Carbon accounting is a way to quantify and understand how your business contributes to climate change. It’s also the foundation for any climate pledge like carbon neutrality and net-zero. Think of carbon accounting as the math that translates business activities into emissions measurements over time.
Also known as emissions accounting, greenhouse gas accounting, greenhouse gas inventory, carbon footprint, carbon or greenhouse gas (GHG) inventory, emissions inventory, or carbon management, these terms mean basically the same thing: measuring your CO2e. But what’s CO2e? Because there are many greenhouse gasses—some naturally occurring and others manufactured—CO2e is a way to standardize each gas’s warming effect based on their global warming potential (GWP). For example, one metric ton (MT) of methane has a warming effect of 29.8 times that of CO2 over the same period and would therefore amount to 29.8 metric tons of CO2 equivalent (CO2e).
Why is carbon accounting important?
The adage “what gets measured gets managed” is especially true for carbon and GHG emissions. And based on the latest IPCC reports, we desperately need to manage our carbon footprint to get the planet back on track.
In addition to mitigating the effects of climate change, measuring and reducing emissions is also good for business. It has become table stakes for nearly every industry, with widespread stakeholder demand. Consumers demand greener, more responsible products. Investors attach financial value to sustainable ESG performance across their portfolios. Employees cite climate action and sustainability as key considerations when evaluating job opportunities. And if the latest SEC proposed rules take effect, all public companies will be required to disclose their emissions.
So it’s time to get ahead of the curve.
What does carbon accounting entail?
In short: carbon accounting means measuring your emissions so you can better understand how to reduce them.
How to approach GHG emissions data measurement:
The overarching goal is to calculate GHG emissions across all emissions scopes by measuring your business carbon footprint, then convert those outputs to CO2 equivalent (MT CO2e). These are complicated calculations to do without the help of expert tools and guidance. Good news: Sustain.Life guides you through the process and identifies which business activities are the largest contributors to your environmental impact, so you can prioritize your reduction efforts. The platform translates your business activities and company characteristics into emissions outputs, automatically doing all of the complex math.
But with a complicated operation and business activities, where do you start?
1. Start with scope 1 (direct) and scope 2 (indirect) emissions, which reflect emissions from the energy your business consumes. Think of this as the gas in company cars, fossil fuel combustion in building equipment, and the electricity that keeps the lights on.
2. Once you’ve wrapped your head around your energy-related emissions, it’s time to look deeper into your corporate value chain to your scope 3 emissions. While these indirect emissions are harder to measure, they represent emissions from all activities that support your business—think about your supply chain, service providers, customers, and employees. Scope 3 emissions can make up over 90% of your emissions impact.
Once you’ve accounted for your emissions, the name of the game is continuous measurement as you work towards carbon reduction targets. In addition to mitigation and abatement methods, many companies have started utilizing carbon offsets to reach their carbon neutral goals.
Where offsets come into play
From one of our posts about offsets, “Purchasing carbon offsets offers companies and organizations the opportunity to finance carbon removal or avoidance projects to counteract their own emissions. The logic goes that once a company accounts for its carbon emissions, it can become carbon neutral simply by financing an equal amount of carbon removal or avoidance elsewhere.”
Offset projects are nature-based (think planting trees or projects to curb deforestation) or technological (for example, direct air capture).
Is there a difference between carbon credits and carbon offsets?
To counterbalance—or offset—emissions, carbon credits allow organizations and individuals to finance carbon removal or carbon reduction projects.
A carbon credit is a tradable permit that allows a business or organization to produce a certain amount of carbon emissions. These are often traded on public and private markets, where low-emitting businesses sell excess credits to those exceeding their carbon emissions allowance.
There are two types of carbon credits: voluntary emissions reduction (VER) and certified emission reduction (CER). VERs are exchanged in voluntary markets with no third-party oversight, and CERs have regulated investment vehicles offered through institutional carbon funds, with the primary purpose of offsetting a specific project’s emissions, for example, a new power plant.
A carbon offset is essentially what happens to that carbon credit once it is purchased—a company balances or draws down a stated carbon credit inventory against its own carbon emissions.
Before pursuing offsets or carbon credits, you’ll need to first measure your emissions through carbon accounting.
How to start carbon accounting
You will see an explosion of companies calculating their emissions in the next one to five years. To keep up with competitors and customer expectations, you have to start somewhere, and now you can with Sustain.Life.