In a recent post, I argued that we have lost sight of what carbon accounting is actually for, and that the discipline has become too focused on methodological complexity rather than the decisions which the numbers are supposed to enable. Since then, I have sailed that thought over the horizon, and arrived at a new island on which to plant my flag.
Even if we make carbon accounting better, does it ever produce emissions reductions?
Over the past 20 years, a measurement-industrial complex has emerged. Companies have their hands in their pockets more than clothes mannequins trying to pay for all the manpower and tools required to measure and report on greenhouse gas emissions. They pay consultants to help them develop their inventories, software companies to provide a shiny new wrapper for the same uncertain data, assurance providers to raise a few cursory issues before signing off on numbers which are extremely difficult to independently verify, SBTi to validate targets that they don’t have to meet, and countless internal hours for downtrodden sustainability managers to go around the houses looking for data that invariably arrives late.
I have spent most of my career so far working across that system, and by no means do I argue that anyone doing any of those jobs is to blame. What I am saying is that there is a disconnect between the goals and outcomes. A costly global ecosystem has been built around calculating and reporting organisational emissions, on the assumption that doing so will eventually contribute to reducing them, with very little of the total cost going directly towards decarbonisation. It’s surprisingly difficult to work out exactly how much bees and ‘oney is spent globally, but ERM estimates that an average large US company spends about $237,000 a year on GHG analysis and disclosure. CDP’s Corporate Environmental Action Tracker contains around 12,300 companies, so multiplying one by the other gives a very crude annual bill of about $2.9 billion, before we include companies outside that dataset or much of the wider ecosystem of software, assurance, target validation and disclosure. That is billions of dollars per year, in a world where emissions continue to rise. I’m not suggesting that carbon accounting has caused emissions to increase, or that it has had no impact, but it is fair to ask what those many billions have bought.
I am not aware of any evidence for the impact of carbon accounting on global emissions, so bear with me while I do an irresponsible estimation. Those same 12,300 companies report around 9 billion tonnes of Scope 1 emissions annually through CDP. If their emissions fell at the 4.2% annual rate historically required by SBTi for a 1.5°C-aligned target, that would represent around 378 million tonnes of annual reductions. What proportion of those reductions are actually attributable to the measurement-industrial complex? 10%? 5%? 1%? I don’t have a scooby, and nor do you, and that is the whole point. If we generously assumed 10%, the abatement cost of the measurement-industrial complex would be around $80 per tonne. At 5% it would be around $150, and at 1% nearly $800. More recent CDP analysis found that only the top 15% of companies were reducing emissions at around 4% a year, while the rest were averaging closer to 1%. Using 1% rather than 4.2% increases those abatement costs to around $320, $640 and $3,200 per tonne respectively. Even the act of putting some numbers on it makes me question whether this is the best way we could be spending money on climate.
The decarbonisation effects of measurement and reporting are largely second order. Calculating an inventory can inform a target, which may influence a decision, which might lead to an investment, which could eventually reduce emissions. Where are those reductions actually coming from, though? Typically, simple interventions like upgrading your fleet to electric vehicles, switching to renewable electricity and getting lower carbon materials, all of which can be informed by simple, product level analysis. You don’t need the level of complexity which we have built around organisational carbon accounting. In fact, I’ve got a business pitch for those 12,300 companies: I’m 50% cheaper than your current providers. If you pool together and give me $1.45 billy a year, I too can tell you to stop burning fossil fuels in your operations and stop buying things from factories that burn fossil fuels. You can use the other $1.45 billion to spend on replacing your fleet and boilers (or bonuses).
Emissions are systemic, and simply reporting them doesn’t equal reducing them. The measurement-industrial complex costs billions a year, all for the purpose of assigning responsibility for emissions to individual organisations with ever growing complexity. A company reports emissions associated with the parts it buys, the part manufacturer reports emissions from the steel that it buys, the steel company reports the emissions from making it, and a bank might report some proportion of the parts factory in its financed emissions. Each one of those organisations spends lots of cash working out what moral responsibility they have for those emissions so they can slap it into a sustainability report which nobody is going to read. But having emissions attributed to you does not mean that you have the agency to eliminate them. A supermarket can calculate the emissions from fertiliser used to produce the food that it sells, but it cannot independently commercialise green ammonia. A construction company can calculate the embodied emissions from cement, but it cannot independently develop low-carbon cement. We end up with ever more complex emissions inventories without getting any closer to the solutions.
The GHG Protocol, which recently announced that its consolidated corporate standard will not be published until Q4 2028, has now gone further into the weeds than Ash Ketchum, and is so exposed to competing industry interests that it’s hard to even be sure that the updates will be in the interest of better accuracy. Hundreds of good people are voluntarily squandering their precious endowment of minutes alive on Earth, talking about hourly reporting of electricity emissions, market instruments and multi-statement reporting, without any way of quantifying their impact on global emissions. I know many of them are genuinely trying to fix real problems with the existing standards, but it’s all so myopic. If companies comply perfectly with whatever new accounting system emerges, what exactly do we expect to happen to global emissions as a result? I feel the same about the Science Based Targets initiative. Setting a target is obviously better than having no intention of reducing emissions at all, and there is some limited evidence that companies with targets subsequently reduce certain emissions. But a target is just a statement about something that you intend to happen in the future. Nobody is bound to achieve it, and there is limited evidence on how consistently organisations actually follow the pathways which they spent untold Benjamins having validated.
If you’ve stayed with me this far, thank you. Here is my half-baked solution. What if, instead of asking companies to spend ever increasing amounts of money determining and reporting which emissions can be attributed to them, we asked them to redirect that money to solving the hardest decarbonisation problems?
Imagine that every company which does emissions reporting instead paid either the money it currently spends on those activities, or a tiny proportion of its profits, into a global decarbonisation fund. That money could then be directed towards the most cost-effective decarbonisation opportunities globally, or towards areas where enormous technological and financial barriers remain, like low-carbon steel, cement, aluminium, fertiliser, shipping, aviation and long-duration energy storage. Rather than thousands of companies independently producing Scope 3 strategies which all arrive at the same fairly obvious conclusion, that their steel suppliers need to decarbonise, those companies could collectively put the same money into a pot which might actually be large enough to help make low-carbon steel commercially viable. I think using the carbon accounting money in this way would have a better chance of enabling the 4.2% annual reductions we need. Solve those difficult technological challenges once, and deep and rapid reductions follow across all of the companies whose emissions are driven by the same legacy processes.
There is also a fairly obvious benefit in comparability. Rather than trying to compare two Scope 3 inventories built using completely different data and methodologies, you get one number which everyone can understand: how much money did you actually cough up to address climate change relative to how much money you made? It’s crude, but completely verifiable, and gives investors, consumers or anyone else a simple way of working out who is actually paying.
I know there are enormous problems with this idea, and that I’m possibly straying into “We send the EU £350 million a week, let’s fund our NHS instead” territory. I don’t know if the contribution should be mandatory or voluntary. There’s no viable mechanism for making thousands of multinational corporations pay into a global pot; it is essentially a tax, and people might rightly ask why that money isn’t being collected and distributed at a state level. If it’s voluntary, some companies might pay in while the rest free-ride, although this isn’t dissimilar to the current situation with voluntary reporting and action. There’s also the very difficult question of how much everyone should pay: based on profits, emissions, or what you already spend on carbon accounting? Once you figure all of that out, you get to the real issues, like who manages the money and which technologies qualify. Directing billions towards specific technologies would create winners and losers, but not before an enormous amount of lobbying over what actually counts as a decarbonisation technology. Perhaps funds like this could instead be set up at a sector level. Every company in construction could pay in, with the money directed towards shared problems like low-carbon cement and steel, creating a clearer link between the companies paying in and the problems the money is used to solve.
Photo: Getty Images via The Independent
The question I am really asking is much simpler. Which would reduce emissions by more: putting $2.9 billion directly into physical decarbonisation, or spending $2.9 billion independently measuring and reporting emissions across thousands of companies? I strongly suspect it is not the latter, and even if my fund is a completely terrible idea, I am sure somebody who knows more about economics than me could think of a better way of spending that money.
Maybe I’ve got it all wrong. We clearly need some measurement to understand where emissions come from and whether reductions are actually happening. But the GHG Protocol, SBTi, software platforms, consultants and all other members of the measurement-industrial complex need to ask themselves how much measurement is enough, and what we are giving up when we continually demand more complex versions of it. As much as I respect my colleagues and friends in the industry, I don’t think we have enough evidence that this money is producing the emissions reductions we need. If a company has £500,000 to spend on climate change next year, would you rather that it produced a misleadingly precise Scope 3 inventory (that will be useless in 2028 when the rules change) and had its non-binding targets validated, or put £500,000 into a low-carbon cement plant?