Carbon Accounting

What is Carbon Accounting?

Carbon accounting, which is sometimes also referred to as “greenhouse gas accounting,” refers to the techniques used to estimate how much carbon dioxide equivalents a business emits. It is typically used to produce the carbon credit commodity traded on carbon markets by states, businesses, and individuals (or to establish the demand for carbon credits).

National inventories, business environmental reports, and carbon footprint calculators are examples of products based on forms of carbon accounting. Hence, carbon accounting is the process through which companies assess their GHG (greenhouse gas) emissions to comprehend their corresponding climate impacts and establish emission-reduction targets.

The World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) GHG Protocol guide the accounting for GHG emissions from companies and emission reduction efforts. At the same time, the Intergovernmental Panel on Climate Change (IPCC) methodology reports give guidelines for national GHG inventories.

The International Organization for Standardization (ISO) also released specific general guidelines for GHG emissions, which are as follows:

Organisational greenhouse gas emissions (ISO 14064 – 1)

Project-level greenhouse gas emissions (ISO 14064 – 2)

The requirements for validating and verifying pertinent accountings (ISO 14064 – 3)

Understanding Carbon Accounting

Greenhouse gas accounting is inventorying and auditing greenhouse gas (GHG) emissions. A business or organisational GHG emissions assessment evaluates its carbon footprint by computing the overall quantity of greenhouse gases produced, whether directly or indirectly. The data offers a foundation for understanding and controlling the effects of climate change, and it may be utilised as a commercial tool.

An overall corporate “carbon” or greenhouse gas (GHG) emissions assessment attempts to calculate the greenhouse gases emitted intrinsically and extrinsically by the operations of a company or organisation within a set of parameters. It is a corporate tool used to construct information that may (or may not) be beneficial for comprehending and controlling the effects of climate change.

Mandatory GHG reporting in directors’ reports, investment due diligence, shareholder and stakeholder engagement, employee participation, green messaging, and bid criteria for corporate and government contracts are catalysts for corporate GHG accounting. Accounting for greenhouse gas emissions is becoming more widely accepted as a standard corporate necessity.

Enterprise Carbon Accounting (ECA)

Enterprise Carbon Accounting (ECA) or Corporate Carbon Footprint, a significant component of Enterprise Sustainability Accounting, attempts to be a quick and low-cost approach for organisations to gather, synthesise, and disclose organisation and supply chain GHG emissions.

ECA employs financial accounting standards and a mix of input-output LCA (Life Cycle Analysis) and process techniques as appropriate. The transition to ECA is required to meet the compelling need for a more thorough and sustainable approach to carbon accounting.

Success Characteristics for an ECA System

An Enterprise Carbon Accounting system should meet the following criteria to be and remain effective:

Comprehensive: Includes emissions from Scopes 1, 2, and 3 (see next section for details on scope emissions)
Periodic: Allows for regular updates and comparisons across reporting
Auditable: Tracks transactions and allows for independent compliance
Versatile: Integrates data in several ways for life cycle analysis
Standards-based: Supports both existing widely acknowledged standards and new
Scalable: Allows for an increase in the volume and complexity of a company
Efficient: Provides data in the period needed for decision making

Understanding Scope Emissions

One of the critical characteristics of a successful ECA system is a comprehensive report of the different forms of emissions, categorised as Scope 1, 2, and 3.

Scope 1
Scope 1 covers emissions resulting from direct operations of an organisation, such as combustion processes from facilities and automobiles owned or controlled by the organisation.

Scope 2
Scope 2 covers emissions resulting from the generation of purchased power utilised by an organisation, such as purchased electricity, steam, and heating and cooling systems.

Scope 3
Scope 3 covers emissions resulting from all other additional indirect sources of emissions in an organisation’s supply chain, e.g., acquired raw materials, distribution and logistics, employee travel, consumption of sold goods, and end-of-life remediation

As climate change remains a hot topic of discussion, not just governments but companies and businesses also need to ensure they contribute positively to the environment they operate.