Carbon 101 for Green Property Managers

The basics of carbon footprinting, certification, and trading for property owners and managers.

Excerpted from "Carbon 101 For Property Managers," a report by the Building Performance Lab, a draft of which is available.  The final report will be released soon.

Jump to:

Carbon Offsets // Cap and Trade System // Certified Emissions Reductions //                   Emission Accounting and Reporting // Carbon Markets // Monitoring & Verification

Carbon Footprint

A carbon footprint is a calculation of the amount of greenhouse gas that is produced from a specific process or activity, such as operating a building.  Emissions are measured in tons of carbon or carbon dioxide equivalent.  This indicator is important as the fundamental first step for an individual or a corporation to assess their carbon output.  Emissions are not actually measured, as a smokestack output, but are calculated based on fuel inputs.  Each type of fuel (fossil fuels in particular) will produce a characteristic amount of carbon dioxide release when burned, based on its chemical composition. 

Calculating a carbon footprint may be thought of as “setting a baseline”.   Carbon reduction or mitigation efforts will be measured against this baseline.  Public agreements will typically refer to the baseline of a specified year.

Various methodologies exist to calculate a carbon footprint.  From online calculators to sophisticated modeling tools, there is presently no single standard method of calculating carbon footprint.   Greenhouse gasses other than just carbon dioxide may be included.  Methane is another significant greenhouse gas.  The treatment of electricity poses an area of variation among methodologies.   Methodologies may differ in the treatment of indirect activities.   Direct comparison of carbon footprints is questionable if the tools used to calculate them is not known and their bases understood. This will be a continuing theme in the industry for some time to come. 

For more information, see the ISA UK Research Report, "A Defintion of 'Carbon Footprint'"

Carbon Offsets

Carbon offsetting is the process of mitigating one’s own greenhouse gas emissions through carbon-reducing projects that are conducted by others   Offsetting emissions allows individuals or companies to decrease the size of their carbon footprint by, in essence, contracting another firm to develop the carbon offset project.  This is often described as “buying a carbon reduction credit.”   The “credit” is produced by any of a range of products that reduces carbon dioxide emissions or that removes carbon dioxide from the air and sequesters it.  Carbon sequestration by forestation (tree planting) projects has been especially popular in early examples of carbon offsetting.  As the trees grow via photosynthetic binding of atmospheric carbon, their biomass represents carbon that is fixed or “sequestered” for the life of the tree. 

In the last year, some carbon offsetting firms selling into voluntary markets, such as those in the  US, have come under suspicion.  The problem with this mitigation technique is that a regulatory framework does not exist to monitor and verify the projects, the calculation of credits, and the retirement of credits from trading.   Nevertheless, as we will see,  this niche industry is here to stay:  as long as climate change is an issue, certain industries, organizations and even individuals will need or want to use carbon offsetting as a means of satisfying their consciences or their regulators.

Cap and Trade System

In a cap and trade system, legislation sets an upper limit (a cap) of emissions.  Corporations that come in under the cap are issued carbon credits, which are traded on a carbon market.  Corporations that exceed the cap can purchase these credits, creating a balanced system that financially rewards those who reduce their carbon footprint while allowing for the fact that certain sectors will not be able to reduce emissions quickly enough to come in under the cap.

Cap and trade programs are increasingly popular because they bring together the economic and environmental regulation sectors to produce the needed impact.  The Acid Rain program was the first market-based initiative to curtail sulfur dioxide and nitrogen oxides.  It has proven to lower pollutants from the atmosphere resulting in a decrease of acid rain in the U.S.

The alternative to a cap and trade system is a carbon tax, which lowers carbon emissions from the atmosphere by taxing energy sources that are emitters.  Although the carbon tax is gaining acceptance among some regulators, it is less likely to be implemented than a cap and trade program. 

Certified Emissions Reductions

Certified Emissions Reductions are carbon credits that are created under the auspices of some approved certification agency.   CERS have a formal role in regulated cap-and-trade systems, such as the European Union Trading System (EUTS) and the Clean Development Mechanism (CDM) created under the Kyoto Protocol.  The function of CERS is to give counties opportunities to purchase credits in order to comply with reduction commitments.   As they are a formal trading instrument with potentially substantial value in the marketplace, their creation must be subject to rigorous and consistent procedures.   

The CDM provides for the fulfillment of a developed-country Kyoto signatory carbon reduction via a project in an under-developed country.  As such, CERS can  represent a mechanism for technology transfer to the developing world.

Emission Accounting and Reporting

If climate change is going to be mitigated with a cap and trade scheme, emissions reporting regarding greenhouse gases will become more prevalent.  Stronger accounting frameworks will have to be developed.  Presently, the new field of emissions accounting is not bound by specific compliance arrangement.  The Financial Accounting Standards Board (FASB) in the U.S. and the International Accounting Standards Board (IASB) in London have commenced evaluating the issue.  However, both transparency and rigidity in compliance are important to ensure that trading in the emissions markets and other financial realms is not undermined by a lack of trust. 

Value of Emissions Accounting:

• Early volunteer action creates competitive advantage
• Identifying GHG reduction opportunities should assist in decreasing operational costs of certain variable costs like energy

For example, utility companies accounting methods for emissions allowances and carbon credits depend on:

• How the asset was obtained: by government allocation or market-acquired
• The type of firm: state utility versus corporate entity
• Category of the instrument: asset, inventory, or intangible asset

For more information:

• "Building Trust In Emissions Reporting: Global Trends in Emmissions Trading Schemes," a report by Price Waterhouse Cooper
• "The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard," a report by the World Resources Institute. (PDF)

Carbon Markets

Lacking federal legislation, states have been proactive in finding solutions to climate change.  In New York, a market is already available for carbon trading: the Regional Greenhouse Gas Initiative (RGGI).  RGGI is a cooperative of eleven Northeastern and Mid-Atlantic states that is working to decrease carbon dioxide emissions, a greenhouse gas emitted from power plants, through a cap and trade framework.  RGGI allows for interstate trading and is designed to avoid economic consequences, like a price increase of power.  There are plans to expand the framework to other point sources.  California has plans in the work to emulate the RGGI model with even more ambitious emission restrictions. 

Features of the Scheme:

• Standardization of processes to facilitate interstate trading
• Flexible program that allows other states to participate at their prerogative 
• Program does not interfere with other emissions schemes on the state, national or regional level
• Model could be expanded in the future with emerging policies
• Expansion of the program will be implemented through phases to address issues like creating protocols for offsets, compliance issues and identify other point sources

Example of a carbon credit trading scheme:

An electric utility decides to lower their emissions by investing in real estate properties.  The utility companies invest into retrofitting projects that will lower the properties’ carbon footprint.  In the process, the utility company is producing new carbon credits while in compliance with lower emission standards. 
 

 Monitoring & Verification

What do scientists and accountants have in common?  Both rely on meticulous evidence to prove their points.  The same principle holds true for the monitoring and verification of energy savings and generation of carbon credits.  The market-based green movement relies on an accounting framework to monitor and verify energy savings. 

International Performance Measurement & Verification Protocol (IPMVP)

In 1995, the DOE commenced an initiative to establish a program for low-interest loans to be extended by financial institutions for energy investments.  The metric created was developed by industry consensus to measure and verify energy savings from the investments of energy-conservation techniques.  These procedures are applicable to commercial and industrial projects.  The industry standard has had global appeal: the methods have been translated into 10 other languages and a number of international organizations utilize IPMVP. 

Breakdown of M&V plan:

• Recognize appropriate M&V options for energy conversion measures
• Document the facilities’ baseline conditions
• Ensure that the process of documentation for control and quality of data collection is thorough
• Provide cost estimates for M&V tasks

The IPMVP library of documents is available online.