Keeping books in order

Carbon accounting isn’t as rigorous without strong regulations, writes Bloomberg columnist Akshat Rathi

- Akshat Rathi

There’s a dirty secret of carbon accounting, and it could soon be exposed. That’s because the assumptions most companies base their calculations on could be wrong.

Let’s take a step back. Corporate financial accounting tells you how much a company earned, how much it spent and how much it owes. You can generally trust those numbers because most large companies employ skilled, expensive auditors to ensure that the figures are as accurate as possible. When companies mess up, they can expect harsh punishment from regulators, ranging from large fines to prison time. That means they have to be able to justify every figure on every line.

Carbon accounting is nowhere near as rigorous. Unlike financial accounting, almost all carbon accounting is voluntary and based on voluntary standards. Accurate or not, the company will likely come in for praise just for trying. No matter how egregiously a carbon accountant messes up, they’re unlikely to see the inside of a jail.

While companies can be fairly accurate about the emissions they directly produce (called Scope 1), that accuracy drops rapidly when they have to account for emissions from their supply chain or users of their products (called Scope 3). Even in the best case, therefore, carbon accounting is based on a huge number of assumptions.