The Eight Key Carbon Reporting Terms Every Business Should Know
Carbon accounting is something that only a small number of businesses are actually doing, but this trend is set to change. What was optional is likely to become expected, and it’s crucial to keep up not only with new technology, trends, legislation and laws, but also terminology – especially for newcomers.
To help, we’ve put together this glossary of carbon reporting terms to help get everyone up to speed.
What is Carbon Accounting?
Carbon accounting is the process of calculating and reporting the volume of greenhouse gas emissions (GHG) your organisation produces, such as energy consumption, transportation, production processes, and end of life disposal. The idea behind carbon accounting is to help organisations understand the amount of carbon they’re responsible for emitting and to identify opportunities to reduce their carbon footprint.
Why is Carbon Accounting Important?
If your organisation is serious about taking action on climate change and meeting certain sustainability goals, then carbon accounting is an essential practice. It’s how you gain a comprehensive view of the environmental impact of your operations.
This helps to meet investor, customer and board demands, addresses the pressing issue of climate change, and introduces opportunities for significant cost savings for your organisation by improving efficiency and reducing waste. Carbon accounting is also becoming increasingly important from a regulatory perspective, with many governments introducing mandatory disclosure requirements for many large businesses. As these organisations will need to collect data from across their value chain, the requirements will trickle down to others over time.
Like with any new or niche business practice, there is a whole glossary of unique terminologies to understand before getting started. We’ve outlined the key ones below to help make your business’s sustainability reporting easier.
Carbon Accounting Terms
1. Greenhouse Gas (GHG) Protocol
What is the GHG Protocol?
Greenhouse gases trap heat in the Earth’s atmosphere. Increasing concentrations of these gasses raise the average global temperate and affects global climate – aka climate change. Carbon emissions refer to the release of carbon dioxide and other greenhouse gases into the atmosphere through activities such as burning fossil fuels (coal, oil, and natural gas) for transportation, electricity generation, and heating. Carbon emissions can also come from deforestation and land-use changes. Common GHGs include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), and fluorinated gases.
The GHG Protocol is the most widely used international accounting tool for measuring and managing GHG emissions. It’s a standardised framework for organisations, allowing for more accurate comparisons and benchmarking across different sectors and regions.
Why is the GHG Protocol Important?
Understanding the GHG Protocol can help your organisation to identify areas for improvement in your carbon accounting and reporting and ensure you’re complying with regulatory requirements. Many investors, customers, and stakeholders are increasingly looking for businesses to demonstrate their commitment to sustainability, and adherence to the GHG Protocol is a key indicator of this commitment.
2. Carbon Footprint
What is a Carbon Footprint?
A carbon footprint is the total amount of GHGs emitted into the atmosphere as a result of an organisation’s activities, such as energy consumption, transportation, and waste disposal.
How to Calculate an Organisation’s Carbon Footprint
Typically, you can calculate a carbon footprint in three steps:
- Identify the significant sources of greenhouse gas emissions associated with your organisation’s activities. Typically, there is a materiality threshold as some organisations only emit from minor sources.
- Identify and collect data for each emissions source. This could be electricity usage pulled from invoices or flight segments provided by a travel provider. This data is called activity data.
- Convert activity data into emission using emission factors. Emission factors are values that relate activities to a quantity of a pollutant released to the atmosphere. This provides a baseline against which to measure progress towards reducing GHG emissions and meeting sustainability goals, as well as identifying areas to improve environmental performance, spot waste and reduce costs.
Total emissions from all sources are collected to provide a comprehensive view of your organisation’s carbon footprint. This information can then be used to identify opportunities for reducing emissions, such as by improving energy efficiency or switching to renewable energy sources.
The specific methods and tools used for calculating an organisation’s carbon footprint can vary depending on factors such as size, industry, and location, but the general principles are the same.
Why Calculate My Organisation’s Carbon Footprint?
If you want to effectively manage your organisation’s environmental impact and work towards a more sustainable future, then calculating your carbon footprint is an essential first step. By doing so, you’ll raise awareness of how your organisation is behaving on an environmental level, so you can take steps to drive changes in behaviour and decision-making.
3. Scope 1, 2 and 3 Emissions
What are Scope 1, 2 and 3 Emissions?
Scope 1 emissions are emissions from sources that are owned or controlled by a company, such as fuel combustion or gas leakage from equipment a company directly owns and operates.
Scope 2 emissions are emissions from the generation of purchased electricity, steam, heating, and cooling.
Scope 3 emissions are indirect emissions that are not included in Scope 2, such as the emissions from the production of purchased goods and services, employee commuting and business travel, and waste disposal. A business’s supply chain (often the largest part of a business’s carbon footprint) is included in Scope 3.
Why are Emissions by Scope Important?
Because they can all be controlled. Scope 1 and 2 emissions can be managed by changing equipment, whereas Scope 3 emissions tend to require supplier interaction or alternative procurement.
4. Carbon Offsets and Carbon Credits
What is Carbon Offsetting?
Carbon offsets are a mechanism to reduce greenhouse gas emissions by investing in projects that either avoid or remove carbon dioxide from the atmosphere.
Types of carbon offsets:
- Renewable energy offsets involve investing in projects that generate renewable energy, such as wind or solar power, to replace energy from fossil fuels.
- Energy efficiency offsets involve investing in projects that reduce energy consumption, such as through building retrofits or appliance upgrades.
- Methane capture offsets involve investing in projects that capture and use methane, a potent greenhouse gas, from sources such as landfills or livestock operations.
- Afforestation offsets involve investing in projects that plant new forests or protect existing forests, which absorb carbon from the atmosphere.
What are Carbon Credits?
Carbon credits are a unit of measure used to represent a reduction or removal of GHG emissions. They’re a way to incentivise organisations to reduce their carbon emissions. For example, the New Zealand Emissions Trading Scheme (NZ ETS) is one of the government’s solutions for reducing GHGs. It does this by putting a price on emissions, charging certain sectors of the economy for the greenhouse gases they emit.
How Do Carbon Credits Work?
A carbon credit represents one metric ton of carbon dioxide equivalent that has been avoided, reduced, or removed from the atmosphere through a carbon reduction project. These credits can be bought and sold on carbon markets, with the price reflecting the cost of reducing emissions.
Organisations that have exceeded their carbon emissions can buy credits to offset their carbon footprint, while those who have reduced their emissions can sell their credits. Carbon credits provide a financial incentive for reducing emissions and help to fund carbon reduction projects.
What is the Value of Carbon Credits?
When you purchase carbon credits, you’re investing in carbon reduction projects and helping to mitigate climate change. Carbon credits can also help your organisation to comply with regulatory requirements and avoid penalties for exceeding carbon emissions limits. Not only that, but implementing carbon reduction initiatives can lead to cost savings and improve operational efficiency, making it a win-win for you and the environment.
5. Carbon Neutrality
What is Carbon Neutrality?
Carbon neutrality is a state in which an organisation’s total carbon footprint is offset by capturing and storing carbon dioxide from the atmosphere.
How Do Companies Become Carbon Neutral?
The idea of carbon neutrality is to get your GHG emissions as close to zero as possible and offsetting what’s left by purchasing carbon offsets. To achieve carbon neutrality, you need to:
- Measure and report your GHG emissions using a standardised framework such as the GHG Protocol.
- Implement measures to reduce emissions, such as improving energy efficiency, switching to renewable energy sources, or reducing waste.
- Offset any remaining emissions by investing in verified carbon offset projects.
Achieving carbon neutrality requires a long-term commitment to sustainability and ongoing efforts to reduce emissions.
Why Aim for Carbon Neutrality as a Business?
If your organisation strives to achieve carbon neutrality, it’s demonstrating its commitment to sustainability and the environment, but also gains a competitive advantage. Research has repeatedly found that businesses that focus on positive environmental outcomes perform better than their counterparts that don’t.
By improving your environmental reputation, you’ll attract customers, investors, and employees who are increasingly concerned about environmental issues. Striving to achieve carbon neutrality is an important step for any organisation that wants to demonstrate leadership on environmental issues and contribute to a more sustainable future.
6. Net Zero
What is Net Zero?
Net zero is a state in which an organisation’s total carbon footprint is reduced to zero through a combination of emissions reductions and carbon offsetting.
How Do Organisations Achieve Net Zero Emissions?
Very similar to carbon neutrality; it’s about reducing your organisation’s GHG emissions to as close to zero as possible, and balancing any remaining emissions through the removal of an equivalent amount of carbon from the atmosphere.
Why Aim for Net Zero as a Business?
Like carbon neutrality, a net zero goal means your organisation is serious about the impact its GHG emissions are having on the environment and is taking steps to reduce them to nil – or as close to it as possible. By working towards a net zero goal, you’ll not only reduce the impact your organisation has on the environment, but you’ll also attract customers who are keen to work with environmentally conscious businesses.
7. Task Force on Climate-Related Financial Disclosures (TCFD)
What is the TFCD?
In 2015, the Financial Stability Board created the Task Force for Climate Related Financial Disclosures (TCFD) as a framework for consistent climate-related financial risk disclosures. It aims to increase transparency between companies, banks, and investors about what companies are doing to mitigate the risks of climate change.
What’s the Value of TFCD?
Investors need to understand a company’s potential climate-related risks to understand investment risks. The TCFD provides recommendations for organisations on how to disclose this information and how it may affect their financial performance. This shared language helps create better alignment between different groups of stakeholders.
By understanding and implementing the TCFD framework, you can improve your organisation’s climate risk management, enhance your transparency and credibility, and better inform investors and stakeholders. You’ll also be in a better position to identify opportunities for innovation and growth in a rapidly changing climate landscape.
8. Carbon Reporting
What is Carbon Reporting?
Carbon reporting is the practice of disclosing an organisation’s greenhouse gas emissions and related data, such as energy consumption, waste generation, and water usage. Once you’ve measured your carbon and calculated your carbon footprint, you can share this information with your stakeholders.
How does Carbon Reporting Work?
Carbon reporting is a key component of environmental sustainability reporting and is used to track progress towards emission reduction targets and demonstrate a commitment to reducing an organisation’s carbon footprint. Carbon reporting typically involves collecting data from various sources, such as energy bills and transportation records, and calculating emissions using recognised methodologies such as the GHG Protocol. Carbon reporting can help your organisation identify opportunities to reduce emissions, improve operational efficiency, and meet regulatory requirements.
When it comes to your organisation’s environmental impact, carbon accounting is an essential tool. The key terms we’ve outlined here, such as the GHG Protocol, carbon footprint, Scope 1, 2, and 3 emissions, carbon offsetting, carbon neutrality, net-zero, and carbon credits provide a framework for understanding and measuring your organisation’s environmental impact. By using these terms and tools, you can identify areas for improvement, reduce your carbon footprint, and demonstrate your commitment to sustainability. Carbon accounting is not only important for regulatory compliance, but it can also improve your organisation’s reputation and competitive advantage.