What is GHG accounting?

Greenhouse gas (GHG) accounting refers to the process of measuring and monitoring the GHG emissions associated with a company or organisation. Using standardised measuring and reporting per agreed-upon protocols, companies are able to measure the quantity of GHG emissions resulting from their:

• Direct emissions: Emissions produced by the company, such as emissions from on-site combustion or production processes.
• Indirect emissions: Emissions resulting from the energy the company uses, the company’s supply chain, and the end-of-life stages of its products.

Greenhouse gas accounting helps to provide numerical data on greenhouse gas emissions. It provides companies with information which enables them to be held accountable for their emissions, making it possible for companies to take action when it comes to reducing their emissions.

What is the difference between GHG accounting and carbon accounting?

The term GHG accounting is often used interchangeably with carbon accounting, but the two are not completely synonymous.

GHG accounting encompasses all greenhouse gasses, including carbon dioxide. Carbon accounting is a subset of GHG accounting which specifically focuses on measuring and managing carbon dioxide emissions. This enables companies to more accurately account for all emissions within their value chain and serves as the foundation for crafting an impactful reduction and removal strategy.

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How does GHG accounting work?

GHG accounting involves the following key steps:

1. Identification: Identifying sources of emissions within the company. Examples of these include stationary combustion, transportation, and fugitive emissions.
2. Calculation: Calculating emissions from each source using emission factors and activity data. To account for the different global warming potentials of various greenhouse gasses, emissions are typically reported in terms of carbon dioxide equivalents (CO₂e).
3. Tracking and reporting: Recording and reporting emissions in accordance with established standards and protocols – e.g. the Greenhouse Gas Protocol, ISO 14064, or national regulations. This includes accounting for Scope 1, 2, and 3 emissions.
4. Verification and validation: Ensuring the accuracy and reliability of the data and methods used for GHG accounting. This is often done through external verification or audits.

Methods of GHG accounting

GHG accounting is done using two methods: the spend-based method and the activity-based method.

The spend-based method

The spend-based method uses emission factors that are expressed as emissions per unit of currency spent. The method works by multiplying the financial value of a company purchase by the amount of greenhouse gas and carbon dioxide it emits. This approach is easier and less time-consuming, but also less accurate than the activity-based method.

Advantages and disadvantages of the spend-based method include:

• Easy to implement if financial data is available
• Covers a wide range of activities with one set of financial data
• Less accurate, as this method uses average emission factors rather than specific data
• Emission factors might not reflect the specific suppliers or products purchased by the organisation

The activity-based method

The activity-based method uses data to retrieve information on how many units of specific materials have been purchased. The method accounts for all the steps in the process that may have created a carbon footprint. This includes material sourcing, production, marketing, and much more.

Advantages and disadvantages of the activity-based method include:

• Provides a more precise and accurate measurement of emissions for specific activities
• Allows for targeted emission reduction strategies
• Requires more detailed data on activities and processes
• Can be time consuming and complex to implement, especially for large companies with many different sources of emissions

As both methods have their advantages and disadvantages, many companies choose to use a hybrid approach, combining both methods to gain a more comprehensive understanding of emissions and support more effective decision making.

Why is GHG accounting important?

For companies striving to reach net-zero emissions, GHG accounting is important for numerous reasons. GHG accounting functions as a baseline measurement that provides companies with a clearer understanding of their emission levels – an essential factor for companies looking to set realistic and achievable net-zero targets.

Other reasons GHG accounting is an important element on the journey towards net zero include:

• Monitoring progress: GHG accounting enables companies to monitor their progress on the road towards net zero. By tracking emissions, companies can assess the effectiveness of their strategies and make adjustments as needed.
• Identifying reduction opportunities: By providing detailed information about emission sources, GHG accounting helps companies identify areas for improvement and opportunities for emission reduction – e.g. switching to renewable energy sources or improving energy efficiency.
• Transparency and reporting: Accurate GHG accounting enables companies to transparently report their emissions and progress towards net zero to investors, customers, and other stakeholders, helping to build credibility and trust.
• Compliance with regulations: GHG accounting helps companies comply with relevant regulations and reporting requirements surrounding greenhouse gas emissions.
• Risk management: Understanding emissions and their potential impact helps companies manage climate-related risks. This can include adjusting business strategies and investments to account for customer preferences or future climate policies.
• Access to sustainable financing: Accurate GHG accounting can help companies demonstrate their commitment to sustainability. This can help attract investors and financial institutions that favour companies with strong environmental performance.

The process of GHG accounting can also help drive companies to invest more in innovation within areas such as energy usage, supply chain management, and product design, moving towards a more sustainable future for companies across the globe.

Next steps

GHG accounting provides companies with a clearer understanding of their emission levels, allowing them to better focus their efforts towards the greatest reduction opportunities. When it comes to achieving net zero, reducing your emissions is an important and necessary step in the right direction. However, there is growing consensus that reduction is longer enough to stay within the goals set forward in The Paris Agreement. For a company to reach net zero, residual GHG emissions must be neutralised with an equivalent amount of carbon removal.

At Klimate.co, we provide access to high-quality, innovative, and verifiable carbon removal solutions. We strategically finance projects based on environmental responsibility as well as social and economic development – and we only work with companies that are already taking action to reduce their emissions.