Making Sure 1 + 1 = (CO)2

Greenhouse gas accounting should be implemented as a carbon mass balance--no more and no less

There is yet another new program being pitched as a “standards neutral” method of greenhouse gas emissions reporting for businesses. This latest guidance, from the Task Force for Corporate Action Transparency (TCAT) attempts to increase the transparency and verifiability of corporate climate mitigation activities by, among other things, “provid[ing] clear methods and guidance for categorizing and disclosing both value chain–associated actions and investments outside a company’s value chain that do not appear in its physical GHG inventory but that deliver a measurable impact on global emissions.” Whew! That’s a lot to take in. The key words are “actions”, “investments”, and “physical GHG inventory.” What does a company do or buy, and how much carbon does it emit?

Source: Openverse

If only it were that simple. Actually, it is. Transparent, effective carbon management is the very essence of bean counting. All of our talk about Scopes 1, 2, and 3 emissions and value chains and global impacts are obfuscations that mask the only greenhouse gas measurement that really matters: how much gas are we emitting? Answering that question correctly requires performing a physical mass balance: carbon emitted - carbon sequestered = carbon in the atmosphere. The right-hand side of this elementary equation is either increasing, decreasing, or else holding steady at its current value. For most of human industrial (i.e. post-1700) history atmospheric carbon levels have been increasing, most recently at accelerated rates. That acceleration is not good news for climate stability. The only actions which will result in a decrease of carbon in the atmosphere are those that lead to carbon sequestered being greater than carbon emitted.

Bear in mind that there is exactly one carbon mass balance equation for the entire planet. There is nothing to be gained from an honest greenhouse gas accounting perspective by transferring emissions from one subsidiary to another, or by using purchased carbon credits to achieve “net zero” emissions on a balance sheet. There is either less carbon in the Earth’s atmosphere this year than there was last year, or else there is more. One of the easiest available ways to determine success or failure is to track measurements such as those made at the Mauna Loa Observatory in Hawaii. If and when the annual value of atmospheric carbon dioxide fraction (adjusted for seasonality—plants grow in the summer and die in the winter) ever starts to go down, then we will be on the right track. Nothing else companies might choose to report with regard to greenhouse gas mitigation matters.

Businesses may object, wanting to be recognized for doing their part. My response is that the only data worth collecting is direct changes in carbon mass flows. All of those flows should be valued solely in units of carbon mass rather than monetary units or “credits” or indirect “global impacts.” There is often a great deal of uncertainty related to measuring carbon mass flows for projects such as forest restoration or reducing the electricity end usage requirements of manufactured products. One solution to that problem is to stop trying to measure carbon across six degrees of separation. What people need to know is how many gallons of diesel fuel were burned worldwide. How many tonnes of coal? How many trees of what species and age were cut down? We don’t so much care precisely where or by whom. A company or country wishing to claim environmental stewardship “brownie points” might disagree, but in my opinion that is a symptom of our failure to work collaboratively on this shared common goal.

Greenhouse gas reporting in the manner I suggest will be important mainly for firms that burn a lot of carbon-based fuels or that actively conduct carbon sequestration operations. In other words, Scope 1 is really the only scope that is worth tracking at the end of the day. If you are in the business of producing or transporting energy, then you should be made to rigorously account for every kilogram of carbon emitted by your plant or pipeline. Energy consumers should be required to meter leaks in their storage systems and major appliances. There is far less need for firms to attempt to analyze the behavior of distant links in their supply chains, calculate offset credits from payments to third parties who plant forests, or convert the “[r]elocat[ion] [of] production to a region with a lower grid emission factor” to effective carbon credits.

And none of the above indirect measurement attempts will be needed once we have an enforceable, globally consistent carbon tax that prices a tonne of carbon at a level high enough to disincentivize material and energy waste. The tax would be paid by energy generators or immediate fuel consumers, and those entities would pass the cost along down the value chain in every sector of the economy. A direct carbon tax could be quite regressive, and it should be coupled with a progressive wealth tax that would fund compensating social transfers such as healthcare and education payments. Talk like this frightens a lot of people who wonder, “but where will it end?” My answer is that it will end where we the people decide it will end. For example, a good first approximation might be to begin the progressive tax rate ladder for all wealth in excess of $10 million. If ultrawealthy people are hiding their money offshore, then let’s apply the kind of pressure that we currently heap on poor agricultural migrant workers to the rich bankers of tax haven nations. If our billionaires threaten to emigrate in the face of increased taxation, then tax the companies they own or forbid those firms from doing business here. The carbon will eventually stop flowing.