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- Carbon Accounting
What is Carbon Accounting?
Carbon Accounting (also known as Greenhouse Gas Accounting) is a form of measurement that allows companies to measure, analyse and track how many Greenhouse Gas (GHG) emissions are released into the atmosphere every year.
This is extremely important to both government and corporation net-zero targets because an accurate assessment of the current level is essential to any
With Net Zero emissions becoming an ever more important goal, Carbon Accounting enables businesses to measure their carbon footprint and work towards this goal.
Carbon Accounting can be broken down via direct emissions and indirect emissions, which are classified as either Scope 1, Scope 2 or Scope 3 emissions.
What Carbon Accounting Measures
Carbon Footprint
A Carbon Footprint is the measurement of how many greenhouse gases are released into the atmosphere.
It can be attributed to a company or a corporation, as well as more specific categories like activities and products.
The measurement with which people use to gauge this is Carbon Dioxide Equivalent (CO2e). Although this is named after Carbon Dioxide it applies to all GreenHouse gases and is the metric with which emissions are measured against.
This includes direct emissions such as travel, manufacturing etc but it also includes indirect emissions as well. For example if you are making a specific product, you have to factor in the full life cycle with which it applies to.
This includes all emissions that came from producing the raw materials to create your product and all emissions that come from how people use the product. A good example is the automotive industry.
Greenhouse Gas Emissions
Greenhouse Gas emissions are gases that trap heat when they are released into the atmosphere contributing to climate change and global warming.
The main greenhouse gas is Carbon Dioxide (CO2) however there are others which, although released in much smaller quantities, are much more harmful.
The main four types of greenhouse gases are as follows;
- Carbon Dioxide (CO2): Carbon Dioxide is produced in a variety of ways, but the most common is through the burning of fossil fuels such as coal, natural gas and oil as well as through human activities such as deforestation and various other industrial sectors. It is by far the most common Greenhouse Gas to be found.
- Methane (CH4): Methane is found in three main areas. The first is that of livestock and other agriculture practices. The second is through the decay of organic waste in landfills, especially those that contain household waste. Finally, there is also a significant emission through the transportation of fossil fuels.
- Nitrous Oxide (N2O): Nitrous Oxide is produced through the burning of fossil fuels as well as the practice of burning solid waste. Particularly toxic, it is also released through various other industrial and agricultural practices.
- Fluorinated Gases: Fluorinated Gases are not released anywhere near the extent of Carbon Dioxide however they are many thousands of times stronger. Originally developed to replace Ozone-depleting substances. They are released through various industrial means such as refrigeration and air conditioning.
Energy Consumption
Energy Consumption can be broken down into two main types of emissions, specifically direct and indirect.
- Direct Emissions: This can be classified as any energy that is used that is directly owned or in the control of the organisation assessing their Carbon Footprint. This is referred to as Scope 1 emissions (more of this later.) It covers everything from the use of fossil fuels in vehicles owned by the organisation to the boilers or furnaces that it might directly control
- Indirect Emissions: This is very similar to the direct emissions in the type of energy that is consumed but it comes from what is called purchased power i.e. electricity, fuel, heat etc that comes from emissions that have been purchased by the organisation rather than controlled directly.
Waste Generation
When it comes to waste generation, there are two significant contributors to the Greenhouse emissions produced, we have the landfill element, and then we have the waste treatment plants.
- Landfill Emissions: When you have a significant amount of organic waste in landfills, as they begin to decompose, they produce a gas called methane which is one of the big greenhouse gases. These are usually classified as Scope 3 emissions.
- Waste Treatment Plants: Alongside this you also have waste treatment plants which is where rubbish or waste is either treated or disposed of. This can include things like incinerating but also includes more friendly recycling and composting. Even things that directly contribute to a better environment can still have an impact on a company’s Carbon footprint.
Water Usage
Water usage has a much greater impact on Carbon emissions than a lot of people realise. There are three main areas that should be noted. We have energy for water supply and energy for wastewater treatment.
- Water Supply Energy: Getting water to individuals and homes takes a lot of energy. From the initial extraction to the actual treatment of water to make sure it is safe to use in the intended way, to finally distributing it to the necessary locations. Different water sources require different amounts of energy such as surface water or groundwater, but all of it requires energy in some capacity.
- Treatment of Wastewater: This can be incredibly costly for Carbon emissions as a significant amount of energy is often needed in order to properly treat the water, especially if you have inefficient or ageing plants. The type of emissions you will find are often methane or even nitrous oxide at these locations.
Emissions from Transportation
When it comes to company emissions, transport is one of the biggest contributors to a brands CO2e and can be broken down into four main areas:
- Automotive: Emissions from both individual cars as well as trucks, vans, buses and any other road vehicles used are significant when it comes to the combustion of fossil fuels.
- Trains and railways: whilst these tend to always be more efficient than road transport, trains, especially those powered by diesel still play a part in a company’s overall carbon emissions.
- Aviation: One of the largest contributors to CO2 and other greenhouse gases are planes, with the added effect of it being emitted at high levels where the impact can be more significant.
- Maritime: Large cargo ships and other vessels require a huge amount of fuel and oil and, as such, are a large contributor to global emissions.
Emissions from Manufacturing
The process of manufacturing is a big contributor to Carbon emissions, most prominently due to the energy-intensive. It can be broken down into three main categories:
- Category 1– Raw Material Processing: The actual formula of extracting and then processing all of the necessary raw materials (things like chemicals, metals and even materials used for green tech) are a significant contributor to Carbon emissions
- Category 2 – Industrial Processes: There are some processes that actually release CO2 and other gases directly into the atmosphere, for example cement production.
- Category 3 – Energy use- finally we have the fact that factories require significant power to run and the power is often supplied through the use of fossil fuels for energy which can also have a big impact on emissions
Emissions from Supply Chain
Finally we have Carbon emissions from the supply chain itself, specifically including everything from raw material extraction all the way through to product delivery, with each stage also contributing to emissions.
- Packaging: An often underappreciated part of the process, the production of packing material, in particular the use of plastic, can contribute significantly to Carbon emissions
- Transportation and Logistics: The process of actually moving the goods whether it is from manufacturer to supplier, or further down the line from supplier to consumer, all has an impact
- Warehousing: Simply holding on to the products can also cause carbon emissions through energy consumption through things like heating, cooling and power in general to warehouses or storage containers.
- Supply-change management: Finally we have inefficiencies. For example if you accidentally overproduce a certain number of products, or send things to the wrong place requiring additional transportation etc. All of these add up and contribute in their own way.
Offset Credits and Carbon Sequestration
Once a company or organisation has fully accounted for the Carbon emissions there are two main options when it comes to reducing or offsetting the amount of Carbon that has been released. Those options are Carbon Offsets and Carbon Sequestration.
Carbon Offsets
Carbon Offsets are the original Offset scheme that the BNG scheme was modelled on. The premise is simple, a reduction in GHG emissions can happen in one place or location to compensate for carbon emissions produced in another spot.
These are measured through the same metric of CO2e and are bought and sold as assets through various market systems. These are done through various reduction projects aimed at reducing as many emissions as possible. Good examples of this are things like reforestation efforts, methane capture from landfills or renewable energy projects such as wind, solar etc.
To ensure the quality and validity of these carbon credits they are then verified by independent third parties to ensure the legitimacy and to try and avoid false credits being sold. Once all verified, they are then able to be traded as credits and companies and individuals can buy them to offset their various GHG emissions.
If this is done properly the benefits can be substantial, as they can play a strong role in achieving Carbon neutrality and has the added economic benefit of encouraging investment in various sustainable projects.
The challenges are that there have been a lot of examples of double-counting of reductions as well as questions being raised around the credibility and additionality of projects. A good example of this is people promising to not cut down forests that were never going to be cut down in the first place.
Carbon Sequestration
The second option is Carbon Sequestration. This is the process of capturing CO2 from the atmosphere and storing it. In this way we reduce the amount of CO2 in the atmosphere and reduce the impact on climate change.
The best and most efficient way is biological sequestration. This can be done through forests and woodland, with trees and plants absorbing Carbon Dioxide and storing it within its biomass reducing CO2.
Alongside this you also have geological sequestration. This is where you utilise things like underground storage where you take CO2 from industrial processes, compress it and inject it into rock formations below ground, thus reducing atmospheric CO2.
Geological also includes EOR which stands for Enhanced Oil Recovery where CO2 is deliberately placed into oil fields to help the extraction of more oil before also being stored underground.
Finally, you also have something called technological sequestration. Direct air capture as well as carbon capture are both options from a technological perspective that allow the storage of CO2 before it reaches the atmosphere.
The benefits of sequestration are significant. It can have an enormous impact on reducing the CO2 in the atmosphere with biological in particular such as reforestation having direct other environmental benefits also.
However the technological methods can be extremely expensive and when it comes to geological storage there is the risk of leaks if not implemented correctly. The importance of all of these methods lies in monitoring and accountability.
Carbon Accounting Methods
There are a variety of Carbon Accounting methodologies and standards, the most important of which are as follows:
Greenhouse Gas Protocol (GHG Protocol)
The GHG Protocol is the most widely used carbon accounting method internationally for both government and leaders to understand, measure and manage their GHG emissions.
ISO 14064
ISO 14064 is a framework that both measures and reports greenhouse gas emissions and removals
Carbon Disclosure Project (CDP)
The Carbon Disclosure Project is a specific disclosure system that enables all participating companies, states, regions, or countries to measure and manage their environmental impacts including their Carbon emissions.
The Climate Registry
The Climate Registry provides businesses and companies with tools and resources to measure and reduce their Carbon emissions and other GHG that work across different sectors and borders.
Global Reporting Initiative (GRI)
The GRI is a set of standards that helps companies and corporations understand exactly what their environmental impact is, including their Carbon emissions, and then report them
Carbon Trust Standard
Finally we have the Carbon Trust Standard which certifies what the organisations measure, manage and reduce when it comes to their Carbon emissions and improving the environmental impact
Supplier-specific Data Method
Supplier-specific data method is a Scope 3 emissions calculation method. It uses emission numbers and data directly from suppliers to calculate the GHG emissions that are associated with the products or services that they supply. The aim of this method is to make it that much more accurate and be even more granular to get the actual supplier information.
The benefit of going with something like this is that it is a much more accurate way to approach what is traditionally the hardest part of the process. It also provides a much more transparent understanding of the specific emission sources in the supply chain. Because of this, suppliers are encouraged to take on a more proactive role in managing and reducing their emissions which has a ripple effect on the reduction efforts.
The challenge to this is that, logistically, some suppliers may lack the skill set or even just be unwilling to provide such data. It is also a lot of work to gather the necessary emissions data as well as ensure consistency due to multiple suppliers being involved. Finally there is a secrecy element as many companies are right concerned about privacy and sharing data.
Activity-based method
Activity-based method, in the context of carbon accounting, involves calculating Carbon Dioxide and other GHG emissions based on the activities or processes that produce the relevant GHG. Activities include energy use, waste generation and some of the other activities that are mentioned on this page above.
The benefit of using this way is that it provides a very detailed and accurate emissions breakdown. It also makes it easier to identify the areas that are releasing the most emissions making reduction strategies that much more effective.
The downside is that it is a lot of work and requires a significant amount of data gathering and then also analysing the results.
Spend-based method
The spend-based method, rather than being based on activities, is focused on the actual financial cost of using certain goods and services. It issues the economics to factor in emission factors to infer the amount of emissions based on monetary spending.
The benefit of this is that it is much easier to implement when detailed enough data is not available. It allows for the provision of broad estimation of emissions and so is particularly useful when it comes to initial assessments and organisations with less direct information. It also requires less data gathering which can be extremely time-consuming.
The challenge is that this approach is less accurate and specific than the activity-based version. Alongside this, the reliance on economic emissions factors can not always be accurate as they vary significantly depending on market forces.
Scope 1, 2 and 3 Emissions
Scope 1, Scope 2 and Scope 3 are the three main categories when it comes to Carbon Accountancy and are the three ways with which you can categorise each greenhouse gas (GHG) emission of the company or organisation in question. They are the cornerstones of the GHG Protocol which is the Internationally acclaimed standard when it comes to measuring these types of emissions.
Scope 1: The Direct Emissions
Scope 1 is the easiest of all a company’s Carbon emissions to track and control. These are the emissions that are directly caused and released due to the company’s activities. Good examples of these are as follows:
- Emissions from fossil fuels being burnt by owned or controlled emitters such as vehicles, furnaces etc
- Chemical production that is owned or the company is in control of
- Fugitive emissions, the clue for these is in the name, these account for inefficient faulty equipment that causes leaks etc
Scope 2: Indirect Emissions (Owned)
Scope 2 covers all indirect CO2 or GHG emissions from the generation of owned sources. This means any activity that happens to things before they reach the company in question. The most common example of this is in things like the generation of purchased electricity as well as any heating or cooling required as well.
Scope 3: Indirect Emissions (Not Owned)
Scope 3 is similar to Scope 2 in that it categorises indirect emissions, however unlike Scope 2, it focuses on the emissions that happen in the journey after the product or service in question leaves the company in question’s control. Scope 3 is often the largest category and also the most complicated and difficult to fully account for due to the range of emission sources and the complexity of getting the right data.
Good examples of what would come under Scope 3 are as follows:
- Employee travel and commuting and the emissions that they cause
- Waste disposal
- The production of any purchased goods or services
- Distribution and usage of products created
- Emissions from any leased assets or investments
What Carbon Accounting Provides
Carbon Accounting is a hugely important part of a company’s approach these days and provides a huge amount of benefits.
- Regulatory Compliance: Ensuring a company is abiding by its climate responsibility and making sure there are no fines or financial penalties
- Competitive advantage: Showing a proactive approach to carbon accounting and reduction is a huge selling point to customers or clients, leading to increased customer loyalty and brand value as well as being very attractive to new customers.
- Cost savings: By identifying areas of high energy consumption and emissions, companies can implement efficient measures leading to lower utility bills and other cost savings.
- Employee production and retention: A strong carbon accountancy and reduction is a huge pull when it comes to both recruiting new employees and retaining existing ones. It can also have an increase in productivity.
- Revenue Growth: Companies that reduce their GHG emissions through carbon accountancy qualify for green certifications that open up new markets or allow them to charge a premium on products.
Internal Reports
An internal reporting for Carbon accounting serves several specific goals. The first is providing a purpose, allowing to inform specific decision making, tracking performance to see how the business is doing as well as to help identify operational improvements.
Alongside this it provides internal stakeholders, specifically management and also employees, with access to information as to how it is all going. Internal reports also provide the content that is required, details data, confidential information and action plans against each point. The priority is honesty. It also tends to follow a more flexible layout as it isn’t required to abide by regulatory standards that external reports do and it allows a company to utilise its personality.
External Reports
External reports are a much more formal report as to what it is going on. The priority is to ensure compliance is met and manage any reputational benefits or negatives that come about from it. It is also to ensure transparency as greenwashing is a common accusation and the external report is a great way to counteract that.
It also provides the reassurance to stakeholders including investors that the company is on the promised track, providing financial stability.
The data is often in a more summary format providing the relevant and most necessary details with more data availability upon request. It is often released annually and is in a prescripted format based on regulatory requirements, often requiring third parties to verify that everything has been disclosed honestly and accurately.