Greenhouse Gas (GHG) Inventory Assessments: A Brief Overview

This past week, a Dutch court ruled that Royal Dutch Shell cut its carbon emissions by 45% by the year 2030. Activists and climate thought leaders say that the ruling could set a precedent for future rulings that put the climate before major corporations.

So, how would an organization, like Shell, remain accountable for cutting emissions?  Because, as Peter Drucker and many other leaders have said, “you can’t manage what you can’t measure”.


Over the past few months, I have gotten to help several organizations with a process known as a greenhouse gas (GHG) inventory assessment. The goal of the assessments is to manage GHG risks and identify reduction opportunities. GHG assessments are also useful for communicating with investors and government agencies; stakeholders that in recent years, have been requiring more transparency around company-related emissions.

The Greenhouse Gas Protocol (GHG)’s corporate standards, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) is one of the most widely recognized standards for calculating corporate GHG emissions. The standards are designed so that GHG assessments may be verified by third parties, such as the WRI and the WBCSD.

However, it is also important to note that there are no standards for verifying the process. Within the realm of sustainability, there is always a risk for greenwashing. This has been acknowledged by the GHG Protocol and as noted by a respondent in one of the GHG Protocol’s past assessments: “Concerns about greenwashing are not a reason to avoid/not develop the standard; the practice is growing and the only way to avoid greenwashing is by providing standardized methodologies for calculating avoided emissions”.

The GHG Protocol standard is also recommended by the United States Environmental Protection Agency (EPA). The process involves four major steps:

  1. Defining organizational and operational boundaries. The first step is to choose a base year of emissions, which is the year that all future years of emissions will be compared against.
  2. Collecting data and quantifying greenhouse gas emissions. Data includes everything from electricity, natural gas, and water usage to business travel and office supplies. Quantification requires multiplying the usage by emission factors. Emission factors can be location or resource specific and they help turn resource usage numbers into comparable carbon dioxide equivalent units.
  3. Formalizing the data collection process. The third step is used to streamline the data collection process across an organization’s departments so that it is easier to collect data and write relevant documentation for present and future GHG assessments.
  4. Reporting data as needed. The EPA and GHG Protocol recommend that an organization complete third-party verification, but this is not always required and usually depends on an organization’s unique goals and stakeholder needs. The final step also tends to include finalizing the data and setting a publicly reported GHG target that the organization can track over time.

All available data and emissions are organized into Scope 1, Scope 2, and Scope 3 emissions. Scope 1 and Scope 2 emissions are usually required, whereas Scope 3 emissions are optional, but often encouraged since most emissions come from Scope 3 emissions. Here is a brief overview of each Scope:

Scope 1: Direct GHG emissions are those that are owned or controlled by the reporting organization. These emissions are often related to stationary combustion, which is generally used for heating or cooling buildings, fugitive emissions, often associated with refrigeration, and emissions associated with on-site manufacturing. Scope 1 emissions could also include the emissions from the reporting organization’s fleet of vehicles.

Scope 2: These are indirect emissions that come from purchased electricity. There are two methods for calculating Scope 2 emissions: locations-based and market-based. Generally, the market-based method considers purchased renewable energy whereas locations-based does not.

Scope 3: These are all the indirect emissions that were not included in Scope 2. These are emissions associated with the company’s operations. An example could be the emissions associated with a supplier’s manufacturing facilities. Scope 3 emissions are often organized into the 15 categories outlined by the GHG Protocol. If every organization in the world released reports for Scope 1 and Scope 2 emissions, there would be no need for Scope 3. However, not all organizations report on GHG emissions, so Scope 3 is a way to build data inventory and create a more accurate picture around the emissions associated with one entity.

Here is what Shell’s GHG inventory report currently looks like

There are lots of factors that go into analyzing a GHG inventory; whether are not the inventory is validated by a third-party, changes in emissions over time, and comparisons with competitors’ emissions. However, I hope this quick guide helps in terms of understanding the basics around corporate GHG emission inventories.

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