Carbon reporting explained: What is it and why does it matter?

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What is carbon accounting and scope 1,2,3?

Carbon accounting consists in quantifying GHG emissions along scopes 1,2 and 3. Learn about definitions, carbon accounting standards, calculation methods, other frequently asked questions (FAQs) and how Forvis Mazars can help.

What is carbon accounting?

Carbon accounting is the process of quantifying greenhouse gas (GHG) emissions into a single unit: carbon dioxide equivalent (CO2e). This carbon footprint assessment can be done at a country, organisation or product level.

For corporations, different carbon accounting standards exist to prepare an inventory of GHG emissions.

Globally, the GHG Protocol is the standardised measurement of organisation’s carbon emissions. The Australian Accounting Standards Board (AASB) issued AASB S2 Climate-related disclosures that requires companies to apply the GHG protocol to calculate and report their GHG emissions.

In Australia, a number of companies have to calculate their GHG emissions in accordance with the National Greenhouse and Energy Reporting Act 2007 (NGER Act 2007). These companies (NGER reporters) will be able to keep using this calculation method under AASB S2.

Why is carbon accounting important?

  • Meet regulatory requirements: Regulation in a number of jurisdictions (European Union, UK, California, New Zealand, …) requires companies to disclose their GHG emissions. Australia has introduced mandatory climate-reporting that require to disclose GHG emissions.
  • Respond to investors’ expectations: A large number of financial institutions have set emission reduction targets and are expecting the companies to disclose their GHG emissions and their transition plan. For example, Commonwealth Bank no longer lends money to fossil fuel companies that do not have a credible transition plan.
  • Develop a transition plan: Calculating GHG emissions enables businesses to determine a baseline; the necessary step to develop a decarbonisation trajectory or transition plan.
  • Identify risks and opportunities: Measuring carbon emissions enables companies to identify risks (e.g., companies will high level of GHG emissions face higher risks if a carbon tax is introduced) or opportunities (e.g., GHG calculations may help identify energy-efficiency actions and lead to cost savings).
  • Meet customers expectations: Large corporations have set emissions reduction targets that covers their suppliers (scope 3 emissions). As a supplier, calculating and reducing GHG emissions is critical to keep generating revenues with these large corporations.
  • Preserve reputation: Individual customers, employees and citizens are expecting companies to tackle climate change and reduce their carbon footprint.

How to calculate CO2 equivalent?

There are seven main greenhouse gases with different global warming potential (GWP) as presented in the below table.

carbon accounting - how to calculate CO2 equivalent table

The total of emissions of each gas can be converted in CO2e as per formula below.

Carbon accounting - emissions formula infographic

What are scope 1, 2 and 3 emissions?

Scope 1 relates to the direct emissions of the companies such as emissions from vehicles owned by the company.

Scope 2 relates to the energy indirect emissions of the companies and include mostly the electricity purchased and consumed.  

Scope 3 includes emissions related to upstream (e.g., purchased materials) and downstream (e.g., use of sold products).

Examples of emissions categorised along scope 1, 2 and 3

Scope of emissions table

GHG emissions around the world: Where do Australians stand?

Check out our map to learn more.

Average per capita GHG emissions map

Data source: EDGAR - Emissions Database for Global Atmospheric Research

FAQs:

1. How to calculate GHG emissions?

First, it is important to determine which part of the business (e.g., subsidiaries) should be included in the scope of calculation. Then, it is necessary to identify the different sources of emissions (e.g., fuel consumed by company-owned cars) and collect corresponding activity data (e.g., quantity of fuel consumed).

This latter figure can be multiplied by an emission factor to calculate the corresponding CO2e emitted (e.g., in relation to the use of company-owned cars). There are a number of published emissions factors that can be applied. However, the use of a carbon foot printing solution that includes include a long list of estimation factors make the process of calculating GHG emissions simpler.

2. What is an emission factor?

Emission factors are calculated ratio that indicates how much greenhouse gases (GHGs) are released into the atmosphere by a specific activity.

3. What is the Global warming potential (GWP)?

Global warming potential (GWP) measures how much a specific greenhouse gas (GHG) affects the atmosphere compared to carbon dioxide (CO2) for the same amount.

4. How do you define the organisational boundaries for GHG calculation?

The GHG protocol outlines two main approaches.

- Equity share approach: report GHG emissions from its operations based on its ownership percentage in the operation.

- Control approach: report all the greenhouse gas emissions from the operations the company has control over.

5. What is a transition plan?

A climate-related transition plan outlines the goals, steps, or resources of a company for moving to a lower-carbon economy, which includes actions like cutting down on greenhouse gas emissions.

6. What is net zero?

Net zero is originally a concept from physical climate science and means finding a balance between the emissions we create and the emissions we can remove from the air. However, this scientific concept has been operationalised and is now widely used by corporations, To achieve net zero, corporations shall focus on reducing GHG emissions.

7. What is the difference between carbon neutral and net zero?

Achieving carbon neutrality does not require to make any reduction in GHG emissions and it can be achieved simply through purchasing carbon offsets such as Australian Carbon Credit Units (ACCUs).

In contrast, Net zero requires focussing on significantly reducing GHG emissions, with carbon offsets only allowed for residual emissions.

8. What are carbon credits?

One carbon credit represents 1 tonne of carbon dioxide or CO2e that is removed from or not released (avoidance or reduction) into the atmosphere.

9. What is relationship between climate change and GHG emissions?

Climate change is fuelled by the increase in GHG emissions. The release of GHG emissions into the atmosphere is amplified by human activity and directly increases the trapping of greenhouse gases, which ultimately increases the retention of heat and severely affect our climate.

How can Forvis Mazars help?

  • Carbon footprint assessment
  • Net Zero strategy & transition / decarbonisation plan
  • Physical Climate Risk Dashboard
  • Carbon report assurance

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