Base Year Selection and Recalculation: Policy, Threshold and Example

For a company to say "we cut our emissions by 30 percent", two things must be comparable: today's inventory and the base year it is measured against. If the company has meanwhile acquired a plant, sold a business unit or changed its calculation method, an unadjusted base year paints a misleading picture. In the GHG Protocol's words, the aim is to compare "like with like" over time. For the overall framework of an inventory, see our GHG inventory guide.

What is a base year?

In the GHG Protocol Corporate Standard, the base year is the performance reference against which emissions are compared over time. A base year can also be used to set and track a GHG target, in which case it is called the "target base year".

The two concepts should not be confused. The SBTi Net-Zero Standard V2.0 separates them clearly: the inventory base year is the historical reference against which emissions are tracked, while the target base year is the reference year chosen when setting a target, and the two do not have to be the same. The "baseline" used in project-based carbon accounting is something else entirely: it describes the hypothetical situation without the project.

How to choose a base year

The GHG Protocol's rule is short: a company must choose a base year for which verifiable emissions data are available and explain why it chose that year. The standard's guidance:

• The earliest relevant year with reliable data. Some organisations have chosen 1990 for consistency with Kyoto, but the standard notes that reliable, verifiable data for years that far back are very hard to find.
• A single year or a multi-year average. Most companies choose a single year. An average of several consecutive years can also be used to smooth out unusual fluctuations; the standard gives the example of the UK emissions trading scheme, which used the 1998-2000 average as its reference.
• Fixed or rolling base year. A company that grows steadily through acquisitions may adopt a policy of moving its base year forward at regular intervals. A fixed base year allows comparison over a longer period; according to the standard, most emissions trading and registry programmes require a fixed base year.
• External programme rules. If the company is subject to an external programme, that programme's rules govern base year selection and recalculation.

For an SBTi target the rule is different: for near-term targets, V2.0 asks companies to choose the most recent year with comprehensive data as the target base year and to renew the base year in each new target cycle. A justified exception is allowed if the most recent year does not reflect the company's structure. For details of the SBTi rules, see our SBTi Net-Zero Standard V2 guide.

A situation we often see in Türkiye: companies that prepared their first inventory for 2019 find that their 2020 and 2021 data are not representative because of the pandemic. In such cases, putting the base year decision and its justification in writing answers the questions that will come later.

Recalculation policy

The GHG Protocol requires a company to develop a base year emissions recalculation policy and to state clearly the basis for any recalculation. Where applicable, the policy must include a significance threshold. Setting and disclosing the threshold is the company's responsibility; confirming that the company has followed its policy is the verifier's.

Once set, the policy is applied consistently. The standard is explicit: recalculation is carried out for changes that increase emissions as well as for changes that decrease them. A company cannot adjust only in the direction that suits it.

A good policy covers at least the following:

1. The types of event that trigger recalculation
2. The significance threshold, and whether it is assessed per scope or on the total
3. That the threshold is assessed cumulatively
4. How changes occurring mid-year are handled
5. The backcasting method to be used where data are missing
6. What is disclosed in the report

What triggers recalculation

Under the GHG Protocol, recalculation is required when the following have a significant impact on base year emissions:

1. Structural changes. The transfer of ownership or control of emission-generating activities from one company to another: mergers, acquisitions, divestments, and outsourcing or insourcing of activities. The reasoning is simple: buying or selling does not change the emissions released to the atmosphere, it only moves them from one company's inventory to another's. A single small change may be insignificant, but the cumulative effect of many small changes can be significant.

2. Changes in methodology or improvements in accuracy. For example, Scope 2 calculated with the national grid factor in the first year and with more accurate, supplier-specific factors in later years. If the difference is significant, historical data are recalculated using the new method. If the more accurate data cannot be applied to past years, either backcasting is used or the change is disclosed in the report without recalculation. The standard recommends repeating this disclosure every year.

3. Errors. Discovery of a significant error, or of several errors that are significant in aggregate.

The Scope 3 Standard adds one item to this list: changes in the categories or activities included in the Scope 3 inventory. Whether adding a new category requires recalculation depends on whether the company has a single Scope 3 target or separate targets by category. For use of sold products (Category 11), updating the base year is recommended when product use assumptions change significantly.

What does not trigger recalculation

• Organic growth or decline. Increases or decreases in production, changes in product mix, and the opening or closing of the company's own units. These genuinely change emissions in the atmosphere, so they must show up in the report.
• Changes in factors or data that reflect a real change. A change of fuel type or technology. Converting a coal boiler to natural gas is a reduction, not a methodology change.
• Facilities that did not exist in the base year. Acquiring a facility built after the base year, or divesting an activity that did not exist in the base year, does not change the base year. Historical data can be adjusted back only as far as the year the facility existed.
• Outsourcing reported in Scope 2 or Scope 3. If the company already reports the emissions of the outsourced activity in Scope 2 or 3, for example after shutting down its own steam generation and starting to buy steam, no recalculation is needed. But a change that shifts emissions from Scope 1 into an unreported Scope 3, such as outsourcing product transport while Scope 3 is not being reported, does trigger recalculation. If there are separate base years or targets for the scopes, outsourcing must be assessed in every case.

Significance threshold: what percentage?

The GHG Protocol Corporate Standard does not recommend a specific percentage for what counts as "significant". As an example, it cites the California Climate Action Registry's 10 percent threshold, calculated cumulatively from the time the base year is set. The Scope 3 Standard likewise gives the example that a significant change could be defined as one that changes base year emissions by at least 10 percent.

The SBTi Net-Zero Standard V2.0 is stricter and binding. For the target base year:

• A 5 percent significance threshold applies. The threshold is exceeded when the cumulative effect of identified changes leads to a change of 5 percent or more in the base year total of any scope (Scope 1, 2 or 3).
• In Scope 3, it is also assessed whether the changes cause a category to newly meet, or to stop meeting, the 5 percent threshold for target coverage.
• Boundary changes, changes in consolidation approach and shifts of emissions between scopes or between Scope 3 categories are assessed continuously throughout the target period; methodology changes, data quality improvements and errors are assessed at the end of the cycle.
• If the threshold is exceeded, the base year inventory and related metrics are recalculated, submitted to the SBTi and, for Category A companies, independently assured to at least a limited assurance level.

Our practical advice: any company that may set an SBTi target should adopt the 5 percent threshold and per-scope assessment in its inventory policy as well. Managing two base year series with two different thresholds creates confusion at verification.

Timing

If a significant structural change occurs mid-year, the base year is recalculated for the whole year, not only for the period after the change. This avoids having to adjust a second time the following year. The current year is also calculated for the whole year so that it is consistent with the base year. If the recalculation cannot be done that year because the acquired company's data are incomplete, it can be deferred to the following year.

Worked example

The company and all values below are illustrative. The company's policy: a cumulative 5 percent threshold per scope, aligned with SBTi V2.0.

Base year (2022), originally reported values: Scope 1 = 60,000 tCO₂e, Scope 2 = 40,000 tCO₂e.

Because the cumulative effect in Scope 1 (2,400 + 1,500 = 3,900 tCO₂e, or 6.5 percent of 60,000) exceeds 5 percent, the base year inventory is recalculated. The recalculation incorporates all changes identified up to that point together:

There are two lessons in this example. First, an acquisition that stayed below the threshold on its own crossed it once combined with a later error; this is why cumulative tracking is essential. Second, the closure of facility Z and the fuel switch did not change the base year; these are real reductions and must appear in the report as reductions.

The GHG Protocol's own examples follow the same logic: when Company Gamma acquires a facility that emitted 15 tonnes of CO₂ in the base year, it raises its base year from 50 to 65 tonnes; when Company Beta sells a unit that emitted 25 tonnes in the base year, it lowers its base year from 75 to 50 tonnes, revealing that the apparent "reduction" actually came from a divestment.

What to disclose in the report

According to the GHG Protocol, the report must include the chosen base year and an emissions profile consistent with the recalculation policy, and must explain the context of significant changes that triggered recalculation (acquisition, divestment, outsourcing, boundary or methodology change). Optional but recommended information:

• Recalculated data for all years between the base year and the reporting year
• The original (unadjusted) values reported in previous years; the standard notes that this adds transparency because it shows how the company's structure has evolved
• The reasons for emission changes that did not trigger recalculation (efficiency, process changes, closures)

Record keeping

Base year data are something a verifier may look at again every year. The GHG Protocol recommends that a company assessing performance against a particular base year keep all historical records that support its base year data. We recommend that companies keep a separate "locked" folder for the base year: invoices, meter readings, factor sets, boundary decisions and a dated change note for each recalculation.

A base year policy should be written together with your organisational boundary decisions; for details, see our organisational and operational boundaries guide. At Alalëa, we set up base year selection and the recalculation policy together with the inventory, designed from the start to meet SBTi and verification requirements. For details, see our carbon footprint service.