The transition to a low carbon economy is on every CEO's agenda nowadays. The impacts of climate change and responses to it will transform every business sector in the coming decades. Although Climate change will affect a majority of companies, all will be expected to contribute to its solution.
Nevertheless, it is challenging for most companies to devise and implement a credible decarbonisation strategy. The transition requires new ways of doing business, including new ways of displaying capabilities and resources and new ways of thinking. But despite the challenges, companies around the world are scaling up their decarbonisation commitments.
We can see this trend with the number of companies committing to reducing emissions. More than 2000 companies have confirmed emissions reduction targets under the Science Based Target initiative (SBTi). Additionally, more than 370 have committed to The Climate Pledge, pledging to achieve net zero emissions by mid-century or sooner.
For most companies and investors, carbon credits play a crucial role in their Net-Zero strategy. They allow companies to make earlier and more ambitious commitments. Credits allow companies to reduce their current emissions through offsets, while taking cost-effective steps to reduce future emissions through asset rotation and business model development. In the long term, credits can play an essential role in offsetting difficult-to-avoid emissions from products for which no low- or zero-emission options exist.
The growing interest in recent years is also reflected in the Voluntary Carbon Market (VCM), which organises the pledging and trading of carbon credits. In 2022, the demand for carbon credits is at its peak. Prices have increased by more than 140% since 2021 and forecasts assume that demand for credits will increase 15-fold by 2030, to $50 billion per year.
But the voluntary carbon market has a problem. It cannot cope with demand. Access, which plays a crucial role in the global effort to combat climate change, is often limited to large organisations and is characterised by opaque pricing and market inefficiencies. Furthermore, due to a lack of transparency and credibility, it has faced a number of problems in recent years.
This report examines the key role for on-chain carbon credits as part of net zero strategies and the VCM. It was prepared by senken to help business decision makers identify and understand the best use of credits for their business.
What is Carbon Accounting?
Carbon accounting is the process of measuring and documenting the emissions produced by a company, entity, or product. It forms a fundamental part of environmental management and sustainability reporting, helping businesses understand and manage their impact on the environment.
Key Components of Carbon Accounting
- Data Collection: Gathering data on all emissions activities, including energy consumption, transportation, and manufacturing processes.
- Emission Factors: Applying emission factors to activity data to calculate the GHG emissions in terms of tons of Carbon Dioxide equivalents (tCO2e).
- Scope of Emissions: Emissions are categorised into Scope 1 (direct emissions from owned sources and activities), Scope 2 (indirect emissions from energy usage), and Scope 3 (all other indirect emissions in the value chain & supply chain).
Why is Carbon Accounting Important?
Companies looking to carry out effective decarbonisation strategies have to implement effective carbon accounting practices. It is incredibly difficult to conduct effective decarbonisation without carbon accounting, as this process helps companies to pin-point what their emissions are, where reductions can take place, as well as measuring the progress in their decarbonisation.
Carbon accounting is also essential for companies who wish to comply with environmental regulations, report to investors, and/or improve their public image by virtue of their sustainability practices.
Methodology and Standards
- The Greenhouse Gas Protocol: This provides standards and guidance for quantifying and reporting on GHG emissions.
- ISO Standards: The ISO 14000 family of standards offer a management system for quantifying, monitoring, and reporting on GHG emissions and removals.
- Regulatory Compliance: Companies need to be aware of regional and national regulations on GHG emissions reporting and reduction.
Integrating Carbon Accounting into a Decarbonisation Strategy
- Set Emission Reduction Targets: Carbon accounting data can help with setting science-based emission reduction targets by giving companies an idea of their emissions, which is the first step of a decarbonisation strategy.
- Operational Changes: Understanding where emissions are occurring can help companies to make informed decisions on operational changes in-line with their decarbonisation plan. These changes can include things such as optimising manufacturing processes, or changing the office lights to energy saving lightbulbs.
- Stakeholder Communication: Carbon accounting data can be implemented into sustainability reports to communicate progress and strategies to stakeholders.
- Continuous Improvement: Regularly update carbon accounting practices to reflect changes in operations and advancements in standards.
How to Get Started with Carbon Accounting?
- Initial Assessment: Identify major emission sources within your organisation and operations.
- Select Tools and Software: Choose appropriate carbon accounting tools for accurate tracking and calculations.
- Internal and/or External Expertise: Look into bolstering your internal carbon accounting expertise, or find a trusted carbon accounting partner.
- Baseline Establishment: Establish your baseline emissions in order to track progress.
- Stay Updated: Make sure you are up to date with carbon accounting standards and regulations.