Carbon Accounting Methodologies for Measuring Emissions

The main approaches to measuring carbon emissions are by collecting spend-based data, activity-based data, and a hybrid approach combining the two that we'll discuss more in detail.

• Spend-based data uses the financial value of a purchased good or service and multiplies it by an emission factor. This only provides an estimate of emissions per financial unit; therefore it isn't accurate environmentally. Spend-based emission factors come from an industry average of emission levels, usually nationally, or on an even broader scale.

• Activity-based data focuses on collecting the data across your supply chain at a granular level. This is based on activities done by your organization and recording raw data that is quantified into emissions data. The more data collected, the more accurate the accounting. Approximately 90% of emissions in the supply chain fall under scope 3. 

• The hybrid methodology is the most recommended by the Greenhouse Gas Protocol (GHGP) and is the most commonly used carbon measurement methodology. This method includes recording as much activity-based data as one can collect from the supply chain, then using the spend-based approach to estimate what is left over.

If you want to know more about finding the right methodology for your organization to become a top leader of carbon neutrality in your market, we'll show you a more in-depth view of the different approaches in this article.

The spend-based approach in detail

Spend-based data is often found in the carbon accounting sphere but it's only an approximation. The reason companies had leaned toward this approach before is because they found it tedious to collect data from every source in the supply chain or they don't know where to get the data; but technology has pivoted us from this unfulfilled space in the market, and is now closing the gap between data needed and data accounted for. 

Since measuring carbon emission factors with the spend-based approach relates to economics and not purely environmental factors, there are a variety of drawbacks which causes a lack of social responsibility in the long-term and doesn't hold companies as accountable as it claims to. 

First, expenses aren't valued at the same monetary rate in every nation. If you base the monetary rate of gas and oil in one country and compare it with another country, it costs more there, making the expense-based approach inaccurate. What is more, when emissions have a worse effect on a country's acceptable levels, the value of emissions carry a different weight; but if you look at the business travel in the same exact vehicle with the same gasoline in two countries, going at the same speed and distance, they have emit the same amount of CO2.

Also, when there are price fluctuations in one location, the numbers can change. Emissions data lose their precision with price fluctuations and large regional or manufacturing generalizations. Or, when large regions have a broad generalization of economic standards for an emission factor, or if products are grouped into large generalizations, then the emissions data lose their precision. 

Example: Measuring carbon emissions from business travel

A practical example of the inaccuracy that the spend-based approach can cause is looking at long-distance business travel. If you book a business trip and it is during school holidays, the plane ticket will oftentimes cost a lot more than if your trip is scheduled off-season. There is also a differentiator in class i.e. the economy ticket is less carbon intensive than a first class ticket mainly due to the space it takes up on the plane.

Net0 can take the exact flight details from the boarding pass or booking system and produce the exact emissions based on that ticket type (economy/business/first class) and distance traveled. Inaccurate data impacts a company's ability to build an effective reduction strategy. Getting to net zero means companies need to strategize to reduce their emissions in the long run which is impossible if you don't have accurate, activity-level data across the board.

The activity-based approach in detail

With activity-based data, it's more precise because it's based on an actual unit of carbon emitted than on a value that is given by a certain region. 

Now let's look at an example of business commuting and convert raw data into emissions data. With Net0, it's easy to calculate business travel emissions with your mileage and type of vehicle used. In this way, you get a more precise measurement of the data and not an obscure, economic-based unit of data. 

The activity-based approach is the best way for being proactive in building your sustainable business strategy. When you set clear benchmarks, targets, and can review measurable achievements progressing over time, then you have a clearer path to planning whereas the spend-based approach can't show you the whole picture. With emission factors being measured precisely, you can strategize on a more granular level, improving the workings of the supply chain from beginning to end. This helps businesses achieve higher revenue as smart consumers are now looking at every detail of how their goods are made and are willing to pay more for the greener item. 

The hybrid approach in detail

Businesses can only manage what they can measure. The reason the hybrid approach is recommended by the Greenhouse Gas Protocol (GHGP), is because there is data that at times the GHG reporting company cannot obtain from others in the supply chain although it is becoming easier to obtain that data because of the pressure on the supply chain from smart consumers. Businesses are becoming more transparent with their data and ways of working. Furthermore, technology like Net0 allows other colleagues and vendors in the supply chain to input raw data that gets calculated as emissions data so that the activity-based approach can become the norm with little effort on that of the reporting company compared the way carbon accounting used to be with expensive consultancies and unclear records. 

Using the spend-based approach for the remainder of the emissions data is a good way to be responsible for that portion while you strategize for ways on how to get the more accurate data later on. However, a more compliant company provides activity-based data so that carbon neutrality is ensured and no greenwashing is being done.

How to choose an appropriate methodology for your business 

Using the most granular approach possible is crucial to achieve climate action targets going forward. As climate change is increasing with alarming measure, regulations are getting tighter with the need to control it.

A complete activity-based approach is the clear answer across any industry; but since companies only have access to certain information, the hybrid approach will have to suffice. Fortunately, many companies are practicing transparency for heightened trust and support amongst stakeholders. With some persistence you will be able to collect the information you need to keep progressing in the direction of the activity-based approach.

The realistic methodology is finding your balance between accountability of actions and only using spend-based for the remainder. Therefore, the best approach to take is the GHGP recommended hybrid approach, but don't rely on this method to avoid being persistent with data collection within the supply chain. 

A consistent and robust carbon accounting methodology, including data in the custom emission factors that are activity-based in Net0's carbon accounting platform, will ensure that you are practicing a successful and transparent carbon accounting strategy, making you proactive in the fight against climate change and making you stand out amongst competitors in your industry. 

Related content:

To find out more about carbon accounting and reporting CO2 emissions, take a look at our relevant articles:

• ESG: What is Environmental, Social and Governance?
• What Is Carbon Accounting?
• What Are Scope 1, 2, and 3 Emissions?

Custom carbon emissions factors

Businesses can add data to the custom emissions factors that are set up in Net0's platform. When recording business travel and commutes by land for example, some of the emissions factors colleagues can add are what type of vehicle, gasoline, mileage, and distance. These numbers would be skewed in a spend-based approach but come out accurately without anyone having to calculate them themselves, with the technology in Net0's platform. 

Because of the transparency of the custom emissions factors that Net0 provides, the reporting is so precise that stakeholders and investors don't have to worry about excessive risk. Your ESG reporting will be more accurate and you'll earn a good reputation, adding value to the green economy. 

To conclude

Carbon emissions measurements don't have to be difficult to do anymore nor does the data have to be burdensome to access from other responsible businesses in your supply chain because software now fills in the gaps where unknown data used to be managed by carbon accountants that were costlier to employ and not well understood. 

Net0 offers activity, spend-based, and hybrid approaches when managing your emissions.  Where activity-based approaches are more precise, the hybrid enables your businesses to overcome data collection limitations and be as accountable for your emissions as you can be. 

Request a demo and experience why Net0 is the most effective emissions management software on the market for any approach that your business decides to pursue. We are committed to customers successfully achieving net zero, fast.