Modern carbon accounting methodologies and technologies in use today are not the same as those used ten years ago. In fact, some legacy methods for calculating and reporting emissions were pretty inaccurate, helping to bring the world to the era of ‘global boiling’ (not our words, but the United Nations).

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Thankfully, the increased awareness of climate change, toughening of regulations, and technology sector involvement have yielded much-needed carbon accounting advancements. Today, we can calculate carbon emissions for products, services, and their value chains with high accuracy – especially when paired with modern software tools. This data helps us manage and optimise energy use and carbon emission output, which in turn helps us on our mission to keep global warming under 1.5 °C.

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So let’s compare those legacy and modern carbon accounting methods. If you’ve yet to adopt the more accurate and impactful modern methods and technologies, it’s high time you did.

Legacy carbon accounting methods and their challenges

Although carbon accounting and reporting wasn’t widely adopted until the 2010s, it has been standardised since 2001 when the Greenhouse Gas (GHG) Protocol was published. This effectively provided a blueprint for businesses to calculate and report their emissions and continues to be used to date as a guide.Legacy climate accounting methods linked to the GHG Protocol are gradually being phased out (thankfully) because of their limitations.

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Spend-based accounting

Large and small companies relied on spend-based data for calculating their emissions for the longest time. This approach uses the money spent on a product or service and multiplies it with an emission factor. Put simply, this method relied on financial data.Emission factors used by the companies for this method vary by product or activity and are provided by a government agency or organisation. For instance, the European Environmental Agency provides the emissions factors in Europe.

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The problem with spend-based accounting is that prices fluctuate frequently. Therefore, they’re not a reliable means for calculating emissions. While it makes the calculations simpler and quicker (we all love simple maths!), it leaves room for marginal errors that can compound over time and result in inaccurate data. And no one likes inaccurate data.

Estimates and industry averages for Scope 3 reporting

Corporations have used the GHG Protocol since its inception. However, a significant shortcoming in this protocol is that it allows and accepts estimates for Scope 3 emissions. This approach was taken given the complexity of getting accurate emissions data from all suppliers in the value chain, so to make things easier for companies, the Protocol allows companies to use industry averages to calculate their value chain emissions.

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For instance, a construction company that sources cement from abroad can use industry averages for carbon emissions per pound of cement.However, using estimates and averages results in staggering incoherencies and doesn’t account for many emissions that its value chain produces.

Down with this sort of thing.

Legacy accounting tools

In the early days of carbon accounting adoption, either voluntarily or as a result of regulations, general accounting tools were used for calculating emissions. Here’s the snag: Most of these tools weren’t designed for carbon accounting, so they weren’t efficient enough to process the data and provide meaningful insights. Unsurprising, really.Legacy tools may also have been easier to manipulate because the standards and regulations weren’t as black and white as today.

Modern carbon accounting solutions and their benefits

Fortunately, carbon accounting has come a long way, with many countries like the U.K., Australia, and China publishing research studies on it in recent years. Additionally, technological advancements have enabled better collection and reporting of climate-related data, which only helps the advancement. It’s like a carbon accounting effectiveness flywheel. If you will.

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Here are a few modern, more effective solutions for carbon accounting.

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Activity-based data

Activity-based data doesn’t just rely on financial data like spend-based accounting. Instead, it also utilises other, more activity-specific data. For instance, the data may indicate the weight of material used, the distance a vehicle travelled, or units sold. Activity-based data is collected from different sources and may come directly from entities in the value chain. That’s why it’s more accurate than spend-based data. The more activity data you can collect, the more accurate your carbon accounting. Lovely.

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Similar to the spend-based method, the activity-based method also relies on emission factors, which, in turn, are calculated using averages for a particular activity.

E-liability accounting system

Citing the shortcomings of the GHG Protocol in reporting Scope 3 emissions, researchers Robert Kaplan and Karthik Ramanna put forth the E-liability climate accounting approach. Their approach uses cost accounting and inventory practices to eliminate estimates and get real data.

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More importantly, this proposed accounting system eliminates duplication in reporting value chain emissions. The researchers published an article in Harvard Business Review explaining, with examples, how this system works and how it can produce reliable emissions data for manufacturers, in particular. Although not a standard yet or popular in adoption (boo!), it’s a more transparent approach to carbon accounting responsible companies can adopt.

AI-powered analytical tools

Like, seemingly everything else, carbon accounting software solutions are getting an artificial intelligence (AI) makeover. With machine learning and big data, companies can get detailed and meaningful insights into their carbon footprint. AI solutions can sift through large volumes of companies' data and value chains to get accurate numbers on emissions. Moreover, AI-based analytical tools can help detect bottlenecks in reducing carbon emissions.

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But that’s not all! AI tools for carbon accounting may also be used to predict potential project emissions. That can be instrumental in reducing potential emissions before the project starts.

The importance of innovation in carbon accounting

It goes without saying that innovation in carbon accounting will help us reach the global goal of going net zero by 2050. A primary reason that many companies fail to make a significant impact, despite having intentions to reduce or offset emissions, is that their carbon accounting is flawed.

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To make a substantial impact, you need the correct targets. And to set suitable targets, you need accurate emissions data. And you get accurate emissions data by implementing the best carbon accounting tool for the job (cough, comundo, cough).comundo is part of the wave of innovation in carbon accounting, enabling building owners and real estate investors to get accurate data on the carbon footprint of their properties. Using advanced technology to get accurate data on energy consumption, comundo’s solution eliminates guesswork and provides real numbers to take action.