I am seeing a lot of confusion (and misinformation) right now about how greenhouse gas accounting actually works and a general sense that if a reduction shows up “inside” of a company’s greenhouse gas inventory then it’s a “real” reduction and if it shows up outside of an inventory then its greenwashing garbage. Nothing could be further from the truth.

What they are 

Corporate Greenhouse Gas (GHG) Inventories are estimates of emissions that represent emissions at the company, city or country level. The quality, accuracy and availability of data varies enormously across countries, sectors and companies. 

For most companies the majority of the emissions they’re reporting as part of their inventory are estimated extrapolations based on other sources of third part data estimates. 

Companies generally build their inventories by looking at the amount of money their business operations spend on key goods and services (think purchasing electricity for buildings, or fuel for trucks, or office paper and copiers) and applying a third party estimate of the greenhouse gas impact of that particular business activity. These estimates are called “emissions factors” and are based on a wide range of inputs and assumptions produced by a variety of sources, including the EPA in the U.S. but also by “custom” emissions factors, where companies can write their own emissions estimates for a particular product or activity.  

In very limited instances, companies have direct data that they can pull from (e.g. direct smokestack measurement of emissions) but even for electricity the measurements are estimates of electricity purchased and the underlying average emissions from that grid or estimated emissions per unit of fuel combusted.

GHG emissions inventories change in response to a wide range of factors, some of which companies’ control, many of which they do not. For example, as the power sector continues to decarbonize due a host of pricing pressures the emissions factor for the grid will continue to decline. Companies will reflect that decline in their inventory, but for the most part they won’t have had much if anything to do with delivering that reduction (a few leading companies and their enormous voluntary clean power purchasing programs notwithstanding: here’s looking at you @amazon, @meta, @microsoft @google). That reduction will, however, show up in all companies’ inventories as an adjusted emission factor when the EPA updates its estimates. 

Today, the assumptions, calculations and data sources that companies use to develop and report their GHG inventories are mostly not made public, and we have very few checks and balances in place in terms of third-party oversight or verification. 

What they are NOT 

GHG inventories are NOT infallible ledgers of truth, as some would have you believe. Nor are they a particularly effective means of tracking effort expended by companies or of progress towards emission reductions targets, though they can provide a useful input into that (see example above, more to come on that later).

Just like accounting outside of supply chains, GHG inventory accounting is a combination of estimated data, models, and assumptions. It is just as subject to gaming and suffers from the same challenges that outside of supply chain accounting suffers from: if you put garbage data in, you get garbage data out. 

Why they matter 

Our focus should be on building strong systems that ensure we deliver disclosure systems and accounting guidance that deliver a high degree of transparency and, where possible, harmonization and alignment across systems and standards. 

My point here is not to malign inventory accounting—for what it is, it works pretty well—but rather to point out that by myopically insisting that GHG inventories are the “best” place to measure company-level decarbonization progress, we are setting ourselves up to rely on a system that’s really not built for that purpose and suffers from many of the same challenges we are working to correct in the intervention accounting world. 

Someday, we may even reach the fabled “interoperability,” but for now, I’d just take a fact-based conversation about how GHG inventories actually work and what they can and can’t do to help us understand what’s happening in terms of voluntary corporate climate action. 

This leads me to my next explainer post: What the heck is “intervention accounting” and why should I care?