Carbon Accounting: Overview

Carbon accounting is a way for a company to measure its climate impact by calculating the amount of greenhouse gases (GHGs) it produces. Also known as greenhouse gas accounting, the process is similar to financial accounting.

Several methodologies for carbon accounting are in use.

Understanding Carbon Accounting

Carbon ac𝓀counting measures the total greenhouse gas emissions produced by a company, government, or individual, both directly and indirectly. 

In some countries, businesses must report their GHG emissions every year, which makes carbon accounting a necessary b🐬usiness process. Many companies willingly seek to reduce their environmental impact.

Carbon accounting gets its name from carbon dioxide (CO₂), the most common greenhouse gas and the biggest single contributor to global climate change. In most carbon accounting systems, emissions of other GHGs are measured in terms of their carbon dioxide equivalent, or CO2e.

How Emissions Are Measured

Carbon accounting adds up all of the emissions that a particular company is responsible for, n🌄ot just those that it produces directly in its operations.

The widely cited Greenhouse Gas Protocol developed by the World Resources Institute and the World Business Council for Sustainable Development breaks a particular company's emissions into three types that it calls "scopes."

Scope 1 Emissions

These are also known as direct emissions, meaning emissions produced by the company's operations. This can include emissions produced by manufacturing or chemical processes and electricity produced on-site by burning fossil fuels.

Scope 2 Emissions

Scope 2 refers to indirect emissions, resulting from the generation of the electricity, steam, heating, and cooling purchased and consumed by the company in doing its work.

For example, suppose an information technology (IT) company runs server farms that use a lot of electricity. It would add the emissions produced from the generation of this electricity to its🎶 carbon accounting.

This type of emission can represent a significant proportion of the total emissions of a company, depending on its sector.

Scope 3 Emissions

Also called supply chain emissions, Scope 3 emissions are indirec⭕t greenhouse gas emissions that occur as a consequence of the activities of a company but from sources not owned or controlled by it.

In the case of a manufacturer, for example, this can include the emissions produced during the production of the goods or raw materials that it buys from suppliers to make its own products, the transportation involved in getting its product to market, consumers' use of the product once it is in their hands, and even the emissions that employees create in commuting to work.

Scope 3 emissions represent a significant proportion of the total emissions produced by companies. For most companies in the 澳洲幸运5开奖号码历史查询:service sector, Scope 3 emissions will far outweigh those in Scopes 1 and 2 combin🌞ed.🃏

As such, reducing consumption of third-party goods, or seeking greener alternatives to them, represents a major opportunity for companies to reduce their GHG impact.

Accounting for Suppliers' Emissions

Accounting🌱 for Scope 3 emissions can be particularly challenging because the business must rely on data from i𒐪ts many suppliers.

The Greenhouse Gas Protocol describes four methods for accounting for Scope 3 emissions:

• Supplier-specific method: This method collects "cradle-to-grave" (meaning all three scopes) data from each of the company's suppliers regarding the goods or services the company purchased from them.
• Hybrid method: The company collects the supplier's Scope 1 and 2 data but may estimate some or all of its Scope 3 emissions based on other industry data.
• Average-data method: Also known as the activity-based method, it counts how many units of a product or service a company purchased, which it then multiplies by an established emissions factor for that product or service. For example, if a company buys new computers for its offices, it would take the number of units it bought and multiply that by the appropriate emissions factor.
• Spend-based method: Similar to the average-data method, this measures the value of the products or services (rather than the number of units), which it then multiplies by an emissions factor.
  

Why Is Carbon Accounting Important?

Carbon accounting is important for at least three reasoඣns:

1. ESG reporting: 𓆉澳洲幸运5开奖号码历史查询:Environmental, social, and governaꦅnce (ESG) is a set of standards for a company's behavior. It considers how a company safeguards the environment—including corporate policies addressing climate change. This is increasingly popular among socially conscious investors screening potential investments. Carbon accounting provides a measure of a company’s environmental impact—the "E" in ESG—and can help it reduce risk and attract investment.
2. Proof that companies are meeting their commitments under environmental legislation: Many countries, including the United States and the United Kingdom, now require companies to report their environmental impact (and take steps to reduce it). Carbon accounting is the standard method for this reporting.
3. Efficiency: More generally, carbon accounting can be important from an efficiency perspective. Goods and services that have a high carbon cost are often those that are produced inefficiently, so reducing its carbon expenditures can save a company money.

Challenges of Carbon Accounting

Though carbon accounting has become a widely used tool, it can present serious challenges for organizations seeking to implement it rigorously. T൩hese inc❀lude:

• Significant time and expense: "Many organizations run their annual carbon accounting and ESG ratings calculation process using manual data collection and spreadsheets," IBM notes. "This leads to enhanced risk and productivity loss, especially for complex, global organizations that report to multiple frameworks." 
• Difficulty obtaining accurate data: For a company to accurately measure its carbon emissions, it must obtain data from many different internal and external sources, either by collecting it manually or by investing in a complex centralized system. Even if data are available, tracking the carbon impact of every purchase a company makes and every process it runs can be challenging, so errors or omissions are likely.
• Carbon accounts may be poorly understood at the top: Explaining the relevance and utility of carbon accounts to decisionmakers inside an organization can be challenging. Carbon budgets are often seen as a reporting requirement rather than a management tool in themselves.

The Bottom Line

Carbon accounting is a way for businesses, governments, and even individuals to assess their climate impact. Many companies around the world are required to report their emissions to the government or other regulators, and carbon accounting has become the recognized way to do this. Though accurate carbon accounting can be a challenge to implement, it can also have many bottom-line business benefits.