CARBON ACCOUNTING – YOUR GUIDE TO EMISSION MEASUREMENT AND REPORTING

In a world increasingly aware of its environmental responsibilities, understanding and measuring carbon emissions is fundamental for organizations striving to achieve carbon neutrality. Carbon accounting is the first crucial step in a journey towards Sustainability. 

According to BCG 2021 survey, only 9% of organizations could comprehensively and accurately measure their total GHG. 

Many organizations have pledged to balance their emissions by mid-century through combination of cutting emissions and removing carbon from the atmosphere. Tracking, reporting and calculating carbon emissions are a key part of companies progressing towards net zero goals. In order to achieve the net zero emissions movement, businesses seek third party assistance to help them manage their carbon and GHG emissions. But most of the companies, though motivated to fight the climate change are unaware where to start and how to go about measuring and reducing the carbon emissions. 

This blog delves into the essential concept of Carbon accounting, unravelling its significance, methodologies and the role it plays in paving way towards a carbon-neutral future. Join us as we dive into the world of carbon measurement. 

What is Carbon Accounting? 

Carbon Accounting, also known as ‘Greenhouse Gas Accounting’, refers to the methods used to measure and analyze a business’s carbon emissions. It helps companies find where their emissions come from so that they can understand their carbon footprint and set the reduction plans. This is the first step in the company’s sustainability journey which is crucial to achieve net zero. 

Carbon Accounting is similar to financial accounting where it measures the climate impact rather than financial impact. Carbon accounting is used to measure carbon footprints for businesses, governments and even individuals. 

“You cannot manage what you cannot measure” 

This mandates the necessity of carbon accounting that helps organizations to understand their carbon emissions so that they can identify hotspots and begin the reduction efforts for strong climate actions. It will also help companies to calculate their residual emissions so that they can use climate investment to compensate their remaining emissions and complete their journey to net zero. 

Carbon Accounting is a way to quantify and understand how a business contributes to climate change. It provides the foundation for climate pledges like carbon neutrality and net zero. 

Why is Carbon Accounting important? 

World is committed to limit global temperature rises to 1.5˚C above pre-industrial levels to counter the climate change GHG emissions need to be halved by 2030 and net zero emissions need to be hit by 2050.  

According to the latest IPCC reports, there is a need to manage the carbon footprint to get the planet back on track. Consumers today demand greener and responsible products and investors attach a lot of importance to the sustainable ESG performance across the industry. Also as per the latest SEC proposed rules, all public companies need to disclose their emissions.  

It is time businesses stay ahead of the curve…  

Let us dive into why companies require carbon accounting: 

• Environmental Impact 

Carbon accounting is vital because it directly addresses the environmental impact of an organization’s  activities. By quantifying carbon emissions and other greenhouse gases (GHGs), businesses can assess their contribution to climate change and identify areas where they can reduce their environmental impact. Understanding the environmental consequences of operations, supply chains and products allow companies to make informed decisions to mitigate their impact on the planet. This includes reducing energy consumption, minimizing waste and transitioning to sustainable practices. 

• First step towards Corporate Sustainability  

Carbon accounting aligns with corporate social responsibility (CSR) initiatives, which are increasingly significant to businesses and their stakeholders. CSR involves a company’s commitment to ethical and sustainable practices that benefit society and the environment. By engaging in carbon accounting and reducing emissions, organizations fulfil a crucial aspect of their CSR commitments. Investors and customers are wanting to partner or purchase products or services from businesses that value not only financial success but also seek environmental and social justice as well. Company’s sustainability efforts become more tangible with carbon numbers.  

• Consumer and Stakeholder expectation  

Today’s consumers are more environmentally conscious than ever, and they expect the same from the companies they support. Stakeholders, including customers, investors and employees increasingly base their decisions on an organization’s commitment to sustainability.  Carbon accounting pulls the data together that unravels opportunities within the business. Steps towards carbon neutrality starts with carbon accounting. Greenhouse gas accounting helps to provide data which a company can be held accountable for regarding their emissions. There is greater transparency between the investors, employees and customers. It can prevent allegations against greenwashing. 

•  Attracts Opportunities  

Investors are interested in companies that are willing to adjust their business model to improve sustainability to combat climate change. Using reporting tools, businesses can effectively communicate their actions and commitments to address the climate crisis. It quantifies their efforts in their net zero journey. The verified process of carbon accounting attracts investors and customers whereby they can demonstrate compliance to environmental regulations.  

• Competitive Edge  

The laws on carbon reporting are gaining ground on a continual basis. The pressures to report emissions are increasing in countries like US and Europe. Companies that measure emissions and find ways to reduce them have a considerable advantage giving them the competitive edge. Governments are mandating on carbon emission reporting.  

• Compliance  

Regulators around the globe are requiring their businesses to disclose their carbon emissions. Companies in the UK have to disclose emissions per SECR. The US SEC has recently sought for requirement of public companies to disclose emissions. With the increase in climate impact reporting legislation, carbon accounting will ensure businesses to stay compliant tomorrow. Failure to meet these legal requirements can result in fines, legal action and reputational damage. By proactively tracking and managing carbon emissions, companies can avoid legal consequences while demonstrating their commitment to environmental responsibility. 

Fundamentals of Carbon Accounting  

Carbon Emissions 

Carbon emissions refer to the release of carbon dioxide and other greenhouse gases into the atmosphere as a result of human activities. Carbon emissions are a significant driver of climate change and global warming, as they trap heat in the earth’s atmosphere, leading to rising temperature and associated environmental impacts. 

Carbon dioxide (CO2) is the most common greenhouse gas emitted by human activities. The emissions are represented as carbon dioxide equivalent or CO2e. A quantity of GHG can be expressed as CO2e by multiplying the amount of GHG by its Global Warming Potential (GWP). The GWP for each GHG is tracked in a series of factor tables produced by a variety of organizations. 

Greenhouse Gas Emissions 

Climate change always talks about carbon emissions but carbon dioxide is not the only driver for GHG emissions. The other GHGs that add to global warming are methane, nitrous oxide, hydrochlorofluorocarbons, hydrofluorocarbons and ozone. 

What is CO2e?

CO2e is a measure that was created by the United Nation’s IPCC in order to make the effects of different greenhouse gases comparable because every gas has a different global warming potential. The impact of different greenhouse gases is expressed in terms of the amount of CO2 that would result in the same  amount of warming. The GWP of CO2 is 1 because CO2 is considered as base value. 

Emission Scopes 

According to the Greenhouse gas protocol, Scopes are divided into Scope1, Scope 2 and Scope 3 emissions. 

Scope 1 emissions are the direct emissions from the sources controlled by the organization, particularly those related to the manufacture of the product. 

Scope 2 emissions are the indirect emissions linked to energy consumption ie. emissions associated with production of heat, electricity, steam imported for the organization’s activities. 

Scope 3 emissions are the other indirect emissions not accounted for in scope1 and scope2 but linked to the entire value chain also called as supply chain emissions. 

Supply chain emissions account for 5.5 times more emissions on average than a company’s direct emissions 

What does Carbon accounting work? 

Carbon Accounting measures an organization’s GHG emissions using two methodologies. The Spend based method and Activity based methods and a hybrid methodology combining both.  

The spend based method of calculating GHG emissions takes the financial value of a purchased good or service and multiplies it by an emission factor. The spend based method utilizes environmentally extended input and output models (EEIO) and is less mathematically complex and time consuming to calculate. Since spend based emission factors are built on the industry average GHG emission levels, they lack specificity.  

For example, buying a chair or table would factor in only that you bought a furniture and will not account for what the chair or table is made up of.  

The activity-based method uses data to specify how many units of a particular product that a company has purchased, like the units could be kilograms or litres of a product. The activity-based method also uses emission factors to determine an activity’s emissions output. These emission factors are taken from scientific studies. 

Activity based data generates more accurate emission estimates than spend based data. The only issue is activity-based data collection is time consuming. The GHG protocol recommends use of activity-based data followed by spend based method to estimate the rest.  

In the dynamic landscape of carbon accounting, selecting the appropriate methodology for your business is paramount to effectively manage your carbon footprint. One such methodology, Life Cycle Assessment (LCA) delves deep into the entire life cycle of a product or process, providing a comprehensive understanding of its environmental impact. 

Benefits of Carbon Accounting

Carbon Accounting Methodologies 

When it comes to carbon accounting, organizations have  several methodologies to choose from, each tailored to specific needs, industries and reporting requirements. Selecting the right methodology is crucial to accurately measure and manage greenhouse gas emissions. 

GHG Protocol 

To facilitate accurate GHG accounting, WRI and WBCSD have developed a number of accounting standards under the Greenhouse gas protocol to help organizations track and measure their progress towards decarbonization. Businesses use GHG Corporate Standard when accounting for emissions. Under this Corporate standard, emissions are classified into Scopes for measurement and reporting. The GHG Protocol offers both the Corporate Standard( Scope 1 and 2 emissions) and the Scope 3 standard(value chain emissions). It is suitable for organizations of all types and sizes. 

ISO 14064 

The International Organization for Standardization (ISO) has established the ISO 14064 series which consists of 3 parts 

ISO-14064-1 for GHG emissions at the organization level 

ISO- 14064-2 for GHG Projects and 

ISO 14064-3 for validation and verification of GHG assertions. 

ISO 14064 provides a framework for organizations to develop their GHG inventory, quantify emissions reductions and conduct third party verification. It aligns with the GHG Protocol and is suitable for organizations seeking ISO certification. 

Sector- Specific Guidelines 

Some industries have developed their own GHG accounting and reporting guidelines. For instance the Carbon Disclosure Project (CDP) provides  sector -specific guidance to help companies in various industries, measure and report their emissions. 

Choosing the Right Methodology 

The choice of carbon accounting methodology should align with your organization’s goals, reporting boundaries, industry, regulatory landscape, available resources and credibility requirements. By selecting the right methodology, you can accurately measure and report GHG emissions, track progress and make informed decisions to reduce your carbon footprint effectively. 

Carbon Accounting Best Practices – Ensuring accuracy and Sustainability. 

Carbon Accounting is a critical tool for organizations to drive sustainability and reduce their carbon footprint. 

• Data Collection and Accuracy 
• Reporting and Transparency 
• Setting Reduction Targets 
• Continuous Improvement with Life cycle assessment, Technology and Innovation and Supply Chain engagement. 

Carbon Reduction Strategies 

Carbon Reduction strategies are essential in the fight against climate change. This could include improving energy efficiency and adopting renewable energy sources to optimizing supply chains. Nature based solutions involve using natural ecosystems and processes to mitigate and remove carbon dioxide from the atmosphere, thus contributing to carbon reduction efforts. Examples of NBS include afforestation and reforestation projects, wetland restoration and sustainable land management practices. 

Carbon Neutrality Measurement – Balancing the Carbon Equation 

In the global effort to combat climate change, achieving carbon neutrality has become an important goal for organizations and nations alike.  Carbon neutrality is a state where an entity balances the amount of GHGs emitted into the atmosphere with an equivalent amount of GHGs removed from the atmosphere or offset. 

Steps to achieve Carbon Neutrality 

• Measure emissions- Identify and quantify emissions from all sources including Scope 1, 2 and 3. 
• Reduce Emissions – Implement emission reduction strategies and initiatives. 
• Offset Emissions – Investing in nature-based carbon offset projects, renewable energy generation or methane capture reduce or remove an equivalent amount of emissions elsewhere. 
• Renewable energy adoption- Transitioning to renewable energy sources like wind, solar or hydropower is a significant step towards carbon neutrality. 
• Carbon Insetting- Carbon Insetting is a strategy where organizations invest in emission reduction or removal projects within their own supply chains, instead of buying carbon credits from external projects, companies focus on internal initiatives.

Challenges in Carbon accounting  

• Carbon accounting is complex requiring accurate and real-time data and factor sets that can be traced back to the source.  
• The data needs to be auditable to adhere to compliance.  
• The methodologies and data sets used by GHG accounting standards are not uniform.  
• Maintaining records in spreadsheets result in enhanced risk and productivity loss.  
• Data quality is inconsistent and unreliable.  
• Capturing sustainability metrics for reporting is time consuming and costly. 

Carbon Accounting Tools and Software 

Carbon Accounting tools and software are transforming the way organizations measure, manage and report their greenhouse gas emissions. These digital solutions offer a range of benefits from accurate data tracking to enhanced sustainability performance. 

Carbon Accounting software is a digital platform designed to streamline the process of measuring, managing and reporting of an organization’s carbon emissions and environmental impact. It automates data collection, calculation and reporting making sustainability efforts more efficient and effective. 

Carbon accounting software integrates with various data sources within an organization, including energy consumption records, transportation data and supply chain information. These tools use built-in algorithms to calculate emissions based on standard methodologies and emission factors. The software generates detailed reports and dashboards that help organizations track their carbon footprint over time. This also facilitates compliance and regulatory requirements and sustainability reporting standards. 

Choosing the right accounting solution helps companies to accurately measure, capture and track emissions data and accordingly strategize to regulate their output of emissions. Companies that adopt carbon accounting solutions are in a better position to collect and manage their data, disclose their carbon footprints to the stakeholders and apply analytics for decarbonization and establish science based targets (SBTi) and manage compliance and value chains.

Trace Carbon- Accounting with TraceX Solutions 

Effective carbon accounting is crucial for organizations aiming to measure, manage and reduce their carbon emissions. Trace Carbon( Trace Carbon 

offers a cutting-edge solution that goes beyond traditional carbon accounting methods, providing a comprehensive approach to environmental sustainability. 

Trace Carbon’s advanced data collection capabilities ensure that every emission source is captured and recorded with precision. The solution enables real-time monitoring of emissions allowing organizations to stay updated and get immediate insights into emission patterns and allow for quick actions. The granularity in data capture allows organizations to identify carbon hotspots, emission trends and areas for improvement. 

Trace Carbon seamlessly integrates with recognized emission factors and standards, ensuring accuracy and compatibility with established carbon accounting methodologies. It generates comprehensive reports that can be used for sustainability reporting and compliance with carbon reduction targets and regulations. It also provides a transparent audit trail of emission data, simplifying the verification process thereby reducing audit delays and costs. The solution also offers the ability to integrate carbon insetting strategies into the carbon accounting practices. This allows organizations to go beyond offsetting and invest in projects that directly contribute to local communities and ecosystems. 

Conclusion 

Carbon accounting is not just a buzz word but a critical tool for organizations aiming to reduce their carbon footprint and contribute to a sustainable future. By understanding the fundamentals of carbon emissions, adopting the right methodologies, implementing bets practices and striving for carbon neutrality, businesses can play a significant role in mitigating climate change. As environmental concerns continue to gain prominence, embracing carbon accounting is not just a choice but a responsibility towards a greener, more sustainable planet. 

Frequently Asked Quesions