What is Carbon Accounting?

Carbon accounting tracks and analyses greenhouse gas emissions in the same way that accounting records transactions, providing a clear overview of financial inputs and outputs. Also referred to as greenhouse gas accounting, it helps organisations understand their environmental impact by measuring the GHGs they produce and setting reduction goals to show their commitment to decarbonisation.

The main purpose of carbon accounting is to provide accurate data that supports effective climate action and risk management. Companies can avoid unintentional greenwashing and enhance their credibility by addressing inaccuracies in their emission calculations. Apart from that, it highlights benefits like improved brand equity and competitive advantage.

How does carbon accounting work?

Carbon accounting involves collecting and processing data to evaluate greenhouse gas (GHG) emissions. Here’s how it works:

1. Data collection: Businesses should gather two types of data to gain a comprehensive understanding of their emissions:
   • Spend data: This refers to the amount spent on various goods and services from other companies.
   • Activity data: The quantities of specific materials or resources purchased, such as kilograms or litres of raw materials used in company operations.
2. Data processing: The collected business data are then multiplied by their specific emission factors, which depend on the rate of GHG release associated with each type of goods or service. These factors are acquired from databases maintained by authorising bodies like the Intergovernmental Panel on Climate Change (IPCC). The total carbon footprint of a business can be determined after completing these calculations.

Carbon Accounting Standards

Given the process of measuring, reporting, and verifying emissions data in carbon accounting, standards are established to guide organisations in implementing effective and accurate strategies. Some of them are:

• Greenhouse Gas (GHG) Protocol: A leading accounting standard established in 1997 as a response to the Kyoto Protocol. It offers guidelines for organisations to create GHG emission inventories, categorising emissions into three scopes.

1. 1. Scope 1 emissions, known as direct emissions, are those produced by facilities and vehicles owned by the organisation.
   2. Scope 2 emissions refers to indirect emissions resulting from the energy purchased by the organisation, mainly electricity, as well as heating and cooling.
   3. Scope 3 emissions encompasses all emissions related to the supply chain that arise from activities not directly managed by the organisation, including waste disposal, employee travel, and the use of sold products.

• ISO 14064: Established in 2006, it is a globally-known standard designed to guide organisations to quantify and report GHG emissions and removals in three parts.

1. 1. Part 1 – Organisational level emissions inventory: Specifies how organisations should conduct GHG emission inventories using a bottom-up approach to ensure the accuracy of calculations.
   2. Part 2 – Project-level emission reductions: Outlines the measurement and reporting of emission reductions and enhancements from specific projects.
   3. Part 3 – Verification and validation: Establishes processes for validating and verifying GHG assertions that are applicable to organisational and project-level inventories, ensuring the integrity of reported data.