Avoided emissions: smoke and mirrors or the next frontier?
The concept of ‘avoided GHG emissions’ is central to the proposition behind the products and services of many of WHEB’s portfolio companies. However, the measurement of avoided emissions is complex and contested. We spoke to Stephen Russell, Director, Climate Practice North America, at Anthesis, a global sustainability consulting firm. Stephen helps advise clients on climate strategy and was previously at the World Resources Institute (WRI), a global NGO. At the WRI Stephen was the author of a seminal paper on avoided emissions.
Stephen, what are avoided emissions and why was it important to produce the guidance at WRI?
Avoided emissions represent the emissions benefit of a product, calculated relative to the use of an alternative product. For example, an appliance might avoid emissions if it has lower emissions across its life cycle, from raw-material extraction to product disposal, compared to some competing product that would otherwise have been used by a customer.
Unfortunately, there are no global standards for estimating and reporting avoided emissions. This has caused a lot of uncertainty about best practices, potentially exposing companies that claim to generate avoided emissions to reputational risk.
You wrote the paper in 2019; how have things developed since then?
We have obviously seen pretty dramatic progress in terms of regulatory and legislative mandates to disclose Scope 1 and 2 GHG emissions (and in some cases Scope 3) from the EU and the US as well as the UK. There has also been progress on avoided emissions. Several organisations have published frameworks on the topic, including Carbone 41 and Mission Innovation.2 Most recently, this March, the World Business Council for Sustainable Development (WBCSD) and Net Zero Initiative published guidance that integrates and evolves earlier work.3 This publication provides more granular recommendations on how to estimate and disclose avoided emissions and on when companies should not make such disclosures.
That is good to hear – we’ve used the Mission Innovation work as a foundational document for our approach at WHEB. As the methodologies become more established, what do you see as the value of reporting avoided emissions?
Under existing GHG reporting standards, avoided emissions cannot be included within a company’s GHG footprint because that footprint is focused on the emissions from the life cycle of the company’s own products. Unlike avoided emissions, Scope 1, 2 and 3 emissions are not calculated relative to the performance of alternative products on the market, so avoided emissions and Scope 1–3 emissions cannot be meaningfully compared.
Yet reporting avoided emissions can provide an important complementary perspective on the actions a company is taking to address climate change. For example, by increasing the energy efficiency of a product, a company may avoid the higher emissions associated with a competing product with lower energy efficiency. This benefit cannot be reflected in a corporate GHG inventory (and may even lead to an increase in the company’s Scope 3 emissions!) More broadly, attaining a global 1.5oC target will require considerable technological innovation, and avoided emissions accounting helps us quantify the potential effects of this innovation.
Avoided emissions metrics are particularly helpful for investors looking to guide their investment strategies to fund and scale decarbonising solutions. They also enable companies to differentiate products for customers, build a brand image for the public, inform policymakers about the potential consequences of policy and regulatory choices, and guide product R&D.
And what are the key issues with reporting this kind of data?
The calculations can be quite complex. Perhaps most importantly, it is not always clear what ‘baseline’ a company’s solution should be compared against. Should this be a conventional product, the best available technology, or something else? There may also be effects that occur outside of a product’s life cycle but that are difficult to quantify. Rebound effects are a good example – a customer might save money by using a more energy-efficient machine, but then choose to use that machine more often. Finally, companies may face greenwashing risks when they market multiple products, but claim avoided emissions for just a small subset of their products. At the same time, it can be prohibitively costly to accurately estimate avoided emissions across a large product portfolio.
What is your advice to clients? Is it too early for companies to report avoided emissions?
It is not too early! Delivering on a 1.5oC global target requires accelerated innovation and clarity on avoided emissions impacts, in addition to reductions of a company’s Scope 1–3 sources. We advise companies to use the most probable conservative baseline and to tailor the specificity of that baseline to their reporting objectives. For example, enabling product differentiation for customers may require a more specific baseline than early-stage product R&D assessments. We also recommend transparently reporting on the assumptions and limitations of an avoided emissions assessment.
How do you think approaches will evolve over the next few years?
Some changes in reporting practices have already occurred over the past several years as companies’ understanding of the issues has matured. More companies are providing more information on how they calculate avoided emissions, while fewer companies are committing to avoided emissions targets that lack credibility. In particular, fewer companies try to compare apples to oranges by committing to avoid ‘x’ times more emissions than the Scope 1–3 emissions they emit. As I explained earlier, because avoided emissions are measured relative to something else, they cannot be netted off against Scope 1–3 emissions.
Looking ahead, there will undoubtedly be growing scrutiny of the credibility of avoided emissions claims. In response, I expect that additional sector-specific guidance will be developed to provide more specific direction on best practices, including on the issues I mentioned earlier. There will also be further clarification and standardisation of what information companies should include in external disclosures, including around the verification of claims and the broader scope of a company’s climate change strategy. The WBCSD and Net Zero Initiative’s publication provides a useful starting point for understanding existing best practices in these areas.
Read our Impact Report 2022 for how 'avoided GHG emissions' are addressed within WHEB's portfolio companies.
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1 https://www.carbone4.com/en/publication-nzi-pillarb
2 https://misolutionframework.net/pdf/Net-Zero_Innovation_Module_2-The_Avoided_Emissions_Framework_(AEF)-November_2019.pdf
3 https://www.wbcsd.org/contentwbc/download/15909/229494/1
