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What Is Carbon Accounting and How to Get Started

Updated: Oct 13

Carbon accounting, also known as greenhouse gas (GHG) accounting, refers to inventorying and verifying greenhouse gas emissions. A GHG emissions assessment for a company or organization determines its carbon footprint by calculating the total amount of greenhouse gases produced, whether directly or indirectly. The information provides a basis for understanding and reducing the effects of climate change.


What is carbon accounting?

Carbon accounting is a method many companies adopt to calculate their carbon dioxide emissions. It is widely used to create a commodity known as carbon credits, which corporations and individuals exchange on carbon markets. Products based on carbon accounting include business environmental reports, national inventories, and carbon footprint calculators.


Currently, national GHG inventories are to follow the standards provided in the Intergovernmental Panel on Climate Change (IPCC) methodology reports, which are based on the World Business Council for Sustainable Development (WBCSD) GHG Protocol and World Resources Institute (WRI).


Corporations evaluate GHG emissions through carbon accounting to understand the accompanying impacts on the climate and to set emission-reduction goals.


Corporate carbon reporting

For-profit and nonprofit organizations can employ carbon accounting as a component of sustainability accounting. A corporate carbon and GHG emissions assessment helps evaluate the number of greenhouse gases produced directly and indirectly due to an organisation's operations within specifically agreed parameters. It is a business tool that generates information that could be useful for understanding and managing the impact of an organisation on climate change.


Corporate carbon footprint

The Corporate Carbon Footprint (CCF) is the quickest and most affordable technique for organizations to gather, summarise, or even publish information about carbon reduction initiatives and investment decisions taken.


Other than using a mixture of input-output Life Cycle Analysis (LCA) or process approaches wherever considered necessary, Enterprise Carbon Accounting (ECA), makes the best use of financial accounting principles. The progression to ECA is hence required to look after the urgent requirement for a thorough and scalable method of carbon accounting. To date, ECA is a developing field, but various emerging businesses now provide solutions. Nevertheless, ECA is undoubtedly an important component of enterprise sustainability accounting.


The smooth functioning of the ECA system demands the below-mentioned qualities:

  • Comprehensive: It has emissions under Scope 1, 2, and 3.

  • Periodic: It includes the comparisons between updates of regular intervals and reporting periods.

  • Auditable: It aims to trace transactions and allows an unbiased review of compliance.

  • Flexible: it includes data and information from different life cycle analyses and methodologies.

  • Standards-Based: It accommodates both already existing and widely accepted standards along with new needs.

  • Scalable: It has room for complexity along with the volume of commercial processes, which helps to grow.

  • Effective: It provides facts on the amount of time required for decision-making.


How does carbon accounting work?

Carbon dioxide is typically categorised as Scope 1, Scope 2, or Scope 3 GHG in carbon accounting.


Scope 1 + Scope 2 + Scope 3 = Total GHG Emissions

The U.S. Environmental Protection Agency and the Greenhouse Gas Protocol, one of the industry's leading carbon accounting frameworks, utilise 'scopes' to categorise emissions.


Scope 1

The term 'direct emissions' refers to emissions that come from the actual operations of the business as well as from property that it directly owns, such as buildings and vehicles. Emissions under Scope 1 include:

  • Consumption and use of energy in privately held workplaces and facilities

  • Any privately owned, non-renewable energy production

  • Owned automobiles' fuel consumption

  • Other emissions from privately held equipment that have not been taken into consideration at locations and installations

Scope 2

Purchased emissions are typically referred to as Scope 2 emissions. These include a local power utility's sale of electricity or natural gas to supply energy to a structure or facility, as well as:

  • Energy use and consumption in leased and rented offices

  • Production of energy from any rented, non-renewable sources

  • Vehicles that are leased, rented, or borrowed that use fuel

  • Other emissions from leased or rented equipment have not yet been considered by the companies that address the total emission done by them

Scope 3

All other 'indirect' emissions fall under Scope 3 emissions. For many businesses, especially those with tangible products and supply chains, Scope 3 emissions will account for the majority of their carbon footprint. The term 'upstream Scope 3' refers to emissions from the distribution, shipping, and transportation of goods as well as their use by consumers and end-of-life disposal ('downstream Scope 3'). In carbon accounting, Scope 3 is typically the most challenging category to wholly and precisely quantify.


The whole list of prospective Scope 3 GHG sources for the business consists of:

  • Bought products and services

  • Monetary assets

  • Energy-related activities involving fuel

  • Distribution and transportation

  • Waste created during operations

  • Travel for work employee commuting

  • Leased property

  • Processing of purchased goods

  • Use of purchased goods

  • Final disposition of sold goods

  • Franchises

  • Investments

To convert all of a typical organization's greenhouse gas (GHG) emissions into CO2e (carbon dioxide equivalent), a carbon accounting process entails deciding which scopes to account for, gathering, categorising, and assessing emissions and other input data.


Principles of carbon accounting

Carbon accounting follows many of the same best practices as financial accounting. This includes:

  • Keeping a computerised log of all the resources, activities, and transactions that go into the carbon budget or inventory

  • Tracking the critical KPIs for sustainability and carbon accounting, such as total emissions, Scope 1, 2, and 3 emissions, and how they have changed over time

  • Tracking the carbon emissions regularly, including monthly, quarterly, and yearly; identifying and recording key assumptions, processes, and data sources

  • Observing recognised frameworks and rules for carbon accounting, such as the GHG Protocol and the IFRS (ISSB) sustainability reporting requirements


The number of organizations using carbon accounting has increased dramatically over the past ten years, and this trend is anticipated to continue as climate change worsens. As a result, more investors, regulators, customers, and partners urge and pressure enterprises to increase their sustainability.



 


Frequently Asked Questions


What is a carbon ledger?

The creation of a single source of truth that supports strategic decisions and satisfies the demand for transparency is made possible by carbon ledgers. They depend on a standard data model across business functions, an auditable architecture, and the appropriate processes and controls.


What is the work of a carbon accountant?

Organizations assess their GHG emissions through the process of carbon accounting and via carbon accountants to understand their influence on the climate and establish emission-reduction targets. Some organizations also refer to this as a carbon or greenhouse gas inventory.


Where should one begin with carbon accounting?

The first step is to list all the things that produce carbon dioxide, with buildings, vehicles, and trucks being the most evident. Gas boilers and air conditioners could be considered additional assets. Once the list is full, it is time to collect data on energy consumption from utility bills.


What is accounting for greenhouse gases?

The process of conducting analyses to determine the total GHGs produced, both directly and indirectly, by corporate operations and other organizational activities is known as greenhouse gas (GHG) accounting, sometimes known as carbon accounting. This is often referred to as a company's carbon footprint. Companies and organizations should opt for this method so that it keeps a check on their actions and compels them to be more eco-friendly.

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