Is the road to net-zero paved with errors?

WHEN is net-zero really net-zero? Behind the growing plethora of emissions data put out by companies today are executives taking their first stab at such numbers, a significant portion of whom are unfamiliar with the process and blind to the inherent levels of uncertainty or inaccuracy in their data. And, with not many being able to vouch for the credibility of such disclosed figures, few are any the wiser.

Marine scientist and climate risk expert Deborah Brosnan tells The Business Times that it is like “the Wild West” out there now, with net-zero targets often not backed by clear and measurable milestones: “Achieving net-zero and setting a target of net-zero by a specific year are laudable goals, but it depends on how they measure and categorise the emissions that they consider themselves responsible for.”

Can the numbers be all that different? Lars Jensen, an expert in the container shipping industry, shows they can.

In April, Jensen used the carbon-footprint calculators of 4 carriers – Evergreen, CMA CGM, Cosco and OOCL – to determine the emissions associated with sending a parcel to Shanghai from New York, and posted his findings on LinkedIn.

The highest and lowest estimates given by the calculators differed by 1,342 kg of emissions – over 3 times the lowest figure quoted, which was Cosco’s 437 kg.

But there would be no difference in reality because the cargo would be moving on the same vessel, given that the carriers are part of the slot-sharing and vessel-sharing arrangement Ocean Alliance, Jensen points out.

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“If shippers want to manage their carrier portfolio using actual data, that is quite simply not possible on a comparative basis with the current tools made available,” he concludes.

Current methods ‘penalise’ green efforts

Contrasting calculators aside, data can also look drastically different depending on the choice of emissions factors. These are conversion rates that help companies arrive at an emissions number, based on recorded business activity data such as fuel consumption and distance travelled.

Mathieu Carlier, chief executive officer (CEO) and founder of carbon tracking startup EverImpact, says emissions factors are essentially estimates – which, while a good starting point, are prone to errors.

“And (they) penalise companies that try to be greener than their peers. Their reductions in emissions are not well accounted for,” he adds.

Estimates can also lead to unreliable outcomes. Carlier cites a Vancouver example where reported numbers based on emissions factors were 30 per cent lower than emissions measured using more robust scientific methods such as remote sensing.

He sees a need to close the gap between regulation – which still relies on old requirements for polluters to report data – and technology, which can support better data quality.

To move the needle on this, his company is working with maritime group Wilhelmsen and Mitsubishi Corporation to introduce a sensor that can measure carbon emissions from the exhaust stack of a vessel in real time. “We know there is a wild discrepancy between the estimated emissions from fuel consumption versus measured emissions, and we want to prove that,” he says.

Raising data confidence

Among those banking on a future where companies would be willing to invest in highly accurate measurements is entrepreneur Saurav Bansal. The CEO of Green Artificial Intelligence Technology (Gait) has developed a way to measure emissions with up to 99 per cent accuracy, in real time.

The patent-pending system aims to replace physical data sampling, which he says can carry error rates above 20 per cent because of its reliance on static, point-in-time data.

Meanwhile, Olam-backed climate-tech venture Terrascope has come up with a solution that will allow companies to match their activity data with the most appropriate emissions factors, using artificial intelligence (AI). Its CEO Maya Hari says the tool makes it easier for companies to account for Scope 3 emissions: indirect, supply-chain emissions that typically rely on the use of a wider range of emissions factors.

Hari is also of the view that companies should not be preoccupied with how flattering their numbers look. They should be more worried about whether their reported emissions are lower than the actual, if they are serious about their net-zero targets.

The journey has to restart if the baseline was wrong, she says, given that yearly targets will have to be redrawn and business units will have to work doubly hard to cut down on emissions previously not accounted for.

Frank Meehan, CEO of software-as-a-service AI-powered carbon management platform Equilibrium, says accuracy is becoming increasingly critical, with markets in the US and Europe demanding it.

Citing the US Securities and Exchange Commission’s proposals in March and May to regulate environmental, social and governance (ESG) disclosures, Meehan points to the proposed amendment that requires certain environmentally focused funds to disclose greenhouse gas (GHG) emissions associated with their portfolio investments.

When this comes to pass, suppliers around the world should be prepared to be audited on these emissions, he says, as US companies will be obligated to have their data audited.

Even with the best efforts, however, preparers and users of such disclosures must realise that certain miscalculations or recalculations cannot be avoided, as advances in research and technology allow for improved data collection and interpretation.

Brian Ho, climate and sustainability assurance leader at professional services firm Deloitte Southeast Asia, says: “There are some multinational companies who have retroactively recalculated their emissions and over- or under-stated emissions by as much as 50 per cent. Stakeholders may find it difficult to understand the frequent or drastic changes.”

Account for uncertainties

Many well-designed reporting systems can also fail because the company may not have fully articulated its reporting needs. Professional services firm KPMG highlights this in a guide for companies prepared by GHG accounting framework provider Greenhouse Gas Protocol.

Cherine Fok, director of sustainability services at KPMG in Singapore, says meaningful accounting for emissions is not dissimilar to the principles of financial accounting.

Companies reporting such disclosures should adopt established, sound methodologies and frameworks; have an in-depth understanding of business activities to determine where the emissions hotspots are, and the completeness of the GHG categories; and exercise professional judgement around the key assumptions and estimates applied.

Ho says companies can improve the credibility of their disclosures by citing the emissions factors used and their rationale, and whether they have considered inherent uncertainties – which can depend on the type of emissions, and the number of tests used to determine the emissions factor, for example.

Praveen Tekchandani, partner of climate change and sustainability services at Ernst & Young, believes companies should explore the most adequate emission calculation methodologies available. 

He gives the example of emissions from delivery vehicles, which companies can calculate either by monitoring the amount of diesel bought or the vehicle’s mileage – but the latter itself relies on a default or sample fuel efficiency to estimate the amount of diesel consumed. This would mean higher uncertainty if the company is not using a representative fuel efficiency for its vehicles.

PwC Singapore’s climate change and sustainability leader Fang Eu-Lin says companies should take care not to interchangeably use emissions factors that cover all GHGs, and emissions factors that cover only carbon dioxide. They should also be aware of the geographic applicability of the emissions factors they have used, as some can be used globally, while others are region-specific.