Financed Emissions Example

Here's a theoretical calculation for Scope3 financed emissions and emissions allocation:

Example:

• Utility Company: XYZ Power Inc. (a coal-fired power plant operator)
• Emissions Data: XYZ Power Inc. reports 10 million tons CO2e emissions per year.
• Debt Structure:
  • Bank A: $20 million loan ( senior debt, 10% interest rate)
  • Bank B: $30 million loan (subordinated debt, 12% interest rate)
  • Bondholders: $50 million bonds (8% interest rate)
• Emissions Allocation Method: Proportional allocation based on debt exposure

Step1: Calculate Emissions Intensity

• Emissions Intensity: 10 million tons CO2e / 100 million debt = 100 tons CO2e per 1 million debt

Step2: Calculate Emissions Allocation

• Bank A: 20 million loan / 100 million debt = 20% of emissions
  • Emissions allocation: 20% x 10 million tons CO2e = 2 million tons CO2e
• Bank B: 30 million loan / 100 million debt = 30% of emissions
  • Emissions allocation: 30% x 10 million tons CO2e = 3 million tons CO2e
• Bondholders: 50 million bonds / 100 million debt = 50% of emissions
  • Emissions allocation: 50% x 10 million tons CO2e = 5 million tons CO2e

Step3: Calculate Emissions per $1 million Debt

• Bank A: 2 million tons CO2e / 20 million debt = 100 tons CO2e per 1 million debt
• Bank B: 3 million tons CO2e / 30 million debt = 100 tons CO2e per 1 million debt
• Bondholders: 5 million tons CO2e / 50 million debt = 100 tons CO2e per 1 million debt

Theoretical Emissions Calculation:

LenderDebt ExposureEmissions AllocationEmissions per $1 million DebtBank A$20 million2 million tons CO2e100 tons CO2eBank B$30 million3 million tons CO2e100 tons CO2eBondholders$50 million5 million tons CO2e100 tons CO2e

This example illustrates a simple proportional allocation of emissions based on debt exposure. In practice, emissions allocation may involve more complex calculations and considerations, such as:

• Risk allocation: Weighting emissions allocation based on risk factors, such as loan-to-value (LTV) ratios or credit risk.
• Emissions intensity-based allocation: Allocating emissions based on the emissions intensity of specific debt instruments or investments.

Keep in mind that this is a highly simplified example and actual emissions calculations may involve more complexities and nuances.

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