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Chapter 2: Accounting for Decarbonization
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[Accounting for Decarbonization] Introduction to Carbon Accounting

Updated: 
September 7, 2023
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Published: 
September 8, 2023
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Lesson Overview

This lesson provides an overview of carbon accounting, highlighting its importance in quantifying and categorizing greenhouse gas emissions produced by organizations, with a focus on understanding the distinctions between different emission scopes and their significance in environmental impact assessment.

Carbon accounting (sometimes referred to as greenhouse gas accounting) quantifies the amount of greenhouse gases produced by a company or organization to provide a better understanding of its carbon footprint. Like financial accounting, carbon accounting focuses on quantifying, measuring, and reporting data. While financial accounting focuses on economic aspects, carbon accounting concentrates on environmental impact. 

The visual below depicts the use cases, regulatory agencies, and other components associated with carbon accounting as compared to financial accounting. 

carbon accounting comparable to financial reporting

 

Carbon accounting and, more specifically, the Greenhouse Gas Protocol, establishes emissions scopes that categorize business emissions into direct (scope 1) and indirect (scope 2 and 3) emissions. 

Scope 1 emissions encompass the direct release of greenhouse gases (GHGs) originating from sources that an organization controls or owns, such as emissions produced by fuel combustion in vehicles, boilers, or furnaces. On the other hand, scope 2 emissions refer to indirect GHG emissions that arise from the procurement of electricity, steam, heat, or cooling. 

While scope 2 emissions physically take place at the facility generating them, they are included in the purchasing organization's GHG inventory as they stem from the organization's energy consumption.

Scope 3 emissions encompass a category of GHG emissions that arise from activities associated with an organization but are not directly owned or controlled by it. These emissions result from various sources, including supply chain operations, transportation, product usage, and disposal. Scope 3 emissions are by far the most significant emission source on average for most industries, so generally are the most crucial to reduce. Many of the reporting standards & target-approving organizations (i.e., SBTi) also have rules about what has to be included in targets & reporting based on materiality. So, for example, if 95% of your emissions come from scope 3 & you've committed to a target that includes your scope 3 emissions, they may have to address some of that hard-to-measure, hard-to-decarbonize scope 3 sources. Scope 3 emissions, referred to as value chain emissions, are by far the most massive category of emissions and also by far the most difficult to decarbonize since organizations lack direct control over them.

scope 1 2 3 emissions

Later, in Lesson 4, we will cover how emissions are calculated and how software like Persefoni can be leveraged to automate the calculation process.

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