Carbon Accounting: What Is It And Why Does It Matter?

Carbon Accounting: What Is It And Why Does It Matter?

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As our technology advances in the modern world, our environment also suffers. Big corporations, small businesses, and even households contribute to unintentionally harming the environment. From the production of goods up to delivering them to the consumers, we contribute to carbon emissions that cause global warming and climate change.

The Intergovernmental Panel on Climate Change (CCIP) stated in 2018 that we only have a few years left until climate catastrophe. They said that we must halve carbon emissions by 2030 and achieve a net-zero by 2050. That is why we must act now and emit less carbon for a net-zero future. One thing that will help us make sustainable decisions is by doing carbon accounting.

What is Carbon Accounting?

Carbon accounting is the process of quantifying the carbon emissions to the Earth’s atmosphere. It helps organizations fully understand their carbon footprint and climate impact, so they can set limits for emission reduction and perform sustainable actions. Carbon accounting is split into two categories: physical carbon accounting and financial carbon accounting.

Physical carbon accounting, also known as Greenhouse Gas (GHG) inventory, measures direct and indirect GHG emissions (Scopes 1, 2, and 3) of an organization to the Earth’s atmosphere. Meanwhile, financial carbon accounting assigns a market value to quantifying emissions.

The 3 Scopes

n 2001, the GHG protocol (GHGP) created a standard guideline in carbon accounting for businesses to follow. They classified the GHG emissions into three scopes, which include:

 

  • Scope 1 – These are direct emissions of companies’ owned and controlled resources during the production process of their items. Boilers, furnaces, emissions from machinery and equipment, fuel combustion, and fuel-powered vehicles are a few examples of it.
  • Scope 2 – These are indirect emissions from the consumption of purchased services, which include electricity, heating, cooling, gas, steam, and electric vehicles.
  • Scope 3 – These are all indirect emissions not covered in Scope 2. It happens in the value chain of the reporting company. In other words, emissions that are linked to the company’s operations, including upstream and downstream emissions. Upstream Emissions are emissions made during pre-productions before arriving at the reporting company’s facility. These include transportation of employees, business trips, purchased materials, capital goods, and waste generated in operations. On the other hand, Downstream Emissions are emissions made after a product leaves the reporting company’s facility. It relates to when the goods and services are being distributed and consumed by customers.

Scopes 1 and 2 are mandatory to report while scope 3 is being encouraged. The idea of reporting the carbon emissions across the entire value chain help us know the measures to take, to be able to reach carbon neutrality.

Why is it important?

After knowing the definition of carbon accounting and the scopes it covers, why is it important? There are so many reasons why carbon accounting is vital for companies, but here are the three significant factors to consider:

 

  1. Environment. The main reason why businesses are required to do carbon accounting is to help the Earth thrive. Corporations are the big contributors of GHG emissions—having said so, it is only right for them to help with combating climate change. We only live in one Earth, so we have to do everything to ensure that the future generation will still have a home to inhabit.

 

  1. Economy. Doing carbon accounting not only encourages enterprises to lessen their greenhouse gas emissions but also promotes energy efficiency, which lowers energy costs.

 

  1. Social and brand impact. Since we all aim for a sustainable future, consumers also take part in making it happen by supporting enterprises that care for the environment. By incorporating carbon accounting into your business, you also develop deeper trust and loyalty from your customers. Another motivation is the escalating number of investors funding sustainable brands as shown in the graph below.

Carbon Accounting: What Is It And Why Does It Matter?

(https://www.bloomberg.com/news/articles/2022-02-03/esg-by-the-numbers-sustainable-investing-set-records-in-2021)

This impacts a wide range of factors. Therefore, it is only best to incorporate it into your business. But what type of tools should you use to make the process of carbon accounting easier?

Tools for Available

Due to the complexity of quantifying GHG emissions, there is an increasing demand for reliable carbon accounting software to advance accounting practices. Luckily, the GHG Protocol is continually creating and promoting tools that can help measure, monitor, and track carbon emissions and the reduction efforts across business units. These include the Carbon Reporting Tool for SME Companies, the Direct Land Use Change Assessment Tool, and the Corporate Greenhouse Gas Calculator. In addition to these tools, you can make use of the “Built on GHG Protocol” service, which identifies if your organization’s accounting inventory has been built in accordance with a GHG Protocol standard. That way, you know that the tools that your company uses are efficient and legitimate.

With these emerging software, businesses can automate many of their carbon accounting tasks to monitor the progress of their net-zero strategy. But, if you want to go beyond emissions inventories and reporting, you can always do comprehensive carbon accounting. You can look for software that offer dynamic assessment tools that provide information and data to quantify financed GHG emissions and establish carbon price modules. One that will be able to evaluate and contrast abatement costs and mitigation possibilities across various departments of a company with the use of intelligent data integration and scenario analysis.

Conclusion

This plays a vital role in mitigating climate change while also helping companies grow. Making it a standard strategy for all kinds of business will help us make sustainable decisions in achieving a zero-carbon future. So, take part in keeping the only place we live in habitable for the next generation.

Author | Bash Sarmiento

Carbon Accounting: What Is It And Why Does It Matter?

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