Introduction to Carbon Accounting

INTRODUCTION TO CARBON ACCOUNTING

What is Carbon Accounting?

Carbon accounting is a critical process that helps organizations measure and manage their greenhouse gas emissions. It involves the systematic tracking and reporting of carbon emissions across an organization and its value chain from various sources, including energy consumption, transportation, employee commuting, solid waste, refrigerants, building energy use and many others.

Simply put, carbon accounting is like a money manager for a company’s carbon budget, keeping meticulous track of the ‘spend’ (current carbon emissions), aiming for a ‘balanced budget’ (net zero emissions or carbon neutral status), all while using data analysis techniques, and often, with the guidance of climate consultants or carbon accounting software.

Understanding the Carbon Accounting Framework

Carbon accounting, also referred to as greenhouse gas (GHG) accounting, emission management or emissions inventory, is a rigorous and methodical approach to quantifying, monitoring, and disclosing the quantity of greenhouse gas emissions (communicated in CO2 metric tons equivalent) generated by an entity or a particular undertaking.

This process is essential for organizations seeking to first understand their carbon footprint, and then identify ways to reduce their emissions, to report their emissions and to comply with various regulatory, investor or customer requirements.

Having a comprehensive understanding of the fundamental principles of carbon accounting before conducting a GHG emissions inventory for your company is crucial. This knowledge will serve as a guide throughout the process, enabling you to effectively and efficiently conduct annual GHG inventories that meet best practices.

The Greenhouse Gas Protocol is the most widely used and most reputable accounting framework for quantifying and tracking corporate greenhouse gas (GHG) emissions. The World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) collaborated to develop this framework to guide organizations in a standard way to quantify, track and report their emissions.

The GHG emissions are mainly divided into three scopes as follows:

  1. Scope One – Direct emissions where combustion is happening in company owned or controlled buildings and vehicles (natural gas, propane, gasoline, diesel etc.)
  2. Scope Two – Indirect energy emissions where combustion is happening elsewhere, but the energy produced is used in company owned or controlled buildings or vehicles (electricity, district heating and cooling)
  3. Scope Three – All other indirect emissions up and down the value chain (purchased goods and services, business travel, solid waste, employee commuting, product distribution, use of sold products etc.)

What are Scope 1, 2, and 3 Emissions?

Scope One – Direct emissions

Scope 1 emissions refer to the direct emissions that arise from sources that are owned or controlled by an organization.0

These emissions can result from a variety of activities, including fuel combustion, company-owned vehicles, and manufacturing processes.

It is important for organizations to accurately measure and report their Scope 1 emissions in order to effectively manage their environmental impact and comply with regulatory requirements.

Scope 1 emissions typically are one of the easier sources to reduce because they are in an organization’s direct control.

Scope Two – Indirect energy emissions

Scope 2 emissions refer to the indirect greenhouse gas emissions that result from the consumption of purchased electricity, heat, or steam by an organization.

These emissions are considered indirect because they are generated by a third party, such as a utility company, but are still associated with the organization’s activities.

Large companies should track and share their Scope 2 emissions data. This helps them fully grasp their carbon impact and spot ways to reduce emissions.

When a company buys power from a supplier using fossil fuels, it increases its Scope 2 emissions. But, if it chooses renewable energy sources or produces its own green energy, its emissions are lower.

Scope Three – All other indirect emissions

Scope 3 emissions refer to the indirect greenhouse gas emissions that take place throughout the value and supply chain.

These emissions are generated from sources such as suppliers, business travel, waste disposal, and the use of products and services.

It is crucial to consider these indirect emissions as they can have a significant impact on a company’s overall carbon footprint.

Scope 3 emissions are typically the more difficult source to quantify and reduce, as the data is often times dependent on the third-party solutions and parties and engagement and partnership with suppliers is needed.

The GHG Protocol, a widely recognized standard for greenhouse gas accounting, classifies greenhouse gases into seven major types. These include:

  1. Carbon Dioxide (CO2)
  2. Methane (CH4)
  3. Nitrous Oxide (N2O)
  4. Hydrofluorocarbons (HFCs)
  5. Perfluorocarbons (PFCs)
  6. Sulfur Hexafluoride (SF6)
  7. Nitrogen Trifluoride (NF3) This classification system is essential for accurately categorizing emissions and understanding their impact on the environment. Greenhouse gases possess different global warming potentials (GWPs) that are utilized to compute the CO2 equivalent (CO2e).

CO2e is a standardized unit that is employed to express the collective warming influence of all greenhouse gases (GHGs). The utilization of CO2e is a highly effective method for organizations to accurately compare and assess emissions levels across various gases and activities. This approach enables organizations to gain a comprehensive understanding of their carbon footprint and make informed decisions regarding emission reduction strategies.

The GHG Protocol provides a framework for accurately measuring and reporting greenhouse gas emissions, which is essential for effective climate change mitigation strategies. It’s vital to adhere to these principles when creating an inventory of an organization’s emissions to ensure emissions are quantified with the same methodology year over year and in alignment with methodologies used by most other organizations in the world. This is crucial from comparing emissions year over year and understanding the true progress a company might be making on GHG reductions.

In managing a GHG emissions inventory, several key principles come into play. First, ensure the inventory aligns closely with the organization’s most material emission sources. This means including every source and activity relevant to operations to achieve a complete overview. Then, use consistent methodologies and make uniform assumptions (where needed) over time for stable, comparable data. Clear, comprehensive documentation is important to ensure methodology is followed over the years and important if pursuing third party verification of a company’s emissions. Lastly, the goal always is to strive for the maximum level of precision to assure the utmost accuracy.

By following these principles, organizations can create an emissions inventory that is accurate, actionable and auditable.

ESTABLISH ORGANIZATIONAL BOUNDARIES

Setting defined boundaries is key to accurately and consistently measuring your company’s greenhouse gas (GHG) inventory each year. This means understanding what falls within your inventory scope and where you need gather data. It’s vital to evaluate all your business units, facilities, and activities for their carbon footprint contributions to avoid double counting and ensure accuracy.

Methods to set organizational boundaries

Two methods can be used to set these boundaries according to the Greenhouse Gas Protocol:

  1. Control Approach
  2. Equity Share Approach

The control approach, based on financial or operational control, and the equity share approach, which considers ownership percentage.

Your boundaries should reflect both the vertical (ownership levels) and horizontal (range of facilities and activities) dimensions of your business. This helps establish clear parameters that facilitate effective communication and decision-making.

Choosing between the control or equity share approach depends on your organization’s specific circumstances, stakeholder demands, and reporting goals. The control approach is easy to implement and allows for direct data comparison, while the equity share approach effectively assesses financial exposure to GHG emissions, especially in companies with diverse investments and complex ownership structures.

IDENTIFY GHG EMISSION SOURCES

To be able to quantify, track and report the greenhouse gas (GHG) emissions of an organization, it is important to identify and list all relevant sources of emissions within the defined organizational boundaries. This process involves an analysis of all company activities, processes, and operations (including upstream and downstream) that contribute to GHG emissions.

What are the common GHG emission sources?

Some of the common sources of GHG emissions for typical companies include:

Scope 1 emissions:

  • Stationary emissions: natural gas, propane, diesel (generators)
  • Mobile emissions: gasoline, diesel
  • Fugitive emissions: Refrigerants, direct use of GHGs (CO2 release from industrial/manufacturing processes

Scope 2 Emissions:

  • Electricity
  • District heating and cooling

Scope 3 Emissions (based on GHG Protocol 15 Categories):

  • Category 1 – Purchased goods and services
  • Category 2 – Capital goods
  • Category 3 – Fuel and energy-related activities (not in Scope 1 or 2)
  • Category 4 – Upstream transportation and distribution
  • Category 5 – Waste generated in operations
  • Category 6 – Business travel
  • Category 7 – Employee commuting
  • Category 8 – Upstream leased assets
  • Category 9 – Downstream transportation and distribution
  • Category 10 – Processing of sold products
  • Category 11 – Use of sold products
  • Category 12 – End-of-life treatment of sold products
  • Category 13 – Downstream leased assets
  • Category 14 – Franchises
  • Category 15 – Investments

Materiality assessments can be a useful tool to help truly understand sources of emissions, especially those that might be most material. This assessment will help determine the most significant sources of various environmental impacts, including emissions, allowing for a prioritization of these sources within your inventory.

Conducting a materiality assessment is an imperative step in evaluating an organization’s sustainability impacts and can also be helpful in understanding material GHG emission sources. By identifying the most significant sources of emissions, an organization can prioritize opportunities for emission reductions and develop effective strategies to achieve its sustainability goals.

GHG accounting software, or carbon accounting software solutions or tools, can really help you streamline the process of identifying, quantifying and managing emission sources. These tools can aid in accurately categorizing and tracking emissions, ultimately leading to more effective emissions management and reduction strategies. Utilizing the best carbon accounting software tools can aid in effectively quantifying and reporting emissions, while also facilitating the tracking of emissions data over time and identifying reduction opportunities. By identifying trends and patterns through the use of these tools, one can gain valuable insights that can inform effective carbon reduction strategies.

COLLECT ACTIVITY DATA

To begin carbon accounting, companies can start by gathering detailed and precise data on their greenhouse gas emissions. This data enables an accurate quantification of the company’s carbon footprint. Key metrics to consider in this process include energy consumption patterns such as fuel usage and the use of electricity, vehicle mileage or fuel use for company-owned transport, and the volume of waste generation among many other key data sources.

The Imperative of Data Accuracy and Data Management

The importance of the accuracy and reliability of this data cannot be overstated. Errors or inconsistencies can significantly distort the GHG inventory, jeopardizing its usefulness to informing emission reduction strategies and the ability to give stakeholders confidence the company is effectively managing emissions. Consistency in data collection is also of paramount importance, ensuring that year-over-year results are comparable, and the trends are accurately depicted. Following industry standards and established best practices can serve as a roadmap to secure reliable data.

Establishing data collection protocols, delegating responsibilities to designated personnel or departments, and defining data quality standards are essential steps in ensuring effective data management. These measures help to maintain consistency, accuracy, and reliability in the data collected, which is crucial for making informed decisions and achieving organizational goals. When creating a GHG inventory, it is imperative to take into account the frequency of data collection. This factor can significantly influence the precision and significance of your GHG inventory.

Establishing data collection protocols, delegating responsibilities to designated personnel or departments, and defining data quality standards are essential steps in ensuring effective data management. These measures help to maintain consistency, accuracy, and reliability in the data collected, which is crucial for making informed decisions and achieving organizational goals.

Leveraging Technology and Stakeholder Collaboration

Embracing advanced technology, such as energy management software, building automation systems, and GPS tracking, can significantly boost the efficiency and accuracy of data collection. These tools offer automation and precision that can streamline the data gathering process.

Additionally, fostering collaboration with both internal and external stakeholders, such as facility managers, suppliers, and utility providers, ensures access to a comprehensive and precise data set. This approach not only enhances data accuracy but also promotes a culture of collective responsibility towards carbon footprint reduction.

CALCULATE GHG EMISSIONS

Quantifying GHG Emissions

To accurately quantify the greenhouse gas (GHG) emissions associated with a particular activity, it is necessary to convert the collected activity data into a CO2 metric using established emission factors. This process involves utilizing recognized and scientifically validated emission factors that allow you to quantify the amount of GHG emissions produced by a given activity.

Understanding GHG Emission Factors

Known as GHG emission factors, these scientifically established figures link the amount of greenhouse gas emissions to a specific activity. These factors are typically expressed in the metric: CO2 metric tons equivalent (CO2mte).

Emission factors can be sourced from various resources such as The GHG Protocol, the Intergovernmental Panel on Climate Change (IPCC) the Environmental Protection Agency (EPA) and other agencies around the world. You can also create bespoke emission factors from peer reviewed research that has been conducted to quantify emissions from various activities.

Enhancing Calculation Precision

To enhance the precision of your greenhouse gas (GHG) emissions calculations, it is advisable to utilize location- or industry-specific carbon emission amount factors, wherever feasible. This approach will enable you to obtain more accurate and reliable results, as it takes into account the unique characteristics of your location or industry. Therefore, it is recommended that you incorporate this practice into your GHG emissions calculations to ensure that your results are authoritative, educational, and professional.

It is important to note that while default carbon emission amount factors from international sources can serve as a preliminary guide, utilizing emissions factors that are customized to your organization’s specific context can more accurately depict the emissions linked to your activities. This approach can provide a more comprehensive understanding of your carbon footprint and enable you to make informed decisions regarding emissions reduction strategies.

Documenting Emissions Calculations

You should always document the methodologies, emission factors, and data sources used in the process of calculating your organization’s emissions. This practice ensures transparency and reproducibility, which are critical elements of a rigorous and reliable emissions calculation year over year. This documentation holds significant value in the context of reporting your emissions to external stakeholders and during the verification process. It is imperative to maintain accurate and comprehensive records of your emissions to ensure transparency and accountability. By utilizing this documentation, you can effectively communicate your emissions data to relevant stakeholders and parties and demonstrate your commitment to environmental responsibility.

MONITOR, VERIFY, AND REPORT CARBON EMISSIONS

Maintaining a consistent and up to date GHG inventory is essential for monitoring, forecast future emissions and evaluating progress in reducing emissions. This procedure is essential for the emissions management software ensuring that emission reduction strategies are effective and in line with predetermined objectives. Regularly updating this inventory on an annual basis is key to sustainability efforts and GHG transparency. A strong quality assurance system is also needed to spot and fix any data errors or inconsistencies.

A quality assurance and verification process will help ensure that your organization’s data is trustworthy and can be used with confidence to quantify emissions and make informed decisions. Third party auditors can review and verify your completed GHG emissions inventories every year to ensure your stakeholders that the GHG Protocol has been followed, accurate data has been used, calculations were performed correctly, and that customers, investors, employees and other stakeholders can have faith that your emissions numbers are accurate. It is recommended that you present your findings in accordance with established carbon reporting standards, such as the Global Reporting Initiative (GRI), the Carbon Disclosure Project (CDP), or any mandatory reporting requirements that are applicable in your region.

Using recognized frameworks helps guarantee the consistency, comparability, and relevance of your reporting to investors, customers, and other stakeholders. By following these frameworks, you can ensure that your reporting adheres to professional standards and meets best practices.

SET GREENHOUSE GAS EMISSIONS TARGETS AND IMPLEMENT MITIGATION STRATEGIES

Setting GHG reduction goals requires a careful balance between ambition and realism for businesses striving for a net zero future. An in-depth review of your GHG inventory, including energy consumption, uncovers opportunities for meaningful change. Achieving these goals mandates the development and implementation of impactful decarbonization strategies.

Such strategies could involve boosting energy efficiency, shifting to renewable energy sources, endorsing sustainable transportation, and urging suppliers to minimize their emissions. In doing so, your business moves closer to becoming carbon neutral, effectively reducing the carbon footprint and bolstering sustainability.

Adept handling of climate risk analytics and ESG data is integral to prioritizing these strategies effectively. Regular ESG reporting keeps all stakeholders informed and involved in this important journey. Timely and efficient implementation of these strategies is the key to achieving the outcomes we desire in our path to carbon neutrality.

It is recommended to adopt science-based targets (SBTs) when establishing reduction targets.

Science-Based Targets (SBTs) are GHG reduction targets designed to keep global temperature increases under 2%, as recommended by scientific studies and in alignment with the Paris Climate Accord. SBTs play a pivotal role in aligning your company’s efforts to reduce carbon emissions with the global initiative combating climate change. This alignment is not just integral to achieving carbon neutrality faster but is also crucial to your business model and mitigating potential business risks.

When you set SBTs, you’re showing a firm commitment to sustainability, taking decisive steps towards net zero, and making meaningful contributions towards the UN Sustainable Development Goals (SDGs). A comprehensive software solution can help manage this process. It’s critical to set SBTs that are ambitious, measurable, and time-bound to minimize your organization’s carbon footprint effectively and in alignment with what is needed across society.

CARBON MANAGEMENT SOFTWARE

North Star Carbon’s carbon management software simplifies carbon accounting for businesses. Its actionable insights help companies identify their major emission sources, collecting data and devise effective strategies. By streamlining these processes, businesses can reach their net zero goals faster and more efficiently. North Star Carbon is an essential tool for businesses aiming for sustainability and a low carbon future.

Written By Josh Prigge

Josh is a renowned sustainability professional with extensive experience in leading sustainability programs and initiatives for large organizations. His expertise is not just limited to consulting; he is also a a sought-after public speaker and a college professor. To learn more about him, read about him here – About North Star Carbon Management.