It looks like avoided emissions may be getting harder to avoid.
The World Business Council for Sustainable Development (WBCSD) has begun public consultation on planned refinements to its 2023 Guidance on Avoided Emissions to make it more technically robust and to encourage broader acceptance and adoption of the avoided emissions concept.
The Partnership for Carbon Accounting Financials (PCAF) is also consulting on its updated standards, including a Financed avoided emissions and forward-looking emission metrics guidance that expands avoided emissions reporting to all asset classes, after previously being restricted to renewable power projects.
WBCSD defines avoided emissions as “the reduction in systemic emissions resulting from a project, product, or service compared to a counterfactual scenario”.
They are an estimate of the emissions reductions that will/might occur in society due to the use of a company’s climate solution(s). Avoided emissions are separate to a company’s scope 1, 2 and 3 greenhouse gas (GHG) emissions and its efforts and responsibilities to reduce its own GHG inventory.
The table below captures the quite stark differences between inventory (scope 1, 2 and 3 accounting) and intervention (avoided emissions) accounting.
Opportunity-styled approach
WBCSD’s recent publication Avoided emissions & Sustainable Finance (produced in collaboration with PCAF) explains: “avoided emissions can support climate action in the finance sector as they provide an opportunity-styled approach to the current risk-dominated perspectives on climate action”.
“Investors can use this metric to assess the environmental potential of a technology’s decarbonisation beyond an asset’s direct footprint and examine the prospect of investing in them as a contribution to decarbonisation,” it says.
Avoided emissions also address the issue of how asset owners might split their efforts between “reducing financed emissions” and “financing emissions reductions”. In other words, getting their investees to decarbonise their businesses versus investing in climate solutions.
Another greenwashing tool?
But WBCSD admits avoided emissions have been “used in a misleading way by some companies wanting to find a way to divert attention from their GHG inventory emissions and focus only on the positive contributions of their activities on the planet.
“Some companies have even used avoided emissions to net their corporate GHG emissions and make abusive ‘Net Zero’ or “carbon neutrality” claims”.
Avoided emissions are sometimes referred to as ‘scope 4’ emissions, but WBCSD refrains from doing this to try and make it clear that avoided emissions do not fall under the same accounting treatment as a company’s GHG inventory.
WBCSD’s consultation is all about addressing issues such as the lack of agreed definitions, standards and metrics that currently make avoided emissions very vulnerable to greenwashing.
Panasonic
WBCSD member Panasonic Holdings is perhaps the greatest corporate advocate of avoided emissions.
The Japanese company, which is something of a poster child for avoided emissions, endorses the WBCSD’s guiding principles on avoided emissions and says it is “taking part in the global rule-making effort” led by the WBCSD.
President and CEO Yuki Kusumi (second from left in photo below) sees avoided emissions as a way to “help realise the ideal society which our founder envisioned 90 years ago”.
Last year Kusumi was quoted in The Financial Times as saying: “It’s not what you emit, it’s what you enable others not to emit that counts.”
Interestingly, Panasonic’s largest institutional investor Nomura Asset Management (NAM) is also a big avoided emissions advocate, believing “the addition of avoided emissions as an evaluation metric not only enriches the assessment process but also aligns with NAM’s commitment to a more nuanced and precise understanding of companies’ contributions to climate-related opportunities”.
Panacea or problem
But is Panasonic properly practising what it preaches?
The company – which is in the international equity portfolios of most of Australia’s largest asset owners – aims to achieve net zero for its Scope 1 and 2 emissions by fiscal 2031 and net zero for scope 3 emissions by 2050 (amounting to 110 million tonnes of reductions in total from a fiscal 2021 base year).
But on top of that it has committed to achieving avoided emissions totalling 200 million tonnes by 2050 (see diagram below).
These comprise about a 100 million tonnes through its existing businesses (“contribution impact”) and another 100 million tonnes “by creating new technologies and business fields” (“future Impact”).
Future avoided emissions will flow from areas such as Panasonic’s energy-generating glass technology that will enable Perovskite solar cells “to be utilised more flexibly in architectural designs”, leading to the “wider adoption of renewable energy”.
Guiding principles
While Panasonic says it endorses the WBCSD’s guiding principles it doesn’t always strictly follow them.
WBCSD says “avoided emissions shall not be used to claim a company’s carbon neutrality, net zero emissions or any other claims implying a company’s absence of impact on the climate”.
Panasonic does have a net zero by 2050 target for its inventory emissions that was recently verified by the Science Based Targets Initiative, but the diagram above confuses things by seeming to link Panasonic’s carbon neutrality plans with avoided emissions.
WBCSD also says “avoided emissions shall always be reported separately from GHG inventory footprints”.
Panasonic technically meets this requirement, acknowledging in its Sustainability Data Book 2024 that its inventory emissions cannot be offset by avoided emissions – and by providing separate data for its inventory (scope 1,2 and 3) emissions and its avoided emissions.
However, Panasonic obfuscates things by claiming these are “two sides of the same coin” and ‘inextricably linked”.
And in the very confusing diagram below Panasonic visually presents its inventory and avoided emissions together, seemingly more concerned about promoting its climate image than clearly reporting what it has actually achieved.
Hypothetical
WBCSD’s guidance explains why this practice is problematic.
“Avoided emissions are the gap between a solution situation and a reference situation that would have occurred without the solution,” it says.
“Therefore, the reference is not necessarily the previous situation but a hypothetical situation.
“Avoided emissions are thus not necessarily an actual emissions reduction compared to a previous situation. However, from an atmospheric point of view, only actual, absolute GHG emissions reductions count”.
Greenwashing?
Under its Green Impact Vision – unveiled in 2022 – Panasonic says it is striving “to reduce CO2 emissions, with an aim of by 2050, achieving reduction impact of more than 300 million tons”, which is “approximately 1 per cent of the total CO2 emissions discharged all over the world as of now”.
Here, apart from unhelpfully tossing real and fictional emissions into the same “reduction impact” basket, Panasonic is making some tenuous link between the world’s historical emissions and counterfactual calculations it will make over the next 25 years about the climate-friendliness of its businesses.
Also, Panasonic’s goal of 100 million tonnes of future avoided emissions can be described as aspirational at best and the only real details it provides on it are references to its Perovskite solar cells and its Bio CO2 Transformation technology utilising atmospheric CO2 to enhance crop yields.
This apparent inclination to inflate its climate credentials looks a little like the greenwashing WBSCD is hoping can be avoided.
Blurred vision
Panasonic’s 2024 data book reveals that CO2 emissions across its value chain (i.e. scope 1, 2 and 3 emissions) were 126.52 million tonnes in fiscal 2024, representing an increase of 19.01 million tonnes from a fiscal 2021 base year.
Panasonic then explains that if the fiscal 2021 figures were adjusted to reflect the additional items included in the fiscal 2024 calculation, there would have been a 12.08 million tonne reduction (see Green Impact Plan table below).
Panasonic says “ avoided emissions for our customers and society” had a contribution impact of 36.97 million tonnes, up 13.5 million tonnes over fiscal 2021. The company explains this was “thanks to the growth of our core businesses and further visualization of the avoided emissions in our businesses”.
It looks like what is going on here is that Panasonic is finding (visualising) more CO2 emissions in its own value chain while at the same time finding (visualising) more avoided emissions as it assesses more of its businesses.
And it seems Panasonic is finding it harder to reduce its own inventory emissions than to claim more avoided emissions.
While the “contribution impact” in 2024 rose because Panasonic increased the number of its businesses subject to the calculation there was actually a “decrease in the avoided emissions from cylindrical lithium-ion batteries for in-vehicle use (which produce the biggest amount of avoided emissions in the group”.
This was “as a result of the refinement of the emission calculation methods from the viewpoint of their life cycle”.
High flexibility
Panasonic acknowledges that avoided emissions “still have a lot of issues to be addressed to become a measurement used commonly in society, as the flexibility in its calculation methods is high.
“Once calculation methods become standardised and turn out to be different from our methods, we will review our calculation methods,” it says.
In the meantime, WBCSD is no doubt keeping a wary eye out for corporate contortionists.
