Avoided Emissions: Why it matters to investors to account for what does not exist
- 10 October 2024 (7 min read)
To stop global warming, society needs to reduce its greenhouse gas (GHG) emissions and reach a state of net zero – the point at which the GHG concentration in the atmosphere stabilises and is no longer increasing1 . Such a goal requires an energy transition.
This means fully transforming the world’s energy mix and changing how we produce and consume food, goods and services. As investors, we ask companies to play their part by reducing their own emissions and contribute to emission reduction along their value chain. Companies can also develop products and services which can help users lower their individual emissions.
Corporate GHG accounting is largely governed by guidelines and methodologies produced by the GHG Protocol2 . There is a widely accepted system used to measure and report on direct/indirect corporate emissions - called scope 1, 2 and 3 emissions3 .
Scope 1 refers to direct emissions from a company’s activity while scope 2 are emissions related to operational electricity use. A company’s scope 3 emissions are those found along its value chain, both upstream (before) and downstream (after) its own operations.
However, there are no formal standards used to measure and report avoided emissions that are due to company-sold solutions.
In this paper, we will examine avoided emissions, look at their place in the energy transition narrative, outline their potential pitfalls and explain why they matter for investors.
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