Carbon Accounting 101: What is Carbon Accounting?

As more and more regulators and consumers want companies to proactively adapt measures to slow or prevent climate change, organizations can do their part by reducing greenhouse gas emissions not just within their own operations but along their whole supply chain.

But keeping track of emissions reductions can get complicated because of the many various actors potentially involved. One way to ensure the continuous and effective measurement of GHG emission reductions is for organizations to adopt and embrace carbon accounting.

What is Carbon Accounting?

Just as companies conduct financial accounting to show how they are managing their finances, carbon accounting is keeping track of how a company measures and reports its greenhouse gas emissions. Carbon accounting consists of multiple elements: tracking carbon emissions across operations and supply chains to understand their environmental impact, managing carbon footprints, and ensuring compliance with regulations or sustainability goals. 

Perhaps one of the greatest benefits of carbon accounting is that it enables organizations to reach an in-depth understanding of the different types of emissions that an organization might emit. Government agencies that prescribe regulations setting GHG emissions limits classify emissions by where a company’s emissions occur. These classifications are known as Scope 1, Scope 2, and Scope 3 emissions. 

Scope 1

Scope 1 emissions are the GHG emissions that an organization might emit through operations occurring on its property. They might come from the burning of fuel to heat or cool a company’s facility.

Scope 2

Scope 2 emissions come from the generation of electricity purchased from the electric grid. Although these emissions may occur at power plants that are offsite a company’s property, the company still has some control or responsibility over how much electricity it consumes.

Scope 3

Scope 3 emissions stem from operations that a company has no control over. Examples include emissions that might come from the production of raw goods, the commute employees take to and from work, and the transportation of raw materials and finished goods from origin to destination. 

Experts estimate that Scope 3 emissions might account for the majority of emissions that an organization emits. But Scope 3 emissions can also be challenging to calculate because there are so many potential sources for Scope 3 emissions.

In a Changing World, Carbon Accounting Takes on a New Importance

According to a McKinsey study, 80% of GHG emissions in most consumer goods categories are “embedded”  within the supply chain. This means that the vast majority of emissions that occur within the consumer goods categories come from Scope 3 emissions. 

Given its influence on the global market economy, the consumer goods category is one area where regulators and consumers alike want to see sizeable emissions reductions take place. However, regulatory initiatives to monitor the Scope 3 emissions of companies in the consumer goods sector are still getting off the ground; for instance, the U.S. Securities and Exchange Commission pulled back on a rule requiring publicly traded companies to disclose their Scope 3 emissions.

That said, the transport sector is one area within the consumer goods supply chain where governments worldwide have been actively pursuing emissions reduction strategies. Regulatory efforts to hold the transportation sector accountable have resulted in industry responses such as the exploration of using lower-emitting alternative fuels to power the large ocean vessels.  

As government regulators seek to expand their efforts to slash Scope 3 emissions, it’s more vital than ever that businesses build an accurate understanding of their emissions through carbon accounting. But businesses will first need to overcome some challenges to building an effective carbon accounting program.

Three Challenges to Effective Carbon Accounting

Establishing a robust carbon accounting program can take a lot of effort because of the many various elements that a company must keep track of to ensure the data is accurate and plentiful. Here is a list of challenges that might arise as an organization adopts carbon accounting.

Data Availability and Accuracy

Gathering reliable data across the entire value chain is a major hurdle. For Scope 3 emissions, which involve upstream and downstream activities like supply chain and product use, companies often struggle to get accurate, complete data from suppliers and partners, leading to inconsistent or incomplete reporting.

More and more companies are adopting data reporting initiatives to monitor emissions reductions. However, there are still organizations that are just starting their efforts to track emissions reductions, so the playing field isn’t yet level enough to allow more sophisticated discussions and actions to reduce GHG emissions among all the stakeholders within a supply chain.

Standardization and Comparability

There are numerous carbon accounting frameworks (e.g., GHG Protocol, ISO standards), but not all are used consistently across industries. This lack of standardization makes it difficult to compare emissions data between companies or even within different parts of the same organization. Furthermore, companies’ carbon accounting initiatives are at differing levels of sophistication, thus adding to the complexity of comparing emission data both internally and externally. 

Complexity of Scope 3 Emissions

Scope 3 emissions are typically the largest portion of a company’s total carbon footprint, but they are the most challenging to measure due to the need to account for indirect emissions from third parties, such as suppliers, logistics providers, and product end-users. Managing this complex network of indirect emissions requires significant resources and collaboration.

Searoutes: Carbon Accounting Made Simple

Part of establishing or maintaining a carbon accounting program involves using the right technological tools to collect, measure, and analyze emissions data. At Searoutes, we have developed APIs to help gather accurate data along the entire supply chain.

Comprehensive Emissions Monitoring

Searoutes offers real-time emissions monitoring across various shipping routes and activities. By leveraging data from different sources like AIS (Automatic Identification System) and vessel characteristics, Searoutes provides precise carbon emission metrics, enabling businesses to track their carbon footprint accurately and continuously.

For instance, our Vessel API uses advanced proprietary routing algorithms that take into account speeds in passages and canals, as well as specific vessel routes, while calculating carbon emissions. The API also performs data cleaning to eliminate noise and fill in gaps so that users are able to obtain continuous trajectories.

Data-Driven Route Optimization

Searoutes’ advanced algorithms analyze fuel consumption, vessel types, and other environmental factors to recommend the most efficient shipping routes. This helps companies optimize logistics while reducing carbon emissions, ensuring that emission reports are based on optimized operations.

Searoutes’ Routing API allows users to comprehend how differing routes compare in their emissions output through factoring conditions such as arrival times and fuel consumption. The API enables users to weigh routes sailed based on factors such as separation schemes, SECA/ECA zones, piracy zones, canals, and port entries. 

Integration of Scope 3 Emissions Data

Searoutes helps businesses account for Scope 3 emissions, often the most challenging to measure. Through partnerships with carriers and comprehensive data integration, it ensures companies can accurately report upstream and downstream emissions from transportation and logistics activities, offering more transparency in their overall carbon footprint.

Searoutes’ CO2 API uses proprietary routing algorithms that enable optimal route searches and accurate carbon emissions. Users will have the ability to learn just how they can minimize their carbon footprint within the supply chain while also optimizing operational and procurement efficiency.

Effective Carbon Accounting Starts With the Right Data

Searoutes is an invaluable resource in gaining visibility over hard-to-measure Scope 3 emissions. Our APIs’ thorough analysis of historical and real-time emissions and vessel data provides users with insights that can serve as a foundation for a solid carbon accounting regimen.

Contact us today to learn how our technological tools can help you create and maintain a carbon accounting program that serves your business needs.