Carbon Tracking Explained

What is carbon tracking?

Companies worldwide are increasingly announcing their intentions to track carbon emissions —  to help reach sustainability goals, keep up with increasingly stringent carbon reporting legislation and adapt their business models to thrive in a low-carbon world.

Carbon tracking is a method for organizations to calculate and track carbon emissions released from both direct and indirect sources. By tracking carbon emissions, companies can measure the carbon impact of their business activities and pinpoint carbon hotspots’, which they should prioritize to make emissions reductions.

Carbon tracking should be a continuous process, rather than just a one-off measurement, to measure, set targets and track progress against them. This is critical for the accountability and reporting that stakeholders now demand.

Why do businesses undertake carbon tracking?

Businesses are measuring their carbon footprints to meet regulatory requirements, better understand their impact and focus efforts on where they can make the most meaningful changes.

Manufacturers and commodity traders operating in high-emitting sectors such as metals, energy and transport are recognizing the business benefits of identifying carbon hotspots across the supply chain. Financial institutions are also increasingly engaging in carbon tracking to have an overview of the emissions of the companies they are investing in, and the trades they are financing.

Differing from carbon reporting — which comes after the tracking process, and is a way to present data collected on GHG emissions — carbon tracking is an important first step for companies to measure and understand their environmental impact more fully.

Is somebody else tracking your carbon?

Tracking emissions also helps keep the biggest polluters accountable, because it helps identify exactly where the world’s GHG emissions are being released. 

With companies under pressure to reveal and reduce their carbon footprint, a number of independent carbon tracking projects are exposing the emissions generated by many high-emitting assets.

How does carbon tracking work?

Worldwide, there are a range of global carbon trackers that measure GHG emissions in different ways, including:

Measuring governmental climate action

• The Climate Action Tracker (CAT) is an independent scientific platform which tracks governmental climate action and compares it to the Paris Agreement’s aim to keep warming “well below 2°C, and pursu[e] efforts to limit warming to 1.5°C”. The CAT covers around 85% of global carbon emissions and around 70% of the global population.

Measuring global emissions

• CarbonTracker is a CO₂ measurement and modeling system developed by the US National Oceanic and Atmospheric Administration (NOAA) agency, which tracks emissions sources (and sinks, which remove carbon from the atmosphere) from 81 sites around the world, with the help of global collaborators who provide atmospheric CO₂ observations.

These trackers help quantify global emissions and country-level commitments, and are therefore important for policymakers, scientists and a range of other stakeholders.

However, they do not provide information on who is responsible for these emissions, nor do they link them to specific sources. Limitations and data gaps on emitters and their sources remain, while national inventories have also been found to underestimate many countries’ GHG emissions.

Asset-level emissions tracking, where emissions are associated with the facilities responsible for those emissions, is a critical piece of information that global trackers are still working to solve. For companies to reach net zero by 2050, they will need detailed data on their own GHG emissions, as well as those of their suppliers and customers. Accurately measuring their carbon emissions will enable businesses to lower their carbon footprint, across the value chain.

Why should companies track their carbon emissions?

In the era of carbon risk and transparency, companies should prioritize carbon tracking for a variety of reasons:

Assess true environmental impact and find new opportunities

By measuring emissions, companies become better-informed of the full carbon impact of their business. Tracking emissions provides them with an opportunity to focus on reduction priority areas, thereby helping the world reach its climate goals and speed up decarbonization.

Supply chain emissions usually represent the most substantial portion of corporate carbon footprints: on average 11.4x more than operational emissions. By choosing to track and disclose all carbon emissions across a business’ value chain, companies will have a full overview of their carbon impacts and risks, and be able to get ahead of emerging regulations on supply chain reporting.

Carbon tracking is also an opportunity to scope out new opportunities — by pinpointing carbon emissions and risks, companies are effectively auditing their business activities. The process is likely to further uncover ways to optimize efficiency, reduce waste, and save money, which could even lead to producing improved goods and services.

Manufacturers can position their products as lower-carbon options once they track their product carbon footprints. Efficiency gains tend to save both money and reduce carbon emissions, which is a win-win for businesses and the planet.

Improve credibility

The demand for transparent carbon disclosure is greater than ever. Companies who do not accurately track and disclose emissions are increasingly under pressure from regulators and civil society for not doing enough to transition the economy towards net zero, which could lead to losing customers, accusations of greenwashing or even litigation issues.

By measuring and reporting carbon emissions, companies are responding to requests from stakeholders such as investors, policymakers and customers. Carbon tracking is an opportunity to gain external trust and prepare for future reporting requirements, which will likely be more stringent in future.

As companies increasingly request more action from suppliers to reduce their carbon footprints — and supplier data has become imperative under carbon legislation such as the EU CBAM — this is also an opportunity for businesses to reflect on their relationship with suppliers and carve out a new way to work together to create low-carbon business models.

Drive sales performance

Many studies have shown that companies who put sustainability at the heart of their business are more likely to be more profitable.

It's often under-appreciated that sustainability is driving sales in competitive markets. We are seeing the trend increase in several industries as regulation and social pressure increase.

The process of tracking emissions also opens up opportunities with investors and trade finance providers, who are increasingly focused on Environmental, Social, and Corporate Governance (ESG) issues and introducing sustainability-linked loans based on emissions -reduction KPIs.

Carbon tracking with CarbonChain

It can be tricky for businesses to start measuring their emissions alone, especially due to the gaps prevalent in asset-level emissions tracking. However, by using automated carbon tracking software like CarbonChain’s, companies can measure their entire carbon footprint across the supply chain, from end-to-end. 

This is critical to manage risks like carbon pricing and increasing carbon reporting requirements worldwide that demand inventories of Scope 1, 2 and 3 emissions. Tracking emissions will also enable businesses to calculate a baseline starting point to track reduction progress. 

Regulators are increasingly focused on supply chain emissions — new and changing legislations require companies to disclose their Scope 3 emissions. To stay ahead, and avoid commercial or litigation problems in future, companies must calculate a full and accurate carbon footprint.