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Carbon accounting is evolving rapidly – it’s becoming easier, faster, cheaper, and more accurate. In fact, it’s becoming radically simple. If you've ever tried using traditional methods – or outsourced the task – you’d be forgiven for thinking that “carbon accounting” and "radically simple" don’t fit together. But the reality is, a new playbook is emerging – a fundamental paradigm shift.

This shift mirrors the transformation initiated by the advent of low-cost digital cameras, which revolutionized the way we capture photos and videos. Digital image capture didn’t just change the way we take pictures – it opened a whole new world of possibilities that were once confined to the realms of science fiction. Today, grandparents regularly join their grandchild’s birthday party via digital video call from halfway around the world.

A similarly profound change is now underway in carbon accounting. Yet, as with any disruption, not everyone is on board at the start. Dissenting voices range from constructive criticism to staunch rebuke, presenting this as a false choice.

This establishment myopia isn’t unprecedented. It's a classic case of what psychologists call inattentional blindness – the failure to recognize important information because it falls outside an expert’s accustomed frame of reference. History is full of famous examples: Kodak and Polaroid failed to recognize digital photography as the biggest disruption in their industry since chemical film processing was first invented. In contrast, Fujifilm adapted and thrived in the new digital era – offering a valuable lesson in embracing change.

Who’s leading the change – and why?

Innovation often comes from outside the established order, driven by individuals who ask, ‘Why is it like this, and not like that?’ The current disruption in carbon accounting can be traced back to four distinct sources, each reinforcing and validating the others.

1) Startup innovators

In early-2021, the Scottish Government launched a competitive CivTech innovation challenge: ‘How can technology help manufacturing businesses decarbonize while building resilience and strengthening competitive advantage?’ A pair of entrepreneurs, Karl H Richter and Jenni Inglis, won the competition with a novel approach and founded their company iSumio to implement their vision. Their innovation is grounded in a fundamental axiom – that every organization’s indirect emissions are another organization's direct emissions. The key is connecting the data. Leveraging the principles of the Greenhouse Gas (GHG) Protocol as the industry standard for carbon accounting, their software, Neoni, demonstrates how real-world data can seamlessly cascade through supply chains. Crucially, this transparency can be achieved while protecting commercially sensitive information and trade secrets. Neoni eliminates the labor-intensive and duplicative efforts of spreadsheet-based methods. This approach is poised to disrupt traditional carbon accounting software that still relies on outdated logic, offering a more efficient solution without the need for energy-intensive technologies like Blockchain or AI.

2) Academic pioneers

Also in 2021, Professors Robert S Kaplan (Harvard University) and Karthik Ramanna (University of Oxford) began publishing articles inspired by a parallel axiom – that emissions data are quantitative economic units reflecting the environmental cost of products. By applying familiar financial accounting methods of cost allocation and inventory management, they argued, carbon accounting can be audited in the same way as financial accounting. Similar to Neoni’s approach, they highlighted that this logic mirrors how Value Added Tax (VAT) is calculated: each company only calculates its own VAT liability (or now emissions liability), while central authorities can accurately track the cumulative sum across whole economies. With emissions as liabilities and emissions removal as assets, Kaplan and Ramanna introduced the concept of an "E-Ledger", a carbon accounting tool modeled after traditional balance sheets. They recently published a proto-standard for implementing the “E-Liability” portion of the E-Ledger.

3) Central bank statisticians

Climate change is increasingly considered a critical risk to macroeconomic stability – from acute economic shocks triggered by floods or fires to the creeping costs of climate resilience as a hidden brake on the economy. Central banks are now responsible for planning systemic responses to these risks – they need statistically reliable emissions data to do so. However, current carbon accounting methods were never designed to generate these types of data. In fact, standard setters endorse the multiple counting of emissions, which results in data that can’t be aggregated without the compounding of errors. They say it amplifies emissions hotspots for the individual companies doing the analysis – but it locks in statistical errors at source that can never be disentangled.

Dr. Ulf von Kalckreuth, a senior statistician at the German Central Bank, demonstrated how this problem can be solved using the recursive logic of input-output (IO) models. These models are typically used to assess the interdependencies between industry sectors. This approach requires stronger discipline and consistency in how companies report their direct emissions, as well as how they obtain data about their indirect emissions – whether it is real-world data from suppliers or estimated using industry averages. As the amount of real-word data about organizations’ direct emissions increases in the system, and more real-world data from suppliers replaces estimates over time, errors are progressively reduced with each iteration of the calculation, sequentially increasing statistical accuracy. This systemic lens drives a subtle variation to traditional methods of carbon accounting, yet it is essential to ensure the highest integrity of primary data. Importantly, it still allows analysts, if required, to enrich the data for hotspot amplification when doing single-company analysis.

4) A voluntary collective

Carbones Factures (translated as "carbon on invoices") is a voluntary association led by Jérôme Cazes with a straightforward mission: to require companies to include carbon emissions on their invoices. Invoices are universally accepted as legal documents that exchange information between sellers and buyers in a mercantile economy. They already record the quantities of products sold, their prices, and VAT. Therefore, incorporating data about the embodied emissions of products is a natural extension. This idea aligns perfectly with the principles above: enabling real-time data to cascade through supply chains, integrating with established financial accounting systems, and supporting the recursive calculations needed for macro-level emissions tracking.

The elegance of this idea is that it is valid regardless of an organization’s type, jurisdiction, or software system.

Change is not guaranteed – but necessary

23,000 companies worldwide disclose their carbon emissions reports via CDP (originally Carbon Disclosure Project). CDP is ostensibly the world’s largest repository of this sort of information. That might sound impressive, but it equates to only 0.008% of the roughly 300 million companies worldwide. Imagine if only 0.008% of companies reported their financial accounts – how could governments forecast their tax revenues or regulators do their jobs?

Carbon accounting needs to change so we can accurately track decarbonization at scale. It needs to become as common place for companies to produce carbon accounts as it is financial accounts – easy, fast, cheap, and accurate.

The social inertia blocking change

Economist John Maynard Keynes famously remarked, ‘When the facts change, I change my mind. What do you do?’ However, most people don’t adapt so readily. They are often less swayed by technical data and more influenced by ideas that align with their social identities and communities – a concept known as Social Identity Theory.

For carbon accounting experts, it’s essential that this disruption feels to be happening within their community, supported by, and ideally led by, their peers. Most critically, this change must not threaten their professional identity – one that, for many, has been cultivated over decades of dedicated work. For them, carbon accounting isn’t just a skillset, it’s a core part of who they are.

That’s why the diagram below is so important. It demonstrates that modern innovations in carbon accounting are fully aligned with traditional best practices, showing how the field is evolving naturally to meet today’s growing demands. Rather than presenting a false choice between the GHG Protocol and the E-Ledger, it highlights a collective advancement – one that merges established methods with new approaches to make carbon accounting more auditable and statistically rigorous. In short, it’s a win for everyone.

Source: iSumio Ltd, 2024

Aligning traditional and disruptive approaches

The diagram validates the excellent work done by both traditional carbon accounting professionals and the new wave of innovators. However, progress requires the reframing of key concepts and the modernizing of outdated terminology.

Reverting to our analogy about digital cameras, the term “video footage” originally described the physical length of film wound onto a reel. While we still talk about “footage” in the digital age, it would be nonsensical to describe a digital video as being "six feet long". Instead, we measure it in terms of digital storage, such as six megabytes.

In the same way, carbon accounting must shed confusing and obsolete nomenclature. The terms Scope 1, Scope 2, and Scope 3 are not just esoteric – they're as unhelpful as measuring a digital file in feet. The ISO standard for carbon footprinting doesn’t reference Scope 1, 2, or 3 – nor does anyone else need to. We need concise language and report structures that clearly convey the distinctions between direct and indirect emissions, as well as upstream and downstream emissions.

For those who prefer it, an E-Ledger statement can be structured to allow the extraction of traditional categories like Scope 1, 2, and 3 emissions. A technologist might liken this to backward compatibility, similar to how some supermarkets offer photo booths for printing digital pictures from smartphones.

A closer look at the image above reveals some key features that simplify and enhance the information. The first is the grouping of emissions from purchased electricity (Scope 2) together with other indirect emissions from purchases. This makes sense because, fundamentally, there is no difference – both are embodied in purchased goods and can be expressed as emissions per unit, whether it's per kilowatt-hour of electricity, per kilogram of aluminum, or per square-meter of glass.

The second splits the legacy concept of Scope 3 into upstream emissions on the E-Ledger and downstream forecasted emissions on the invoice. This distinction is crucial because the two parts represent entirely different types of information, used for different purposes by different audiences. Upstream emissions reflect past activities in the supply chain, which can be quantified, allocated to products using established cost accounting methods, and audited for accuracy. In contrast, downstream emissions are not exact – they are forecasts, manufacturers’ best estimates of how products might be used. The reality is that manufacturers can’t know for certain how every product will be utilized.

For instance, if you’re conducting a life cycle assessment (LCA) for insulated copper wire manufactured in Europe, do you assume the wire will be recycled within the highly regulated EU, with its insulation cleanly incinerated using renewable energy? Or do you assume it finds its way to a remote country with the insulation removed over an open fire at the end of its useful life, releasing harmful emissions? Most manufacturers have no clear insight into their products' final usage or disposal. That’s why downstream emissions are best presented as a range, spanning from worst-case to ideal scenarios.

The secret to a successful transition

History is filled with examples of innovations that failed or just missed the mark. So, how can the traditional GHG Protocol and the disruptive E-Ledger be successfully integrated?

First, proponents of the E-Ledger (including this author) must heed the lessons from the Betamax vs. VHS battle. While Betamax was technically superior, its backers misjudged consumer preferences, assuming that quality would win out. In reality, consumers favored the longer playtime of VHS, despite its lower quality. The lesson? Technical superiority alone isn't enough – winning solutions must resonate with user preferences.

Second, those championing the GHG Protocol, as the established standard-bearers, must consider how best to fulfill their mission. Is it through rigid adherence to a specific reporting playbook, or by supporting ways to modernize carbon accounting so that it can be more accessible and useful to everyone who needs it?

In the end, the future belongs to the solution that delivers sufficiently accurate data in the easiest, fastest, and most cost-effective way possible.