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Carbon Accounting

"Greenhouse Gas Accounting"

What is Carbon Accounting?

Carbon accounting, which is sometimes also referred to as “greenhouse gas accounting,” refers to the techniques that are used to estimate how much carbon dioxide equivalents a business emits. It is typically used to produce the carbon credit commodity that is 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 that are based on forms of carbon accounting. Hence, carbon accounting is the process through which companies assess their GHG (greenhouse gas) emissions in an attempt to comprehend their corresponding climate impacts and establish emission-reduction targets.

As at present, 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, while the Intergovernmental Panel on Climate Change (IPCC) methodology reports give guidelines for national GHG inventories.

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

  • Organizational greenhouse gas emissions (ISO 14064 – 1)
  • Project-level greenhouse gas emissions (ISO 14064 – 2)

The requirements for validating and verifying pertinent accountings are defined in (ISO 14064 – 3).

 

Carbon Accounting

 

Summary

  • Carbon accounting, often known as “greenhouse gas accounting,” refers to the methodologies used to quantify how much carbon dioxide emissions a company produces.
  • It is commonly used to create the carbon credit commodity, which is traded on carbon markets by governments, organizations, and individuals.
  • Currently, the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) GHG Protocol provide guidance for accounting for GHG emissions from companies and emission reduction efforts, while the Intergovernmental Panel on Climate Change (IPCC) methodology reports provide guidance for national GHG inventories.

 

Understanding Carbon Accounting

Greenhouse gas accounting is the process of inventorying and auditing greenhouse gas (GHG) emissions. A business or organizational 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 utilized 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 organization 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 among the 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, which is a major component of Enterprise Sustainability Accounting, attempts to be a quick and low-cost approach for organizations to gather, synthesize, and disclose organization and supply chain GHG emissions.

ECA employs financial accounting standards, as well as 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 from several ways to 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

As seen above, one of the key characteristics of a successful ECA system is a comprehensive report of the different forms of emissions, categorized as Scope 1, 2, and 3.

 

Scope 1

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

 

Scope 2

Scope 2 covers emissions resulting from the generation of purchased power utilized by an organization, 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 organization’s supply chain, e.g., acquired raw materials, distribution and logistics, employee travel, consumption of sold goods, and end-of-life remediation.

 

To learn more about carbon accounting, check out CFI’s Greenhouse Gas Accounting course, a required course of its Environmental, Social & Governance (ESG) specialization.

 

Additional Resources

Thank you for reading CFI’s guide to Carbon Accounting. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • ESG (Environmental, Social and Governance)
  • Life Cycle Cost Analysis
  • Scalability
  • Voluntary Carbon Market
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