Explore the essentials of measuring business GHG emissions
Carbon accounting is the process of tracking and measuring an organization's GHG emissions. It involves identifying the sources of GHG emissions within an organization and calculating the total amount of GHGs emitted over a specific period of time — usually one calendar or fiscal year. Carbon accounting is important because it helps businesses to understand and quantify their GHG emissions, which can be a key step in reducing them. By understanding where GHG emissions are coming from, businesses can identify opportunities to reduce their emissions and set targets for reducing them. But who makes the rules of carbon accounting? That is where the GHG Protocol comes in.
The GHG Protocol is the result of a 20-year partnership between World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). In their words, “The GHG Protocol establishes comprehensive global standardized frameworks to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains, and mitigation actions.” They supply the world's most widely used greenhouse gas accounting standards. The Corporate Accounting and Reporting Standard provides the accounting platform for virtually every corporate GHG reporting program in the world. Learn more about the organization and the reporting standards here.
One of the foundational concepts of GHG accounting, and sustainability in general, is the principle of Materiality.
Materiality is a concept that defines why and how certain issues are important for a company or a business sector. A material issue can have a major impact on the financial, economic, reputational, and legal aspects of a company, as well as on the system of internal and external stakeholders of that company.
According to the GHG Protocol, information is considered to be material if, by its inclusion or exclusion, it can be seen to influence any decisions or actions taken by users of it (e.g. strategic decisions from executive leadership or investment decisions from investors). A material discrepancy is an error (for example, from an oversight, omission or miscalculation) that results in a reported quantity or statement being significantly different from the true value or meaning.
As a rule of thumb, an error is considered to be materially misleading if its value exceeds 5% of the total inventory for the part of the organization being verified.
In the process of conducting a GHG Inventory, it is always important to consider materiality to ensure you cover all relevant sources of emissions — it can also save you a lot of time. But there are other principles in carbon accounting as well.
Ensure the GHG inventory appropriately reflects the GHG emissions of the company and serves the decision-making needs of users – both internal and external to the company.
Account for and report on all GHG emission sources and activities within the chosen inventory boundary. Disclose and justify any specific exclusions.
Use consistent methodologies to allow for meaningful comparisons of emissions over time. Transparently document any changes to the data, inventory boundary, methods, or any other relevant factors in the time series.
Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and make appropriate references to the accounting and calculation methodologies and data sources used.
Ensure that the quantification of GHG emissions is systematically neither over nor under actual emissions, as far as can be judged, and that uncertainties are reduced as far as practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable assurance as to the integrity of the reported information.
All carbon emissions calculations are based on a single essential formula composed of two components. All carbon emission calculations rely on the same basic components: Activity (or usage) Data and Emission Factors.
Actual or estimated data points on volume of fuels consumed, amount of energy purchased, distance traveled, etc.
Simple factors that quantify the amount of CO2 equivalent released per unit of an activity. These are generally measured and published by governments, scientific non-profits, or utility providers. For example, in Ontario (2022), 28g of CO2e is emitted per kWh of electricity purchased.
The product of these two values is the mass of greenhouse gas that has been emitted from the activity in question, usually measured in kilograms (kg) or tonnes (MT) of CO2-equivalent, or CO2e.
GHG emissions are classified into three scopes, as defined by the GHG Protocol. Emissions are classified into these three scopes because it allows you to identify and track your greenhouse gas emissions from different sources, which is important for understanding the impact of your operations and for setting reduction targets.
Scope 1 emissions refer to direct greenhouse gas emissions from sources that are owned or controlled by the organization, such as fuel combustion in boilers or vehicles.
Scope 2 emissions refer to indirect emissions from the generation of purchased electricity, heat, or steam.
Scope 3 emissions refer to all other indirect emissions that occur in the value chain of the organization, such as the extraction and production of purchased materials and waste disposal.
Scope 1 and 2 emissions are considered to be under the direct control of the organization and can be targeted through efficiency improvements and the use of renewable energy. Scope 3 emissions are typically more challenging to address as they are outside of the direct control of the organization, but they can still be influenced through supply chain management and the use of sustainable products and services.
By understanding the breakdown of your emissions across these three scopes, you can prioritize and design effective strategies for reducing your overall emissions.
CO2 equivalent, or CO2e, is a measure of the global warming potential of different greenhouse gases (GHGs). It is used to compare the emissions of different GHGs on an equal footing, based on their relative warming effect.
To calculate CO2e, the emissions of a particular GHG are multiplied by its global warming potential (GWP), which is a measure of how much the gas contributes to global warming compared to CO2. The resulting CO2e value represents the equivalent amount of CO2 that would have the same warming effect as the GHG in question.
CO2e is often used in the context of GHG emissions reporting and carbon accounting, as it allows businesses and other organizations to compare and track the warming effect of their GHG emissions across different gases. It is also used in the design of carbon pricing schemes and other policy tools that aim to reduce GHG emissions. Carbon accounting tools like Breeze will automatically calculate the emissions of various GHGs and convert the resulting emissions into units of CO2e for ease of reporting and comparability.
There are two calculation methods for scope 2 emissions outlined by the GHG protocol. These only apply to scope 2 purchased energy. You may need to calculate your emissions using both of these methods, depending on where you are reporting them.
The location-based method uses emission factors that are based on a regional average of the grid mix. These do not vary based on the utility you purchase energy from, or any RECs, GOs, or PPAs you may purchase.
The market-based method, on the other hand, uses the most specific emission factor available — the best case being an emission factor provided by your utility directly. Market-based emissions are generally required in countries or regions with regulations such as cap-and-trade or certifications for renewable energy such as RECs and GOs. If you purchase a renewable energy certificate (REC), you can apply a lower emission factor to the certified energy (often zero) which in turn reduces your scope 2 emissions. Correspondingly, if you do not purchase certified renewable energy, you must apply a residual mix emission factor, which is often higher than the location-based factor because it excludes any renewable energy sold as RECs or GOs.
In general, location-based emissions are easier to measure and track than market-based emissions, but both types of emissions are important for understanding and reducing your true impact. By tracking both location-based and market-based emissions, organizations can get a more comprehensive understanding of their GHG emissions and identify opportunities for reduction.
This is an excerpt from Section 4 of the Comprehensive Guide to Measuring Business Greenhouse Gas Emissions.