Reichels ein, S e an
A icle — Published Ve sion
Co po a e ca bon accoun ing: balance shee s and low
s a emen s
Re iew o Accoun ing S udies
P o ided in Coope a ion wi h:
Sp inge Na u e
Sugges ed Ci a ion: Reichels ein, S e an (2024) : Co po a e ca bon accoun ing: balance shee s and
low s a emen s, Re iew o Accoun ing S udies, ISSN 1573-7136, Sp inge US, New Yo k, NY, Vol. 29,
Iss. 3, pp. 2125-2156,
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1 3
Co po a e ca bon accoun ing: balance shee s and low
s a emen s
S e anReichels ein1,2
Accep ed: 31 May 2024 / Published online: 17 July 2024
© The Au ho (s) 2024
Abs ac
Cu en co po a e disclosu es ega ding ca bon emissions lack gene ally accep ed
accoun ing ules. The ansac ional ca bon accoun ing sys em desc ibed he e akes
he ules o his o ical cos accoun ing o ope a ing asse s as a empla e o gene a -
ing ca bon emissions (CE) s a emen s comp ising a balance shee and a low s a e-
men . The asse side o he CE balance shee epo s he ca bon emissions embodied
in ope a ing asse s. The liabili y side con eys he i m’s cumula i e di ec emissions
in o he a mosphe e as well as he cumula i e emissions embodied in goods acqui ed
om supplie s less hose sold o cus ome s. Flow s a emen s epo he company’s
annual co po a e ca bon oo p in calcula ed as he c adle- o-ga e ca bon oo p in o
goods sold du ing he cu en pe iod. Taken oge he , balance shee s and low s a e-
men s gene a e key pe o mance indica o s o a company’s pas , cu en , and u u e
pe o mance in he domain o ca bon emissions.
Keywo ds Ne -ze o pledges· Ca bon emissions· Ca bonaccoun ing· Ca bon
epo ing
JEL classi ica ion M41· M48· Q53· Q54
* S e an Reichels ein
eichels[email p o ec ed]
1 Mannheim Ins i u e o Sus ainable Ene gy S udies, Uni e si y o Mannheim ZEW-Leibniz
Cen e o Eu opean Economic Resea ch, Mannheim, Ge many
2 S an o d G adua e School o Business, S an o d Uni e si y, S an o d, CA, USA
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S.Reichels ein
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1 In oduc ion
Recen yea s ha e wi nessed nume ous companies a ound he wo ld issue olun a y
ne -ze o pledges ega ding hei G eenhouse Gas (GHG) emissions.1 Acco ding o a
2022 su ey, mo e han wo- hi ds o he Fo une 500 i ms ha e a icula ed he goal
o eaching a ne -ze o posi ion by 2050 (Gill 2022). Beyond pledging o d i e hei
co po a e ca bon oo p in s o ze o, companies inc easingly ad e ise selec p oduc s
as being al eady “ca bon neu al.”2 While hese announcemen s ha e been he alded
as a po en ially signi ican s ep in he e o o deca bonize he global economy, ana-
lys s ha e a gued ha he lack o commonly accep ed measu emen and epo ing
s anda ds o g eenhouse gas emissions ul ima ely obscu es he c edibili y o co po-
a e claims as well as companies’ commi men s o a ne -ze o ajec o y.3
This a icle a gues ha he adop ion o a ansac ional ca bon accoun ing sys-
em ha mi o s his o ical cos accoun ing o ope a ing asse s can p o ide analys s
and socie y a la ge wi h comp ehensi e in o ma ion abou a company’s emissions
pe o mance o e ime. In inancial accoun ing, acc uals enable he sepa a ion o
s ock om low a iables. In di ec analogy, a ca bon emissions (CE) s a emen
en ails a CE balance shee and a CE low s a emen . The la e e ec i ely becomes
he equi alen o an income s a emen in inancial epo ing. CE s a emen s enable
companies o p o ide sys ema ic and ime-consis en epo s abou hei pas , cu -
en , and u u e ca bon emissions. In pa icula , CE balance shee s allow analys s o
gauge whe he companies a e on ack o mee hei own olun a y ca bon educ ion
pledges.
In con as o inancial epo ing, he asse side o he CE balance shee does
no epo mone a y asse alues bu ins ead eco ds he emissions embodied in
he i m’s ope a ing asse s, including long- e m asse s as well as in en o ies. The
sou ces o hese emissions, eco ded on he liabili y side o he balance shee , a e
ei he he i m’s own di ec (Scope 1) emissions o hose incu ed by companies
along he i m’s ups eam supply chain.
Wi h conce ns abou clima e change in ensi ying, co po a e buye s and e ail
cus ome s inc easingly seek in o ma ion abou and ake esponsibili y o he
emissions ha ha e gone in o p oduc s and se ices pu chased om suppli-
e s.4 In acco dance wi h his b oade co po a e social esponsibili y pe spec-
i e, he accoun ing sys em desc ibed he e pos ula es ha p oduc ca bon oo -
p in s (PCFs), ha is, ons o ca bon dioxide pe uni o he p oduc , encompass
2 In esponse o he apidly g owing numbe o claims by companies ha some o hei p oduc s a e
“low ca bon” o e en “ca bon neu al,” he Eu opean Commission ecen ly adop ed a Di ec i e on G een
Claims ha seeks o p e en i olous and misleading claims ega ding he ca bon con en o selec p od-
uc s (Eu opean Commission 2023b). In he Uni ed S a es, companies like Del a Ai lines ace li iga ion
o e sweeping ca bon neu ali y claims (G een ield 2023).
3 See, o ins ance, Tolle son (2022), Fankhause e al. (2021), and Aldy e al. (2023).
4 In auc ions o public cons uc ion p ojec s, o example, Eu opean p ocu emen agencies equi e so-
called En i onmen al P oduc Disclosu es ha include a measu e o he CO2 embodied in he cemen
p oduc ha bidde s submi o conside a ion; see Heidelbe gCemen AG (2021).
1 As explained below, he analysis he e ocuses on ca bon dioxide (CO2) equi alen s, which accoun o
GHGs o he han CO2 wi h an app op ia e mul iplie .
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Co po a e ca bon accoun ing: balance shee s and low…
all emissions om a p oduc ’s c adle(s) o he company’s ga es.5 P o ided his
app oach is inc easingly adop ed by companies along a supply chain, he esul ing
c adle- o-ga e PCF measu es will be de e mined in a ecu si e and in o ma ion-
ally decen alized manne . In di ec analogy o how p oduc cos s a e de e mined
along a supply chain, he calcula ion o PCFs can hen ely on local knowledge o
he di ec emissions ac ually incu ed a each s age o he supply chain (Kaplan
and Ramanna 2021).6
The ansac ional acc ual accoun ing sys em in oduced he e dis inguishes
be ween s ock and low a iables. The a ionale o doing so is essen ially he same
as in inancial accoun ing. To assign a p ope sha e o he o al di ec and indi ec
emissions incu ed in any gi en pe iod o he emissions embodied in p oduc s sold,
he accoun ing sys em elies on bo h in e empo al and c oss-sec ional acc uals
such ha he annual CE low s a emen econciles wi h he CE balance shee . Taken
oge he , CE s a emen s enable a comp ehensi e and ime-consis en assessmen o a
company’s ca bon emissions pe o mance.7
Rega ding a company’s cu en co po a e ca bon oo p in , he na u al low
measu e eme ging in ou esponsibili y accoun ing amewo k is Ca bon Emissions
in Goods Sold (CEGS). Like Cos o Goods Sold (COGS) in income s a emen s,
CEGS yields he o al ons o ca bon dioxide ob ained as he sum o he indi idual
PCFs mul iplied by he cu en sales quan i y o ha p oduc . Wi hou signi ican
nega i e emissions in he o m o ca bon emo als, CEGS will be a posi i e numbe
ha p o ides a measu e o he damage ha p oduc scu en ly sold by he i m ha e
con ibu ed o he global clima e. A he close o he accoun ing cycle, his damage
measu e is added o owne s’ equi y on he CE balance shee . A he same ime, he
a io o CEGS o COGS becomes a measu e o he cu en a e age ca bon in ensi y
o a company’s sales p oduc s.8
Jus as balance shee s and income s a emen s con ey essen ial in o ma ion abou
a i m’s inancial posi ion, CE s a emen s yield se e al key indica o s o a i m’s
pas , cu en , and u u e pe o mance in he domain o ca bon dioxide (CO2) emis-
sions. The liabili y side o he CE balance shee allies a i m’s cumula i e di ec
ne emissions (DNE), ha is, cumula i e di ec emissions less any applicable ca -
bon dioxide emo als ha he company has accumula ed a e some e e ence da e.9
5 The chemical company BASF e e s o i s PCF measu es as c adle- o-ga e p oduc ca bon oo p in s
(BASF 2022; Ku z 2022). BASF also discloses ha i s me hodology o calcula ing PCFs is consis en
wi h he guidelines p o ided by Toge he o Sus ainabili y (2023), a conso ium o companies in he
chemical indus y.
6 The E-liabili y app oach o Kaplan and Ramanna (2021) ad oca es o goods ansac ed along a sup-
ply chain o be accompanied by a measu e o he accumula ed ca bon emissions. The ca bon accoun ing
sys em desc ibed he e in eg a es he esul ing c adle- o-ga e PCFs in o CE s a emen s comp ising bo h a
balance shee and a low s a emen .
7 In he public discussion abou clima e change, Ge man companies and analys s equen ly e e o
“Klimabilanzen”( which ansla es o “clima e balance shee s”). Ye hese e e ences gene ally do no
pe ain o balance shee s ha indeed balance debi s and c edi s bu simply o a lis o a company’s p od-
uc ela ed emissions (OmniCe 2023).
8 The B i ish Companies’ Ac o 2013 equi es publicly lis ed i ms o epo a measu e o ca bon in en-
si y in addi ion o hei absolu e Scope 1 and 2 emissions (Downa e al. 2021).
9 See Appendix C o a comp ehensi e lis o all ac onyms.
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S.Reichels ein
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Cumula i e emissions, as opposed o cu en emissions, a e a key pe o mance indi-
ca o o echnology i ms like Google and Mic oso ha ha e se he mo e ambi-
ious goal o emo ing om he a mosphe e hei en i e legacy emissions (Smi h
2021; Pichai 2020). Companies seeking o highligh he ajec o y o hei ecen
di ec emissions and emo als can do so by p o iding line-i em in o ma ion by
b eaking down he cumula i e alues in hose balance shee accoun s in o hei
ecen annual inc emen s.
The asse side o he CE balance shee shows he emissions embodied in he
i m’s long- e m ope a ing asse s, o example, machine y and equipmen , as well as
emissions embodied in in en o ies. The signi icance o his ca bon me ic is ha he
emissions eco ded in ope a ing asse s will low h ough o he i m’s sales p oduc s
in u u e pe iods. The e o e he o e all CO2 balance o on asse s he CE balance
shee gene a es a lowe bound o he emissions ha he company will epo in con-
nec ion wi h i s u u e p oduc sales.10
In oday’s epo ing en i onmen , he mos common co po a e ca bon low meas-
u e is di ec emissions, adjus ed o any ecognized CO2 o se s in he cu en yea .
Any claim o a company o be on a pa h o ne -ze o, acco ding o he CEGS me ic,
is gene ally mo e s ingen han a co esponding claim when co po a e ca bon oo -
p in s (CCFs) only comp ise di ec ne emissions. Fo a i m o d i e CEGS o ze o,
bo h i s di ec emissions and he indi ec emissions acqui ed om supplie s mus go
o ze o, unless one o hese emission sou ces u ns nega i e. In compa ison o DNE,
he CEGS me ic is less ulne able o oppo unis ic ou sou cing o ca bon in ensi e
p oduc ion p ocesses. Speci ically, a company can claim subs an ial educ ions in i s
di ec emissions simply by ed awing he bounda ies o i s business, o example,
di es ing i sel o in-house powe gene a ion.
Because he ansac ional ca bon accoun ing sys em desc ibed he e builds di ec ly
on he p inciples o his o ical cos accoun ing, i should be ela i ely s aigh o -
wa d o adap exis ing accoun ing en e p ise so wa e o keep he books o ca bon
accoun ing (Sessa 2023; Dis le e al. 2024). Fu he , i should ake only limi ed
e o o ex e nal audi o s o ce i y ha CE s a emen s we e p epa ed in acco dance
wi h p inciples ha mi o gene ally accep ed accoun ing p inciples o ope a ing
asse s. Audi o ce i ica ion will be pa icula ly impo an o egula o y compli-
ance, such as he de e mina ion o ca bon impo du ies ied o a p oduc ’s assessed
PCF. The Eu opean Union, in pa icula , has decided o impose such impo du ies
unde i s Ca bon Bo de Adjus men Mechanism.11
The emainde o his pape is o ganized as ollows. Sec ion2 e iews he chal-
lenges companies ace in epo ing hei ca bon emissions in acco dance wi h he
G eenhouse Gas P o ocol. Sec ion3 o mally in oduces a double-en y accoun ing
sys em o CO2 emissions, esul ing in CE balance shee s and CE low s a emen s.
11 The objec i e o he Ca bon Bo de Adjus men Mechanism (CBAM) is he c ea ion o a le el play-
ing ield o impo s o he Eu opean Union om coun ies ha do no subjec p oduce s o he Eu opean
Union’s cha ge on ca bon emissions (Eu opean Commission 2023a).
10 The ons o CO2 eco ded on he asse side o he CE balance shee only p o ide a lowe bound o
emissions o be epo ed in u u e PCFs because hese will also include he i m’s ac ual di ec emissions
in u u e pe iods.
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Co po a e ca bon accoun ing: balance shee s and low…
Sec ion4 akes he pe spec i e o an analys examining a company’s CE s a emen
o assess he company’s p og ess on i s deca boniza ion pa h. Sec ion5 discusses
se e al emaining issues ega ding ca bon accoun ing, and Sec ion6 concludes.
2 Cu en ca bon epo ing amewo ks
The G eenhouse Gas P o ocol has been he common e e ence amewo k o epo -
ing co po a e ca bon oo p in s. As he name sugges s, he GHG P o ocol co e s
mul iple a mosphe ic gases wi h global wa ming po en ial. Ou discussion he e
ocuses exclusi ely on CO2 because o i s dominan con ibu ion o global wa ming
and because o many businesses i is e ec i ely he only g eenhouse gas emi ed.
Fu he mo e, he clima e science communi y has de eloped widely accep ed mul i-
plie s ha con e di e en GHG emissions o so-called CO2 equi alen s, equen ly
abb e ia ed as CO2e.12
The p o ocol classi ies di ec emissions as hose s emming om lue gases and
ailpipe exhaus s eams a a i m’s own p oduc ion acili ies (Scope 1). Indi ec
emissions (Scope 2 and 3) a e hose emana ing om ope a ions in a company’s
ups eam supply chain as well as hose gene a ed by he company’s cus ome s, hei
cus ome s, and so o h. Scope 2 is a ca e-ou om he b oade ca ego y o indi ec
emissions, pe aining exclusi ely o he gene a ion o elec ici y and hea p o ided
by ex e nal supplie s (Wo ld Resou ces Ins i u e 2004).
Many ju isdic ions a ound he wo ld, including he Uni ed S a es and Eu ope,
equi e majo CO2 emi e s o epo hei annual di ec (Scope 1) emissions o ede al
egis ies (Toma 2023). Fo ju isdic ions ha ha e adop ed ca bon p icing egula ions
in he o m o a ca bon ax o a cap-and- ade sys em, emission cha ges a e usually
based on a company’s di ec emissions. Those ju isdic ions ha e ins i u ed de ailed
measu emen and e i ica ion sys ems o de e mining a company’s ac ual di ec emis-
sions in any gi en yea and he esul ing ca bon cha ges (Downa e al. 2021).
The assessmen o Scope 3 emissions, in con as , appea s o ha e been une en
in p ac ice. A ecen s udy by Hale e al. (2021) ound ha , in a sample o 417 com-
panies, he as majo i y disclosed hei Scope 1 and 2 emissions and abou 20%
included some Scope 3 igu es. Technology i ms like Google indica e ha hey
limi hei coun o Scope 3 emissions o employee commu ing and a el. A su ey
o he en i e compu e echnology sec o ound ha i ms unde epo hei Scope 3
emissions by abou hal ela i e o he s anda ds o he GHG P o ocol (Klaassen and
S oll 2021).13
I is widely acknowledged ha assessing a company’s Scope 3 emissions en ails
eno mous da a collec ion challenges. Mos companies hi e ou side consul an s ha
pe o m a li e-cycle analysis, equen ly based on inpu –ou pu ables, o he emis-
sions associa ed wi h he goods and se ices ansac ed by he company. Howe e ,
12 Fo a ecen e e ence, see T S (2024).
13 Bol on and Kacpe czyk (2021), Glenk (2023), G i in and Sun (2023), and Wagenho e (2023) poin
ou mul iple obs acles o making he epo ing o Scope 3 emissions compa able ac oss i ms and in o m-
a i e o a i m’s s akeholde s.
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ou side consul an s mus gene ally ely on indus y-wide a e age emission es ima es
a he han p ima y da a e lec ing he ac ual emissions incu ed by he pa ies along
a company’s supply chain. Consequen ly, educ ions in ac ual emissions achie ed by
a company and i s supplie s will ypically no be e lec ed in he company’s epo ed
ca bon oo p in me ics (Kaplan e al. 2023a).
A u he issue wi h comp ehensi e Scope 3 assessmen s is he impossibili y o
measu ing he ca bon emissions incu ed h ough he u u e use o a sales p oduc a
he ime he p oduc lea es he selle ’s ga es. To illus a e his di icul y, conside he
sale o an ai c a o an ai line. Acco ding o he GHG p o ocol, he manu ac u e
should ake a li e-cycle pe spec i e in es ima ing he o al alue chain emissions—
om c adle o g a e—gene a ed by ope a ing he ai c a . Such es ima es, howe e ,
mus emain specula i e, as hey equi e o ecas s o bo h ou es and miles lown in
u u e yea s as well as he ype o uel he ai c a will be using, o example, ke o-
sene e sus sus ainable a ia ion uels.
The expe ience companies ha e in ailo ing he design o cos ing sys ems o hei
in e nal ope a ions allow hem o assess he ac ual ca bon emissions embodied in
di e en sales p oduc s, p o ided hey ha e eliable in o ma ion on he ca bon bal-
ances embodied in he inpu s ecei ed om supplie s. Fi ms can hen ely on p i-
ma y da a ega ding hei own p oduc ion ac i i ies, hei own di ec emissions, and
he indi ec emissions ep esen ed by he ca bon balances o acqui ed p oduc ion
inpu s. Ideally, hese balances a e calcula ed in a ecu si e manne by he i m’s
ups eam supplie s. Some mul ina ional i ms ha e ecen ly de eloped in e nal
ca bon accoun ing sys ems ha calcula e c adle- o-ga e PCFs h ough a ecu si e
p ocess (BASF 2022; Ku z 2022; Meie 2022). Fu he , as de ailed in Appendix
A, indus y conso ia, like Ca ena-X o he au omo i e indus y and Toge he o
Sus ainabili y o he chemical indus y, ha e o mula ed indus y-speci ic s anda ds
(“ ulebooks”) o he measu emen o PCFs (T S 2024; Ca ena-X 2023).14
The in o ma ional ad an ages o calcula ing PCFs in a decen alized and ecu -
si e manne a e eadily illus a ed in he con ex o he abo e ai c a example. Sup-
pose he ai line ecei es a c adle- o-ga e PCF measu e om he manu ac u e o he
ai c a . Ideally, his igu e e lec s he ac ual emissions embodied in he cons i uen
ai c a pa s as well as he emissions accumula ed in he ai c a ’s assembly. The
ai line, in u n, calcula es he ca bon oo p in o indi idual ligh s by including
he emissions associa ed wi h uel combus ion, o he a iable inpu s, and a pe i-
odic dep ecia ion cha ge on he s ock a iable ep esen ing he ini ial PCF o he
ai c a . Jus as he cos o a ligh is calcula ed by an in e nal cos ing sys em, a ca -
bon accoun ing sys em can de e mine he emissions equi ed o an indi idual ligh
om he c adle o all equisi e inpu s o he ai line’s ga e, ha is, he deli e y o he
ligh . Agg ega ing he c adle- o-ga e igu es o all ligh s unde aken in a pa icula
yea , he ai line ob ains a measu e o i s annual CEGS.
Reliance on p ima y i m-le el da a o de e mining p oduc ca bon oo p in s
in a ecu si e manne along a i m’s supply chain is c ucial wi h ega d o i ms’
incen i es o educe CO2 emissions. Any educ ion a i m ob ains in i s ac ual di ec
14 Guidance o he calcula ion o PCFs is also p o ided in he so-called Pa h inde F amewo k o he
Wo ld Business Council o Sus ainable De elopmen (2023).
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Co po a e ca bon accoun ing: balance shee s and low…
emissions will be ully e lec ed in he cu en PCF me ics. Fu he , i ms will be in
a posi ion o p essu e hei supplie s o educe he PCF o inpu s pu chased by he
i m. Companies like Mic oso , o ins ance, ha e indica ed ha he ca bon emis-
sions a ibu ed o p oduc s and se ices included in he i m’s Scope 3 coun will
become a c i e ion o supplie selec ion in he u u e (Comello e al. 2022).
The adop ion o a sys em ha measu es ups eam Scope 3 emissions in a ecu -
si e and decen alized manne in no way p e en s companies om issuing sep-
a a e es ima es o he p obable emissions associa ed wi h he u u e use o hei
p oduc s.15 By hei e y na u e, hese assessmen s mus emain es ima es, while
ups eam Scope 3 epo s, in con as , can be based on ac ual emissions incu ed,
p o ided mo e i ms along he supply chain unde ake hei own in-house PCF
measu emen s. Fi ms seeking o disclose c adle- o-g a e ca bon oo p in measu es
in acco dance wi h he GHG P o ocol s anda d may he e o e ind i use ul o spli
hese disclosu es in o c adle- o-ga e ac uals and ga e- o-g a e es ima es.16
Rega ding manda o y ca bon epo ing, he Secu i y and Exchange Commission
in he U.S. adop ed in ea ly 2024 a equi emen o mos publicly lis ed companies o
disclose hei Scope 1 and Scope 2 ca bon emissions in hei annual epo s (Secu-
i y and Exchange Commission 2024). Going u he , he Eu opean Sus ainabili y
Repo ing S anda ds, as adop ed by he EU Commission, manda e he epo ing o
Scope 1–3 emissions o ‘public in e es en i ies’ based in Eu ope (Eu opean Com-
mission 2023c). The emission igu es eme ging om he ca bon accoun ing sys em
desc ibed in his pape should p o e use ul o i ms ha ing o comply wi h ecen
disclosu e manda es. Fu he , hese emission igu es should p o e inc easingly elia-
ble as hey e lec a g owing sha e o p ima y da a on emissions ac ually incu ed.17
3 Acc ual accoun ing o ca bon emissions
This sec ion illus a es he bookkeeping unde lying CE s a emen s h ough a
sequence o sample ansac ions ha a business would unde ake as pa o i s no -
mal ope a ing cycle. The illus a ion is applicable o bo h manu ac u ing and se -
ice businesses. Assuming he company has adop ed such an accoun ing sys em in a
p e ious pe iod, he e will be an opening CE balance shee wi h beginning balances,
as illus a ed in Table1.
15 In con as o ou his o ical cos pe spec i e, Penman (2024) p oposes a ca bon accoun ing sys em,
ocused exclusi ely on Scope 1 emissions, in which asse s and liabili ies include o wa d looking es i-
ma es. Companies can capi alize he emission educ ions ha a e an icipa ed om in es men s in ca bon
mi iga ion. These asse s a e coun e balanced by co esponding liabili ies such ha any subsequen a i-
ances in he le el o ac ual emission educ ions achie ed a e econciled in u u e income s a emen s.
16 The case s udy by Lu e al. (2022) sugges s ha au omo i e companies may wan o ake a ull alue
chain pe spec i e ocusing on c adle- o-g a e emissions o an au omobile. As hese companies ansi ion
o ba e y elec ic ehicles, hei c adle- o-ga e emissions will equen ly inc ease because he manu ac-
u e o ba e ies is s ill ca bon in ensi e. A he same ime, hese emission inc eases a e equen ly coun-
e balanced by emission educ ions in he use phase o he elec ic ehicles when compa ed o ehicles
powe ed by in e nal combus ion engines.
17 The model analysis in Mahieux e al. (2023) poin s o he need o na ional egula o s in di e en
ju isdic ions o coo dina e he disclosu e equi emen s o di ec and indi ec emissions.
2132
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The uni o measu emen o all accoun s is one on o CO2.18 In di ec analogy o
a inancial balance shee s, which main ain he iden i y:
a all poin s in ime, he co esponding iden i y o CE balance shee s is:
Like he en ies on a inancial balance shee , he en ies on a CE balance shee
ep esen s ock a iables ha accumula e ca bon balances ac oss ime pe iods. The
accoun s on he le -hand side eco d he emissions embodied in he i m’s ope a -
ing asse s. The company e ec i ely assumes esponsibili y o hese emissions as i
acqui es p oduc ion inpu s and ca ies ou i s ope a ions. The sou ces o hese emis-
sions, eco ded on he liabili y side, a e ei he he i m’s accumula ed di ec (Scope
1) emissions o hose ha ha e been incu ed by he i m’s ups eam supplie s.
The sign o all en ies on he CE balance shee can be ei he posi i e o nega i e,
wi h he excep ion o di ec emissions (DE) and di ec emo als (DR), bo h o which
a e always posi i e numbe s. As he name sugges s, he pe iodic inc emen o DR
ep esen s he ons o CO2 ha he company i sel o a con ac o ac ing on i s behal
has emo ed om he a mosphe e in a gi en pe iod. These ons e ec i ely ep esen
nega i e di ec emissions, eco ded wi h a nega i e sign in a con a-liabili y accoun on
he igh -hand side o he balance shee .19 Ou con en ion o epo ing di ec emo -
als in a con a liabili y accoun , shown wi h a nega i e balance on he liabili y side, is
con enien inso a as he le -hand side o he CE balance shee hen ca ies he emis-
sions embodied in he i m’s ope a ing asse s. These embodied (s o ed) emissions will
become pa o he i m’s emissions in goods sold in u u e pe iods.
Asse s =Liabili ies +Equi y
CE in Asse s =CE in Liabili ies and Equi y.
Table 1 CE Balance Shee (in ons o CO2)
CE in Asse s
CE in Liabilies andEqui y
Buildings BBBLDBBETIEmissions T ans e ed In
Machine y & Equipmen BBMACBBDE Di ec Emissions
Raw Ma e ialsBBMAT(BBDR)Di ec Remo als
Wo k-in P ocessBBWIP
BBEQ Equi y
Finished GoodsBBFG
19 As discussed in mo e de ail below in Sec s. 3 and 5, he accoun ing o CO2 emo als, and mo e
b oadly o ca bon o se s, is becoming con o e sial. This sugges s o eco d di ec emo als in a sepa-
a e accoun a he han ne nega i e emissions agains di ec emissions.
18 As no ed abo e, companies can ei he accoun sepa a ely o g eenhouse gases o he han CO2 o
al e na i ely calcula e CO2 equi alen s by applying sui able mul iplie s o o he g eenhouse gases.
2139
1 3
Co po a e ca bon accoun ing: balance shee s and low…
As mo e companies along a supply chain adop hei own in e nal PCF measu e-
men sys em, he esul ing c adle- o-ga e PCFs mo ing along he supply chain will
inc easingly e lec an alloca ed sha e o each company’s ac ual di ec emissions, an
alloca ed sha e o hose ac ually incu ed by i s immedia e supplie s, hei supplie s’
supplie s, and so o h up he en i e supply chain. Impo an ly, his ecu si e calcula-
ion p ocess will inc easingly e lec i m-le el da a based on ac ual emissions incu ed
a each s age while a oiding double coun ing o emissions a he p oduc le el.32
The lack o double coun ing a he le el o indi idual c adle- o-ga e PCFs is ead-
ily illus a ed in he simpli ied se ing o a hie a chical supply ne wo k. Suppose
he e is a unique i m a he e ex o an in e ed ee (ne wo k). This i m assembles
componen s om i s Tie 1 supplie s o p oduce one uni o a inal sales p oduc .
The Tie 1 supplie s, in u n, each ecei e one uni o some in e media e p oduc
om each o he Tie 2 supplie s in he hie a chical ne wo k, and so o h up o he
inal k- h ie o he ee. In p oducing hei one uni o an in e media e p oduc , all
companies in he ne wo k hus assemble componen s ecei ed om hei immedi-
a e supplie s. In doing so, hey incu di ec emissions and may also engage in di ec
emo als. We e e o he di e ence be ween a i m’s cu en di ec emissions and i s
cu en di ec emo als as i s cu en di ec ne emissions (DNE). Suppose u he
ha he p oduc ion p ocesses equi e no capi al goods and he e o e he e a e no
in e empo al alloca ion issues in he o m o pe iodic amo iza ion cha ges. In such
a simpli ied se ing wi hou in e empo al o c oss-sec ional alloca ion issues, he
c adle- o-ga e PCF o each p oduc
i
, be i an in e media e o he inal sales p oduc ,
is exac ly equal o he sum o he cu en DNE o all i ms comp ising he nodes o
he unique sub ee o igina ing a
i
.
The p eceding obse a ion sugges s an accoun ing iden i y ha links he agg ega e
measu es o CEGS o he “ eal” ca bon lows co esponding o di ec ne emissions.
A i m’s di ec emissions in any gi en pe iod may be in e p e ed as a cash ou low o
he a mosphe e (a cos is incu ed), while di ec emo als can be in e p e ed as a cash
in low ecei ed om he a mosphe e. Fo he c adle- o-ga e ca bon oo p in accoun -
ing sys em desc ibed he e, he ne cash lows ( he DNEs) a e ul ima ely abso bed by
he income measu es, ha is, he CEGS igu es o all end p oduc s sold o consume s.
The e o e he agg ega e measu e o CEGS, when added up ac oss pe iods and all i ms
selling end p oduc s o consume s, mus be equal o he sum o all di ec ne emissions
when added up ac oss all pe iods and i ms in he economy. Appendix B in oduces he
no a ion equi ed o a o mal s a emen o his iden i y.
Much like cash lows can be econciled wi h income igu es o e ime a he le el o
an indi idual i m, he CEGS measu e can be econciled wi h DNE o an indi idual
i m, i he ca bon accoun ing sys em conside s i ms esponsible o hei own DNE,
bu no o he emissions embodied in p oduc ion inpu s acqui ed om supplie s. Wi h
32 A oiding double-coun ing o emissions will be c ucial in connec ion wi h egula ions ha ie go e n-
men al subsidies o a p oduc ’s assessed PCF. Unde he U.S. In la ion Reduc ion Ac (In e nal Re enue
Se ice 2022), o ins ance, he magni ude o he p oduc ion ax c edi a ailable o “clean” hyd ogen is
based on he p oduc ’s assessed ca bon con en .
2140
S.Reichels ein
1 3
an exclusi e ocus on Scope 1 emissions, he CE balance shee has no accoun emis-
sions ans e ed in (ETI). A he same ime, he ca bon balances o bo h long e m
asse s (PPE) as well as aw ma e ials (MAT) a e iden ically equal o ze o.33 CEGS in
any gi en pe iod hen aligns wi h cu en di ec ne emissions (DNE), subjec o adjus -
men s ha e lec iming di e ences in he incu ence o hese emissions and he sale o
goods.34 Thus, when added ac oss ime pe iods up o a e minal da e, each i m’s agg e-
ga e DNE will be equal o he sum o i s CEGS igu es. Obse a ion 2 in Appendix B
s a es his iden i y o mally.
4 Moni o ing ca bon educ ion pledges
Following he lead o na ional go e nmen s, a subs an ial numbe o mul ina ional
i ms ha e in ecen yea s a icula ed hei own ca bon educ ion goals, equen ly in
he o m o “ne -ze o by 2050” pledges (Gill 2022). Howe e , absen a comp ehen-
si e measu emen and epo ing amewo k, hese pledges will likely be me wi h
con inued skep icism (Hale e al.2021; Tolle son 2022; Comello e al. 2023). CE
balance shee s and low s a emen s p o ide a epo ing amewo k ha enables soci-
e y a la ge o assess a i m’s p og ess on i s deca boniza ion pa h. In pa icula ,
i ms can be held accoun able o hei ca bon educ ion pledges when sel -selec ed
educ ion a ge s a e compa ed o ac ual esul s epo ed in CE s a emen s.
In oday’s epo ing en i onmen , a company’s cu en di ec ne emis-
sions emain he mos common measu e o i s co po a e ca bon oo p in . Cu -
en DNE eme ges om wo consecu i e CE balance shee s as he di e ence
EBDE +EBDR −(BBDE +BBDR)
. Fu he , his me ic is di ec ly epo ed on he bal-
ance shee o a pa icula yea i companies disagg ega e
EBDE
and
EBDR
in o he
annual inc emen s ealized in ecen yea s. P o iding line-i em in o ma ion on he
ecen annual di ec emission and di ec emo al inc emen s gi es analys s a clea e
sense o he speed o emission imp o emen s and he p ospec s o app oaching a
ne -ze o posi ion wi hin a ce ain ime ame.
F om a global clima e change pe spec i e, cu en DNE is a c ucial me ic
because he sum o all di ec ne emissions in any gi en yea , when added up ac oss
all economic en i ies, including i ms, households, and o he ca bon emi ing en i-
ies, yields he ne addi ion o CO2 o he a mosphe e (Comello e al. 2023, Heal
2022, Penman 2024). Ye DNE is a guably an incomple e me ic a he le el o indi-
idual i ms because ou sou cing ca bon-in ensi e ac i i ies will allow a business o
claim signi ican emission educ ions wi hou any eal ope a ional changes.
33 As discussed in Appendix A, he indus y conso ium Ca ena-X appea s o a o c adle- o-ga e PCF
measu emen sys ems ha do no include he emissions embodied in capi al goods. Fo ins ance, he ca -
bon balance o elec ici y p ocu ed om a u ili y would hen include he emissions om combus ing
uels bu no hose embodied in cons uc ing he powe plan . As a consequence, he ca bon balances o
long- e m asse s (PPE) on he CE balance shee a e iden ically equal o ze o, while p oduc componen s
and o he consumable inpu s p ocu ed om supplie s ha e gene ally posi i e ca bon balances.
34 Simila ly, in he accoun ing amewo k p oposed by Penman (2024), he measu e o income always
educes o ac ual DNE in he cu en pe iod.
2141
1 3
Co po a e ca bon accoun ing: balance shee s and low…
In con as o he DNE me ic, CEGS is obus o ou sou cing emission-
in ensi e ac i i ies, p ecisely because companies assume esponsibili y o hei
acqui ed ups eam Scope 3 emissions. Fu he , a ne -ze o ajec o y, acco ding
o he CEGS me ic, gene ally also equi es DNE o app oach ze o. Speci ically,
suppose a company is in a s eady s a e in e ms o i s p oduc ion and sales ol-
ume and does no emo e any CO2 om he a mosphe e. An emissions ajec-
o y o which CEGS goes o ze o hen also equi es bo h cu en DE as well as
he ca bon balance in acqui ed asse s, ha is,
EBPPE +EBMAT ,
o go o ze o. Fo
i ms no in a s eady s a e in e ms o hei p oduc ion and sales olume, i is
possible o CEGS o go o ze o while cu en DNE emain abo e some h esh-
old le el. This di e gence would be accompanied by a build-up o he emissions
eco ded in FG o WIP and he e o e would be de ec able on he asse side o he
CE balance shee .
Fi ms seeking o con ey in o ma ion abou imp o emen s in hei ecen CEGS ig-
u es can do so by p o iding line-i em in o ma ion o he ecen annual addi ions o
Equi y. Fo ins ance, he ending balance in he ca bon equi y accoun o he yea 2023,
say
EB2023
EQ ,
can be decomposed in o
(
CEGS2023,CEGS2022,…., CEGS20xx,EBp io
EQ
),
such ha
EBp io
EQ
deno es he ending balance in he ca bon equi y accoun o he yea
p io o 20xx, and he en ies in he abo e ec o sum up o
EB2023
EQ .
To assess whe he a company is on a signi ican ca bon educ ion ajec o y in
e ms o he CEGS me ic, ecen inc emen s in di ec emissions and di ec emo -
als a e in o ma i e in combina ion wi h he asse side o he CE balance shee . The
ca bon emissions embodied in asse s will be abso bed in u u e CEGS igu es. In
conjunc ion wi h he ajec o y o he i m’s ecen di ec ne emissions, CE in asse s
he e o e gene a es a o ecas o u u e CEGS alues. The exac na u e o his o e-
cas will depend on he ela i e magni ude o he company’s di ec e sus indi ec
emissions and he u no e a e o di e en ope a ing asse s.
In addi ion o long- e m ca bon educ ion goals, such as “ne -ne ze o by 2050,”
some companies ha e se in e im CO2 educ ion miles ones. Fo ins ance, he
cemen and ma e ials p oduce Heidelbe g Ma e ials has se he a ge o s aying
below 400kg o CO2 pe on o cemen i ious ma e ial by he yea 2030.35 This a ge
is o be achie ed on a e age ac oss he company’s di e en cemen ecipes. In he
no a ion o Table3 abo e, he cons ain o 400kg o CO2 pe on o cemen i ious
ma e ial can be ep esen ed as:
whe e si e e s o he ons o cemen ecipe i sold in 2030.
Well ahead o he 2050 a ge da e, consume -o ien ed companies like Shell,
Nes lé and To al ha e inc easingly begun o ma ke selec p oduc s as “ca bon neu-
al” (Bloombe g G een 2021). The accoun ing amewo k desc ibed he e enables
CEGS
∑
n
i=1
s
i
=
∑
n
i=1PCFi∙si
∑
n
i=1
s
i
≤400 kg CO2
cemen
,
35 See CemNe (2023). Fo Heidelbe g Ma e ials, achie emen o his a ge would co espond o an
app oxima ely 50% educ ion in he ca bon in ensi y o i s cemen p oduc s ela i e o 1990 le els.
2142
S.Reichels ein
1 3
i ms o suppo such claims wi h addi ional disclosu es. Speci ically, any claim ha a
pa icula p oduc has al eady achie ed a PCF o ze o will be subs an ia ed by epo -
ing he cons i uen pa s o a PCF: alloca ed di ec emissions, alloca ed di ec emo -
als, and alloca ed ups eam Scope 3 emissions. Such disagg ega ed epo ing would
be aligned wi h he EU’s ecen G een Repo ing Di ec i e (Eu opean Commission
2023b).36
Some echnology i ms, including Google, Mic oso and S ipe, ha e a icula ed
CO2 educ ion goals ha go beyond simply achie ing a ne -ze o posi ion by he yea
2050. These companies aspi e o become clima e neu al in e ms o emo ing, by
a speci ic a ge da e, hei en i e legacy emissions accumula ed a e hei incep-
ion da e. CE balance shee s allow o moni o ing a i m’s p og ess owa d achie -
ing such goals. Speci ically, o i ms ha measu e hei legacy emissions in e ms
o cumula i e di ec ne emissions, he sum o he accoun balances
EBDE +EBDR
would need o u n nega i e a he a ge da e and s ay nega i e he ea e .
Fo companies ha include he indi ec emissions acqui ed h ough hei ups eam
supply ne wo ks in hei legacy emissions, clima e neu ali y becomes a mo e s ingen
goal. The i m’s balance in i s equi y accoun ,
EBEQ,
mus hen u n posi i e a he a ge
da e and emain posi i e he ea e . By decomposing
EBEQ
in o i s ecen annual inc e-
men s, i ms can e ec i ely poin o a ajec o y ha is consis en wi h he s a ed goal.
F om an incen i e pe spec i e, i will be essen ial ha i ms can ake ull c edi
o any emission educ ions hey may ha e achie ed in he sho un. The ca bon
accoun ing sys em desc ibed he e p o ides high-powe ed incen i es o con inuous
emission imp o emen s. E e y on o CO2 no emi ed by he i m and e e y on o
CO2 no emi ed by one o he i m’s supplie s will be e lec ed concu en ly in he
i m’s epo ed PCFs and he agg ega e CEGS me ic. Such i s -o de incen i es a e
no iceably missing in he cu en implemen a ion o he GHG P o ocol, whe e PCF
calcula ions ely on indus y-wide a e ages a he han on ac ual measu emen s.
5 Discussion
The ansac ional accoun ing sys em laid ou in he p e ious sec ions is sugges ed
di ec ly by he ime- es ed p ac ice o bo h inancial and manage ial accoun ing.
This sec ion discusses se e al issues ha equi e u he conside a ion as pa o a
comp ehensi e se o “gene ally accep ed ca bon accoun ing p inciples.”
In angibles. While he p esen a ion in Sec .3 has seemingly ocused on physi-
cal goods, he ca bon accoun ing amewo k p esen ed he e applies equally o se -
ice businesses, such as ai lines o o he businesses p o iding anspo a ion se -
ices.37 Rega dless o whe he he i m’s sales p oduc s a e angible, any emissions
37 In bo h he U.S. and Eu ope, he anspo a ion sec o has ecen ly o e aken powe gene a ion and
indus ial p oduc ion in e ms o di ec emissions (IEA 2022).
36 A 2023 cou uling in Ge many a i med he igh o companies o ad e ise selec consume p od-
uc s as “CO2 neu al,” e en i such claims a e pa ially based on he pu chase o ca bon o se s. The cou
emphasized in i s uling ha he de endan di ec ed cus ome s o a websi e ha subs an ia ed he com-
pany’s claims (Zajonz 2023).
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Co po a e ca bon accoun ing: balance shee s and low…
associa ed wi h in angible inpu s, such as employee a el and commu ing, as well as
hose associa ed wi h he use o elec ic powe by wo k-a -home employees, should
be included in he coun o indi ec emissions.38 On he ou pu side, a i m’s di ec
and indi ec emissions associa ed wi h R&D do no necessa ily ha e o be abso bed
in cu en CEGs bu could ins ead be capi alized on he CE balance shee and amo -
ized in u u e PCFs acco ding o some p ede e mined amo iza ion schedule.
Recycling. In he ansi ion o a ci cula economy, ecycled p oduc s will p o ide
an inc easing sha e o he aw ma e ials used in indus ial p oduc ion. The ca bon
accoun ing sys em desc ibed he e is cen e ed on he no ion ha ca bon balances,
accumula ed a a ious s ages o he supply chain, s ay wi h a p oduc un il i s deli -
e y o he end cus ome . Ye his acc ued ca bon balance should be expunged when
p oduc s each he end o hei use ul li e and a e ecycled. I aw ma e ials de i ed
om ecycled p oduc s we e o ca y o e any accumula ed ca bon balances, hey
would be subjec o a po en ial sou cing bias in compa ison o i gin aw ma e ials.
The ca bon balance o any aw ma e ials, whe he hey a e i gin ma e ials o ecy-
cled, should he e o e only e lec he emissions ha he supplie s o hese ma e ials
incu ed o hei deli e y o cus ome s.
Ca bon O se s ha e become inc easingly impo an , ye also con o e sial in he
discussion abou a imely ansi ion o a ne -ze o economy. As mo e i ms epo
measu es o hei co po a e and p oduc ca bon oo p in ha sub ac o se s om
g oss emissions, wo cen al ques ions eme ge: wha ypes o o se s a e eligible o
ecogni ion on he company’s ca bon accoun ing books, and how should hose eligi-
ble o se s be accoun ed o ?
T ansac ion T5 in Sec .3 conside s a emo al o se whe e he company in ques-
ion o a con ac o ac ing on i s behal ac i ely emo ed u5 ons o CO2 om he
a mosphe e and u he mo e p o ided an assu ance ha he en i e quan i y o CO2
would be du ably seques e ed.39 Ye he majo i y o ca bon o se s cu en ly aded
in he olun a y ca bon ma ke s a e so-called a oidance o se s. These can be gene -
a ed, o ins ance, h ough in es men s in enewable ene gy acili ies. The easoning
unde lying such o se accoun ing is ha he enewable ene gy acili y enables o he
pa ies o a oid he emissions associa ed wi h g id-based elec ici y.
The esponsibili y accoun ing amewo k desc ibed he e posi s ha a company
in es ing in enewable ene gy will eco d lowe indi ec emissions in i s PCFs o he
ex en ha clean elec ici y ac ually eplaces ca bon-in ensi e elec ici y p e iously
ob ained om he g id. I he clean elec ici y is sold o hi d pa ies, howe e , he
in es o in he enewable ene gy acili y should no claim he educ ion in he ca bon
oo p in o he hi d pa y as an o se o i sel . Tha would en ail double coun -
ing, unless he hi d pa y we e o eco d on i s books he same amoun o ca bon-
in ensi e elec ici y as i would ha e absen he in es men in he enewable ene gy
acili y (Comello e al. 2022; T S 2024).
38 Technology i ms like Google limi hei coun o Scope 3 emissions o employee a el and commu -
ing (Comello e al. 2022). In con as , he Ca ena-X “Rulebook” sugges s ha employee commu ing be
conside ed ou side he bounda ies o c adle- o-ga e PCFs (Ca ena-X 2023).
39 Di ec ai cap u e o CO2, combined wi h mine aliza ion in olcanic ock, is conside ed o be a p ime
example o a pe manen emo al (Wilcoxe al. 2021).
2144
S.Reichels ein
1 3
A oidance o se s a e gene ally based on coun e ac ual claims. The pa y ecog-
nizing he o se claims ha i s in e en ion esul ed in ewe emissions, o example,
a o es was conse ed a he han logged. These conside a ions ha e led mul iple
nongo e nmen al o ganiza ions like he Science-Based Ta ge Ini ia i e and compa-
nies like Mic oso and S ipe no o ecognize a oidance o se s in he calcula ion o
PCFs and CCFs (Mic oso 2021; Joppa e al. 2021).
To da e, ew companies ha e been explici ega ding he h eshold equi ed o
emo als o be conside ed su icien ly du able o me i o se ecogni ion (Joppa
e al. 2021).40 In he absence o a gene ally accep ed s anda d, companies can sup-
plemen hei CE s a emen s wi h disclosu es ega ding he du a ion p o ile o he
po olio o emo als ha ha e been ecognized (Smi h 2021). Fo ca bon emo -
als ha a e no necessa ily du able and may su e a pa ial e e sal wi hin a sho
pe iod o ime, companies migh none heless ecognize he emo al ac i i y, p o-
ided he e is a commi men mechanism in place ensu ing ha any e e sal would
be e lec ed in subsequen CE s a emen s. Speci ically, he e would ha e o be an
assu ance ha he s a us o pas emo al ac i i ies is egula ly moni o ed and e i-
ied so ha any e e sal ha may ha e occu ed p io o he s a ed du a ion pe iod
will be added back o he company’s di ec ne emissions.
Rega ding he accoun ing o ca bon emo als ha a e eligible o ecogni ion, a
common issue o many ypes o CO2 emo als will be ha he e is no causal link
be ween he emo al ac i i ies and he p oduc ion and deli e y o he i m’s sales
p oduc s. The absence o such causal links p o ides jus i ica ion o gi ing compa-
nies disc e ion in alloca ing he ons o CO2 emo ed om he a mosphe e among
hei sales p oduc s. Conce ns abou g eenwashing can be amelio a ed by a equi e-
men o disclose he cons i uen componen s o he epo ed PCFs: di ec emissions,
di ec emo als, and indi ec emissions. A less disc e iona y accoun ing ule would
speci y a p opo ional adjus men o he di ec emissions emana ing om he com-
pany’s di e en ope a ional acili ies. The p opo ional adjus men ac o could be
gi en by he o e all a io o cu en di ec ne emissions o di ec emissions.41
I seems plausible ha he incen i es o acqui e cos ly ca bon emo al c edi s will
be conside ably s onge i companies ha e disc e ion in applying any acqui ed ca -
bon c edi s o a ge ed p oduc g oups wi h a highe ca bon elas ici y o demand.
Con e sely, companies migh be mo e eluc an o acqui e ca bon emo als i hese
a e ne ed in a lump-sum ashion agains CEGS in he annual CE low s a emen .
Consolida ion. Companies wi h mul iple business segmen s can p epa e con-
solida ed CE s a emen s on he basis o indi idual segmen -speci ic CE s a emen s.
Since all ansac ions a e accoun ed o “a cos ,” he asse side o he consolida ed
CE balance shee is ob ained by summing up he ca bon balances o he ope a ing
40 Kaplane al. (2023b) a gue ha ca bon emo als should be allowed o o se a company’s g oss emis-
sions only i he GHG has been emo ed om he a mosphe e and inde ini ely seques e ed.
41 In he no a ion o Table2, he p opo ional adjus men ac o would be gi en by
u
4
−u
5
u
4
.
Fu he , i u4j
deno es he g oss di ec emissions a ibu ed o acili y j and
u
4=
∑ju
4
j
, hen
ons o CO2 would be a ibu ed in adjus ed di ec emissions o acili y j.
u
4j∙
u
4−
u5
u4
2145
1 3
Co po a e ca bon accoun ing: balance shee s and low…
asse s o he indi idual segmen s. Howe e , he consolida ed CEGS igu e is gene -
ally less han he sum o he indi idual CEGS igu es, as he emissions associa ed
wi h any in acompany sales mus be elimina ed om he agg ega e CEGS igu e.
The same adjus men is made o he accoun s eco ding emissions ans e ed in
(ETI) and equi y (EQ) on he consolida ed CE balance shee . In con as , he ending
balances o di ec emissions (DE) and di ec emo als (DR) on he consolida ed
balance shee a e ully addi i e ac oss he indi idual business segmen s.
Ini ializa ion. I adop ed consis en ly wi hin a supply ne wo k, he acc ual accoun ing
sys em p oposed he e will assess he ca bon oo p in o a p oduc as an alloca ed sha e
o he ac ual di ec emissions (ne o any emo als) incu ed by companies in he ne wo k
ha ha e con ibu ed pa s and se ices o he p oduc in ques ion. A he same ime, com-
panies can unila e ally implemen hei own PCF alloca ion ules wi hou hei supplie s
and supplie s’ supplie s ha ing done so. Fo pa s and se ices supplied by i ms ha do
no calcula e hei own PCF igu es based on p ima y da a, co po a e buye s can s ill ely
on PCF es ima es based on seconda y da a ha e lec indus y-wide a e ages.42
Fi ms p epa ing a CE s a emen o he i s ime, say in he yea 202x, could
se he beginning alues on he ini ial CE balance shee o ze o. By so doing, he
epo ed PCF and CEGS igu es would e ec i ely be unde alued in he ea ly yea s,
since any emissions embodied in ope a ing asse s acqui ed p io o 202x would
be excluded. As men ioned in he p e ious sec ion, some companies ha e se he
goal o elimina ing hei en i e legacy emissions incu ed a e some e e ence da e.
Those companies may wan o ini ialize he CE balance shee in he yea 202x wi h
hei own es ima es o accumula ed di ec emissions, di ec emo als, emissions
ans e ed in, and CE in Asse s.43 I would be unde s ood ha hese igu es ep e-
sen es ima es o he emissions accumula ed be ween he ini ial e e ence da e and
he yea in which he ca bon accoun ing p ocess commences, ha is, he yea 202x.
6 Concluding Rema ks
In he absence o e ec i e ca bon p icing in many pa s o he wo ld, businesses ac oss
a wide ange o indus ies inc easingly accep esponsibili y no only o hei own
di ec CO2 emissions bu also hose embodied in goods and se ices p ocu ed om
hei supplie s. As hese businesses seek o c edibly con ey any p og ess made owa d
a ne -ze o emissions economy, he issue o commonly accep ed ca bon accoun ing
s anda ds becomes cen al. This pape has a gued ha he ime- es ed p inciples o
his o ical cos accoun ing o ope a ing asse s, including commonly accep ed p inci-
ples o in en o y cos ing, can se e as a concep ual empla e o anspa en and com-
p ehensi e co po a e ca bon epo ing. These gene al p inciples can be supplemen ed
42 The guidelines p o ided by Ca ena-X and T S o he au omo i e and chemical indus ies, espec-
i ely, encou age companies in hese indus ies o p io i ize p ima y da a in he calcula ion o PCFs,
while elying on seconda y da a p oxy measu es o hose inpu s whe e he supplie s ha e no ye de el-
oped and ob ained ce i ica ion o hei own PCF measu emen sys ems.
43 The equi y accoun EQ could e ec i ely se e as a plug a iable in equa ing CE in Asse s and CE in
Liabili ies on he ini ial balance shee .
2146
S.Reichels ein
1 3
wi h mo e speci ic s anda ds ega ding he accoun ing o ca bon emo als and he
a chi ec u e o PCF measu emen sys ems o speci ic indus ies.
CE s a emen s iden i y CEGS as he cen al measu e o a i m’s cu en co po a e
ca bon oo p in . CEGS summa izes he cu en damage ha a company’s p oduc s
and se ices ha e done o he wo ld’s clima e. CE balance shee s ack a i m’s ca -
bon pe o mance o e ime. In pa icula , he ajec o ies o ecen di ec emissions,
di ec emo als, CEGS as well as he emissions embodied in ope a ing asse s a e
indica o s o a i m’s pas and u u e pe o mance in he domain o ca bon emissions.
The cos o adop ing a ca bon accoun ing sys em ha enables he p epa a ion
o CE s a emen s should p o e ela i ely modes , pa icula ly o i ms ha ha e
al eady implemen ed hei own in e nal PCF measu emen sys ems. Because he
p epa a ion o CE balance shee s and low s a emen s is g ounded in he ules o his-
o ical cos accoun ing o ope a ing asse s, exis ing so wa e sys ems o in en o y
cos ing and inancial s a emen s and should only equi e limi ed modi ica ions. Fu -
he , audi o s should ace no majo concep ual ba ie s in ce i ying ha a CE s a e-
men has been p epa ed in acco dance wi h accoun ing p inciples consis en wi h
hose used in p epa ing inancial s a emen s.
Appendix A
This appendix elabo a es on he ma e ial in Sec . 3, illus a ing ha , in se e al
indus ies, es ablished cos accoun ing p inciples ha e been applied in he design o
in e nal PCF measu emen sys ems. Concep ually, a cos accoun ing sys em can be
ep esen ed as a mapping om cos line-i ems, comp ising cash ou lows and acc u-
als, o he i m’s di e en sales p oduc s (Da a and Rajan 2020). Indi idual cos
line-i ems a e ca ego ized as ei he di ec o o e head. As he name sugges s, di ec
cos s a e immedia ely a ibu able o a p oduc and he e o e do no equi e an allo-
ca ion ule. Fo ins ance, he paymen made o a supplie o a pa ha goes exclu-
si ely in o one sales p oduc is cha ged di ec ly, ha is, dolla o dolla , o he sales
p oduc . In con as , o e head cos s ep esen expendi u es o esou ces ha se e
mul iple p oduc s and he e o e equi e alloca ion among hese p oduc s. These allo-
ca ions a e de e mined acco ding o an alloca ion base (d i e ) such as a physical
measu e (e.g., olume, weigh , o squa e oo age), ime, o an economic measu e,
o example, ma ke p ices o he sales p oduc s (Kaplan and Ande son 2004; Da a
and Rajan 2020). Fo ex e nal epo ing pu poses, companies ha e conside able dis-
c e ion in s uc u ing hei in e nal cos accoun ing sys ems. In mos indus ies, he
inhe en join ness o o e head cos s p ecludes ob aining a canonical measu e o a
p oduc ’s ue cos .
In he con ex o ca bon accoun ing, he ca bon balance o a pa (componen )
ha belongs exclusi ely o one p oduc should also be ully abso bed by ha p od-
uc , akin o he ea men o a di ec cos i em. As a gued in connec ion wi h ans-
ac ion T1 in Sec .3, he ca bon oo p in measu e o a pa (componen ) is ideally
epo ed by he pa ’s supplie based on i s own ca bon oo p in measu emen sys-
em. O he wise, he buye o he pa mus ob ain i s own p oxy measu e based on
seconda y indus y-wide da a.
2147
1 3
Co po a e ca bon accoun ing: balance shee s and low…
A company’s Scope 1 and 2 emissions will gene ally be o e head i ems ha
equi e alloca ions among he company’s di e en p oduc s. To ha end, companies
al eady collec he equisi e da a on di ec p ocess and ailpipe emissions (Scope 1)
incu ed a speci ic p oduc ion s eps. Simila ly, mos companies con inuously ace
he usage o elec ici y and hea ene gy o pa icula p oduc ion s eps and ac i i-
ies, allowing hem o a ibu e he Scope 2 emissions associa ed wi h elec ici y and
hea ob ained om ex e nal endo s o hose p oduc ion ac i i ies. Scope 3 emis-
sions embodied in machine y and equipmen can also be a ibu ed o he p oduc ion
ac i i ies whe e he asse s a e loca ed. Fo hese ypes o p oduc ion inpu s, he co -
esponding emission cha ges equi e an in e empo al alloca ion, ha is, a dep ecia-
ion cha ge ha e lec s he use ul li e o he asse in ques ion.
The emissions accumula ed in di e en “ca bon pools” a e ul ima ely assigned o
he i m’s p oduc s. This assignmen can be he ou come o a mul i-s ep p ocedu e
ha e lec s a p oduc ’s usage o di e en p oduc ion ac i i ies.44 Companies seek-
ing anspa ency o hei epo ed PCFs can disclose he a chi ec u al bluep in o
hei PCF measu emen sys em a di e en p oduc ion si es and ob ain ce i ica ion
o ha ing hei PCFs calcula ed in acco dance wi h he disclosed bluep in .
Fo he cemen indus y, ecen s udies ha e a gued ha he p inciples o ac i -
i y-based cos ing can be adap ed o he design o PCF measu emen sys ems.45
The main ing edien in adi ional Po land cemen is clinke , which is ob ained
by hea ing c ushed limes one in a kiln, a p ocess ha eleases la ge quan i ies o
CO2. Cemen p oduce s ha e inc easingly sough o eplace clinke wi h low-ca bon
addi i es, such as slag o calcined clay. The ollowing desc ip ion d aws on a ecen
s udy o PCF calcula ions o cemen p oduc s a Heidelbe g Ma e ials, o me ly
Heidelbe gCemen (Landa e de e . al 2023).
The op wo ows in Fig.1 show he annual di ec (Scope 1) and indi ec emis-
sions (Scope 2 and 3) incu ed a one o he company’s plan s. As one migh expec
o a cemen manu ac u e , Scope 1 and 2 emissions domina e all o he ups eam
Scope 3 emissions. Excep o ex e nal powe consump ion, he indi ec emission
igu es we e based on hi d-pa y es ima es. The ela i ely mino dep ecia ion
cha ge in Fig.2 e lec s ha his ca ego y is con ined o emissions embodied in he
cons uc ion o he plan . Fu he , his ca bon balance was di ided equally by he
numbe o yea s he plan is assumed o be ope a ional. Because slag, o igina ing
om he manu ac u e o s eel, has adi ionally been conside ed a was e p oduc , he
calcula ions shown in Fig.1 ollowed he guidelines o he Ene gy Accoun ing and
Repo ing S anda d o he cemen indus y by assigning slag a ca bon balance o
ze o (Wo ld Business Council o Sus ainable De elopmen 2011).
The plan in ques ion deli e s ou p oduc s comp ising h ee cemen ecipes,
labeled CEM I-III, and clinke , which is subsequen ly ans e ed o o he cemen
plan s o u he p ocessing. The ca bon alloca ion sys em p oceeds in wo s eps.
Fi s , all di ec and indi ec emissions a e assigned o h ee manu ac u ing ac i i ies:
clinke p oduc ion, slag g inding, and milling, whe e clinke and slag we e mixed
44 In a supply chain se ing, Chen and P ei e (2024) examine he e ec o al e na i e emission alloca-
ion ules on i ms’ p oduc ion ac i i ies and hei p o i abili y.
45 See Heidelbe gCemen AG (2021), Meie (2022), and Landa e de e al. (2023).
2148
S.Reichels ein
1 3
and milled in o cemen powde . In his i s s ep, he emissions associa ed wi h he
p ocessing o limes one a e cha ged exclusi ely o clinke p oduc ion. The company
elied on i s own eco ds o alloca e he emissions embodied in uels among he wo
ac i i ies clinke p oduc ion and cemen milling.
In he second s ep, he emissions accumula ed in each o he h ee ac i i ies a e
assigned o he ou p oduc s. The emissions om clinke p oduc ion a e p o a ed
among clinke and he h ee cemen p oduc s in p opo ion o each p oduc ’s clinke
pe cen age, anging om 89% o CEM 1 o 23% o CEM III. Slag g inding emis-
sions a e dis ibu ed o CEM II and CEM III based on hei slag pe cen ages, 28%
and 68%, espec i ely. Finally, milling emissions a e sp ead uni o mly ac oss he
h ee cemen p oduc s since milling ime and ene gy consump ion a e ega ded as
independen o he ing edien mix.
The esul ing ons o CO2 pe on o cemen i ious ma e ial, in Fig.2 demons a e
he po en ial o educing he epo ed ca bon con en o CEM II and III by subs i u -
ing slag o clinke in he cemen ecipe. A he same ime, hese cemen i ious ma e-
ials in ol e a ade-o o he manu ac u e because, when mixed wi h wa e and
g a el, CEM II and III equi e longe wai ing imes o conc e e o ha den.
Wi h slag becoming inc easingly a ac i e as a subs i u e o clinke in he manu-
ac u e o cemen , he s eel indus y associa ion has a gued ha slag is no longe a
was e p oduc . Co espondingly, he join p oduc ion p ocess ha yields s eel and
slag in ixed p opo ions should no longe assign ze o ca bon emissions o slag
(Meie 2022). While he Wo ld S eel Associa ion p e e s o alloca e emissions
in p opo ion o he ela i e mass o s eel and slag p oduced (Wo ld S eel Asso-
cia ion 2014), he Global Cemen and Conc e e Associa ion p e e s an alloca ion
based on he ela i e alue o s eel and slag.46 The guidelines issued by he indus y
46 Simila issues a ise when mul iple mine als and me als a e join ly ex ac ed in a mining ope a ion
and he ex ac ed ma e ials a e sold o di e en indus ies (Canon e al. 2020). In he con ex o join ly
p oduced palm oil and palm meal, Suna and Plambeck (2016) demons a e he incen i e and wel a e
implica ions o al e na i e alloca ion bases o assigning emissions o indi idual p oduc s.
Fig. 1 Ac i i y-Based Emission Alloca ions o Cemen P oduc s. Sou ce: Landa e de e al. (2023)
2155
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