Using AWS to satisfy carbon reporting requirements

The science is clear. Significant carbon emission reductions are needed to avoid the most severe effects of climate change, restore biodiversity, protect vulnerable communities, and make sure of a habitable planet for future generations. Amazon founded The Climate Pledge in 2019, and since then we have made strides toward our goal of reaching net zero by 2040. In our 2023 Sustainability Report, we saw a 3% reduction in absolute carbon emissions, and a 13% reduction in carbon intensity when compared to 2022. We are excited about this progress, and even more excited about the things to come (you can track our progress here).

According to the International Energy Agency (IEA), total energy-related CO2 emissions increased by 1.1% and CO2 emissions reached a new record high of 37.4 Gt in 2023. This CO2 emissions growth is slowed down by growing clean energy deployment due to clean energy regulatory policies and tax incentives. The industrial sector accounts for nearly 24% of global CO2 emission, underscoring the importance of precise carbon tracking for industrial process.

How do organizations come up with the numbers in the preceding paragraphs (for example, 37.4 Gt CO2 or XX% change)? It turns out that it’s a challenge for many organizations. Effective carbon measurement involves monitoring and reporting carbon emissions across processes from production to transportation and waste management. Precision and accuracy are essential for regulatory compliance, qualifying for tax credits, and maintaining reputations with environmentally conscious stakeholders. Verification and demonstration of compliance comes with many hurdles associated with the complexity of supply chains, data integration and standardization challenges, emerging frameworks and regulations, and other technological barriers specific to each organization.

Many industries, and particularly manufacturing and energy, have extensive supply chains that span multiple countries and involve numerous stakeholders. Gathering precise data on emissions at each stage is complex and often inconsistent. For example, the automotive industry relies on a vast network of suppliers, each contributing to the final carbon footprint of a vehicle. Each supplier may use different processes for reporting their emissions and each enterprise may use disparate systems for data collection, resulting in fragmented, inaccurate, inconsistent, or incomplete information. Integrating these data sources to create a comprehensive picture of total emissions is a significant challenge.

A survey by the Carbon Disclosure Project (CDP) found that only 38% of companies have comprehensive data integration for carbon tracking. Furthermore, there are complexities associated with identifying when and where reporting requirements apply across different frameworks and regulations. This leads to inconsistent interpretations of applicability of standards, and the inconsistency can lead to varied approaches to reporting across industries and countries, complicating compliance and transparency efforts. The greenhouse gas protocol is a widely used standard, but its adoption varies across sectors. Assuming that organizations can gather their data and identify the appropriate frameworks to use, there is still the challenge of making sure that calculations can stand on their own against verification and audit processes. Companies must adhere to local and international regulations, which can be both costly and time-consuming.

The content that follows describes some of the minimum requirements and opportunities that can be satisfied/realized by industrial customers through effective carbon measurement.

EU and US regulatory compliance and available tax credits

Global regulatory requirements have changed from voluntary to mandatory. In Europe, the EU’s Carbon Border Adjustment Mechanism (CBAM) and Corporate Sustainability Reporting Directive (CSRD) are two significant regulatory frameworks aimed at addressing environmental sustainability and making sure of transparency in corporate reporting. CBAM is designed to prevent carbon leakage by imposing a carbon price on imports of certain goods from non-EU countries, making sure that EU climate goals are not undermined by shifting production to regions with less stringent environmental policies. This mechanism covers sectors with high carbon emissions. The enterprises must report the carbon emissions embedded in the goods they import, and purchase CBAM certificates to cover these emissions. Compliance requirements start with the reporting obligations from 2023 and will eventually include financial obligations from 2026 as the system phases in. These enterprises need to maintain accurate records of carbon emissions associated with their supply chain and products.

CSRD aims to enhance and standardize sustainability reporting across the EU, making sure that companies provide consistent, comparable, and reliable environmental, social, and governance (ESG) information. This applies to all large companies (such as listed SMEs) operating within the EU, defined by criteria such as number of employees, revenue, and balance sheet total. The enterprises must disclose detailed information on their sustainability policies, risks, and performance, such as impacts on the environment, human-rights, social standards, and anti-corruption measures. Reports must align with the European Sustainability Reporting Standards (ESRS), making sure of comparability and consistency. Sustainability reports must be audited, making sure of accuracy and reliability. Implementation is phased, starting from 2024 for large companies, with other companies following in subsequent years. In summary, CBAM focuses on carbon pricing for imports, necessitating that companies account for and offset the carbon emissions for imported goods while CSRD mandates comprehensive reporting for large companies, making sure of transparency in their environment and social impact. Both regulations aim to promote sustainability and reduce environmental impacts, with increasing obligations and compliance requirements for enterprises operating within or trading with the EU.

In the United States, The Inflation Reduction Act (IRA) of 2022 represents a significant investment in the American economy, energy security, and climate action. It aims to reduce greenhouse gas emissions, promote clean energy technologies, and enhance energy efficiency through substantial tax incentives and funding. The act benefits enterprises involved in clean energy production, manufacturing, and deployment across sectors such as renewable energy, hydrogen production, carbon capture and sequestration, and energy storage.

Key tax credits introduced or modified by the IRA include the Clean Hydrogen Production Tax Credit (45V), the Carbon Capture and Sequestration Tax Credit (45Q), and the Clean Energy Production Credit (45Y). The 45V credit incentivizes clean hydrogen production, offering $0.60 to $3.00 per kilogram based on carbon intensity. The 45Q credit promotes carbon capture and sequestration, providing up to $85 per metric ton of CO2 sequestered. Lastly, the 45Y credit encourages clean electricity generation, offering up to 2.5 cents per kilowatt-hour. These credits, available for facilities beginning construction before 2033 (45V and 45Q) or placed in service after 2024 (45Y), aim to accelerate the transition to a low-carbon economy and enhance America’s energy independence.

California passed a major climate bill—California’s Senate Bill 253 (SB 253)—that will alter how companies do business. It broadens the information investors and consumers can access concerning a company’s sustainability posture. SB 253 is the first law in the U.S. mandating that companies report on their greenhouse gas emissions across scopes 1, 2, and 3. Organizations need to have solutions in place to report their carbon intensity and emission to file their tax credits. Accurate tracking and verification of captured carbon are critical to claiming this credit. Misreporting can lead to audits and disqualification from the program. Companies must accurately track and verify emissions reduction to qualify, highlighting the need for precise carbon tracking systems. Therefore, it becomes important for an organization to develop modern and scalable solutions to meet the business requirements that come with a clean energy transition.

These solutions should accurately track production volumes, emissions data, and other relevant metrics specific to their operations. Companies typically need to maintain detailed records of their production processes, such as energy inputs, outputs, and associated carbon emissions. Enterprises often need to engage third-party verification services to certify their compliance with the regulations and validate their emission reduction claims. This may involve regular audits and inspections of production facilities. Companies must also prepare to file more complex annual tax returns, incorporating the newly available credits and providing substantial supporting evidence. This often necessitates implementing advanced data collection and management systems capable of handling diverse data sources and complex supply chains. To make sure of data credibility and meet regulatory requirements, many enterprises are exploring blockchain or other immutable record-keeping technologies. Overall, companies need to invest in resilient, performant, and scalable solutions that can adapt to evolving regulatory requirements while efficiently managing the increased complexity of data collection, verification, and reporting.

How can AWS help industrial customers?

As the landscape of energy regulations and tax incentives evolves, enterprises face increasing complexity in compliance and reporting requirements. The introduction of new clean energy tax credits has created both opportunities and challenges for organizations across various sectors. These credits offer significant financial benefits but also demand robust systems for data collection, management, and reporting. Amazon Web Services (AWS) is uniquely positioned to address these emerging needs, offering a comprehensive suite of cloud solutions that can help enterprises navigate the intricacies of regulatory compliance and tax credit optimization.

AWS provides a powerful platform for building resilient, scalable, and secure systems that can handle the diverse data sources and complex reporting requirements associated with new energy incentives. From advanced data analytics and machine learning (ML) capabilities to blockchain-based solutions for immutable record-keeping, AWS offers the tools and services necessary to create comprehensive compliance ecosystems. These solutions can streamline the process of tracking production volumes, emissions data, and other critical metrics, while also facilitating third-party verification and audit processes. The AWS cloud infrastructure allows enterprises to not only meet their regulatory obligations but also gain valuable insights to optimize their operations and maximize the benefits of available tax credits. As we explore the potential applications of AWS in this space, it becomes clear that cloud technology will play a crucial role in helping organizations adapt to and thrive within the new regulatory landscape of clean energy incentives.

This architecture enables a comprehensive decarbonization tracking system where users authenticate through Amazon Cognito to access the platform. They interact with the system through GraphQL and REST APIs, which serve as the interface between users and the underlying blockchain infrastructure. Data flows from user operations through AWS AppSync to either Amazon DynamoDB for off-chain storage of supplementary documents and metadata, or through Amazon API Gateway and AWS Lambda functions to the Hyperledger Fabric blockchain running on Amazon Elastic Container Service (Amazon ECS)/Amazon Elastic Kubernetes Service (Amazon EKS) clusters. The blockchain immutably records carbon offset transactions, credit issuances, and retirement events. Periodically, Amazon EventBridge triggers Lambda functions that generate reports by fetching data from both the blockchain and off-chain storage, with notifications sent to subscribers through AppSync. This hybrid architecture balances the immutability and transparency of blockchain with the performance and cost-efficiency of traditional databases, creating a reliable system for carbon credit verification and trading.

Conclusion

In conclusion, the transition to a low-carbon economy presents both challenges and opportunities for enterprises across industries. The complex landscape of regulatory compliance and tax incentives necessitates that organizations adopt solutions for carbon measurement, reporting, and verification. The comprehensive suite of cloud services from AWS offers a powerful foundation for building these critical systems, enabling businesses to not only meet their regulatory obligations but also optimize their operations and maximize available tax benefits.

The advanced data analytics, ML capabilities, and secure infrastructure of AWS allow companies to overcome the hurdles of complex supply chains, data integration challenges, and evolving regulatory frameworks. This technology-driven approach not only makes sure of compliance but also provides valuable insights that can drive strategic decision-making and foster innovation in sustainability practices.

As we move forward, the role of cloud technology in facilitating the clean energy transition will only grow in importance. Organizations that embrace these solutions now will be well-positioned to lead in their industries, effectively manage their environmental impact, and contribute meaningfully to global climate goals. The journey toward a sustainable future is complex, but with the right tools and partners, it is a challenge that businesses can meet with confidence and success.

Next steps

AWS is helping users all over the world to solve their sustainability data problems by using an ecosystem of cloud products, accelerators, and solutions. If you are interested in solving sustainability problems with AWS, then we encourage you to check out our AWS Solutions Library for a list of AWS Sustainability Solutions Guidance and Partner Solutions. If you have specific sustainability data challenges that your organization is trying to solve, then reach out for a consultation.