What is Carbon Accounting?
“We’re all in this together,” was the mantra for 2020 as the world faced the COVID-19 pandemic. The same is true for the journey to becoming carbon-neutral, and in 2022, it’s not just the people of the world, it’s businesses too. The planet is witnessing an alarming trend as climate change is creating new challenges that worsen the problem. The COVID-19 pandemic caused a reduction of carbon emissions in 2020, and unfortunately, that has been short-lived. As the vaccine has been administered, more people have returned to the workplace and resumed travel plans, and carbon emissions have been on the rise.
It’s time for corporate leadership to escalate sustainability to the top of their priority lists, become accountable for their carbon emissions, and measure the impact they have on climate change. Whether it is dealing with deforestation, or tackling energy consumption in a supply chain, it is likely that greenhouse gas emissions will have a major environmental impact on a company. Companies have an important role to play in reducing emissions to meet the carbon budget set by the scientific community. But by how much should any one company reduce its emissions?
Carbon accounting is the process by which companies quantify their greenhouse gas emissions. Not only does it provide the insight needed to quantify and measure a company's carbon emissions but it also assists in making informed decisions in carbon and mitigation strategies. Here’s a comprehensive guide to carbon accounting!
A Guide to Carbon Accounting
The basic steps to carbon emissions accounting include identifying assets, gathering utility bills, and using the right Greenhouse Gas Protocol Corporate Accounting and Reporting Standard. Let’s take this one step at a time. The Greenhouse Gas (GHG) Protocol, a joint WRI/wbcsd initiative providing requirements and guidance to countries, cities and companies looking to manage their emissions used by 92% of Fortune 500 companies in 2016, has broken down carbon emissions into 3 categories, or scopes.
Scope One, “All Direct Emissions,” are emissions which result from direct activities of a company. Usually, a company’s owned assets are managed in Scope One, such as fuel combustion from facilities and vehicles that a company owns or controls. Additional assets could include gas boilers and air conditioning units. Once the list is complete, it’s time to gather energy consumption information which is found in utility bills.
Scope Two, “Indirect Emissions,” are emissions which result from the generation of purchased electricity consumed by a company, such as purchased electricity, steam, heating and cooling. Inventory is slightly similar to scope one, only these items are leased rather than owned. For example, the electric bill for a workplace or warehouse that the company does not own. The heating and cooling units in these locations are not owned by the company, however, they do “own” the carbon accounting from their usage. Again, utility bills will have the information needed for accounting.
Companies new to carbon accounting may start by setting targets for scopes 1 and 2, as these scopes are closer to the company and therefore easier to measure and influence. Setting and meeting goals for reducing scope 1 and 2 emissions — by investing in more efficient lighting and HVAC systems, using new software and AI to make buildings and operations more efficient, improving fleet logistics and introducing greener vehicles, to name a few examples — may also provide tangible business benefits, making a more convincing business case for companies needing a proof of concept before setting goals for their full supply chain emissions.
Lastly, Scope Three, “All Other Indirect Emissions,” focuses on 3rd-party vendors such as a supply chain or outsourced distribution. These include emissions from all other indirect sources in a company’s supply chain, such as purchased raw goods, distribution and transportation, employee commuting, use of sold products and end of life treatment Scope 3 emissions are often much greater than the company’s scope 1 and 2 emissions, making up over 70% of companies’ total emissions in most sectors. So, in order to set a meaningful emissions reduction target, companies must also account for scope 3 emissions. Scope 3 emissions are usually the hardest to influence because companies have limited control over activities happening up and downstream of their own operations.
Many leading companies have already taken on the challenge of setting scope 3 targets. Walmart’s Project Gigaton, an initiative to reduce the company’s full supply chain GHG emissions by 1 billion tons by 2030, necessitates engagement with the company’s suppliers — of which, CPG giants like PepsiCo, Mars and Unilever have already signed on. Smithfield has committed to reduce overall emissions in its United States supply chain 25 percent by 2025. And Danone, as part of its journey to be carbon neutral by 2050, has set a goal to reduce its scope 1, 2 and 3 emission intensity by 50 percent by 2030.
After all the data is entered, uploaded, or integrated, and the correct emission factors are selected, a company will compose the information in reports and dashboards with the accounting results that clearly state a company's carbon footprint.
The final step is to use the reports to measure and set goals for reducing emissions within a framework of these three “scopes,” and create company-wide awareness and actions to reduce the carbon footprint. The goal for any organization is to become carbon neutral, where there is no net release of carbon dioxide through offsetting actions such as planting trees or funding equal carbon saving anywhere on the planet.