The SDA methodology takes into account inherent differences between sectors such as mitigation potential and how fast each sector can grow relative to economic and population growth.
Using the detailed-sector scenarios from the International Energy Agency’s 2°C Scenario (IEA 2DS) model, it is possible to estimate the 2°C-compatible carbon intensity for any sector by dividing the total direct emissions of the sector in any given year by the total activity of the sector in the same year (IEA, 2012). This yields a sector intensity pathway.
For homogeneous sectors, physical indicators (activity) are used as the allocation method. The assumption is that the carbon intensity of each company in a homogeneous sector will converge with the sectoral carbon intensity in 2050.
In the absence of more sector-specific decarbonization pathways for heterogeneous sectors, the methodology estimates a linear absolute reduction using the carbon budget assigned to the sector.
A company can fill in its activities for a maximum of 3 different sectors. These different sectors correspond to the different activities of the company. For example, a company that makes both steel and aluminium can split up its activities and carbon footprint and obtain separate emission targets for each activity. Another example is a company which has the majority of its emissions in buildings and its fleet. It can then split up its activities and emissions in the 'Service buildings' sector and the 'Light road passenger transport' sector to obtain separate targets for each activity.
Once your company has selected the activity indicator per each sector selected, the annual activity growth rate should be estimated, based on the same activity indicators. The recommendation is to use data for at least 5 years to derive an average growth rate, to avoid using flat or negative trends.
For the case of sectors using value added, although it may not be a common practice to estimate the annual growth rate of value added, an estimate can be used, to align it to the methodology.
Greenhouse gases (GHG): Includes the seven main greenhouse gases, as listed in the Greenhouse Gas Protocol: Corporate Accounting and Reporting Standard, namely: Carbon dioxide (CO2); Methane (CH4); Nitrous oxide (N2O); Hydrofluorocarbons (HFCs); Perfluorocarbons (PFCs); Sulphur hexafluoride (SF6); and Nitrogen trifluoride (NF3).
Scopes 1, 2 and 3: The GHG Protocol categorizes direct and indirect emissions into three scopes:
Scope 1: All direct GHG emissions.
Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat, cooling, or steam.
Scope 3: Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g. T&D losses) not covered in Scope 2, outsourced activities, waste disposal, etc. GHG Protocol, FAQ on-line
Value added: Added value is used as indicator for the company's contribution to GDP. The tool uses gross profit as a proxy input for value added. Companies that disclose value added in their annual reports can also use value added instead of gross profit. Value added is sometimes called Operating Profit or EBITDA plus all personnel costs. The annual activity growth rate for added value should not include inflation as the target is set in base year dollars.
Scope 1: Scope 1 emissions include process emissions as well as the generation of power, heat or steam from fossil fuels. Other scope 1 emissions come from buildings and fleet. When a company has the majority of its emissions in buildings and its fleet, it can then split up its activities and emissions in the 'Service buildings' sector and the 'Light road passenger transport' sector to obtain separate targets for each activity.
Scope 2: The decarbonization pathway in the methodology and tool for Scope 2 emissions considers only the power sector, due to the lack of data for heat & steam. Nevertheless, companies are expected to enter not only emissions from purchased electricity but the total scope 2 emissions (which would include heat & steam). This increases the robustness of the methodology. Scope 2 GHG emissions should be based on the actual emission factor associated with the qualifying contractual instruments of the purchased power it owns (i.e. market-based method according to GHG Protocol Scope 2 Guidance). The purchased power should meet the Quality Criteria identified in the Guidance. If not, the location-based method should be used (i.e. average energy generation emission factors for defined locations, including local, sub-national or national boundaries).
Scope 3 intensity: The scope 3 intensity for the light road vehicle manufacturing sector should be provided in gCO2 per passenger kilometre (pkm). Vehicle kilometres can be converted to passenger kilometres by dividing them by the average number of passengers per vehicle (occupancy rate). As a default value, Michaux & André, (2004), provide an average occupancy rate of 1.65 persons per vehicle, although this is a rather old figure which is only valid for Europe. The user is encouraged to use more recent location specific occupancy rates if available.
Find complete sector definitions using the "Sector guidance" links in the tool.
It is important to note that the tool currently does not account for differences in production technologies in sectors. For aluminium production, for example, we do not distinguish between virgin and recycled aluminium, which each have very different energy consumptions profiles and emissions. The performance of the company is always compared to the average performance of the sector as a whole.
The figure below shows the contribution of each sector to the 2 Degree Scenario:
Source: Emission pathways obtained from the IEA ETP 2014, the IEA Transition to Sustainable Buildings report (2013) and the IEA Mobility Model (2014).
All data used in the tool is from the International Energy Agency (IEA).
The following sources have been used:
Note that the methods and results in this tool have not been created or endorsed by the IEA.
Emissions budgets from ETP 2DS are proprietary data and are available from the IEA with purchase of a license:
The IEA plans to release regular updates of the underlying data of the 2DS every two years. The authors plan to update this methodology in line with the IPCC updates of the assessment report approximately every five years. An earlier revision will be considered if a significant change occurs in the IEA ETP 2DS data. A regular update to the methodology every five years fits with common practices in the business sector to adjust GHG emissions reduction targets in a similar timeframe.
The intensity of the company in any given year y, for an homogeneous sector is given by the following formula:
Where my represents the market share in the year y,
|my||Market share parameter in year y|
|CAb||Activity of the company in base year b|
|SAb||Activity of the sector in base year b|
|CAy||Activity of the company in year y|
|SAy||Activity of the sector in year y|
The figure above shows the effect of different annual activity growth levels. With all other parameter values fixed, a different annual activity growth results in a change in market share, causing the market share parameter my to change. The initial carbon intensity and the 2050 target intensity remain the same, but in order to limit emissions within the carbon budget, the pathway is altered in between.
Then, the chart shows that different annual activity growths for companies result in different carbon intensity pathways compared to the sector. When the annual activity growth of the company exceeds that from the sector, it results in an increase of the parameter m. Therefore, the greater the annual activity growth of the company compared to the sector, the greater the m parameter.
The company that shows a high activity growth of 4% (thus a greater market share) has a stricter intensity pathway to discount this change in market share.
Assumptions: The assumptions used in the methodology are described in more detail in Section 4.2 of the SDA Methodology at http://sciencebasedtargets.org/downloads/.