The Cost of Corporate Carbon Footprinting

UPS spends $1 million per year to measure its carbon footprint.  Is that a lot or a little? I wasn’t sure, so I decided to research the cost of conducting a greenhouse gas inventory. Since companies and governments are increasingly accepting the need to manage greenhouse gas emissions, this is becoming a growth industry, so getting a handle on costs will be important.

How Much? It Depends.

How much should a company expect to spend to measure its greenhouse gas emissions? If you ask people who know the first thing you will hear is “it depends.” According to the World Resources Institute, the costs can vary widely, but are correlated with factors such as size of the company, the complexity of operations, whether the company already has a data management system, and some other factors. The components of cost vary to some degree as well, ranging from allocating internal manpower to developing and deploying new information systems or other monitoring infrastructure to fees paid to external consultants.

Multiple Standards May Muddy the Waters

Several standards have been developed to define measurement practices.  The major standards include:

  • The GHG Protocol. This may be the best known and most widely used standard. Indeed, the GHG Protocol Web site describes it as “the most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions.” The GHG Protocol is the product of a long-standing partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).
  • ISO 14064 Part 1, which is said to be consistent and compatible with the GHG Protocol
  • The US Environmental Protection Agency (EPA) Climate Leaders GHG Inventory Guidance. The EPA describes it as “a modification of the WRI/WBCSD GHG Protocol that fits the needs of Climate Leaders more precisely.”

The choice of standard might not be a major factor in the cost of the inventory. But it’s worth being aware of the major standards and having a clear rationale for adopting one or the other.

A Golden Age for Climate-Change Consultants

It is a bit of a golden age for climate-change consultants.  Many firms, from established consulting firms to start ups, have developed services to help companies inventory their greenhouse gas emissions. For example: Starbucks hired CH2M Hill, the $5 billion engineering, consulting and construction firm, to help it calculate the carbon footprint of its retail locations. PepsiCo retained The Earth Institute at Columbia University, a research, education and policy institute, to calculate the carbon footprint of Tropicana orange juice. (Note that the Tropicana Orange juice project is an example of a “product carbon footprint,” which is distinct from a “corporate footprint.” There are separate standards for product footprints, such as PAS2050 and the upcoming GHG Protocol supply chain and product standards. ) Twelve-year-old Best Foot Forward, based in the UK, has done a wide range of footprint analysis projects ranging from the UK operations of water filtration company Brita to the US tours of rock band Radiohead.

How much do such consultants charge? One former consultant, who performed corporate GHG inventories before moving to an environmental NGO, told me that her firm typically charged $25,000 to $150,000 for an inventory, with the costs most dependent on the quality and number of data sources involved.

It’s worth noting that the EPA says it provides free assistance to develop a greenhouse gas inventory plan and to complete a base-year inventory. If you are preparing to do your own corporate inventory, be sure to investigate free sources of assistance.

Tools Proliferate

Tools to help corporations track, calculate and manage greenhouse gas emissions have also been proliferating. One expert I spoke to said that “Most companies are still doing a lot of this manually and software is just beginning to get some traction; in fact, there are already too many products out there.”

For purposes of illustration, here’s a short and arbitrary list of a handful those products:

Experts say that the major cost of greenhouse gas inventory programs is in the use of staff time. Therefore, the benefit of tools like these should be assessed largely but how much staff time is saved once they are up and running, after the first inventory is complete.

Estimating Overall Costs

The EPA recently proposed a regulation that would require large emitters of greenhouse gases in the U.S. annually to report their emissions. (The EPA

The :en:headquarters of the :en:United States ...
Image via Wikipedia

says the accounting methodology used in the proposed regulation is “the same as, or similar to” the methodologies contained in a variety of state programs and its Climate Leaders program, which as I noted above is similar to the GHG Protocol.) Along with this proposal, the EPA published a pretty exhaustive analysis of the impact of complying with it, including its cost to businesses across the industrial sectors that are the greatest emitters of greenhouse gases. The EPA analysis provides a useful data point for getting a grip on costs.

According to the EPA analysis, reporting costs will rang from $3,000 per year to $150,000 per year for large-scale emitters like cement manufacturers. The median annual cost for a representative entity cross all sectors in their analysis was about $17,500, with labor costs accounting for most of the expense. The EPA calculated that cost as a percentage of company revenue declines as company size increases, and ranges from .1% to .4% of revenue for the larger enterprises (with 1000 to 1499 employees).

It’s reasonable to assume that very large enterprises, whose emissions sources are diverse and globally distributed, will incur substantially greater costs. Hence UPS’s statement at a recent conference that they spend $1 million annually (a modest sum for a $50 billion company) to calculate their carbon footprint.

Anything to Add?

As more companies begin to undertake greenhouse gas inventories, it will be possible to collect more data on the costs and best practices of doing so. If you have anything to share on this topic, feel free to share below. Thanks.

Advertisements

10 Comments

Filed under emissions, sustainability

10 responses to “The Cost of Corporate Carbon Footprinting

  1. Hi David.

    It’s worth mentioning that as well as the costs, there should be as strong a focus on the return on investment of performing a carbon footprint project as well.

    I’ve just posted some thoughts on this here – http://blog.rev-id.com/2009/06/return-on-investment-of-corporate.html

    Thanks

  2. Thanks for the post. I think a lot of the confusion about carbon accounting stems from an apples and oranges phenomenon. It shouldn’t be that costly for a typical company, including even a “typical” manufacturer, to calculate its emissions if it can get all of the required inputs. For most companies the lion’s share of emissions are Scope 2 emissions from purchased electricity and Scope 1 natural gas, propane or fuel oil. When you described what UPS and Starbucks and others were doing it was clear they were deep into Scope 3 (transportation, supply chain, products, etc.) If you look just at Scope 1 and 2 emissions from a Starbucks outlet, the numbers are very small. While I appreciate what consultants can do for me (having been one myself in a former life!) there is an inherent bias on the part of consultants who either imply or state outright that a company can’t or shouldn’t do an inventory on its own. The fact remains that most Fortune 500 companies started with internal inventories, using employee time and elbow grease, spreadsheets and the WRI Protocol. That approach is an investment on the part of companies that pays off in knowledgeable employees who can do future inventory work or who can closely supervise a consultant. You also make a real important point about USEPA assistance; we received very valuable and expert assistance through Climate Leaders. It did not dramatically alter our inventory, but they certainly enhanced it and the learning was a great aid in refining our approach. It allows us to state that our inventory has been verified and lends it credibility. For this round of the CDP, Climate Leaders also provided some useful verbiage that we added to our response.

  3. Excellent points, Mr. Klaftner. You are right that any company can do its own inventory. It’s just a matter of whether they have the time to do it (in a constrained business world, env. professionals are already overtaxed) and the confidence. Many companies would rather have a new responsibility done by a 3rd party so they can learn (and perhaps have someone to blame).

    I am a consultant who has done several GHG emission inventories. First, I must echo what Mr. Klaftner said. The USEPA contractor on Climate Leaders does give limited, but free and definitely useful advice. To answer the initial question about the cost of a “typical” GHG emissions inventory, a lot of time (and therefore cost) is devoted to data gathering. I always give the choice of facilities gathering their own data based on guidance or a tool from me or have me in there to lead the way. The former certainly cuts down the consultant cost. But as the consultant, I must accept facility-generated data as correct (unless it is obviously missing or makes no sense). If a facility or company wants me there to gather/review the data, then there is a better chance of quality data and saving their internal people time, but that adds to the consultant cost. That seems to be a major determinant of cost. Hope this is helpful.

    Marc Karell, P.E.
    Climate Change & Environmental Services, LLC

  4. David Schatsky

    Thanks for this perspective, Marc.

  5. Very well laid out. Thanks for the great primer. I would add a note regarding the ability of organizations to report to “The Climate Registry”. All US emitters of over 25,000 tonnes CO2e per year will be regulated as having to report their emissions. One can also voluntary post to “The Climate Registry” using the WRI protocol, or ISO14064-1.

    Happy counting!

    Joseph

  6. David,
    Thanks for a solid article on this subject. I have always wondered about this subject myself.

  7. An Impact Assessment form is available on the recently published web page for the UK DEFRA’s “draft guidance on how to measure and report your greenhouse gas emissions”.

    It includes example costs and time scales of performing a GHG Inventory based on company size. The hourly rates used in their calculations may be a bit low but you can substitute those for your own figures.

    It also includes estimates of savings in resources through improved efficiency and case studies supplied by the UK Carbon Trust.

    Available here – http://www.defra.gov.uk/corporate/consult/greenhouse-gas/index.htm

  8. Pingback: Carbon Footprinting at CPGs « Green Research™

  9. Pingback: Indirect & Direct Cost of CMS « Information Systems for Environmental Sustainability

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s