The industry is progressively requiring more and more details around carbon emissions and carbon utilization. For years companies in the process industry have been asked to report on the carbon utilized in the resultant asset developed through capital expenditure.
What is the amount of carbon produced in operations?
Now the industry is focused on the carbon utilized in building the asset. The proposed rules would require public companies to disclose information about
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Climate-related risks.
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Greenhouse Gas (GHG) emissions (Scope 1 & 2, and material Scope 3 emissions if relevant)
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Climate-related targets and goals.
The following is a brief criterion for the various GHG emission scopes previously mentioned:
Companies must also describe the methodology used to calculate emissions. Disclosure would be required in registration statements and annual reports, so new and existing public companies would be covered.
For the construction industry, this proposal would impose new emissions disclosure requirements on public companies of all sizes. Large public construction companies would likely already have emissions data, but smaller contractors may lack experience with detailed GHG reporting. This also applies to Owner Capital Project Delivery organizations.
The rules could accelerate emissions tracking and drive more rigorous measurement methods to comply with SEC standards. Owner and Construction firms will need to improve data collection processes to gather emissions data across offices, equipment, projects, and supply chains.
The complex structure of owner capital project delivery organizations, construction companies, and operations with activities shifting between offices, equipment yards, and project sites will pose challenges for the expansion of data collection. Difficulties in tracking emissions from temporary, dispersed job sites rather than centralized facilities also presents itself as an industry concern.
Of course, requirements for reporting GHG are not new and in Europe, actual requirements are already in place. Given the relatively advanced requirements for emissions reporting there, the European Network of Construction Companies for Research and Development (ENCORD) has issued a comprehensive protocol that provides guidance for construction companies on measuring and reporting their greenhouse gas emissions.
The ENCORD measuring and reporting protocol has an overall goal of providing a consistent approach for measuring emissions from construction activities and operations that construction companies influence. While intended for European companies, it sets a standard and a potential future state for U.S. companies once the regulatory environment is sorted out.
The ENCORD protocol identifies key emission sources and maps them to the scopes from the GHG Protocol. It also provides guidance on setting organizational boundaries, determining the significance of emissions, and collecting data for each source. Key emission sources include:
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fuel use
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electricity use
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materials
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waste
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subcontractors
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business travel
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etc.
It recommends construction companies report scope 1 and 2 emissions as a minimum and encourages measuring relevant scope 3 emissions to meet best practices.
Given this landscape, construction companies should start to consider the following 5 protocols as they seek to align with the evolving emission reporting requirements.
In the face of evolving regulatory landscapes in the U.S., the construction industry finds itself with much uncertainty regarding emissions reporting requirements. The SEC's recent proposal underscores this changing dynamic, prompting a significant push towards greater transparency in GHG emissions disclosure for public companies.
More uncertainty remains.
A major issue still looms around, who on a project team will be responsible for collecting, documenting, and reporting on these required carbon numbers? Will this be an expanded Environmental, Health and Safety (EHS) responsibility or will this fall on Project Controls? The industry is calling these carbon numbers an additional project currency. This means, when a cost estimate is developed, each line item in the estimate will also require the carbon number associated with that line item. Project technologies, execution strategies, and overall capital programs will be evaluated on a carbon number similar to capital and life cycle cost analysis.
With this perspective, Pathfinder believes the responsibility for capital project carbon tracking will fall under project controls, adding to the already complex responsibilities of cost and schedule baseline setting, cost and schedule controls, risk, and contingency management, etc.
While Europe already has advanced standards in place, reflected in ENCORD's guidelines, the U.S. is still determining its path. This evolving scenario necessitates that construction companies remain vigilant, constantly updating their understanding of emerging requirements. As the specifics of U.S. regulations come into sharper focus, it is paramount for the industry to proactively adapt and align, ensuring compliance and fostering sustainable construction practices.
ABOUT THE AUTHOR
Ricci Siciliano
Ricci is an Executive Associate for Pathfinder, LLC with a combined 25+ years of experience in Cost Estimating, Data Analysis and Project Management.
rsiciliano@pathfinderinc.com
856-424-7100 x133
