Carbon Accounting Methodology

The Greenhouse Gas Protocol: The foundation for carbon accounting

Position Green uses the Greenhouse Gas (GHG) Protocol as the primary framework for its carbon accounting services. This protocol offers a globally recognized, standardized approach for both private and public organizations to measure and manage their corporate carbon accounting.

The GHG Protocol is built on the scientific basis established by the United Nations Framework Convention on Climate Change (UNFCCC) and the Intergovernmental Panel on Climate Change (IPCC). A key concept is Global Warming Potentials (GWPs), which are climate-science metrics used to convert different greenhouse gases into a common unit: carbon dioxide equivalents (CO2e). There are seven classes of greenhouse gases, but in the platform you will see these normalized to the common unit, to support comparability in their impact on global warming. Note that the GWP values are adjusted by the IPCC over time as climate science improves. These changes are published in the IPCC Assessment Reports. Position Green updates emission factors according to the latest Assessment Reports as the updated factors become available. 

The GHG Protocol consists of multiple standards, and introduced the principles for carbon accounting, the concept of Scopes 1, 2, and 3 - which remains the dominant way of organizing a corporate carbon inventory - and it also provides a structured approach to defining reporting limits in terms of operational and organizational boundaries.

Principles of greenhouse gas accounting

The GHG Protocol has established five principles to guide the carbon accounting process and ensure a high-quality, credible inventory. These form the backbone of Position Green’s methodology for climate calculations and emission factors when creating an inventory together with clients:

• Relevance: Ensure the GHG inventory appropriately reflects the GHG emissions of the organisation and serves the decision-making needs of internal and external stakeholders.

• Completeness: Account for and report on all GHG emission sources and activities within the chosen inventory boundary. Disclose and justify any specific exclusions.

• Consistency: Use consistent methodologies throughout the climate calculations for each area to allow for meaningful comparisons of emissions over time. Transparently document any changes to the data, inventory boundary, methods, or any other relevant factors in the time series.

• Transparency: Address all relevant issues in a factual and coherent manner, based on a clear audit trail. Disclose any relevant assumptions and choices made relating to the different methodologies and sources of data.

• Accuracy: Ensure that the quantification of GHG emissions is systematically neither over nor under actual emissions, as far as can be judged, and that uncertainties are reduced as far as practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable assurance as to the integrity of the reported information.

Scope 1: Direct emissions

Scope 1 covers all direct greenhouse gas emissions from sources that a company owns or controls. These are the emissions your organization produces on-site or through assets you operate directly. Scope 1 is further categorized into:

• Mobile combustion: e.g. fuel burned in company-owned vehicles

• Stationary combustion: e.g. on-site combustion of natural gas for heating

• Fugitive emissions: e.g. leakage of refrigerants and air conditioning systems

• Process emissions: emissions created during industrial processes, e.g. cement or chemical production

Scope 2: Indirect energy emissions

Scope 2 covers indirect emissions from the generation of purchased or acquired electricity, steam, heating, and cooling. These emissions physically occur at the facility where the energy is generated, but are attributed to the company that purchases and consumes it.

The GHG Protocol's Scope 2 Guidance requires companies to report Scope 2 emissions using two methods:

• Location-based method: uses average grid emission factors for the region where energy is consumed. This reflects the actual physical emissions of the local electricity grid.

• Market-based method: uses emission factors specific to the energy a company has contractually purchased, such as renewable energy certificates (RECs), guarantees of origin (GoOs) or green electricity contracts.

Reporting both methods gives stakeholders a complete picture: the location-based figure shows actual grid impact, while the market-based figure reflects procurement decisions.

Scope 3: Value chain emissions

Scope 3 covers all other indirect emissions that occur across a company's value chain. These are emissions your company influences but does not directly control.

Scope 3 is by far the largest category for most companies. Research consistently shows that value chain emissions represent 70-90% of a company's total carbon footprint. This makes Scope 3 measurement essential for any credible decarbonization strategy - and increasingly, a regulatory requirement under CSRD. Measuring Scope 3 is also the most complex part of GHG accounting, which is why the challenges of Scope 3 measurement often drive companies to invest in dedicated carbon management tools.

The GHG Protocol organizes Scope 3 emissions into 15 categories, split between upstream and downstream activities. Understanding which categories are relevant to your company is the first step toward a complete value chain inventory.

Organizational boundary and consolidation approach

The organizational boundary determines which parts of the organization are included in the GHG inventory. This includes legal entities, subsidiaries, branches, facilities, assets, vehicles, leased sites, joint ventures, partnerships, franchises, and other business arrangements. The organizational boundary is especially important for Scope 1 and Scope 2 emissions because it determines which direct emissions and purchased energy emissions are reported by the organization.

In setting organizational boundaries, the organization should choose one consolidation approach and apply it consistently. The GHG Protocol recognizes three consolidation approaches: 

Operational boundaries

Once the organizational boundary has been established, the operational boundary determines which emissions sources are included within the selected organizational boundary and which of the three Scopes those emissions are classified.

Calculation methods and data quality

The GHG Protocol offers multiple methods of calculating emissions. If available, direct emission measurements are always preferred, since these are the most accurate. However, these are exceedingly rare and mostly pertain to large industrial processes. Among the vast majority of carbon accounting practitioners, the most used methods can be divided into two: activity-based method and spend-based method. The right method depends on your data availability, the emission source, and the level of accuracy you need.

Activity-based method

The activity-based method refers to using physical quantities, such as mass or number of units, multiplied by an emission factor per kg or unit. 

GHG emissions = Activity data × Emission factor

Overall, this method delivers higher accuracy than the spend-based method, and is the preferred method whenever reliable data is available. However, even within the activity-based method, the accuracy of emission factors varies and we refer to two types of activity-based emission factors:

1. Average emission factors: these are generic factors for a category of activity, and are often sourced from large government datasets or industry associations. Average emission factors are mostly easy to find and are often free to use. However, measuring improvements can be challenging, since the emission factors refer to generic activities.

Example:
 “1 kg of average market steel emits X kg CO₂e.”

2. Specific emission factors: these are specific to a supplier, product, or site, and usually need to be sourced directly from a supplier. Measuring improvements is more feasible, since the emission factors refer to specific products, making it possible to model the impact of switching out specific parts of the product or switching from one supplier to another. However, gathering these emission factors is resource intensive, and many suppliers don’t have the data readily available.

Example: 

“1 kg of steel from Supplier A emits X kg CO₂e.”

For Scope 1 and 2 emissions, activity-based calculation is standard practice. For Scope 3, it requires collecting specific data from suppliers and partners, which can be more resource-intensive but produces far more reliable results.

Spend-based method

The spend-based method refers to using the economic value of purchased goods and services multiplied by EEIO emission factors. Environmentally-extended input output (EEIO) models estimate GHG emissions resulting from the production and upstream supply chain activities of different sectors and products in an economy. The resulting EEIO emissions factors can be used to estimate cradle-to-gate GHG emissions for a given industry or product category. EEIO data are particularly useful in screening emissions sources when prioritizing data collection efforts. EEIO models are derived by allocating national GHG emissions to groups of finished products based on economic flows between industry sectors.

GHG emissions = Spend data × EEIO emission factor

Read more about Position Green’s proprietary EEIO, developed at one of Europe’s largest research institutes, SINTEF. 

Our recommendation: A hybrid approach

The different methods described in this chapter have different strengths and weaknesses, and in practice, an organization should use the highest quality method that is reasonably available and proportionate to the source’s materiality. 

Our recommendation is to combine the methods in a hybrid approach that brings your greenhouse gas inventory as close as possible to the GHG Protocol principles by following the data quality hierarchy (see pyramid chart). First, we recommend using the spend-based method to support broad completeness in the inventory, even in categories where data is missing. Second, we recommend using the activity-based method to support transparency and accuracy wherever data is available. In particular, the activity-based method is the preferred method in Scope 1, Scope 2, and for all emission sources considered material. Finally, we recommend using specific activity-based emission factors to support relevance and decision usefulness. 

Sourcing data and emission factors

Activity data

The activity data needed for Position Green to calculate Scope 1 and 2 is generally sourced from the customer’s internal documentation, such as utility bills, contracts, invoices, meter records and purchasing records. 

Scope 3 activity data is best obtained from suppliers and the customers' end-users. However, certain data relating to categories such as business travel, waste and employee commuting can be sourced through the customers' internal surveys, supplier contracts and purchasing records.

If a company’s invoices contain high-quality activity data, which they often do, this activity data can be extracted automatically with Activity Capture.

Spend data

The spend data needed to run Position Green’s EEIO model is usually sourced from the customer’s financial systems and ERP systems. This data can be gathered by exporting data from these systems (in SAF-T files or CSV) or by setting up an integration with these systems feeding data continuously to the Position Green platform. See our list of standard integrations here or ask your customer success manager about setting up a new integration.

The minimum required information for running the EEIO model is:

• Accounts payable

• Supplier names

• Transaction volume (in any currency)

• Date of transaction

However, any additional metadata will likely improve the results, and potentially help with the actionability of the data.

Emission factors

Emission factors can be collected by obtaining different life cycle assessments (LCA), where our advisory experts guide the calculation of emissions from the entire life-cycle perspective of a product or process, or they can be provided by our trusted suppliers. Average emission factors may also be available through industry associations, governmental agencies or reports, or through a third-party responsible for the customers’ carbon calculations and reporting.

Reliable emission factors require careful source selection, documentation of assumptions, and quality assurance processes. Position Green maintains an emission factor library based on internationally recognized datasets. 

Glossary