Carbon Footprint Modeling

8/8/2019 Carbon Footprint Modeling

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BEST PRACTICES IN CARBON FOOTPRINT MODELING

Table o Contents

Executive summary .........................................................................................1Introduction .....................................................................................................1Learning rom the past ....................................................................................2Modeling or insight ........................................................................................3Re erence standards and third-party assets..................................................3Initiating a carbon ootprint analysis or your organization ..........................4Data integration and automation ....................................................................7Analysis and orecasting .................................................................................7Conclusion .....................................................................................................10About SAS ......................................................................................................10

Re erences .....................................................................................................10Recommended reading .................................................................................11Appendix 1. Defnitions .................................................................................11


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The content providers or this white paper are Alyssa Farrell and Keith Renison.


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Executive summary

Todays highly competitive economy presents many obstacles to pro table growth

and customer retention. In a 2008 McKinsey Quarterly article, Business Strategiesor Climate Change, the authors explain: ... the winners will be companies that

reposition themselves to seize the opportunities o a low-carbon uture. Thisstatement has been echoed by analysts, academics and CEOs alike. But howdo you get there? Many organizations have endured the struggle o beginning tocalculate and set reduction goals o their carbon ootprints, only to nd the traditionalo ce tools all short in providing tangible insight and transparency, not to mention theabsence o quality data.

This paper explains the di erences between calculating and modeling emissions,the critical parallels between cost and greenhouse gas (GhG) accounting, collecting andmanaging data, and using activity-based modeling practices to gain invaluable insight

rom such e orts.

Introduction

Discussion o GhGs in boardrooms and political arenas indicates the carbon-consciousworld is here to stay. Beyond the consumer marketing hype o online calculators andhybrid cars lives the growing social and environmental responsibility placed on allorganizations, whether large or small, public or private, local or global. Today, leaderso businesses and governments have numerous reasons to measure and manage their

atmospheric waste, not the least o which is to improve operational e ciency, reducecost and align external communication with stakeholder interests.

Many industries already ace emissions reporting requirements today. Others report toxicrelease inventories, water quality or waste disposal. The primary ocus o this paper isGhG emissions the carbon ootprint measured by the CO 2 equivalents (CO 2 e) o sixatmospheric gases. Carbon terminology is provided in Appendix 1 or re erence purposes.

A ter exploring the best practices in managing carbon, this paper presents theconclusion that simply calculating and reporting a number or compliance is o limitedvalue. Organizations must go beyond calculation and GhG inventories into the worldo activity modeling i real understanding, leadership and goals are to be achieved.

Also included in this paper is how the combination o mature SAS technologiesand innovative modeling techniques can be adapted to this contemporary businessproblem. Well explore some o the parallels that make these technologies the right tand walk through some practical modeling techniques that are being deployed at SASand by SAS customers.

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Learning rom the past

Historically, businesses attempted to manage monetary resources on a product-

based view o pro tability, only to nd that the true cost o their products, customersor services were obscured by broad-based allocations. This was also compounded bythe act that traditional accounting methods didnt reveal the activities that drove theseexpenses, speci cally those things they could actually change. However, spreadsheet-based applications designed to model these structures proved di cult to manage,lacked transparency and were not robust enough to handle the complexities and scalethat occurred in a real business. From that pain came the dawn o enterprise-classactivity modeling tools such as SAS Activity-Based Management .

The beginnings o this same evolution can now be seen in the carbon managementspace. Organizations have begun to calculate their carbon ootprints using spreadsheetsor niche applications only to nd that the process is cumbersome, error-prone, has littletransparency into the calculations and gives limited insight into how to manage it. Sure,it can su ce or simpli ed compliance reporting, but the real nancial and operationalbene t comes rom understanding your ootprint enough to predict uture behavior andmodel the impact o proposed changes.

Fortunately, the same principles that organizations have ne-tuned or activity-basedmodeling lend incredible value to the eld o carbon management. Resources, whethereconomic or natural, are either created or consumed by the work activities o yourorganization. There ore, activity-based management can be applied to better understandthe behaviors o money (traditional), water, energy or in this case, emissions.

As a simple example, to lower the energy use o a building you must change theproperties o the building itsel or manage what goes on inside that building. For this, youmust be able to understand how these activities a ect the use o the building activitiesthat are not usually measured or metered independently. Modeling, not calculating,there ore becomes the new paradigm that reveals the kind o insight necessary ordecision making something spreadsheets and similar tools have a di cult time doing.

As Bras and Emblemsvg (2001) describe in their book, Activity-Based Cost and Environmental Management , rom an ABC [activity-based costing] methods pointo view, [other natural resources are] simply just another currency and the principlesremain unchanged. In the simplest terms, by replacing the currency o cost with otherresources, we are able to gain the same insights about emissions, water, waste

or energy that have proven themselves invaluable to the cost accounting world.

To summarize, calculations based on GhG inventories , although a noble rst step, willresult in limited additional management insight. To leap ahead and learn rom the past,organizations must consider the application o modeling as a core practice behind anyserious carbon management strategy.

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Modeling, not calculating, becomes

the new paradigm that reveals the

kind of insight necessary for decision

making something spreadsheets

and similar tools have a difficult

time doing.


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Modeling or insight

Good modeling tools should be multidimensional including context and analysis

variables that will be used to analyze the key drivers o an emissions ootprint. Forexample, you may want to see the scopes o emission sources broken down by di erentgeopolitical entities. You may also want to slice this view by organizational structures,asset types, United Nations Framework Convention on Climate Change (UNFCCC)

Annex designation or simply over time. All these things describe di erent dimensions toyour business. Some o these dimensions are spelled out in modeling protocols (suchas the Greenhouse Gas Protocol Initiative or the US Environmental Protection AgencyClimate Leaders Program), and some are required or management insight.

These dimensions should also be easily con gured by the business and not requirea programmer to rewrite the application when you need to make a undamentalchange to the model. For example, a nancial services organization is structuredwith di erent dimensions than, say, a paper manu acturer. Likewise, lines o businesswithin government provide vastly di erent services, rom postal operations to publichealth. The sidebar displays a set o dimension hierarchies common to a carbonmanagement model.

The next section o the paper will review recommended best practices orestablishing a carbon model or your organization. While there are many potentialapproaches to carbon modeling, this paper provides a ramework that is fexibleenough to account or the variability in any organizational structure and acilitatespredictive analysis o GhG data.

Re erence standards and third-party assets

An external unit is an in ormation asset (e.g., measurement standard) that isre erenced by an organizations carbon model. For example, the External Units moduleo the SAS or Sustainability Management application contains a catalog o emissionsrates by third-party providers. For example, the US Environmental Protection Agency(EPA) breaks the United States into energy grid subregions, providing emissions

actors (unit rates) or three o the six standard GhGs recognized by the KyotoProtocol: carbon dioxide (CO 2 ), methane (CH 4 ), nitrous oxide (N 2O), sul ur hexafuoride(SF6 ), perfuorocarbons (PFC) and hydrofuorocarbons (HFC). The rates shown inFigure 1 are or electricity. In this example, the structure o the External Unit has beencon gured to capture three dimensions: Provider (the entity providing the rate), Fuel(the type o uel or emission source) and GHG (type o GhG).

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SAS provides the most commonly used dimensions, but organizations can expand this list over time and

customize it to the needs of the organization:

ProviderEPA (US)International Energy Agency (IEA)IPCC (WRI GHGP)

ResourceElectricityNatural gasCrude oil and derived substances

Coal and derived productsNon-biomass wastePeatBiomass wasteRefrigerantCommercial air travel

Consumption UnitConsumption Category

Facilities and AssetsOffsets and RECsBusiness Units

Instrument Analysis VariableProducts and ServicesCustomersByproduct

Carbon Dioxide (CO2)Methane (CH4)Nitrous Oxide (N2O)Sulfur Hexaflouride (SF6)Perflourocarbons (PFC)Hydroflourocarbons (HFC)

Scope

CoreScope 1 (Direct)Scope 2 (Indirect Electricity)

OptionalScope 3 (All Other Indirect)

StagesGeographyOrganization


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Figure 1. An example o External Units is the emissions rates produced rom energy grids around the world.

These three dimensions converge to provide the rate or each GhG in terms o poundsemitted per megawatt hour o electricity consumed. Because it re erences the provider,each rate is speci c to the uels used by that grid. The rates or all six GhGs are laternormalized to carbon dioxide equivalent (CO 2e) and carried as a common currency,in terms o metric tons ( t ) o CO2e.

In addition to electricity, rates are provided or commercial air travel, combustiono uels (kerosene, diesel, etc.) and all other standards required to complete theGreenhouse Gas Protocol Initiative (GHG Protocol).

Initiating a carbon ootprint analysis or your organization

Because the SAS solution provides the catalog o uels and emission sources romwhich to pull, organizations begin a project by establishing the questions that theyhope to answer a ter the completion o the carbon ootprint analysis. These mayinclude questions such as:

What is the primary cause of our emissions today? What activities are associatedwith the creation o those emissions?

Does performance vary in our of ce facilities, if we normalize for square footage(exclusive o data centers)?

What are the most emissions-intensive facilities on a square foot and aheadcount basis?

How quickly are our emissions growing (by division, by geography, etc.)?

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If we leave business as usual, what will be our energy and emissions performancethis time next year?

What are the characteristics of outliers that may identify quick wins (or potentialproblems) and direct us to urther analysis?

The questions help identi y the desired scope o the project ( acilities, suppliers, assets)and analysis variables (headcount, square ootage, etc.) that drive the design o a model.

Now, the organization can begin to document the physical structures and activitiesthat consume uels and generate GhGs. In most cases this starts with xed and mobileassets and other items that are required or compliance reporting.

For example, an electricity meter attached to the outside o a building is measuringkilowatt hours o energy consumed by the assets associated with that meter. We

there ore create an activity account or the meter where we will assign the properemission source account (energy provider) and enter the numerical kilowatt-per-hourconsumption. The best source o numerical data is directly rom the device itsel , ratherthan re-keying the gures manually rom a utility bill.

In all likelihood, your organization will have multiple meters that pull rom the samesource rate provider. In our example model, you can see that there are indeed 13meters across 11 buildings that are pulling rom the Virginia/Carolina grid (Figure 2).

Figure 2. Relationships between External Units and the Activities that draw on them are

viewed and edited through a point-and-click inter ace.

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Typically this rst stage o emissions associated with assets represents your Scope 1and 2 emissions; that is, those direct and indirect emissions commonly required orcompliance reporting (see sidebar). This is o ten where most carbon calculators stop.

This is because they tend to be purely ocused on the calculation o emissions orcompliance, not on resources in general and not as a means to explore drivers that gobeyond physical measurement and into the world o management. Many business andpublic sector organizations also have environmental exposure and strategic initiativesthat extend beyond their compliance requirements. Using these same methods,we can incorporate into the model other Scope 3 emissions that are importantto the organization, such as auto rental, commercial air travel, third-party producttransportation and logistics and employee commute.

In exploring the SAS Activity module (Figure 3), we can see the fow o emissions romassets to a given department and then urther allocated to the di erent activities o that department. Notice these assignments are based on a variety o drivers, such

as square ootage, airline miles, fow, etc. Here, any number o possibilities can bemodeled depending on the practical needs. The point is to model to the level o detailthats required or management decisions and use the most practical drivers thatrepresent actual work (and encourage certain per ormance), balanced with the levelo e ort to collect the in ormation. I department managers need to understand theirrelative ability to have infuence over their piece o the overall organizations carbonreduction goals, then a per ectly exact number isnt necessary. Instead they need tosee their proportion to their peers and how what they do a ects the overall ootprint.

They must also have ull transparency and buy-in into what methods were used increating that number i its to be trusted and subsequently managed to.

Figure 3: Full emission activity ow.

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Direct and indirect emissions

The GHG Protocol defines direct and

indirect emissions as follows: Direct GhG emissions are

emissions from sources that

are owned or controlled by the

reporting entity.

Indirect GhG emissions are

emissions that are a consequence

of the activities of the reporting

entity, but occur at sources owned

or controlled by another entity.The GHG Protocol further categorizes

these direct and indirect emissions

into three broad scopes: Scope 1: All direct GhG emissions.

Scope 2: Indirect GhG emissions

from consumption of purchased

electricity, heat or steam.

Scope 3: Other indirect emissions,such as the extraction and

production of purchased materials

and fuels, transport-related

activities in vehicles not owned or

controlled by the reporting entity,

electricity-related activities (e.g.,

T&D losses) not covered in Scope

2, outsourced activities, waste

disposal, etc.

The Greenhouse Gas ProtocolInitiative (www.ghgprotocol.org)


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The last step in the modeling process is to then push emissions into the productsand services you deliver. Because we now know the relative contribution o emissionsto di erent types o work ( or example, ully burdened emissions associated withmanu acturing products or supporting customers), we can use di erent drivers toallocate resources that make the most sense. These are typically production volumes,number o invoices processed, number o units sold, etc. Again, the trick here is to usethe most reasonable driver and volume that best represents the demand relationship.

Throughout this process, organizations ollow the same principles as activity-basedcosting. This gives managers the ability to model parallel scenarios, including cost,carbon, energy or practically any resource consumed by the activities and assetsdesignated in the structure. This reduces the amount o work necessary to eventuallyextend a model across other resource types.

Data integration and automation

One o the most di fcult challenges with carbon modeling is the availability o trustworthy source data. Most organizations are in the early stages o carbonmanagement. This o ten makes the existence o data illusive, disparate or requiresmanual data entry. These issues are signifcant, but not insurmountable.

The electronic collection o source data will be commonplace sooner than later, andalready organizations have shown their ability to overcome this. For this reason, itsimportant to consider a solution that also has the capability to tap directly into a vastarray o data sources, as well as bridge the gap with manual survey or data entry. Thiscritical uture requirement is the reason SAS so twares renowned and scalable dataintegration capabilities are inherent to the solution, allowing the entire model structureto be built and maintained by import. While not the pre erred method, its importantto note that all model data, including structures and periodic in ormation, also can bemanually entered or surveyed using the Web i automation is not practical.

Analysis and orecasting

A carbon management model wouldnt be complete without the ability to analyze,

orecast and communicate the results. As mentioned earlier, a good model ismultidimensional. Because were using multidimensional modeling techniques, wecan slice the in ormation based on any o the dimensions we used in the model.

The gures that ollow show a number o common ways to view the in ormationusing advanced analytics.


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The view in Figure 4 shows the ability to explore how acilities, activities or productscontribute to an organizations ootprint (re erred to as the cube explorer view).Starting with a selected dimension (e.g., Geography) we can drill back through theassignment structure, selecting any dimension, at any level. Here we can see thecomposition o emissions across a given Geography (to a City level), into buildings,then even the type o GhG. The right-click context menu displays all the drill-thoughoptions. This view is particularly good at answering a variety o exploratory questionsand can acilitate discussion with executive in ormation consumers who may be

amiliar with the topic in general, but unclear on the composition o emissions and hotspots within the organization.

Figure 4. Cube explorer view: User-defned colors can visually represent an assets relative per ormance, either in total emissions or as an intensity value, such as emissions per square

oot, per energy unit, per person, etc.

With robust so tware, there are countless other ways to display the model results rom line graphs to bar charts and tables with exception highlighting (Figure 5). These

views are built into the modeling tool and designed or the experienced modeler tovalidate results and develop insights. These insights become the basis or externallypublished in ormation to stakeholders. There is o ten a wide variety o stakeholders,

rom executive councils concerned with overall progress, to IT management sta concerned about energy consumption, to human resources personnel checking onthe progress o commuter programs. Many o these stakeholders are not concernedwith how exactly the models are built, but instead with their speci c per ormance.

This makes SAS or Sustainability Management more appropriately suited or widedistribution and benchmarking o selective results.


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Figure 5. Integrated analysis: Advanced analysis capabilities are embedded directly intothe modeling inter ace to enable emissions graphed by time, geography, product or any other dimension built into the model. Saved reports can be published through BI portals

or widespread communication o the results.

Also signi cant is the use o the model results, combined with SAS so twares

advanced orecasting ability, to predict where emissions will be in the uture. Thisincludes the use o SAS Forecast Server or comprehensive hierarchy-based

orecasting; or example, to run multilevel orecasts or all assets aggregated across allgeographies to help set organizationwide reduction targets. Also available are customwhat-i orecasting tools that allow you to make changes to business as usual, tosee how those changes may a ect your emissions in the uture (Figure 6). A ter all,most organizations that are becoming more carbon-conscious are doing so becausethey have set some sort o reduction target. It makes sense, then, or them to useappropriate tools to not only model the past, but to con dently make air estimates o obtainable goals (rather than the traditional method o throwing darts).

Figure 6. What-i orecasting and sensitivity analysis: As needed, SAS incorporates metricsrom outside the model that may be external drivers o emissions (such as production

demand, energy growth, seasonality, etc.). Sophisticated orecasts allow users to adjustvariables (business NOT as usual) and visualize their impact on emissions orecasts.


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Conclusion

The world is on the cusp o an historic breakthrough in the application o technology

to sustainability management challenges. A resource is a resource, whether it iseconomic or natural. For GhG modeling, organizations can adapt methods, skillsand technologies that have already been proven success ul or nancial analysis andscenario modeling.

As Esty and Winston (2006) so aptly wrote, In a marketplace where other pointso competitive di erentiation, such as capital or labor costs, are fattening, theenvironmental advantage looms larger as a decisive element o business strategy.By ignoring the impulse to simply calculate and instead leverage an enterprise-classbusiness modeling tool, your organization can move beyond compliance and provideinsight to drive increased environmental per ormance and bottom-line value.

About SAS

SAS is the leader in business analytics so tware and services, and the largestindependent vendor in the business intelligence market. Through innovative solutionsdelivered within an integrated ramework, SAS helps customers at more than 45,000sites improve per ormance and deliver value by making better decisions aster. Since1976 SAS has been giving customers around the world THE POWER TO KNOW .

Re erencesBras, B., & J. Emblemsvg. 2001. Activity-Based Cost and Environmental Management: A Different Approach to the ISO 14000 Compliance . Norwell, MA:Kluwer Academic Publishers.

Enkvist, P.A., T. Nauclr & J.M. Oppenheim. 2008. Business Strategies or ClimateChange. McKinsey Quarterly Online . http://www.mckinseyquarterly.com/Business_strategies_for_climate_change_2125

Esty, D.C., & A.S. Winston. 2006. Green to Gold : How Smart Companies UseEnvironmental Strategy to Innovate, Create Value and Build Competitive Advantage .

New Haven and London, Yale University Press.

The Greenhouse Gas Protocol. General Technical Accounting Questions.http://www.ghgprotocol.org/calculation-tools/faq#directindirect.


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Recommended reading

To learn more about how SAS is addressing sustainability, download the SAS

Corporate Social Responsibility Report at http://www.sas.com/corporate/ corpgovernance/csr-report.pdf .

Appendix 1. Defnitions

Scope 1, Scope 2, Scope 3 Emissions: The WRI/WBCSD GHG Protocol identi esthree scopes or emissions categories that de ne a corporate GhG inventory:

Scope 1: Direct Emissions an organizations direct GhG emissions romequipment and processes owned or directly controlled by the organization.

Scope 2: Indirect/Energy-Related Emissions GhG emissions related to

electricity or steam purchased rom third parties.

Scope 3: Indirect/Other Emissions GhG emissions related to an organizationsactivities, but rom sources not owned or controlled by the organization. Scope3 emissions can include upstream emissions rom suppliers and raw materialsindustries, downstream emissions rom customers or stakeholders that result

rom the use o a companys or organizations product, or even employee travel.

Greenhouse Gas Protocol : The most widely used international accounting tool orgovernment and business leaders to understand, quanti y and manage greenhousegas emissions, born rom a decade-long partnership between the World ResourcesInstitute and the World Business Council for Sustainable Development .

Carbon Footprint: The total set o greenhouse gas emissions caused by an individualor organization, event or product. It should be expressed in carbon dioxide equivalent(CO2e). (The Carbon Trust 2007.)


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