The United Nations Framework Convention on Climate Change (UNFCCC), coming into force in 1994, set the first steps towards a greener economy transition. A decade after the UNFCCC’s establishment, the Kyoto Protocol became valid, attracting 192 UNFCCC signatories until now, which officially recognized six types of greenhouse gases (GHG) and the corresponding reducing targets for different UNFCCC members. The Protocol also legally bound all the countries to fulfil their commitments. In 2016, the Paris Agreement brought the peak of awareness in low-carbon transition due to its objectives of limiting global warming to below 2°C above preindustrial levels by 2100 and pursuing the optimal scenario of 1.5°C. It also required all the committed parties to report their progress of mitigating emissions every five years.

However, according to the Climate Change Risk Assessment 2021 published by Chatham House, the chances of achieving the 2°C target would drop below 5% and that of 1.5°C case would be less than 1% if countries still do not improve their Nationally Determined Contributions (NDCs) of GHG emissions. The estimation indicates there still exists a huge gap to reach the ideal green target, associating with carbon risks that could be relevant at the firm, industry, and country level. It also highlighted the long-term benefit and commercial opportunities to grasp. Hence, applying some precise measures to quantify and report carbon emissions is an essential step to contribute to a sustainable future.

What is Carbon Accounting?

Carbon accounting was firstly proposed by Professor Stewart Jones in 2008 and is an important branch of environmental accounting. It mainly addresses measuring, assessing, and communicating to internal and external stakeholders on monetary and non-monetary information on carbon emissions. The non-monetary category of carbon accounting belongs to physical carbon accounting, which quantifies the physical amount of GHG emissions emitted by a source or different parts of the supply chain. The carbon measured under this category is known as GHG inventory to companies, which will further help companies set reduction goals and allocation responsibilities to different parties. The other category related to monetary information is carbon accounting for financed emission, which normally links to pricing carbon emissions in the financial market. It is also a fundamental part of carbon trading and provides different entities with more financial instruments to manage their emissions.

Apart from the traditional theory, carbon accounting has expanded its field to other areas of accounting so that it can reach the goal of energy conservation and pollution reduction, and meet the higher expectation on carbon data quality. People use carbon accounting to conduct carbon audit and carbon management accounting as well.

Carbon Accounting Methods

So far, there is not a harmonized methodology for carbon emissions calculation worldwide. The global carbon accounting system contains mainly top-down accounting and bottom-up methods, where the most comprehensive and systematic one, the IPCC Guidelines for National Greenhouse Gas Emission Inventory, represents top-down approaches. It classifies the major carbon emission sources of a country and introduces a prevailing method named the Emission-Factor Approach. The guidance covers all fields and processes of human productions and life.

Following are three widely adopted accounting methods.

1. Emission-Factor Approach

The general equation for emission calculation is:

E = A x EF x (1-ER/100)

where:

E = Emissions;

A = Activity rate;

EF = Emission Factor, and

ER = Overall Emission Reduction Efficiency,

The IPCC first introduced this approach in its guidance. Currently, this method is accepted and used mainly in the macro-level calculation.  The key figure during the calculation is the Emission Factor, which people can extract directly from IPCC’s Emission Factor table, as well as the US Environmental Protection Agency (USEPA) and EMEP/EEA air pollutant emission inventory guidebook published by European Environmental Agency (EEA). In cases where emission factors are unavailable or inappropriate, emission test data from some academic research or monitoring results from regulatory bodies are alternatives for emission factors for existing sources.

2. Experimental Approach

This approach focuses on a micro-level carbon emission calculation by obtaining and gathering emission data directly from emitting sources. Though the data extracted from on-site and off-site tests are more precise, the quality can be still affected by emission monitoring machines and other external factors.

3. Mass-Balance Approach

According to the guidance from the European Commission (EU), the EU planned to use this approach to evaluate default values in the EU biofuels and bioliquids and to advance sustainability schemes. But it started to become popular in recent years, especially in industrial companies. This is because it can trace the flow of carbon through a complex value chain with more chemicals blended in the manufacturing. It helps people calculate the GHG emissions by subtracting carbon content in both products and waste from the carbon content in raw materials. Besides, the approach makes it possible to attribute the trace of carbon to verifiable bookkeeping and to increase the comparability of carbon data of different equipment.

Part 2 will introduce the carbon accounting disclosure and the role of the Partnership for Carbon Accounting Financials in this area.

Sources:

https://unfccc.int/kyoto_protocol

https://unfccc.int/process-and-meetings/the-convention/what-is-the-united-nations-framework-convention-on-climate-change

https://www.un.org/zh/climatechange/paris-agreement

https://www.chathamhouse.org/2021/09/climate-change-risk-assessment-2021/05-conclusions

https://doi.org/10.1016/j.jclepro.2012.02.021

http://theijbmt.com/archive/0939/2098339675.pdf

https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:160:0001:0007:EN:PDF

https://ehsinfo.cn/2019/09/10/%E7%A2%B3%E6%8E%92%E6%94%BE%E6%A0%B8%E7%AE%97%E6%96%B9%E6%B3%95.html

https://www.eea.europa.eu/themes/air/air-pollution-sources-1/emep-eea-air-pollutant-emission-inventory-guidebook