What matters is that fixing the climate crisis goes far beyond making more green electrons. It requires reflecting on what new institutions will act as eco structures generating new emergent consumer norms and behaviors. And it also requires reflecting on what options we may have to change consumer behavior more directly.
Carbon accounting is a general, shorthand term that encompasses our activity to bring down the levels of gases we emit into the atmosphere that are recognised to cause global warming. Carbon dioxide (CO2) is the most dominant of seven greenhouse gases (GHG). The seven GHGs the United Nations Framework on Climate Change (UNFCCC) defined that are increasing global warming are:
Together, they are converted into a ‘carbon dioxide equivalent’ (CO2e) that is used to understand the total contribution of GHGs to global warming of a given activity or process. For an organisation the metaphor ‘carbon footprint’ is then overlayed to represent the best estimate of the full climate change impact their business has.
In simple terms, carbon accounting is the process used to measure how much carbon dioxide equivalents an organisation emits.
The complexity of carbon accounting and its scope
However, as greenhouse gas emissions are released in so many business activities, if carbon accounting is to make a difference, it must also wrestle with complexity. Bill Gates in, How to avoid a climate disaster, demonstrates that GHG emissions cut across an organisation’s entire business model.
Therefore, the activities of carbon accounting need to focus upon two elements: mitigation and adaptation.
Mitigation focuses upon an organisation’s action to avoid and reduce its emissions of greenhouse gases into the atmosphere. It addresses the root cause of the problem rather than dealing with the effects. Net-zero carbon targets are an example of mitigation activity in an organisation’s transition to a lower-carbon economy.
Adaptation focuses upon altering an organisation’s behaviour, systems, and business model. It is the process of adjusting to actual or expected climate change, and its effects to protect an organisation’s future economy and ecosystem. Impacts could include rising temperatures, flooding due to rising sea levels, or seasonal droughts. A drive to reduce the waste generated by an organisation is an example of an adaptation activity.
Through the dual focus of mitigation and adaptation, carbon accounting provides an organisation with an approach to quantify and measure GHG emission, and, also helps it make informed decisions about its low carbon future. An organisation’s journey to reduce its GHG emissions or achieve net-zero targets are increasingly documented in a ‘climate transition plan’. Climate transition plans are explored in the ‘How to integrate carbon accounting into an organisation?’ section.
The carbon accounting lexicon
Adding to the complexity of carbon accounting is the different use of terminology for things that are defining the same or similar activity. However, this is not the case. Taking climate target labels as an example,
Carbon neutrality — Reaching a point where an entity no longer generates carbon emissions or where any carbon emissions released into the atmosphere is counterbalanced by removing an equivalent amount of carbon from the atmosphere.
Carbon negative — An entity removes more carbon from the atmosphere than the carbon that they release into the atmosphere.
Net-zero carbon — It’s the same as being carbon neutral.
Net zero — Reaching a point where an entity no longer generates greenhouse gas (GHG) emissions or where any GHG missions released into the atmosphere is counterbalanced by removing an equivalent amount from the atmosphere.6
Climate positive — Essentially the same as carbon negative, but unfortunately, is mostly used as a marketing ploy.
Confusingly, ‘global warming’ and ‘climate change’ are also often used interchangeably, but we must recognise that the global warming caused by GHGs in the earth’s atmosphere is just one aspect of climate change, which encompasses shifting weather patterns and other related impacts as well.
When authors Robert Charnock, Matthew Brander, and Thomas Schneider were reviewing the carbon accounting landscape they concluded that, ‘any attempt at a comprehensive definition may be doomed to failure as the diversity of practices that can be considered as "carbon accounting" is just too great and continues to grow.’ 7 No wonder it is a complex space when the language and terms used appear nuanced and change depending on who is using the labels.
The scope of an organisation’s GHG emissions
In 2017, the Taskforce on Climate-related Financial Disclosures (TCFD) published recommendations designed to help organisations provide better climate-related financial information to support informed capital allocation. A core element of the thematic area of ‘Metrics and Targets’ is how organisations disclose their GHG emissions and any related risks.8 These are split into three types:
Scope 1 covers an organisation’s direct GHG emissions from owned or controlled sources. This includes any emissions connected to fuel combustion within an organisation’s boilers, furnaces, and vehicles.
Scope 2 covers indirect GHG emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting organisation. These tend to be located in an organisation’s upstream activities.
Scope 3 covers all other indirect GHG emissions that occur in an organisation’s value chain. These emissions typically represent the greatest share of an organisation’s carbon footprint. They are located in both an organisation’s upstream and downstream activities.
Scope guidance from the TCFD in 2021 suggest (above),
All organizations should disclose absolute Scope 1 and Scope 2 GHG emissions independent of a materiality assessment given the foundational aspect of these emissions in assessing exposure to climate-related issues. In addition, the Task Force strongly encourages all organizations to disclose Scope 3 GHG emissions.9
It is important here to be aware that as the science evolves around GHG emissions, so the measurement methodologies that defines a scope’s focus will evolve. This has been the case with the challenges of disclosing Scope 3 emissions. Problems have included, double-counting of emissions, agreement on a common calculations’ methodology, and the types of activities excluded.
However, as governments and regulatory bodies move to mandatory disclosure of climate-related financial materiality many of their prototype legislative drafts are based on the TCFD recommendations. These will improve the universality of carbon accounting language and comparable disclosure.
When trying to understand the ‘what of carbon accounting’, the TCFD recommendations are a great starting position on which to build your organisation’s journey.
