What are Scopes 1, 2 and 3 Emissions?
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In this article, we define what Scope 1, 2, and 3 emissions are and their significance in managing a company's carbon footprint.
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Carbon Accounting: All You Need to Know in 2024
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Finances are tricky to navigate when running a business, but did you know that keeping track of more than just your money, like carbon accounting, is just as important to monitor?
Accurate carbon accounting can help you and your company work towards a greener future and better environmental standards – such as developing an Environmental Management System or acquiring an ISO 14001 certification.
Why is carbon accounting a useful tactic to ensure your company is benefiting the environment?
👉 In this article, we'll explain what carbon accounting is, the methods used for carbon accounting, and how your company can get started with carbon accounting.
What is carbon accounting?
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Carbon accounting refers to the method used to calculate the amount of carbon dioxide emissions a business produces. Organization often refer to a third party to help them with carbon accounting to reduce their greenhouse gas emissions, carbon emissions, and indirect emissions via various carbon accounting methods.
“ Carbon accounting allows a company to accurately measure the amount of carbon credits that should be purchased in order to offset their previous carbon emissions. This is done so that a company or organization can accurately decide a fair amount of carbon credits to exchange between other businesses, individuals, or third parties. ”
👉 Carbon accounting is something referred to as greenhouse gas accounting.
Carbon accounting, sometimes referred to as greenhouse gas accounting – is the process in which a company measures the level of carbon dioxide emissions they are responsible for so that they may equally and fairly trade carbon credits between states, companies, and individuals in the carbon market.
💡 Calculating your company's GHG emissions and overall carbon footprint often requires the collection of precise emissions data regarding both your direct and indirect emissions. this can prove challenging but luckily – there are several available types of carbon accounting software to choose from to make calculating your total greenhouse gas emissions easier, including our own platform at Greenly!
Overview of Greenly's interface for offset projects
Why is carbon accounting important?
Carbon accounting is important as it impact our environment, society, and even our global economy.
Here's a breakdown why carbon accounting and reporting is becoming more crucial by the day:
Environmental Benefits
- Avoid Climate Change – Carbon accounting and reporting helps companies to measure and reduce their greenhouse gas (GHG) emissions as it provides them with greater insight on how to reduce both their direct and indirect emissions and achieve their individual climate goals.
- Boost Sustainability Initiatives – Accurate carbon accounting and reporting can help to encourage emission reductions outside of your organization as well, such as with your stakeholders or your supply chain. This can inspire other companies to better understand their carbon dioxide equivalents, emission factors, and work towards net zero.
Economic Benefits
- Reduced Operational Costs – Being able to better understand emissions data via carbon accounting software can help companies to effectively reduce emissions, energy consumption, and understand their overall inefficiencies and setbacks. As a result, these efforts to improve energy efficiency and reduce reduce waste can not only help companies to reduce their corporate carbon footprint – but to save on operational costs.
- Set Your Company Apart From Competitors – Companies that make an active effort to take part in greenhouse gas accounting and utilise carbon accounting methods to reduce emissions can differentiate themselves from their competitors. Think about it: investors are starting to take an interest in companies concerned with global warming and their emissions data – which makes committing to GHG accounting a great way to illustrate your company's values to reduce emissions, optimise your value chain, and appeal to environmentally conscious consumers.
Regulatory Compliance
- Meet Legal Requirements – Many regions around the world including the U.S., U.K., and Europe have new regulations coming out which require businesses to report their GHG emissions. This means that carbon accounting and reporting can help organizations to comply with these regulations, avoid potential fines and legal issues, and make the most of their carbon accounting software of their choice.
- Stay One Step Ahead – New environmental legislation is being developed all of the time in line with well-known organizations like the World Resources Institute, GHG protocol, and governments across the world. As new compulsory documents are drafted to compel companies to take accountability for their direct emissions, indirect emissions, and even their supply chain emissions – future requirements are only bound to become more stringent. Luckily, the use of various carbon accounting methods can help companies to prepare themselves for these imminent legislative changes.
Social Responsibility
- Build Greater Stakeholder Trust – It can be challenging to engage your stakeholders, but carbon accounting and reporting can help your company to build a more transparent relationship and cultivate greater trust with your stakeholders – such as your investors, customers, and employees. Overall, GHG accounting can help illustrate your commitment to corporate social responsibility and sustainability – all of which could help to facilitate business growth, too.
- Public Accountability – By publicly disclosing carbon emissions and reduction efforts via the use of GHG accounting, organizations can hold themselves accountable to their carbon footprints and find greater motivations to reduce them. In addition to this, a company's carbon accounting and reporting efforts can help to promote the importance of understanding our company's GHG emissions, emission factors, supply chain activity, and how to reduce our overall environmental impact.
Improved Strategic Decision-Making
- Better Strategy Development – The data provided by carbon accounting can help to uncover valuable information for future and improved strategic planning. As a result, this can also help organizations to set approachable and achievable science-based targets for emission reductions.
- Risk Management – Seeking to understand your company's carbon emissions can help your business to better identify, manage, and mitigate risks associated with climate change – such as extreme weather events, market risks, and even regulatory risks.
👉 Overall, carbon accounting is important as it encourages companies to better understand their supply chain, scope 3 emissions, and total greenhouse gases produced to make better business decisions for the planet, people, and industry as a whole moving forward.
What are some examples of companies that have used carbon accounting?
Several companies around the world have implemented the use of carbon accounting, most often by choosing a carbon accounting software or platform most suitable for their business – examples of these companies include Microsoft, Google, and Apple.
Corporate Examples of Carbon Accounting
Here is a breakdown of how these three big name companies make the most of carbon accounting:
Microsoft
Microsoft has made their sustainability efforts well known via the use of carbon accounting, such as having pledged to become carbon negative by 2030 and by using extensive carbon accounting measure, monitor, and reduce their emissions. In addition to this, Microsoft is exceptionally interested in renewable energy, energy efficiency, and carbon removal projects – having invested in all three.
Google has also been a well-known leader in the game of sustainability, seeing as they are working towards operating on 100% renewable energy and become carbon-free by 2030. Google uses carbon accounting and their own emission factors to calculate their greenhouse gas emissions. In addition to calculating their GHG emissions, Google has released annual reports to remain transparent with their users, investors, and other stakeholders – as well as having invested in renewable energy projects to boost energy efficiency.
Apple
Lastly, Apple is well-aware of their global warming potential and has made a substantial effort to mitigate excess GHG emissions and other indirect emissions. For instance, Apple is working towards carbon neutrality across its entire supply chain and product life cycle by 2030. They also encourage users to make use of their electronic trade-in program before purchasing a new iPhone or laptop to help mitigate waste and boost sales in refurbished products.
👉 In conclusion, carbon accounting is becoming an essential tool for monitor, manage, and mitigate a negative environmental impact created on behalf of businesses. Also, carbon accounting can reap , economic benefits, help companies avoid legal fines, adhere to good CSR policies, and grow more appealing to future customers and investors. Ultimately, carbon accounting can help us to fight against climate change, promote sustainable development, and help keep businesses relevant.
What is the main goal of carbon accounting?
The main goal of carbon accounting is to assign a set value to the carbon dioxide and greenhouse gas emissions produced so that they can be accurately, numerically depicted as a financial value in the carbon market.
Additional key objectives of carbon accounting include:
- Better Understanding Emissions – Not all companies will easily understand what a carbon dioxide equivalent or emission factors are, both of which can prove useful when trying to reduce carbon emissions. Luckily, carbon accounting provides a systematic approach to help companies with both accounting and reporting via various carbon accounting methodologies.
- Comply with Environmental Regulations – Several regions around the world have made it mandatory for companies to report their GHG emissions, supply chain activity, and more. This means that carbon accounting can help companies to avoid legal fines by calculating GHG emissions in advance.
- Ideas for Reducing Carbon Emissions – With scope emissions developed by the Greenhouse Gas Protocol broken down into categories by magnitude of their emissions, this allows organizations greater insight on how much carbon dioxide equivalents their business activities emit and new ideas for reducing emissions and overall sustainable development. As a result, companies may reduce their energy consumption and decarbonise their value chain as well.
💡Remember, the Greenhouse Gas Protocol was developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).
- Encourage Accountability – Greenhouse gas (GHG) accounting helps raise attention towards the negative effects of global warming, burning fossil fuels, and the importance to measure carbon emissions. Therefore, carbon accounting enables businesses to take responsibility for their supply chain emissions and new incentive to reduce greenhouse gas emissions. This can help boost their brand reputation, reduce their corporate carbon footprint, and each their emission reduction targets.
- New Insight for Better Decisions – When companies are provided with a summary of their corporate carbon accounting, it can help them to gain new knowledge to make better businesses decisions moving forward – which as a result, could help to reduce other indirect emissions, adhere to the principles depicted in the Paris Climate Agreement, and mitigate climate change and
- Hit Emission Reduction Targets Easier – A company's greenhouse gas emissions are often a mystery to them until they take up carbon accounting to help them take GHG emissions inventories and guide them on implementing reduction strategies. As a result, the accurate data quality provided by carbon accounting can help companies to better track their carbon footprints and improve their overall carbon management for greater emission reductions.
👉 Because so many companies are trying to reduce their carbon footprint and work towards net-zero carbon emissions, carbon accounting helps to serve as a quantifiable measure that a company or individual can be held accountable for – such as their direct emissions, scope 3 emissions, and other greenhouse gases emitted.
What is the difference between carbon accounting and carbon assessment?
Carbon accounting solely refers to the process of measuring the amount of greenhouse gas emissions a company is responsible for producing, whereas carbon assessment is more complex.
“ Carbon assessment is the evaluation of numerical data of the greenhouse gas emissions provided by carbon accounting. Carbon assessment can help a company thoroughly understand their carbon emissions, and therefore help them decide which actions to take next in order to promote a more sustainable business and environment. ”
💡 Greenly can offer a carbon assessment to our clients to help support them in the transition to be more Eco-friendly.
Basically, carbon accounting is nothing more than a number. Carbon accounting is like getting a test score back. Some people will get a bad grade on their last exam, and have newfound motivation to want to do better. For others, the poor mark is nothing more than that – and it won’t provoke any action or concern for potential improvement.
👉 Carbon accounting doesn’t require someone to reduce their carbon emissions, whereas a carbon assessment insinuates that one would like to alleviate their carbon footprint – as it is the process of using the data revealed through carbon accounting as an effort to implement new, better environmental habits.
Another way to think of the difference between carbon accounting and carbon assessment is like budgeting your money for the month.
Carbon accounting is like the fixed-amount of money you receive for the month. That guaranteed income is nothing more than a number, and can’t persuade you to adjust your spending habits – but it gives you the information necessary to create a feasible, monthly expenditure plan.
Carbon assessment is like the process of making a budget chart, making it very similar to financial accounting – but you can only proceed with the carbon accounting process if you have the data for quantifying emissions. For carbon accounting, this necessary information is understanding greenhouse gas inventories, emissions factors, and your company's emissions – which is similar to needing to understand your monthly salary to create a fiscal budget in under a financial scenario.
What are the main two methodologies used in carbon accounting?
There are two main methods used in carbon accounting.
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The spend based method
The first approach to carbon accounting is the spend based method.
The spend based method works by multiplying the economic value of a product or service purchased by the relevant carbon emissions in order to calculate the amount of greenhouse gas emissions produced. The spend based method of carbon accounting utilises environmentally extended input and output models, otherwise known as EEIO models, and is often less mathematically complex or time consuming to calculate.
While using the spend based method for carbon accounting is simpler, it isn’t always reliable given the economy and the tendency for prices to constantly fluctuate. Also, the inconsistency of exchange rates between foreign currencies makes it difficult to rely on the spend based method.
💡 Is the spend-based method of carbon accounting worth using?
The spend based method of carbon accounting is the best approach if the carbon calculations need to be done quickly. However, if the average data of the carbon contributor is prone to marginal errors due to uncontrollable circumstances like inflation and foreign currency exchange rates – it may not be the most precise way to use carbon accounting.
The activity based method
The second primary approach to carbon accounting is the activity based method.
The activity based method of carbon accounting is more specific than the spend-based method, as it uses data to determine how many units of a certain material or textile component that a company has purchased – otherwise known as "real flows" of physical data across the company's value chain.
For instance, when using the spend-based method, only the price of a chair purchased would be used to determine the amount of carbon emissions produced, whereas the activity based method uses the various amounts of the materials used for the product or service, like wood or fabric – to calculate the carbon footprint.
“ Both the spend-based method and the activity-based method make use of carbon emissions factors to calculate a company’s carbon footprint determine an activity’s emissions output. ”
The activity based approach to carbon accounting is more accurate than the data provided by the spend-based method, therefore – it is widely encouraged that companies strive to use a hybrid model methodology in carbon accounting. This means that companies should use a dual, more practical approach in carbon accounting and use both the spend-based method and the activity based method simultaneously.
This hybrid approach to carbon accounting will allow companies to accurately measure their carbon footprint with the activity based method, while still having the ability to quickly calculate their carbon emissions with the readily available spend-based method.
Here is a table depicting the differences between the spend-based and activity-based methods:
Comparison of Spend-Based and Activity-Based Methods for Carbon Accounting
| Aspect | Spend-Based Method | Activity-Based Method |
|---|---|---|
| Description | Calculates emissions by multiplying the economic value of purchased products or services by relevant carbon emissions factors. | Calculates emissions based on the quantity of materials or components used, considering the actual data of physical flows. |
| Complexity | Less complex, quicker to calculate using EEIO models. | More specific and detailed, potentially more time-consuming. |
| Accuracy | Less reliable due to price fluctuations and exchange rate inconsistencies. | More accurate and precise, as it uses real data of material usage. |
| Best Use Case | Useful for quick calculations, especially when time is a constraint. | Preferred for detailed and accurate carbon accounting. |
| Hybrid Approach | Can be used in conjunction with the activity-based method for a more practical approach. | Encouraged to be used alongside the spend-based method for comprehensive accounting. |
| Example | Calculates the carbon footprint based on the price of a chair purchased. | Calculates the carbon footprint based on the quantity of materials like wood and fabric used for the chair. |
Carbon Footprint Report of BCB GROUP by Greenly
How does carbon accounting classify a company's emissions?
The estimated carbon emissions calculated from carbon accounting are often divided into three different categories, often referred to as, “scopes” – these scopes in carbon accounting seek to organise and simplify the process.
💡 According to the Greenhouse Gas (GHG) Protocol, the three scopes are broken down whether the carbon emissions come from industrial or vehicle related activities, heating or electric cooling systems, or other various emissions that do not fall under scopes one and two.
Carbon emissions are classified into the following scope categories:
- Scope 1 emissions result from industrialization habits or vehicles used in your company. For example: any fuel use, fuel combustion, non-renewable energy sources, chemical leakage, fugitive emissions, and energy use for office spaces or various facilities would fall under scope one.
- Scope 2 emissions refer qualify as energy consumed and emitted from rented or leased office spaces or vehicles or purchased electricity – such as fuel or the electricity required to run central heating or air conditioning.
- Scope 3 emissions qualify as any other miscellaneous emissions that don’t fall under scopes one or two. Carbon emitting activities that could fall under scope three include raw materials, purchased goods or services, transportation such as employee commuting, leased assets, franchises, investments, and even business travel.
Remember, scope emissions are used on behalf of numerous government based and non-profit organizations to help companies break down their emissions – such as the Environmental Protection Agency and the Science Based Targets Initiative (SBTi).
👉 Because Scope 3 is the most general category for carbon accounting, it is often the most difficult to precisely measure and the most challenging to reduce emissions – making it a subject of interest in carbon reporting and for businesses working towards net zero emissions.
Why should your company invest in carbon accounting?
There are several reasons why your company could benefit from deciding to commit to carbon accounting, such as adhering to environmental legislation, boosting brand reputation, and making process towards your company's climate goals.
For example, using carbon accounting is a good first step towards developing corporate sustainability. More and more investors and customers are seeking to partner or purchase products or services from businesses that seek not only financial success, but environmental and social just as well.
Also, using carbon accounting provides concrete data that can help establish transparency and in turn, prevent any future allegations against greenwashing. The statistics provided by carbon accounting can serve as evidence that your company is indeed striving to reduce carbon emissions.
💡 Therefore, in summary – carbon accounting principles illustrate not only the value in measuring and reducing emissions, but the the overall action that can be taken to mitigate their negative impact on surrounding communities and boost their overall business value.
“ Carbon accounting can also stimulate financial growth within a company, as investors, employees, and consumers alike are more likely to contribute to the product or service if they seek sustainable practices. ”
The same concept goes for any new laws or government requirements. If companies strive to calculate their carbon emissions through a verified process like carbon accounting, third parties will be more willing to invest into the business or project as companies will be able to demonstrate their willingness to comply with new environmental regulations.
All of the following benefits of carbon accounting ultimately attract new investors, which only continues to stimulate the economic success of the business or project.
👉 Since investors are increasingly interested in companies that are willing to adjust their business model to improve overall sustainability due to worsening climate change, companies that use carbon accounting are likely to have a greater appeal to new investors.
Carbon accounting with Greenly: Case Study on Sia Partners
Sia Partners is a consulting and accounting firm with an international presence in 18 countries that was founded in 1999. Sia partners was doing its carbon management on its own but they were spending too much time exchanging information between their different offices. In 2020, they opted for the greenly emissions tracking tool for greater simplicity and efficiency.
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How can you start reducing your emissions as a company?
“ Carbon accounting and reporting is only one step that a company can take to reduce their output of carbon emissions. Here are 3 small steps your company can take to begin reducing their carbon footprint. ”
1. Turn off heating and air conditioning systems
It’s easy to accidentally leave the heat or air conditioning on in an office, car, or other rented space tied to your company when it’s unnecessary. So, before going on holiday or taking a leave of absence – check that inhabited spaces aren’t being heated or cooled when no one’s there.
Doing this will also save your company money!
2. Offer your employees public transportation
Long gone are the days where taking the metro instead of driving your car to work were the only ways to cut back on carbon emissions.
Popular bike or scooter share services provide the opportunity to lower your company’s carbon accounting score in scope 2. Your employee’s will exercise more, save money, and overall reduce your company’s carbon emissions.
3. Stop Renting Unused Spaces
If your company takes a moment to evaluate which rented vehicles, co-working spaces, or companies that aren’t being used to their full capacity – your company can stop renting those spaces and therefore, reduce your company’s carbon footprint.
Overview of Greenly's interface for carbon footprint
What About Greenly?
If reading this article about carbon accounting in 2024 has made you interested in reducing your carbon emissions and get started with carbon accounting and reporting – Greenly can help you!
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If reading this article about carbon accounting has inspired you to consider your company’s own carbon footprint, Greenly can help.
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. We offer a free demo for you to better understand our platform and all that it has to offer – including assistance with boosting supplier engagement, personalised assistance, and new ways to involve your employees.
Learn more about Greenly’s carbon management platform here.
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