Carbon accounting has become a crucial component of record keeping for modern businesses, allowing organizations to measure and report on their greenhouse gas emissions. This, in turn, enables businesses to identify emission hotspots, improve sustainability efforts, and make informed decisions that drive meaningful reductions in their carbon footprint.
But carbon accounting is also a complex process full of regulations, frameworks, methodologies, and calculations that can be difficult to keep track of.
In this article, we’ll walk you through the most important things to know about carbon accounting, including:
- What carbon accounting is
- Benefits of carbon accounting
- How to do carbon accounting
- Challenges of carbon accounting
- Best practices for carbon accounting
What is carbon accounting?
Carbon accounting is the practice of quantifying an organization’s emissions of carbon and other greenhouse gasses (GHGs). It involves measuring, tracking, calculating, and reporting on data related to all activities that directly or indirectly create emissions. Carbon accounting helps organizations understand their climate impact, identify emission sources, manage sustainability risks, set and align with sustainability goals, track progress, comply with regulations, and report to external entities.
Organizations use carbon accounting data to create a carbon footprint, representing the total amount of GHGs an organization emits, expressed in carbon dioxide equivalents (CO2e). The CO2e unit is based on each different greenhouse gas’s global warming potential (GWP)—the amount of energy absorbed by a ton of gas emissions over time relative to those of a ton of carbon dioxide.
Carbon accounting vs. GHG accounting
Carbon accounting is often used as an interchangeable term with greenhouse gas (GHG) accounting. While the two do have a subtle distinction, their common use typically refers to the same thing.
Strictly speaking, carbon accounting refers to the measurement of carbon dioxide (CO2) emissions, and GHG accounting refers to the measurement of all greenhouse gas emissions, including methane, nitrous oxide, hydrofluorocarbons (HFCs), and others in addition to carbon dioxide. So carbon accounting is technically more of a subset of GHG accounting.
However, both carbon accounting and the broader GHG accounting use CO2e as a standardized unit, allowing the emissions from different gasses to all be measured on a comparable scale. Because of this standardization around carbon dioxide, the term carbon accounting has taken on the broader meaning and is generally used as a shorthand for all GHG accounting.
Carbon accounting vs. ESG accounting
ESG accounting is a broader accounting process that encompasses carbon accounting. It’s a framework used to manage risks and opportunities across three main factors: environmental (E), social (S), and governance (G). Carbon or GHG accounting falls under the environmental component of ESG accounting. But even there, the E of ESG is broader than GHG accounting, as it includes resource depletion, waste management, water management, and many other elements.
Benefits of carbon accounting
Carbon accounting allows organizations to understand the impact their business has on the environment and take steps to reduce their carbon footprint. It’s a vital part of the decarbonization process. We all inhabit the same planet, and it’s worth ensuring that our world remains viable to support individuals and businesses alike for generations to come.
But beyond the core ethical considerations, carbon accounting also comes with a number of direct benefits for the organizations that engage in it.
Managing climate risks
Climate change and environmental degradation bring many risks that organizations would be well advised to pay attention to. From weather disasters to resource scarcity to supply chain disruptions, environmental factors can throw a business into chaos if not prepared. Carbon accounting helps organizations manage these risks by identifying emissions-intensive processes and inefficiencies, allowing them to mitigate climate impact and adapt their operations to evolving environmental challenges.
Identifying and reducing inefficiencies
The goal of reducing greenhouse gas emissions tends to go hand in hand with reducing inefficiencies and, thus, saving costs across the organization. For example, carbon accounting causes businesses to pay closer attention to their fuel consumption in order to reduce emissions. This could be accomplished by reducing unnecessary driving, switching to electric vehicles, retrofitting assets with more efficient components, or a combination of these solutions. Such actions designed to reduce emissions will simultaneously reduce the organization’s spending on fuel. Similarly, carbon accounting can help organizations find and eliminate inefficiencies in their heating, cooling, or any number of other costly activities.
Appealing to stakeholders
Stakeholders, including investors, policymakers, and consumers, are increasingly demanding that organizations do their part, and they’re giving their business and making investments accordingly. Organizations that invest in carbon accounting can make themselves far more appealing than companies that lag behind.
Regulatory compliance
Governments are increasingly mandating compliance with sustainability regulations. The specifics can vary by region and sometimes industry, but some of the key regulatory frameworks include:
- The U.S. Securities and Exchange Commission (SEC) Climate Disclosure Rule
- California’s Corporate Data Accountability Act (SB 253)
- The European Union’s Corporate Sustainability Reporting Directive (CSRD)
- The European Union’s Integrated Pollution Prevention and Control (IPPC) Directive
Carbon accounting is essential to allow organizations to track and manage their own emissions activities in order to comply with the relevant regulations.
How to do carbon accounting
Carbon accounting relies on measuring, tracking, and calculating an organization’s greenhouse gas emissions. To do so reliably and systematically, most organizations follow the Greenhouse Gas Protocol (GHGP or GHG Protocol), which provides principles and outlines three scopes of emissions, each with their own methods for calculations.
The Greenhouse Gas Protocol
The GHG Protocol is the most commonly used framework for measuring and managing greenhouse gas emissions. It’s widely considered the gold standard for carbon accounting.
While it isn’t a legally mandatory framework in itself, and may not cover all the specifics of every regional or industry regulation, the GHG Protocol “provides requirements and guidance for companies and other organizations preparing a corporate-level GHG emissions inventory.” Organizations that follow the GHG Protocol as a baseline will be well on their way toward compliance with relevant regulatory frameworks.
The GHG Protocol outlines five core principles for doing carbon accounting to help organizations ensure reliable results:
- Relevance: The greenhouse gas inventory should reflect the organization’s emissions and enable internal and external decision making.
- Completeness: All GHG emission sources and activities within a given inventory boundary should be accounted for, with individual exclusions disclosed and justified.
- Consistency: Organizations should be consistent with the methodologies they use to enable meaningful comparisons of their emissions over time.
- Transparency: All relevant issues should be openly addressed, with a clear audit trail. Relevant assumptions, methodologies, and data sources should be disclosed.
- Accuracy: GHG emissions should be quantified as accurately as possible to actual emissions, with uncertainties reduced as much as is practicable. Users should be able to make decisions with reasonable confidence in the information’s integrity.
Emissions scopes in carbon accounting
The GHG Protocol categorizes greenhouse gas emissions under three different scopes based on how directly an organization contributes to their production. Understanding these scopes is essential for performing carbon accounting.
Scope 1 emissions
Scope 1 emissions are direct emissions that come from the organization itself. This includes any sources the company owns or controls. Common examples of Scope 1 emissions include those produced by:
- Company-owned gasoline or diesel-powered vehicles like cars, trucks, and forklifts
- Manufacturing processes like the production of chemicals, metal, or cement
- On-site fuel combustion like burning natural gas or coal in furnaces for heating or running gas generators for producing electricity
- Fugitive emissions like the unintentional release of methane or refrigerant from leaks in equipment
Because Scope 1 emissions are directly controlled by the organization, and should thus have immediate access to the data, this tends to be the easiest scope to account for.
Scope 2 emissions
Scope 2 emissions are indirect emissions that the organization ultimately causes but does not directly create. These mostly involve the utilities an organization pays for. Scope 2 emissions include those created during the production of purchased:
- Electricity
- Heating
- Cooling
- Steam
Being a step removed from the organization, Scope 2 emissions are slightly more difficult to account for than Scope 1. But since the organization has direct control over how much of these elements they purchase, Scope 2 accounting remains much easier to account for than Scope 3. However, the key challenge with Scope 2 emissions is often centralizing, standardizing, and analyzing the data provided by disparate utility providers.
Across a large portfolio, an organization may have dozens, hundreds, or even thousands of providers with distinct billing formats and varying data quality. This is one of the main reasons companies turn to Tango Energy & Sustainability by WatchWire, which automatically intakes your utility bills, audits the data for common errors, and standardizes it for you.
Scope 3 emissions
Scope 3 emissions are all other indirect emissions present in an organization’s supply or value chain, whether upstream or downstream. The GHG Protocol specifies 15 different categories of Scope 3 emissions:
- Purchased goods and services
- Capital goods
- Fuel- and energy-related activities
- Upstream transportation and distribution
- Waste generated in operations
- Business travel
- Employee commuting
- Upstream leased assets
- Downstream transportation and distribution
- Processing of sold products
- Use of sold products
- End-of-life treatment of sold products
- Downstream leased assets
- Franchises
- Investments
The wide-ranging nature of Scope 3 emissions, along with the lack of control organizations have over many of these categories, makes them particularly challenging to account for.
Methods for calculating emissions
Carbon accounting relies on calculating the emissions produced, and the methods for performing those calculations vary depending on the scope. At the end, the sums from each scope must be added together to get the final total. We’ll take a look at each one in turn.
Calculating Scope 1 emissions
Scope 1 emissions are the most straightforward to calculate and account for. Because the organization directly controls each emission-causing activity, they can measure and track their emissions-creating activities themselves, like the amount of fuel consumed or energy produced.
From there, they can convert their activity metrics into carbon equivalents using a greenhouse gas equivalency calculator, such as the one provided by the U.S. EPA or one built into sustainability management software like Tango Energy & Sustainability.
Calculating Scope 2 emissions
Because organizations don’t have direct control over their Scope 2 emissions, they aren’t able to track them directly and must instead calculate them based on the factors they do control, like how much electricity they consume. There are two methods for calculating Scope 2 emissions: the location-based method and the market-based method. The GHG Protocol recommends that organizations use both methods, not summed together but reported separately.
The location-based method, also known as the grid-based method, uses the average emissions intensity for the local electrical grid. This is because electricity production for different areas will create more or less emissions depending on the different kinds of power plants being sourced by the grid. Organizations calculate CO2e based on their energy consumed multiplied by the grid-average emissions factor for their location.
The market-based method allows organizations to report on their energy consumption more accurately based on the specific suppliers they choose. This means that if they opt to consume energy from more renewable sources, they can reflect that choice in their carbon accounting. To do this, organizations apply energy attribute certificates (EACs), which represent the environmental attributes of renewable energy generation. Examples of EACs include:
- Renewable energy certificates (RECs)
- Guarantees of origin (GOs)
- Direct contracts
- Supplier-specific emission rates
Organizations may source their energy from multiple suppliers, each with their own EACs and corresponding emissions factors. In cases where energy consumption is not covered by an EAC, organizations instead use residual mix factors, which are similar to the grid-average factors from the location-based method, but calculated based on energy generated by non-renewable sources.
To calculate their CO2e, organizations must multiply their energy consumption per supplier by the specific emissions factors or residual mix factors for each source.
Calculating Scope 3 emissions
Scope 3 is where calculating emissions becomes particularly challenging, but there are a handful of different methods organizations can use, including the supplier-specific method, the spend-based method, the activity-based method, and the hybrid method.
The supplier-specific method relies on emissions reported by an organization’s suppliers. Under this method, suppliers individually collect all their own Scope 1, 2, and 3 emissions data and provide them directly to the organization. The organization can then add up the CO2e from across all of their suppliers. This is an ideal method when suppliers are able and willing to provide such data, but it’s time consuming for the suppliers, and many are not willing to provide that level of cooperation.
The spend-based method is based on the value of purchased goods or services. Organizations multiply the amount spent by the relevant emissions factor to estimate the emissions produced. Although the spend-based method is relatively straightforward to calculate, it also tends to be less accurate than other methods.
The activity-based method, also known as the average-data method, measures the quantity of specific activities (like waste generated, distance traveled, and water or electricity consumed) and multiplies those measurements by the relevant emissions factors. By calculating individual activities separately, organizations can achieve more granular and, thus, more accurate calculations of the emissions produced. But it’s also a more complicated and time-consuming process that requires more detailed data.
The hybrid method strikes a balance between the spend-based and activity-based methods. As recommended by the GHG Protocol, the hybrid method uses activity-based calculations wherever feasible, and then fills in the remaining gaps using spend-based calculations.
Challenges of carbon accounting
Carbon accounting is worthwhile, but its complexity and scale make it difficult to implement. Doing carbon accounting right requires a rigorous adherence to standards that tend to involve making significant changes.
Data collection
The most important part of carbon accounting is the initial data collection. If your data is corrupted or inaccurately gathered from the start, then nothing you do with that data will matter. It’ll yield inaccurate outputs, which could lead to false confidence when making decisions, and potentially disastrous results down the road. It could also cause organizations to be out of compliance with regulations and potentially liable to penalties and fines.
But carbon accounting data comes from a wide variety of sources, including both internal operations and external parties, such as suppliers. Organizations often struggle to gather and manage this data reliably, especially when attempting to do so manually. Data silos and simple human error frequently get in the way of complete and accurate information.
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Methodological complexity
Assuming the data is collected accurately, organizations must then use that data to calculate their specific emissions across each relevant scope and factor.
As we’ve already seen, each scope comes with its own set of methodologies and calculations, and organizations must use the correct methods for every factor of their emissions, while ensuring they comply with all relevant (and frequently changing) regulations. Add to this the need for standardization across the organization for comparable results, and it can quickly become a headache to manage.
Cost of implementation
Doing all of this by hand can be incredibly time consuming, even assuming the data is tracked and calculated accurately. It requires constant monitoring of numerous sources and meticulous accounting, often leading to significant auditing costs to ensure data accuracy. Tango Energy & Sustainability reduces this burden by automatically flagging common errors, allowing auditors to focus on key discrepancies rather than manually reviewing every bill and data point.
The costs for this laborious and time-intensive process can quickly add up. Carbon accounting, when done correctly, should be a cost-saving process. But when not managed properly, it can be quite expensive.
Best practices for carbon accounting
Despite the challenges, organizations can reliably engage in carbon accounting by following a few key principles.
Set clear boundaries
Organizations don’t have to track and manage everything all at once from the outset. Start by defining exactly which operations to include in the carbon accounting process, and clearly establish where the boundaries lie.
As a baseline, you’ll want to ensure that your reporting accounts for the requirements of any legislative requirements your organization falls under, but beyond those, you can make a plan for the systematic adoption of additional areas of carbon accounting. Start simply, set goals, and work your way toward the more complex.
Prioritize data accuracy
Accurate data is crucial to every aspect of carbon accounting, so ensuring it’s correct from the outset is essential. This means establishing a systematic means of collecting comprehensive data from all emission sources. Data should be collected in real time and consistently over time. And you’ll need to verify the data by cross-checking it against multiple sources and performing regular audits to ensure its quality and identify any discrepancies.
All of this means you need to use a dedicated software platform to automate the process rather than rely on manual systems.
Use automated systems
Using software to automate your carbon accounting process ensures reliability from start to finish. It allows organizations to systematize their varied data sources. Capturing data automatically saves you both the hassle of manual data collection, ensures that all data points are captured consistently over time, and prevents the errors that inevitably come with manual entry.
And when it comes to the data conversions, a dedicated software solution like Tango Energy & Sustainability can perform all the calculations for you. This not only saves on time and hassle, but also ensures that the best methodologies are being used at every step, that your organization is staying in compliance with all relevant regulations, and that the information you receive is accurate and reliable, allowing you to make informed decisions with confidence.
Simplify your carbon accounting with Tango
Carbon accounting requires rigorous accuracy in data collection and analysis, but it doesn’t have to be a complicated, manual process. Tango Energy & Sustainability automates your carbon accounting from start to finish, taking out the guesswork, ensuring accurate and reliable data, and giving you peace of mind.
Tango gives you the knowledge to thoroughly visualize and analyze your emissions data in a cloud-based, centralized platform. With real-time data monitoring, you can see how much energy is being used (i.e., emissions being released) by your buildings/facilities at any given time. And Tango can help you measure and verify the effectiveness of your efficiency projects, procure renewable energy, and benchmark all your efforts against national efficiency standards.
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