As the global temperature continues to increase, Greenhouse Gas (GHG) accounting has become a crucial tool to tone it down. A 2018 report by the Intergovernmental Panel on Climate Change (IPCC) by the UN emphasized that CO2 emissions need to be reduced by 45% by 2030, with a baseline of 2010.
Additionally, companies that actively work on climate change receive 18% higher Return on Investment (ROI) than companies that don’t and 67% higher than companies that do not disclose their emissions, the Carbon Disclosure Project (CDP) reported. This clearly shows how beneficial GHG accounting is, both environmentally and economically.
What is Greenhouse Gas (GHG) Accounting?
GHG Accounting, at its root, is similar to a comprehensive environmental audit. It refers to calculating greenhouse gas emissions that a company emits through different practices, from energy use to waste disposal. The objective here is to get an idea of how to reduce them.
By estimating these emissions, companies can make better choices, set achievable reduction targets, and track their progress constantly. This is critical to implementing efficient climate strategies and aligning with global climate goals.
Key Components of GHG Accounting
Emission Sources
Understanding where the emissions come from is an important step for GHG accounting. Generally, these emissions originate from the consumption of energy by burning fossil fuels, emissions from commuting like company vehicles, business travel, etc., manufacturing and production processes, and emissions from the treatment and disposal of waste.
Emission Factors
These are a set of systematic values and measures that account for each unit of activity through which emissions are produced. For example, the amount of CO2 emitted for every kilowatt-hour of electricity used. This way, there is a uniform way through which activities and sectors can be compared.
Boundaries of Accounting
Measurement of emissions is a broad field and hence, it is important to clearly define the boundaries of accounting for these emissions. For a clear picture of what will be measured, there are two boundaries :
- Organizational Boundaries: Entity-controlled emissions from all operations.
- Operational Boundaries: Emissions generated from processes like transportation, production, etc.
Importance of GHG Accounting
Environmental Impact
GHG Accounting provides a comprehensive and organized approach to calculate and control your emissions. Organizations can figure out their primary emission sources and then develop targeted action plans to reduce them. This will help not only to reduce carbon emissions but also play an organization’s part in contributing to global climate change. With greenhouse gas accounting, companies can align their objectives and strategies with those of the Paris Agreement and other global climate goals.
Regulatory Compliance
With climate change becoming a serious issue, many countries have established hard regulations mandating organizations to report and control their greenhouse gas emissions. GHG accounting helps companies adhere to these regulations, and avoid legal penalties or fines by thoroughly tracking and reporting emissions. It also elevates operational efficiency by reducing costs as well as environmental impact.
Corporate Responsibility and Reputation
Through greenhouse gas accounting, companies can showcase their dedication to environmental leadership. By being transparent about their emissions disclosure and management, companies can build trust and reputation among stakeholders. While making investment decisions, investors often look at environmental, social, and governance (ESG) concerns.
GHG Accounting Methodologies
Common Frameworks and Standards
Several established frameworks and standards offer guidance on GHG accounting.
Greenhouse Gas Protocol
Recognized as one of the widely adopted frameworks, the Greenhouse Gas Protocol was set up by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It offers a comprehensive set of guidelines for calculating and controlling greenhouse gas emissions. The protocol is designed to help companies develop complete GHG inventories and devise competent action plans.
ISO 14064 Standards
These are a set of standards developed by the International Organization for Standardization (ISO). They provide thorough instructions on how to calculate, track, report, and verify greenhouse gas emissions. These standards are supposed to be adaptable and useful for different companies, ensuring the credibility and uniformity of their GHG data.
Types of GHG Accounting
GHG accounting is usually split into two main categories :
Organizational GHG Accounting
This category of greenhouse gas accounting focuses on the emissions emitted by the entire organization. It involves all processes within the company’s operational limits, like manufacturing processes, office operations, transportation, etc. Organizational GHG Accounting offers a detailed overview of the company’s operations, that can be leveraged to develop action plans.
Project-level GHG Accounting
This approach targets emissions emitted by specific projects or initiatives. It’s helpful to assess the environmental impact of particular projects, like building a new facility, launching a product, or implementing a sustainability initiative. Tracking the environmental performance of a particular project helps companies evaluate their efforts and make better decisions in the future.
Data Collection and Management
Effective GHG accounting is dependent on accurate and reliable data collection. Businesses should set up strong and secure systems to collect emissions data, including :
Implementing Data Management Systems
It is crucial to have advanced data management systems that can handle large amounts of data from various sources. These systems should be able to track emissions from various practices and consolidate them into a detailed GHG inventory.
Utilizing Specialized Tools and Software
Various tools and software solutions are specially made for GHG tracking and reporting. These tools simplify the process of collecting data, crunching numbers and creating detailed reports to ensure accuracy and reliability. Some tools calculate emissions using energy usage data, transportation data, and waste management records.
Ensuring Data Quality and Verification
To ensure the credibility and accuracy of these reports, companies must carry out quality assurance practices. This can be done by carrying out regular audits, getting third-party verification, and adhering to established reporting protocols. This will help build trust among stakeholders and also support the company’s sustainability goals.
Steps in GHG Accounting
Identifying Emission Sources
The first step in GHG accounting is to understand the sources of greenhouse gas emissions. Typically, emissions are categorized into three scopes :
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- Scope 1: These are direct emissions owned or controlled by the organization.
- Scope 2: These are indirect emissions from energy consumed by the organization during heating, cooling, steam, etc.
- Scope 3: These are indirect emissions that take place in the company’s value chain, including upstream and downstream activities.
To dive deeper into these emissions, refer to our blog on What are Scope 1, 2, and 3 Emissions?
Calculating Emissions
Once the emissions sources are clear, the next step is to calculate the emissions. This can be done using emission factors which are different for different activities like fuel consumption or energy consumption.
Precise activity data is important for reliable calculations. Companies have to collect data from various sources such as utility bills, fuel purchase records, transportation logs, and supplier information. Advanced GHG accounting software can simplify these calculations by automating the process and ensuring the right emission factors are used.
Reporting and Verification
The emissions data are compiled into detailed reports, included in sustainability reports, annual reports, or particular GHG inventory reports. Reporting frameworks like the Global Reporting Initiative (GRI) or the Carbon Disclosure Project (CDP), are set up to ensure consistency and easy comparison with other entities.
Independent auditors are directed to review the data collected and measuring processes, verify the emissions reported, and give assurance on the quality and accuracy of the GHG inventory. Verification not only helps in building the credibility of these reports but also pinpoints the areas for improvement.
Challenges in GHG Accounting
Data Availability and Quality
Effective GHG accounting depends on accurate and reliable data from different sources, within and outside the organization. If the data is incomplete, irrelevant, or outdated, the credibility of the estimate of these emissions can not be trusted. If a company does not have a record of how much fuel their vehicles use, or how much energy their buildings use, then there will be significant gaps in the GHG inventory. These gaps make it difficult to develop competent reduction strategies.
Complexity of Emission Factors
While emission factors account for the emissions per unit of activity, they vary across different activities, industries, etc. This variability makes the GHG accounting process complex. For example, emission factors for transportation depend on vehicle types, fuel efficiency, and driving conditions. Companies must use industry-specific databases and coordinate with environmental consultants to ensure the efficiency of emission calculations.
Changing Regulations and Standards
The nature of GHG accounting regulations is constantly evolving, with new guidelines and rules being introduced regularly, both nationally and globally. For example, the European Union’s Emissions Trading System (EU ETS) and the United States’ Greenhouse Gas Reporting Program (GHGRP) require specific requirements that organizations must adhere to.
Organizations must be flexible to these changing regulations to maintain compliance and effectiveness in their GHG accounting processes. They should be updated about the changing rules, and understand and implement new requirements.
How Organizations Can Implement GHG Accounting
Step 1: Establish a GHG Accounting Team
The first step is to form a committed team responsible for overseeing the entire process of GHG accounting. This team must include members from various departments like finance, operations, and sustainability, for a well-rounded approach.
Step 2: Define the Scope of GHG Accounting
Organizations must set the scope of their GHG accounting process. This included deciding which emissions to include, divided into Scope 1, 2, and 3 emissions. This way, accurate reporting and efficient management of emissions can take place.
Step 3: Select Appropriate Tools and Software
Effective GHG accounting requires the right set of tools and software. Various software solutions can automate data collection, assist emissions calculations, and produce detailed reports. The process can be accurate and efficient by selecting a robust GHG accounting software that caters to the organization’s needs.
Step 4: Collect and Analyze Data
Data Collection is one of the most crucial steps in the GHG accounting process. Companies need to collect data on energy consumption, transportation, waste management, and other relevant activities. This data is collected from all departments and operational processes and later analyzed to determine the emission sources and measure overall GHG emissions. For accurate and credible data, analytics tools and other advanced data management systems can be utilized.
Step 5: Set Reduction Targets
Based on the analyzed emissions data, organizations need to set realistic reduction targets. They should align with global climate goals, such as the targets set by the Paris Agreement. Targets should be specific, measurable, achievable, relevant, and time-bound (SMART). They must be communicated to all stakeholders to gather support and work collectively towards the target.
Step 6: Implement Reduction Strategies
Depending on the set targets, efficient emission reduction strategies must be implemented. These strategies could include enhancing energy efficiency, shifting to renewable energy sources, optimizing supply chain logistics, and adopting sustainable practices across all operations.
Step 7: Monitor Progress and Report
Constant monitoring of emissions is necessary to build accountability and showcase continuous development. Companies should have a routine process, wherein they track emissions data, assess the effectiveness of their strategies, and make changes wherever needed. Reporting progress, challenges, and achievements to the stakeholders in a transparent manner will help build trust and credibility.
Conclusion
In conclusion, GHG Accounting has become a significant aspect of reducing carbon footprint. CarbonTrail is an effective GHG accounting software created to streamline the process of tracking and controlling emissions, specifically for the fashion industry. It makes the reporting process easier with its user-friendly interface, and its automated calculations avoid manual errors. They help generate comprehensive reports that follow global standards and provide accurate product lifecycle assessments (LCAs) by using AI and primary factory data.
Ultimately, accurate GHG accounting efforts showcase the dedication to minimizing environmental impact and contributing to global climate objectives. In the dynamic landscape of sustainability, GHG accounting will remain a crucial aspect of achieving long-term goals, encouraging innovation, and supporting positive change.
