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Carbon accounting 101: What is it and why you should do it

In recent years, or even just the last few days, you’ll no doubt have heard companies making big claims to be ‘carbon neutral’, ‘climate positive’ or to become ‘net-zero’ by a certain date. Noble, no doubt, but all a bit arbitrary unless backed by solid evidence. To add foundations to your ambitions, you need carbon accounting…

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The term ‘carbon accounting’ summarises the process of getting said evidence. In other words, quantifying, tracking and reporting the amount of greenhouse gas emissions released into the atmosphere as a result of your business activity. 
In our <a href="https://x.ecologi.com/articles/blog/charting-the-path-to-net-zero-for-businesses" target="_blank" rel="noopener">Charting the path to net-zero for businesses blog</a> we showed that calculating emissions is a key stage in getting to net-zero. Carbon accounting forms the foundations of these calculations. It helps you understand your starting point,  find the emissions hotspots in your value chain, and pinpoint the biggest opportunities for reduction.

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Carbon footprint assessments can happen at a product or organisational level. At a product level, Product Life Cycle Assessments (or LCAs) evaluate the environmental impact of a product through its entire life cycle, including extraction and processing of raw materials, manufacturing, distribution, product usage, and finally end-of-life.
But for the purpose of this blog, we’ll be exploring organisational carbon footprinting. This means assessing the greenhouse gas emissions of a business’s operating activity through the entire value chain, including upstream suppliers and downstream processes like remote working, product use, disposal and pensions.

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What isn’t measured can’t be managed: The carbon accounting process 

A) The carbon audit 
Conducting a carbon audit lets you allocate responsibility for emissions to the relevant areas of your company and value chain. This will inform decisions on how operations can be decarbonised, and help you to set the right science-based targets. 
B) Target setting 
Target setting determines the level of ambition for your reduction strategy. It opens the door for  carbon accounting to forecast scenarios and strategies to meet these targets. It also allows you to spot the strategies that may appear more sustainable but could actually increase greenhouse gas emissions. For example, swapping to a material with a lower carbon footprint in raw materials, but with increased shipping emissions. *It’s worth noting that this assumes a narrow GHG emissions lens and there may be other environmental credentials unaccounted for in this process but which should be considered. 
C) Emissions reporting 
Carbon accounting isn’t a one-off job. An emissions inventory needs to be taken and reported annually during your journey to net-zero. This is how you’ll measure your performance and impact over time.. 
Emissions reporting is increasingly becoming an industry-standard requirement for many businesses.‍ Under regulations such as the SECR, larger and publicly-listed companies are required to disclose GHG emissions in their directors’ reports. Many investors are also mandating it as a requirement in order to assess liability and risk. High emissions within a difficult to decarbonise scope 3 value chain is considered a liability by some investors. 
By measuring and reporting your footprint, you also acquire supporting evidence for your environmental claims, and reduce the risk of greenwashing accusations. 
To learn more about Carbon Accounting, you can <a href="https://info.ecologi.com/webinar-carbon-accounting-101" target="_blank" rel="noopener">watch Ecologi&#8217;s Carbon Accounting 101 webinar here</a>.
You can measure your footprint and get started on your net-zero journey with <a href="https://x.ecologi.com/business/zero" target="_blank" rel="noopener">Ecologi Zero</a>, our free carbon footprinting tool for small and medium-sized enterprises.

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Carbon Compensation vs. Contribution - What’s the difference?

Climate change is a topic that many of us are discussing at work each day. You may have heard terms such as ‘carbon compensation’ or ‘contribution’ being used in conversations about how to take meaningful action against climate change, but what do they actually mean, and how do they differ from one another? 
We regularly speak to businesses who have similar questions and in this guide, we’ll break it all down. Here’s a quick run-through of what we will cover:
<ul>
<li style="font-weight: 400;" aria-level="1">What are the definitions of carbon compensation and contribution?</li>
<li style="font-weight: 400;" aria-level="1">What is the purpose of each approach?</li>
<li style="font-weight: 400;" aria-level="1">What mechanisms do both approaches utilise? </li>
<li style="font-weight: 400;" aria-level="1">What types of projects do they involve?</li>
<li style="font-weight: 400;" aria-level="1">What types of certification are associated with each approach?</li>
<li style="font-weight: 400;" aria-level="1">What kind of costs are associated with each approach?</li>
<li style="font-weight: 400;" aria-level="1">What role do they play in achieving net zero?</li>
<li style="font-weight: 400;" aria-level="1">What are examples of each?</li>
</ul>

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<h2>Definitions of carbon compensation and contribution</h2>
 
Carbon Compensation
Carbon compensation refers to the idea of balancing out a certain amount of carbon emissions by investing in projects that prevent or remove an equivalent amount of carbon dioxide elsewhere. This tonne-for-tonne ‘balancing’ or ‘offsetting’ is compensatory.
 
Contribution
This approach focuses on separating financial contributions from any compensatory claims. Instead, it involves directing funding to projects that will support global net-zero and nature restoration – but crucially without making compensatory claims. <a href="https://www.onepercentfortheplanet.org/join?utm_feeditemid=&amp;utm_device=c&amp;utm_term=one%20percent%20for%20the%20planet&amp;utm_source=google&amp;utm_medium=ppc&amp;utm_campaign=&amp;hsa_cam=20766754741&amp;hsa_grp=155667469859&amp;hsa_mt=b&amp;hsa_src=g&amp;hsa_ad=680329727495&amp;hsa_acc=%7B8900384824%7D&amp;hsa_net=adwords&amp;hsa_kw=one%20percent%20for%20the%20planet&amp;hsa_tgt=kwd-299092657918&amp;hsa_ver=3&amp;gad_source=1&amp;gclid=CjwKCAjwooq3BhB3EiwAYqYoEs0haU6oWnJZze5_b4QrYSQvdqPvXRSRdMCOrjloCv_URVN-RaIXIBoChu8QAvD_BwE" target="_blank" rel="noopener">1% Percent For the Planet </a>is an example of this kind of scheme.

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<h2>What is the purpose of carbon compensation and contribution</h2>
 
Carbon Compensation
Compensation is aimed at achieving a ‘carbon-neutral’ status by offsetting specific emissions through equivalent carbon reduction elsewhere.
 
Contribution
Contribution focuses on supporting and financing sustainability projects and initiatives to encourage environmental stewardship, without associating this with compensation for emissions.

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<h2>What mechanisms do carbon compensation and contribution utilise?</h2>
Carbon Compensation
Compensation is carbon-centric and relies on detailed measurement and verification processes to ensure that the projects avoid or remove the claimed amount of CO2. Whilst projects may have ‘co-benefits’, project quality and credit utility is predicated on whether the carbon dioxide benefit is being delivered.
 
Contribution
Contribution is not predicated on carbon dioxide. It involves making donations to strategic funds which are designed to produce a range of benefits for net-zero and nature restoration – but may not require rigorous CO2 measurement or verification, but other kinds of monitoring and reporting are essential to ensure benefits are being realised.

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<h2>What types of projects do carbon compensation and contribution involve?</h2>
 
Carbon Compensation
Compensation is limited to projects which generate carbon credits,  typically those that are issued to an ICROA-endorsed carbon standard like Verra, Gold Standard or Puro. It includes projects such as afforestation, blue carbon removal, landfill gas, cleaner water systems and enhanced rock weathering.
 
Contribution
Contribution can include carbon credit-issuing projects but is not limited to them. Other projects that can be financed include funding for environmental research, habitat restoration, conservation programs, reforestation projects, educational initiatives, and donations to NGOs working on climate action.

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<h2>What type of certification is associated with carbon compensation and contribution?</h2>
 
Carbon Compensation: 
Carbon compensation requires third-party verification and certification by bodies such as the Gold Standard, Verified Carbon Standard (VCS) and Puro to ensure the credibility of carbon credits. 
 
Contribution:
Contribution typically does not require certification as it is focused on voluntary financial support for environmental causes. However, reputable organisations receiving contributions may provide transparency reports or impact statements.

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<h2>What kind of costs are associated with carbon compensation and contribution?</h2>
 
Carbon Compensation: 
Costs for carbon compensation vary depending on the project type and verification costs. The price per tonne of CO2 offset can differ significantly with some being much more expensive than others.
 
Contribution: 
Contribution is usually more flexible when it comes to costs. This is because the focus is on voluntary contributions towards environmental outcomes,  rather than compensating for a specific amount of emissions.

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<h2>What role do carbon compensation and contribution play in achieving net zero?</h2>
 
Carbon Compensation:
The <a href="https://sciencebasedtargets.org/net-zero" target="_blank" rel="noopener">SBTi’s Net-Zero Standard</a> specifies that businesses must achieve a minimum 90% reduction in emissions on their path to net-zero &#8211; at which point a compensatory approach can be applied for the remaining &lt;10% of emissions which cannot be reduced directly. In this case, compensation is limited to carbon removals only, not carbon avoidance credits. To understand the difference between carbon avoidance and removal credits, <a href="https://x.ecologi.com/articles/blog/carbon-removals-vs-carbon-avoidance" target="_blank" rel="noopener">read our blog post here.</a>
 
Contribution:
The SBTi also promotes ‘beyond value chain mitigation’ known as BVCM. This involves a company funding climate action to support global net-zero efforts. BVCM does not count towards the organisation’s own corporate net-zero goals, however, the SBTi considers it “urgent and essential” that businesses contribute to global climate action outside of their value chain.

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<h2>Examples of carbon compensation and contribution</h2>
 
Carbon Compensation:
A company offsets its annual carbon emissions by investing in carbon credits from a landfill methane capture project that prevents an equivalent volume of emissions.
Contribution: 
A company contributes to an environmental project that works on biodiversity conservation, without claiming an offset of its own emissions. Instead, the company reports on how much it contributed, and the outcomes intended, and monitors the project’s progress over time.

<h2>Conclusion</h2>
In summary, Carbon Compensation focuses on the idea of ‘balancing’ or ‘offsetting’ emissions through purchasing carbon credits. The credits purchased are often used to offset emissions generated by businesses.  Contribution focuses on funding projects that support global net-zero goals without compensatory claims. Through supporting a contribution model, you can support a wide range of projects all offering crucial co-benefits, and in some cases, credit-issuing projects too. 
Both approaches play a critical role in supporting climate action. The Oxford Principles for Aligned Net Zero recommend a combination of carbon compensation (durable removals only)  and contribution to help maximise impact. At Ecologi, we believe that while both have their merits, prioritising high-quality, holistic climate action through a contribution-based approach is the best way to support global net-zero efforts and future-proof your sustainability strategy. This is why we created <a href="https://x.ecologi.com/business/ecologi-impact-funds" target="_blank" rel="noopener">Impact Funds</a> &#8211; to allow our customers to support a wide range of projects that contribute to a particular climate goal.

<h2>Why did you create Impact Funds?</h2>
Our industry is moving and evolving all the time in an effort to reach global Net Zero goals and at Ecologi we witnessed the challenges firsthand through our Impact Partners, below is a quote from our Impact Partnerships Manager, Katie; 
<blockquote>At Ecologi, our partners were extracting tree-planting costs from a wider landscape restoration project because that’s what the market wanted. We need to change this &#8211; and educate the market on the solutions our planet needs.</blockquote>
Contribution models are increasingly focused on outcomes rather than inputs and go beyond metrics such as carbon credits purchased, or the number of trees planted. These projects produce a host of diverse impacts that aren’t being captured by single metrics. Supporting projects such as landscape restoration focused on the wider strategy &#8211; in addition to tree planting, landscape restoration captures co-benefits such as increased biodiversity, improved soil health, and reduced pollution.
Interested to learn more? <a href="https://info.ecologi.com/ecologi-impact-funds/get-started" target="_blank" rel="noopener">Get in touch to find out more about our Impact Funds</a>.

Speak to our team. We're here to help you find your perfect climate solution.

Case studies

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Case Study: BioPak UK

<h2>About BioPak UK</h2>
A world without waste. That’s the mission of BioPak, and they’re working hard to achieve it. By disrupting the current take, make, waste model, BioPak’s sustainable food packaging solutions are leading the way to a truly circular economy.
Founded in 2006, BioPak has become a globally recognised brand, loved by businesses and consumers across Australia, New Zealand, the UK, the US, Hong Kong and Singapore.
BioPak’s packaging solutions are designed to be better for our planet. They use renewable plant-based materials that are sourced responsibly. To promote responsible disposal of their packaging, BioPak encourages composting through their Compost Connect scheme—a not-for-profit initiative that connects customers to compost pick-up services.

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BioPak is better for people too. The company is B Corp certified and donates 5% of all profits to positive change via their Give Back Fund. BioPak is a business that’s truly committed to the principles of the Triple Bottom Line: People, Planet, and Profit.

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<h2>Issue</h2>
BioPak’s commitment to combating climate change is unwavering. Having been carbon neutral certified for over a decade, in 2022 the team took the strategic decision to shift away from carbon-neutrality, and instead focus on emissions reduction.
This decision wasn’t taken lightly, but they recognised the need to move beyond mere carbon offsetting. They view it as a leap forward rather than a step back, and a move to create a more substantial positive influence on the planet. 
The team believes that understanding their total carbon footprint is vital. They are dedicated to clarifying the sources of their emissions, which span the entire product lifecycle, encompassing offices, product transportation, packaging production, raw material extraction, and end-of-life emissions.
BioPak uses an independent third party to measure their carbon footprint, cost to the environment (including impact on biodiversity, human health, climate change and material scarcity) and lifecycle phases of their products. This is done to enhance transparency, accountability and demonstrate their commitment to combating greenwashing.
BioPak is serious about combating climate change, with reducing carbon emissions being crucial in achieving this goal. A key part of this goal is supporting industrial composting through the Compost Connect scheme. The team is committed to diverting food waste and compostable packaging from landfill and incineration by making compost facilities more accessible across Australia, New Zealand and the UK.
Working together with customers, BioPak truly believes it can pave the way for a more sustainable world for future generations.

<h2>Challenges</h2>
As a B Corp and leader in sustainable food packaging, the team at BioPak feels a keen obligation for environmental stewardship. They describe BioPak as a “profit for purpose business”, and as such are driven to preserve and protect the environment while giving back to the communities in which they operate. 
To honour this obligation, BioPak set up its Give Back Fund in 2012, and since then have dedicated their time and energy to partnering with leading environmental and social charities to bring about positive change. So far they have donated a total of £2,495,352.
In the last decade, BioPak’s commitment to Australian environmental conservation has flourished through a partnership with Rainforest Rescue, which has planted and safeguarded 95,720 trees and reclaimed eight hectares of endangered Daintree Rainforest.

<h2>Solution </h2>
BioPak donates 1% of all profits to community and environmental projects, and here in the UK we’re proud that Ecologi has been chosen to support that commitment through tree planting. The team firmly believes that tree planting is a powerful solution that produces oxygen, stores carbon, and helps tackle climate change.
BioPak’s reforestation work with Ecologi underpins a global commitment to ecological restoration. This ambitious initiative is a cornerstone of BioPak’s corporate responsibility ethos, aiming to not only mitigate the impacts of climate change but also foster local biodiversity, enhance soil health, and support local communities in achieving sustainable development goals.
Working with Ecologi proves BioPak’s cast iron commitment to the environment, and in turn boosts its credibility, enhances its brand reputation and helps its customers make a positive impact. The team regularly communicates their sustainability milestones with customers and colleagues alike, through impact certificate, emails and internal communications.

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<h2>Outcome</h2>
Since 2021 BioPak has planted 102,479 trees with Ecologi, and the team plans to continue to regularly donate to increase this figure as much as they can. 
As a profit-for-purpose business, BioPak’s commitment to protecting the environment is vital in retaining current customers and attracting new customers, who are looking to make a positive impact through their supply chain. The Give Back Fund, and the work with partners like Ecologi, remains a fundamental part of BioPak’s brand messaging and ethos.
Sam Walker, Technical Director at BioPak UK, said:
<blockquote>It&#8217;s great to partner with Ecologi and support both the large scale reforestation projects they do and the more grass roots initiatives which really make a difference locally&#8230; Reforestation and habitat restoration are the foundations of reversing biodiversity loss and critical in the fight against climate change. We&#8217;re proud to work with Ecologi and share the impact data with our customers.</blockquote>

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<h2>Is your business ready to take climate action?</h2>
If this article has inspired your business to start its climate journey, talk to our team today.

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At Ecologi we believe in transparency, which is why, when we make changes, we want to let you know.
As of Tuesday 1st October 2024, we will be making a few changes to the Ecologi Impact Shop, including discontinuing some projects, as well as adding new ones and changing our prices slightly. 
Keep reading to find out more, or jump to the section on <a href="#customers">What these changes mean for our customers</a>, or our <a href="#faqs">FAQs</a>.

<h2>Update to our ‘Carbon avoidance’ project</h2>
We will be removing our generic ‘<a href="https://x.ecologi.com/impact-shop/support-carbon-avoidance" target="_blank" rel="noopener">Carbon avoidance</a>’ product from the Impact Shop, and replacing it with a new type of carbon avoidance project, which specifically supports landfill methane capture. This project is among the first in the world to receive the CCP-Approved quality label from the Integrity Council for the Voluntary Carbon Market (ICVCM).
<h3>Why are we making this change?</h3>
In June of this year, the ICVCM, an independent governance body dedicated to establishing a global benchmark for high-quality carbon credits, <a href="https://icvcm.org/integrity-council-announces-first-high-integrity-ccp-labelled-carbon-credits-as-assessments-continue/" target="_blank" rel="noopener">announced the first carbon-crediting methodologies</a> that meet its high-integrity Core Carbon Principles (CCPs).
As part of this, the ICVCM have applied its ‘CCP-Approved’ label to a variety of projects that tackle potent greenhouse gases by capturing methane from landfill sites (like our supported <a href="https://x.ecologi.com/projects/avoiding-methane-emissions-from-landfill-in-brazil" target="_blank" rel="noopener">Macaubas LFG project</a>), and by destroying ozone-depleting foams and refrigerant gases from discarded equipment such as refrigerators and air conditioners.
We have been supporting landfill gas projects through our platform since our early days, including some of these first projects which have received this ICVCM stamp of approval. Effective on 1st October 2024, we are replacing the general ‘support carbon avoidance projects’ product on our Impact Shop, to specifically support these newly CCP-Approved landfill methane capture projects.

<h2>Discontinuation of our ‘Renewable energy carbon avoidance’ project</h2>
In addition, we will be removing the ‘<a href="https://x.ecologi.com/impact-shop/support-renewable-energy" target="_blank" rel="noopener">Renewable energy carbon avoidance</a>’ product from our Impact Shop. The ICVCM recently decided it would not award the existing renewable energy credit methodologies its CCP-Approved label, so we’ve opted to preemptively stop offering these on our platform. For additional insight into this decision, we encourage you to read our <a href="#faqs">FAQs</a> further down on this page.
<h3>Why are we making this change?</h3>
One of the next decisions made by the ICVCM as part of its assessment of carbon credit methodologies was to acknowledge that existing renewable energy generation credit methodologies do not meet the standard to achieve CCP-Approval. 
One key reason these methodologies don’t meet the CCP-Approved criteria is that the methodologies themselves fail to meet the stringent requirements for additionality, a key factor in ensuring that carbon credits represent genuine emissions reductions that wouldn&#8217;t have occurred without the carbon finance. See this quote from Sylvera on what additionality refers to: 
<blockquote>Additionality refers to the causal relationship between the project&#8217;s activities and the climate benefits it claims including the risk of the project over-crediting. A project is considered additional if the project activities would not have occurred without the revenue from a voluntary carbon credit. The additionality score is a function of how likely it is that the project is additional, and how likely it is that the project is over-crediting on the carbon avoidance or removal it is delivering.</blockquote>
Ecologi has always had a regionalised approach to our impact, consistently applying additional scrutiny to the projects we elect to support through our platform. Only six renewable energy projects are currently eligible for receipt of funding from our platform – out of an estimated &gt;2,200 renewable energy projects on the voluntary carbon market. Our careful selection process has ensured that we consider not only the type of project but also its specific implementation location.
For example, we have deliberately chosen not to fund large hydroelectric dams due to their associated social and environmental risks and we have generally steered clear of offshore wind projects, favouring onshore wind solutions that are more appropriate for the regions we support. We have always prioritised those situated in areas where the energy grid is still heavily reliant on fossil fuels, such as Morocco and Mexico, to maximise impact as much as possible.
This all said, following the ICVCM’s ruling on renewables, we have made the decision to stop offering renewable energy carbon credits via our Impact Shop.
We believe it is a good thing that the ICVCM is rejecting certain methodologies from receiving its high-quality label. This rigorous approach is necessary to maintain and improve the integrity of the carbon market – to raise the quality of projects across the board – and to ensure that all participants can trust that their investments are driving real, additional climate benefits.

<h2>Updates to pricing on the Impact Shop</h2>
Finally, on October 1st we will be updating pricing across our Impact Shop to reflect recent changes in market prices, and as a result some of our products will be cheaper to support.
<h3>Why are we making this change?</h3>
As part of our commitment to staying aligned with the evolving voluntary carbon market and providing the best prices we can to customers, we are also adjusting our pricing structure. To better reflect current market prices, we have reviewed and updated all the prices for carbon projects, some of which have reduced in price slightly. We are pleased to report that none of our existing projects have increased in price.
Pricing in the carbon market is dynamic, influenced by a variety of factors including regulatory updates, market demand, geographies, ratings, and broader project qualities. We aim to stay responsive to these changes and ensure that our offerings continue to provide value to all stakeholders involved, from project developers to buyers and the communities benefiting from these projects.
As an impact-driven organisation who put planet first, we want to ensure that we are responsive to the market and our customers are getting the best deal for the impact they want to support.

<h2>What do these changes mean for our customers?</h2>
There are no direct actions that our customers will need to take in light of these changes.
As of October 1st you will notice that our generic ‘<a href="https://x.ecologi.com/impact-shop/support-carbon-avoidance" target="_blank" rel="noopener">Carbon avoidance</a>’ project and our ‘<a href="https://x.ecologi.com/impact-shop/support-renewable-energy" target="_blank" rel="noopener">Renewable energy carbon avoidance</a>’ project will no longer be available on the Impact Shop. You will also notice that our new CCP-Approved landfill gas capture project will be available to support, and that the price of some of our existing projects have decreased slightly.

Carbon accounting 101: What is it and why you should do it

What is carbon accounting?

Organisational vs product footprinting

What isn’t measured can’t be managed: The carbon accounting process

More posts

Carbon Compensation vs. Contribution: what’s the difference?

Case study: How BioPak UK is engaging customers and leading the way to a world without waste

Upcoming changes to the Ecologi Impact Shop

Stay in touch with Ecologi