April 22, 2022
Some of the planet’s leading corporations and business entities are striving to show their concern for the climate emergency. Now, a growing number of firms are promising to eliminate their carbon footprints and reach net-zero within just a few decades. However, a new analysis from the New Climate Institute (NCI) notes that many of these companies aren’t doing nearly enough to reach their lofty goals. This makes carbon accounting even more important for businesses as they seek to tackle the impacts of climate change.
In this article, we explain what carbon accounting is, why it’s so important, and how it can be used to set and achieve science-based targets.
Carbon accounting is the process by which organizations quantify their GHG emissions, so that they may understand their climate impact and set goals to limit their emissions. In some organizations, this is also known as a carbon or greenhouse gas inventory. When an organization has performed carbon accounting, it can assess its greenhouse gas (GHG) emissions to set emission reduction goals.
Currently, the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) GHG Protocol shapes the accounting process for GHG emissions from businesses. The Intergovernmental Panel on Climate Change (IPCC) reports provides guidance for national GHG inventories. The International Organization for Standardization (ISO) also sets general emission guidelines, including:
Businesses can perform granular carbon accounting to estimate their carbon emissions and develop strategies to reach their goals of net-zero. Carbon accounting provides the foundations building achievable decarbonization strategies. Without reliable emissions data, it is costly and difficult to model decarbonization opportunities.
The NCI assessed the climate plans and overall decarbonization intelligence of 25 world-renowned corporations, including the likes of Amazon, Walmart, and Volkswagen. All of these companies have pledged to reduce their emissions to net-zero. According to the study’s findings, their existing plans would only reduce their emissions by around 40%. While significant, this figure would not be enough to mitigate the risks and effects of a rapidly warming global climate.
Furthermore, eight of the 25 companies assessed excluded the types of emissions generated when consumers use their products. For instance, VW did not include emissions generated from their consumers burning gasoline to drive their vehicles. These emissions, known as ‘Scope 3’, often account for 70% or more of corporate emissions.
The analysis found that certain corporate pathways to net-zero can only be reached by purchasing credits from initiatives that remove carbon dioxide from the atmosphere. These credits may include expanding forests and are purchased to offset firms’ own carbon emissions at scale. The study further found that some firms fail to promise notable reductions until close to their own self-made deadlines. They are potentially falling short because of their reliance on offsets and their lack of carbon accounting and management across value chains.
The corporate landscape is facing mounting pressure from consumers, investors, and ecological activists to reduce the ravages of climate change. The number of new net-zero pledges has burgeoned in recent years as a result, bringing a combination of both optimism and increased scrutiny. The NCI has criticized the approaches of certain firms’ carbon storage approaches, noting that storing carbon on land and in trees is only a temporary solution. Carbon dioxide removals can only be considered a viable neutralization of a firm’s emissions if the storage offers a high degree of permanence.
The study further specified that all but one of the 25 firms surveyed will have to rely on offsets of various qualities. At least two-thirds of them currently rely on removals from forests and other activities, which can rapidly be reversed by phenomena such as fires.
Carbon accounting processes can provide the decarbonization intelligence that firms need to set science-based targets for their emissions mitigation strategies. Having data available creates a realistic idea of what is possible to achieve in terms of emission reduction. Especially when businesses are informed of the mitigation options available that correspond with their respective sectors and business models.
For instance, the Science Based Targets Initiative (SBTi) no longer allows oil and gas corporations to set science-based targets. It is simply not possible for these businesses to achieve them given their sector of operation. SBTi offers guidance documents and resources such as science-based target-setting tools. This aids firms in their transitions to more sustainable ways of operation and value chain management.
It’s clear how important setting and achieving science-based targets is. But how are companies meant to achieve this? Thankfully, enterprises have a range of decarbonization intelligence tools at their disposal. These tools harness the power of technology and science-backed data to help businesses to track the potential impact of their efforts to tackle climate change. Let’s look at a few examples of these intelligent decarbonization tools.
A GHG inventory is a list of emission sources and their associated amount of emissions. GHG inventory tools enable companies to develop reliable and comprehensive inventories of their GHG emissions. Based on this inventory of Scopes 1, 2, and 3 emissions, companies can aggregate their emissions data, identify trends, and find decarbonization opportunities.
Based on their carbon inventory baseline, companies can use baseline projection tools to assist with their goal setting and scenario planning. By forecasting different projections of possible futures, companies have a data-driven approach to their decarbonization business decisions. They can better understand the actions they need to take and the changes that need to be made in order to reduce their emissions.
Marginal Abatement Cost (MAC) curves are financial tools that highlight the relative cost-effectiveness and scale of impact of each carbon reduction project. By creating a common metric of $/tCO2 and the tonnes of carbon abated, companies can compare and contrast marginal abatement costs. Beyond a financial aspect, this important decarbonization intelligence tool allows for meaningful decision-making around the cost of reducing emissions.
As it stands, there is no definitive carbon price. This makes it extremely difficult for companies to put a value on their GHG emissions in a way that drives positive change in their business. But with internal carbon pricing (ICP) methodologies and tools, organizations can evaluate the impact of mandatory carbon prices on their operations. From here, they can track their performance against emissions targets and understand the financial impact of their business decisions.
As previously mentioned, Scope 3 emissions are often where the biggest impact is. Two-thirds of the average company’s environment, social, and governance footprint is attached to its suppliers. For this reason, organizations need to put their efforts into value chain sustainability. The best way to do this is through value chain management tools. These sophisticated tools gather precise data from suppliers to estimate related emissions. By understanding their value chain’s impact, companies can make data-driven decisions and allocate capital properly to their decarbonization efforts.
Each of these tools plays an important part in helping organizations quantify and reduce their GHG emissions. Together, these decarbonization intelligence tools provide the insights needed to navigate transition risk and transition any organization to a low-carbon economy.
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