The Carbon Border Adjustment Mechanism (CBAM)
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In this article we’ll explore what the CBAM is, why it’s been created, and what importers need to know ahead of its introduction.
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Carbon Accounting: All You Need to Know
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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, also known as greenhouse gas (GHG) accounting, refers to the process of measuring, tracking, and reporting the carbon dioxide and other greenhouse gas (GHG) emissions associated with an organisation’s operations, products, or supply chains. This process provides a foundation for understanding environmental impact and helps organisations take informed actions to reduce emissions.
“ 💡 Why it matters: Carbon accounting enables businesses to identify key sources of emissions, monitor progress over time, comply with regulations, and align with global sustainability goals. It also plays a crucial role in strategies like carbon credit trading and contributing towards global net-zero aspirations. ”
Carbon accounting has many practical uses including:
| Purpose | Description |
|---|---|
| Regulatory Compliance | Ensures adherence to local, national, and international environmental laws and carbon reporting requirements. |
| Tracking Emissions | Provides a clear picture of direct (Scope 1), indirect (Scope 2), and value chain (Scope 3) emissions. |
| Carbon Reduction Planning | Identifies high-emission areas to develop targeted reduction strategies. |
| Sustainability Reporting | Communicates an organization’s environmental performance to stakeholders through reports like CDP, GRI, or TCFD. |
| Carbon Market Participation | Facilitates the trading of carbon credits or offsets, enabling cost-effective emissions reductions. |
| Stakeholder Engagement | Demonstrates accountability and commitment to sustainability for customers, investors, and employees. |
| Cost Savings | Highlights inefficiencies in energy or resource use, potentially reducing operational costs. |
| Risk Management | Identifies potential risks from carbon-related regulatory changes or reputational damage. |
| Product Lifecycle Analysis | Assesses the carbon footprint of products, aiding eco-design and sustainable supply chain decisions. |
| Alignment with Global Goals | Supports compliance with initiatives like the Paris Agreement or science-based targets (SBTs). |
💡 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!
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 a carbon assessment is more complex.
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 suggests that they would like to reduce their carbon footprint – as it is the process of using the data revealed through carbon accounting to implement new, better environmental habits.
💡 Greenly provides comprehensive carbon assessments to support our clients in their journey toward becoming more eco-friendly and sustainable.
What is the Goal of Carbon Accounting?
The main goal of carbon accounting is to measure, track, and report the greenhouse gas (GHG) emissions associated with an organization's operations, products, or supply chains. This enables businesses to identify emission sources, develop reduction strategies, comply with regulations, and align with sustainability goals.
Overview of key objectives of carbon accounting:
- Better Understanding of Emissions
Many companies struggle to grasp concepts like carbon dioxide equivalents (CO₂e) and emission factors, both of which are essential for tracking and reducing carbon emissions. Carbon accounting enables businesses to quantify and report their emissions accurately using established methodologies. This understanding lays the groundwork for effective emissions management. - Compliance with Environmental Regulations
As regulations mandating greenhouse gas (GHG) reporting expand globally, corporate carbon accounting has become crucial for staying compliant. By calculating and reporting emissions in line with legal requirements, companies can avoid fines and demonstrate accountability. This includes tracking GHG emissions, supply chain activity, and other environmental impacts to meet regional and international standards. - Identifying Opportunities to Reduce Emissions
Carbon accounting breaks down emissions into categories such as Scope 1, 2, and 3 emissions, as defined by the Greenhouse Gas Protocol. This granular approach allows organizations to pinpoint high-impact areas and develop strategies to reduce emissions, such as optimizing energy consumption and decarbonizing supply chains. By identifying these opportunities, businesses can work toward sustainable development and long-term emissions reductions. - Promoting Accountability
Carbon accounting raises awareness about the negative impacts of global warming and the role businesses play in contributing to emissions. By tracking supply chain emissions and corporate carbon footprints, companies are empowered to take responsibility and act on their climate impact. This accountability not only enhances brand reputation but also motivates organizations to meet their emissions reduction targets. - Informing Strategic Decision-Making
With a comprehensive overview of their emissions, businesses gain valuable insights to guide better decision-making. Carbon accounting helps companies identify inefficiencies, reduce indirect emissions, and align with global agreements like the Paris Climate Accord. These informed decisions can mitigate climate risks and improve overall sustainability practices. - Achieving Emissions Reduction Targets More Effectively
Many companies are unaware of their greenhouse gas emissions until they conduct carbon accounting. By creating GHG inventories and providing accurate data, carbon accounting enables organizations to track progress, implement reduction strategies, and improve their carbon management. This systematic approach makes hitting emissions reduction targets more feasible and achievable.
What Are the Main Methodologies Used in Carbon Accounting?
There are two main methods used in carbon accounting: the spend based method and the activity based method.
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 utilizes 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, since financial data is often influenced by uncontrollable factors like inflation or currency exchange rate fluctuations, it can introduce inaccuracies, making it a less reliable basis for carbon accounting.
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The Activity Based Method
The second approach to carbon accounting is the activity based method.
The activity-based method of carbon accounting is more precise than the spend-based method, as it relies on detailed data to quantify the actual units of materials or components purchased by a company. This approach, often referred to as tracking "real flows" of physical data, provides a clearer picture of emissions across the company's value chain.
For example, 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.
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 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.
Key differences between the 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. |
How Does Carbon Accounting Classify a Company's Emissions?
Carbon accounting often categorizes a company’s estimated emissions into three distinct groups, known as "Scopes". These scopes, established by the Greenhouse Gas (GHG) Protocol, aim to simplify the process of identifying and managing emissions.
💡 What is the GHG Protocol? The GHG Protocol is the world’s most widely used framework for measuring and managing greenhouse gas (GHG) emissions. Developed through a partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), it provides standardized guidelines to help organizations calculate and reduce their emissions. The protocol introduced the concept of scopes to ensure consistency and clarity in carbon accounting practices.
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 encompass 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 cover any other miscellaneous emissions that don't fall under Scope 1 or 2. 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.
👉 Scope 3 is often the most difficult to collect data on and measure. And because it's outside the direct control of the organization it's often the most challenging to reduce emissions - making it a subject of interest in carbon reporting and for businesses working towards net zero emissions.
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Is Carbon Accounting Mandatory?
In recent years, governments and regulatory bodies around the world have implemented laws requiring companies to measure and report their carbon emissions. These regulations aim to promote transparency, accountability, and progress toward global sustainability goals. Below is an overview of key regulations in the UK, EU, and US that mandate carbon accounting:
United Kingdom
- Streamlined Energy and Carbon Reporting (SECR):
Introduced in 2019, SECR requires large UK-incorporated companies to report their energy use and carbon emissions in their annual reports. - Who it applies to: Large companies meeting two of the following criteria: £36+ million turnover, £18+ million balance sheet total, or 250+ employees.
- Reporting requirements: Scope 1 and Scope 2 emissions, energy consumption, and intensity ratios.
- UK Emissions Trading Scheme (UK ETS):
Replacing the EU ETS post-Brexit, this scheme requires companies in high-emission sectors (eg, power, manufacturing) to monitor and report their emissions annually, with limits on allowable emissions.
European Union
- Corporate Sustainability Reporting Directive (CSRD):
Set to replace the Non-Financial Reporting Directive (NFRD), the CSRD mandates that companies report on their sustainability performance, including detailed carbon emissions data. - Who it applies to: Large EU companies with 250+ employees, €40+ million turnover, or €20+ million in assets, as well as certain non-EU companies operating in the EU.
- Reporting requirements: Scope 1, 2, and 3 emissions, climate-related risks, and sustainability initiatives.
- EU Emissions Trading System (EU ETS):
This cap-and-trade system applies to energy-intensive industries, requiring them to monitor and report emissions and purchase allowances for excess emissions.
United States
- SEC Climate Disclosure Rule (Proposed):
The U.S. Securities and Exchange Commission (SEC) is finalizing a rule that would require publicly traded companies to disclose climate-related risks, as well as Scope 1, 2, and in some cases, Scope 3 emissions. - Who it applies to: Publicly listed companies.
- Focus: Enhancing transparency for investors and stakeholders.
- California Climate Disclosure Laws (SB 253 and SB 261):
Recently enacted, these laws require large companies operating in California to report their Scope 1, 2, and 3 emissions. - Who it applies to: Companies with over $1 billion in revenue doing business in California.
- Timeline: Reporting begins in 2026 for 2025 emissions data.
Companies That Employ Carbon Accounting
Many of the world's leading companies, including Microsoft, Google, and Apple, have embraced carbon accounting to measure and manage their environmental impact. Most achieve this by leveraging advanced carbon accounting software or platforms, which streamline the process and provide actionable insights for sustainability initiatives.
Here is a breakdown of how these three big-name companies make the most of carbon accounting:
Microsoft
Microsoft has made its sustainability efforts well known via the use of carbon accounting, such as adopting ambitions to work towards carbon negativity by 2030. In addition to this, Microsoft is focusing efforts on investing in renewable energy, energy efficiency, and carbon removal projects.
Google is also positioning itself as a leader in sustainability, working towards operating on 100% renewable energy and becoming carbon-free by 2030. Google uses carbon accounting and their own emission factors to calculate its greenhouse gas emissions. In addition to calculating their GHG emissions, Google also releases 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 has made a substantial effort to mitigate excess GHG emissions and other indirect emissions. For example, Apple is working towards carbon neutrality across its entire supply chain and product life cycle. 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 of refurbished products.
👉 Carbon accounting is increasingly vital for businesses to monitor, manage, and mitigate their environmental impact. By identifying the most significant sources of emissions, it enables organizations to target harmful activities and implement effective reduction strategies. Beyond environmental benefits, carbon accounting offers a range of advantages, including cost savings, compliance with regulations, alignment with corporate social responsibility (CSR) goals, and enhanced appeal to customers and investors. Ultimately, it plays a crucial role in combating climate change, advancing sustainable development, and ensuring businesses remain competitive and forward-thinking.
Why Your Company Should Employ Carbon Accounting
Carbon accounting and Carbon Assessment are important as they impact our environment, society, and even our global economy. Here's a breakdown of why carbon accounting and reporting are becoming more crucial by the day:
Environmental Benefits
- Avoid Climate Change – Carbon accounting and reporting helps companies 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 also inspire other companies to better understand their carbon emission 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 waste not only help companies to reduce their corporate carbon footprint but also 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 utilize carbon accounting methods to reduce emissions can differentiate themselves from their competitors. Think about it: investors are starting to take an interest in companies and their emissions data – which makes committing to GHG accounting a great way to illustrate your company's commitment to reducing emissions, optimizing your value chain, and appealing to environmentally conscious consumers.
Regulatory Compliance
- Meet Legal Requirements – Many regions around the world including the U.S., U.K., and Europe have existing and 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 and avoid potential fines and legal issues.
- 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 regulations are created 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 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 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 support business growth too.
- Public Accountability – By publicly disclosing carbon emissions and reduction efforts via the use of GHG accounting, organizations can hold themselves accountable for their carbon footprints and find greater motivations to reduce them. In addition, a company's carbon accounting and reporting efforts can help 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 uncover valuable information for future and improved strategic planning. As a result, this can help organizations set 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.
👉 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.
How Can Your Company Reduce Emissions?
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 when taking the metro instead of driving your car to work was the only way 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 employees will exercise more, and save money, and it will also lead to an overall reduction in 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.
What About Greenly?
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At Greenly, we specialize in helping businesses take control of their carbon emissions through our suite of carbon management services. Whether you’re just starting your sustainability journey or looking to refine your current strategy, our platform and expertise provide the tools and insights needed to make a real impact.
Here’s how Greenly can support your business:
- Carbon Assessments: We offer detailed carbon footprint assessments to help you understand your emissions across Scopes 1, 2, and 3, identifying where your biggest environmental impacts lie.
- Emission Tracking: Our platform streamlines the process of tracking your emissions over time, providing clear data visualization and actionable insights to monitor progress.
- Reduction Strategies: Greenly helps you develop tailored decarbonization pathways to meet your sustainability goals, whether it’s reducing operational emissions or decarbonizing your supply chain.
- Supplier Sustainability: We provide tools to evaluate and engage with sustainable suppliers, helping to reduce upstream emissions and enhance your value chain's overall sustainability.
- Achieving Science-Based Targets: Greenly supports businesses in setting and achieving science-based targets, ensuring your efforts align with global climate goals like the Paris Agreement.
By working with Greenly, you’ll not only reduce your environmental impact but also boost your brand reputation, meet growing customer and investor expectations, and gain a competitive edge in an increasingly sustainability-focused world.
👉 Ready to make sustainability a priority? Contact us today to see how Greenly can help your business take the next step toward a greener future.
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 tackling 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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