GHG Accounting Fundamentals

1. GHG Accounting Fundamentals September 29, 2009

2. Presentation Overview • Background and Greenhouse Gases • Framework of GHG Inventory and Reduction Plans • Inventory Concepts • Emission Source Categories • Boundaries • Absolute vs. Intensity-Based • Existing Protocols

3. Greenhouse Gases

4. Background: The Greenhouse Gas Effect

5. Background: The Science From the Intergovernmental Panel on Climate Change (IPCC), Fourth Assessment Report: • “Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice and rising global average sea level” • “Global atmospheric concentrations of CO2, methane (CH4) and nitrous oxide (N2O) have increased markedly as a result of human activities since 1750 and now far exceed pre-industrial values determined from ice cores spanning many thousands of years.” • “Most of the observed increase in global average temperatures since the mid-20th century is very likely due to the observed increase in anthropogenic GHG concentrations. It is likely that there has been significant anthropogenic warming over the past 50 years averaged over each continent (except Antarctica)” Whether one agrees or disagrees with the findings of the IPCC is in some ways irrelevant. This is the issue that has captured the attention of national and local government leaders, regulators, the public, shareholders, insurance companies, and lenders and other financial institutions. Response is becoming less and less voluntary.

6. 6 GHGs Typically Covered by Existing Regulations / Protocols: Carbon Dioxide - CO2 Methane - CH4 Nitrous Oxide - N2O Sulfur Hexafluoride - SF6 Hydrofluorocarbons - HFC’s Perfluorocarbons - PFC’s Additional GHGs / Factors Impacting Climate: Other “F-gases” CFCs / HCFCs, typically not counted because regulated by Montreal Protocol mechanisms NF3 included in proposed Federal cap & trade legislation Other fluorinated gases such as HFEs included in recent EPA mandatory reporting rule Water Vapor Ground Level Ozone Carbon Black Aviation Contrails Ongoing debate regarding whether high-altitude emissions (aircraft) have greater impact than ground-level emissions Background: Greenhouse Gases

7. Background: Global Warming Potential Global Warming Potential (GWP) Definition: “The ratio of radiative forcing (degree of warming to the atmosphere) that would result from the emission of one unit of a given GHG compared to one unit of carbon dioxide (CO2).“ 1 i.e., a measure of the climate impact of a given mass of one GHG relative to an equal mass of release of CO2, based on a defined time horizon 1 Source: The Climate Registry General Reporting Protocol, Version 1.1

8. Global Warming Potential Estimates Source: Intergovernmental Panel on Climate Change, Second Assessment Report (1995), Third Assessment Report (2001), and Fourth Assessment Report (2007)

9. Setting the Framework for a GHG Reduction Program

10. The Pathway to GHG Reduction

11. Climate Change Drivers Converging The risks and effects of climate change have been accepted by the scientific, regulatory community and a growing number of public stakeholders

12. Inventory Concepts

13. Reporting Principles • Relevance Reflects GHG emissions, serves decision- making needs • Completeness Report everything within the boundary, state exclusions clearly • Consistency Support meaningful comparisons over time, document change • Transparency Clear audit trail • Accuracy Minimize uncertainties as far as practicable, reasonable assurance for uses

14. Emission Sources • Scope 1: Direct Emission Sources • Stationary Combustion (e.g. boilers for comfort heating, boilers for electricity generation) • Mobile Combustion (e.g., vehicles) • Process Related Emissions (e.g. N2O byproducts of ozone generation) • Fugitive Emissions (e.g., methane from WWTP surfaces, leaks of natural gas from pipelines) • Scope 2 – Indirect Emission Sources • Use of electricity, steam, and/or hot/chilled water • Use of electricity intentionally double counted in context of Scope 1 emissions (ownership by another entity) • Scope 3 – Optional Indirect Emission Sources • Upstream or downstream activities • Examples: raw material transport, waste removal and disposal, product transport, landscaping, employee commute • Generally considered part of GHG “footprint” rather than “inventory”

15. Emission Scopes

16. Emission Scopes & Life Cycle Considerations A water utility’s inventory includes GHG emissions within its organizational boundary. A footprint includes lifecycle GHG emissions, and is typically far broader.

17. Organizational Boundaries • Determining the breadth of facilities and operations to include in the emission inventory • Two common methods specified for organizational boundary definition • Equity share approach (all owned or partially owned facilities or emission sources included, pro-rated based on fraction owned) • Control approach (all facilities or emission sources under the control of the entity are included 100%) • Approach must be commonly applied across entire scope • consider shared, co-located and outsourced operations • Addressing mergers and acquisitions • Boundaries change over time, and procedures are specified for how current and prior year inventories are adjusted based on organizational changes • Also may consider geographic boundaries

18. Organizational Boundaries Organizational Boundaries Choose: Report by Ownership or Control Report by Ownership Report by Control Test Control: If Own (>50%), or control HS&E Then: Report 100% Report by Equity Share Else: Report 0%

19. Choose: Report by Ownership or Control Report by Ownership Report by Control Test Control: If Pay utility bills Finance Leases Organizational Boundaries- Leased Sources • Finance/ Capital Leases- treated as an asset on the balance sheet • Operational Leases- Everything else • Control is defined as the ability to pay electricity bills, control H&SE policy, etc.

20. Operational BoundariesGHGs Relevant to Water Utilities - Group Discussion

21. De Minimis Emissions • Latin origin meaning, “of little importance” or “at a level that is too small to be concerned with.” • Historically, de minimis emissions were excluded from inventories. By most current protocols, all identified emission sources must be included whether de minimis or not – however sources shown to be de minimis are held to a lower standard of rigor for data quality • De Minimis threshold ranges from 3 – 5% of overall emissions total, depending on the referenced protocol • WaterRF study showed that most water utility sources not currently defined in existing protocols are likely de minimis

22. Absolute VS. Intensity Based Reporting • Absolute Emissions: Simply the sum of emissions from all sources (ex. tons of CO2-e) • Emissions Intensity: Total emissions correlated to a production or output metric (i.e., absolute emissions / normalization metric) • Example: tons of CO2-e per million gallons of water treated • Allows benefits of projects or progress towards reduction goals to be recognized even in light of organization growth or mergers

23. Baseline Emissions • For entity-wide emission inventories, baseline or base-year emissions typically refer to the total emissions in the first year of a period over which a reduction effort is planned • Used as the baseline against which progress towards a reduction goal is assessed • Base-year emissions may be adjusted based on organizational boundary changes, in particular for mergers or divestitures • For specific emission reduction projects, baseline is the projected emissions “but not for” the project • May be defined as “static” – assuming no changes but not for the project, or “dynamic” – acknowledging that other changes would have occurred • Discussed more in afternoon session

24. Benchmarking • Purpose of Benchmarking • Evaluation of emissions over time in relation to targets or industry benchmarks • Facilitation of comparisons between similar businesses, processes, or products • Improving public understanding of an entity’s emissions profile over time, even as the business activity changes, expands, or decreases

25. Benchmarking • Sum emissions depending on how benchmarking will be used • facility type (source, treatment, distribution, buildings/infrastructure, fleet, and other) • emission source type (stationary equipment vs. generators, mobile fleet vs. handling equipment, electricity usage for offices vs. electricity usage for transfer pumps, etc.) • source category (direct, indirect, and other indirect) • CO2-e

26. Inventory Management Plan (IMP) • Why develop an IMP? • Institutionalize the process • Minimize workload • Prepare for audits and certification • Increase credibility under reporting programs • Roadmap for the inventory • Achieve the Reporting Principles

27. What does the IMP look like? • Could be a single document that spells out all requirements • Could be an overview document (or web-based tool) that links to: • existing or new SOP’s • software data base user guides • job descriptions • etc.

28. IMP Outline • Organizational Boundaries • Operational Boundaries • Quantification Methods and Factors • Data Management- Type of data, process flow, Quality Assurance • Adjustment procedures • Management Tools- Training, Roles &Responsibilities • Auditing and Verification

29. Existing Protocols

30. Organizations Publishing Existing Protocols • World Resource Institute / World Business Council on Sustainable Development (WRI/ WBCSD) • EPA – Climate Leaders / National Greenhouse Gas Registry • DOE 1605b • The Climate Registry (TCR) • California Climate Action Registry (CCAR) • International Council for Local Environmental Initiatives (ICLEI) – Local Governments for Sustainability • Chicago Climate Exchange (CCX) • ISO 14064 • United Kingdom Water Industry Research (UKWIR) – Workbook for Quantifying Greenhouse Gas Emissions

31. WRI/ WBCSD GHG Protocol • Starting point for virtually every protocol that is available today • Consists of 2 separate but interrelated modules: • GHG Protocol—Corporate Accounting and Reporting Standard • GHG Protocol—Project Accounting

32. WRI/ WBCSD GHG Protocol • GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6 • Sources of GHGs - Scope 1 (direct), Scope 2 (indirect), Scope 3 (optional indirect) emissions • Materiality Threshold (uncertainty error range potentially causing material misstatement) is defined • Emission factors based on IPCC and international energy data sources (except US energy is based on e-GRID) • Includes guidance and calculation tools for: • Stationary Combustion, Indirect Emissions, Mobile Combustion, HFC usage, and Sector specific modules for the Cement Industry, Aluminum Production, Iron & Steel, Pulp & Paper, Ammonia Production, etc. • Does not include a registry

33. EPA Climate Leaders / National Greenhouse Gas Inventory • GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6 • Sources- Direct, Indirect, Optional • Materiality or de minimis threshold is not defined – all GHG sources must be included in baseline • Emission factors are based on US Sources- e-GRID, DOE/EIA • Includes guidance for: • Stationary Combustion, Indirect Emissions, Mobile Combustion, HFC usage, and Sector specific modules for the Iron & Steel, MSW Landfilling, HFC manufacturing. Others are drafted- Cement Industry, Aluminum Production, Pulp & Paper.

34. DOE 1605b • The U.S. Department of Energy (DOE) set up a voluntary reporting program to help organizations and individuals measure and record the actions they have taken to reduce GHGs or to increase carbon sequestration. • The program is based on General Guidelines for the Voluntary Reporting of Greenhouse Gases [Section 1605(b) of the Energy Policy Act of 1992].

35. DOE 1605b • GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6 • Sources- Direct, Indirect • De minimis threshold defined as 3% of total GHG inventory • Provides a methodology rating approach • Stationary • Monitoring • Mass balance using Carbon content of fuel • IPCC for CH4 and N2O • Indirect • Generator specific factors • EIA • e-GRID • Includes guidance for: • Stationary Combustion, Indirect Emissions, Mobile Combustion, Process emissions, geologic sequestration, forestry, agriculture

36. The Climate Registry (TCR) • The Climate Registry is policy-neutral collaboration among 40 states; 9 Canadian provinces; 6 Mexican states; and 3 Native American tribes aimed at developing and managing a common greenhouse gas emissions reporting system. • Goal is to improve consistency and transparency between programs and establish a high level of integrity in emissions accounting and reporting.

37. The Climate Registry (TCR) • GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6 • Sources- Direct, Indirect, Optional Indirect • De minimis threshold defined as 5% • Emission factor sources- EPA, IPCC, Climate Leaders, e-GRID • Protocols are equivalent to WRI/WBCSD

38. California Climate Action Registry (CCAR) • The California Climate Action Registry (CCAR) was established by California statute as a non-profit voluntary registry for GHG emissions. The purpose of the CCAR is to help companies and organizations with operations in the state to establish GHG emissions baselines against which any future GHG emission reduction requirements may be applied. • Participants include businesses, non-profit organizations, municipalities, state agencies, and other entities. • CCAR staff were instrumental in establishing TCR • CCAR to be eventually superseded by TCR, and CCAR will change its mission to focus on the management and tracking of GHG emission reduction projects via the Climate Action Reserve (CAR)

39. California Climate Action Registry (CCAR) • GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6 • Sources- Direct, Indirect • De minimis threshold defined as 5% • Emission factors sources- California Specific, DOE/EIA, IPCC, e-GRID • Includes guidance for: • Stationary Combustion, Indirect Emissions, Mobile Combustion, and Sector specific modules for Cement Industry, Forest Products, and Power/Utility • NOTE- CA Mandatory Program (AB32) started in 2008

40. International Council for Local Environmental Initiatives (ICLEI) – Local Governments for Sustainability • more than 700 cities, towns, and counties worldwide • provides resources, tools, and information exchange services for reduction of GHG emissions. • February 2008, ICLEI released a draft of the ICLEI Protocol for inventory of municipal operations. Guidance on inventory of community emissions forthcoming • similar to the WRI/WBCSD GHG Protocol, but with additional guidance relative to information management for municipalities

41. International Council for Local Environmental Initiatives (ICLEI) – Local Governments for Sustainability • Sources- Direct, Indirect • adds “conservativeness” as a guiding principle • that is, assumptions, values, and procedures used to quantify GHG emission levels should overestimate, not underestimate • Tiered approach to emission factors and activity data • Tier 1: Basic • Tier 2: Intermediate • Tier 3: Most accurate/complex (Try to use best)

42. Chicago Climate Exchange (CCX) • Established in response to a feasibility study conducted by Environmental Financial Products and funded by the Chicago-based Joyce Foundation. • concluded “a North American private-sector pilot GHG trading market was feasible” • “North America’s only, and the world’s first, GHG emission registry, reduction and trading system for all six GHGs”

43. Chicago Climate Exchange (CCX) • voluntary, legally binding commitment to reduce direct GHG emissions below an emissions baseline. • inventories based upon the WRI/WBCSD GHG Protocol guidance and tools. • CCX hires a third party, the Financial Industry Regulatory Authority, for verification of inventory data, unlike most other registries that require the member to hire an independent third party from a list of pre-certified verification parties.

44. ISO 14064 • The ISO 14064 comprises three standards: • ISO 14064-1, Greenhouse gases – Part 1: Specification with guidance at the organization level for the quantification and reporting of greenhouse gas emissions and removals. • ISO 14064-2, Greenhouse gases – Part 2: Specification with guidance at the project level for the quantification, monitoring and reporting of greenhouse gas emission reductions and removal enhancements. • ISO 14064-3, Greenhouse gases – Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions. • Closely follows WRI GHG Protocol • GHGs addressed include the 6 Kyoto Gases- CO2, CH4, N2O, HFC, PFC, and SF6 • Sources- Direct, Energy Indirect, Other indirect • Specific emission factors or quantification methodologies are not provided

45. United Kingdom Water Industry Research (UKWIR) – Workbook for Quantifying Greenhouse Gas Emissions • Finalized in February 2005 • Specifically on estimating individual water company GHG emissions • Drinking water treatment and pumping • Sewage treatment and pumping • Sludge treatment and disposal • Administrative activities • Transport • Use of purchased electricity • Production and use of self-generated electricity from biogas, sludge, or other fuels • Fuel use, including use in process and transport • Microsoft Excel Spreadsheet Tool • 2004 UK Department for Environment, Food, and Rural Affairs (Defra) Guidelines for Company Reporting

46. Questions?

47. Extra Material

48. CO2 Emissions Since Industrial Revolution

49. GHG Atmospheric Concentrations

50. IPCC 4th Report