Goal Setting Under the Climate Leaders Program

Under the Climate Leaders program, EPA followed a specific process for establishing goals that may still be of value to organizations interested is setting entity-wide GHG reduction targets. In order to address the unique set of emissions sources and reduction opportunities that every company had, EPA offered its partners flexibility in goal setting within a specified timeline. Once a Partner had completed an initial base year greenhouse gas (GHG) inventory, EPA worked closely with the Partner to set an individualized GHG reduction goal. Starting in 2010, EPA modified its approach to goal setting. Under this approach, each goal was required to be:

Corporate-wide (including at least all U.S. operations).
Based on the most recent base year for which data are available.
Achieved over four to six years. Longer goal periods were acceptable for some Partners with unique capital planning cycles.
Expressed as an absolute GHG reduction.
Aggressive compared to the projected GHG performance for the Partner’s sector.

All Partners included direct emissions from stationary and mobile fuel consumption, process emissions, fugitive emissions, and indirect emissions from electricity use in their goal. In addition, Climate Leaders Partners could expand their inventory boundaries to include any of the following optional activities in their reduction goal:

Employee commuting
Business travel
Product transport
International operations
Offset investments (e.g., sequestration, landfill methane)
Renewable energy

The goal setting timeline differed for Partners and Small Business Network Members. Partners were expected to complete base year reporting within one year of joining the program and work with EPA in the subsequent year to establish a GHG emission reduction goal within 18 months of joining the program. Small Business Network Members submitted base year reporting and set a goal both within one year of joining the program. Small Business Network Members had to set a goal to reduce total emissions by a minimum of 5 percent achieved in 5 years or less. If a small business chose to set a carbon neutral goal, it must have included a minimum of one Scope 3 emissions source and had to sustain carbon neutrality for a minimum of 3 years after setting a base year.

Goal Evaluation Considerations

Partners represented a diverse group of companies (PDF) (4 pp, 959K, About PDF), including utilities, manufacturers, and service-oriented businesses. What EPA considered an aggressive goal varied for different sectors and for different companies for several reasons:

Sector Factors: Historically, GHG intensity tends to decrease over time in most sectors as equipment is replaced with newer, more efficient technologies. This trend can be rapid in sectors where capital stock turns over quickly, and much slower in traditional manufacturing sectors. The rate of intensity improvement can also be affected by the growth rate of the sector.
Company Factors: Companies within the same sector can have different GHG emissions sources and a wide range of reduction opportunities. In addition, some Partners had undertaken GHG reduction activities prior to joining Climate Leaders. These actions were taken into consideration when a Partner’s proposed goal was evaluated.

Goal Evaluation Methodology

EPA individually evaluated each proposed GHG reduction goal through the following process:

The goal was evaluated against a projected benchmark GHG emissions improvement rate for the Partner’s sector. In cases where a Partner operated in multiple sectors, a weighted average was used. The sector benchmark was a combination of projected average energy intensity improvement and any projected process-related emissions intensity changes. EPA expected every goal to be significantly better than the projected benchmark performance for the Partner’s sector.
EPA also considered a Partner’s current emissions intensity when evaluating its GHG reduction goal. By comparing the Partner’s current performance to its sector, EPA recognized that many companies had already made significant reductions in their GHG emissions or GHG intensity. Companies that were already very efficient for their sector would not be expected to commit to a reduction goal that was as aggressive as companies that were less efficient than their sector average.

Defining Projected Sector Benchmarks for GHG Emissions Performance

The first step in evaluating a Partner’s goal was to create a benchmark for comparison. EPA used the following models to help develop an appropriate benchmark:

For commercial and industrial companies, EPA used both the U.S. Department of Energy’s National Energy Modeling System and the Bureau of Labor Statistics’ forecast input/output tables for the U.S. economy to project benchmark energy intensity improvement by sector. In cases where emissions from industrial processes were a significant source of a Partner’s GHG inventory (such as cement or semiconductor manufacturing), EPA performed additional analysis based on sector-specific sources of process-related emissions data and projections. These data were then combined with the projected energy intensity improvement to develop a benchmark GHG emissions improvement rate for the Partner’s sector.
To project GHG emissions from electric generators, EPA used the Integrated Planning Model (IPM) developed by ICF International Inc.

The Shift to Absolute Goals Only

From 2002 to 2009, EPA allowed goals to be expressed as either absolute GHG emissions reductions or as decreases in GHG intensity. Absolute GHG reduction goals compare total GHG emissions in the goal year to those in a base year. GHG intensity goals allow a company to account for increases or decreases in production over time. These two approaches are not mutually exclusive. Each has advantages and disadvantages (see Comparing Absolute and Intensity Targets), and EPA encouraged Partners to set both types of goals in parallel. Starting in 2010, however, EPA required all new goals set under the program to be absolute goals. EPA made this shift in consultation with the Partners and viewed the shift as being consistent with the aims of the Climate Leaders Program and its improvement over time.

For Partners that chose to set intensity goals in parallel to their absolute goals, Climate Leaders recommended normalization factors based on physical values (e.g., tons of product produced), which tend to track year-to-year changes in emissions intensity more accurately than economic values such as revenue.

Comparing Absolute and Intensity Targets

Setting a "Carbon Neutral" Goal

In addition to absolute and intensity-based GHG reduction goals, EPA allowed goals to be expressed as a commitment to be "carbon neutral" at the corporate level, which was a commitment to achieve and maintain net zero GHG emissions in a company's operations (rather than, e.g., products or events). Carbon neutral goals met the same basic criteria as all Climate Leaders goals (based on a recent base year, forward-looking, and aggressive for its sector). Credible carbon neutral goals included the following components:

Develop a robust GHG inventory and inventory management plan in accordance with Climate Leaders guidance. In addition to calculating core U.S.-based corporate-wide direct and indirect emissions, Companies announcing a carbon neutral goal were required to expand their GHG inventory boundary to include at least one optional emissions source, such as employee commuting, employee business travel, product transport, or international operations.
Achieve internal GHG reductions. Companies announcing a carbon neutral goal were expected to commit to implementing internal GHG reduction measures, such as energy efficiency projects, onsite renewable energy, or process/fugitive emissions reductions that were aggressive compared to the expected GHG performance for the company’s sector.
Purchase green power, renewable energy certificates (RECs), and/or offsets. Purchasing Green Power/RECs is a credible strategy for reducing the emissions associated with electricity use. Project-based reductions (GHG offsets) could be used to offset the remaining emissions from direct, other indirect, and optional emissions sources. Companies could purchase green power, RECs, or offsets that met Climate Leaders guidelines for the portion of the inventory that was not reduced through internal projects. The procedures and controls for procuring credible, high-quality green power, RECs, and offsets was required to be documented in the company's Inventory Management Plan.

Offsets and Green Power Purchases Guidance

Reporting and Goal Tracking

Climate Leaders Partners reported annual data on GHG emissions and external purchases and projects to EPA in order to document progress towards their reduction goal. Partners with a global goal reported domestic and international emissions separately as well as reporting a global total. This system allowed EPA to ensure that Partners were demonstrating leadership through achieving a portion of their GHG reductions in the United States.

Reporting Requirements

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Requirements for Achieving A GHG reduction Goal

Criteria for Goal Achievement Recognition:
There are several criteria that Partners were required to meet prior to EPA’s formal recognition of the achievement of their goal:

The Partner’s base year reporting requirements for the program should have been met. EPA must have received and approved a base year Annual Inventory Summary Form. For companies not submitting a 3rd party verification report, EPA must also have received and approved an Inventory Management Plan (IMP) and have completed an on-site IMP Review for the Partner.
EPA must have received an Annual Inventory Summary Form with comprehensive, high-quality data for each year beginning with the base year and continuing through the negotiated goal year.
The annual inventory data, including both internal reductions and any external RECs, Green Power, or offsets purchases, and any updates to the IMP were reviewed to confirm achievement of the goal. Partners using the 3rd party verification reporting option should have had goal year data verified. Once Partners achieved their initial Climate Leaders goal, EPA worked with them to set a new reduction goal.

In addition, there were several criteria that Partners were required to meet prior to EPA’s recognition for early achievement of a Climate Leaders GHG reduction goal:

The Partner was required to submit a list of significant projects or measures that were undertaken to achieve the Partner’s GHG reduction goal, in order to demonstrate the level of commitment to GHG reductions needed to achieve the goal prior to the goal year.
The Partner was required to announce a new, aggressive GHG reduction goal that satisfied all standard Climate Leaders goal requirements prior to or concurrent with recognition of the early achievement of the previous goal.