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Carbon accounting reporting is vital to our fight against climate change and a rapidly warming planet. It is essential for companies and governments to report and account for their emissions so that they can understand how to reduce them. In this article, we will learn about the different tools available to businesses for their carbon accounting reporting. We’ll also learn about the initiatives taken by international organizations to help companies worldwide measure and manage their carbon emissions.
Greenhouse Gas (GHG) Reporting requires GHG emissions, industrial fuel and gas suppliers, and other sources to report greenhouse gas emission data and additional relevant information. Businesses and individuals use this information to compare emissions between years. Emission data also helps companies identify areas where they can cut down on their GHG emissions, thus saving energy and money. National, state, and local governments can use GHG emission data from companies to develop intelligent climate policies. It allows them to regulate, by law, how much emissions an entity can produce.
Generally, governments require industries and businesses to report on GHG emissions if: annually
1. The GHG emissions of the particular source exceed 25,000 metric tons of CO2 annually.
2. The supply chain of the industry or product releases emissions in excess of 25,000 metric tons of CO2 per year.
3. A facility receives 25,000 metric tons or more CO2 for injection underground.
The ultimate goal of GHG reporting is to achieve stability of greenhouse gases in the atmosphere. The concentrations of greenhouse gases in the atmosphere should be at a level that would prevent further destruction of the Earth’s climate.
Streamlined Energy and Carbon Reporting (SECR) aims to encourage more businesses to report their carbon and energy emissions. The SECR framework enables firms to implement high-efficiency measures, giving them environmental and economic benefits. It supports companies in their carbon reduction journey while also improving productivity and cutting costs.
The SECR provides essential information to investors, helping them make the transition to a low carbon, sustainable economy. The requirements of SECR reporting are:
1. Reports on greenhouse gases emitted annually as a result of the business’ consumption and purchase of energy.
2. Report how much of the energy consumed relates to emissions of the country.
3. Report the measures that your business has undertaken to increase the efficiency of its products and processes.
The SERC requires large companies to report the quantity of GHG emissions arising due to their employees’ commute from homes to workplaces and back. It also requires those companies to report on their emissions resulting from the transport of raw materials and finished products.
When reporting on the environmental impacts of your company’s carbon emissions, keep the following principles in mind.
Always try to do away with uncertainties in your reports. Your report should be sufficiently accurate to enable users to make confident decisions.
The SERC contains well-defined boundaries of reporting. Ensure that you quantify and report on all emission sources within this boundary. If you have excluded any sources, justify them.
To compare how your company’s emissions change over time, use consistent methodologies. Document all changes in the methods you use.
Document all calculations from the methodologies used. Ensure that you factually address all relevant issues. You can enhance the report presented by adding a detailed description of how you collected data and why.
ISO stands for the International Organization for Standardization. In 2002, ISO developed the ISO 14064, a standard consisting of three parts. ISO developed this standard to help countries and businesses manage their GHG emissions better. Experts from over 45 countries helped establish the standards. The criteria include a minimum set of requirements for GHG inventories. They outline a basic structure against which companies can perform a consistent, credible, and independent audit. The ISO 14064 offers policymakers ready standards and foundations over which they can build a GHG reduction program.
The title of standard part 1 is ‘Specification with guidance at the organization level for quantification and reporting of greenhouse gas emissions and removals.’ This part of the standard states that corporations can use a bottom-up approach to collect and quantify emissions.
Standard part 2 deals with the reporting and quantification of emissions from project activities.
The title of standard part 3 is ‘Specification with guidance for the validation and verification of greenhouse gas assertions.’ This standard helps third parties verify a corporation’s greenhouse gas statement. The verification process described in this standard is helpful to both independent third-party verifiers and a corporation’s internal auditors.
The Greenhouse Gas Protocol (GHGP) provides a global standard for the measurement and management of GHG emissions. Businesses and local and national governments use it to account for, calculate, and report the quantity of released GHG emissions. It addresses climate change and the need for standardized measurement of GHG emissions. The GHGP provides many standards for carbon accounting reporting. Let’s look at some of them.
1. The Corporate Standard
The corporate carbon accounting reporting standard guides companies in preparing a corporate-level GHG emissions inventory. It covers the seven greenhouse gases delineated by the Kyoto Protocol, namely – carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hexafluoride (SF6), and nitrogen trifluoride (NF3), perfluorocarbons (PCFs), and hydrofluorocarbons (HFCs).
2. Mitigation Goal Standard
This standard helps countries and states develop goals for mitigating emissions. It also lets them assess and report their progress towards achieving their goals.
3. Policy and Action Standard
Using this standard, countries, and states can track, estimate and report changes in GHG emissions resulting from policies and actions. It helps individuals assess the accuracy, consistency, and transparency of policies and actions.
4. Product Standard
Companies use the product standard to understand and assess the life cycle emissions of a product. Emissions include those resulting from the extraction of raw material, transport, and manufacture. The standard also enables companies to focus on emission reduction activities and techniques.
The World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) developed the GHGP to categorize emissions into three scopes depending on the source.
Direct GHG Emissions
It includes all emissions directly released by a company. The emissions could result due to fuel combustion from company vehicles and other similar activities. Scope 1 emissions arise from all sources controlled and owned by a company.
Indirect GHG Emissions
Scope 2 emissions include emissions from electricity usage, air conditioners, heating systems, etc. They are emissions that occur as a result of company activities but not on company premises. For example, emissions from electricity used by the company would not be released on the physical company facility; instead, they would be released at the electricity generation plant.
Other Indirect GHG Emissions
These emissions occur from sources not controlled or owned by the company but are still a result of the company’s functioning. It includes emissions from employees’ commutes, transport of raw material and finished products, etc.
In 2007, ISO, WRI, and WBCSD signed a Memorandum of Understanding (MoU). The MoU states that the three organizations will jointly promote the ISO 14064 standards as well as the WRI and WBCSD GHGP standards.
The signing of the MoU provided confidence to companies seeking to understand and manage their GHG emissions. They signed the document in response to concerns among businesses. Businesses were concerned that the two reporting standards might not be mutually supportive and consistent. On the contrary, the ISO and GHG standards were designed so that companies can use them in a complementary manner.
By working together, the three organizations will be better able to promote standardized tools and raise awareness. The three organizations are encouraging governments and corporations to use the tools they developed to fight climate change and maintain and manage GHG and carbon emissions.
Companies that want to account for their finances employ highly skilled, expensive auditors. The auditors ensure that their results are as accurate and precise as possible. When companies mess up their financial accounts, they usually expect harsh punishments from regulators. The punishments can range from fines to time in prison. Therefore, companies go through great pains to ensure that they can justify every figure on their financial report.
On the other hand, carbon accounting is voluntary and nowhere as rigorous as financial accounting. Even if the company does not perform an accurate carbon accounting, they are likely to receive praise from customers just for trying. If a company messes up its carbon report, no matter how bad, they are highly unlikely to see the inside of a jail cell.
Companies achieve high accuracy when reporting on their Scope 1 emissions. However, the accuracy rapidly drops when they report on the emissions in their supply chain, also known as Scope 3 emissions. Therefore, their carbon accounting is based on a long list of assumptions. One mistake can propagate up through the system and gives a company a false carbon footprint.
Double counting happens when two parties claim credit for the same reduction in emissions. It usually occurs when a host country counts the emissions offset from a company as its own. Therefore, it would appear as if the company hasn’t really done anything to reduce its emissions. For example, it would result in the net increase in emissions of only 1 ton of CO2 being avoided when in reality 2 tons of CO2 should have been avoided, 1 by the company and 1 by the country.
Businesses and governments can avoid double counting by making adjustments either in the company’s claim or the country’s claim.
Most corporations that report their GHG emissions do so in a highly unsatisfactory manner. There are a very small number of businesses whose emission reports are acceptable and within the reporting boundaries. This is another source of criticism related to carbon accounting reporting.
The GHG Protocol emerged out of the necessity to reduce greenhouse gas emissions. The GHG Protocol (GHGP) helps countries and companies manage and measure their greenhouse gas emissions. The WRI and WBCSD developed the GHG Protocol. Its development was due to the need to have global standards for companies and countries worldwide to measure, compare, and reduce their emissions. The GHG Protocol provides guidance tools and standards for businesses and governments to manage their climate impact.
The GHG Protocol works closely with organizations, NGOs, governments, and businesses. Their collaboration enables them to develop globally accepted standardized frameworks for accounting and reporting emissions. The Protocol allows companies to identify where along their supply chain emissions can be cut.
The Carbon Disclosure Project (CDP) helps engage companies, cities, states, and investors on environmental issues. It is a non-profit organization that allows businesses to manage their ecological impact. Their vision is to create an economy that supports people and the planet. CDP encourages companies to reduce their greenhouse gas emissions through effective management and measurement techniques. If businesses cannot measure their emissions, it would be impossible to manage them.
Science-based targets show companies how much and how quickly they need to reduce their GHG emissions to bypass the worst of the effects of global warming. They help businesses set targets for emission reductions grounded in climate science. They aim to achieve a zero-carbon economy driven by sustainable growth and development. SBTi defines and promotes the best practices in setting a science-based target for climate action.
Companies that have used this approach report that:
1. The initiative boosts profits
2. It improves an investor’s confidence in the company
3. It drives innovation
4. It strengthens the reputation of the brand
5. It reduces uncertainties in regulatory reporting
SBTi is committed to creating a climate-secure world that goes hand-in-hand with successful businesses.