What Is Carbon Accounting? Explained With Examples

Carbon accounting provides a framework to measure and track the greenhouse gas (GHG) emissions generated by an organization’s activities. This process helps businesses understand their environmental impact by quantifying their carbon footprint and identifying where emissions originate.

Understanding Carbon Accounting

Carbon accounting, also known as greenhouse gas accounting, involves systematically quantifying the direct and indirect greenhouse gas emissions produced by an entity’s operations, similar to how financial accounting tracks monetary flows. Its primary purpose is to measure the total amount of greenhouse gases, such as carbon dioxide, methane, nitrous oxide, and fluorinated gases, emitted. These gases are often converted into a single unit called carbon dioxide equivalent (CO2e) for consistent comparison, based on their global warming potential (GWP). Organizations engage in carbon accounting to identify sources of emissions, set specific targets for reduction, and support sustainability goals. By understanding their emissions, businesses can pinpoint inefficiencies and make informed decisions to lower their carbon footprint.

Emission Categories: Scope 1, 2, and 3

To provide a comprehensive view of an organization’s greenhouse gas emissions, these are categorized into three distinct scopes: Scope 1, Scope 2, and Scope 3. This categorization, established by frameworks like the Greenhouse Gas (GHG) Protocol, helps differentiate emissions based on their source and the level of control an organization has over them.

Scope 1 emissions are direct emissions from sources owned or controlled by the reporting company. Examples include the combustion of fuel in company-owned vehicles, such as delivery trucks or company cars. Emissions from stationary sources like boilers burning natural gas for heating or electricity generation on-site also fall under Scope 1. This scope additionally includes process emissions from chemical reactions in manufacturing and fugitive emissions, which are unintentional releases of gases like refrigerants from cooling systems.

Scope 2 emissions are indirect emissions resulting from the generation of purchased energy. This primarily includes electricity, but also steam, heating, and cooling bought from utility providers. While the actual emissions occur at the power plant or facility generating the energy, they are attributed to the company that consumes it. Companies often calculate Scope 2 emissions based on their energy bills, reflecting the emissions associated with the purchased power.

Scope 3 emissions encompass all other indirect emissions that occur in a company’s value chain, both upstream and downstream. These emissions are a consequence of the company’s activities but originate from sources not owned or directly controlled by the organization. Examples include emissions from the production of purchased goods and services, business travel, employee commuting, and the transportation and distribution of products. Scope 3 often represents the largest portion of a company’s total carbon footprint and can be the most challenging to measure due to their broad nature across the supply chain.

Approaches to Measuring Emissions

Measuring carbon emissions involves a structured process that begins with identifying all relevant sources. Organizations then gather activity data, which represents quantifiable actions that lead to emissions, such as energy consumption, fuel usage, and miles traveled.

A key step is applying emission factors to convert this activity data into CO2e. An emission factor quantifies the average amount of greenhouse gas emitted per unit of activity (e.g., CO2e per liter of fuel or per kilowatt-hour of electricity). These factors allow for the translation of operational metrics into environmental impact.

Calculation methodologies, such as those provided by the Greenhouse Gas (GHG) Protocol, offer a standardized framework for accurate emissions measurement. Another aspect of measurement is defining organizational and operational boundaries, which determines which parts of the business and its value chain will be included in the carbon accounting. This boundary setting ensures completeness in reported emissions.

Real-World Carbon Accounting Examples

Carbon accounting principles apply across diverse industries. A manufacturing company, for instance, would meticulously account for its Scope 1 emissions, such as direct emissions from on-site factory operations, including the burning of natural gas in industrial furnaces or the use of refrigerants in cooling systems. They would also track Scope 2 emissions from purchased electricity used to power machinery and lighting in their facilities. Additionally, their Scope 3 emissions would be significant, encompassing the emissions from raw materials sourced from suppliers, the transportation of finished goods to distributors, and the eventual disposal of their products by consumers.

For a service-based business, such as a large consulting firm with multiple offices, carbon accounting focuses differently. Their Scope 1 emissions might be minimal, perhaps limited to fuel used by a small fleet of company cars or on-site generators. Scope 2 emissions from purchased electricity for office lighting, heating, and cooling would be a primary focus. However, Scope 3 would likely represent their largest emission category, covering extensive business travel via flights and hotels, employee commuting, and emissions from purchased office supplies and outsourced services.

A transportation company, like a freight logistics provider, would have substantial Scope 1 emissions from the diesel or gasoline consumed by its fleet of trucks or ships. Their Scope 2 emissions would stem from the electricity used in their administrative offices and maintenance depots. Their Scope 3 emissions would include the upstream emissions associated with the production of the fuel they purchase, as well as the manufacturing of their vehicles.

Disclosing Emission Data

Once an organization completes its carbon accounting, the resulting emission data is typically disclosed to various stakeholders. Companies frequently include this information in annual sustainability reports or through platforms like the Carbon Disclosure Project (CDP).

Disclosure is important for transparency and demonstrates a company’s commitment to environmental responsibility. Accurate and consistent reporting ensures reliable and comparable data.

Investors use this data to assess environmental risks, consumers consider it for purchasing choices, and regulators may require it for compliance.