What you need to know about carbon accounting

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“Carbon accounting” has become somewhat of a buzzword in the sustainability world. And while the word “accounting” might initially furrow some brows, just know that carbon accounting needn’t be so complicated. If you break it into manageable chunks, understand why it’s crucial for businesses, and what activities to include in your own carbon accounting practices, you’ll have a better understanding in no time and be on your way to setting decarbonization and net-zero targets.

What is carbon accounting?

Carbon accounting is a way to translate business activities into emissions outputs. To put it another way, carbon accounting quantifies how a business impacts climate change.

You might have heard carbon accounting go by other terms like carbon footprint, greenhouse gas accounting, carbon inventory, carbon management, GHG accounting, emissions inventory, and a slew of others, but at its core, it’s simply shorthand for quantifying carbon emissions.  

Even though we call it carbon accounting, several other greenhouse gasses (GHGs) are part of the “carbon” in carbon accounting. In addition to carbon dioxide (CO2), other GHGs include methane (CH4), nitrous oxides (N2o), and fluorinated gases, including HFCs, PFCs, NF3, and SF6. These composite GHGs are referred to as Kyoto gases and are the seven gases included in the Kyoto Protocol, the world’s first international treaty, signed in 1997, to limit emissions.

Carbon accounting takes all composite gases and translates them into a standard unit of measure: carbon dioxide equivalent (CO2e). This single unit of measure allows for easy and consistent comparison between different activities, for example how to calculate CO2 emissions from your energy consumption, and burning gasoline in a car. But to translate GHGs into CO2e, there’s math involved. That’s why we call it carbon accounting. It’s all based on global warming potential (GWP), a measure of how much heat the gas traps (i.e., its insulating power) and how long it stays in the atmosphere.

For example, methane has a GWP of 28, meaning that methane in the atmosphere is 28 times as insulating as the same mass of CO2 over 100 years.

How do emissions factors work?

But how do you get from business activities like office energy consumption or fuel combustion in company vehicles to GHGs, or CO2e? That’s where the math comes in—it’s all about emissions factors and GWP.  

An emissions factor is a coefficient that allows you to convert activity data into emissions, and it’s the secret sauce of carbon accounting. A greenhouse gas emissions factor represents the rate at which an activity (e.g., burning natural gas in a boiler) emits GHGs (in this example: nitrogen oxides, carbon dioxide, methane, and nitrous oxide), per unit of the activity (e.g., the volume of gas consumed).

To take the emissions output of each composite gas, you need to convert them to CO2e by their respective GWP, conveying the amount of warming the composite gas would create if it was CO2.  

There are thousands of emissions factors for nearly everything under the sun. They often range by geography (for example, regional grids have different emissions factors that reflect the proportion of renewable sources to fossil fuels).

Carbon accounting software platforms like Sustain.Life take the burden of creating and managing these thousands of factors, so you don’t have to. Sustain. Life’s factor sets are region-specific and updated quarterly, delivering precise emissions outputs for user activities.  

Why is carbon accounting important?

Carbon accounting is important because it provides accountability for businesses to quantify their impact on climate change. By measuring emissions reductions—or increases—carbon accounting helps businesses become more intentional with their emitting behaviors and initiatives to decarbonize.

Who should do carbon accounting?

In an ideal world, everyone should participate in corporate sustainability—businesses, financial and educational institutions, municipalities, national governments, etc.—should account for their carbon emissions. Why? Aside from doing your part to take climate action, with climate relegations and reporting disclosure mandates, what was once voluntary is poised to become the norm. And outside of mandated disclosures, more and more stakeholders—from customers across the supply chain to investors—have started to demand that companies share their emissions metrics.
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Are there standards for carbon accounting?

Some standards guide the carbon accounting process. The Greenhouse Gas Protocol (GHGP) Corporate Standard, which “provides requirements and guidance for companies and other organizations preparing a corporate-level GHG emissions inventory,” is the gold standard for corporate entities. The Corporate Value Chain (scope 3) Standard supplements the GHGP Standard and “allows companies to assess their entire value chain emissions impact and identify where to focus reduction activities.”

What carbon accounting standards cover

GHGP also has supplemental standards and guidance for specific industries:

• GHGP for product life Cycle (LCA) – used to calculate life cycle emissions of products  
• GHGP for Cities  
• GHGP Mitigation Goal Standard – for national targets and progress tracking
• Project Protocol – to quantify GHG reduction, removal, and storage projects  
• Policy Action Standard – tool for analysts to assess GHG reduction impacts of policies

What activities should carbon accounting include?

There are a few classification levels to help organize and prioritize carbon-emitting activities and the subsequent emissions data capture required to calculate your carbon footprint.  

At the highest level, activities get classified as follows:

• Direct emissions – emissions from activities your business operates or directly controls  
• Indirect emissions – emissions from activities your business does not directly operate or control.  

And depending on your business, you likely emit both direct and indirect emissions, and your breakdown will look different than a business from another industry. For example, a manufacturing company that owns and operates its equipment will have higher direct emissions than, say, a SaaS company whose emissions largely come from purchased services like data centers or marketing companies.

Now that you understand direct and indirect emissions, you can break those down even further into scopes.  

Emissions scopes in carbon accounting

There are three emissions scopes—scopes 1, 2, and 3—that is, there are three “buckets” that emitting activities or categories typically fit into.

I’ve created an easy shorthand to remember what types of emitting activities fit into scopes 1, 2, and 3. They’re the three “B’s” of carbon accounting: Burn, Buy, Beyond. Let’s break it down:

• Scope 1 (Burn) – These are direct emissions from fuel your company burns in activities it directly owns or controls. For example, gasoline burned in company cars, diesel or propane burned in owned equipment.  
• Scope 2 (Buy) – These are indirect emissions from the energy your company purchases. These are indirect emissions because, while your company consumes the energy—for example, electricity—it is generated (and GHGs emitted), by another entity, in this case, a power plant.  
• Scope 3 (Beyond) – These are all of the other activities beyond energy consumption that support your business and can further break down into:
  – Upstream – Everything your business purchases or otherwise acquires. Includes things like capital goods, business travel, employee commuting, and leased office space.
  – Downstream – Everything related to your sold good or service. Includes things like processing, use, and end-of-life treatment of sold products, franchises, and investments.
  – Some activities can be either upstream or downstream, depending on when and how they occur. For example, the transportation and distribution of a good from the manufacturing plant to a retail location is considered upstream if the company pays for it and downstream if the customer (in this case, the retailer) pays for it.

While the world of carbon accounting is vast, it doesn’t need to be confusing. Once you understand common carbon accounting concepts and terms, you can start measuring and mitigating your company’s emissions. So whether you’re a public company mandated by upcoming climate legislation, or a privately held business in the value chain, understanding the basics of carbon accounting helps you better prepare for investor, regulator, and consumer expectations about your carbon impact.