Principles for Accurate Corporate GHG Inventories and Options for Market-Based Accounting – Working Paper

Abstract

Market-based GHG accounting allows companies to report their emissions based on the purchase emission attributes. This practice is widespread for reporting ‘scope 2’ electricity emissions and has recently been proposed for both ‘scope 1’ (direct) and ‘scope 3’ (other value chain) emission sources. However, the market-based method has been criticised for undermining the accuracy of GHG disclosures, and given the on-going debate on the use of the method it is highly important to explore the requirements for accurate GHG inventories and the options for market-based accounting. This paper uses two methods: firstly, thought experiments are used to identify principles for accurate corporate GHG inventories; and secondly, formal prescriptions are developed for possible solutions to market-based accounting. The findings identify seven principles for accurate corporate GHG inventories, which are then used to inform the development of two possible solutions. The first solution is to report changes in emissions caused by company actions separately from the GHG inventory, including any changes caused by the purchase of emission attribute certificates. The second solution proposes a causality requirement for the use of emission attributes in GHG inventories. We emphasize that inventories are only one form of accounting method and their accuracy should not be undermined by attempting to fulfil functions that are best served by other methods.