Comment by Elle Butterworth and Dr. Danial Sturge, Energy Policy Advisor – Markets, Policy and Regulation and Carbon Policy Practice Manager. 

How do we know whether policies are achieving their decarbonisation aims? How can we hold companies to account for delivering their low carbon promises? How can we track and trace emissions through complex supply chains? The answer to all of these is having a well-regulated carbon accounting framework.

The current carbon accounting framework is a complex web of standards, methodologies, and reporting requirements. In our latest report, Carbon Accounting and Standards: A Framework for Innovation and Growth, we attempt to untangle this mess, drawing on our expertise in carbon policy and data and digitalisation.

There is no “one size fits all” approach to carbon accounting and some flexibility will always be necessary, but the flexibility within existing practices is disjointed. For example, there are varying requirements to attribute emissions at different boundaries and levels (e.g. products, regions, or organisations), which has resulted in multiple points of emissions disclosures, ways of processing emissions data (including proxy measurements), and ways of accounting for this data.

All of this limits the overall completeness and transparency of emissions, but there are opportunities to standardise where it makes sense – at the point of emissions disclosure.

We recommend four steps to achieve this:

Step 1: Effective coordination and regulatory oversight

We previously highlighted that carbon accounting is more than just numbers on a spreadsheet. Regulatory oversight is required to ensure decarbonisation efforts have a material effect on emissions. Regulation also provides a stable and credible framework for low carbon investment, boosting investor confidence and sending a clear signal to industry.

Our proposed Carbon Regulator can be part of the solution, with the authority to mandate emission monitoring, reporting, and verification (MRV) practices and coordinate the use of carbon accounting standards economy-wide. Such regulator would need to be independent of industry, and potentially Government, to ensure that the needs and concerns of different stakeholders are all considered.

One of our report’s key policy recommendations centres on a “disclose once” principle, establishing a single source of truth for emissions data. This approach builds on our proposals to decouple the emissions MRV from data generators (i.e. industry) and the accounting needs of data consumers (i.e. Government) – see figure below – to reduce the overall administrative burden on industry.

Step 2: Distributed digital systems architecture

To enable industry to “disclose once”, a carbon accounting framework must be supported by a coordinated digital systems architecture, with standards applied to facilitate the interoperability (or comparability) of emissions data.

For this, we recommend a distributed digital approach, where organisations own the emissions data they are responsible for and enable relevant parties to access that data (or a subset of it). A distributed approach can ensure the digital systems architecture is flexible enough to meet the needs of different stakeholders while remaining adaptable to future requirements (e.g. the incorporation of other sectors and global supply chains). We discuss the digital opportunities for carbon accounting in more detail in a forthcoming blog.

Step 3: Reflecting the needs of different sectors

We propose Government fund feasibility studies to consider the needs of different industrial sectors, accounting for variations in industrial processes and supply chains, to ensure a carbon accounting framework can support innovation.

For Net Zero, such a carbon accounting framework should not be limited to industry. It will also be important to understand how our proposals can have broader application economy-wide, and what the opportunities are for policy development and innovation for sectors outside of industry.

Step 4: Looking beyond UK borders

The current carbon accounting landscape does not support a transparent picture of global emissions, including the traceability of emissions moving across borders. We recommend Government work closely with international partners to maintain standardisation of accounting across international boundaries, including in any future development of policies applied at the border used to mitigate carbon leakage. Government is consulting on a range of potential policy measures to mitigate future carbon leakage risk, we will be publishing our response in due course.

A carbon accounting framework designed to support the UK’s transition to a low carbon economy should be adaptable to international developments. Decoupling emissions MRV from accounting mechanisms can enable carbon accounting frameworks to adapt and align to global standards and practices with international partners as they mature.

Conclusion

Carbon accounting requirements on industry have increased in complexity and frequency as stakeholders try to build a more complete picture of emissions. This complexity is only set to increase as decarbonisation efforts increase. Our proposals promote standardising where it makes sense, allowing for flexibility and without creating additional administrative burden.

A carbon accounting framework should enable accurate and comparable emissions disclosures. Improving the completeness and consistency of emissions reporting through standardisation provides the necessary foundations for a well-coordinated carbon accounting framework.

Now is the right time to establish a carbon accounting framework that works for both industry stakeholders and Government. It will require a pragmatic approach, making incremental steps towards an economy-wide framework.