WHITE PAPER

Best practices in carbon footprint

modeling:
Going beyond inventories and calculations
 BEST PRACTICES IN CARBON FOOTPRINT MODELING

Table of Contents
Executive summary..........................................................................................1
Introduction......................................................................................................1
Learning from the past.....................................................................................2
Modeling for insight.........................................................................................3
Reference standards and third-party assets..................................................3
Initiating a carbon footprint analysis for your organization...........................4
Data integration and automation.....................................................................7
Analysis and forecasting..................................................................................7
Conclusion......................................................................................................10
About SAS.......................................................................................................10
References......................................................................................................10
Recommended reading..................................................................................11
Appendix 1. Definitions..................................................................................11

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 BEST PRACTICES IN CARBON FOOTPRINT MODELING

The content providers for this white paper are Alyssa Farrell and Keith Renison.

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 BEST PRACTICES IN CARBON FOOTPRINT MODELING

Executive summary
Today’s highly competitive economy presents many obstacles to profitable growth
and customer retention. In a 2008 McKinsey Quarterly article, “Business Strategies
for Climate Change,” the authors explain: “... the winners will be companies that
reposition themselves to seize the opportunities of a low-carbon future.” This
statement has been echoed by analysts, academics and CEOs alike. But how
do you get there? Many organizations have endured the struggle of beginning to
calculate and set reduction goals of their carbon footprints, only to find the traditional
office tools fall short in providing tangible insight and transparency, not to mention the
absence of quality data.

This paper explains the differences between calculating and modeling emissions,
the critical parallels between cost and greenhouse gas (GhG) accounting, collecting and
managing data, and using activity-based modeling practices to gain invaluable insight
from such efforts.

Introduction
Discussion of GhGs in boardrooms and political arenas indicates the carbon-conscious
world is here to stay. Beyond the consumer marketing hype of online calculators and
hybrid cars lives the growing social and environmental responsibility placed on all
organizations, whether large or small, public or private, local or global. Today, leaders
of businesses and governments have numerous reasons to measure and manage their
atmospheric waste, not the least of which is to improve operational efficiency, reduce
cost and align external communication with stakeholder interests.

Many industries already face emissions reporting requirements today. Others report toxic
release inventories, water quality or waste disposal. The primary focus of this paper is
GhG emissions – the carbon footprint measured by the CO2 equivalents (CO2 e) of six
atmospheric gases. Carbon terminology is provided in Appendix 1 for reference purposes.

After exploring the best practices in managing carbon, this paper presents the
conclusion that simply calculating and reporting a number for compliance is of limited
value. Organizations must go beyond calculation and GhG inventories into the world
of activity modeling if real understanding, leadership and goals are to be achieved.
Also included in this paper is how the combination of mature SAS technologies
and innovative modeling techniques can be adapted to this contemporary business
problem. We’ll explore some of the parallels that make these technologies the right fit
and walk through some practical modeling techniques that are being deployed at SAS
and by SAS customers.

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 BEST PRACTICES IN CARBON FOOTPRINT MODELING

Learning from the past

Historically, businesses attempted to manage monetary resources on a product-
based view of profitability, only to find that the true cost of their products, customers
or services were obscured by broad-based allocations. This was also compounded by
the fact that traditional accounting methods didn’t reveal the activities that drove these
expenses, specifically those things they could actually change. However, spreadsheet-
based applications designed to model these structures proved difficult to manage,
lacked transparency and were not robust enough to handle the complexities and scale
that occurred in a real business. From that pain came the dawn of enterprise-class
activity modeling tools such as SAS® Activity-Based Management.

The beginnings of this same evolution can now be seen in the carbon management
space. Organizations have begun to calculate their carbon footprints using spreadsheets
or niche applications only to find that the process is cumbersome, error-prone, has little
transparency into the calculations and gives limited insight into how to manage it. Sure,
it can suffice for simplified compliance reporting, but the real financial and operational
benefit comes from understanding your footprint enough to predict future behavior and
model the impact of proposed changes.

Fortunately, the same principles that organizations have fine-tuned for activity-based
modeling lend incredible value to the field of carbon management. Resources, whether
economic or natural, are either created or consumed by the work activities of your
organization. Therefore, activity-based management can be applied to better understand
the behaviors of money (traditional), water, energy or in this case, emissions.

As a simple example, to lower the energy use of a building you must change the
■ Modeling, not calculating, becomes
properties of the building itself or manage what goes on inside that building. For this, you
must be able to understand how these activities affect the use of the building – activities the new paradigm that reveals the
that are not usually measured or metered independently. Modeling, not calculating, kind of insight necessary for decision
therefore becomes the new paradigm that reveals the kind of insight necessary for making – something spreadsheets
decision making – something spreadsheets and similar tools have a difficult time doing.
and similar tools have a difficult
As Bras and Emblemsvåg (2001) describe in their book, Activity-Based Cost and
Environmental Management, “… from an ABC [activity-based costing] method’s point
time doing.
of view, [other natural resources are] simply just another ‘currency’ and the principles
remain unchanged.” In the simplest terms, by replacing the “currency” of cost with other
resources, we are able to gain the same insights about emissions, water, waste
or energy that have proven themselves invaluable to the cost accounting world.

To summarize, calculations based on GhG inventories, although a noble first step, will
result in limited additional management insight. To leap ahead and learn from the past,
organizations must consider the application of modeling as a core practice behind any
serious carbon management strategy.

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Modeling for insight SAS provides the most commonly

used dimensions, but organizations
Good modeling tools should be multidimensional – including context and analysis can expand this list over time and
variables that will be used to analyze the key drivers of an emissions footprint. For customize it to the needs of the
example, you may want to see the scopes of emission sources broken down by different organization:
geopolitical entities. You may also want to “slice” this view by organizational structures,
asset types, United Nations Framework Convention on Climate Change (UNFCCC) Provider
Annex designation or simply over time. All these things describe different dimensions to EPA (US)
your business. Some of these dimensions are spelled out in modeling protocols (such International Energy Agency (IEA)
as the Greenhouse Gas Protocol Initiative or the US Environmental Protection Agency IPCC (WRI GHGP)
Climate Leaders Program), and some are required for management insight. Resource
Electricity
These dimensions should also be easily configured by the business and not require Natural gas
a programmer to rewrite the application when you need to make a fundamental Crude oil and derived substances
change to the model. For example, a financial services organization is structured Coal and derived products
with different dimensions than, say, a paper manufacturer. Likewise, lines of business Non-biomass waste
within government provide vastly different services, from postal operations to public Peat
health. The sidebar displays a set of dimension hierarchies common to a carbon Biomass waste
management model. Refrigerant
Commercial air travel
The next section of the paper will review recommended best practices for Consumption Unit
establishing a carbon model for your organization. While there are many potential Consumption Category
approaches to carbon modeling, this paper provides a framework that is flexible Facilities and Assets
enough to account for the variability in any organizational structure and facilitates Offsets and RECs
predictive analysis of GhG data. Business Units
Instrument
Analysis Variable
Products and Services
Reference standards and third-party assets Customers
Byproduct
An “external unit” is an information asset (e.g., measurement standard) that is
Carbon Dioxide (CO2)
referenced by an organization’s carbon model. For example, the External Units module
Methane (CH4)
of the SAS® for Sustainability Management application contains a catalog of emissions
Nitrous Oxide (N2O)
rates by third-party providers. For example, the US Environmental Protection Agency
Sulfur Hexaflouride (SF6)
(EPA) breaks the United States into energy grid subregions, providing emissions
Perflourocarbons (PFC)
factors (unit rates) for three of the six standard GhGs recognized by the Kyoto
Hydroflourocarbons (HFC)
Protocol: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride
Scope
(SF6), perfluorocarbons (PFC) and hydrofluorocarbons (HFC). The rates shown in
Core
Figure 1 are for electricity. In this example, the structure of the External Unit has been
Scope 1 (Direct)
configured to capture three dimensions: Provider (the entity providing the rate), Fuel
Scope 2 (Indirect Electricity)
(the type of fuel or emission source) and GHG (type of GhG).
Optional
Scope 3 (All Other Indirect)
Stages
Geography
Organization

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Figure 1. An example of External Units is the emissions rates produced from energy grids
around the world.

These three dimensions converge to provide the rate for each GhG in terms of pounds
emitted per megawatt hour of electricity consumed. Because it references the provider,
each rate is specific to the fuels used by that grid. The rates for all six GhGs are later
normalized to carbon dioxide equivalent (CO2e) and carried as a common “currency”,
in terms of metric tons (t) of CO2e.

In addition to electricity, rates are provided for commercial air travel, combustion
of fuels (kerosene, diesel, etc.) and all other standards required to complete the
Greenhouse Gas Protocol Initiative (GHG Protocol).

Initiating a carbon footprint analysis for your organization

Because the SAS solution provides the catalog of fuels and emission sources from
which to pull, organizations begin a project by establishing the questions that they
hope to answer after the completion of the carbon footprint analysis. These may
include questions such as:

• What is the primary cause of our emissions today? What activities are associated
with the creation of those emissions?

• Does performance vary in our office facilities, if we normalize for square footage
(exclusive of data centers)?

• What are the most emissions-intensive facilities on a square foot and a

headcount basis?

• How quickly are our emissions growing (by division, by geography, etc.)?

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• If we leave business as usual, what will be our energy and emissions performance
this time next year?

• What are the characteristics of outliers that may identify quick wins (or potential
problems) and direct us to further analysis?

The questions help identify the desired scope of the project (facilities, suppliers, assets)
and analysis variables (headcount, square footage, etc.) that drive the design of a model.

Now, the organization can begin to document the physical structures and activities
that consume fuels and generate GhGs. In most cases this starts with fixed and mobile
assets and other items that are required for compliance reporting.

For example, an electricity meter attached to the outside of a building is measuring

kilowatt hours of energy consumed by the assets associated with that meter. We
therefore create an activity account for the meter where we will assign the proper
emission source account (energy provider) and enter the numerical kilowatt-per-hour
consumption. The best source of numerical data is directly from the device itself, rather
than re-keying the figures manually from a utility bill.

In all likelihood, your organization will have multiple meters that pull from the same
source rate provider. In our example model, you can see that there are indeed 13
meters across 11 buildings that are pulling from the Virginia/Carolina grid (Figure 2).

Figure 2. Relationships between External Units and the Activities that draw on them are
viewed and edited through a point-and-click interface.

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Typically this first stage of emissions associated with assets represents your Scope 1
and 2 emissions; that is, those direct and indirect emissions commonly required for Direct and indirect emissions
compliance reporting (see sidebar). This is often where most carbon calculators stop. The GHG Protocol defines direct and
This is because they tend to be purely focused on the calculation of emissions for indirect emissions as follows:
compliance, not on resources in general and not as a means to explore drivers that go
• Direct GhG emissions are
beyond physical measurement and into the world of management. Many business and
public sector organizations also have environmental exposure and strategic initiatives
emissions from sources that
that extend beyond their compliance requirements. Using these same methods, are owned or controlled by the
we can incorporate into the model other Scope 3 emissions that are important reporting entity.
to the organization, such as auto rental, commercial air travel, third-party product
transportation and logistics and employee commute. • Indirect GhG emissions are
emissions that are a consequence
In exploring the SAS Activity module (Figure 3), we can see the flow of emissions from of the activities of the reporting
assets to a given department and then further allocated to the different activities of
entity, but occur at sources owned
that department. Notice these assignments are based on a variety of drivers, such
as square footage, airline miles, flow, etc. Here, any number of possibilities can be or controlled by another entity.
modeled depending on the practical needs. The point is to model to the level of detail
The GHG Protocol further categorizes
that’s required for management decisions and use the most practical drivers that
represent actual work (and encourage certain performance), balanced with the level
these direct and indirect emissions
of effort to collect the information. If department managers need to understand their into three broad scopes:
relative ability to have influence over their piece of the overall organization’s carbon • Scope 1: All direct GhG emissions.
reduction goals, then a perfectly exact number isn’t necessary. Instead they need to
see their proportion to their peers and how what they do affects the overall footprint. • Scope 2: Indirect GhG emissions
They must also have full transparency and buy-in into what methods were used in from consumption of purchased
creating that number if it’s to be trusted and subsequently managed to. 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.
The Greenhouse Gas Protocol
Initiative (www.ghgprotocol.org)

Figure 3: Full emission activity flow.

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The last step in the modeling process is to then push emissions into the products
and services you deliver. Because we now know the relative contribution of emissions
to different types of work (for example, fully burdened emissions associated with
manufacturing products or supporting customers), we can use different drivers to
allocate resources that make the most sense. These are typically production volumes,
number of invoices processed, number of units sold, etc. Again, the trick here is to use
the most reasonable driver and volume that best represents the demand relationship.

Throughout this process, organizations follow the same principles as activity-based

costing. This gives managers the ability to model parallel scenarios, including cost,
carbon, energy or practically any resource consumed by the activities and assets
designated in the structure. This reduces the amount of work necessary to eventually
extend a model across other resource types.

Data integration and automation

One of the most difficult challenges with carbon modeling is the availability of
trustworthy source data. Most organizations are in the early stages of carbon
management. This often makes the existence of data illusive, disparate or requires
manual data entry. These issues are significant, but not insurmountable.

The electronic collection of source data will be commonplace sooner than later, and
already organizations have shown their ability to overcome this. For this reason, it’s
important to consider a solution that also has the capability to tap directly into a vast
array of data sources, as well as bridge the gap with manual survey or data entry. This
critical future requirement is the reason SAS software’s renowned and scalable data
integration capabilities are inherent to the solution, allowing the entire model structure
to be built and maintained by import. While not the preferred method, it’s important
to note that all model data, including structures and periodic information, also can be
manually entered or surveyed using the Web if automation is not practical.

Analysis and forecasting

A carbon management model wouldn’t be complete without the ability to analyze,
forecast and communicate the results. As mentioned earlier, a good model is
multidimensional. Because we’re using multidimensional modeling techniques, we
can “slice” the information based on any of the dimensions we used in the model.
The figures that follow show a number of common ways to view the information
using advanced analytics.

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The view in Figure 4 shows the ability to explore how facilities, activities or products
contribute to an organization’s footprint (referred to as the “cube explorer view”).
Starting with a selected dimension (e.g., Geography) we can drill “back” through the
assignment structure, selecting any dimension, at any level. Here we can see the
composition of emissions across a given Geography (to a City level), into buildings,
then even the type of GhG. The right-click context menu displays all the drill-though
options. This view is particularly good at answering a variety of exploratory questions
and can facilitate discussion with executive information consumers who may be
familiar with the topic in general, but unclear on the composition of emissions and hot
spots within the organization.

Figure 4. Cube explorer view: User-defined colors can visually represent an asset’s relative
performance, either in total emissions or as an intensity value, such as emissions per square
foot, per energy unit, per person, etc.

With robust software, there are countless other ways to display the model results –
from line graphs to bar charts and tables with exception highlighting (Figure 5). These
views are built into the modeling tool and designed for the experienced modeler to
validate results and develop insights. These insights become the basis for externally
published information to stakeholders. There is often a wide variety of stakeholders,
from executive councils concerned with overall progress, to IT management staff
concerned about energy consumption, to human resources personnel checking on
the progress of commuter programs. Many of these stakeholders are not concerned
with how exactly the models are built, but instead with their specific performance.
This makes SAS for Sustainability Management more appropriately suited for wide
distribution and benchmarking of selective results.

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Figure 5. Integrated analysis: Advanced analysis capabilities are embedded directly into
the modeling interface to enable emissions graphed by time, geography, product or any
other dimension built into the model. Saved reports can be published through BI portals
for widespread communication of the results.

Also significant is the use of the model results, combined with SAS software’s
advanced forecasting ability, to predict where emissions will be in the future. This
includes the use of SAS Forecast Server for comprehensive hierarchy-based
forecasting; for example, to run multilevel forecasts for all assets aggregated across all
geographies to help set organizationwide reduction targets. Also available are custom
what-if forecasting tools that allow you to make changes to business as usual, to
see how those changes may affect your emissions in the future (Figure 6). After all,
most organizations that are becoming more carbon-conscious are doing so because
they have set some sort of reduction target. It makes sense, then, for them to use
appropriate tools to not only model the past, but to confidently make fair estimates of
obtainable goals (rather than the traditional method of throwing darts).

Figure 6. What-if forecasting and sensitivity analysis: As needed, SAS incorporates metrics
from outside the model that may be external drivers of emissions (such as production
demand, energy growth, seasonality, etc.). Sophisticated forecasts allow users to adjust
variables (business NOT as usual) and visualize their impact on emissions forecasts.

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Conclusion
The world is on the cusp of an historic breakthrough in the application of technology
to sustainability management challenges. A resource is a resource, whether it is
economic or natural. For GhG modeling, organizations can adapt methods, skills
and technologies that have already been proven successful for financial analysis and
scenario modeling.

As Esty and Winston (2006) so aptly wrote, “In a marketplace where other points
of competitive differentiation, such as capital or labor costs, are flattening, the
environmental advantage looms larger as a decisive element of business strategy.”
By ignoring the impulse to simply calculate and instead leverage an enterprise-class
business modeling tool, your organization can move beyond compliance and provide
insight to drive increased environmental performance and bottom-line value.

About SAS
SAS is the leader in business analytics software and services, and the largest
independent vendor in the business intelligence market. Through innovative solutions
delivered within an integrated framework, SAS helps customers at more than 45,000
sites improve performance and deliver value by making better decisions faster. Since
1976 SAS has been giving customers around the world THE POWER TO KNOW®.

References
Bras, B., & J. Emblemsvåg. 2001. Activity-Based Cost and Environmental
Management: A Different Approach to the ISO 14000 Compliance. Norwell, MA:
Kluwer Academic Publishers.

Enkvist, P.A., T. Nauclér & J.M. Oppenheim. 2008. “Business Strategies for Climate
Change”. McKinsey Quarterly Online.
http://www.mckinseyquarterly.com/Business_strategies_for_climate_change_2125

Esty, D.C., & A.S. Winston. 2006. Green to Gold: How Smart Companies Use
Environmental Strategy to Innovate, Create Value and Build Competitive Advantage.
New Haven and London, Yale University Press.

The Greenhouse Gas Protocol. “General Technical Accounting Questions”.

http://www.ghgprotocol.org/calculation-tools/faq#directindirect.

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Recommended reading
To learn more about how SAS is addressing sustainability, download the SAS
Corporate Social Responsibility Report at http://www.sas.com/corporate/
corpgovernance/csr-report.pdf.

Appendix 1. Definitions
Scope 1, Scope 2, Scope 3 Emissions: The WRI/WBCSD GHG Protocol identifies
three “scopes” or emissions categories that define a corporate GhG inventory:

• Scope 1: Direct Emissions – an organization’s direct GhG emissions from

equipment and processes owned or directly controlled by the organization.

• Scope 2: Indirect/Energy-Related Emissions – GhG emissions related to

electricity or steam purchased from third parties.

• Scope 3: Indirect/Other Emissions – GhG emissions related to an organization’s

activities, but from sources not owned or controlled by the organization. Scope
3 emissions can include upstream emissions from suppliers and raw materials
industries, downstream emissions from customers or stakeholders that result
from the use of a company’s or organization’s product, or even employee travel.

Greenhouse Gas Protocol: The most widely used international accounting tool for
government and business leaders to understand, quantify and manage greenhouse
gas emissions, born from a decade-long partnership between the World Resources
Institute and the World Business Council for Sustainable Development.

Carbon Footprint: The total set of greenhouse gas emissions caused by an individual
or organization, event or product. It should be expressed in carbon dioxide equivalent
(CO2e). (The Carbon Trust 2007.)

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