As companies grapple with Scope 3 emissions, measuring Scope 4 or "Avoided emissions" comes into play

A global reporting standard measuring “avoided carbon emissions” is gaining momentum, in spite of its complexity and companies grappling with defining and measuring Scope 3 emissions. This is scope is particularly interesting to the leading fund managers who run climate solutions focused funds. This is what top management needs to know.

Pacific Gas & Electric (PG&E) published its climate strategy report, highlighting a new category of greenhouse gas emissions, Scope 4. The category accounts for the emissions that company claims it enabled its customers to reduce.

"Scope 4" are a new voluntary metric for avoided emissions that measure the reductions that “occur outside a product’s life cycle or value chain but as a result of the use of that product,” as defined by the World Resources Institute, which established the GHG Protocol.

Reporting is voluntary with no current plans to make it a legal obligation. There is no universally recognised standards to measure avoided emissions, but there are a few available frameworks. For instance, in 2019, WRI proposed a framework to measure and disclose GHG emissions from products and services - including avoided emissions.

The framework suggests that companies estimate avoided emissions as "a difference in total life-cycle GHG emissions between a company’s product and some alternative product that provides an equivalent function".

Boards are already overwhelmed to disclose Scope 1 and 3, and struggle with the boundaries and measurement of Scope 3. They are unlikely to rush reporting avoided emissions. Another barrier in disclosing Scope 4 is the complexity attached to its measurements. And some sceptics worry that it may be an expedient form of greenwashing.

Examples:
1. PG&E defines Scope 4 emissions as “an emerging term for categorising emission reductions enabled by a company".
2. Solar energy producer Sunrun tracks the positive environmental impact from customers, as “the estimated reduction in carbon emissions as a result of energy produced from our Networked Solar Energy Capacity over the trailing twelve months.”
3. Bloom Energy, Public Service Enterprise Group, Renew Energy Global and Telefonica SA disclosed figures of avoided emissions using percentages and metric tons of carbon dioxide.

My Recommendation: I am fond of saying the greenest energy is the energy you don’t use. The same applies to carbon emissions. The complexity of measuring avoided emissions in a transparent, data-driven way makes Scope 4 a long-term vision. Companies should start looking at it as it forces them to account for the system in which they operate and impact it positively.



Best sources to find out more:
- Financial Times: https://enterprise.ft.com/en-gb/blog/measuring-scope-4-emissions-what-boards-need-to-know/
- Agenda: https://www.agendaweek.com/lead/c/3659904/471054/companies_grapple_with_scope_scope_comes_into_play
- WRI framework: https://ghgprotocol.org/sites/default/files/2023-03/18_WP_Comparative-Emissions_final.pdf
- PwC report: https://www.pwccn.com/en/industries/private-equity/responsible-investment/scope-4-here-jun2022.html#:~:text=Avoided%20emissions%2C%20also%20referred%20to,the%20use%20of%20that%20product.