The Greenhouse Gas Inventory
The Cost Curve
Putting It Together
With the recent release of the Garnaut Climate Change Review’s Draft Report,
the Federal Government’s Green Paper on the Australian Carbon Pollution
Reduction Scheme, and the National Greenhouse and Energy Reporting system,
climate change awareness across the business community has increased
significantly. In light of this, many companies are now reassessing their
climate change strategy. In the process, they are finding that climate change –
in so many different ways – is already having a real impact on performance, and
that opportunities are emerging.
For example, we are hearing anecdotal evidence of businesses encountering
“climate change clauses” in Requests for Tender – even those RFTs that
apparently have nothing to do with climate change. At the same time, we are
hearing stories such us that of nab, which is finding that its actions to
address the company’s impact on climate change are leading to unexpected
benefits, such as improved staff retention and morale, and external benefits in
reputation management. Formulating a robust climate change strategy can enhance
these outcomes. However, often there is no coherent or coordinated plan to
manage the businesses response to this issue. More fundamentally, the basic
data required to develop a policy response in a logical fashion often do not
With this in mind, this article discusses the development of two tools,
namely a greenhouse gas inventory – or carbon footprint – and a cost curve for
greenhouse gas reduction. Together, these tools can assist business to quantify
the cost and potential of various responses to reduce its greenhouse gas
emissions, thus informing climate change policy development.
The Greenhouse Gas Inventory
A Greenhouse Gas Inventory provides a company with an understanding of its
greenhouse gas emissions over a period of time. The inventory is typically
broken down by source – for example electricity, natural gas and petrol. A
typical process for developing an inventory includes:
- Determining boundaries: For example, should the emissions associated with
waste to landfill be included or excluded? Are taxis treated in the same way as
employee cars used for business purposes? Should the electricity used for
building HVAC being included? Many of these questions can be resolved via
reference to international greenhouse gas standards such as ISO 14064, however
there is flexibility in the way that the rules can be applied.
- Data gathering: Emissions data are sourced from invoices, interviews and
interrogation of information systems. It is often the case that, during data
gathering, opportunities to reduce emissions, energy use and/or energy cost
- Analysis: The raw data are coverted to CO2-e (CO2 equivalent) using
established methodologies, then aggregated to create a chart similar to that
The effort involved in producing a greenhouse gas inventory varies, depending
- The number of sources that are deemed to be inside the boundary. For
example, including the full lifecycle emissions of products is more difficult
than including emissions from electricity use and direct emissions from fossil
- The quality of data available: for example, electricity consumption data may
be readily accessible and centralised, or contain gaps and be distributed across
several functional areas.
- The level of detail required. For example, a full breakdown of electricity
use to show the various usages – lighting, kitchen, office equipment, etc. –
will take longer than a single category of “electricity”.
- The level of accuracy required. For example, invoices for diesel use may
show total purchases of fuel, but there may be no way of knowing how much diesel
was used over a particular period. A rough estimate may be quick, but will be
less accurate than probing for more accurate data.
The accuracy or granularity of the inventory can also be improved by
including a larger range of "optional" emissions sources, such as the embedded
emissions associated with copy paper, office furniture etc.
Figure 1. Emissions Sources
The Cost Curve
While a greenhouse gas inventory can inform the size of the effort required,
a cost curve will complement the inventory by providing a company with the
information it needs to prioritise its GHG reduction activities. A typical
- Identifying candidate projects: The methods of generating projects vary, but
it is sometimes worthwhile holding workshops, in which employees are asked to
come up with ways to reduce emissions, thereby simultaneously educating and
benefits of their engagement on the issue.
- Evaluating projects: Projects are coarsely screened to determine those most
viable. Each project in the shortlist is then evaluated on its merits, using a
“baseline and credit” methodology, to determine the cost per tonne of abatement.
- Charting the results: Although the results can be presented in tablature
form, the clearest representation is that of a cost curve, similar to the
hypothetical curve shown below. The benefit of this type of representation is
that the marginal cost of abatement for a given reduction goal is intuitive.
Figure 2. The Cost Curve for Greenhouse Gas Reduction
To be useful, projects must be defined to a reasonable level of detail. This
may reduce the breadth of the assessment, but initial screening of potential
projects will assist in narrowing down those with the greatest potential for
further investigation in an efficient manner.
The effort involved in constructing a useful cost curve varies widely,
depending on the number and type of projects that are evaluated and the required
accuracy of the analysis for each. There are many ways to do this, but two
- Option 1: The simplest method would be to assess a small number of
representative projects. The analysis for each project would be limited to a
rough cost and greenhouse gas reduction estimate. This approach would not allow
for an accurate estimate of potential abatement opportunity – that is, how many
tonnes of CO2 could be abated using this method – but an indication of this
could be provided, again as a range estimate.
- Option 2: Moving up one level, a larger number of projects could be
brought into scope, along with a more accurate estimate of cost, benefit and
abatement. Building in an estimate of potential abatement opportunity would
allow for construction of a more traditional cost curve.
There is, of course, the ability to mix and match these approaches. For
example, workshops could be conducted, then opportunities screened to a defined
number of shortlisted projects, which are then evaluated to provide a cost
Putting It Together
The purpose of all of this is to provide senior management with a rational
approach to climate change policy development. Ultimately, the information
provided by these tools can be used to assist with the overall integration of
climate change into corporate strategy. For example, for many office based
organisation, which usually have low emissions intensity but use quality rather
than cost as a competitive advantage, it may be viable to become carbon
neutral. If this option is tabled as part of strategy development, the cost
curve will be critical to understanding the likely cost associated with this
Figure 3. Process Cycle
The process cycle shown above illustrates how the two tools can be
used in policy setting; the GHG Inventory is shown in the diagram, while the
Cost Curve is an important input to the assessment of risks and opportunities.
Other considerations that might be covered as part of a climate change policy
- Overall position on climate change (i.e. is it real? Is it serious?)
- Approach to managing contribution to climate change (e.g. emissions
reduction target, direct and indirect emissions reductions prior to offsetting)
- Position on emissions boundaries (i.e. which sources are included or
excluded from the inventory)
- Organisational guidelines on emissions reduction activities (i.e. what types
of activities are encouraged vs those that are considered undesirable). This
will likely draw heavily on the cost curve and may involve consideration of
procurement processes, travel policies, product development, community based
programs, verification and monitoring and external communications.
- Organisational guidelines on offset procurement (i.e. whether or not offsets
will be procured, what types of offsets are acceptable)
- Extent of staff engagement and participation in the process
For most organisations, climate change is viewed as a deeply confusing area
that is not a part of core business. However, more and more businesses are
finding that its implications are appearing in unexpected places.
Crafting a comprehensive strategy with complementary policies is an important
first step in the journey to integrate climate change into corporate strategy.
Those that move swiftly to embrace its potential will find themselves with a
competitive advantage over their rivals.
Author: Tim Burrows
Source: Climate Managers