There’s a saying popular among environmental technologists: you can’t manage what you don’t measure. But there’s a wrinkle; the assumptions most companies use to base carbon accounting calculations on, could be wrong.

 

Carbon accounting is critical to everything from emissions trading to ESG strategies and will inform the top and bottom line as companies engage with decarbonisation. Writing for Bloomberg News, Akshat Rathi points out that without accurate numbers and regulation, the system could fail to deliver the certainty investors need.

 

As Rathi makes clear, corporate financial accounting is audited and regulated with punishment for infringements ranging from fines to prison time. Carbon accounting is nowhere near as rigorous; is based almost entirely on voluntary standards. Even if companies make mistakes they’re unlikely to face penalties.

 

While companies can be reasonably accurate about the ‘Scope 1’ emissions they directly produce, accuracy drops rapidly when they have to account for emissions from their supply chain or users of their products, known as ‘Scope 3’. Even in the best case, Rathi argues, carbon accounting is based on a huge number of assumptions rather than hard data.

 

Rathi reckons the combination of assumptions and voluntary reporting present a huge risk. The U.S. already has stronger regulations on emissions reporting than most large emitters but study after study has shown that oil and gas companies under-report emissions of methane, the second-largest contributor to GHG emissions after carbon dioxide and 80 times more damaging to the atmosphere in the short term.

 

That’s a problem because the emissions that gas companies report as Scope 1 form the basis of Scope 3 emissions reported by utilities that use their gas to generate electricity, or by companies that use the gas to heat buildings, and so on.

 

So while a shipping company’s emissions are Scope 1 for its own carbon account they are Scope 3 for its charterers and finance providers. Clearly it’s a number that needs accurate data on demand rather than a finger in the air.

 

Alternative fuels are already making inroads into shipping and Bloomberg News has previously focussed on methane slip. It says more companies are owning up when these show up on the satellite images often used to monitor emissions but as Rathi says, it’s not possible to trace a methane molecule back to its source.

 

The problems of accurately monitoring and reporting emissions, especially across borders can have a serious impact on investment decisions. Last year, French energy company Engie halted a natural-gas deal with a U.S. company because it worried methane leaks from fuel production would put it at odds with the French government’s plans to cut emissions. 

 

In compliance-based markets such as the European Union’s Emissions Trading System, companies are required to provide accurate carbon emissions on an asset-by-asset level. These cover only direct Scope 1 emissions but companies that get those figures wrong can face fines. 

 

The challenge for shipping is to create a better means of monitoring and reporting emissions from their source – not least because satellite monitoring and compliance markets cover only a fraction of global emissions. In shipping, tens of thousands of ships need to be monitored and neither future regulation nor carbon accounting will be as robust as they need to be without better data.

 

As it stands, companies have very little leverage over their supply chain to provide them with accurate emissions data but forward thinking ones are exploring their options. And as Rathi concludes, if companies really are serious about reducing emissions, they will have to get better at accurately accounting for them first.

 

Photo by Jeremy Bishop on Unsplash.