AEM Helps Manufacturers Tackle Use Phase GHG Emissions Reporting

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3/3/2024

Scope 3 Category 11By Gregg Wartgow, Special to AEM —

Measuring greenhouse gas (GHG) emissions from the use of its sold products can be a difficult task for a manufacturer. To help make it easier, the Greenhouse Gas Protocol Initiative established a framework for calculating these use phase Scope 3 Category 11 emissions. However, after reviewing that framework, AEM determined it was necessary to create additional guidance that was more specific to the types of products the association’s members manufacture.

Heavy-duty off-road equipment is unique in that it is often operated by different types of users in different applications. The equipment also includes multiple power sources, and in many instances is dual-purpose (i.e., energy is used to propel the machine and operate work tools). Heavy-duty off-road equipment also tends to have a longer lifecycle that often spans multiple owners. These factors and others add layers of complexity to the process of calculating use phase emissions over the life of a piece of agriculture or construction equipment.

To help AEM members break through that complexity, AEM’s Sustainability Council published a guidance document entitled Off-Road Greenhouse Gas Protocol for Scope 3 Category 11. This guidance will also help create uniformity in how use phase emissions are measured and reported by heavy-duty off-road equipment manufacturers and their supply chains.

“AEM recognized an increasing number of member companies are reporting Scope 3 emissions,” said Kirsten Mauritzson, senior sustainability manager at Caterpillar and Chair of the AEM Sustainability Council. “Category 11 is typically one of our industry’s largest Scope 3 categories and may be a critical starting point for many member companies. Recognizing this, AEM brought together member companies to identify challenges, assumptions, and other resources that will help the industry calculate Scope 3 Category 11.”

The new guidance document comes at a pivotal time when global Environmental, Social and Governance (ESG) reporting requirements are expanding.

“We’ve recognized that the trend toward required disclosure of Scope 3 Category 11 emissions is growing,” said Kim Noe, program manager for sustainability at John Deere and immediate past chair of the AEM Sustainability Council. While there currently isn’t a U.S. requirement to report these emissions, the U.S. Securities & Exchange Commission (SEC) is working on a Climate Disclosure Rule that would do just that. Additionally, Noe said there are unique regulations being developed in California, as well as other global markets including Europe and Australia. Due to the inherent complexity in measuring use phase emissions, it’s important for AEM members to get out ahead of any requirements that are put in place – and do so in a consistent and harmonious way.

“We want to ensure that reporting is consistent, so shareholders and other stakeholders are able to compare apples to apples when looking at Scope 3 Category 11 emissions across companies in our industry,” Noe continued. “This guidance document is designed to make all of this easier to understand.”

 

“AEM recognized an increasing number of member companies are reporting Scope 3 emissions. Category 11 is typically one of our industry’s largest Scope 3 categories and may be a critical starting point for many member companies. (So,) AEM brought together member companies to identify challenges, assumptions, and other resources that will help the industry calculate Scope 3 Category 11.” - Caterpillar's Kirsten Mauritzen

 

Standardizing the Calculation of Use Phase Emissions

Off-Road Greenhouse Gas Protocol for Scope 3 Category 11 offers some background on GHG emissions and Scope 3 Category 11 in particular, along with a brief discussion of other important considerations including the establishment of GHG inventory boundaries. The heart of the document, however, details how GHG use phase emissions data should be calculated.

As with performing any calculation, calculating use phase emissions requires multiple pieces of data. The guidance document walks through each, highlighting important points of consideration and offering recommendations.

A manufacturer must first understand something known as a “carbon dioxide equivalent” (CO2e). GHG emissions encompass several gases that trap heat in the atmosphere including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and various fluorinated gases. Each has a different GWP (global warming potential). Converting each gas to a CO2e allows a single carbon footprint number to be used in any ensuing calculations, which are all outlined in the guidance document.

Another key datapoint is the emissions factor of a certain energy source, such as kg of CO2 per gallon of diesel fuel. Manufacturers can look to the EPA’s Emission Factors Hub for the latest applicable data.

At this point, the calculation of use phase emissions starts to get more complicated. “Scope 3 Category 11 requires a number of assumptions both in data collection and in the calculation itself,” Mauritzson said.

First, a manufacturer must determine how much energy is consumed when its products are used. This could get pretty involved for companies with large and diverse product offerings. Noe said it can be useful to think about how products could be grouped together based on certain similarities, so statistical averages could be applied across a group. But even within a certain product model, there is room for a significant amount of variability. For instance, an agriculture tractor could spend a lot of time on the road. When it’s off-road, it might be pulling a tillage implement one day and a grain cart the next. Furthermore, additional factors like operator experience and idle time will influence fuel consumption.

“A company must determine how to best estimate the fuel consumption rate for the life of the product,” Mauritzson said. “The guidance document identifies different sources that can help with this.”

Along with fuel consumption, the other essential datapoint is product life, since Scope 3 Category 11 emissions are from the use of sold products. As Mauritzson pointed out, estimating product life can be a challenge. The guidance document discusses the importance of tracking product lifecycles, along with various emissions intensity metrics such as emissions per hour of use, per load capacity, per functional unit, etc.

 

Noe

“We recognized that the trend toward required disclosure of Scope 3 Category 11 emissions is growing. We want to ensure that reporting is consistent, so shareholders and other stakeholders are able to compare apples to apples when looking at Scope 3 Category 11 emissions across companies in our industry. (AEM's) guidance document is designed to make all of this easier to understand.” John Deere's Kim Noe

 

Dialing in the Data You’ll Rely On

Aside from the energy emissions factor that is provided by the EPA, deriving the above mentioned data will likely vary from company to company. “Everyone runs their business a bit differently,” Noe said. But regardless of where their internal data comes from, manufacturers must understand the annual number of units sold, product life of units sold, and energy consumption per use.

GHG Scope 3 Category 11With respect to units sold, the guidance document discusses how manufacturers can utilize revenue recognition. With respect to product life, the document discusses how any product remans/rebuilds should be factored in. “Remanufacturing and rebuild provide valuable opportunities to keep materials in circulation, reducing the need for raw materials and associated GHG emissions,” Mauritzson said.

Data on energy consumption can come from a variety of sources. It could range from data that is simply provided by a supplier, to engineering data such as test stand results, to data collected by analytical field instruments that help estimate fuel consumption.

A fourth source for energy consumption data is telematics. AEM considers this the most mature data stream, though it does have its limitations. For instance, it may be difficult to obtain activity data from suppliers and other third parties in a reporting company’s value chain. Additionally, innovation and modern technologies can result in data gaps between lesser and more advanced products. Furthermore, real-time telematics data may not be commonly accessed by some AEM members. The guidance document discusses all of these concerns.

Regardless of where it is deriving its data, Noe said it’s important for a manufacturer to assess how confident it is in that data. At the end of the day, it is that data that will ultimately help determine what a manufacturer’s Scope 3 Category 11 GHG emissions are purported to be.

“It's also important to remember that this is not about absolute precision," Noe pointed out. “You can never be 100% precise with something like this. At best, Scope 3 Category 11 is about producing a really good estimation based on the dataset you have.”

Learn More

AEM’s Off-Road Greenhouse Gas Protocol for Scope 3 Category 11 provides a detailed common methodology for manufacturers and suppliers operating in the off-road equipment industry to calculate and verify their Scope 3 Category 11 emissions. The document also helps create harmonized product definitions, value chain GHG boundaries, emissions calculation principles, as well as the verification process of measurement and reporting.

For more information on Off-Road Greenhouse Gas Protocol for Scope 3 Category 11 and AEM’s ongoing efforts to harness momentum to power, build, and feed a more sustainable world, visit AEM’s Sustainability Toolkit or contact AEM’s Curt Blades at cblades@aem.org.

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