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Illustrative example of attribute-only-once
This article discusses what it means to attribute impacts only once by contrasting it to how the commonly used Scope 1/2/3 GHG emission metrics work.
This page illustrates how attribute-only-once works in the Upright net impact model by contrasting it to commonly used Scope 1/2/3 GHG emission metrics. For a general discussion of how and why Upright attributes (allocates) impact along value chains, view this article.
Upright attributes impacts to companies across value chains in such a way that every impact counts only once (attribute-only-once).
In the case of GHG emissions, for example, this means that the sum of all GHG emissions Upright attributes to companies sums up to the total GHG emissions caused by the private sector. This is different, for example, from the GHG Protocol (Scope 1/2/3) metrics customarily used for measuring GHG emissions.
On the other hand, for some impacts other than GHG, it is customary practice to attribute impacts only once. For example in the case of jobs, it is common to only consider the amount of people directly employed, which does not carry the risk of double counting. This, however, also means that value chain impacts are not considered.
To make impacts comparable across categories and to enable assessment of net impact, Upright consistently uses attribute-only-once for all impact categories.
This article provides a concrete illustrative example of how attribute-only-once works by contrasting it to how the commonly used Scope 1/2/3 GHG emission metrics work. While the example relates to GHG emissions, you can follow this example also to understand how attribute-only-once works in other impact categories.
Discussion of double counting of emissions within GHG Protocol documentation
By definition, scope 3 emissions occur from sources owned or controlled by other entities in the value chain (e.g., materials suppliers, third-party logistics providers, waste management suppliers, travel suppliers, lessees and lessors, franchisees, retailers, employees, and customers). Scope 3 emissions for the reporting company are by definition the direct emissions of another entity. [...] Because of this type of double counting, scope 3 emissions should not be aggregated across companies to determine total emissions in a given region. [...] companies should acknowledge any potential double counting of reductions or credits when making claims about scope 3 reductions
[...] double counting is a problem when it comes to offset credits or other market instruments that convey unique claims to GHG reductions or removals. If GHG reductions or removals take on a monetary value or receive credit in a GHG reduction program, it is necessary to avoid double counting of credits from such reductions or removals.
The scale of double counting, however, is less well understood. In this article, we try to give a sense of scale on that.
This example uses a simple illustrative economy, depicted in Figure 1.
Figure 1: Illustrative example economy
In this economy, there are only 4 companies:
- Electricity Corp: produces electricity, selling all of it to the three other companies.
- Oil Drilling Corp: Drills oil and sells the resulting crude oil, using electricity from Electricity Corp.
- Oil Refinement Corp: Refines all oil from Oil Drilling Corp and sells the refined oil, using electricity from Electricity Corp.
- Oil Distribution Corp: Buys all oil from Oil Refinement Corp and sells it to consumers, using electricity from Electricity Corp.
To keep the example simple, the only company producing direct emissions is Electricity Corp, which produces 30 tons of GHG emissions. Additionally, end users burning the oil they purchase from Oil Distribution Corp create 100 tons of GHG emissions when that oil is burned.
Consequently, the economy produces a total of 130 tons of GHG emissions.
Let's work out the GHG emission metrics for all companies for each of the three GHG Protocol Scopes: Scope 1, Scope 2, and Scope 3.
Only Electricity Corp produces direct emissions. Its Scope 1 emissions are 30 tons. Scope 1 emissions are zero for the other companies.
The relevant scope 2 category to consider is emissions from purchased electricity. Oil Drilling Corp, Oil Refinement Corp and Oil Distribution Corp all purchase the same amount of electricity from Electricity Corp. This means that the emissions related to their electricity used must be the same, meaning each of them gets 10 tons of Scope 2 emissions.
In this example, the most relevant scope 3 categories to consider are:
- Use of sold products: i.e. emissions created when sold products are used
- Purchased goods and services: i.e. emissions created by purchased goods and services (excluding electricity, which belongs to Scope 2).
At least distribution of sold products (emissions created when sold products are distributed) and processing of sold products (emissions created when sold products are distributed) Scope 3 categories would also be relevant, but we will omit them for simplicity, as they will not change the big picture.
In this example, Use of sold products is the most important Scope 3 category. Oil Drilling Corp, Oil Refinement Corp and Oil Distribution Corp all have 100 tons of Scope 3 emissions in this category.
In the purchased goods and services category, Oil Refinement Corp has 10 tons of emissions, and Oil Distribution Corp has 20 tons.
The discussed Scope 1/2/3 figures are summarized in Figure 2
Figure 2: Summary of Scope 1/2/3 emission metrics in the example economy
The sum of the Scope 1/2/3 emissions of all 4 companies is 390 tons, which is 3 times the total amount of emissions produced, meaning there is a double-count factor of 3.
In the example, the double-count factor was identical to the amount of steps in the value chain of the product "oil". The double-count factor would have been a bit higher if we would have considered also the distribution of sold products, and processing of sold products Scope 3 categories.
Note on actual reporting by companies
When reporting GHG emissions, companies often omit some Scope 3, or at least some Scope 3 categories. In particular, the use of sold products category is often omitted due to difficulty in producing the figures.
This example illustrates the amount of double counting when the specification is fully followed.
The Upright net impact model attributes impacts using the principle of participating value-add.
The basic idea is that when attributing impact to products that are upstream of product B, the share of product B’s impacts that will be allocated to product A is proportional to the share of added value product A contributes to product B. Attribution of impact to downstream follows a symmetrical logic.
In our example economy, this results in the following attribution of GHG tons to each company:
Figure 3: Attribution of GHG tons to the companies in the example economy with the algorithm used by Upright
The sum of GHG emissions attributed to the 4 companies sum up to 130 tons, which is equal to the total amount of emissions caused by the companies.
Oil Refinement, with the highest value add in the example economy, is attributed the highest amount of GHG tons. Conversely, Electricity Corp, with the lowest value add in the economy, is attributed the lowest amount of GHG emissions.
Value adds of the 4 example companies
Value add can be determined by subtracting the value of input products from the companies' revenue. The value adds for the four companies are as follows:
- Electricity Corp: $15
- Oil Drilling Corp: $30 ($5 of cost from electricity subtracted form revenue of $35)
- Oil Refinement Corp: $35 ($35 of cost from crude oil and $5 of cost from electricity subtracted from revenue of $75)
- Oil Distribution Corp: $20 ($75 of cost from refined oil and $5 of cost from electricity subtracted from revenue of $100)