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Carbon Accounting

by | Apr 5, 2022 | Carbon Footprint & Carbon Accounting


Carbon emissions are a major environmental impact caused by companies. Consumers and investors expect companies to make responsible decisions to reduce their negative impact on climate change and global warming. Carbon accounting involves many practices that help companies or countries calculate how much carbon dioxide they emit. Individuals, nations, states, and corporations use carbon accounting to measure carbon emissions. We usually divide carbon accounting into two types – physical carbon accounting and financial carbon accounting.

Physical accounting involves making an inventory of the volume of direct and indirect emissions an industry produces. Once this is known, companies use this information to set targets to limit or reduce their carbon emissions. Carbon accounting enables companies, organizations, and governments to take progressive steps towards a greener and cleaner Earth.

The aim of financial carbon accounting is to ascribe a market value to the carbon dioxide produced and absorbed.

Carbon accounting helps answer your questions like:

Who is responsible for carbon emissions?

How much carbon are they emitting?

Are there policies that let businesses reduce their carbon emissions?

Are there policies that appear to reduce environmental impact but don’t really do so?

Methods of carbon accounting are not perfect. But they give as real and accurate a result as possible. Organizations can make responsible decisions about their supply chain management using the result. They can ensure the reduction of emissions somewhere along their supply chain or ensure that their emissions are balanced by investing in activities that absorb carbon dioxide.

The benefits of carbon accounting are:

1. Economic

Using the results from carbon accounting, businesses can cut down on the energy and resources they use. By cutting down on these aspects, they save on costs.

2. Environmental

Making carbon accounting an integral part of an organization’s report can cause carbon reduction in the atmosphere. The decrease in atmospheric carbon gives us a better chance of reversing climate change.

3. Business Development

If your company incorporates carbon accounting, it will attract more positive PR than companies that don’t. Carbon accounting helps build trust between your company and its customers.

Green House Accounting

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Greenhouse accounting is very similar to carbon accounting. In greenhouse accounting, a company or organization quantifies all direct and indirect greenhouse gas emissions resulting from their activities. It provides the basis for businesses and corporations to understand and manage their climate change impacts. Green House Gas (GHG) accounting requires companies to report their GHG emissions in their communications to stakeholders and shareholders, in directors’ reports, and in other contract requirements. People worldwide today view GHG accounting as a standard requirement for businesses.

Businesses can account for their GHG emissions in five easy steps:

1. Setting up assessment

You must identify a qualified and experienced analyst who will set up the GHG assessment. The analyst will specify the time period the company will be assessed over, the type of emissions that they must include in the evaluation, and the various parts of the company you want to be included in the assessment.

2. Collecting data

You’ll next have to collect data about the resources your business utilizes and the amount of emissions released in the use of these resources.

3. Calculating emissions

Once you’ve collected all the necessary data, you’ll need to put it into a GHG calculator.

4. Quality review

After you’ve acquired the result from the calculator, the analyst will check the data you’ve entered so that you can be sure of the result.

5. Reporting

Once you’ve obtained the result, you can add it in your annual reports to present to directors, stakeholders, and shareholders. Ensure that your report is in accordance with a major reporting standard such as the GHG Protocol.

The benefits of GHG reporting are endless. They include:

Cost savings resulting from a reduction in emissions

Continuous monitoring and improvement in your strategy to save the climate

Taking the first step to ensure that your organization is carbon neutral

The high reputation and profile of your business as a sustainable brand

Carbon Accounting in Corporations

Businesses use carbon accounting to lead the way in combating climate change. Carbon accounting enables businesses to make better decisions about their carbon reduction strategy. Companies today are striving to be carbon neutral.

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Carbon accounting is vital in assigning responsibilities to different business areas to reduce carbon emissions.

Carbon accounting enables businesses to identify:

1. The total amount of carbon they emit.

2. The areas in the business responsible for carbon emissions. For example, maybe a significant slice of your business’s carbon footprint comes from transporting raw materials long distances.

3. The areas in the business where they can implement carbon reduction strategies effectively.

Most corporations use tools provided by the GHG Protocol. The GHG Protocol is constantly updating and promoting tools for businesses to calculate their emissions.

Enterprise Carbon Accounting

Today, because of the state we’ve caused the environment to be in, stakeholders are pressuring organizations to adopt greener technologies and become aware of their carbon footprint.

Enterprise Carbon Accounting (ECA) provides a way for corporations to collect emission data, summarize, and report them. ECA lets them monitor activities aimed explicitly at sustainable optimization and production. To summarize what ECA means, it involves using traditional financial accounting with a project life cycle analysis.

Lifecycle Analysis of ECA

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Process LCA

Life Cycle Analysis (LCA) is a method for evaluating the environmental impacts associated with an industry, activity, or product right from the time we gather raw materials from the Earth until the time it degrades back to the Earth. Many companies use it to make decisions about sustainable developments. An LCA assesses all direct and indirect environmental impacts over the full life cycle of a product or process. We commonly refer to LCA as a ‘cradle-to-grave’ accounting.

LCA promotes the sustainable design of products and processes. It leads to a reduced environmental impact of projects. It also curbs the release of harmful, toxic material from a project or process into the environment. An LCA studies various aspects of a product, such as the resources its manufacturing requires and the impacts the consequences of the manufacturing process could have on human health. It identifies a product or project’s most significant impacts. Information on the effects helps decision-makers select effective solutions for the project.

The LCA process comprises four key components:

1. Goal definition and scoping

In this first step, assessors define the process, activity, or product. They establish the context of the assessment. They identify the environmental effects that the assessment needs to cover.

2. Inventory analysis

Here, the assessors make an inventory of all resources the product or activity uses. For example, water and energy usage, raw materials, and the materials released into the environment, including waste, gas emissions, water discharge, etc.

3. Impact assessment

The assessors then scrutinize the inventory analysis and report the product’s potential human and ecological impacts.

4. Interpretation

Decision-makers use all the information gathered thus far to decide whether or not the particular product or activity should be shelved. If they decide to go ahead with the project, they do so with a complete understanding of its impacts and uncertainty.

Economic Input-Output LCA

An Economic Input-Output Life Cycle Assessment (EIO-LCA) method calculates how many resources our economy requires and the emissions released from these activities into the environment. Economist Wassily Leontief, in the 1970s, developed and theorized the EIO-LCA method.

Governments and business owners can customize variables in the model to suit their particular country or region. Since 1995, Canada, Germany, Spain, and some states in the US have successfully applied the method to their own economic models.

The EIO-LCA method uses information about material transactions between industries and their associated emissions to estimate their total emissions through supply chains. The EIO model indicates whether other industries consume goods and services from different industries. It deals with the monetary transaction between industries. For example, consider the automobile production industry. The automobile industry uses material like metal, glass, tires, electricity, etc., that other industries provide. An EIO model identifies these requirements between industry sectors.

We mainly use EIO models to study how demands in the economy change. For example, suppose the demand for electricity increases. In that case, the model will identify by how much the demand in the supply chain of the electricity industry, such as natural gas, coal, and mining, will increase.

EIO-LCA forms an essential tool for countries, businesses, organizations, and companies to perform accurate and precise carbon accounting.

Hybrid LCA

A Hybrid Life Cycle Assessment (Hybrid LCA) combines the conventional LCA and the EIO-LCA. It combines the broad perspectives inherent in an EIO-LCA model with specific, single-product information of an LCA. For example, industries can use LCAs to model the impacts of their processes at their facility but use an EIO-LCA to estimate emissions from, say, electricity purchased by the industry.

Enterprise Carbon Accounting (ECA)

In its core structure, Enterprise Carbon Accounting (ECA) is a type of Hybrid LCA. However, the difference between the two is that ECA inputs financial data into an LCA to provide to a company with data about its operations. ECA identifies areas of the supply chain that could be problematic, enabling companies to act quickly.

Socialized Supply Chain

Socialized Supply Chains allow various sectors within a supply chain to collaborate and share knowledge and expertise about emissions within the supply chain. The supply chain sectors’ socialization enables businesses to perform carbon accounting better. It also allows them to understand at which phase they could cut down on emissions.

Carbon Accounting of Avoided Emissions

By using the GHG Protocol, businesses have now realized the environmental and economic benefits of accounting for their carbon emissions. But carbon accounting of emissions is only part of the bigger solution to the environmental problem we are faced with.

In 2013, the GHG Protocol identified and described avoided emissions as the reduction in emissions occurring outside a product’s supply chain but still very much a result of the product’s use. Examples of products with avoided emissions include teleconferencing services. Teleconferencing services enable employees who would otherwise be traveling to the workplace to work remotely. This means that they significantly cut down on emissions released by transport services.

Carbon accounting of avoided emissions is still a widely speculated discussion. Many reporting standards, such as the CDP, do not provide tools for organizations to report on their avoided emissions in their framework.

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So why should the carbon accounting of avoided emissions be done? Many of the current carbon accounting frameworks focus on the progress an organization achieves in carbon reduction. However, there may be times when the manufacture of a new product may temporarily increase a business’ footprint. But, in the long term, the product could reduce the emissions associated with its use.

For example, picture a company that manufactures air conditioners. The company wants to invest in research to improve its products’ efficiency and sustainability. The research and investment phase might increase the company’s emissions. But, once the study is over and highly efficient and sustainable products developed, the company would have avoided a large volume of emissions.

However, the quantification of avoided emissions poses a challenge. There is no simple way (yet) for a company to know the volume of emissions they would be avoiding. Companies, however, should not be penalized for temporarily raising emissions to develop efficient products. The emissions avoided by the use of the product in the long term could be far greater than those released during the innovation and development phase.



  • Dr. Emily Greenfield

    Dr. Emily Greenfield is a highly accomplished environmentalist with over 30 years of experience in writing, reviewing, and publishing content on various environmental topics. Hailing from the United States, she has dedicated her career to raising awareness about environmental issues and promoting sustainable practices.

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