Carbon accounting

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Greenhouse gas accounting or carbon accounting is a framework of methods to measure and track how much greenhouse gas (GHG) an organization emits.[1] It can also be used to track projects or actions to reduce emissions in sectors such as forestry or renewable energy. Corporations, cities and other groups use these techniques to help limit climate change. They typically set an emissions baseline, create targets for reducing emissions, and track progress towards them. This is often done to address social responsibility concerns, or meet legal requirements. GHG accounting enables them to calculate and report GHG emissions in a consistent and transparent manner.

These techniques can also help understand the impacts of specific products and services by quantifying their GHG emissions throughout their lifecycle. This can promote more environmentally-friendly purchasing decisions. GHG accounting methods can help investors better understand the climate risks of companies they invest in. Corporate and community net-zero goals are also aided by accurate accounting methods. There is some evidence that programs that require GHG accounting have the effect of lowering emissions.[2]

GHG accounting can be done at different levels, from that of companies and cities up to the greenhouse gas inventories of entire nations. It is typically done using a combination of measurement, calculation, estimation, and reporting methods. There are several standards and guidelines for greenhouse gas accounting, including Greenhouse Gas Protocol and the ISO 14064 standard.

A variety of issues can affect the accuracy of self-reported GHG emissions. These drawbacks can affect public perceptions of progress on climate change. Accounting problems also affect the credibility of carbon offset projects in areas such as forest conservation. Methods are being developed to provide accuracy checks on self-reported data from companies and projects. Organizations like Climate Trace are now able to check reports against actual emissions via the use of satellite imagery and AI techniques.[3]

Origins[edit]

Initial efforts to create greenhouse gas (GHG) accounting methods were done largely at the national level. In 1995 the United Nations Framework Convention on Climate Change (UNFCCC) required Annex 1 (generally developed) countries to report annually on their emissions for six industrial categories. In 1997 the Kyoto protocol defined the greenhouse gases that are the central focus of these accounting methods: carbon dioxide (CO2), methane (CH4), nitrous oxide, sulfur hexafluoride, nitrogen trifluoride, hydrofluorocarbons and perfluorocarbons. These raised awareness about the importance of accurate GHG emission estimates.[4][5]

In 1998 the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) initiated a multi stakeholder process to develop a protocol to support this goal. The first edition of the Greenhouse Gas Protocol was published in September 2001.[6] It establishes a comprehensive, global, standardized framework for measuring and managing emissions from private and public sector operations, value chains, products, cities, and policies.[7] The protocol divides an organization’s emissions into three categories. Scope 1 emissions are those directly from the organization’s facilities. Scope 2 are emissions from generating electricity purchased by the organization, and Scope 3 covers other indirect emissions. [8]

Other initiatives since that time have played a role in driving corporate and community participation in GHG accounting. The Carbon Disclosure Project (CDP) was founded in the UK in 2002, and is now a multinational organization with thousands of companies disclosing their GHG emissions, along with other data.[9] The Science Based Targets Initiative (SBTi) was formed in 2015 as a collaboration between CDP, WRI, the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UNGC). Its goal is to establish science-based environmental target setting as a standard corporate practice. Its efforts have continued the trend of incorporating GHG accounting protocols into broader efforts to reduce emissions.[10]

Since the 2015 Paris Agreement there has been an increased focus on standards for financial risk from GHG emissions. The Task Force on Climate Related Financial Disclosures (TCFD) was created as a follow-up to the Paris Agreement. It established a framework of recommendations on the types of information that companies should disclose to support investors, lenders, and insurance underwriters.[11] More recently, governments such as the EU and US have developed regulations that specify corporate financial disclosure requirements and the use of accounting protocols to meet them.[12][13]

Participation in greenhouse gas accounting and reporting has grown significantly over time. In 2020, 81% of S&P 500 companies reported their own emissions (Scope 1) and the emissions from the electricity they bought (Scope 2).[14] Globally, over 22,000 companies disclosed environmental data to CDP in 2022.[15]

Drivers[edit]

Internal company drivers[edit]

A number of internal drivers have been described for corporate carbon accounting. These include: standing in published rankings,[16] preparation for regulatory requirements and use in emissions trading,[17] managing climate change related risks, investment due diligence (including in acquisitions), shareholder and stakeholder communication, staff engagement, and energy cost savings. Accounting for greenhouse gas emissions is increasingly a standard requirement for business.[18][19]

Governmental requirements[edit]

Corporate greenhouse gas accounting is also driven by a variety of legal requirements. These are typically created through specific laws on reporting, or within wider governmental environmental and sustainability requirements. Greenhouse gas emission trading is also a factor in broadening the use of these accounting and reporting protocols.[20] In 2015 more than 40 countries had some type of requirement in place.[21]

Regulatory requirements include the EU's Corporate Sustainability Reporting Directive (CSRD), part of the European Green Deal to make EU countries carbon neutral by 2050, and Fit for 55 to reduce greenhouse gas (GHG) emissions by at least 55 percent compared with 1990 levels by 2030. It will require many large companies and companies with securities listed on EU-regulated markets to disclose a broad array of ESG information, including GHG emissions.[13] The UK's Environmental Reporting Guidelines update and clarify requirements in earlier laws that required companies to report information on GHG emissions in their Directors’ Reports. These rules require companies with listings on stock exchanges, as well as other large companies, to report their global GHG emissions through their annual reports. Additionally, they are now required to report their total global energy use and information relating to energy efficiency and reporting methods used.[22][23] In the US the Greenhouse Gas Reporting Program (GHGRP) requires facility (as opposed to corporate) based reporting of GHG emissions from large industrial facilities, fuel and gas suppliers, and CO2 injection sites. Coverage is based on factors such as the types of industrial operations located at the facility, and their emission levels. A total of 41 industrial categories are covered by the GHGRP.[24]

Recent regulations are also coming from agencies that traditionally have had a financial focus. The US Security Exchange Commission (SEC) proposed a rule in 2022 that would require all public companies, regardless of size, to report their Scope 1 and Scope 2 emissions. Larger companies would be required to disclose Scope 3 emissions only if they are material to the company, or if the company has set a reduced emissions target that includes Scope 3 emissions.[25] Japan's Financial Services Agency's (FSA) also issued rules in 2022 that require financial disclosure of climate related information. These are expected to cover around 4,000 companies, including those listed on the Tokyo Stock Exchange.[26]

Government procurement requirements have also begun to incorporate GHG reporting requirements. Both the US[27] and the UK[28] governments have recently issued executive type orders that require this practice.

Emission trading schemes in various countries also play a role in promoting GHG accounting, as do international carbon offset programs. The European Union Emissions Trading System (EU ETS) is a "cap and trade" system where a limit is placed on the right to emit specified pollutants over an area, and companies can trade emission rights within that area.[29] EU-ETS is the second largest trading system in the world after the Chinese national carbon trading scheme, covering over 40% of European GHG emissions.[30] Greenhouse Gas Protocol is cited amongst its guidance documents.[31][32] California's cap-and-trade program operates along similar principles.[33] International offset programs also contain requirements for identifying and quantifying emission reductions for a proposed project. The Clean Development Mechanism (CDM-established under the Kyoto protocol), has a detailed set of Monitoring, Reporting, and Verification procedures,[34] as does the Reducing emissions from deforestation and forest degradation (REDD+) program.[35] Similar procedures to document project reductions under Article 6 of the Paris agreement are yet to be determined.[36]

Non-governmental organization programs[edit]

A number of NGOs have developed programs that both promote GHG accounting/reporting and help define the ways in which it is carried out. The Carbon Disclosure project allows a range of protocols that can be designated when reporting,[37] although most companies report GHG emissions using Greenhouse Gas Protocol or a protocol based on it.[38] The Science Based Targets initiative specifically cites Greenhouse Gas Protocol guidance as part of its criteria and recommendations [39] Similarly, the TCFD cites Greenhouse Gas Protocol in its recommended metrics and targets.[40]

Frameworks and standards[edit]

The 2006 IPCC guidelines provided several key principles that have been adopted in many of today's carbon accounting standards. Those most consistently applied include: transparency, accuracy, consistency, and completeness. By contrast, the IPCC principle of comparability, as it might relate to comparing the emissions of various companies, is less widely applied.[41][42]

These standards typically cover the greenhouse gases and gas categories first regulated under the Kyoto Protocol.[43] They operate in two broad arenas. Attributional accounting allocates emissions to specific organizations or products, and measures and tracks them over time. Consequential accounting tries to measure the overall GHG difference due to a change, not just the difference in the organisation's GHG.[44]

Corporate/local government standards[edit]

Corporations and facilities use a variety of methods to track and report GHG emissions. These include those from Greenhouse Gas Protocol, the Task Force on Climate-Related Financial Disclosure, the Sustainability Accounting Standards Board, the Global Reporting Initiative, the Climate Disclosure Standards Board, the Climate Registry, as well as several industry specific organizations.[45] CDP lists an even broader set of acceptable methods for reporting in its guidance.[46] Standards for cities and communities include the Global Protocol for Community Scale Greenhouse Gas Inventories and the ICLEI U.S. Community Protocol (for cities/communities in the US).

GHG Protocol[edit]

GHG Protocol is an initiative of the WRI and WBCSD and is also the name of a group of standards that are the most-used standards for GHG accounting.[47] These standards reflect a number of accounting principles, including: relevance, completeness, consistency, transparency, and accuracy [48] The standards divide emissions into three scopes.

Scope 1 covers all direct GHG emissions within a corporate boundary (owned or controlled by a company).[49] It includes fuel combustion, company vehicles and fugitive emissions.[50] Scope 2 covers indirect GHG emissions from consumption of purchased electricity, heat, cooling or steam.[51] For example most companies do not own gas-fired power plants, but many use the electricity they generate. At least one third of global GHG emissions are Scope 2.[52]

Scope 3 emission sources include emissions from suppliers and product users (also known as the “value chain”), transportation of goods, and other indirect emissions.[53] Scope 3 emissions often represent the largest source of corporate greenhouse gas emissions, for example the use of oil sold by Aramco.[54] These were estimated to represent 75% of all emissions reported to the Carbon Disclosure Project, though that percentage varies widely amongst business sectors.[55] In 2022 about 30% of US companies reported Scope 3 emissions.[56] However, the International Sustainability Standards Board is developing a recommendation that Scope 3 emissions be included as part of all GHG reporting.[57] There are 15 Scope 3 categories, though not every category is relevant to all organizations.[58]

WRI is currently developing a Land Sector and Removals Standard for its corporate reporting guidelines.[59] This will include emissions and removals from land management, land use change, biogenic products, carbon dioxide removal technologies, and related activities.

ISO 14064[edit]

The ISO 14064 standards for greenhouse gas accounting and verification were published in 2006 by the International Organization for Standardization (ISO).[60] ISO, WRI and WBCSD worked together to ensure consistency amongst the ISO and Greenhouse Gas Protocol standards.[61] ISO 14064 is largely based on the Greenhouse Gas Protocol.[62]

Part 1 (ISO 14064-1:2006) specifies principles and requirements at the organization level for quantification and reporting of GHG emissions and removals.[63] Part 3 (ISO 14064-3:2006) provides guidance for conducting or managing the validation and/or verification of GHG reporting.[64]

GHG Reporting Protocol by USEPA[edit]

The United States Environmental Protection Agency (EPA)’s Greenhouse Gas Reporting Protocol (GHGRP) requires facilities to report two types of GHG emissions: (1) combustion emissions resulting from burning fossil fuels or biomass (such as wood or landfill gas); and (2) other emissions from industrial processes, such as chemical reactions from iron and steelmaking, cement, or petrochemicals. Emissions due to leaks or irregular releases (also known as “fugitive emissions”) are also considered process emissions. EPA uses the facility-level GHGRP data to help prepare the agency's annual Inventory of U.S. Greenhouse Gas Emissions and Sinks, which is submitted to the United Nations in accordance with the Framework Convention on Climate Change. EPA's program focuses on facility specific emissions rather than on corporate wide accounting.[65] Monitoring methodologies are more specific than GHG Protocol or ISO 14064, and require the use of continuous monitoring systems, mass balance calculations, or default emission factors.[66]

Task Force on Climate-related Financial Disclosures[edit]

The TCFD disclosure standard for companies covers four thematic areas: governance, strategy, risk management and metrics and targets.[40] There are seven principles TCFD prioritizes in its guidance. It emphasizes that disclosure should be: representative of relevant information; specific and complete; clear, balanced, and understandable; consistent over time; comparable amongst companies within a sector industry or portfolio; reliable, verifiable, and objective; and timely.[40] The metrics and targets portion of the standard requires measurement and disclosure methods based on GHG Protocol.[40] The TCFD's standard specifies that companies should disclose all Scope 1 and 2 emissions regardless of their material impacts on the company; it considers Scope 3 emission reporting to be dependent on whether they are "material", but recommends that they be included.[40]

Protocols for cities/communities[edit]

The Global Protocol for Community-Scale Greenhouse Gas Inventories (GPC) is the result of a collaborative effort between the GHG Protocol at World Resources Institute (WRI), C40 Cities Climate Leadership Group (C40), and Local Governments for Sustainability (ICLEI).[67] It requires a jurisdiction to first identify the inventory boundary, such as an administrative boundary for city or county.[68] The protocol focuses on six main activity sectors: stationary energy; transportation; waste; industrial processes and product use; agriculture, forestry and other land use; and other emissions occurring outside the geographic boundary that are a result of a jurisdiction's activities.[69] To distinguish between emissions that occur within a city boundary and outside, the protocol uses the same Scope 1, 2 and 3 definitions as the GHG Protocol Corporate Standard.[70] The protocol is designed to allow inventories to be aggregated at the sub-national or national level in order to improve national inventories and measure the relative contribution of a city's efforts toward national mitigation targets.[71] The protocol requires reporting of emissions by gas, scope, sector and subsector using two options. One is a framework that reflects a more traditional Scope 1, 2, and 3 assessment for the jurisdiction boundary that is decided on. Another is more focused on activities taking place within that jurisdiction, and excludes categories such as waste generated outside of it.[72]

The U.S. Community Protocol developed by ICLEI–Local Governments for  Sustainability USA emphasizes the use of geographic/jurisdictional boundaries rather than corporate boundaries, and recommends a sources and activities framework rather than a scopes framework to calculate emissions.[73] The guidance suggests communities  consider the stories they wish to convey about community emissions and what reporting frameworks will help tell those stories.[74]  Five basic emissions generating activities are included in the inventory guidance. These are: use of electricity by the community;  use of fuel in residential and commercial stationary combustion equipment;  on‐road passenger and freight motor vehicle travel; use of energy in drinking water and wastewater treatment and distribution; and generation of solid waste by the community.[74]

Reporting guidance covers a variety of approaches, and organizations can include one or more of them. These include GHG activities and sources over which a local government has significant influence: GHG activities of community interest;  household consumption; inventories of market based exchanges of emission offsets; or an inventory that incorporates the GHG fluxes (emissions and removals) from land use.[74] GHG reports from cities have been found to vary widely, and are often less than independent analyses.[75]

Product accounting[edit]

Product accounting methods are part of a broader set of Life Cycle Assessment approaches in general and Product Carbon Footprint methods in particular. Product carbon footprints are based on Life Cycle Assessment (LCA), but focus on the single issue of climate change. They can be used for either a product or a service. Related standards include ISO 14067, PAS 2050, and GHG Protocol Product Standard.[76]

GHG Protocol for Products builds on the framework of requirements in the ISO 14040 and PAS 2050 standards. It is similar to GHG Protocol Scope 3, but focused on life cycle/value chain impacts for a specific product.[77] The same five accounting principles apply as with the Corporate Standard.[78] Steps include setting business goals, defining analysis boundaries, calculating results, analyzing uncertainties, and reporting.[79] Boundaries for final products are required to include the complete cradle-to-grave life cycle.[80]

The ISO 14067 standard builds largely on other existing ISO standards for LCA.[76] Steps include goal and scope definition, inventory analysis, impact assessment, interpretation, and reporting.[79] For ISO 14067, the life cycle stages that need to be studied in the LCA are defined by a variety of system boundaries. Cradle-to-grave: includes the emissions and removals generated during the full life of cycle of the product. Cradle-to-gate includes the emissions and removals up to where the product leaves the organization. Gate-to-gate includes the emissions and removals that arise in the supply chain.[81]

Product footprint analysis can provide insight into GHG contributions throughout the value chain. For a typical PCF, 45% of total value chain emissions arise upstream in the supply chain, 23% during the company's direct operations, and 32% downstream.[82]

Project accounting standards and protocols[edit]

Project accounting standards and protocols are typically used to ensure the "environmental integrity" of projects that are designed to reduce GHG emissions in order to generate carbon offsets. They support both compliance type programs as well as voluntary markets,[83] and cover both GHG accounting rules, as well as specific program requirements. Accounting rules cover areas such as monitoring, reporting, and verification. Program requirements can cover project eligibility, certification, and other aspects.[84] Standards include Verra's Verified Carbon Standard, the Gold Standard, Climate Action Reserve and the American Carbon Registry.[85] Greenhouse Gas Protocol has also developed recommended methods for quantifying and reporting GHG reductions from these type of projects. These standards and protocols operate within a carbon offset industry that includes developers, brokers, auditors, and buyers.[86]

There are several principles that are designed to ensure environmental integrity of projects that are used to generate carbon offsets. One key principle is additionality—would the project occur anyway without the investment raised by selling carbon offset credits? There are two common reasons why a project may lack additionality: (a) if it is financially worthwhile due to energy or other cost savings, and (b) if it would normally be carried out based on environmental laws or regulations. Various kinds of analyses can be done to evaluate this aspect of a project, though the results are often subjective.[87]

Projects are also judged based on the permanence of reductions over various time horizons (which can be problematic in areas such as forestry projects). Protocols are designed to avoid double-counting, where a project's reductions might be claimed by more than one organization. Avoiding overestimation of emission reductions is another consideration. This can be achieved through the use of accurate project boundaries, methods to ensure that the project does not cause higher emissions outside those boundaries, and third party verification of project results. Some protocols and standards look to ensure that projects produce social and environmental co-benefits, in addition to emission reductions from the project itself.[88][89]

ISO 14064 Part 2[edit]

This standard specifies principles and requirements and provides guidance at the project level for quantification, monitoring and reporting of activities intended to cause greenhouse gas (GHG) emission reductions or removal enhancements. It includes requirements for planning a GHG project, identifying and selecting GHG sources, sinks and reservoirs relevant to the project and baseline scenario, monitoring, quantifying, documenting and reporting GHG project performance and managing data quality.[90]

GHG Protocol standards for projects and policies[edit]

The accounting principles in the GHG Protocol for Project Accounting are similar to those of ISO 14064 Part 2, namely relevance, completeness, consistency, transparency, accuracy and conservativeness.[91] Like the ISO standard, the protocol's focus is on core accounting principles and impact quantification, rather than the programmatic and transactional aspects of carbon credits. Additionality and uncertainty are not specifically required by the protocol, though there is general guidance on applying these concepts.[92] WRI and WBCSD have also developed additional guidance documents for projects in the land use, forestry, and electric grid sectors.[93] GHG Protocol Policy and Action Standard has similar accounting principles, but is meant to apply to interventions at a broader scale.[94]

Verified Carbon Standard (VERRA)[edit]

The Verified Carbon Standard (VERRA) was initially developed in 2005, and is a widely used voluntary carbon standard. It adopts accounting principles based on ISO 14064 Part 2. These include relevance, completeness, consistency, accuracy, transparency, and conservativeness.[95] Allowable projects under VERRA include energy, transport, waste, and forestry. There are also specific methodologies for REDD+ projects.[96] Verra has additional criteria to avoid double counting, requirements for additionality, a prohibition on any negative impact on sustainable development in the local community, and requirements for monitoring based on CDM standards.[97]

Gold Standard[edit]

The Gold Standard was developed in 2003 by the World Wide Fund for Nature (WWF) in consultation with an independent Standards Advisory Board. This group included NGOs, scientists, project developers and government representatives. Projects are open to any non-government, community-based organization. Allowable project categories include: renewable energy supply, energy efficiency, afforestation/reforestation, and agriculture. The program's focus includes the promotion of Sustainable Developments Goals, and projects are required to meet at least three of those goals, in addition to reducing GHG emissions. Projects must also make a net-positive contribution to the economic, environmental and social welfare of the local population. These are included in program monitoring requirements.[98][99] The standard certifies additionality using various methods or based on project categories. There are also screens for double counting.[100]

Other applications[edit]

In addition to the traditional uses described above, GHG accounting is used in other settings, both regulatory and voluntary.

Renewable energy credits[edit]

Renewable Energy Certificates (REC) or a Guarantee of Origin (GO) document the fact that one megawatt-hour of electricity is generated and supplied to the electrical grid through the use of eligible renewable energy resources.[101] RECs are now being utilized around the world and are becoming more prevalent. The United Kingdom (U.K.) has used renewable obligation certificates since 2002 in order to ensure compliance with the U.K. Renewables Obligation. Across the European Union, GOs are used. Australia has used RECs since 2001. More recently, India set up a REC market.[102]

In the context of GHG accounting, RECs are often used to adjust estimated Scope 2 emissions. In a typical case, a company could calculate its Scope 2 emissions using its electricity consumption and grid emissions factor. Companies that purchase RECs can use them to lower average emissions factors in their accounting. This allows them to report lower emissions while their real electricity consumption stays the same.[103]

National emissions inventories[edit]

Data from facility level accounting can improve the overall quality and accuracy of national inventories by providing validation for inventory estimates and improved emissions factors. This depends in part on what percentage of the sector's emissions the available data covers.[104] In some cases, aggregated facility level data can also be used to update or modify inventory results for certain sectors.[105]

Net Zero goals and GHG disclosure[edit]

The Net Zero concept emerged from the Paris Agreement,[106] and has become a feature of both national laws and numerous corporate goals.[107] Race to Zero was developed in 2019 to encourage private companies and sub-national governments to commit to net zero emissions by 2050 at the latest.[108] SBTI created a Net Zero program in 2021 to assist organizations in making this transition. That standard includes restrictions on the use of carbon removals to reach net zero goals.[109] Accurate and comprehensive GHG accounting is considered a key element of for Net Zero transition plans, including the use of protocols such as GHG Corporate Standard.[110][111]

The CDP (formerly the Carbon Disclosure Project) is an international NGO that helps companies and cities disclose their environmental impact.[112] It aims to make corporate accounting and reporting a business norm, and drive GHG disclosure, insight, and action. In 2021, over 14,000 organizations disclosed their environmental information through CDP.[113] CDP's 2022 questionnaire on transition plans includes specific requirements for describing Scope 1, 2 and 3 emissions.[114]

Effectiveness and limitations[edit]

Effectiveness[edit]

With the advent of GHG reporting, there has been tremendous growth in the number of organizations measuring their emissions and providing reports. There are also efforts to make this information public, and provide rankings of companies and cities.[115][116] News media sometimes use these rankings to highlight companies that are emitting the most GHGs,[117] although some of these stories have been called misleading.[118]

It can be difficult for both collectors and users of climate change reporting information to understand the collective impacts it has in contributing towards climate change goals.[119] A number of studies have looked at changes in GHG emissions that occur after GHG reporting begins. There is evidence from related programs that self reporting lowers emissions. EPA's Toxic Release inventory is one such example. It's been shown to have had a significant effect in reducing emissions of chemicals that facilities had been required to disclose information about.[120][121]

Recent studies focusing on changes in GHG emissions that result from GHG reporting have shown mixed results. Voluntary carbon reporting itself has often been shown to be ineffective in reducing GHG emissions.[122][123] However, when looking at the additional impact of programs that require GHG emission reporting, studies have shown more of an effect. A recent study of UK reporting requirements showed that they do result in reduced corporate GHG emissions.[2] Analyses of EPA's Greenhouse Gas Reporting Program found that when firms are required to disclose their facility level emissions, it can also lead to a reduction in GHG intensity of their operations, though the evidence for reductions in absolute emissions is less clear.[120][124] One suggestion for the effects of specific GHG reporting requirements is that they inhibit the ability of companies to portray their emissions in a flattering way, and so are forced to actually make changes that lower GHG emissions.[120]

There are some confounding factors involved in this research. These include whether or not the studies are done in places where there are also some sort of a price on carbon, such as the EU-ETS. Another variable is whether or not the requirements focus on larger companies that emit more GHGs. In addition, firms that are required to report on facility emissions appear to focus on controlling emissions for their affected facilities, but to then transfer emissions to nonreporting facilities that they also control.[120][124]

Limitations[edit]

Despite its growth and evidence of effectiveness, GHG accounting faces a number of challenges and critical assessments. Corporate and community accounting issues challenges include how to best determine organizational boundaries and identify inputs and outputs that are most relevant to emissions. Problems also arise with characterizing uncertainty in emission estimates, and identifying what information materially affects a company's operations, and therefore needs reporting.[125] The use of alternate standards can affect comparability across organizations, as can lack of third party verification.[126]

Accurate reporting of Scope 3 emissions is a particular challenge. These emissions can be several times greater than Scope 1 and 2 emissions. In some cases these are reported inconsistently, depending on whom they are reported to. Lack of high-quality data can also affect the accuracy of Scope 3 estimates for particular categories of upstream and downstream sources that influence Scope 3 estimates.[127] Companies may also simply neglect to  include key Scope 3 categories when reporting to organizations such as CDP.[128] As of 2020, only 18% of the constituents of MSCI's global security index reported Scope 3 emissions, with considerable variability across sectors.[127] There is also evidence that many of the worst polluters either under-report or do not report at all.[128] Even Scope 3 emissions data from commercial data providers tend to be highly inconsistent.[129]

Many companies have also been found to inaccurately estimate the climate benefits of their products. This can happen by failing to account for a products full life cycle, using inappropriate comparisons, conflating market size with product use, and cherry picking results to skew a portfolio towards those products that have less impacts.[130]

Double counting of GHG emissions, either for companies or GHG reduction projects, can be problematic for investors, those involved in carbon credits/offsets, and regulatory agencies. It can also distort perceptions of progress in reducing emissions.[131] In corporate accounting, double-counting can reach about 30-40% of an institutional investor's portfolio emissions.[132] However, it can help provide an incentive for each company to reduce emissions.[133]

In trading schemes and regulatory/inventory schemes, double counting presents other problems.[134] For Renewable Energy Certificates, double counting falsely depicts a greater number of organizations or people making claims about using renewable resources.[135] Double counting of emission reductions can also produce disincentives to use international carbon market instruments, such as the CDM. Participants in trading schemes could be reluctant to purchase units if the units or emission reductions are also used by other entities towards reduction pledges. This could lead to a further fragmentation of carbon markets. Double counting of emission reductions could also increase the global costs of reducing GHG emissions.[136] Double counting can also make mitigation pledges less comparable. This could negatively affect the credibility of the international climate regime and make it more difficult to agree on a multilateral approach to address climate change.[137] Estimating the extent of double counting is difficult, strongly depends on the actions taken at various levels to prevent it.[138]

In addition to double counting, carbon offsets face a variety of other challenges that affect the quality of the offset. These include additionality, overestimation, and permanence of offsets.[139] News stories over the past few years have criticized nature based carbon offsets, the REDD+ program, and certification organizations.[140][141][142] The REDD+ program in particular has been criticized as having a poor history of accounting for its results.[143] However, positive aspects of these programs have also been highlighted.[144]

Current trends[edit]

Standards alignment and interoperability[edit]

There is a range of accounting methods and approaches that organizations can use to estimate and report on GHG emissions. Some standards have been in existence for more than two decades. Yet efforts continue to better align these standards and create more interoperability among them.

In the area of corporate disclosures, a recent International Organization of Securities Commissions (IOSCO) report has identified priorities to improve sustainability reporting (including GHG aspects). Among its recommendations are consistent standards, and comparable metrics and narratives.[145] The International Sustainability Standards Board (ISSB) has also been established to develop a global baseline of sustainability standards that it hopes will help harmonize sustainability disclosure requirements.[146] In 2022, the ISSB established a working group to enhance compatibility among various corporate disclosure requirements, including the EU Corporate Sustainability Reporting Directive and SEC's 2022 disclosure rule. Although these are all based on the broader elements of the TCFD framework and GHG protocol, they differ in a variety of ways. For example the SEC proposal is focused on materiality only as it relates to impacts on a company. The CSRD proposal is a double materiality criterion, which reflects impacts on both a company and the public at large.[147] It remains to be seen how these types of issues will be reconciled among the standards.

Another aspect of standard alignment is an increased convergence between voluntary standards and regulatory requirements. These began with the incorporation of voluntary offsets standards into the California Emission Trading System. More recently, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) standard incorporates guidance from voluntary carbon market standards. It has approved seven such standards as eligible for use by airlines under that regulatory scheme.[148]

Support for net-zero goals[edit]

There is also an increased focus on aligning GHG accounting standards with organizational net-zero goals and claims. SBTi launched a net-zero corporate standard in 2021. Companies that pledge to this standard need to have both short term targets as well as targets for 2050 or earlier.[149] ISO also has a new standard under development, ISO 14068, that supports net-zero goals.[150] That standard is currently in the preparation stage.[151] It is expected to build on the original net neutrality standard, PAS 2060.[152]

Voluntary carbon markets[edit]

The voluntary market is expected to grow tremendously over the next few decades. To date, the Scope 1-3 emissions of the 54 Global Fortune 500 companies that committed to net zero by 2050 or earlier is about 2.5 gigatons of CO2 equivalent.[153] By comparison, the volume of credits traded on the voluntary carbon market was about 300 megatons as of 2021.[154] Global demand for carbon credits could increase up to 15 times by 2030 and 100 times by 2050.[155] 

Carbon removal projects such as forestry and carbon capture and storage are expected to have a larger share of this market in the future compared to renewable energy projects. More opportunities should be available for "insetting", where companies can target offset projects within their own Scope 3 supply chain emissions.[153]

Alternative validation approaches[edit]

Sentinel 5P helps detect methane leaks[156]

Techniques are being developed from other emission data sets that that can be used to validate GHG accounting methods. Project Vulcan collects data from a large number of publicly available data sources for the United States such as pollution reporting, energy statistics, power plant stack monitoring, and traffic counts.[157] Using these data, US cities have been found to generally underestimate their emissions.[158] Methods that link emissions data with atmospheric measurements can also help improve city inventories.[159]

Climate Trace is an independent organization that improves monitoring, reporting and verification (MRV) by publishing point sources of carbon dioxide and methane near real-time.[160] Climate Trace has found underreporting of emissions from the oil and gas sector.[161]

See also[edit]

References[edit]

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Other books, reports and journals cited[edit]

External links[edit]