What is Greenhouse Gas Accounting? Fitting to Purposes

March 8, 2023, by Michael Gillenwater

Installment N.2

This post is the second installment in a series on conceptual issues in greenhouse gas (GHG) accounting—issues that are at the root of the current dysfunction in corporate GHG disclosures. If you have not already, read installment #1 on GHG accounting definitions and then return. As I promised there, this post explores the numerous functions that companies, investors, activists, and other stakeholders seek corporate GHG accounting and reporting to fulfill. Are current corporate GHG accounting practices fitting to the desired purposes?

First, we must acknowledge the problematic current state of affairs. The dominant reference for corporate GHG accounting, the GHG Protocol Corporate Accounting and Reporting Standard, lists several purposes for corporate GHG reporting. The GHG Protocol Corporate Standard also offers a great deal of flexibility in its accounting rules (e.g., setting organizational and operational boundaries, and choice of estimation method). What it rarely provides is guidance on how to pair specific GHG accounting rules and methods with a particular purpose so that meaningful results are produced. The unfortunate truth, which I will detail below, is that current corporate GHG reporting practices, shaped by the GHG Protocol, fail to fulfill almost any of the purposes companies and stakeholder desire.

I strongly argue that the conversation regarding the updates needed in the GHG Protocol, and more broadly in corporate GHG accounting good practices, must start with identifying, interrogating, and explicitly selecting the precise purpose(s) the GHG accounting intends to fulfill, and then matching accounting rules appropriate to each purpose. No single protocol or accounting method can meaningfully support every purpose. I could describe our current problem simply as the condition of living with a single protocol that attempts to do everything and thereby ends up doing almost nothing meaningfully.

Let us then construct a coarse conceptual catalog of functional purposes for corporate GHG reporting that corresponds to the desires of the user community. I have refined nine functions to sharpen this investigation. In practice, some of the specified functions can be combined (e.g., accounting rules that integrate a market mechanism [#5] can incentivize emission reductions [#4] under a regulation [#9]). However, it is conceptually critical to isolate each function for inquiry because each entails different GHG accounting rules. By discretely identifying and studying each function, informed updates can be made to the GHG Protocol. In other words, the chosen functions and forms of GHG accounting must be aligned in the updated GHG accounting rules.

Again, to understand the functions I am about to describe, it is necessary to have read installment #1 “What is GHG accounting? Furnishing definitions.” Below, I describe each function and how it corresponds to each form of GHG accounting (i.e., allocational, consequential, and performance). The order of the functions listed below is arbitrary and not intended to be definitional, in contrast to the genuine definitions in installment #1. The sad conclusion of this analysis is that current corporate reporting under the GHG Protocol crudely achieves only two of the least desired functions and fails to meaningfully achieve any of the more strongly sought-after functions (see table).

Function #1.  The first function is exclusively assigning responsibility for GHG emissions and removals (i.e., GHG fluxes)[1] to a company. It is also the primary purpose of an allocational method of physical GHG accounting.[2] Such accounting can be used to allocate emission budgets (i.e., avoiding double counting) and track a company’s progress towards a target over time. It is the function generally applicable for regulatory abatement compliance purposes. Current corporate GHG reporting does not achieve this function. Neither the GHG Protocol nor the numerous derived guidelines (e.g., ISO 14064-1) resolve the issues of exclusive allocation of emissions or the related issue of comparability between company reports. The accounting rules for indirect emissions (i.e., scopes 2 and 3) entail multiple companies being allocated the same emissions. This problem also exists with direct emissions (i.e., scope 1) due to overlapping organizational boundaries across companies afforded by discretion in the GHG Protocol’s accounting rules.

Function #2.  This function is likely what the public imagines when they hear “carbon footprint”[3]—the assigning of responsibility for GHG emissions to a company, or another subject (e.g., product, person, facility, or country), but where this assignment is not exclusive to the company or subject and is likely overlapping with other companies or subjects. The implied purpose is to establish layers of responsibility that include the greatest number of actors that can potentially influence the release of emissions. In such a context, however, this responsibility is awkwardly diffuse.[4] The current GHG Protocol, primarily through scope 3, does achieve this function, with some caveats (see table).

Function #3.  This function is loosely specified as informing corporate GHG mitigation planning. The application of an allocational GHG accounting method can partially support this function by identifying major emission sources and removal sinks. For example, the current GHG Protocol corporate standard addresses this function through the identification of direct and indirect emission “hot spots.” But to properly reach a mitigation decision it is necessary to apply consequential GHG accounting methods that quantify the impacts of interventions (see Function #8). Current corporate reporting does not provide this kind of quantitative information on mitigation intervention impacts, even though such information is indispensable for making fully informed mitigation action decisions.

Function #4.  This function incentivizes or disincentivizes specified actions or promotes transactions in particular environmental commodity markets. Many stakeholders advocate the modification of corporate GHG accounting rules to embed incentives (or disincentives); however, creating and targeting incentives is not the purpose of allocational physical GHG accounting. Addressing this function instead calls for performance GHG accounting rules to score actions that meaningfully improve a company’s GHG performance. This scoring can draw on GHG accounting data from consequential, allocational, or a combination of methods. For example, the accounting rules could be intentionally designed to incentivize the more rapid adoption of aviation biofuels[5] by providing a bonus score for their consumption by companies (e.g., equivalent to double the estimated avoided emissions from using biofuel instead of jet kerosene). Many of the proposals WRI will likely receive in its ongoing GHG Protocol survey will likely fall under this function (e.g., new rules to promote and recognize corporate PPAs, sustainable book and claim certificate markets, and green steel or renewable natural gas attribute claims).

Function #5.  This function is to enable market mechanisms for tradable GHG emission instruments or claims. However, once market-based transactions for emissions (e.g., proposed book & claim certificates), emission factors (e.g., RECs), or emission reduction claims (e.g., offset credits) are inserted into corporate GHG inventory reporting, the reporting ceases to satisfy the physical GHG accounting definition—allocation of responsibility must derive from physical (i.e., matter or energy) connections to the company. To distinguish, physical GHG accounting can be used as input data by a market mechanism’s compliance procedures (e.g., emissions cap & trade), but environmental market transactions (e.g., the purchase of offset credits) cannot be integrated into physical GHG accounting rules.[6] In contrast, such integration is appropriate within performance GHG accounting methods.

Function #6.  This function is to provide quantitative measures of a company’s risk exposure to climate change. Although the purpose of allocational physical GHG accounting (e.g., corporate GHG inventories) is not to assess risk, disaggregated estimates by source category and jurisdiction could inform an assessment of a company’s GHG emission abatement regulatory or liability risks in select cases. Generally, it is unlikely that future regulatory actions requiring GHG abatement or emission fees in any jurisdiction will utilize corporate GHG reporting. Rather GHG abatement compliance under almost all regulations is applied where boundaries and exclusivity are clear (e.g., at the facility level in keeping with Function #1).

Function #7.  This function is erroneously assumed to be fulfilled by existing corporate GHG disclosures—that corporate reporting can be used to compare GHG performance across companies. As explained here, neither the GHG Protocol Corporate Standard nor derivative accounting standards attempt to include comparability between companies as an aim. So, by omission and design, GHG reporting across companies is currently not comparable. However, if this function is deemed necessary for future applications of corporate GHG reports,[7] then it would be possible to achieve comparable reporting by carefully designing an allocational physical or performance GHG accounting method.[8]

Function #8.  This function addresses companies’ desires to be recognized and account for the impact of GHG mitigation interventions they make within their recognized value chain and, in some cases, beyond it. By now, you should recognize that allocational physical GHG accounting, by definition, does not quantify the impact of interventions. So this function is, also by definition, served through consequential GHG accounting methods. As noted previously (see function #4), a performance GHG accounting method could be designed to combine allocational and consequential type methods into one score-based metric.

Function #9.  One of the original selling points of corporate GHG reporting was assurances that it would prepare companies for future GHG regulations. It is debatable whether history has validated that sales pitch. Specifically, this function is for corporate GHG reporting to support the implementation of emissions abatement regulations. For two reasons, existing corporate GHG reporting does not achieve this function: i) corporate reports are not comparable, and ii) regulators have an overwhelming preference for facilities (i.e., installations) being the legal point of regulation.[9]

I recognize that these concepts for functions and accounting forms are difficult to mentally map together—which functions go with which form of GHG accounting? And you are probably asking, “Is it necessary to be so theoretical?” Well, if you believe the status quo in corporate GHG accounting is more than adequate for now and the future, then this discussion will appear unnecessary. However, I confidently argue that such a belief is false. Instead, we desperately need to rethink what we are doing with respect to corporate GHG accounting…and WHY we are doing it. In that spirit, this table formally presents the nine functions along with how they are addressed by each distinct form of GHG accounting. Each function can be supported by more than one form of GHG accounting, although they will do so in different ways. Notably, the table also explains whether and how the existing reporting rules under the GHG Protocol corporate standard achieve each function.


*All forms can be done ex ante or ex post.

Desired function of corporate GHG accounting metrics

Environmental/GHG accounting forms*

Physical GHG accounting

Performance GHG accounting



1.To exclusively assign responsibility for emissions to companies and track emissions assigned to each of those companies over time.

GHG Protocol. Not achieved by GHG Protocol corporate standard due to non-comparable and overlapping organizational and operational boundaries.
Function is achieved with a proper allocational accounting method producing comparable estimates between companies. Can be used for the allocation of emission budgets to companies.Does not achieve this function.Function may be achieved for tracking compliance or conformity with target scores. Does not represent physical GHG emissions.
2.To nonexclusively assign responsibility for emissions to a company and track emissions from subjects (e.g., facilities, business units, emission sources) within that company’s boundaries over time.

GHG Protocol. Achieved by GHG Protocol corporate standard, but without comparability between companies and with the caveat that scope 2 and other market-based and spend-based methods allow physical connection to emission sources be disregarded when allocating emissions.
Function violates the additivity principle unless comparability is restricted to subjects within a single company (e.g., comparisons between business units within one company but not between different companies).Does not achieve this function.Function may be achieved for tracking compliance or conformity with target scores. Does not represent physical GHG emissions.
3.To inform corporate GHG mitigation action planning.

GHG Protocol. Partially achieved by GHG Protocol corporate standard by identifying major sources of direct and indirect emissions (i.e., “hot spots”) but does not function as a mitigation analysis.
Function can be supported. Identifies key emission categories for a company and relative emissions between companies for prioritizing (consequential) mitigation analysis of specific intervention options. It does not quantify the impacts of past (ex post) or planned (ex ante) mitigation actions.Function can be achieved. Provides a quantitative basis for mitigation analysis and decision making (i.e., comparing the relative GHG impacts of mitigation options).Can be increasingly achieved as more mitigation analysis is integrated into scoring.
4.To incentivize or disincentivize specified actions or promote transactions in particular commodity markets.

GHG Protocol. Not achieved by the GHG Protocol corporate standard, although it was attempted through the scope 2 market-based method.
Does not achieve this function. The purpose of GHG inventories is not to foster or maximize incentives for particular mitigation actions, but instead to allocate emissions (i.e., responsibility) to subjects.Function can be meaningfully supported. Consequential methods can provide a quantitative basis for mitigation analysis and decision-making (i.e., comparing the relative GHG impacts of mitigation options) and when combined with cost estimates can be used in a mitigation cost analysis to support cost-effective decision-making.Can be meaningfully achieved with scores calculated as a function of mitigation option analysis results (i.e., consequential GHG accounting), which may be mixed with other scores from corporate GHG inventory (i.e., allocational GHG accounting).
5.To enable market mechanism(s) for GHG emission instruments and/or financed emission reductions.

GHG Protocol. Dysfunctionally achieved. Addressed by GHG Protocol corporate standard via scope 2 market-based method and expanded use by corporations of other market-based approaches is beginning. However, this violates the allocational GHG accounting definition.
Purpose of a GHG inventory is not to function as a market mechanism, but instead as a physical accounting of GHG fluxes, but it can be a data input for use in a market mechanism (e.g., monitoring compliance under an emissions trading system).Purpose of a consequential accounting method is to provide a physical accounting of changes in GHG fluxes caused by interventions, but can be used as a data input to support a market mechanism (e.g., tradable credits).Can be achieved with accounting rules that recognize meaningful emission instruments (i.e., demand > supply leading to scarcity) and financed emission reductions scored as a function of mitigation analysis results (i.e., consequential GHG accounting).
6.To quantitatively assess a company’s climate change risk exposure.

GHG Protocol. Not achieved. Aggregate GHG emission estimates prepared using the GHG Protocol corporate standard are unlikely to be correlated with corporate climate risk exposure, including GHG abatement regulatory or GHG liability risks.
Purpose of a GHG inventory is not to function as a risk assessment, but instead as a physical accounting of GHG fluxes. Disaggregated GHG inventory estimates by source category and jurisdiction can potentially inform assessments of GHG abatement regulatory and GHG liability risks for some companies.Does not achieve this function.Only achieved if scores are, by design, correlated with actual climate risk categories.
7.To compare or benchmark a company’s GHG emissions or intensity against other companies.

GHG Protocol. Not achieved by GHG Protocol corporate standard due to lack of comparability between companies.
Achieves this function because a proper allocational accounting method produces comparable results between subjects (e.g., companies).Not applicable to this function.Applicable if comparison is based on scores rather than physical emissions, and accounting rules are designed for comparability.
8.To quantify the impact of a company’s individual GHG mitigation-focused decisions/interventions within and/or beyond the company’s value chain.

GHG Protocol. Not achieved by the GHG Protocol corporate standard; could be reported using GHG Protocol project standard but is not common practice.
Purpose of a GHG inventory is not to function as an impact assessment, but instead as a physical accounting of GHG fluxes. Requires separate consequential method.Achieves this function.Requires consequential type methods as part of corporate scoring.
9.To support the implementation of government GHG emissions abatement regulations.

GHG Protocol. Not achieved by the GHG Protocol corporate standard.
Achieves this function, provided there is comparability between companies. However, regulators will have a strong preference for facility/installation-based regulation rather than using the more nebulous and fluid corporate entity as the point of regulation.Achieves this function for various forms of crediting-based and similar regulations.Only possible with comparability between companies. Most regulators will have a strong preference for facility/installation-based regulation rather than use the corporate entity as the point of regulation.


Again, these nine functions were isolated based on what companies and other users of corporate GHG reporting metrics have implicitly expressed a desire for. To contrast, GHG Protocol corporate standard explicitly stated five goals (i.e., functions) for itself when it was published last in 2004. We can ask then, has it achieved those goals as it approaches its 20-year anniversary? This table presents my brief and somewhat cheeky answer. What do you think?


Business goals stated in the GHG Protocol Corporate Standard (2004)

Has the goal been achieved?

Managing GHG risks and identifying reduction opportunities

Risk identification is not meaningfully achieved. Major emission sources can be identified, but the standard does not identify mitigation options.

Public reporting and participation in voluntary GHG programs

Partially achieved, voluntary disclosure has raised corporate climate awareness, but rigorous corporate GHG reporting has limited disclosure value if reports are not comparable between companies.

Participating in mandatory reporting programs

Not meaningfully achieved, as corporate GHG reporting has limited disclosure value if reports are not comparable between companies, and mandatory reporting is applied at the facility level by default.

Participating in GHG markets

Partially achieved, corporate GHG reporting has motivated voluntary carbon offset credit market engagement but does not apply to regulatory emission markets.*

Recognition for early voluntary action

Wishful thinking from the Kyoto Protocol era that is now expired.

*For a story of folly, see here for an attempt to create a corporate level emissions trading market, the Chicago Climate Exchange, that was doomed to fail from the beginning.


Looking back, as someone who also helped write portions of the 2004 GHG Protocol corporate standard, it was a product of its circumstances. The belief was that simply fostering the consideration, quantification, and reporting of GHG emissions by as many companies as possible would in time find useful applications. Flexibility in accounting rules was seen as key in order to foster both maximum participation and to wishfully support any purpose companies or stakeholders may wish to use the protocol for. But now it is time to enter a new era of more meaningful and useful corporate GHG reporting.

Looking at this bigger picture for the future, it is clear that companies and other stakeholders want corporate GHG reporting, under the GHG Protocol or other derivative standards, to address a wide array of functions, the vast majority of which are not currently achieved. However, an updated GHG Protocol corporate standard (or more likely multiple protocols) could, if designed with more focused intention, achieve a number of these functions. In the update process, though, we must accept that no one corporate GHG metric or set of accounting rules can serve all functions. Design choices and tradeoffs are necessary. The compromise solution to satisfy most stakeholders will surely be more than one set of accounting rules.

At the highest level of design, we need to decide whether the GHG Protocol corporate standard is to serve as a physical GHG accounting allocational method (e.g., for preparing a comparable and consistent time series of GHG emission and removal inventories), or instead as a purposefully crafted performance GHG accounting method that addresses a broader range of functions than a physical GHG accounting method can achieve? Again, there is an option for the GHG Protocol, or others, to establish more than one corporate accounting method, each of which being explicitly designed to achieve particular functions.

The present situation, though, is indefensible. The GHG Protocol Corporate Standard seems to be a proper physical GHG accounting allocational method for companies. Yet, it is not, as it violates the definitional criteria for such a method. What we are all using now is a performance GHG accounting method that has highly limited functionality. The Corporate Standard could be updated to serve a selection of functions for corporate GHG metrics. Hopefully, the dialog that will follow the ongoing GHG Protocol survey will foster thoughtful discussions and lead to a decision on the precise purposes of corporate reporting under the GHG Protocol.

Lastly, still to come in a future blog installment is an answer to the question—what are the allocation rules governing physical GHG accounting? The answer to this question is determinative for understanding boundary setting and whether market-based allocation approaches are appropriate. As a teaser, I will argue that the allocation of GHG emissions (and removals) to companies, or other subjects, should not be done on a purely financial basis when using a physical GHG accounting method. Stay tuned to learn why.

Click here to read all the posts in the “What is GHG accounting?” series


I am thankful for the insightful comments from and discussions with my colleagues Matthew Brander (University of Edinburgh), Derik Broekhoff (SEI), Molly White (GHGMI), Alissa Benchimol (GHGMI), and Tani Colbert-Sangree (GHGMI).

Recommended Citation

Gillenwater, M., (2023). What is Greenhouse Gas Accounting? Fitting to purposes (N.2). Seattle, WA. Greenhouse Gas Management Institute, March 2023. https://ghginstitute.org/2023/03/08/what-is-greenhouse-gas-accounting-fitting-to-purposes/

[1] For simplicity, I will just write in reference to “emissions”, but readers should understand this shorthand to properly refer to all anthropogenic GHG fluxes, including GHG removals by sinks.

[2] The same functional framework can be applied for other subjects of allocational GHG accounting, such as products, countries, facilities, or jurisdictions.

[3] “Footprint” in this context is borrowed from work on ecological footprints which attempts to quantify and assign environmental impacts in terms of equivalent area (e.g., hectares) of the planetary surface that ecosystem services would need to absorb the impact. Without also addressing the politically manipulative history of the phrase by major energy production firms, I will simply say that from a technical definitional perspective, “carbon footprint” is neither a useful nor meaningful term for technical communications.

[4] All companies in a value chain, under current scope 3 reporting practices, are instructed to report all emissions in that value chain. When everyone accounts for the same emissions then the outcome is similar to no one being assigned responsibility.

[5] With the intentional policy goal of driving economies of scale to transition the aviation industry away from fossil fuels.

[6] This topic of allocation principles for physical GHG accounting will be explored in the next installment of this blog post series.

[7] We are looking at you U.S. SEC and European Commission.

[8] The features of such methods, especially the boundary setting features, will be explored in upcoming research paper.

[9] One reason for this preference includes the challenge in setting abatement requirements and monitoring compliance given the nebulous and fluid physical boundaries of an all-inclusive corporate entity. There are good reasons why comprehensive corporate-level GHG reporting is not used for regulatory abatement compliance purposes. This function addresses mitigating regulatory GHG abatement risks, which is related to Function #6 on measuring regulatory risks.

One response to “What is Greenhouse Gas Accounting? Fitting to Purposes”

  1. Fergal Mee says:

    Very interesting – worthy of detailed examination and study.

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