Meet legal instruments to mitigate carbon emissions
The Earth is getting warmer (it has warmed 1.2 degrees Celsius since 1850), and there is scientific consensus – 97% of scientists actively publishing in the climate field agree – climate change is caused by human activity – burning fossil fuels. It’s bad – we’re already seeing the results of climate change – droughts, heavy rainfall, tornadoes, glacier melt, sea level rise, permafrost melt but we can still fix it!
What can you expect from this article? You’ll learn who it applies to and what exactly carbon footprint reporting involves, learn about the legal basics and indicators, how to reduce emissions, and we’ll take a look at the political context and the taxonomy itself and present the Sustainable Development Goals.
Table of Contents
How you can mitigate climate change
There are many ways to act to mitigate climate change. In this sprint, we’ll focus on legal instruments, but no worries – leave the suit in the closet, hop in your sneakers and let’s go!
In recent months, we’ve heard more and more about how European law requires businesses to report their carbon footprint.
How to reduce carbon emissions and climate change in business
Businesses can reduce carbon emissions and climate change in several ways, but to be able to do so, emissions in all 3 scopes must first be counted to find the largest source of emissions in a given company.
Here are some practical examples of actions that will help reduce CO2 emissions and reduce a company’s impact on climate change:
Measure your carbon footprint – this is the first step on the way to net zero target
Implement ESG into your company policies, take care of environmental, social responsibility, and corporate governance factors
Choose emission reduction targets – address those activities that generate the most and save money
Reduce energy consumption – bet on purchasing green energy
Optimize business travel – reduce the number of flights and bet on train connections.
Work with responsible suppliers – you are also responsible for the indirect emissions of the products you order and use.
Offset carbon dioxide emissions – but only when tour carbon footprint can’t be reduced more
Bet on designing sustainable products and services – customers want to purchase such, and investors are willing to invest in environmentally friendly projects.
Ensure that employees are educated and ecology is a value for them as well.
Invest in research and development of new technologies that can help reduce emissions.
Eliminate waste production where possible, and segregate and recycle those produced properly.
Get office equipment – if possible – try to get second-hand.
Conserve water – let plastic bottles disappear from your business forever.
Who should report their carbon footprint?
Under EU law, according to CSRD, companies obliged to report their carbon footprint annually are:
- From January 1, 2024, large public interest companies (with more than 500 employees) already subject to the NFRD, with disclosures in 2025;
- From January 1, 2025, large companies not currently subject to the NFRD (with more than 250 employees and/or €40 million in turnover and/or €20 million in total assets), with disclosures in 2026;
- From January 1, 2026, for SMEs and other listed companies, with disclosures in 2027. During the transition period, SMEs will be able to take advantage of an “opt-out” clause, meaning they will be exempt from the directive until 2028.
However, many companies, despite not fulfilling the criteria mentioned above, are or will be forced to calculate their carbon footprint, as this will be the expectation of clients, investors, and financial institutions.
It is worth looking at reporting not as an obligation imposed by international organizations, but as a field for the development of the company. Several benefits calculating a carbon footprint will bring to a company.
As it stands, the standards on how to measure carbon footprint give us a fairly general framework. For direct emissions at the corporate level, most of the parameters associated with the data needed for the calculation are available. The challenge is the carbon footprint in scope 3 of both organization and product. Here we enter the area of estimation and it is necessary to produce standards dedicated to specific industries or sectors to improve the quality of calculations and ensure their comparability.
What does non-financial reporting cover?
The non-financial information report/statement should include information – to the extent necessary for an understanding of the entity’s development, performance, and position, and the impact of its operations, on at least:
- environmental (including greenhouse gas emissions)
- Social and labor issues
- respect for human rights
- anti-corruption and bribery
The guidelines coincide with Directive 2014/95/EU (NFDR) and the recommendations of the TCFD. They are non-binding, but as ESMA (European Securities and Markets Authority) recommended, individual Member States’ supervisory authorities should make their assessment based on the guidelines indicated.
Meanwhile, let’s focus on the carbon footprint, a crucial part of the entire non-financial report.
Today, companies required to report their carbon footprint are required to report emissions in Scopes 1 and 2. Starting in 2024, this obligation will include Scope 3 – all indirect emissions from the organization’s activities.
What are scope 1, 2, and 3 emissions?
We calculate the carbon footprint in three scopes:
Scope 1 is all direct activities of the company that contribute to greenhouse gas emissions. This is the combustion of fuels in stationary or mobile sources that the company owns or supervises, as well as process emissions and fugitive emissions.
Scope 2 refers to the energy that is externally supplied, and necessary for the operation of the company. These are indirect energy emissions resulting from the consumption of purchased electricity, heat, steam, or cooling from suppliers.
Scope 3 is the most complex, and is divided into 2 areas with 15 categories. Upstream – that is, those emissions that, along with Scope 1 and Scope 2, are generated up to the production of the finished product, along with logistics, business travel (cradle to gate), and downstream – that is, emissions related to the product’s further life (after manufacture), transportation, use and waste disposal (cradle to grave).
All three scopes indicate the total amount of greenhouse gases an company emits.
What is the difference between upstream and downstream emissions?
Upstream emissions:
- Purchased raw materials and services (e.g., office equipment, water, etc.).
- Capital goods
- Energy and fuel-related emissions are not included in Scopes 1 and 2.
- Transportation and distribution performed with vehicles or equipment not owned or controlled by the organization
- Waste disposal
- Business travel
- Commuting by employees
- Emissions associated with the operation of leased assets not covered by Scope 1 and 2
Downstream emissions:
- Transportation and distribution of products
- Processing of products sold
- Use of products sold
- Dealing with sold products after they have been used
- Leased assets not included in scopes 1 and 2
- Franchises
- Investments
How to calculate company carbon footprint in the right way?
The emissions of the company/organization – you already know that these emissions are included as Scope 1, 2, and 3 emissions. However, it is important how to tell about the emissions so that our organization can be compared with others – that is, we are talking about indicators.
What we need to remember is:
specifying the period to which the report refers: most often it is the calendar year from 1 January to 31 December
the exact boundaries of the company, if it consists of more than one company
The base year, to which we will refer when planning reduction scenarios.
The first number we are interested in is the total emissions of the company. These will be expressed in Mg (i.e. tonnes), divided into 3 scopes.
What are other important carbon footprint metrics?
The following metrics to be considered will be:
- emissions per $1M turnover
- emissions per employee
The following indicators relate directly to the industry in which the company operates:
- for companies producing cakes, it will be emissions per 1kg of cakes produced
- for a software company, this will be emissions per user
- for a road construction company will be emissions per 1 km of road
What is the product's carbon footprint?
Remember that an organization’s emissions are not the only way to quantify a carbon footprint. Another way is to calculate a product’s carbon footprint:
LCA (Life Cycle Analysis)
cradle to Gate: A range that considers the life cycle of a product from the extraction of raw materials, transportation, and manufacturing processes, to leaving the factory gate
cradle to grave: an extended cradle-to-gate scope that also includes the use, disposal, reuse, or recycling)
We have calculated our company's CO2 emissions, what's next?
Calculating is the first step. As the well-known saying goes, to change something you need to measure it. With carbon footprint data, we can create a strategy to effectively reduce greenhouse gas emissions.
What about irreducible emissions?
These emissions need to be offset or to put it simply, the company needs to buy up carbon credits that finance carbon capture from the atmosphere.
Let’s look a little wider – since when do government and politicians talk about climate? Ready for some time travel?
COP1 - Rio De Janeiro 1992
- The Convention set out the principles for international cooperation to reduce greenhouse gas emissions but did not impose specific requirements.
- It established the annual Conference of Parties (COP) to review the implementation of the Convention.
COP3 - Kyoto 1997
Another important summit was COP3 in Kyoto (1997), at which:
- Negotiated the Supplementary Protocol to the UNFCCC – a document obliging industrialized countries to reduce their emissions of greenhouse gases by 5.2%. by 2012 compared to 1990.
- The Protocol has been ratified by 141 countries accounting for 61% of emissions.
- The United States – the second-largest emitter in the world – has not ratified the document, and Canada withdrew from it in 2011
COP21 - Paris 2015
The landmark event was COP21 in Paris (2015), during which the first, universal, and most important document on climate change – The Paris Agreement – was created.
It was signed by 197 parties, ratified by 188 countries, and comes down to one main goal: to stop the increase in the Earth’s average temperature well below 2 degrees C compared to pre-industrial times and to aim to limit this increase to 1.5 degrees C. It is closely related to the tipping points, which will cause irreversible changes in the Earth’s climate. Additionally, the Paris Agreement includes the following:- Adaptation and mitigation.
- Strengthening resilience and low-carbon development in a way that does not reduce food production.
- Taking into account the compatibility of financial sector actions with climate goals.
COP26 2021
Here we are in for a “surprise” – even though the motto of the two-week conference was “Let’s act now”, its commitments still do not provide us with a secure future…
Countries continue to sign further commitments selectively, with most declarations subject to self-examination and not legally binding.
For example, a large part of the conference was devoted to reducing methane emissions by 30 percent by 2030. Still, only 100 countries joined the initiative, besides three huge emitters – China, Russia, and India.
What is in the European Green Deal?
Europe, without looking at the rest of the world, is doing its part and creating a European Green Deal. What is the purpose of the Green Deal?
Its main goal is to achieve Climate Neutrality (Net Zero) for Europe – to avoid emissions by 2050. Furthermore, the Green Deal aims to help transform the EU into a modern, resource-efficient, and competitive economy:
one that achieves net zero target greenhouse gas emissions in 2050
where economic growth is decoupled from resource consumption
where no individual or region is left behind.
It’s an ambitious plan, which you can read more about here.
If the whole Green Deal is about transitioning to a low-carbon economy and achieving a zero-carbon state for Europe in 2050, then we need to measure this effect in a universal way that is comparable across sectors and companies. For this, we need first and foremost a single measure, the carbon footprint, but also reporting at the company level to monitor the effects and progress on the decarbonization path.
FIT FOR 55
Achieving such an ambitious goal must involve changes in many areas of the economy. The FIT for 55 packages, announced last year, is a set of legislation aimed at achieving an intermediate target on the road to net zero with a 55% reduction in emissions compared to the 1990 baseline in 2025.
In none of the regulations in the above package is there an explicit obligation to count and report carbon footprint, but since the whole package is about reducing emissions then to be able to reduce it we must first measure it, right?
That is exactly right. References to reducing emissions appear throughout the entire FIT for 55 packages. Let’s start with the one that is obligatory for about 12 thousand industrial installations in Europe, which is the European Emissions Trading Scheme. It has been in operation since 2005 and, as analyses show, it has successfully encouraged the covered installations to reduce emissions by 35% compared to the base year in the years 2005-2019. The FIT for 55 packages introduces additional tools allowing to “force” deeper emission reductions in the sectors covered by the ETS.
The second important area regulated under the FIT for 55 packages is related to energy efficiency and fuel quality. Both aspects are extremely closely related to greenhouse gas emissions. They include requirements concerning the reduction of emissions or CO2 content in fuels.
An important regulation within the package is the one concerning a new carbon tax, the so-called CBAM (Carbon Border Adjustment Mechanism) which gives a real financial dimension to the carbon footprint.
What is non-financial regulatory reporting?
A separate group of regulations is those related to non-financial reporting. They apply both directly to economic operators within the EU and indirectly through several regulations in the area of the financial sector, which reports data on its portfolio and thus requires data on GHG emissions from its clients. There is already an emphasis on climate-related information, and this is particularly evident in the proposed legislation on non-financial reporting (the so-called CSRD) and reporting in the financial sector (the SFRD), or regulations concerning the EU taxonomy.
MDG vs. SDG
What are the similarities between sustainable development goals and millennium development goals? Based on the definition of sustainable development, in 2000, UN countries set 8 Millennium Development Goals to be achieved by 2015. The main challenge was to reduce extreme poverty by half.
Summary of progress toward achieving the Millennium Development Goals by 2015
A significant number of the goals have been met.
Significant progress has been made in reducing extreme poverty and child mortality.
The goal of increasing access to education and gender equality was partially achieved.
Expanded strategic action on health was called for.
The inadequacy of funding for date change was recognized, as well as the huge role of innovation and economics in meeting targets in the future.
It was emphasized that a sustainable environment should be a central pillar of the Post-2015 Development Agenda, fully integrated with all other goals.
What is meant by the UN 2030 Agenda?
In 2015, UN countries adopted a new Sustainable Development Agenda. This time, the goals were structured in such a way that both developing countries and any country, institution, business, or individual could be a part of them.
The document contains 17 goals that are described in detail with precise 169 tasks and indicators.
These goals can be broken down by the 5Ps principle:
People (SDGs 1,2, 3,4, 5,6,) – access to resources and services which are a basic right of every human being. Meeting these needs determines the possibility of further development.
Prosperity (SDG 7,8,9,10,11,12) – well-being, closely linked to sustainable economic growth, social and technological development
Planet (SDGs 6, 14, 13, 15,) environmental issues, use of earth’s resources,s and production of goods respecting all ecosystems.
Peace (SDG 16) – ensuring world peace.
Partnership (SDG 17) – this goal emphasizes that the implementation of Agenda 2030 is only possible with the cooperation of all, i.e. countries, businesses, institutions, and, academia both that national and international levels.
Since the launch of the 2030 Agenda in 2015, we have unfortunately not made the progress we expected in achieving the Sustainable Development Goals. Unfortunately, the goal that has had the most success is goal #9 – Innovation, Industry, Infrastructure.
Climate change is happening before our eyes.
We must take all possible measures to mitigate its effects, and the most effective measure known today is the reduction of greenhouse gases in the atmosphere.
International institutions, including the European Union, are implementing legal instruments to support emissions reductions- you already know that they do not come from outer space, they are feasible!
What is the utility of the carbon budgets?
Every year of delay is a consumption of the carbon budget we have left to stop global warming at 1.5 degrees Celsius (as the Paris Agreement says). The longer we do nothing today the more drastic the cuts we will have to make in the coming years. It won’t be easy but it can be done.
Interested in more knowledge about carbon footprint or business carbon footprint? Visit our blog and read articles written by our sustainability experts!
