climate Leaders uses its own inventory protocol. Each Climate Leaders “partner” conducts an inventory and then pledges to make a voluntary reduction, which the EPA makes public on its website. Partners range from Fortune 100 companies to small service-sector businesses.

A key benefit of registries, especially to major GHG emitters in presently unregulated areas (such as the United States), is for companies to gain comfort with the inventory process and the other entities involved. This is based on the assumption that greenhouse gas regulations are coming to the United States, and we need to be prepared.

The Chicago Climate Exchange (CCX) is one registry that has gotten significant response. Companies that join the CCX either measure emissions directly—for example, through emission measuring equipment on a smokestack—or they use the GHG Protocol. After they join, members of the CCX face legally binding GHG reduction targets. They can meet these reduction targets by making real emissions reductions through efficiency, fuel switching, renewable energy, and so on; trading emissions reductions with other members; or by purchasing offsets from participating offset providers. CCX is something like a mock-up of what a broad mandatory federal system would look like, and members are gaining knowledge every day about how they will operate under such a system.

Other noteworthy registries include the California Climate Action Registry (CCAR) and The Climate Registry, both of which base their reporting standards on the GHG Protocol. For the CCAR, reporting companies can provide their California-based emissions or total U.S. operations emissions. The Climate Registry—which now boasts membership from 39 states, 11 Canadian Provinces, and 6 Mexican states—asks for the reporting company’s operations in the United States, Canada, and Mexico. Again, the so-called scope 1 and scope 2 emissions must be reported, whereas the scope 3 emissions are optional.

Did you notice that when we computed the carbon footprint of that station wagon trip to the grocery store, we did not consider the footprint of the car’s manufacture? And remember that LRW must purchase steel to make its wagons. Surely manufacturing and shipping that steel had a huge carbon footprint somewhere!

The WRI and WBCSD teams lumped product and supply chain emissions into that catch-all category called scope 3 emissions in the GHG Protocol. Because calculating emissions in a supply chain is so challenging that it requires its own standard, WRI and WBCSD are developing a new standard for what’s called “product carbon footprinting.” According to The Carbon Trust, the basic definition of a product carbon footprint is as follows: “the total emission of greenhouse gases in carbon equivalents from a product across its life cycle from the production of raw material used in its manufacture, to disposal of the finished product (excluding in-use emissions).” When a consumer buys a Little Red Wagon, her wagon is carrying a product carbon footprint that includes all the emissions that result from:

In practice, the process is simplified so companies can get decent results without spending too much time.

For major retailers and product manufacturers, an efficient and cost-controlled supply chain is critical. So let’s consider Little Red Wagon, Inc. again. Imagine LRW sources the steel for its wagons from two major suppliers, one in the United States and the other in China. They stack up about equal as suppliers; the U.S. supplier is more expensive, but the quality is better and the shipment arrival is more predictable. If LRW conducts a product carbon footprint analysis of its wagon, it needs to include emissions from both suppliers: these suppliers turn raw material into inputs for LRW’s operations. The results of this process give LRW quite a bit to work with:

As mentioned previously, the WRI and WBCSD are only beginning to develop a GHG Protocol Standard for calculating product footprints. However, in the United Kingdom two organizations are already leading the way. The Carbon Trust worked with the British Standards Institute to develop a standard and methods for calculating product carbon footprints called the Publicly Available Standard (PAS) 2050. This standard will be applied internationally. They have pilot-tested their standard and method with several companies, and on some of these goods they have printed “carbon labels” which are in essence a product packaging label that displays the product’s carbon footprint number in grams of carbon dioxide equivalents. The consumer value and market uptake of these carbon labels is still very uncertain. Similarly, the online offset retailer Carbonfund.org has begun offering “Carbonfree” certification for products that conduct greenhouse-gas life-cycle assessments using their standard and purchase offsets in an amount equal to the total carbon emitted during the product’s life cycle.

The theory behind carbon offsets relies on simple atmospheric science and economics. First, atmospheric science tells us that carbon dioxide is a well-mixed gas, meaning emitting a pound in Shanghai is not much different than emitting it in San Francisco. In the end, greenhouse gas emissions will have the same effect—raising global temperatures—wherever they are emitted on Earth. Second, economics tells us that the polluter who wants to pollute less is not always the polluter who can most cost-effectively pollute less. Each polluter has its own marginal cost of abatement, which is a fancy way of saying its own cost of polluting less. Economics says that if it does not matter where the pollution occurs, then those polluters wishing to pollute less should pay the polluter who has the lowest marginal cost of abatement to do so.

This is a mouthful, so let’s think about it in terms of LRW. Suppose LRW decides it wants to have zero direct contribution to climate change. It has already conducted its greenhouse gas inventory, so it knows exactly where and how much it emits. One way for LRW to lower its greenhouse gas emissions is to start getting efficient. It could replace high-intensity discharge lights with fluorescent bays, replace old motors with premium efficiency models, and so on. At some point, options to cut carbon emissions are going to get expensive. It could line its rooftop with solar panels, but given that LRW is in a pretty cloudy region of the country, this hardly seems efficient. LRW might turn to carbon offsets to get itself from carbon efficient to carbon neutral. To do this, it would need to find a credible offset retailer. Thankfully myriad web-based retailers are happy to sell offsets to businesses and individuals. So where are the retailers getting these carbon reductions that they are selling to LRW? Dozens of different carbon projects around the world are selling carbon credits to retailers, brokers, and other middlemen. Carbon project developers have come up with all sorts of methods of cost-effectively abating or sequestering CO₂, including:

When you buy an offset, you are buying the greenhouse gas reduction benefits of these projects. Standards for projects vary widely, especially in the so-called “Wild West” voluntary market in the United States. The Voluntary Carbon Standard is emerging as the go-to standard for assessing the quality of voluntary offsets. In areas where greenhouse gas limits are mandatory, offsets are generally conducted through the United Nations’ Clean Development Mechanism, which has its own project standards.

Depending on whom you ask, carbon offsets are either a critical piece in solving global warming or the modern-day equivalent of medieval “indulgences,” payments to the church so one could keep on sinning. Obviously, the first step in reducing one’s impact on global warming is to first reduce one’s own carbon footprint.

When purchasing offsets, it’s critical that they come from a green project that meets the basic standard of “additionality” and that the resulting offsets are measured and verified properly. Measurements are critical, commonsense requirements for any green project hoping to sell carbon offsets. If a project developer is selling 1 million metric tons of offset CO₂, then the developer should be able to show that they actually measured this quantity using accurate methods and that a competent third party verified their measurements.

Additionality is a more subtle requirement. A carbon offset project is deemed “additional” if the emissions reductions it creates would not otherwise have occurred without the purchase of the carbon offsets. A lot of work has gone into defining this, but the basic case is clear. For example, a farmer who has a giant lagoon of swine waste, which through decomposition emits the powerful greenhouse gas methane, is obligated only to abide by local regulations in dealing with that waste. Suppose a carbon offset project developer approaches the farmer with an offer to pay for the equipment to capture the methane from the lagoon and generate power with it. Without the carbon offset money, the farmer would go on, business as usual, allowing the methane to escape. Thanks to the offset money, the greenhouse gas reductions occur, and the project is deemed additional.

With the emergence of well-accepted offset standards and the astounding growth in the carbon offset market, it appears that offsets are here to stay. Whether they are a good option for business investment is another matter entirely. If a business is going to purchase offsets, this investment should fit into a comprehensive environmental plan. An environmental plan that aggressively takes on a business’s energy use and greenhouse gas footprint should first look for cost-effective internal reductions, like replacing inefficient equipment, changing building occupant behaviors, and instituting new operational controls. If the company is further committed to balancing out the emissions it can’t eliminate through internal reductions, it may turn to offsets as part of its greenhouse gas strategy. Offsets cost money, so investing in them should show some financial return. Businesses that sell to consumers with a particular interest in climate change may find this financial benefit in increased customer loyalty and positive public perception.