Breaking down carbon accounting

Salma Kouay
DateJune 9, 2022

1,049 cities, 67 regions, 5,235 businesses, and 441 of the biggest investors across 120 countries are committed to achieving net-zero carbon emissions by 2050, covering nearly 25% of global CO2 emissions and over 50% of global GDP.

CO2, a commonly known greenhouse gas, is the key benchmark monitored by many stakeholders. The definition of the total greenhouse gas (GHG) emissions caused by a given system, activity, company, country, or region is known as the Carbon footprint. 

There are many other gases that make up greenhouse gases that are often overlooked,  including water vapor (H2O), methane (CH4), nitrous oxide (N2O), Ozone (O3), etc. They absorb and emit radiation energy, resulting in the greenhouse effect.

Carbon footprint is generally measured in carbon dioxide equivalent (CO2e), which is a common unit for GHGs, obtained by multiplying the GHG amount by its global warming potential. 

Although a common unit allows organizations to be compared, carbon emissions cannot be compared fairly if the size differs. Therefore, it can be useful to transform carbon emissions into normalized metrics, which are called carbon intensities.

What emissions are we talking about?

It is possible to easily access carbon emissions information of an increasing number of companies. However, GHGs are a raw indicator subject to uncertainty at the company level. To provide a common monitoring basis that can be used by states and companies, and to limit the measurement gap, the Greenhouse Gas Protocol (GHGP) classifies a company’s greenhouse gas emissions in three scopes: 

  • Scope 1 refers to direct GHG emissions occurring from sources that are owned or controlled by the company.
  • Scope 2 includes indirect greenhouse gas emissions from the consumption of purchased electricity, heat, or steam. Scope 2 emissions can be computed using the energy mix of the country (location-based) or the energy mix of the utility company supplying the electricity (market-based).
  • Scope 3 are other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, and electricity-related activities not covered in Scope 2. 

Read also “Scope 3: how these hard-to-tackle emissions could be a game-changer”

To understand and attempt to limit the impact of these emissions, information must cover their volume and location, as well as their drivers. This can be obtained via two principal sources: 

  • An emissions inventory: the quantification of the physical release of air emissions over a specific moment in time within a specific geographic area 
  • Emissions accounting: the linking of these emissions to socioeconomic drivers and actors. The concept of accounting for environmental pressures is not limited to air emissions and is applied to other environmental themes, such as waste, materials, water, and land use

Many different emissions accounting perspectives and methodologies are available globally. These methods are differentiated mainly by their status (standard, private reference standard, etc.), their field of application (scopes covered), and their target (company, sectoral approach, collectivity, or territory).

 Different perspectives

At a European level, three different accounting perspectives are complementary to one another. Having different points of view allows for a better understanding of the interactions between various types of emitters. This is done by grouping CO2 emissions into three main groups:

  • Territorial emissions are released from within a country’s borders and from areas under a country’s jurisdiction. The most common monitoring and calculation methods for quantifying air emissions are continuous emissions monitoring (CEM) and source sampling. 
  • Production emissions result from the economic activities of a country’s resident companies and households in relation to their production.
  • Consumption emissions cover the national consumption of goods and services within a country, irrespective of the geographic production location of these goods and services 

The calculation of production emissions and consumption emissions are both based on an initial calculation of territorial emissions. First, territorial emissions are calculated by focusing on emission sources and by using emission-inventory methodologies that are often based on standardized methods as defined by reporting obligations under international treaties such as ​​UNFCCC and CLRTAP. Second, production emissions are calculated using territorial emissions in relation to domestic economic activities. And finally, consumption-based emissions are calculated using production emissions data in relation to the final consumption of goods and services supplied through domestic production and international trade.

For a more detailed and precise analysis, organizations can choose from several methodologies to assess their emissions inventory. 

How to measure them quantitatively?

Three methodologies are available for carbon inventory. The GHG protocol was established in 1998 by the World Business Council for Sustainable Development (WBCSD) and the World Resources Institutes (WRI) in partnership with companies, NGOs, and State representatives. 

This served as the basis for ISO 14064-1:2006, which was set up by the  ISO/TC207 “environmental management” technical committee and outlines the principles and procedures for quantification and reporting on greenhouse gas emissions and their eradication for organizations. The goal of this technical reference is to assist users in applying the ISO 14064-1 standard by providing guidelines and examples to facilitate transparency in the quantification and reduction of GHG emissions in businesses, as well as in the preparation of reports. It also includes a list of the emission categories that fall under each scope.

Lastly, in 2004, ADEME developed the Bilan Carbone®, a methodology for estimating greenhouse gas emissions for organizations. The Bilan Carbone® technique accounts for all IPCC-defined greenhouse gases in all physical flows that the organization cannot function without. As a result, this method enables businesses and territorial entities to conduct a global evaluation of GHG emissions, both direct and indirect. 

A few principles to keep in mind

As the most internationally recognized methodology, the GHG protocol is recommended by Deepki. Not only is it compatible with the Bilan Carbone® methodology but it also offers a market-based approach allowing for the valuation of green energy purchases. 

Five principles can help you better frame your GHG accounting:

  • Relevance: ensuring the GHG assessment appropriately reflects the GHG effects of the action and serves the decision-making needs of users and stakeholders, including a selection of the desired level of accuracy and completeness among a range of methodological options. Within the Deepki Ready platform, greenhouse gas emissions are calculated using national or local emission factors (so-called “location-based” accounting) in accordance with the GHG Protocol. Several emission factors databases are available within the platform and include the national reference base of each country, IEA, CREEM, and others. 
  • Completeness: including all significant GHG effects, sources, and sinks in the GHG assessment boundary. Disclose and justify any specific exclusions. Deepki Ready can calculate GHG emissions from the EF of energy suppliers (market-based approach). Each kWh of electricity will be assigned the appropriate EF of the electricity supplier and the share of renewable energy will be taken into account in the calculations of CO2eq emissions.
  • Consistency: using consistent accounting approaches, data collection methods, and calculation methods to allow for meaningful performance tracking over time.
  • Transparency: providing clear and complete information for internal and external reviewers to assess the credibility and reliability of the results. The information should be sufficient to enable a party external to the GHG assessment process to derive the same results if provided with the same source data. 
  • Accuracy: checking that the estimated change in GHG emissions and removals is systematically neither over nor under actual values and that uncertainties are reduced as much as is practicable.

Read also “Data management: the right data for the right purpose” 

An evolving focus point

European regulation (EU taxonomy, SFDR…) as well as international initiatives (CRREM, GRESB, SBTi), are increasingly stringent and promote the usage of CO2 accounting. A serious and comprehensive Carbon strategy is no longer an opportunity but simply risk mitigation. 

Real estate actors are steering their ESG strategy using CO2 as the main indicator, they are getting interested in carbon accounting optimization, and require comparative analysis of accounting methodologies. Setting up an efficient carbon strategy consumes time and resources and requires a full commitment, at all levels, to ensure a real and efficient impact.