What is carbon accounting?
Carbon accounting is “the process of quantifying the number of Greenhouse Gas (GHG) produced directly and indirectly from a businesses or organization’s activities within a set of boundaries”. It also “allows organizations to quantify their GHG emissions, understand their climate impact and set goals to reduce their emissions.”[1]
In other words, once a company’s carbon footprint has been calculated, companies can identify the sources of emissions and can select these areas to focus on developing specific strategies to reduce these emissions. These strategies are summarised in an emissions reduction plan. This plan consists of “corrective and proactive measures to reduce and offset emissions.”[2]
In order to correctly calculate the carbon footprint to establish these strategies and ultimately an action plan, it is important to collect and analyse the data correctly, “to inform strategy and tactics and to deliver robust and verifiable reporting.”[3] This requires companies to “engage teams, establish robust governance processes for sustainability and energy data and use technology to derive insights that will accelerate progress towards decarbonization goals and reap the rewards of a low-carbon future.” [4]
Why is it important?
In general, carbon accounting is one of the most powerful levers for decarbonisation, which is a crucial step in reducing global emissions. Reducing emissions is fundamental to achieving the international climate goals, set out in the Paris Agreement, to limit global warming to “well below 2°C, and preferably below 1.5°C”.[5]
For businesses, carbon accounting is essential to get all the data on their emissions, so that they can “identify where to focus emissions reduction efforts, develop a strategy and track the impact of emissions reduction initiatives.” Most organisations have undertaken emissions reduction efforts to achieve net-zero goals by improving energy efficiency and adopting renewable energy. The data they collect through carbon accounting helps them achieve these goals. In addition, carbon accounting determines the environmental impact of businesses and demonstrates their commitment to decarbonisation, which is interesting to attract investors. Both companies themselves and their investors want to know how the company affects the environment and how climate change is likely to affect the company.
Furthermore, carbon accounting ensures that companies understand their carbon footprint, enhance their ESG performance and comply with the latest climate legislation and reporting requirements. For example, when the European Commission adopted the Corporate Sustainability Reporting Directive (CSRD), it stated that “GHG emissions data are essential for organizations to track and disclose their performance against net zero goals.”[6] As more legislation has been adopted internationally, the importance of carbon accounting has also increased.[7]
How to calculate emissions?
Carbon accounting ensures that the carbon footprints of companies, governments and other organisations or institutions are correctly calculated. This is no easy task.[8] To make sure that an organisation has calculated all its emissions, the calculations are divided into three scopes.
These scopes include: Scope 1 emissions, also called ‘direct emissions’, which “are released from sources that are owned or controlled by an organization.” Scope 2, also known as indirect emissions, “are released from the electricity, steam, heating and cooling purchased by an organization.” Scope 3 emissions, referred to as supply chain emissions, “are indirect GHG emissions that occur as a consequence of the activities of a facility, but from sources not owned or controlled by that facility’s business.” Since Scope 3 emissions contain 5.5 times more emissions than Scope 1 emissions, it is important for organisations to engage with their suppliers to effectively decarbonise their entire supply chain.[9]
It is important to note that the GHG Protocol is updating its Scope 2 Guidance on how to calculate Scope 2 CO2 emissions. The GHG Protocol Secretariat asked for feedback and proposals on the Scope 2 emissions Guidance. After receiving the proposals, it was clear that there are three main topics that need to be updated: “1) Improvements to the location-based method, 2) Improvements to the market-based method, 3) Elevation of the role of and improvements to reporting emission impacts from projects and interventions.”[10] In addition to these improvements, another key area of focus is “to embrace an accounting framework that moves beyond the current approach of megawatt-hour matching, and focuses on the heart of the matter, emissions impact.”[11]
Sources:
[1] https://www.ibm.com/topics/carbon-accounting#:~:text=Carbon%20accounting%2C%20or%20greenhouse%20gas,gas%20emitted%20by%20human%20activities.
[2] https://d-carbonize.eu/carbon-accounting/.
[3] https://d-carbonize.eu/carbon-accounting/; https://www.ibm.com/topics/carbon-accounting#:~:text=Carbon%20accounting%2C%20or%20greenhouse%20gas,gas%20emitted%20by%20human%20activities.
[4] https://www.ibm.com/topics/carbon-accounting#:~:text=Carbon%20accounting%2C%20or%20greenhouse%20gas,gas%20emitted%20by%20human%20activities.
[5] Art. 2 (1)(a) Paris Agreement.
[6] https://www.ibm.com/topics/carbon-accounting#:~:text=Carbon%20accounting%2C%20or%20greenhouse%20gas,gas%20emitted%20by%20human%20activities.
[7] https://plana.earth/glossary/carbon-accounting.
[8] https://plana.earth/glossary/carbon-accounting.
[9] https://www.ibm.com/topics/carbon-accounting#:~:text=Carbon%20accounting%2C%20or%20greenhouse%20gas,gas%20emitted%20by%20human%20activities.
[10] “Greenhouse Gas Protocol Scope 2 Proposal Summary”, December 2023.