To limit global warming to the 1.5°C set out in the Paris Agreement and avoid the worst effects of climate change, businesses, organisations and countries must urgently reduce their greenhouse gas (GHG) emissions and achieve net zero by 2050.
But to set sustainability targets and determine if you are succeeding, it is first necessary to measure your emissions. As carbon dioxide is the most prevalent of GHG emissions from human activity, this is the emission usually calculated in a process known as carbon accounting.
This article will explain more about carbon accounting and its importance in the battle to save our climate.
What is carbon accounting?
Carbon accounting refers to quantifying an individual, business or organisation’s greenhouse gas (GHG) emissions to determine their carbon footprint within a set of emissions boundaries. Three emission scopes can be measured, known as scope 1, 2 and 3 emissions.
Scope 1 emissions are a direct by-product of the business or organisation’s activity. This could include the emissions from fuel used to produce the company’s goods (some service-based businesses may not have any scope 1 emissions).
Scope 2 emissions are indirect emissions, such as those produced by purchased electricity and heating used on company premises
Scope 3 emissions refer to all supply chain emissions, including waste, packaging, suppliers’ services, commuting, staff working from home and deliveries. Including all three emissions scopes is necessary for accurate carbon accounting.
Why is carbon accounting important?
Carbon accounting is the essential first step on any business’s journey to becoming carbon neutral or achieving net zero emissions. If you do not have a system to quantify your emissions, you will not be able to set targets or know if you are achieving them!
Once carbon accounting is in place, you can calculate how many carbon offsets you need to purchase to become carbon neutral. You can also execute a targeted, high-impact strategy to reduce your emissions and track the results of your initiatives, which will lead to greater success and make your business more efficient.
The demand for carbon accounting is snowballing as businesses, investors, and consumers acknowledge the importance of sustainability and reduced carbon emissions in their investments and purchases. By investing in carbon accounting now, you could give your brand an advantage over the competition.
Carbon accounting is also essential to a business’s Environmental, Social and Governance (ESG) reporting. This is of interest to stakeholders and investors and means carbon footprint accounting plays an increasingly important part in a business’s financial accounting. The methods used for carbon accounting should therefore have the same level of depth and accuracy as financial reporting.
In many parts of the world, greenhouse gas accounting is more than just a ‘nice to have’ – it is a legal requirement. In the UK and the EU, for example, it is mandatory for larger companies to report their emissions. By preparing now and putting systems in place to measure your carbon footprint, you could avoid a hassle in the future – and help to protect our planet.
Carbon accounting frameworks and methods
The Greenhouse Gas Protocol Protocol, developed by the World Resources Institute and World Business Council for Sustainable Development, is the industry’s most widely accepted GHG reporting standard. It specifies the timeframes, activities and emissions boundaries that should be used when tracking a business’s carbon footprint and working towards decarbonisation.
Our Trace carbon methodology combines the Australian Government’s Climate Active program, NABER and GHG Protocol methods. As specified under the GHG ‘Corporate Standard’ – one of the most respected carbon accounting standards – we measure all scope 1, 2 and 3 emissions under an organisation’s direct control or strong influence and compare it to benchmark data.
There are two main carbon accounting methods: the spend-based method and the activity-based method. The spend-based method calculates emissions by multiplying a product or service’s financial value by an ‘emissions factor’ – the amount of emissions created per economic unit.
The activity-based method uses a similar calculation but looks at the amount of a particular material or product a company has purchased and takes the ‘emissions factor’ from auditable scientific studies into the amount of carbon released into the atmosphere from that activity. This is considered a more accurate method and is our preferred approach at Trace, where possible, particularly for scopes 1 and 2.
To calculate your carbon emissions, Trace ideally needs accurate and historical data about your business. The data required may include your energy use, the amount of waste you produce and how much you spend on suppliers over the previous 12-month period.
Scope 3 emissions are typically the most difficult to measure but are perhaps the most important - CDP’s 2019 Supply Chain Report states that supply chain emissions can account for 5.5x the amount of an average business’s direct emissions.
Once collected, this data will allow your carbon accountant to calculate your business’s activity rate for producing emissions. They will then multiply your activity rate by an emissions factor to determine the volume of emissions produced by that activity in tonnes of CO2. By repeating this for all areas of your business, we can assess your overall carbon footprint. We can then work with you to make an emission reduction plan.
GHG reporting is a complex process that presents a challenge for many organisations. Unless you have extensive carbon accounting training, we recommend using an experienced and reputable provider, such as Trace, to calculate your carbon footprint – especially if you want to use the information to claim carbon-neutral status.