In the quest to achieve net zero emissions, many businesses, industries and countries have pledged to balance their emissions before mid-century. They intend to do this through a combination of cutting emissions and removing carbon from the atmosphere.
Emissions and energy consumption reporting is already common practice and compulsory for businesses of a certain size in the UK. However, to achieve this ambitious goal, businesses, industries, and countries are adopting a powerful tool known as carbon accounting.
Carbon reporting is a statement of physical greenhouse gas emissions that occur over a given period. While carbon accounting relates to how those emissions are then processed and counted towards specific targets. The methodologies for calculating emissions and determining contributions against targets may then have different rules depending on which framework or standard is being reported against.
Carbon accounting tools can help companies understand their carbon footprint – how much carbon is being emitted as part of their operations, who is responsible for them, and how they can be effectively mitigated.
Similar to financial accounting, which enables businesses to evaluate their financial health, carbon accounting is revolutionising sustainability efforts. It empowers organisations to balance their carbon “books” by tracking emissions, reductions, removals, and mitigations.
This shift in mindset from mere reporting to active accounting provides the framework needed to drive meaningful emissions reductions and accelerate progress toward net zero.
Carbon accounting is as complex as financial accounting, but with financial accounting, a long-standing industry relies on well-established practices and principles. However, carbon accounting is a relatively new concept.
Beginning to implement detailed carbon accounting, upon which emissions reductions and removals can be based, requires a standardised understanding of what they are and where they come from
Regardless of its infancy, businesses and countries are already implementing standardised approaches to carbon accounting. Regulations such as emissions trading schemes and reporting systems, such as Streamlined Energy and Carbon Reporting (SECR) and the Taskforce on Climate-Related Financial Disclosure (TCFD), are beginning to deliver some degree of consistency in businesses’ carbon reporting.
The main carbon accounting and reporting standard used by businesses is the Greenhouse Gas (GHG) Protocol, which plays a crucial role in guiding businesses on their corporate reporting and accounting.
The GHG protocol categorises emissions in three different ‘scopes’, called Scope 1, Scope 2, and Scope 3 – facilitating comprehensive measurement, reporting, and reduction strategies. By embracing these frameworks, organisations gain a unified understanding of carbon accounting principles, paving the way for effective emissions reduction and mitigation initiatives.
Elsewhere, voluntary carbon markets (such as carbon offsets) have also evolved to allow the transferral of carbon reductions or removals between businesses, providing flexibility to companies in delivering their climate commitments.
The key challenge is aligning these frameworks so that they work complementary to each other. For example, emissions within a corporate inventory or offset programme must be accounted for in a way that is consistent with a national inventory. To date, these accounting systems have evolved independently with different rules and methodologies.
Beginning to implement detailed carbon accounting, upon which emissions reductions and removals can be based, requires a standardised understanding of what they are and where they come from.
While carbon accounting is crucial to reaching a true level of net zero in the UK and globally, where residual emissions are balanced against removals, the practice should not be used exclusively to deliver numerical carbon goals.
To deliver net zero, it’s vital we have robust carbon accounting systems and targets in place, ensuring we reduce fossil emissions as far as possible while also incentivising carbon removal solutions. However, as many removal solutions rely on the natural world, it is critical that ecosystems are not only valued on a carbon basis but consider other environmental factors such as biodiversity as well.