Companies Participating in Greenhouse Gas Registry Claim Emissions Reductions but Evidence Shows Actual Increases, Erb Institute Study Finds

ANN ARBOR, Mich.--(BUSINESS WIRE)--The Erb Institute for Global Sustainable Enterprise at the University of Michigan today announced the results of the first study to focus on whether companies who voluntarily participate in the U.S. Department of Energy’s program to report reductions of greenhouse gas (GHG) emissions actually reduce GHG in the amounts claimed. The findings supported what many experts had long suspected – that participating companies tend to have increased emissions but report reductions. In addition, the study found that non-participating companies tend to have decreased emissions over time, relative to a 1995 baseline.

“These companies did not hesitate to take advantage of the loose reporting rules. This proves that, without more rigorous requirements, when presented with the opportunity, companies will greenwash.”

“The problem is not that companies are lying but rather that they are taking advantage of lax and inconsistent reporting rules,” said Thomas P. Lyon, Ph.D., director of the Erb Institute and author, with doctoral student Eun-Hee Kim, of the study. “Until these reporting loopholes are closed, the registry runs the risk of merely being a greenwashing tool for companies worried about their image.”

The DOE’s registry was created in accordance with section 1605b of the Energy Policy Act (1992). Company participation is voluntary. The Erb study, begun in 2005, focused on eight years of data reported to the registry by the electric utilities industry, the sector that emits the greatest amount of greenhouse gases. Coincidentally, this sector is required to report detailed fuel-use data to the Federal Energy Regulatory Commission (FERC). By comparing the data reported to the registry with the data reported to FERC, researchers were able to evaluate the reported GHG reductions against actual reductions. According to the study results, of the 550 reports analyzed in the study, 323, or 61 percent, had actual increases in emissions rather than decreases.

Lyon pointed out that examples of lax registry reporting rules include the ability of companies to choose whether to report reductions at the company level or the level of individual projects. In addition, voluntary reporters can select baseline emissions that are historical or hypothetical and, when historical, can choose any year between 1987 and 1990, or simply calculate an average of those years. Thus, participating companies are able to optimize their results without violating the reporting rules and criteria.

Lyon also said that detailed statistical analyses revealed the following about the participating utilities:

• Firms tend to be large, both in terms of revenues and carbon dioxide emissions
• They have low capacity factors (i.e., utilization rates)
• Firms face growing demand
• They tend to be located in states with large numbers of environmental group members per capita

Non-participants tend to face less external pressure from environmental groups, in part because they are smaller and not growing rapidly.

“Our research suggests that firms are more likely to participate when they have low-cost opportunities to cut emissions and the pressure to participate is higher,” said Lyon. “These companies did not hesitate to take advantage of the loose reporting rules. This proves that, without more rigorous requirements, when presented with the opportunity, companies will greenwash.”

In response to criticism, in April 2006, the DOE issued a revised set of guidelines for the program. Under the new rules, participants must now report company-wide reductions rather than reporting on only the most favorable projects. Data reported under these new guidelines are still being tabulated and researchers do not yet have access to it. While these changes will make it more difficult for companies to use voluntary reporting of GHG as a form of greenwash, mandatory reporting with consistent standards across all companies is the only real solution to this problem, said Lyon.

About the Frederick A. and Barbara M. Erb Institute for Global Sustainable Enterprise

Created in 1996, the Erb Institute for Global Sustainable Enterprise is a 50-50 partnership between the School of Natural Resources and Environment and the Stephen M. Ross School of Business at the University of Michigan. The Institute fosters professional education, public outreach and scientific scholarship supportive of the transition to sustainability – that is, meeting the fundamental needs of a growing human population in an equitable manner within the means of nature. Utilizing a collaborative approach, the Institute helps business, government and civil society organizations to achieve meaningful progress toward sustainability. Its mission is be a premier source of knowledge and leadership for the achievement of environmentally, economically and socially sustainable development and enterprise.