The voluntary emissions reduction market is still the "Wild West" of corporate greenhouse gas target-setting, in software maker Autodesk's view. Companies are not held accountable for verifying or explaining the emissions they report, nor is there any central body monitoring whether they meet the emissions reduction promises that they make to their customers and their stock holders.
"With the scientific and policy trends pointing to increasing and unprecedented levels of consensus on the scale of global emissions reductions, corporate GHG reduction strategies remain non-transparent, non-standard and non-verifiable," write Emma Stewart, a sustainability program leader at Autodesk, and Aniruddha Deodhar, a sustainability project manager.
"A bit like the Wild West, the domain lacks law, scrutiny and is full of somewhat aimless shooting."
Dan Vogel, CEO of carbon management software maker Enablon concurs.
"You have to manage your carbon units the same way you manage finance," he told me. "You cannot manage what you don't measure." And too many companies are not measuring at all, or not measuring accurately and transparently, he says.
Both companies are working on solutions. In the case of Enablon, which first developed its software in 2004 for a major oil company, the solution also simulates the most cost-effective ways to minimize emissions, as well as develop and execute long term reduction plans.
Currently, most companies are only tracking emissions that are readily apparent, like those that come from energy use. But the bulk of emissions in manufacturing come from the supply-chain, Vogel says.
"Something that we need to be very careful of is that when you try to measure carbon, most of the time the carbon is not made within the company but outside the company," he explains.
"Take a food company, for example. Generally the carbon emitted within the company is only 25% of the emissions. The majority of emissions are through agriculture, through suppliers, transportation, and then add the use of coal energy in China for packaging, for example. So 75% of the carbon is emitted in the supply chain."
"Very often when a company says it is carbon neutral, it is within the company but it's not neutral if you take into account Scope 3 emissions, those within the supply chain."
Enablon's software is used by more than 250 global corporations and thousands of smaller companies, Vogel said, including one of the top three packaging companies and the world's largest producer of sports apparel and foot wear — he declined to name names — both of which are tracking supply chain emissions.
For Autodesk, their C-FACT (Corporate Finance Approach to Climate-Stabilizing Targets) approach grew out of their own company's desire to align corporate greenhouse gas emissions reduction targets with the Intergovernmental Panel on Climate Change's (IPCC) science-based recommendations for industrialized nations to reduce GHG emissions by 85% by 2050 in order to hold global warming to not more than 2 degrees Celsius.
The company wanted to use a methodology that was transparent — a big issue in the emissions tracking process, particularly if it is voluntary — and that could account for relative contribution to global GDP. it has made its system open-source and freely available to companies that want to use it for tracking purposes.
Climate Earth is also helping companies conduct carbon accounting that includes Scope 3 emissions, but rather than a software solution, it provides analysis.
"The world of carbon is so much more complex than a typical company is prepared to embrace," says Frankie Ridolfi, director of marketing at Climate Earth, "but the emerging science and technology allows for much more sophisticated handling of the information."
The company maintains a library of supply chain carbon data so it is able to start where the majority of manufacturing emissions occur. Its clients include Playworld Systems, a maker of municipal playgrounds, Strauss Family Creamery and Serious Materials.
"The clients we work with are doing it (analyzing emissions) because they are visionary companies that value innovation and they are looking for areas to innovate," Ridolfi said.
"Carbon seems like a negative to a lot of people — toxic, a pollutant, an economic and environmental constraint — but it's also a way to gauge your business performance and if you can figure out a way to use a lot less of it, improve your business performance."
When Reductions Become Mandatory
Enablon's clients are in a different position. They are primarily located in Europe, where emissions regulation is mandatory and the market in carbon trading is around 100 billion euro.
In order to meet their needs, the software must provide a number of capabilities in addition to measurement including energy consumption reduction strategies and opportunities to mitigate costs.
"The software will propose different types of tools where the manager of a refinery or the sustainability manager of a company will have a screen to simulate different scenarios and decide what changes to make," Vogel explains. "They can simulate changing a tool, a machine, a supplier, a factory location, and see how CO2 emissions change as a result."
At the same time, companies can manage offsets and credits.
Vogel was at the UN climate talks in Copenhagen in December to talk about best practices in emissions tracking. I asked him if he was disappointed from a business perspective with the outcome.
"Obviously we didn't reach a legally binding agreement," Vogel said, "but what is important is that we have succeeded in gathering 192 world leaders and those people are all being watched by their own countries and all those countries are expecting something from them. We've made a very big step in reaching an agreement at some point or another. At worst, if we can't get a UN agreement, the countries which do agree will sign something for themselves."
"Secondly, there were lots of side events at Copenhagen and those side events have put business in the spotlight. There is so much business being created around green technology. Software is one of them but also wind, solar, sequestration, this is actually giving energy impetus into building a post-carbon economy."
Vogel admits that the European trading scheme is flawed, but says that, in the end, CO2 has been reduced and that the system will continue to improve.
He is convinced that creating economic opportunity in emissions reduction is the key to managing the gap between industrialized nations and developing countries when it comes to a final international agreement. And on a corporate level, he hopes his company's software will not just help measure emissions and create long term action plans for managing them — 84% of companies still only focus on short term targets — but also help identify efficiency measures that will lead to cost savings.
Meeting science-based emissions reductions takes long range planning, and in some cases, investment, that doesn't always fit with the focus on quarterly profits and losses of public corporations. Technology and analysis can help demonstrate the improvement to the bottom line that emissions reductions can provide.
As Ridolfi told me, the smart companies "want to figure out how to take a leadership position and gain all the benefits of being a leader." They are trying to reap those benefits when it comes to emissions reductions through quantification and identifying reduction opportunities that may not be immediately obvious.
As regional and local emissions reductions standards begin to be implemented, like California's landmark climate change legislation, getting ahead on emissions reductions may very well turn out to be the smartest move those companies could have made.