What Do You Know About Carbon Accounting?

Tracking, reporting, and calculating carbon emissions are a key part of progressing countries, industries, and companies towards net zero goals.

FREMONT, CA: Many organizations, countries, and industries have pledged to balance their emissions before the mid-century. They intend to do this by cutting emissions and removing carbon from the atmosphere.

Tracking and quantifying emissions, understanding output, decreasing them, and setting tangible targets that can be worked towards are all central to addressing climate change and reducing greenhouse gas emissions – especially concerning carbon dioxide (CO2).

Carbon accounting tools can support companies and counties in understanding their carbon footprint – how much carbon is being discharged as part of their operations, who is liable for them, and how it can be effectively mitigated.

Like how financial accounting may search to balance a company’s books and calculate possible profit, carbon accounting searches to do the same with emissions, tracking what an entity emits and what it diminishes, removes, or mitigates. Carbon accounting is crucial in understanding how countries and companies can contribute to reaching net zero.

A new space

How different organizations, countries, and industries approach carbon accounting is still an evolving process.

It’s as hard as financial accounting, but a long-standing industry relies on well-established practices and principles of financial accounting. Carbon accounting, instead, is such a new space.

Irrespective of its infancy, businesses, and countries are already implementing standardized approaches to carbon accounting. Regulations like emissions trading schemes and reporting systems, like Streamlined Energy and Carbon Reporting (SECR) and the Taskforce on Climate-Related Financial Disclosure (TCFD), are commencement to deliver some degree of consistency in businesses’ carbon reporting.

Other standards, like the GHG Protocol, have provided a standardized corporate reporting and accounting basis. Anywhere voluntary carbon markets (e.g., carbon offsets) have also evolved to allow the transferral of carbon reductions or removals between businesses, offering flexibility to companies in delivering their climate commitments.

The dispute is in aligning these frameworks so that they work together. For instance, emissions within a corporate inventory or offset program must be accounted for in a way that is persistent with a national inventory.

These accounting systems have developed independently with different rules and methodologies. Implementing detailed carbon accounting, upon which emissions reductions and removals can be based, requires a standardized knowledge of what they are and where they derive from.

Briefing and tackling Scope One, Two, and Three emissions

The main carbon accounting standard businesses use the Greenhouse Gas (GHG) Protocol. Countries, cities, and companies can use this voluntary carbon reporting standard globally.

The GHG protocol categorizes emissions in three different ‘scopes,’ called Scope 1, Scope 2, and Scope 3. Understanding, measuring, and reporting are key factors in carbon accounting and can drive meaningful emissions reduction and mitigation.

Scope One – Direct emissions

Scope One emissions come directly from a company or country’s activities. These can encompass fuel combustion at a factory’s facilities, for instance, or emissions from a fleet of vehicles.

Scope One emissions are the most direct for an organization to measure and report and easier for organizations to act directly on.

Scope Two – Indirect energy emissions

Scope Two emissions come from the generation of energy an organization uses. These can include emissions from electricity, steam, heating, and cooling.

For example, a business may buy electricity from an electricity supplier, which obtains power from a generator. Suppose that generator is a fossil-fuelled power plant. In that case, the energy consumer’s Extent Two emissions will be higher than if it buys power from a sustainable electricity supplier or generates its renewable power.

The capability to change energy suppliers makes Scope Two relatively straightforward for organizations to act on, supposing renewable energy sources are available in the area.

Scope Three – All other indirect emissions

Scope Three is much broader. It screens upstream and downstream lifecycle emissions of products used or produced by a company and other indirect emissions, like employee commuting and business travel emissions.

Identifying and decreasing these emissions across supply and value chains can be tricky for businesses with complex supply lines and global distribution networks. They are also difficult for companies to straight influence.

Include factors like emissions mitigations or offsetting, and carbon accounting can quickly become much more complex than simply reporting and reducing emissions directly from a company’s activities. However, these full-system overviews and whole-product lifecycle accounting are crucial to understanding the true impact of operations and organizations and reaching climate goals.

Delivering net zero

Some greenhouse gas emissions will be impracticable to fully decrease, such as methane and nitrous oxide emissions from agriculture. At the same time, other sectors, like aviation, will be incredibly difficult to fully decarbonize. This makes carbon removal technologies critical to ensuring net zero is achieved.

Technologies like BECCS (bioenergy with carbon capture and storage) – which includes low-carbon, biomass-fuelled renewable power production with CCS(carbon capture and storage) to permanently eliminate emissions from the atmosphere – are already under development.

However, such technologies must be accounted for using robust approaches to carbon accounting, ensuring all emission and removal flows across the value chain are accurately calculated following a best scientific practice. Speaking of BECCS, it’s vital that emissions from processing and transporting biomass are considered as their potential impact on the land sector.

Forests from which biomass is rooted will be managed for various reasons, such as mitigating natural disturbance, delivering commercial returns, and preserving ecosystems. Therefore, accurate accounting of these impacts is key to ensuring such technologies deliver meaningful reductions in atmospheric CO2 within timeframes guided by science.