Exxon and other heavy emitters back product-focused carbon accounting initiative

Fossil-fuel companies and other heavy emitters are among the backers of a new carbon accounting initiative that looks to be on a collision course with current standards.

Carbon Measures —which launched last week with ExxonMobil, BASF, Nucor, Mitsubishi Heavy Industries and Blackrock’s Global Infrastructure Partners as members — will advocate for global emissions strategies focused on lowering emissions at a product level. The approach runs counter to current de facto standards from the Greenhouse Gas Protocol and Science Based Targets initiative (SBTi), which require companies to measure and reduce emissions across value chains.

The approach is based on the success of financial accounting, said Carbon Measures CEO Amy Brachio. 

“Financial accounting is what helped us to get past the Great Depression, when we had real issues with understanding the finances of organizations and we needed to get to a place where there were commonly and generally accepted rules,” she told Trellis. “And so we need to get to that same place where you’re associating the carbon with a product and you’re able to follow it through the system.”

Ledger-based 

The project takes inspiration from E-liabilities, a carbon accounting system developed by Karthik Ramanna, a University of Oxford professor who was announced this week as co-chair of a technical advisory panel established by Carbon Measures and the International Chamber of Commerce, and Harvard’s Robert Kaplan. 

E-liabilities eschews Scope 3 measurements and requires companies to measure direct emissions and allocate a portion of those emissions to customers. It’s won support from academics and been piloted in multiple industries. It’s also been criticized by the creators of the current carbon reporting system as impractical and likely to disincentivize collaboration between value-chain partners. 

For the Carbon Measures backers, such “ledger” systems — named for the record of carbon emissions each company would maintain — are attractive because they may boost competition for low-carbon products. Companies already calculate the emissions associated with a ton of steel, semiconductor chip and countless other products. But these numbers often rely on estimates of supply-chain emissions that are based on industry averages, which lessens the motivation for companies to source lower-carbon alternatives. 

“Four years ago, Bob Kaplan and I articulated a method for how companies can win by competitively differentiating their products based on their emissions efficiencies,” said Ramanna. “As more businesses show interest in this model, now is the time to drive into practice the systems change that will align market capitalism with decarbonization innovations.”

Once a ledger-based carbon accounting system is established, said Brachio, governments could use it as the basis for climate policies focused on reducing the emissions associated with specific products, known as carbon intensities. 

“This move from voluntary to mandatory is what drives demand in the system and levels the playing field so that companies have to compete,” she argued. “As long as we’re operating on a voluntary basis, you don’t create the market conditions that force everyone to move.”

Such an approach would likely be more preferable to heavy emitters than existing company-level targets. Companies in steel and other hard-to-abate industries have long said they cannot make decarbonization investments without stronger demand signals and clearer government support for low-carbon products.

‘Delay tactics’

Carbon Measures’ initial list of members includes companies not associated with climate action, most notably ExxonMobil: The world’s largest investor-owned emitter is responsible for 1.3 percent of global emissions, has a history of funding disinformation about the climate crisis and is known for lobbying against emissions-reduction legislation. Critics add that ledger systems benefit heavy emitters by transferring emissions to customers.

“It’s easy to see why an oil major, a chemical giant, and fossil-heavy financiers want a framework that puts their Scope 3 emissions — the largest scope for these companies — on someone else’s carbon balance sheets,” wrote Lisa Sachs, director of the Columbia Center on Sustainable Investment, on LinkedIn. “I’m not a fan of GHG footprinting, but I’m *really* not a fan of misrepresentation and delay tactics.”

Brachio welcomes the skepticism. She noted that the initial list of 19 members — which includes her former employer EY, as well as Bayer and the utility NextEra Energy — is likely to grow quickly in coming months to encompass companies in other sectors. “I would ask everyone to just keep an eye on us and judge us by our actions,” she said.