Decarbonizing Operations 101

Executive summary

Decarbonizing your operations is not just good for the planet—it’s crucial for your business’s financial health. With increasing climate mandates and regulations, compliance is no longer optional. Accurate, actionable data is essential for financial-grade carbon accounting, helping you stay ahead of compliance mandates.

Capturing and reporting on this data in a financially compliant way is important, but we can’t stop there. To realize carbon reductions, meet your goals, and start saving money you need to activate carbon reduction projects. There are many places to start and many paths to get you to net-zero. Knowing where to start can feel overwhelming, which is why we created this 101 guide.

This eBook will guide you through a step-by-step process for financial-grade carbon accounting and provide five easy-to-understand steps to decarbonizing your operations. We hope you walk away with a baseline understanding of the foundational elements you need to kick off your decarbonization journey.

This content was originally explored during EnergyCAP’s LinkedIn Live sessions, Laying the Data Foundation for Carbon Accounting and Decarbonizing Operations 101, which features Joseph Amador, a leading expert in decarbonization. The content within this eBook has been restructured for clarity, and some areas have been expanded upon for greater insight.

Table of contents

1. The basics of carbon accounting
a. Climate Regulations
b. Emissions overview
2. Building your data foundation
a. Early considerations
b. Identifying emissions
c. Select calculation approach
d. Calculating emissions/Emission factors
e. Applying calculation tools
f. Report to corporate level
3. Decarbonizing operations
a. What is decarbonization?
b. Establishing a data foundation
c. Decarbonization levers
d. 5 steps to optimizing operations
4. Looking to the Future

The basics of carbon accounting

Carbon accounting plays a key role in Environmental, Social, and Governance (ESG) reporting. It’s often driven by companies wanting to cut their environmental footprint, as a commitment to sustainability. By focusing on solutions that enhance efficiency, businesses can make a significantly positive impact on the environment.

Beyond voluntary initiatives, there are many upcoming regulatory requirements around the globe that make carbon accounting essential.

Major ESG and climate disclosure regulations

Notable among these are the upcoming regulations from the Securities and Exchange Commission (SEC) in the United States, which targets public companies, as well as the recent climate laws enacted in California, S.B. 253 and S.B. 261.

The SEC’s upcoming regulation focuses on enhancing transparency around environmental, social, and governance (ESG) factors, requiring companies to disclose climate-related risks and their impacts on financial performance. This aims to help investors make more informed decisions, fostering accountability and sustainability.

California’s new climate laws set ambitious targets for reducing greenhouse gas emissions, advancing renewable energy use, and improving air quality. These regulations mitigate climate change impacts and promote public health.

In Europe, the Corporate Sustainability Reporting Directive (CSRD) mandates that companies provide detailed disclosures about their ESG practices. The aim is to increase transparency and ensure that businesses are held accountable for their sustainability efforts. Under CSRD, companies must report on carbon emissions, resource management, labor practices, and diversity policies.

These regulations mandate specific levels of carbon reporting and are expected to take effect within the next few years. Therefore, companies must prepare to meet these stringent disclosure standards to ensure compliance and demonstrate their commitment to sustainable practices.

Carbon emissions overview

Greenhouse gases (GHGs), including carbon dioxide (CO2) and others, contribute to climate change at varying levels.

Reporting on these emissions typically follows the Greenhouse Gas Protocol, which standardizes the measurement by converting all GHGs into CO2 equivalents. This standardization simplifies the complex landscape of emissions by providing a common metric for reporting and analysis.

Carbon emissions are categorized into three scopes:

Scope 1 covers direct emissions from an organization’s operations. These are emissions generated by activities that occur on-site, such as the burning of fuels in company-owned power plants or vehicles. Essentially, Scope 1 emissions are those for which the organization has direct control and responsibility, reflecting the immediate impact of its operational activities.

Scope 2, on the other hand, pertains to indirect emissions resulting from the consumption of purchased electricity, steam, heating, and cooling. Although the emissions occur off-site where the energy is produced, they are attributed to the organization that consumes the energy.

Scope 2 emphasizes the importance of understanding the environmental footprint of the energy sources an organization relies on, effectively linking utility bills to the broader picture of carbon emissions.

Scope 3 encompasses all other indirect emissions that occur in an organization’s value chain. This includes emissions from both upstream and downstream activities such as the procurement of raw materials, manufacturing processes, logistics, product use, and disposal.

Using Apple as an example, Scope 3 would involve emissions from the extraction of raw materials for an iPhone, the energy used in its production, and the logistics of shipping the finished product. It also considers the emissions from the product’s usage and eventual disposal or recycling. Scope 3 captures the full spectrum of emissions associated with the lifecycle of a product or service, providing a comprehensive view of an organization’s environmental impact.

Building the data foundation

Data structure

Before beginning your carbon accounting journey, it’s important to determine how the data should be organized.

There are multiple ways to approach this, and the choice largely depends on the specific needs and priorities of an organization. For instance, organizations can choose to group carbon emissions by different utility accounts, which is particularly beneficial if they predominantly deal with Scope 2 emissions.

Alternatively, reporting can be organized based on buildings, facilities, or specific meters. The primary goal is to identify the most suitable reporting structure. This could mean reporting by geographical region, country, or rolling up information by regions, facilities, groups of buildings, or even business units.

Organizations with multiple business units may opt to have each unit report on its carbon emissions. However, some may prefer to simplify their approach by consolidating data into the three scope categories across the organization. The flexibility in reporting structure is advantageous, but it necessitates early planning to avoid the extra work of reorganizing data later.

Ensuring financial-grade data 

Another item to consider, especially for organizations affected by regulations such as the SEC, California climate laws, or the CSRD, is the financial-grade element of the data. Climate disclosure regulations require audits and assurance on carbon reporting, thus emphasizing the need for accuracy, auditability, time relevance, and automation. Achieving accuracy requires approval processes that meet the expectations of the C-suite and investors.

Auditability requires that data be easily accessible for auditors, with clear tracking of timestamps and any changes in emissions factors or data. Time relevance pertains to the frequency of data updates–whether annually, quarterly, or otherwise–and the age of the data set.

The degree of automation in data collection is critical. Manual data entry and spreadsheets can result in outdated information, while automated systems provide a more dependable solution.

Steps to identifying and calculating GHG emissions

With the initial considerations addressed, it’s time to delve into the steps essential for establishing a robust data foundation.

Step 1: Identify sources

The process of identifying sources for emissions reporting begins with a comprehensive inventory of all potential emission points within an organization or system. This involves scrutinizing various operational activities, such as energy consumption, industrial processes, transportation, and waste management, to pinpoint where Scope 1, 2, and 3 emissions are generated.

Identifying your Scope 1 Emissions

Consider all the direct emissions from your facilities or company vehicles.

Commercial or industrial organizations should consider whether or not they generate process emissions in their facilities. Are there any fugitive emissions coming out of the process or manufacturing plant? Those emissions would be tracked as Scope 1, as well as any power produced at an on-site facility.

Office-based organizations should consider what combustion devices are being used in their operations. This can be anything from company vehicles to lawnmowers or leaf blowers, to jet fuel, if the organization has a private jet. Basically, things you are operating for your organization that are directly emitting carbon into the atmosphere would fall under scope 1 direct emissions. Refrigeration or HVAC equipment that are releasing emissions would also be included.

Identifying your Scope 2 Emissions

Scope 2 includes purchased electricity, steam, heating, cooling power. This is data that can be easily accessed from utility bills.

If you have a large portfolio of facilities and operations—especially across the globe—you probably know it’s not easy to collect utility bill data. It can be a cumbersome process, and oftentimes the data is put into a spreadsheet manually, leaving much room for error.

Organizations that report sustainability data annually, rather than monthly, often compile all information at once, and errors in utility bill data are common. EnergyCAP has identified three frequent errors: incorrect account ownership, missing data, and duplicate bills. Many organizations unknowingly pay for utility bills on properties they no longer own due to administrative oversights. EnergyCAP audits utility bills daily using hundreds of algorithms, finding that 1 in 16 bills has potential issues, and over half of those require corrective action. EnergyCAP has flagged over 100,000 duplicate bills, saving clients over $166 million. This highlights not only the importance of accuracy in carbon reporting, but also the potential for significant energy and utility cost savings.

Identifying your Scope 3 Emissions

Almost all businesses generate indirect emissions from upstream and downstream business activities, but not all indirect emissions are material to each business—you must select the ones most material to track. Organizations should identify the Scope 3 categories that are most relevant.

The chart below shows how some Scope 3 categories are more material to certain industries than others.

Step 2: Select calculation approach

To measure emissions, three primary methods are utilized.

1. Direct measurement. If one can track greenhouse gas concentration and flow rate directly—similar to monitoring an exhaust pipe on a vehicle—it provides a valuable method for measurement. Though not everyone may have the capability to do this, achieving it would be a significant step forward. This approach represents the ideal method for direct measurement.

2. Stoichiometric calculation. Understanding stoichiometric calculations is crucial for determining the quantities of reactants and products in a chemical reaction. These calculations rely on the law of conservation of mass, which asserts that the total mass of reactants must equal the total mass of products. Simply put, if you know the amounts of the reactants, you can accurately predict the amount of product formed, and vice versa. This foundational principle ensures precision in chemical equations and reactions.

3. Estimating emissions with activity data. This is the most common and prevalent approach. The estimation method leverages emissions factors, which are standardized values used to convert activity data into emissions data. These emission factors can differ based on region and standard.

In terms of managing emissions data, the shift from manual spreadsheet processes to automated software systems is becoming increasingly important.

Manual methods, while cost-effective and simple, are prone to errors and inefficiencies, and often result in outdated and siloed data. In contrast, automated systems provide near real-time data, reduce errors, and foster better collaboration across teams. This enables proactive monitoring and response, crucial for real-time energy management and decarbonization efforts.

Building a comprehensive data foundation involves meticulous identification, collection, and calculation of emissions data, supported by robust tools and methodologies. This structured approach not only ensures accuracy and compliance but also drives significant energy cost savings and supports sustainability goals.

Step 3: Calculating emissions/emission factors

To effectively manage carbon emissions, identify a standard set of emissions factors. Utilizing a dedicated tool or a consistent process is recommended, especially if data is managed in spreadsheets, which can be cumbersome. Plus, a variety of record types can be used to find activity data relevant to whether you’re calculating Scope 1, 2, or 3 type data.

Choosing the right emissions factors

Emission factors are generally expressed as the weight of CO2e divided by a reference unit. Emission factors can be accessed from a range of sources. Common open-source databases are provided by environmental agencies like:

• EPA
• IEA
• DEFRA in the UK
• IPCC
• Ecoinvent

Some GHGP emissions calculation tools are publicly available. Scope 3 emissions cover a broad range of categories and methods for calculation, with guidance available from the Greenhouse Gas Protocol. To guarantee accurate scope 3 calculations, leveraging resources from the Greenhouse Gas Protocol and consulting experts is recommended.

Emissions factors are periodically updated by various agencies. In tools like EnergyCAP CarbonHub, these updates are timestamped to maintain clarity in reporting. This helps in tracking changes in emissions factors over time, ensuring transparency in audits and reports.

Location-based vs. Market-based approaches

Scope 2 emissions reporting can be approached in two ways:

1. Location-based approach. This approach uses average intensity of the local grid based on regional and national averages. This method reflects changes as the grid becomes greener over time.

• Advantages: Easy application, promotes awareness of local grid impact.
• Disadvantages: Less specific, varies by region’s energy mix.

2. Market-based approach. This focuses on emissions from specific energy purchases, such as power purchase agreements (PPAs) or renewable energy credits (RECs). This approach provides a more accurate representation of emissions based on the actual energy mix used.

• Advantages: Encourages low-carbon energy purchases, accurately reflects specific contracts and projects.
• Disadvantages: Requires detailed tracking of energy contracts, can be complex without the right tools.

EnergyCAP CarbonHub integrates both approaches, allowing for easy application of location-based factors and the ability to update market-based factors for specific meters. CarbonHub demonstrates how location-based and market-based emissions factors can be mapped and calculated. For instance, a meter in Pennsylvania can automatically pull in local base factors, while a meter using 50% wind power from a PPA can integrate market-based factors seamlessly.

Step 4: Apply calculation tools

Calculation tools are extremely helpful in effective energy and sustainability management. For over 40 years, EnergyCAP has empowered energy and sustainability leaders at some of the largest corporations, governments and institutions. EnergyCAP is the #1 trusted energy and sustainability ERP. EnergyCAP CarbonHub and EnergyCAP UtilityManagement can be combined to streamline data collection and improve the accuracy and auditability of utility bills, which is foundational to carbon accounting.

For organizations managing extensive utility bills, EnergyCAP UtilityManagement facilitates various data input methods, including manual entry, bulk import, and a bill capture service where bills are imported, audited, and verified for accuracy and timeliness. The platform runs multiple automatic audits to validate usage, catch duplicates, and identify anomalies in cost, use, and demand.

EnergyCAP CarbonHub acts as the central repository for carbon accounting, processing scope two utility data to calculate emissions based on location-based factors. It also tracks scope one and scope three data, supporting comprehensive carbon accounting across different organizational levels. The platform offers numerous options for data integration, including APIs, and allows for the application of custom and standard emissions factors, making it easy to manage data in bulk.

The platform’s data hierarchy can be tailored to suit different organizational needs, ensuring that all stakeholders work from the same accurate and auditable data set. Customizable and shareable dashboards enable the tracking of emissions over time, reporting to key stakeholders, and monitoring progress toward decarbonization goals.

Step 5: Reporting to corporate level

When rolling up data to the corporate level, several considerations should be taken into account.

Derived directly from the GHG Protocol, these considerations ensure that data is organized effectively and accurately audited. One aspect is providing a brief description of the emission sources, the specific activity data used, and any exclusions. It’s important to justify why certain sources, especially scope three emissions, are excluded if they are not material to the business.

The reporting timeframe should be clearly included, along with year-over-year or period-over-period comparisons to highlight any data trends. Identifying and reporting on business targets and progress towards these targets is essential. Additionally, any uncertainties in the information or data should be clearly noted, serving as a form of risk management. Recommendations for improvements in future reporting years should also be included.

Tracking impact events that could cause data anomalies, such as acquisitions, divestitures, closures, technological upgrades, or changes in reporting boundaries, is another vital practice. The GHG calculation method used should be explicitly stated, along with a rationale for the chosen approach. Whether local or market-based emissions factors are used, or a blend thereof, this should be outlined and justified. These best practices help ensure comprehensive and transparent final reports.

EnergyCAP CarbonHub and UtilityManagement offer a flexible data hierarchy. These tools allow users to organize data by various categories, such as corporate activities, emissions, or financial metrics. This ensures that everyone works from a single, accurate, and auditable data set.

Decarbonizing operations

What is decarbonization? 

Decarbonization is becoming increasingly critical as extreme weather events and climate crises become more frequent and severe. Establishing a solid data foundation is fundamental for effective decarbonization, enabling organizations to harness detailed analytics and insights for optimized operations.

The first part of this eBook emphasized the importance of leveraging energy and sustainability software to facilitate these efforts. By adopting technology, organizations can create, validate, and visualize robust energy programs that contribute significantly to reducing global greenhouse gas (GHG) emissions. This approach not only mitigates climate impacts, but also enhances operational efficiency and cost-effectiveness.

Optimizing operations and decarbonizing involves a structured five-step process:

1. Measuring and monitoring emissions
2. Reducing demand
3. Transitioning to clean power
4. Capital project planning
5. Managing Scope 3 emissions and offsets

Each step presents unique challenges and opportunities. Accurate measurement and continuous monitoring are foundational, enabling informed decision-making. Reducing demand through energy-efficient practices and transitioning to renewable energy sources are critical for cutting emissions.

Capital project planning ensures long-term sustainability, while addressing Scope 3 emissions and implementing offsets can mitigate the broader impact of an organization’s activities. Emphasizing the importance of technology and best practices, organizations can navigate these steps effectively to achieve their environmental objectives.

Step 1: Measuring and monitoring emissions

EnergyCAP’s 2023 State of Decarbonization survey found that 50% of industry leaders still rely on spreadsheets for energy data management, highlighting a need for more advanced tools. While spreadsheets are sufficient for basic accounting, they fall short in addressing energy efficiency and decarbonization challenges.

To effectively reduce energy waste and emissions, organizations must adopt more sophisticated data management solutions. Automating utility bills and integrating real-time monitoring can streamline energy management and reduce environmental impact. Interval data from smart meters offers clearer insights into demand, and utilities are increasingly providing better, more timely data without requiring heavy hardware investments.

Establishing a baseline is a vital step in the decarbonization journey.

This involves assessing the previous year’s emissions to set a reference point. As businesses grow, it is important to consider the additional emissions that come with this growth. Future projections and assumptions about business expansion should be factored into the baseline to create a realistic and achievable plan for reducing emissions.

Once you have your baseline established, you can set goals, activate carbon reduction projects, and monitor your performance as you go.

A prime example is IDEA’s innovative use of EnergyCAP to enhance CO2 emissions data collection across their 600 district energy systems. In 2022, IDEA started requesting emission data from its members; initially in spreadsheets. Realizing spreadsheets and manual analysis were not scalable, IDEA evaluated and decided to transition over to EnergyCAP CarbonHub because the system allows them to significantly uplevel their efforts. It has flexibility in what forms of data can be submitted and offers more robust reporting tools, which is particularly valuable for systems without preexisting carbon accounting protocols.

Having a tool to track carbon emissions enables IDEA to showcase innovation and best practices in their sector and assess carbon mitigation results by system and in aggregate. Check out their full Success Story here.

Step 2: Reducing demand

Effective energy management requires understanding both energy demand and carbon impact to reduce consumption and costs. Utilities charge based on consumption (total energy used) and demand (peak usage at any moment).

With the rise of renewable energy, demand charges encourage usage during times of high availability. For organizations with large real estate holdings, visibility into demand profiles can lead to cost savings by reducing peak demand. Simple strategies like pre-cooling spaces or staggering equipment use can prevent costly spikes.

Interval data, offering detailed insights into energy usage, is key for managing demand and implementing cost-effective energy strategies.

Step 3: Transitioning to clean power

The transition to clean power is crucial for reducing an organization’s carbon footprint after minimizing energy demand and consumption. Options include power purchase agreements (PPAs), green business energy tariffs, renewable energy credits (RECs), and on-site generation like solar panels. Deregulated energy markets also allow flexibility in choosing renewable energy suppliers.

Prioritizing energy efficiency maximizes the impact of clean power investments. Data helps identify inefficiencies, smoothing demand peaks and valleys for better integration of renewables.

While efficiency is often prioritized before clean power, visible projects like solar installations can demonstrate sustainability commitments, even if energy efficiency isn’t fully optimized. Each organization may approach these steps differently, depending on its unique goals and priorities, but the key is to balance efficiency with clean power adoption for maximum environmental impact.

Step 4: Capital project planning

Capital planning is becoming increasingly more important in the drive toward net-zero emissions. It involves replacing assets like chillers, cooling towers, and generators, with careful attention to timing and costs. For large organizations, these expenses vary, requiring strategic foresight.

Data plays a key role in capital planning. Organizations need energy consumption data, maintenance records, and equipment lifespan details. More advanced data, such as real-time energy usage and occupancy trends, can help optimize operations and reduce costs. Software tools can support these data needs.

For example, EnergyCAP customer, University of Texas Medical Branch (UTMB), needed data to apply for a BRIC grant to replace an outdated plant. Using EnergyCAP UtilityManagement, they quickly pulled external vendor invoices to get the total energy usage for one fiscal year and track monthly consumption. With EnergyCAP CarbonHub, they calculated CO2 emissions and determined that replacing the chillers would save 7.3 million kWh per year, equivalent to 5,195 metric tons of CO2. This data was gathered in just 20 minutes, streamlining the application process.

Technology’s role in managing energy use is essential, with data-driven insights enhancing building efficiency and supporting environmental goals.

Step 5: Managing Scope 3 emissions and offsets

Scope 3 emissions, covering upstream and downstream activities, are critical to achieving net zero for organizations. While Scope 1 and 2 emissions address direct emissions and those from purchased energy, Scope 3 includes indirect emissions like raw material production, transportation, employee commuting, and business travel. Different industries have varying levels of Scope 3 emissions, with manufacturing typically having more than commercial real estate or corporate offices.

Reducing Scope 3 emissions is essential for minimizing environmental impact. Offsets can help, but the priority should be on efficiency measures that reduce emissions at the source. For buildings, Scope 1 covers items like backup generators, Scope 2 includes utilities, and Scope 3 involves building materials, waste, and maintenance.

EnergyCAP CarbonHub can track your Scope 3 emissions, offsets, and PPAs at the organizational level. The path to decarbonization requires ongoing innovation and adaptation. With the right tools and a clear understanding of emissions data, organizations can make substantial progress toward sustainability.

Looking to the future

In conclusion, as we look to the future, the path to decarbonization is clear: establish a solid data foundation, leverage strategic decarbonization levers, and follow a systematic approach to optimizing operations. With EnergyCAP’s cutting-edge solutions, organizations are well-equipped to reduce their carbon footprint, achieve sustainability goals, and contribute to a greener, more sustainable world.