(162d) Carbon Accounting for Sustainable Supply Chains.

In the pursuit of global sustainability and the ambitious commitment to achieve net-zero emissions, the significance of robust carbon accounting methodologies becomes paramount. Net-zero emissions entail achieving a balance between the total amount of greenhouse gases emitted and the amount removed from the atmosphere, often through carbon offsetting or removal technologies. Various countries, including the United Kingdom, Canada, India and Japan, have established net-zero targets, aiming to achieve this balance by a specified date. In fact, approximately 89% of the world's greenhouse gas emissions are now under some form of net-zero target, whether in policy documents, international agreements, or corporate pledges[1]. Carbon accounting is essential for organizations and industries aiming to quantify and mitigate their carbon footprints. As nations, businesses, and communities increasingly commit to net-zero goals†, accurate and transparent carbon accounting is necessary for tracking progress, identifying areas for improvement, and implementing effective strategies to reduce greenhouse gas emissions. The ability to measure and account for carbon emissions not only facilitates compliance with regulatory frameworks but also provides a foundation for informed decision-making, resource allocation, and the formulation of targeted interventions.

The need for standardized carbon accounting was highlighted by the World Economic Forum Net-Zero Industry Tracker in 2023 as a key takeaway[2], as challenges persist, including reporting standards, supply chain instability, and transparency gaps. The complexities of carbon accounting extend beyond the immediate operational boundaries of organizations, encompassing what are known as Scopes 1, 2, and 3 emissions. Scopes 1 and 2 cover direct emissions from sources owned or controlled by an organization (Scope 1) and indirect emissions from purchased electricity, heat, or steam (Scope 2). These scopes are relatively straightforward to address, as they involve emissions that organizations have direct control over or are closely linked to their operations. Consequently, many countries have already incorporated reporting requirements for Scopes 1 and 2 emissions into their regulatory frameworks, reflecting their importance in understanding and mitigating carbon footprints.

However, the challenge intensifies with Scope 3 emissions, which encompass all other indirect emissions along the value chain, including those from upstream and downstream activities such as supply chains, transportation, and product use. Scope 3 emissions often represent the largest portion of an organization's carbon footprint and are significantly more challenging to measure and manage due to their complex and extensive nature. According to the CDP, there are 11.4 times more emissions in a company’s supply chain compared to its direct operations[3]. While reporting on Scope 3 emissions is not yet as widespread as for Scopes 1 and 2, there is a growing recognition of their importance in comprehensive carbon accounting. Countries like France have already begun to include Scope 3 reporting requirements in their policies, signalling the need for organizations to be prepared to incorporate these emissions into their accounting methodologies[4]. Addressing Scope 3 emissions effectively will require enhanced collaboration across supply chains, transparency in data sharing, and innovative approaches to measurement and reporting. As such, the inclusion of Scope 3 emissions in regulatory frameworks underscores the urgency for organizations to develop robust carbon accounting practices that capture the full extent of their emissions footprint and enable informed decision-making towards achieving net-zero objectives.

This research intricately examines the landscape of carbon accounting with a specialized focus on the decarbonization of the logistics industry incorporating maritime shipping, aviation, and road transport. The logistics industry plays a pivotal role in global supply chains, serving as a crucial link connecting producers with consumers across the globe. However, it is also a significant contributor to carbon emissions with the international trade-related freight transport accounting for around 12% of global greenhouse gas (GHG) emissions and energy and with transportation accounting for more than 75% of the GHG emissions embedded in international trade[5]. Unlike some industries that may have more localized emissions, logistics involves extensive transportation networks, making it challenging yet critical to develop effective strategies for carbon reduction. By focusing on the logistics sector, this research aims to address the unique challenges and opportunities associated with carbon accounting in an industry that spans various modes of transportation and supply chain complexities.

The significance of examining carbon accounting within the logistics industry is further underscored by the emergence of carbon border adjustment mechanisms and the increasing recognition of consumption-based emissions. With the implementation of carbon border adjustment mechanisms on the horizon, there is a growing imperative for organizations to accurately measure and report their carbon emissions throughout the entire supply chain. Additionally, the focus on consumption-based emissions highlights the need to account for emissions associated with the production and transportation of goods consumed in one region but manufactured in another. This necessitates a comprehensive understanding of the carbon footprint embedded in international trade, particularly within the logistics sector, which is essential in connecting global producers and consumers. By addressing the unique challenges and opportunities inherent in carbon accounting for logistics, this research aims to provide insights that contribute to the development of effective strategies for emissions reduction and compliance with evolving regulatory frameworks.

Building upon our critical review and assessment of CO₂ footprint methods and analysis, our research sheds light on the strengths, weaknesses, and gaps within existing carbon footprint methodologies. Through a thorough examination of factors within the CO₂ accounting and decarbonization ecosystem, we identify areas where current methods may fall short and propose innovative solutions to address these shortcomings. By scoring different factors within the CO₂ accounting framework, we provide a comprehensive assessment of its effectiveness in guiding emissions reduction strategies.

Furthermore, our research leverages diverse datasets to advance our understanding of carbon accounting methodologies. Collaborating with our industrial partners, primarily including Hitachi Ltd., we explore how different policies and regulations can be integrated into existing frameworks. Through modelling techniques, we investigate future interventions aimed at significantly reducing emissions from logistics and built environment functions, while also assessing how the benefits of such interventions can be effectively monitored and measured.

In addition to regulatory considerations, our summary analysis and prioritization of challenges faced by organizations in achieving Net Zero highlight common obstacles such as regulatory complexity, data quality issues, and the complexities of Scope 3 emissions. Through a structured analysis, we identify the most pressing challenges and propose strategies for overcoming them. Prioritizing challenges enables organizations to better allocate resources and develop targeted interventions to accelerate progress towards Net Zero goals.

In conclusion, our research bridges the gap between theoretical frameworks and practical applications in the realm of carbon accounting and emissions reduction. Through collaborative efforts leveraging diverse datasets, we identify intervention measures tailored to the unique needs of the logistics and built environment sectors. By delving into existing methodologies, regulatory landscapes, and industry challenges, this work equips organizations with the knowledge and tools necessary to navigate the complex ecosystem of carbon accounting. The study aims to propose innovative methodologies for quantifying the environmental impact of carbon accounting practices within a regulatory context. This collaborative exploration anticipates not only advancing carbon accounting practices but also providing tailored recommendations for the integration of these activities into regulatory frameworks on a global scale. The research aims to bridge knowledge gaps between regions, fostering global knowledge sharing and advancing transparent and credible accounting practices for carbon emissions associated with various industries.

*Corresponding author e-mail address: nm1217@imperial.ac.uk

[1] Net Zero Tracker (2023). https://zerotracker.net/insights/net-zero-targets-among-worlds-largest-companies-double-but-credibility-gaps-undermine-progress

[2] World Economic Forum (2023). https://www3.weforum.org/docs/WEF_Net_Zero_Tracker_2023_REPORT.pdf

[3] Global Supply Chain Report (2020). https://www.cdp.net/en/research/global-reports/transparency-to-transformation

[4] S&P Global (2024). https://www.spglobal.com/marketintelligence/en/news-insights/blog/investment-banking-essentials-april-3

[5] World Trade Organization (2021). https://www.wto.org/english/news_e/news21_e/clim_03nov21-4_e.pdf