What is Greenhouse Gas Accounting? Turning Away from LCA

December 19, 2023, by Michael Gillenwater

Installment N. -1



This installment can be considered equivalent to a movie prequel that provides the “backstory” for the other installments in the “What is GHG Accounting?” series. It is therefore fine to read this installment first and then proceed to the others.


Next to come in this series is an installment addressing the role of market-based approaches to GHG accounting.


There has never been a time in which corporate environmental disclosures, and specifically corporate greenhouse gas (GHG) emissions reports, have been given more attention.[1][2] Underlying this attention are muddled debates involving the concept of and rules for “GHG accounting”.[3] Sadly, despite the two plus decades of guidance and standards work on corporate GHG reporting, technically rigorous definitions describing discrete forms of GHG accounting are lacking (Ascui, 2014). The result is a confusing mismatch of intended purposes of corporate GHG accounting metrics and accounting rules. Underlying these problems is the current approach to corporate GHG reporting that assumes a single generalizable protocol (e.g., the GHG Protocol’s corporate standard) can address all purposes. Instead, I will show that this current approach is neither fit for most purposes nor, as currently structured, should it be deemed proper GHG accounting. Despite this current state of affairs, effective reform in our approach to GHG accounting that moves us to more useful and reliable GHG reporting is possible.[4] Such reforms, though, will vary by the purpose for which the GHG accounting is performed.

The GHG Protocol corporate standard was first published in 2001 and revised in 2004 by the World Resource Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It effectively created the practice of estimating and reporting GHG emissions and removals at an organizational scale (Sundin and Ranganathan, J, 2002; WRI/WBCSD, 2004). Although since then numerous other standards and programs have emerged that address corporate GHG reporting, they all largely or entirely defer their accounting rules to the GHG Protocol (Jia et al., 2023, 2022). The GHG Protocol corporate standard is an artifact of its time. In the early 2000’s the USA was withdrawing from the Kyoto Protocol, and national government policy and intergovernmental action were seen as failing to adequately address climate change. During this period environmental issue groups turned their attention to voluntary action by businesses and local governments. The overarching objective of introducing corporate GHG reporting and target setting initiatives was to shift expectations of businesses to recognize climate change and for leading companies to become allies in building the norm for climate action. The goal of these initiatives was simply that companies add GHG emissions to their internal management concerns by examining where “their” GHG emissions were coming from and to introduce some accountability through external reporting. The expectation was that eventually this added attention would have beneficial environmental and political effects of curtailing emissions and addressing the risks of climate change.[5] But, the technical quality or meaning of corporate GHG reporting was given little attention so long as companies completed the exercise. In return, they received a new way to burnish their business reputations as an environmental leader (Condon, 2023; Green, 2010; Patchell, 2018; Walenta, 2021).

But, since the early 2000’s, expectations have changed. Twenty years later, government regulators, investors, and other actors are proposing to formally use reported corporate GHG emissions data for specific decision-making functions that go beyond informing internal corporate management. In response, GHG accounting concepts and rules need to mature in keeping with the technical requirements for specific applications of corporate GHG metrics. For example, the existing GHG Protocol corporate standard and its derivatives give enormous flexibility to companies in setting their accounting boundaries. The underlying assumption was that in a voluntary reporting context, where results are simply used to inform internal management considerations, reporting should not require oversight or enforced coordination. Each company’s GHG inventory report, as a result, has effectively been bespoke.

I will argue that the root of the problems with current corporate GHG accounting practices derives from its underlying conceptual framework, which is the assumption that one can produce a meaningful GHG accounting metric through a form of life-cycle assessment (LCA) on an entire organization.[6] Rules and concepts developed for use in product LCA were adapted by the GHG Protocol for application to companies, albeit addressing only GHG emissions versus multiple environmental burdens (Ekvall, 2020). For example, similar to the aggregation of emissions released at every life cycle stage of a product, current corporate GHG accounting attempts to aggregate all emissions released at every process occurring within a company’s value chain. Yet, product LCA itself has struggled to find practical applications and adapting its methods to analyze entire organizations that are far more complex than single products, only amplifies its problems. I will further argue that constructing corporate GHG accounting rules using LCA thinking was a conceptual error and has led to a lack of meaningful and useful corporate GHG reporting, especially with respect to indirect emissions (i.e., GHG Protocol Scopes 2 & 3). Specifically, current corporate GHG emission inventory practices result in reports that are not comparable across companies (i.e., subjects), do not produce a meaningfully consistent time series for individual subjects, have subjective and ambiguous spatial and temporal boundaries, involve rampant duplicative counting of emission sources by multiple subjects, and improperly apply consequential justifications within an allocational environmental accounting framework (Downie and Stubbs, 2012; Gillenwater, 2022; Klaaßen and Stoll, 2021). Whether or not these problems matter depends on the precise purpose for which a GHG metric is to be used.  It may be true that we manage what we measure. But then we still must be clear regarding exactly what we intend to manage and not measure the wrong metrics or interpret them incorrectly.

A deeper layer of these problems is the debate regarding the appropriate use of different types of environmental accounting methods—attributional and consequential—over which there is still a lack of consensus (Brander et al., 2019; Ekvall, 2020; Ekvall and Weidema, 2004; Weidema et al., 2018; Yang, 2019).[7] There is a lack of definitional precision for both types, but especially for attributional. Further, as I will elaborate below, and use hereafter, the term attributional is misleading and should be replaced with the term “allocational”. Properly viewed, allocational (i.e., inventory) GHG accounting methods are fundamentally for the purpose of assigning responsibility for emissions to subjects. While consequential methods are for the purpose of quantifying the impact of discrete interventions. But problems and confusion are introduced in corporate GHG reporting by the application of LCA thinking that frames corporate GHG emissions inventories as accounting for all activities that a company influences or could influence. This framing conflates consequential and allocational reasoning. The practical result is the repeated attempts to introduce consequential justifications and methods into GHG Protocol corporate inventory accounting rules. Examples of this include the reoccurring desire to introduce marginal production or market-based emission factors into the GHG Protocol corporate standard. These attempts are primarily justified not through allocational reasoning (i.e., how best to assign responsibility for emissions), but through consequential, or causal, reasoning (i.e., what accounting rules will better quantify and recognize the impact of interventions and thereby incentivize mitigation actions) (Brander et al., 2018).

This “What is GHG Accounting?” series of blog installments has been interrogating the question of how to properly define and perform GHG inventory accounting. The series proposes reforms to the current corporate GHG reporting framework that address its problems and will propose a new reporting framework for companies to quantify and be recognized for the impacts of their GHG mitigation interventions.

The sections of this installment explore the conceptual problems with structuring GHG accounting as a form of LCA (see section 2). Then this installment specifically addresses how these problems are expressed within the GHG Protocol corporate standard and Scope 3 guidance (see section 3). These two sections provide framing for the rest of the “What is GHG Accounting” series.

Installment N.1 presents a typology of different types of GHG accounting with technically rigorous definitions of each type. Existing definitions for attributional environmental accounting have been problematically ambiguous. This installment fills this gap with more rigorous definitions that have substantial implications for GHG accounting standards and protocols. Installment N.2 aligns this typology and these definitions with the range of functions that stakeholders have expressed a need for corporate GHG metrics. No one form of GHG accounting can satisfy all desired functions (e.g., to exclusively allocate emissions to companies or to estimate the GHG impacts of particular interventions). Installment N.3 addresses fundamental questions regarding principles for assigning GHG emissions and setting accounting boundaries, focusing on the allocational (inventory) form of GHG accounting. Installment N.3 bis expands on the question of allocating responsibility for emissions with a philosophical exploration of the misleading influence of causal thinking.

A forthcoming installment will next apply these principles to discuss the role of market-based approaches in GHG accounting (e.g., green power purchasing claims in Scope 2, book and claim certificates for Scopes 1 or 3). Other future installments are in the pipeline that will present an alternative consequential GHG accounting framework for avoided emissions that addresses the previously explored problems and is in keeping with the elaborated definitions of proper GHG accounting.

Although the analysis in this series is largely theoretical, the conclusions have practical implications for policymakers and business actors. For example, how do we reconcile the concept of corporate net zero or carbon neutral with an ambiguous or bounded assignment of responsibility? Currently, investors and other stakeholders are using corporate GHG disclosures to compare companies (Bjørn et al., 2021; Jia et al., 2022). Yet, existing protocols produce corporate reports that are, by design, not comparable. In the future, how could investors and GHG programs (e.g., Science Based Targets initiative, SBTi) use more mature forms of GHG accounting? How should companies meaningfully and practically account for their interventions that impact indirect emissions?

As a preview, a part of the solution is to reform protocols and standards on corporate GHG accounting to achieve comparable reporting between companies in the same sector, exclusively assign emissions to subjects (i.e., avoid duplicative counting of emissions), design accounting rules that establish unambiguous boundaries, and establish quantification methods that produce physically meaningful and consistent time series estimates. Such a reformed accounting framework would also address the property of additivity so that aggregate totals across companies could be meaningful at the sectoral scale.

Lastly, this series focuses on corporate GHG reporting as a policy-relevant and instructive case study to examine broader theoretical GHG accounting questions. The arguments and conclusions presented are intended to apply broadly to other forms of environmental accounting, recognizing that there are many different subjects for environmental accounting other than companies (e.g., countries, facilities, products, cities, projects, policies). GHG emissions are also a special environmental accounting topic because, unlike most other environmental burdens, GHGs are a globally well-mixed stock pollutant, which simplifies issues related to spatial and temporal disaggregation as well as pollutant fate and transport.

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Cover image courtesy of Rudy Patard, The National Institute of Standards and Technology (NIST). Licensed under CC BY-SA 4.0 DEED Attribution-ShareAlike 4.0 International

[1] For example, there are various new mandatory reporting requirements emerging such as new rules under the U.S. Securities & Exchange Commission (U.S. SEC, 2023), California’s Climate Corporate Data Accountability Act (SB 253), EU Corporate Sustainability Reporting Directive (CSRD) (European Commission, 2022), United Nations initiatives to engage non-state actors (UN HLEG, 2022), as well the expanding trend of companies making “net zero” pledges (Frederic Hans and Takeshi Kuramochi, 2022).

[2] I will use the term “emissions” throughout this paper for the sake of brevity, but readers should interpret this as a shorthand for GHG emissions and removals.

[3] There is a sound argument that referring to the technical process of quantifying GHG emissions and avoided emissions should not be referred to as “accounting” given the association of the term with financial matters. I am highly sympathetic to this argument but lack a superior alternative term that differentiates the generic act of quantification from the more precise practice of producing an environmental data time series as defined in this paper. As financial accounting records monetary transactions, one could crudely view GHG accounting as recording human transactions of GHGs with the atmosphere.

[4] I will regularly refer to companies as the subject of discussion for convenience, but the reader should recognize that the discussion in this paper is intended to be applicable to organizational entities more broadly, and often to any subject on which GHG accounting is performed (e.g., countries, facilities, companies, products, cities, projects, policies).

[5] Another stated argument for corporate GHG reporting was that it would help prepare companies for future regulation. Yet, the GHG Protocol corporate standard did not prioritize guidance or requirements for the type of facility-level reporting necessary for such regulation.

[6] More specifically, the applied concept is a life-cycle inventory (LCI) or life-cycle inventory analysis (LCIA). Another root of these problems is viewing corporate GHG accounting as analogous to business financial accounting. Here, the use of the term “accounting” poorly serves what is better viewed as an exercise in environmental engineering estimation of physical matter and energy flows.

[7] The more colloquial, and potentially superior, nomenclature is inventory and intervention accounting.

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