Skip to main content
diversification.com
← Back to G Definitions

Ghg emissions

What Are GHG Emissions?

Greenhouse gas (GHG) emissions refer to the release of gases into the atmosphere that trap heat and contribute to the greenhouse effect, leading to global warming and climate change. These gases, part of the broader field of Environmental, Social, and Governance (ESG) considerations and corporate sustainability, include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and fluorinated gases. Human activities, primarily the burning of fossil fuels for electricity, heat, and transportation, are largely responsible for the increased concentration of GHG emissions in the atmosphere over the past 150 years.14

History and Origin

The scientific understanding of greenhouse gases dates back to the 19th century, with significant recognition of their atmospheric impact growing in the latter half of the 20th century. The global effort to address GHG emissions formally began with the establishment of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992. This international treaty committed signatory nations to take steps to mitigate greenhouse gas emissions.13,

A pivotal moment in the history of global efforts to control GHG emissions was the adoption of the Paris Agreement in December 2015. This legally binding international treaty, signed by 196 parties at the UN Climate Change Conference (COP21), aims to substantially reduce global greenhouse gas emissions to limit the global temperature increase to well below 2°C above pre-industrial levels, and ideally to 1.5°C., 12T11he agreement also established an enhanced transparency framework to track countries' actions and progress.

10## Key Takeaways

  • GHG emissions are gases that trap heat in the Earth's atmosphere, contributing to global warming.
  • The primary gases include carbon dioxide, methane, nitrous oxide, and fluorinated gases.
  • Human activities, particularly burning fossil fuels, are the main source of increased GHG emissions.
  • International agreements like the Paris Agreement aim to reduce these emissions globally.
  • Companies are increasingly focused on measuring and reducing their GHG emissions as part of sustainability and regulatory compliance efforts.

Formula and Calculation

Calculating GHG emissions typically involves measuring the amount of each greenhouse gas released and converting it into a common unit, usually carbon dioxide equivalent (CO2e), using a gas's Global Warming Potential (GWP). The GWP reflects how much heat a given mass of a greenhouse gas traps in the atmosphere over a specific time horizon (e.g., 100 years) relative to the same mass of carbon dioxide.

The general formula for calculating CO2e for a single gas is:

CO2e=Amount of Gas×GWP of Gas\text{CO2e} = \text{Amount of Gas} \times \text{GWP of Gas}

To determine a total GHG emissions footprint, emissions from various sources are categorized into three scopes:

  • Scope 1: Direct emissions from owned or controlled sources (e.g., fuel combustion in company vehicles, manufacturing processes).
  • Scope 2: Indirect emissions from the generation of purchased energy (e.g., electricity, heat, steam).
  • Scope 3: All other indirect emissions that occur in a company's value chain, both upstream and downstream (e.g., business travel, waste disposal, purchased goods and services).

Organizations often use standardized methodologies, such as the Greenhouse Gas Protocol, to ensure consistency in calculating their carbon footprint.

9## Interpreting GHG Emissions

Interpreting GHG emissions data involves understanding the sources, magnitude, and trends of these releases. A high level of GHG emissions indicates a significant environmental impact, often associated with reliance on fossil fuels or energy-intensive operations. Conversely, declining GHG emissions suggest progress towards greater sustainability and potentially improved operational efficiency.

For companies, interpreting their GHG emissions helps identify areas for reduction. For example, high Scope 1 emissions might point to a need for fleet electrification or process optimization, while high Scope 2 emissions could indicate a need to switch to renewable energy sources. Understanding the distribution across Scope 1, 2, and 3 also informs a company's overall risk management strategy related to climate change. Investors and other stakeholders increasingly use this data to assess a company's environmental performance and its resilience to climate-related risks.

Hypothetical Example

Consider "GreenBuild Co.," a construction firm aiming to understand its GHG emissions.

  1. Data Collection: GreenBuild gathers data on its fuel consumption for machinery (Scope 1), purchased electricity for its offices and sites (Scope 2), and emissions from the production of raw materials like cement and steel, and employee commuting (Scope 3).
  2. Calculation:
    • Scope 1: GreenBuild's construction vehicles used 100,000 gallons of diesel in a year. Using an emissions factor of roughly 10.2 kg CO2e per gallon of diesel, their Scope 1 emissions are 1,020,000 kg CO2e.
    • Scope 2: The company purchased 500,000 kWh of electricity. If the regional grid's emissions factor is 0.4 kg CO2e per kWh, their Scope 2 emissions are 200,000 kg CO2e.
    • Scope 3: Through an assessment, GreenBuild estimates its Scope 3 emissions from raw materials and commuting at 750,000 kg CO2e.
  3. Total GHG Emissions: Adding these figures, GreenBuild's total GHG emissions for the year are 1,970,000 kg CO2e.

This calculation provides GreenBuild with a baseline to measure future reductions and identify key areas for improvement, such as investing in electric construction equipment or sourcing lower-carbon materials for its projects.

Practical Applications

GHG emissions data has numerous practical applications across finance, industry, and policy:

  • Corporate Reporting: Many companies, particularly large public ones, are now required or voluntarily choose to disclose their GHG emissions as part of their financial reporting and sustainability reports. The U.S. Securities and Exchange Commission (SEC) finalized rules in March 2024 requiring certain climate-related disclosures, including material Scope 1 and Scope 2 GHG emissions, for publicly traded companies.
    *8 Investment Decisions: Investors use GHG emissions data to evaluate companies' ESG performance, manage portfolio risk, and inform investment decisions. Funds focusing on responsible investing often screen for companies with lower emissions or strong emission reduction targets.
  • Carbon Markets: Emissions trading systems, often called cap-and-trade programs, allow companies to buy and sell allowances to emit GHGs. This creates a market price for carbon and incentivizes reductions. Companies that successfully reduce their emissions below their allocated allowances can sell their surplus carbon credits.
  • Policy and Regulation: Governments use GHG emissions data to develop and implement environmental policies, set emission reduction targets, and track progress towards international commitments like the Paris Agreement. The U.S. Environmental Protection Agency (EPA) tracks total U.S. emissions by publishing an annual Inventory of U.S. Greenhouse Gas Emissions and Sinks.,
    7
    6## Limitations and Criticisms

While essential for climate action, the measurement and regulation of GHG emissions face several limitations and criticisms:

  • Data Complexity and Accuracy: Calculating comprehensive GHG emissions, especially for Scope 3, can be complex due to vast supply chain involvement and data availability challenges. The accuracy of self-reported data can also be a concern, necessitating third-party verification for greater reliability.
  • Materiality Debates: The SEC's final climate disclosure rules, for instance, introduced materiality as a condition for disclosing Scope 1 and 2 emissions, meaning companies only need to disclose them if they are considered material to investors., 5T4his can lead to differing interpretations and potential under-reporting if not clearly defined and enforced.
  • Greenwashing Concerns: Some critics argue that companies may engage in "greenwashing," presenting a misleadingly environmentally friendly image without making substantial reductions in their actual GHG emissions. This highlights the importance of transparent reporting and verifiable data.
  • Economic Impact: Regulations aimed at reducing GHG emissions can impose costs on businesses, particularly those in emission-intensive industries. Debates often arise regarding the economic feasibility and impact of stringent emission reduction targets on competitiveness and job creation.
  • Scope 3 Exclusion: A significant point of contention in recent regulatory discussions, such as with the SEC's climate rule, has been the exclusion or limited inclusion of Scope 3 emissions disclosure requirements., 3C2ritics argue that omitting Scope 3 significantly overlooks a large portion of a company's overall climate impact, especially for industries with extensive value chains.

GHG Emissions vs. Carbon Footprint

While often used interchangeably in common discourse, "GHG emissions" and "carbon footprint" refer to distinct but related concepts.

  • GHG Emissions: This term specifically refers to the actual gases released into the atmosphere that contribute to the greenhouse effect. It encompasses a basket of gases, including carbon dioxide, methane, nitrous oxide, and fluorinated gases, each with its own warming potential.
  • Carbon Footprint: This is a measure of the total greenhouse gas (GHG) emissions caused directly and indirectly by an individual, organization, event, or product. It quantifies the impact in terms of carbon dioxide equivalent (CO2e), consolidating the effects of all relevant GHGs into a single, comparable metric.

In essence, GHG emissions are the input (the gases themselves), while a carbon footprint is the output (the calculated measure of the total impact of those gases). An organization calculates its carbon footprint by measuring its GHG emissions across various scopes.

FAQs

What are the main types of GHG emissions?

The primary types of GHG emissions are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and fluorinated gases (hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen trifluoride).

1### Why are GHG emissions important to investors?
GHG emissions are important to investors because they signal a company's exposure to climate change risks, regulatory compliance burdens, and potential for future carbon transition costs. They are a key component of ESG analysis and can influence a company's long-term financial performance and reputation.

How can companies reduce their GHG emissions?

Companies can reduce GHG emissions through various strategies, including transitioning to renewable energy sources, improving energy efficiency in operations, optimizing their supply chain, investing in carbon capture technologies, and implementing circular economy principles to minimize waste. Many companies also aim for Net Zero targets.