General information

What is the Science Based Targets initiative?

Despite the introduction of climate change mitigation measures by governments, companies, civil society and other actors, total human-caused greenhouse gas (GHG) emissions are continuing to increase. Under the current trajectory, global mean temperatures are projected to increase by 3.7 to 4.8ºC by the end of this century, far beyond the levels of warming that the scientific and international community have identified as safe. Growing numbers of companies are aiming to reverse the global trend by reducing their own GHG emissions.

 Science Based Targets – a joint initiative by CDP, the UN Global Compact (UNGC), the World Resources Institute (WRI) and WWF – aims to increase corporate ambition on climate action by changing the conversation on GHG emissions reduction target setting.  The initiative also aims to demonstrate the business case for ambitious target setting and thereby enable companies to set targets consistent with the level of decarbonization required by science to limit global warming to less than 2°C compared to pre-industrial temperatures.

What are the Objectives and Deliverables of the initiative?

The project is developing a package of guidance, tools, and technical assistance to facilitate the adoption of science-based targets. The effort is also incentivizing companies to set a science-based target through a Call to Action campaign. Current activities are primarily planned around the UN Business and Climate Summit in May, 2015 and COP 21 in December, 2015.

Objectives:

  1. By end 2016, 200 leading multinational companies will commit to adopt ambitious emission reduction targets in line with climate science
  2. By 2020, 250 leading companies will adopt and disclose ambitious emission reduction targets in line with climate science
  3. Demonstrate to policy-makers the scale of ambition among leading companies to reduce their emissions and act as a positive influence on international climate negotiations.

 

Deliverables:

1. Facilitate the adoption of science-based targets

  1. SDA Methodology - To supplement existing approaches and leverage newly-available mitigation data, the SBT initiative developed a freely-available Sectoral Decarbonization Approach (SDA) method for aligning company emissions reduction targets with the global 2° scenario presented by the IPCC in its Fifth Assessment Report.
  2. SDA Calculation Tool – The SDA Tool is an open-access web-based tool to help companies simply calculate a target using the SDA method
  3. Target Setting Manual – The manual provides advice on how to adopt and implement a science based targets. Key topics include: the business case for science-based targets; how to choose a target setting method; how to calculate a target; how to get internal buy-in; and how to credibly communicate a target to stakeholders

2. Incentivize the adoption of science-based targets

  1. Mind the Science Report – A report that highlights the business case for using targets that are aligned with science, focusing on a handful of companies with ambitious targets in place. The report also addresses the gap between current company target levels and the level of decarbonization required by science to limit global warming to less than 2°C compared to pre-industrial temperatures.
  2. CAIT Business Target Tracker – an on-line data visualization tool tracking the progress of companies towards science-based reduction levels
  3. Call to Action - A campaign to get 100 companies in 2015 to commit to setting science-based targets. Companies agree to sign a commitment letter including criteria for participation. In return, companies will be publicly acknowledged for their leadership in a series of communications activities.
  4. Corporate Engagement – Supporting companies in the process of establishing and disclosing their science-based reduction targets through technical assistance and a target review process

    What is the definition of science-based targets?

    The Science Based Targets initiative defines a science-based target as follows:

    Targets adopted by companies to reduce GHG emissions are considered “science-based” if they are in line with the level of decarbonization required to keep global temperature increase below 2°C compared to pre-industrial temperatures, as described in the Assessment Report of the Intergovernmental Panel on Climate Change (IPCC). [Applies to the 4th or 5th AR of IPCC as well as modeling of the IEA.]

    What are the benefits of setting a science-based target?

    Reducing GHG emissions protects our climate and our communities – and it’s also good for business. Companies that set science-based targets build long-term business value and safeguard their future profitability in four important ways:

    1. Drive innovation
    The transition to a low-carbon economy will catalyze the development of new technologies and operational practices. The companies that set ambitious targets now will lead innovation and transformation tomorrow.

    2. Save money and increase competitiveness
    Setting ambitious targets now ensures a lean, efficient, and durable company in a future where resources become increasingly more expensive – particularly resources derived from fossil fuels. Rising prices of raw materials can mean the difference between profit and loss.

    3. Build credibility and reputation
    Companies taking a leadership position on climate bolster their credibility and reputation among stakeholders, including investors, customers, employees, policy makers and environmental groups. Approximately half of consumers worldwide believe climate change will have a negative effect on their own lives, and 65 per cent of consumers agree that human activity is responsible for climate change . Meanwhile, companies increasingly want to do business with suppliers that are taking climate change seriously so that they can reduce GHG exposure in their value chain.

    4. Influence & prepare for shifting public policy
    Taking ambitious action now helps companies stay ahead of future policies and regulations to limit GHG emissions. Companies that are seen as leaders are better able to influence policy makers and help shape developing legislation.

    How can companies engage?
    Companies can engage by joining the Call to Action.
    Can financial institutions set science-based targets?
    We invite private sector financial institutions to commit to setting science-based targets for scope 1 and 2 emissions as well as for their scope 3 emissions from investing and lending activities under the Call to Action.

    However, the method for assessing financial institutions' scope 3 emissions against a 2°C trajectory is still being developed. Since setting a scope 3 target for the financial sector is essential, this means financial institutions can be featured as a committed company but cannot yet have any of their targets reviewed and recognized by the Call to Action.

    We will invite all committed financial institutions to participate in a process to develop target setting methods for the sector and notify financial institutions as soon as we are able review and recognize targets (scopes 1, 2 and 3) through the initiative.

    A financial institution is a company that acts as a channel between savers and borrowers of funds (suppliers and consumers of capital). The SBT initiative defines a financial institution for the purposes of target-setting as one that engages in investment activities as part of its core functions. These include but are not limited to the following:

    • Asset management / asset owners

    • Retail and commercial banking activities

    • Insurance companies (when functioning asset managers)

    • Mortgage real estate investment trusts (REITs)

    In addition, if at least 5% of a company’s revenue comes from activities such as those described above, they would also be considered a financial institution.

    If a company falls under the definition above but does not consider their investment activities significant/relevant for the purposes of science-based target setting, the company should provide an explanation in its target quality check form.

    Call to Action

    What is the Call to Action?
    The Science Based Targets initiative is calling on companies to demonstrate their leadership on climate action by publicly committing to set science-based GHG reduction targets. We aim to enlist 100 companies in 2015 and have 250 companies with a science-based target by 2020. All participating companies will be recognized at sciencebasedtargets.org and on the websites of CDP and the We Mean Business coalition. To join the movement and become one of the first 100 companies to take this important step towards the low-carbon economy, complete the following three steps: 1. Complete the commitment letter form Completing this form indicates a commitment to setting a science-based target if one does not already exist at your company. Your company will be listed as “in process of setting a science-based target” at www.sciencebasedtargets.org and the CDP and We Mean Business coalition websites. (In case a company has already developed a science-based target, step 1 may be skipped and the company may directly submit the ‘Science Based Target Form’ as explained in step 3) 2. Develop a target Your company will have 24 months to develop and announce a science-based target. 3. Announce your target Your company must submit the ‘Science Based Target Form’. The information provided enables the Science Based Targets team to review the target against the eligibility criteria. On confirmation, the company will be listed and showcased on the Science Based Targets website and in other communications.
    What are the eligibility criteria for joining the Call to Action?

    Criteria for setting a science-based target and joining the Call to Action include:

    • Boundary: The target must cover company-wide Scope 1 and Scope 2 emissions and all relevant GHGs as required in the GHG Protocol Corporate Standard.

      Timeframe: The target must cover a minimum of 5 years and a maximum of 15 years from the date of announcement of the target.

      Level of ambition: At a minimum, the target will be consistent with the level of decarbonization required to keep global temperature increase to 2°C compared to pre-industrial temperatures, though we encourage companies to pursue greater efforts towards a 1.5° trajectory.

      Scope 3: An ambitious and measureable Scope 3 target with a clear time-frame is required when Scope 3 emissions cover a significant portion (greater than 40% of total scope 1, 2 and 3 emissions) of a company’s overall emissions. The target boundary must include the majority of value chain emissions as defined by the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (e.g. top 3 categories, or 2/3 of total scope 3 emissions).

      Reporting: The company will disclose company-wide GHG emissions inventory on an annual basis.

      Additional recommendations include:

      • Companies are encouraged to also develop long-term goals (e.g. 2050).

      • Companies are encouraged to express their targets on an absolute AND intensity basis.

      • To ensure consistent tracking of performance over time, the target should be recalculated, as needed, to reflect significant changes that would compromise its relevance and consistency. A target recalculation should be triggered by significant changes in the types of gases in its greenhouse gas inventory, growth projections, other assumptions used with science-based target-setting methodologies and significant changes to your business or data and emissions factors used in your inventory process. The latter will also require recalculation of the base year inventory. Companies should check the validity of their target projections annually.

      • Companies should complete a Scope 3 screening before setting their GHG emission reduction targets.

      Financial institutions:

      Financial institutions are invited to commit to setting science-based targets for scope 1 and 2 and for their investment activities under the Call to Action by submitting the commitment letter. However, because there is not yet sufficient development as to how to assess financial institutions’ scope 3 emissions against a 2°C trajectory, the partners of the Science Based Targets initiative are currently not be able to verify the targets (scopes 1, 2, and 3).

      Financial institutions that submit the commitment letter will be invited to participate in future developments in this area.

      [1] This definition applies either for the Fourth or Fifth Assessment Report of IPCC, as well as the modeling of the International Energy Agency.

      For more information on eligibility criteria, please see the related FAQ section.

    Do I need to use any specific method on the SBT website to join the call to action?
    No, your company’s targets do not necessarily need to be developed according to a specific methodology. However ,the proposed targets need to comply with the eligibility criteria stated in the target submission form
    How is the quality check performed?
    Step 1

    • The Company submits the Science Based Targets Form with the proposed science based target

    • The Task Manager of the Science based Target initiative who coordinates the quality check process confirms reception and assigns a Technical Reviewer.

    Step 2

    • The Technical Reviewer is a qualified professional working for any of the partner organizations that checks the form and determines if the information provided is sufficient to perform the Quality Check.

    Step 3

    • The Technical Reviewer performs the Quality Check by assessing alignment to the eligibility criteria • The Technical Reviewer double checks the target against the method used (if any) plus additional methods to assess alignment with the 2°C trajectory.

    Step 4

    • The Technical Reviewer passes the Quality Check Report to the Steering Committee of the Science Based Targets initiative for revision and approval.

    Step 5

    • Once the Steering Committee signs off, the Task Manager notifies the Company about the outcome of the Quality Check.

    Step 6

    The Profiling and Communications Leader of the Science Based Targets Initiative lists the Company in the different websites and starts planning communication activities .

    How does this initiative relate to the We Mean Business Commit to Action Campaign?
    The We Mean Business Coalition and CDP are offering companies a platform to act and be recognized through several initiatives, including science-based targets. Companies that commit to the Science Based Targets Initiative’s Call to Action count toward the We Mean Business Campaign (though they may opt out if they choose). However, companies that have committed to the Commit to Action campaign must agree to the additional criteria required by the Science Based Targets Initiative by signing the commitment letter form.

    Through the We Mean Business campaign, companies can also commit to any or all of the following in addition to science-based targets:

    - procure 100% of electricity from renewable sources (RE100)

    - remove commodity-driven deforestation from all supply chains

    - report climate change information in mainstream reports as a fiduciary duty

    -responsible engagement in climate policy

    - put a price on carbon

    -reduce short-lived climate pollutant emissions.

    If my company commits to RE100 (procuring 100% of electricity from renewable sources) does that mean my company automatically has a science-based target?
    No. The company should submit its target for evaluation through the quality check process to ensure that all criteria are met.
    Will information submitted in the target quality check form be displayed publically?
    Information used in evaluating the targets (e.g. growth projections, change in market share) will remain private, but the targets themselves will be public.
    If the company does not pass the target check is this communicated anywhere?
    No, the assessment is only communicated if the company passes.
    What formal acknowledgement will the company receive when it passes the official quality check?
    The company will receive a PDF from the Science Based Targets Initiative’s Steering Committee stating that it approves of the target.

    Scoring Science Based Targets in CDP’s 2016 Climate Change Questionnaire

    Where can I find resources related to science-based targets scoring CDP’s 2016 Climate Change Questionnaire?
    How are science-based targets scored?
    Science-based targets will be scored in questions CC3.1a and CC3.1b in two places:
    • 1. Disclosure and Awareness level points can be obtained by answering the question “Is this a science-based target?” in CC3.1a and CC3.1b.
    • a. Any answer from the dropdown menu awards 0.5 Disclosure level points:
    • • Yes
    • • Don’t know
    • • No, but we are reporting another target which is science-based
    • • No, but we anticipate setting one in the next 2 years
    • • No, and we do not anticipate setting one in the next 2 years
    • b. The following answers, which demonstrate knowledge and planned action achieve 1 Awareness level point:
    • • Yes
    • • No, but we anticipate setting one in the next 2 years
    • 2. Science-based targets also earn 2 Leadership level points through either of the two routes below. Partial points are not given.
    • a. If a target is submitted to the Science Based Targets Initiative by April 15, 2016 and passes the Science Based Targets Initiative’s Official Target Quality Check, Leadership points are automatically awarded for CC3.1. These targets should still be disclosed in the CDP questionnaire.
    • b. Leadership points can also be obtained by information disclosed in the Climate Change questionnaire. However, these targets are not considered science-based. The deadline for submission is June 30, 2016.
    What are the differences between the SBTI’s Official Target Quality Check and CDP’s Questionnaire criteria for Leadership level points?
    Why do the criteria for the two routes differ?

    CDP aims to minimize the reporting burden on companies, in part by reducing changes to the questionnaire from year to year. At the same time, CDP must collect enough information to assess the appropriateness of thousands of company targets. The questions in the Climate Change Questionnaire balance the dynamics of these two contrasting principles. As a result, CDP is unable to collect the type and amount of information necessary to determine if a target is science-based.

    How can a company submit their target for an official quality check by the SBTI? What is the deadline?

    Visit http://sciencebasedtargets.org/commit-to-setting-science-based-targets/ and download the target quality check form. Fill out the form as completely, accurately, and clearly as possible. Be sure to tick the box that says this an official check. Send the form to [email protected] by April 15, 2016. Missing or disorganized information may cause delays in the target review process potentially resulting in the assessment not being recognized in time for CDP scoring. Be sure to also disclose this target in the CDP questionnaire.

    How and when will companies receive a decision from the SBTI on whether or not their target is science-based?
    The SBTI will email the contact listed on the quality check form a letter stating whether or not the target is science-based. If the target is not approved, the letter will state where it has not met the eligibility criteria. Companies should expect to receive this information by the end of July.
    If this is the first year science-based targets are in the questionnaire, why are they already being scored? Doesn’t CDP normally not score new questions?
    CDP is asking companies to raise the level of ambition of their targets and set their greenhouse gas emissions reductions in line with climate science. The Climate Change questionnaire now includes a question about science-based targets in the existing section on targets and is being scored in accordance with other targets information provided by companies. This will incentivize companies to set science-based targets and achieve the next level of performance in emissions reductions.
    Why is CDP using information outside of the questionnaire (i.e. taking into consideration companies that have passed the SBTI quality check) for scoring?
    CDP considers the Science Based Targets Initiative to represent the most comprehensive and authoritative source on setting and assessing targets in line with climate science. Scoring of CDP’s 2016 Climate Change Questionnaire will account for companies who have had targets submitted by April 15, 2016 and approved by the Initiative. Targets that did not pass the SBTI’s review process or that have not been submitted for review prior to the deadline will still be evaluated using information disclosed in CDP’s questionnaire and can still qualify for leadership (see CDP’s 2016 Climate Change Scoring Methodology for more details).
    Are targets that qualify for leadership through the CDP questionnaire but haven’t passed the SBTI official quality check considered science-based targets?
    CDP only considers companies whose targets have been formally assessed through the SBTI official quality check as science-based.
    Why don’t intensity targets qualify for CDP leadership through the information provided in the CDP questionnaire?
    Intensity targets submitted by 15 April 2016 and approved by the SBTI Official Quality Check will receive Leadership points (see page 63 of CDP’s 2016 Climate Change Scoring Methodology for more details). Due to the complexities of assessing the level of ambition and appropriateness of intensity targets, intensity targets cannot qualify for leadership points via the CDP questionnaire alone.
    Are scope 3 targets assessed for leadership points in the CDP questionnaire?
    Due to the complexities of scope 3 accounting, the questionnaire is not able to capture the full suite of relevant information to properly assess scope 3 targets at this time.
    I am a financial institution. Can I my targets be validated as science-based? Am I eligible for Leadership points in the targets section of CDP’s Climate Change Questionnaire?
    Financial institutions can only earn Leadership points in the targets section through information provided in the CDP questionnaire. The targets can’t be validated as science-based by the Science Based Targets Initiative because there is not yet sufficient development as to how to assess financial institutions’ scope 3 emissions against a 2°C trajectory. As such, the partners of the Science Based Targets initiative are currently not able to verify the targets (scopes 1, 2, and 3). However, financial institutions may still qualify for CDP Leadership points in question CC3.1 of the questionnaire since the ambition of scope 3 targets is not assessed in the scoring methodology at this time.

    Eligibility Criteria

    What constitutes as company-wide scope 1 and 2 emissions?

    The company’s greenhouse gas inventory boundaries should be in accordance with the Greenhouse Gas Protocol Corporate Standard.

    Regarding the timeframe criterion to have the target end within a minimum of 5 years and maximum of 15 years from the date of the announcement of the target, what is defined as the announcement of the target?

    All targets must cover a minimum of 5 years and a maximum of 15 years from the date the target is submitted to the Science Based Targets initiative for an official check.


    Please note that only targets submitted in the first half of a calendar year can include that year toward the 5-year minimum. For example, companies submitting a target by the end of June 2016 can have a target year between 2020 and 2030. Targets submitted July to December 2016 must have a target year between 2021 and 2031. If the target is slightly shorter or longer than this period, the Steering Committee may allow it.

    What year should the company use to determine if its scope 3 emissions are significant (greater than 40%) of the total?

    The target base year. Any significant changes should results in the re-evaluation of the target per the eligibility recommendations.

    If an inventory has not been conducted for the base year, what information should the company use for scope 3 base year emissions?

    The company should use the latest year of their GHG inventory.

    Where should the company disclose its GHG emissions inventory on an annual basis?

    There are no specific requirements on where the inventory should be disclosed, as long as it is public. Recommendations include annual reports, sustainability reports, the company’s website, and/or CDP’s annual questionnaire.

    How should the company report any significant changes in growth projections and other assumptions used with the science-based target setting methodologies and significant changes to its business or data and emissions factors used in its inventory process?

    The company should notify any member of the Science Based Targets initiative of any significant changes. It is also recommended to report these major changes publically, as relevant.

    Do offsets count toward science-based targets?
    The initiative seeks to see real emission reductions by companies, by setting targets in accordance with what the planet needs (based on a carbon budget). As such, the use of offsets is not recommended to meet a science based target. However, offsets are an option for companies wanting to achieve the additional reductions needed, beyond a science based target, to meet a climate neutral target. The initiative recommends companies to explore and adopt science based targets before setting climate neutral targets.
    Do renewable energy instruments count toward science-based targets?

    Renewable energy instruments such as renewable energy certificates (RECs) should only be used to meet reductions of scope 2 emissions. Please see the Greenhouse Gas Protocol Corporate Standard for further guidance on scope 2 accounting.

    Are both absolute and intensity based targets accepted?

    Both are accepted; however, the initiative encourages the use of absolute targets. When intensity targets are used, all relevant data to assess the target should be provided. This may include past and future growth projections and should be in units that can be used to evaluate them against known science-based target setting methods.

    What are the emissions scopes?

    The GHG Protocol categorizes these direct and indirect emissions into three broad scopes:

    • Scope 1: All direct GHG emissions.
    • Scope 2: Indirect GHG emissions from consumption of purchased electricity, heat 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.

    Are combined scope targets accepted?

    Yes. For example, in a target where there is a 30% absolute emissions reduction applied to scopes 1+2 combined from 2010 to 2030, the 30% reduction can come from scope 1 and/or 2 and there is no individual target for each scope.

    Implications of a 1.5°C objective

    How does the COP21 Paris Agreement to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels affect the recommended level of ambition of targets?

    The Paris Agreement achieved at COP21 aims to strengthen the global response to the threat of climate change namely by “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change.” The Science Based Targets initiative’s partners (CDP, UN Global Compact, WWF and WRI) welcome the UNFCCC parties’ agreement.

    The partners continue to recommend that companies go beyond the minimum required 2°C pathways to stay well below a 2°C increase and pursue a 1.5°C increase. This entails setting targets more ambitious than those derived using the IPCC RCP 2.6 and IEA 2 degree scenarios that methods to date rely on. Exceeding the requirements of a 2°C scenario will provide essential first steps to “pursue efforts to limit the temperature increase to 1.5°C.”

    The Science Based Targets initiative plans to develop guidance on pursuing the 1.5°C objective as scenario information becomes available. In the meantime, companies can modify current methods (e.g. GEVA, LDA, and SDA) according to the timeframes in the FAQ below. For general guidance on methods see chapters 2 and 3 of our draft Science-Based Target Setting Manual.

    Considering that both the 1.5°C and 2°C scenarios involve the same information companies need to set targets and involve similar technological feasibilities, companies should take action now on raising ambition beyond the 2°C minimum. Delaying action on ramping up ambition beyond 2°C is detrimental to averting the worst impacts from climate change.

    What emissions reductions are required to keep global temperatures within a 1.5°C increase vs. a 2°C temperature increase?

    Scenarios play a critical role in the development of science-based targets. There is a need to better understand and further develop these scenarios so that they can be effectively used by companies in setting targets. Scenarios are uncertain and can be expressed in a variety of ways, namely in terms of temperature targets and the minimum probability that they will be achieved.

    Keeping temperature increase well below 2°C or 1.5°C imply similar decarbonization measures (and technologies) deployed within different timeframes. The sooner reductions are taken, the greater the likelihood the planet will stay within a particular temperature increase.

    To have a likely chance (>66% probability in 2100) of limiting warming to below 2°C:

    • • Carbon dioxide emissions have to drop to net zero between 2060 and 2075
    • • Total GHG emissions need to decline to net zero between 2080 and 2090

    To have a likely chance (>50% probability in 2100) of limiting warming to below 1.5°C:

    • • Carbon dioxide emissions have to drop to net zero between 2045 and 2050
    • • Total GHG emissions need to decline to net zero between 2060 and 2080

    Achieving the emissions reductions that will likely limit warming to 1.5°C will entail:

    • • A faster and profound decarbonisation of energy supply, through a full decarbonization of the power sector before 2050
    • • Significantly lower emissions in industry, buildings and transport by 2050
    • • A crucial role in demand moderation by increasing energy efficiency (energy/GDP) at faster rates than historically observed
    • • Diverting investments towards low-carbon technologies in coming decades
    • • Higher mitigation costs

    In sum, staying within 1.5°C entails requirements that are very similar to the those needed for 2°C, but they need to be taken sooner (early action), achieve their targets faster (net zero by 2050) and at a larger scale (more reductions; more negative emissions; higher mitigation costs).

    Sources:

    • 1. UNFCCC. "Adoption of the Paris Agreement." UNFCCC, 12 Dec. 2015. Web. .
    • 2. Faria, Pedro, and Nicole Labutong. "A Review of Climate Science Based GHG Target Setting Methodologies for Companies." (2015): Web. .
    • 3. Final released IPCC AR5 scenarios database data.
    • 4. Rogelj, Joeri, Gunnar Luderer, Robert C. Pietzcker, Elmar Kriegler, Michiel Schaeffer, Volker Krey, and Keywan Riahi. "Energy System Transformations for Limiting End-of-century Warming to below 1.5 °C." Nature Climate Change Nature Climate Change 5.6 (2015): 519-27. Web.
    • 5. Knutti, Reto; Rogelj, Joeri, Sedláček, Jan and Fischer, Erich M. “A scientific critique of the two-degree climate change target” (2015) Nature Geoscience, published online 7 December 2015, DOI:10.1038/NGEO2595

    Questions about the Sectoral Decarbonization Approach (SDA)

    How does the SDA work?

    The Sectoral Decarbonization Approach (SDA) allocates the 2°C carbon budget to different sectors. This method takes into account inherent differences among sectors, such as mitigation potential and how fast each sector can grow relative to economic and population growth.

    The SDA is recommended for homogeneous sectors. Within each homogeneous sector , companies can derive their science-based emission reduction targets based on their relative contribution to the total sector activity and their carbon intensity relative to the sector’s intensity in the base year.

    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 detailed-sector scenarios by dividing the total direct emissions of the sector in any given year by the total activity of the sector in the same year. This yields a sector intensity pathway. The assumption is that the carbon intensity of each company in a homogeneous sector will converge with the sector carbon intensity in 2050.

    For homogeneous sectors, physical activity indicators (e.g. tons of cement for the cement sector) are used as the allocation method. For the sector “manufacture of light-road automotor vehicles”, value added (revenue minus the cost of purchased goods and services) is used as indicator and is assumed to grow proportional to GDP growth.

    A company’s intensity pathway — given by the method — multiplied by their projected activity yield a company’s carbon budget in absolute terms for the target period. In principle, the sum of these budgets should be contained within the sector projected budget given by the IEA 2DS.

    For heterogeneous sectors, in the absence of more sector-specific decarbonization pathways the SDA method uses the compression assumption described in the methodology to limit emissions within the 2°C carbon budget. Here, the company’s target is based on an absolute reduction compared with the sector’s expected emissions in the target year. The same percentage of absolute emissions reductions are applied to all companies within a heterogeneous sector (page 31 of the Sectoral Decarbonization Approach ).

    What are the assumptions in the SDA?

    (Page 31 of SDA 2.4. Assumptions in the method)
    Methods and models usually rely on a set of key assumptions. For transparency, we present a rationale and explanation of relevant assumptions in the method.
    Assumptions include:
    1. The carbon intensity of each company in a homogeneous sector will converge with the sectoral carbon intensity in 2050.
    2. The SDA method intrinsically accounts for regional differences regarding level of activity and carbon intensity, but not explicitly in relation to geographical resources or historical responsibility.
    3. Economic growth is decoupled from CO2 emissions arising from the use of energy and materials.
    4. Value-added is defined as gross profit, which equals revenue minus cost of purchased goods and services.
    5. Scope 2 emissions from heat, steam, and cooling are assumed to be negligible compared to those of electricity; this also holds for the longer term (IPCC 2014a).
    6. The societal goal to stay below 2°C is sufficient to avoid dangerous climate change and thus the consequent carbon budgets to stay below that threshold are used (section 1.1.2).
    7. The method is built on a CO2 budget that considers non-CO2 radiative forcings (section 1.1.3).
    8. If companies adopt long-term targets (e.g. in 2050) they are also taking on short-term targets along the non-linear RCP2.6 trajectory that ensures the overall budget is not blown.

    Please refer to chapter 2.4.of the Sectoral Decarbonization Approach for a detailed description of each assumption .

    What are the main assumptions of the Energy Technology Perspectives from the IEA?

    The IEA developed a two degree low-carbon scenario (2DS) in its Energy Technology Perspectives (ETP) report that is consistent with the representative concentration pathway (RCP 2.6) scenario of the IPCC AR5. The scenario was created using the ETP-TIMES model (IEA 2014). It was used to determine the least-cost technology mix needed to meet the final demand for the industry, transport, and buildings sectors.
    Assumptions:

    • The ETP model enables a technology-rich, bottom-up analysis of the global energy system and covers 28 regions.
    • The model is designed for a cost-effective transition to a sustainable energy system using marginal abatement costs. 
    • All technology options introduced in the ETP 2014 pathway are commercially available or at a stage of development that makes commercial-scale deployment possible within the scenario period.
    • The sectors “industry,” “buildings,” and “transport” are modeled in more detail to determine the final demand (bottom-up). Industry is modeled in five energy-intensive subsectors (cement, steel, paper, chemicals, and aluminum) using stock accounting spreadsheets. This method is also used for modeling the buildings sector. The transport sector is modeled with the Mobility Model (MoMo). These sector models determine the end-use service demands (e.g. material demands, heating, cooling).
    • Subtleties— like political preferences, feasible ramp-up rates, capital constraints and public acceptance—are not and cannot be captured in the cost optimization framework. To increase the robustness of the model, a portfolio of technologies is analyzed within a framework of cost minimization.
    • The 2DS scenario was built on the assumption that economic growth is decoupled from demand for energy and materials. This is possible through technological developments and behavioral change (e.g. consumption of services substituting for consumption of physical goods) (IEA 2012a, 2014).
    How does the methodology take into account structural changes such as mergers/acquisitions?

    The SDA methodology takes into account structural changes such as mergers, acquisitions and divestments for homogeneous sectors by changing the carbon intensity in the base year used for the target. For example, Company A and Company B, decide to merge in 2014. Both companies pertain to the cement sector and have comparable production (ton cement) in the base year 2010. However, Company A had a more carbon efficient activity in 2010 compared to Company B. When merging, the new carbon intensity in 2010 will be somewhere between both intensities. This means that Company A by merging with Company B became less carbon efficient in 2010, while Company B became more carbon efficient. According to the SDA methodology all companies in the sector will converge with the sector´s carbon intensity in 2050. Consequently, when both companies decided to merge, their carbon intensity pathway changed as well as their annual percentage reduction (slope change in the decarbonization pathway).

    Why do the decarbonization pathways show an increase in early years (peak and decline)?

    Less aggressive targets, or targets that even allow for some increases in emissions, until around the year 2020 are due to the peak and decline emissions trajectory used in the IPCC’s 5th Assessment Report. This peak in emission reflects the projected timeline for emissions reductions technologies will become widely available and cost-effective.

    From the four different emission scenarios assessed by the IPCC 5th Assessment Report: Working Group III, the one that holds the best chances of limiting global warming to less than 2ºC is the “Representative Concentration Pathway (RCP 2.6)” (IPCC, 2014b). This concentration pathway, developed by the IMAGE modeling team of the PBL Netherlands Environmental Assessment Agency, represents a peak-and decline model that reaches a maximum level of radiative forcings of 3.1 watts per cubic meter (W/m2) by midcentury and then declines to about 2.6 W/m2 by the end of the century. This scenario would stabilize concentrations of GHG emissions in the atmosphere at about 450 parts per million (ppm) by 2100.

    The IEA’s 2DS scenario describes an energy and industrial system consistent with an emissions trajectory that, according to climate science, has a good chance of limiting global warming to less than 2ºC. The correspondence between the RCP 2.6 and 2DS scenarios has been assessed and validated (Schaeffer & Van Vuuren, 2012).

    Therefore, although the methodology shows a peak and decline figure as in the IEA´s 2DS, the model is based on the widely-accepted globally agreed upon target of limiting global warming to less than 2ºC. The latter shouldn’t be interpreted by companies as the allowance to start decarbonization strategies in late stages. On the contrary, investing in deep decarbonization in early stages can avoid paying extra costs and making the company more profitable earlier in time. It could also avoid lock-in for several technologies.What data should be entered in the SDA tool?

    Gross (as opposed to net) emissions in the base year are strongly encouraged since they reflect the real emissions due to the company´s activity. The treatment of offsets for compliance of targets will be covered in the guidance that is being prepared for the SDA methodology and to be issued this year.

    List of data that needs to be inserted in the tool:

    How are the different scopes treated in the tool?

    Scope 1: Scope 1 emissions include process emissions as well as the direct generation of power, heat or steam from fossil fuels. Other scope 1 emissions come from buildings and fleets. 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 considers only indirect emissions 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 conservative inclusion of data 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 light-duty vehicle (car), 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.

    How does the SDA recognize action taken by companies before the base year?

    (Page 34 of the Sectoral Decarbonization Approach).
    A common concern of companies that have successfully reduced their carbon footprint in past years is whether the target-setting method considers such progress when setting a new emissions reduction target. The SDA method intrinsically acknowledges past efforts by using an intensity starting point for setting the target. This is only applicable to companies in homogeneous sectors.
    For example, imagine that company “A” in the pulp and paper industry has made significant progress on energy efficiency by 2014, while company “B” in the same sector hasn’t made as much progress on the energy efficiency field as its competitor by the same year. Then, if both companies decide to set a goal for 2020 based on their emissions in 2014, assuming both companies have comparable activity, company “A” intensity in the base year will be lower than for company “B.” The SDA method assumes a convergence approach in 2050 for homogeneous sectors; therefore, the steepness of the emissions intensity pathway for company “A” will be less than for company “B”.  Company “B” has to make greater efforts in the commitment period to catch up with company A, and ultimately with the sector emissions pathway for all to converge in 2050.For heterogeneous sectors, a compression approach is followed; therefore, the same absolute emission reductions percentage applies to all companies. This approach attempts to guarantee that company emissions stay within the 2°C carbon budget for these sectors.
    The SDA approach thus only acknowledges early actions made by companies within homogeneous sectors in setting their carbon targets.

    What are homogeneous and heterogeneous sectors? How are the sectors in the SDA classified?

    Homogeneous sectors are those that can be described using a single physical indicator (e.g. tons of cement produced for the cement sector, tons of aluminum produced for the aluminum sector). In the SDA they are: power generation, iron and steel, cement, aluminum, pulp and paper, aviation passenger transport, light-duty road passenger transport, heavy-duty road passenger transport, rail passenger transport, and service buildings. The SDA is most robust for these sectors.

    Heterogeneous sectors are those that can’t be described using a single physical indicator. For example, the chemical sector is heterogeneous because it produces a diverse array of chemicals that each have unique characteristics and traits and are difficult to compare to one another. In the SDA they are: chemicals and petrochemicals, other industry, other transport

    How targets are calculated for homogeneous and heterogeneous sectors?

    How are Scope 1 targets for homogeneous sectors estimated?

    ( Chapter 2.1.4.1. Homogeneous sectors of the SDA )

    From the detailed sector data in the 2DS scenario, it is possible to estimate the 2°C-compatible CO2 intensity for specific sectors by dividing the total direct CO2 emissions of the sector in any given year (between 2011 and 2050) by the total activity of the sector in the same year. The IEA 2DS scenario represents “peak-and-decline” emissions trajectories, thus the decarbonization pathways and the CO2 intensity trajectories for the different sectors are not linear. For example, the 2°C trajectory (emissions, activity, and CO2 intensity) for the iron and steel sector based on the 2DS scenario produced by the IEA is shown in Figure 10.

    Then, to calculate an emissions reduction target for a company in a homogeneous sector, a company-specific carbon intensity trajectory is derived from the sector-specific intensity trajectory. This company pathway depends on its initial performance and its expected future market share. The initial performance d is defined as the difference between the company’s carbon intensity in the base year and the sector carbon intensity in the year 2050. It is calculated using equation 3.

    The company’s expected future activity levels are combined with the sector’s expected activity levels from the 2DS scenario to calculate the company’s market share parameter for any given year following equation 4.

    Note that this is not the change in market share, but rather the inverse, resulting in a decreasing parameter when company’s market share is increasing.
    The SDA method assumes that the CO2 intensity for the companies in all homogeneous sectors tends to converge in 2050 (see section 4.2.1 of the Sectoral Decarbonization Approach Report ). This convergence is represented by an index of the sector’s decarbonization, being equal to 1 in the base year and 0 in 2050. This index is calculated following equation 5.

    Combining the company’s initial performance parameter d with its market share m and the sectoral decarbonization index p for year y results in an equation that provides the company’s intensity target for any year y between the base year and the target value in the year 2050 (equation 6).

     

    How Scope 1 targets for heterogeneous sectors are estimated
    ( chapter 2.1.4.2 Heterogeneous sectors of the SDA )
    At this point the SDA method has not been developed in detail for companies from heterogeneous sectors. For heterogeneous sectors, the method uses a compression method. In the absence of subsector-specific decarbonization pathways, the SDA depicts the company´s target based on an absolute reduction compared with the sector´s expected emissions in the target year. This equation results in the same absolute emission reductions percentage applied to all companies within a heterogeneous sector and thus guarantees to stay within the 2 °C carbon budget for this sector.

    How is scope 2 calculated?

    (Page 32 of SDA )
    Taking the total power consumption at the sector level, the 2 °C budget for the generation of this electricity (i.e. using the 2 °C CO2  intensity indicator for the power sector), and the total sectoral activity, it is possible to  estimate the scope 2 CO2 intensity for a sector as in equation 8.


    Now that the Scope 2 CO2 intensity pathway is known at the sectoral level, equations 3 to 6 can be applied using Scope 2 emissions data from the company in a homogeneous sector (see previous question). Then, the annual Scope 2 emissions budget can be estimated by multiplying the CO2 intensity with the projected activity. For heterogeneous sectors, equation 7 is used with Scope 2 emissions data from the Company.

    How is scope 3 treated in the SDA?

    (Page 32, chapter 2.1.6 Treatment of scope 3 emissions of the Sectoral Decarbonization Approach).
    Scope 3 emissions are other indirect emissions, such as emissions from 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 not covered in scope 2, outsourced activities, waste disposal, etc. These may be the largest share of a company’s emissions.
    The method can also be used to indirectly assess scope 3 emissions for other categories. Though most scope 3 categories are not included in the online tool, the method can assist companies in managing their scope 3 emissions by identifying science-based emission reduction trajectories for carbon “hot spots” in their value chains (see Appendix III). The GHG Protocol corporate value chain (Scope 3) accounting and reporting standard defines fifteen subcategories for scope 3.
    Scope 3 emissions for light vehicle manufacturing have been included in the transportation portion of the tool, given that vehicle usage is the most carbon-intensive aspect of the automotive sector.

    How is double counting of emissions addressed in the SDA?

    (Page 32 chapter 2.1.7. Double counting of the Sectoral Decarbonization Approach).
    Cross-sector dependencies can hamper proper accounting of emission reductions. For example, a truck manufacturer can achieve a scope 3 target by making more efficient trucks. A transportation company can achieve a scope 1 target by using these more efficient trucks. When both companies claim these emission reductions, it results in double counting. This shouldn’t be a problem, since:

    • The objective of the method is to set targets for individual companies, not to set up a validated accounting system at the global level.
      Double counting is only an issue when you aggregate individual results.
    • The fact that two companies reduce emissions in the same activity will only create a stronger impetus to achieve this target, and support a better business model, such as the example of the truck manufacturer.
    • The objective, in this example, is to reduce the emissions of the transportation sector.
      By achieving this target, both companies contribute to achieving the global 2°C decarbonization pathway
    Should we insert CO2 data only or total emissions (in CO2e)?

    (Page 16 , chapter 1.1.3 of the Sectoral Decarbonization Approach).

    Considering that the budget of 1,010 GtCO2 take into account the effect of non-CO2 forcing, and that “by far the most important contribution to increased radiative forcing compared to preindustrial levels comes from CO2, both in the baseline and the mitigation case” (IPCC 2014a), the authors decided to use CO2 as the measure in the carbon budget for the method (Van Vuuren, 2011).
    Non-CO2 emissions are negligible for a majority of corporations and in the most significant emissions processes (e.g., in most combustion processes they represent less than 2 percent of emissions). There are, however, GHG sources where non-CO be negligible. For example, some agricultural activities are significant sources of nitrous oxide (N2O) and methane (CH4), and the production and exploration for oil, gas, and coal, can produce  significant methane. Unfortunately, these sectors are currently not covered in the method. In special cases of sectors covered by the method where there might be non-negligible sources of non-CO the recommendation is to set the target based on the full CO2e corporate footprint. This way, the effect of non-CO gases would be counted twice and the method would be conservative, by decreasing the budget more than it would otherwise be.

    What is the probability of staying below 2°C of global warming when applying the SDA?

    (Page 16 of the Sectoral Decarbonization Approach).
    The SDA method uses the ETP modelling from IEA which is compatible with the IPCC’s RCP 2.6 scenario, which gives the highest likelihood (probability of 66–100 percent) of staying below 450 ppm CO 2e, thus keeping the average global temperature rise below 2 °C in 2100.

    However, the recommendation is that companies check on a regular basis the validity of their projections, and the assumptions made in the method:
    (Page. 33 2.3. Periodic revision of method and target adjustment Sectoral Decarbonization Approach Report)
    The SDA method works with data projections and forecasts for different sectors to achieve a least- cost decarbonization pathway in line with a 2°C scenario. Although these projections set the necessary pathway for sectors, some uncertainty (and inaccuracy) is involved as with any future projection. This inherent uncertainty and the evolution of scientific knowledge in the climate field requires a periodic revision of the method as well as regular updates in the emissions reduction targets by companies to reflect realistic forecasts. The target-setting SDA method is constructed around the sectoral emission pathways and is based on data from IPCC and IEA ETP 2DS. The emission pathways are used to determine company targets. IPCC has released new assessment reports on a regular basis (every five to six years). IEA plans to release regular updates of the underlying data of the 2DS every two years. The authors plan to update this method 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 method every five years fits with common practices in the business sector to adjust GHG emissions reduction
    targets in a similar timeframe.
    The SDA method is built on the assumption that each company will do its fair share (in least-cost terms) to close the 2°C emissions gap. However, it is reasonable to assume that not all companies will follow an ambitious decarbonization pathway. Thus, future pathways required to meet a 2oC target might become steeper leading to tighter emission reduction targets. Companies are encouraged to set emission-reduction targets in line with climate science and to involve their sector peers in adopting similar practices.

    What sectors and emissions are covered in the SDA?

    (Page 21f of the Sectoral Decarbonization Approach).
    The method described in this report allows companies to set emission reduction targets that are in line with IEA’s 2DS scenario based on sector-specific decarbonization pathways.
    The activities and sectors covered under this version 1.0 of the method are shown in Figure 7. This coverage represents up to 87 percent of the global CO2 emissions budget to 2050, and over 60 percent of global GHG emissions budget based on current yearly emissions and projections of future emissions.

    What sectors are not included in the SDA?

    At this time there is not enough information to create robust targets for the following sectors: agriculture, forestry and other land use (AFOLU); oil and gas production; and residential buildings. The authors hope to include these in the future when enough information becomes available.

    Does the SDA take into account regional differences?

    (Page 38 2.4.2. Regional Differences of the Sectoral Decarbonization Approach).

    The SDA method intrinsically accounts for regional differences regarding level of activity and carbon
    intensity, but not explicitly in relation to regional resources or historical responsibility and capability.
    The allocation of the sectoral carbon budget intrinsically considers regional differences in two ways: (1) the starting point of a company’s intensity trajectory is considered; and
    Regional differences are more pronounced in certain sectors. For example, power companies that operate regionally may need technology and financing support to stay within the cumulative emissions limit in the short term until alternative technologies become cost effective for the region. However, the SDA method acknowledges that for large multinational companies, with activities
    spread over world regions, equity issues would be less relevant and carbon intensities will tend to converge at a probably faster rate.
    The SDA method does not take into account considerations of equity or fairness across different
    countries. If an international method to calculate and allocate responsibility is agreed upon, the correspondent modifications will be considered for the method, depending on resources and company adoption.

    How is value added defined in the SDA?

    (Page 38f - 2.4.4. Value-added as a monetary indicator of the Sectoral Decarbonization Approach).

    Economic growth is universally expressed as GDP, which is an established metric for global and local economies. The SDA method aims to establish a measure that captures the contribution of a single company to GDP in the construction of intensity pathways. This is the case of the “light-road vehicle manufacturing” sector, which uses value added as a monetary measure of activity, attempting to capture a given company’s contribution to the overall economic growth. However, this link is not straightforward. For the purpose of GDP and national accounts, gross value-added (GVA) usually accounts for more than 90 percent of GDP and is calculated as:
    GVA = output at producer prices – intermediate consumption at purchaser prices.

    The equivalent measure of gross value added for an organization can be calculated as:

    GVA = Employee costs + Taxes net of subsidies (excluding those applied to products) + Profit

    According to the Institute of Chartered Accountants in England and Wales (ICAEW) a company’s value-added is also equal to “revenue less costs of sales, so is less than its revenue but more than its profits.” Thus, accordingly, value-added can also be defined as:

    VA = Revenue - cost of purchased goods and services

    Note that this not an alternative definition but just another way of expressing the same measure.
    For reference, in its application of the “Climate Stabilisation Intensity Targets,” BT used the same two equivalent ways to define value-added by companies (Tuppen 2009):

    Value Added = EBITDA + all personnel costs

    EBITDA = Taxes + Profit, making it equivalent to the first equation given by ICAEW.

    And since,

    EBITDA = taxes + profits = turnover - cost of purchases – all personnel costs

    VA can also be expressed as:

    Value Added = turnover (=revenue) – cost of purchased goods and services

    This is equivalent to the second expression given by ICAEW.

    In conclusion, all the expressions given above for VA are equivalent and offer different ways of measuring the same value using a variety of frequently used company accounting metrics. If a company within the specified sector has a method to determine its contribution to GDP that is slightly different, it can be used under this method provided it is consistent with the standard macroeconomic calculations for GDP.

    How is the global carbon budget allocated to a specific sector?
    The allocation has been done according to IEA sector scenarios. Data were retrieved from IEA ETP 2014 in order to determine sectoral CO2 budgets as described in Appendix II of the Sectoral Decarbonization Approach.
    Should a company set absolute or intensity targets?

    The Call to Action recommends setting both absolute and intensity targets. Intensity targets allow  for changes in company size  (at least for homogeneous sectors); absolute targets allow to ensure GHG reductions. In any case, it is recommended that companies should also revise and check progress toward their targets by checking if activity matched their previous projections and if intensities are below their specified pathway.

    What role does Carbon Capture and Storage (CCS) play in the SDA / IEA scenarios?

    IEA notes that “achieving the ETP 2014 2°C scenario (2DS) does not depend on the introduction  of breakthrough technologies. All technology options introduced in ETP 2014 are already commercially available or at a stage of development that makes commercial-scale deployment possible within the scenario period. Costs for any of these technologies are expected to fall over time, making a low-carbon future economically feasible” (IEA 2014).
    CCS is considered in the IEA ETP 2014 for different sectors as possible ways to achieve additional emission reductions, for example: Cement, Iron&Steel, Chemicals and Petrochemicals.  (See appendix I of the methodology Sectoral Decarbonization Approach Report).