Introduction
In this article we will cover the carbon accounting basics. In essence carbon accounting provides a snapshot of all the greenhouse gases (GHGs) emitted by a company. It includes the emission sources and their quantity.
Carbon accounting provides companies with a strategic view of their carbon dependency and resulting business risks.
In this post we will look into the basics of carbon accounting and existing carbon accounting methodologies, why carbon accounting matters, and what to do with a corporate carbon emissions report.
Carbon accounting, or “greenhouse gas accounting”, refers to the systematic methodologies, measurement, and monitoring used to evaluate and quantify how much carbon dioxide equivalents (CO2e) an entity or activity emits. Plan A
Carbon Accounting Basics
The goal of carbon accounting is to measure, track, and report carbon dioxide (CO2) emissions and other GHG emissions from an activity or business. To simplify the process, GHG emissions are often measured in CO2 equivalent. This method converts the emissions of other gases to their equivalent an CO2e that would achieve the same global warming potential (GWP).
Most methodologies separate GHG emissions into three categories called emissions scopes. Emissions scopes help companies identify the source of carbon emissions. These scopes are:
- Scope 1: Direct emissions from owned or controlled sources (e.g., company vehicles, factory emissions).
- Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling.
- Scope 3: All other indirect emissions in a company’s value chain (e.g., employee travel, product use).
Scope 3 emissions usually represent up to 90% of a company’s carbon emissions. Supplier emissions, called Purchased Goods and Services emissions are often the main contributors to Scope 3 emissions. For this reason, reducing emissions is a collaborative game.
Once the emission source is identified and categorised, companies can use average data or, even better, business activity data to estimate the emissions produced by an emission source. Then, each business activity is multiplied by an Emission Factor to compute total emissions.
Emission Factors are coefficients converting business activity data into CO2 equivalent emissions. Check out our post on Emission Factors to learn more about these wonderful tools.
Carbon accounting methodologies
As carbon accounting has gained momentum and states have taken increasing interest in carbon emission regulations, several carbon accounting methodologies have been developed. The most popular carbon accounting methodologies are:
- The Greenhouse Gas (GHG) Protocol: Provides comprehensive global standardised frameworks to measure and manage GHG emissions. This methodology is favoured by businesses.
- ISO 14064: International standard for quantifying, monitoring, and reporting GHG emissions.
- The Bilan Carbon methodology: It is essentially the French version of the GHG Protocol.
- The Partnership for Carbon Accounting Financials (PCAF): an adaptation of the GHG Protocol tailored to financial companies, taking investment emissions into account. This one is most useful for assessing Asset Manager emissions, Bank emissions, and Investment emissions.
Choosing the right carbon accounting methodology will depend on your specific business need. The most important thing to keep in mind is to be consistent in applying the same methodology year on year.
The carbon accounting process
All of the above carbon accounting methodologies will highlight a similar 4-step process.
- Data Collection: Gather data on the company’s business activity data such as energy use, transportation, production processes, and other activities.
- Emission Calculation: Use emission factors to calculate the total GHG emissions from the collected data.
- Reporting: Present the findings in a clear and standardised format, often following guidelines like the Greenhouse Gas Protocol or ISO 14064.
- Verification (optional): Have the data and calculations reviewed by an independent third party to ensure accuracy and credibility. This step carb be mandatory when regulations require companies to publish their carbon emissions.
Benefits of Carbon Accounting
- Strategic Planning: Helps businesses develop strategies to reduce emissions and enhance sustainability.
- Cost Savings: Identifying inefficient practices lead to reduced energy costs.
- Enhanced Reputation: Demonstrates a commitment to the environment, improves public image, customer trust, and avoids greenwashing allegations
- Risk Management: Helps anticipate and mitigate risks associated with climate change and regulatory changes.
- Cost of carbon: Protects your business against the rising cost of carbon. It is expected to rise as carbon emission allowances will rarefy.
Beyond these benefits, carbon accounting highlights business dependencies to rarefying resources such as fuel, minerals, and other fossil-energy dependent activities and resources. The business activities emitting the most GHGs will be the one subject to the highest stress in the future as fossil energy becomes rarer and regulations around authorised carbon emissions (carbon allowances) become stricter.
Taking stock of these carbon emission dependencies will enable business to take corrective action early and gain an edge on their competition.
Getting Started with Carbon Accounting
For beginners, here are some steps to get started with carbon accounting:
- Learn the Basics: Understand the key concepts, scopes, and processes involved in carbon accounting. Check our resources on carbon topics to get started.
- Use Online Resources: Many free resources and calculators are available to help estimate your carbon footprint.
- Consult Experts: For businesses, consulting with environmental experts or hiring a sustainability officer can provide valuable guidance.
- Start Small: Begin with easy-to-measure activities like energy use and gradually expand to more complex areas.
Conclusion
Carbon accounting is a vital practice in the fight against climate change. By accurately measuring and managing emissions, individuals and businesses can play a significant role in creating a sustainable future. Whether you’re a small business owner, a corporate executive, or an environmentally conscious individual, understanding carbon accounting is a crucial step toward reducing your impact on the planet. Start today, and be part of the solution for a greener tomorrow.
Carbon emissions is the future standard against which business performance will be measured. While businesses with high social impact might be permitted to operate with high emissions, others will be subject to stricter scrutiny. As we get closer to the Net Zero emissions world envisioned in 2050, only businesses that have prepared to operate with minimal emissions will be deemed efficient enough to continue.