4.2 Greenhouse gas accounting: A foundation for sound climate governance
Formulating, implementing and enforcing policies intended to reduce greenhouse gas (GHG) emissions  requires credible and reliable information that shows where emissions come from and who is responsible for them. Just as they are essential for the integrity of the global financial system, standardised accounting frameworks, transparent reporting mechanisms and robust verification systems are vital for effective climate governance.
The consequences - to the environment, communities and markets - of accidentally inaccurate or intentionally misleading GHG information are significant. The expansion of carbon markets and offset trading has added even more layers of complexity and vulnerability to the integrity of GHG accounting.
Because GHG accounting has many objectives, various accounting approaches have been developed (see Box 1). For example, the Kyoto Protocol relies on national GHG inventories to determine whether participants meet their agreed-upon emissions limits. Likewise, carbon markets depend on standardised methodologies to ensure credits translate accurately into tons of emissions reduced. Corporate executives and investors rely on corporate GHG inventories to assess the financial or reputational risks associated with emissions. And consumers have more options to choose among competing products based on their carbon footprint.
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While great strides have been made over the last decade toward standardising GHG accounting and promoting emissions disclosure, information is still sparse or unreliable for some critical emission sources. Moreover, the absence of robust rules for some types of GHG accounting leaves certain accounting and reporting systems vulnerable to manipulation.
Because emissions are the result of decisions by a decentralised and diverse set of actors in virtually every sector of the global economy, developing comprehensive GHG information will require time, financial investment and capacity-building.
Box 1 | Major types of GHG accounting frameworks
National: National GHG inventories, required for parties to the United Nations Framework Convention on Climate Change (UNFCCC), are intended to document all human-caused emissions and removals within a country. Inventory reporting requirements are decided by the Conference of the Parties (COP) to the UNFCCC, and methodologies are developed by the Intergovernmental Panel on Climate Change.  The Kyoto Protocol has additional accounting rules that determine which sources and sinks  count toward a county's assigned amount of permitted emissions. Increasingly, sub-national jurisdictions, such as states, provinces, and cities, also conduct GHG inventories.
Corporate: Corporate GHG inventories include a company's direct emissions (from sources owned or controlled by the reporting company) as well as indirect emissions from purchased electricity and other sources not owned or controlled by the reporting company. Companies use inventories to assess risks, identify opportunities to reduce emissions and publicly report emissions information. Standards include the GHG Protocol Corporate Standard and ISO 14064-1.
Facility: Facility-level accounting includes emissions from a specific industrial installation; they are a component of corporate GHG inventories or undertaken to comply with mandatory reporting requirements.
Project: Project-level accounting, which quantifies the impact of GHG mitigation projects, is used to assign credits for offset projects in compliance-driven carbon markets such as the Clean Development Mechanism (CDM) and in voluntary markets. Rules include the GHG Protocol for Project Accounting, ISO 14064-2 and the Voluntary Carbon Standard, as well as methodologies used in specific markets, most prominently the CDM.
Product: This emerging practice tracks emissions associated with a specific good or service throughout its life-cycle - be it a clothes dryer, loaf of bread or mail delivery. The GHG Protocol and ISO are both developing international standards. The Carbon Trust has developed a standard (PAS-2050, for product life-cycle accounting in the United Kingdom.
Strengths and weaknesses of the GHG accounting infrastructure
Five accounting elements have emerged over the last decade that facilitate a 'true and fair'  description of GHG emissions or reductions. They are:
Always on Time
Marked to Standard
Quality assurance mechanisms
Each element has a unique role in ensuring robust and transparent GHG information, but each also carries shortcomings or vulnerabilities.
The principles of accuracy, comparability, completeness, consistency, and transparency, used initially by the UNFCCC to guide the development of national GHG inventories, have been modified for other types of GHG accounting, such as the corporate or project level (see Box 2).
GHG accounting principles provide guidance to practitioners by applying standards and requirements to specific situations. In some cases, fundamental trade-offs exist between principles. For example, completeness suggests that even small, highly uncertain sources should be included in an inventory, though this could compromise accuracy. Applying GHG accounting principles is therefore more of an art than a science, and more developed accounting frameworks and quantification methods means that practitioners will need to rely less on subjective interpretation of the principles.
Box 2 | GHG accounting principles
Principle | Definition
Accuracy | Ensure that GHG emissions are neither systematically over- nor under-quantified; reduce uncertainties as far as practicable
Comparability | Estimates are comparable between different reporting parties, based on agreed methodologies and formats
Completeness | Account for all sources, sinks and gases within inventory boundary; consider all relevant information
Conservativeness | Use conservative assumptions, values and procedures when uncertainty is high; do not overestimate GHG reductions
Consistency | Allow meaningful comparisons of emissions estimates over time
Relevance | Use data, methods, criteria and assumptions relevant to the intended use of the information and serve decision-making needs of users, including external stakeholders
Transparency | Disclose and clearly explain assumptions and methodologies; disclose and justify any exclusions
Sources: World Resources Institute and World Business Council for Sustainable Development, The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (revised edition). WRI/WBCSD. 2005. The Greenhouse Gas Protocol for Project Accounting. FCCC/SBSTA/2006/9.
Accounting frameworks create common expectations regarding the construction of GHG accounts and make it easier to identify potential bias. They delineate which sources should be included in the accounts, determine which entities should account for which emission sources or reductions, and promote the comparability of GHG information between entities and over time.
Certain elements play a fundamental role in limiting opportunities to manipulate GHG accounts, including:
The inventory boundary, which establishes all GHG sources that must be accounted for and limits the possibility of skewing results by arbitrarily including or excluding certain sources from consideration. The comparability of accounts depends critically on standardised rules for determining who accounts for which emissions (for example, the joint ownership of a single facility), and how far up or down the value chain a company or project owner should go to account for their effects on emissions.
The ability to track emissions over time consistently from a given base year. A robust accounting framework will not allow a company or country to claim 'reductions' by simply applying a different methodology to the base year than to the reporting year, or by including sources in the base year that are excluded from the reporting year.
Emissions reduction projects are compared against a baseline scenario that estimates what an emissions level would be without mitigation efforts. Identifying the baseline scenario involves consideration of hypothetical, counterfactual situations in order to determine whether reductions occurring under the project are "additional" to those that would have happened anyway. As article 4.4 indicates, establishing consistent and objective approaches for this has proven difficult.
Despite the safeguards provided by accounting frameworks, two major gaps remain. First, they simply have not been developed or standardised for some situations. For example, no standardised approach yet exists for financial institutions and governments to estimate likely GHG impacts from policies and investments, though some banks and jurisdictions are exploring this.  And there is not yet a commonly accepted framework that balances a company's GHG assets (offsets or other reduction instruments) and liabilities (emissions). Therefore, a company can reduce emissions from a source, sell credits from the resulting reductions, and still count those same reductions toward meeting its own voluntary reduction goal, effectively double-counting the reduction. This issue primarily affects corporate accounts under voluntary programs, and new guidelines are being developed to address it.  A similar problem may arise in national GHG accounts, as developing countries that are eligible to host CDM projects are also taking on voluntary reduction targets. No rules prevent CDM or Reducing Emissions from Deforestation and Degradation (REDD) projects from counting against the targets of both buyer and seller countries simultaneously. And because seller (developing) countries' targets are voluntary in the international context, it is unclear how this might be resolved.
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The second shortcoming relates to accounting standards that are insufficiently robust to prevent manipulation. For example, to evaluate compliance with national emissions targets, the Kyoto Protocol considers the effects of afforestation, deforestation and reforestation. However, because deforestation is narrowly defined, emissions from some type of land conversion are not counted against a country's allowed emissions. For example, if a forest area is cleared but is not intended for another land use, this does not count as deforestation and therefore a country's emissions are not debited against the assigned amount - even if the deforested area does not get replanted or regain its original forest cover and carbon storage level. 
While it is sometimes possible to measure GHG emissions directly from the flue, it is far more common and cost-effective to calculate emissions by multiplying a unit of a commonly tracked activity, such as fuel consumption, by a factor of GHG emissions per that unit, known as an emission factor. The adequacy of this approach depends on the availability of complete and accurate activity data and of appropriate emission factors, which are more widely available for some source types than for others. Carbon dioxide emissions from fossil fuel combustion, for example, can be estimated to a fairly high level of certainty. On the other hand, estimates of nitrous oxide from agricultural soils and transport, methane from landfills, and PFCs, HFCs and SF6 are subject to far greater uncertainty,  due to technology, local climate or other considerations.
While these factors can compromise the quality of GHG information, robust accounting standards and methodologies limit the potential to exploit inherent uncertainty in order to manipulate information. For example, quantification methodologies for offset projects typically require a procedure for calculating emission factors and to estimate reductions conservatively.
Reporting systems collect GHG information and make it accessible to a range of stakeholders, including regulatory agencies, GHG reporting programmes or the general public. Reporting can be mandatory or voluntary, and while a great deal of reported information is publicly available, it is not comprehensive.
At the national level, UNFCCC parties are required to report their emissions to the Secretariat either annually (Annex 1 countries) or every few years as determined by the COP (non-Annex 1 countries). While most non-Annex 1 countries follow IPPC inventory guidelines, they are not required to do so, making reports variable in quality.  However, under the 2009 Copenhagen Accord, non-Annex I countries would submit national communications every other year, which would greatly enhance the time series of data but not in itself improve quality.
Capacity is a significant obstacle to comprehensive reporting. Historically, most non-Annex I counties have treated GHG inventories as one-off projects rather than ongoing programmes. This is consistent with the funding mechanism provided through the Global Environmental Facility, which was designed to support individual national communications rather than the establishment of ongoing inventory programmes. Consequently, money has been used to contract experts to prepare single reports rather than invested in establishing data collection processes that would enhance subsequent reports.  Until funding and technical capacity is scaled up to enable non-Annex 1 countries to submit regular and comprehensive data, it will be impossible to fully understand national and regional emissions trends.
Sub-nationally, facility-level reporting is generally required where GHG emissions are or may soon be regulated - namely Australia, Canada, Europe, Japan and, as of 2010, the US. Reporting laws do not cover all sources - regulators typically require reports from sources that produce a significant share of total emissions. Developing countries generally do not require facility-level reporting, although this may change as more countries contemplate new national emissions limitations. Facility-level information can be made public, although some programmes exempt companies if disclosure would compromise confidential business information.
A growing number of companies disclose their emissions voluntarily, a trend driven by stakeholder and investor demands, baseline establishment and protection,  and participation in voluntary programmes (see Figure 1). Voluntary GHG registries include the Climate Registry (North America), Brazil's GHG Protocol Program and similar programmes developed to build capacity, engage the private sector on climate issues and create political will for mitigation. Some industry associations also run programmes for their members, though the quality of this information varies; some are more prescriptive than others in terms of adherence to internationally accepted accounting standards and quantification methodologies. Since their focus tends to be on building capacity and engagement in GHG issues, most do not require verification.
Ideally, GHG reporting systems would not only promote comprehensive data collection, but also present it in a manner convenient for a range of audiences to use and interpret. This requires that data be easily accessible - for example, in a public, online database - and presented in a transparent format that can be aggregated and disaggregated. It also requires thoughtful communication based on a commonly understood set of terminology. In 2009, for example, the UK Statistics Authority suggested a report by the Department of Energy and Climate Change fell short of codes of practice for suggesting that emissions had dropped 12.8% without clarifying that almost a third of this represented carbon credit purchases. While the data was correct, the authority pointed out that non-expert readers might misinterpret it. 
Overall, the trend is clearly toward increased GHG reporting, both mandatory and voluntary. By the beginning of 2009, only eight non-Annex I countries had submitted national inventories for 2000 data. By mid-2010, 25 had done so. Australia and the US have begun requiring facility-level reporting, and Canada has ratcheted down the emission threshold at which reporting becomes mandatory.
At the corporate level the Carbon Disclosure Project, which acts on behalf of 475 institutional investors to solicit GHG information from companies, found that 83% of its Global 500 respondents reported GHG emissions.  Intensifying these efforts requires not only the financial and technical expertise to produce comprehensive and robust reports, but the public pressure to ensure that reporting is a priority.
Figure 1 | Jurisdictions with voluntary, corporate-level GHG accounting programmes
[NOTE - figure under revision.]
Adapted from Taryn Fransen et al, Measuring to Manage: A Guide to Designing GHG Accounting and Reporting Programs (Washington, DC: World Resources Institute, 2007).
Quality assurance and verification
Quality assurance and verification are essential for ensuring the integrity of GHG reports. A variety of approaches have been piloted and adopted for national inventories, facility-level reporting and crediting mechanisms. Nonetheless, oversight capacity and technical knowledge must be significantly enhanced to ensure reliability of GHG information.
At the national level, GHG inventories of Annex 1 countries are assessed by international experts who must pass a qualifying exam. The review process is generally considered adequate, although reviewer capacity is an ongoing challenge. While the UNFCCC has made significant investments in building this capacity, the number available experts is insufficient to meet review needs, creating a struggle to ensure the integrity of inventories.
Non-Annex 1 inventories historically have not been subject to technical review, but the Copenhagen Accord provides for a process of 'international consultations and analysis' of these reports  which is now being defined through a highly contentious international debate. While a review process analogous to that of Annex I inventories may not become politically feasible in the near term, some form of technical review would greatly help to enhance transparency and trust in the reported data. It would also provide a channel for feedback to non-Annex I technical experts on how to improve their inventories. Should non-Annex I inventories become subject to an Annex 1-type review process, however, the shortage of qualified reviewers will become even more acute.
Similar capacity challenges for verifying mitigation projects include a paucity of technically-qualified experts and possible conflicts of interest between offset project developers and those who assess the emissions reductions of those projects (see article 4.4).  ,  In response to shortcomings in the third-party verification process, the CDM Executive Board has increased its oversight, scaling up its staff five-fold over the last five years. 
Programmes mandating facility-level reporting may also require reporting by accredited third parties or allow spot auditing when non-compliance is suspected. At the national, project or facility level - for programme managers and regulators alike - devising verification and quality assurance requirements is a matter of balancing risk with cost. Comprehensive verification can be resource-intensive, requiring extensive time investment by technical experts. Some steps can be taken to overcome this hurdle: Japan, for example, is developing an electronic data system to faciliate data collection at the corporate and national level. 
For voluntary corporate inventories, some programmes and companies have indicated the value they receive from verification does not justify the cost. Though most programmes typically do not require third-party verification, some, such as the Climate Registry, the Brazil GHG Protocol Program and the Mexico GHG Program, offer differentiated recognition to companies that report verified information. Other voluntary programmes emphasise technical assistance, capacity-building and inventory management planning - focusing on facilitating rather than verifying information accuracy. Yet honest misreporting can happen. In 2009, an energy company familiar with GHG reporting systems nevertheless misclassified 70 million tonnes of carbon.  Thus, verification can provide an extra layer of protection from reputational risk.
Certainly, steps are being taken across various GHG accounting initiatives to improve quality assurance. Accreditation schemes now certify competent verifiers, and the ISO has developed standards for verifying GHG and accrediting verifiers.  While these relatively new efforts provide valuable guidance on identifying competent verifiers, broader reforms may be needed to protect against conflicts of interest.
Driven by the emphasis on 'measurable, reportable and verifiable' mitigation actions in the international policy framework, and by private sector interest in managing GHG-related risks all along supply chains, there is tremendous momentum toward more comprehensive and robust GHG information. As reporting becomes more widely mandated and encouraged, capacity has begun to replace political will as the prominent constraint. Technical and financial support, new accounting frameworks, enhanced data collection and user-friendly quantification tools will contribute to building necessary capacity.
Countries and companies that are major sources of emissions require technical support to develop data sets and adopt methodologies to prepare reliable inventories. The technical knowledge of reviewers and verifiers must be enhanced, and the number of experts filling these roles considerably expanded, in order to meet the needs of both private sector accounting initiatives and national GHG inventories. For the national inventories of developing countries, assistance in building technical capacity should be matched by financial support from the international community to develop more frequent and robust inventories.
Increasing stakeholder access to GHG information will be enhanced by identifying and prioritising gaps in accounting frameworks and implementing multi-stakeholder processes to fill these gaps. Candidates include 'balance sheet' frameworks and new approaches for governments and international financial institutions, including multilateral development banks, to account for the GHG impact of their policies and investments.
Enhanced data collection is also needed. By building on existing non-GHG data collection systems, it should be possible to ensure consistency while promoting synergies and saving resources. For example, China collects energy data to support its Top 1,000 Enterprises Program. GHG data could be collected simultaneously through relatively simple amendments. 
Developing a comprehensive and user-friendly database of emission factors and GHG quantification methodologies for inventory developers would facilitate data quantification. Such a resource could build on the current IPCC emission factor database, but its mandate should be broader than national inventories to include corporate, facility and life-cycle accounting, and it should contain user-friendly guidance on selecting appropriate emission factors for various sources and applications.
While building capacity, policy-makers and civil society must remain vigilant to ensure emerging policy architecture builds on existing systems to address GHG accounting, reporting and verification needs adequately. This is especially important given the uncertain future of the Kyoto Protocol and its associated emissions-tracking infrastructure.
The global community must work towards improved practices in reporting emissions and removals from land-use change. Common standards are also necessary for national registries to track inventories, reduction units and associated transactions. The role of civil society organisations in demanding access to GHG information and deploying it to call attention to best and worst practices is also critical; these organisations should seek opportunities to enhance their technical capacity.
Taken together, these steps would greatly enhance the availability and utility of GHG information for decision-making and accountability purposes.