· 7 min read
We don’t seem to agree on much these days in the holy wars of what used to be known as the environmental movement, but the one thing we can all agree with the IPCC on is that we need to reduce emissions from all sources and all sectors as quickly and as comprehensively as possible. This article unpacks "intervention accounting" and why it matters for corporate accountability. It's the second in a three part series exploring the basics of corporate carbon accounting.
What Intervention Accounting Is:
At the most basic level, emission reductions are delivered by governments, people and businesses implementing specific actions and policies (also called “mitigation interventions”) that result in emission reductions, avoidance or removals (called “mitigation outcomes”). Think replacing diesel trucks with electric ones, swapping out methane gas stoves for electric, insulating buildings, restoring a degraded mangrove, repairing a leaking methane pipeline, capturing and storing carbon dioxide in underground caverns, replacing fossil-based jet fuel with lower carbon jet fuel, planting a forest specifically to remove carbon dioxide, or adding new renewable energy capacity to the grid.
To measure the impact of those interventions we collect and analyze a range of data associated with those activities. Because we don’t have very much direct data available in most places, this is often done through third party data sources and estimates. Just like inventories, most intervention accounting is done through estimates, averages, models, and statistics derived from a wide range of data that is also of variable quality and accuracy, some of its great, some of it not so much.
In current GHG accounting systems we reflect mitigation outcomes in two ways:
- Through what is called “project-based” accounting (also known as “consequential or intervention accounting” in GHG accounting nerd speak). This type of accounting is intended to reflect the change in emissions levels that result from a given project or intervention and are typically measured in metric tons of Carbon Dioxide Equivalent (CO2e) reduced or removed.[1] Project based accounting is most commonly used in carbon trading markets but is also necessary in order to determine whether or not a company is “on track” for its science-based target as it implements emission reduction activities within its supply chains.
- Through “emissions factors” that are assigned based on the characteristics of a given product or process. These can be averages of available data- for example electricity grid emissions factors are an average of emissions of all the generating sources on an electricity distribution grid and are typically expressed as pounds of CO2 per kilowatt hour of electricity generated. Or a static emissions estimate that is calculated through a process known as “Lifecycle Carbon Assessment” (LCA), which seeks to measure the emissions impact of a given product, service, or unit of expenditure. This type of accounting is intended to reflect the total GHG emissions associated with a particular good, service, or other unit of measure.[2] (so called “attributional accounting” in that same parlance).
For the sake of clarity I’ll refer to all of those here as “mitigation outcomes”, which is the emissions impact of the mitigation intervention.
Once those mitigation outcomes are calculated we have two basic ways we demonstrate ownership over them:
Through Environmental Attribute Commodities (also known as Environmental Attribute Certificates). These include:
- Renewable Energy Certificates: which represent the environmental benefits or “greenness” of a megawatt hour of electricity that’s been generated from a renewable source.
- Sustainable Aviation Certificates: which represent the emissions associated with a gallon of sustainable aviation fuels
- Carbon Credits (or offsets): which represent one metric ton of greenhouse gas emissions reduced or removed from a wide range of underlying activities.
Through “custom” or “supplier specific” emissions factors that enables companies to “count” the emissions impact of a given activity or purchased good or service through an adjustment to the reported inventory.
EACs can be used to quantify and demonstrate ownership over the “right to claim” an emission reduction both inside (as in the case of SAF) AND outside of value chains (as in the case of carbon credits).[3]
Neither of these approaches is perfect and both utilize a range of data sources and inputs to develop their estimates and outputs. Both of them are subject to gaming and manipulation and should have strong rules and oversight. Both of them rely heavily on estimates, averages, modeling, and statistics.
How and whether those EACs are used as a measure of progress towards decarbonization targets is a question of policy and preference. There isn’t necessarily a right answer.
What Intervention Accounting is NOT
Intervention accounting is not an infallible record of truth, any more than a greenhouse gas inventory is (see previous post). Data scientists and carbon accounting experts have -and will continue to- argue over the methods for measuring, estimating, and modeling these reductions in both of these accounting approaches for decades; as they should, and as with any other emerging field that is moving rapidly and where science and data quality and access is evolving over time.
Intervention accounting is not enough in and of itself, it is a necessary complement to corporate inventories for measuring and understanding the climate impact and action of companies. You can’t really do one without the other.
Intervention accounting is not an optional part of corporate decarbonization work. We need robust, transparent (and ideally comparable) approaches to measuring decarbonization actions and impacts both inside AND outside of value chains.
Intervention accounting is not inherently “worse” or less rigorous than corporate GHG inventory accounting. They’re two sides of the same coin. Strong rules, transparency and oversight are how we ensure that what companies are getting credit for, whether inside or outside of supply chains, reflects the best available methods, data and calculations. Today, we actually have more of that in the carbon market than we do in inventory accounting, despite what the media would have you believe.
In a world absent omnipresent, real time, perfectly accurate emissions data collection and analysis systems from every source and sink of emissions across the globe these measurement systems are what we have. We have to do what every other globally diffuse and complex sector does, we rely on estimates, averages, modeling and statistics to help us build our measurement systems.
Why Intervention Accounting Matters (A LOT)
Intervention accounting matters, A LOT. It’s how we measure the impact and efficacy of the things we are doing to address climate change. It’s how we track and measure progress towards various emission reduction targets (national, subnational, corporate, international). It’s also where a lot of the funny business in accounting can and does occur, which is why strong oversight and rules of the road are so critically important. Watch the IC VCM and the AIM Platform for important new threshold standards for quality for carbon credits and for within supply chain intervention accounting respectively.
Success or failure in figuring out how we’re doing in the climate fight hinges on our ability to take this vast amount of messy, distributed, imprecise and imperfect data and data measurement systems and cobble them together into a system the gives us a directional sense of whether what we’re doing is working and to assign liabilities and rewards to the right actors at the right times.
It's time to end the circular firing squad and get serious about elaborating an accounting guidance set that sets high integrity rules of the road, utilizes best available science and approaches, and that works in the real world so we can get companies moving on their net zero transition strategies in a science based and credible way.
This article is also published on the author's blog. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
References
[1] The Greenhouse Gas Protocol has issued the GHG Protocol for Project Accounting, which builds on the ISO 14064-2 standard. Most mitigation outcome accounting uses these two standards as their basis, including the majority of methodologies in the voluntary carbon market.
[2] For those of you who want to dig deeper on this super technical topic our friends at @GHGMI do a nice job of explaining the differences between attributional and consequential accounting in more depth here.
