Daily Archives: June 5, 2023

Carbon Calculation is Great, But What You’re Really Concerned About is YOUR e-Liability

A few weeks ago, we ranted that Carbon Tracking is Important — But a Calculator or a Credit is Not a Solution! The reasons that credits were not a solution were that most “credits” were iffy at best, and downright fraudulent at the worst. The only solutions to carbon are actual reduction or proven capture. But that’s a diatribe for another rant. A calculator is not a solution either. It’s important to understand YOUR carbon footprint, but simply understanding your footprint is not addressing your footprint. Plus, it’s not just your inbound footprint you need to worry about, it’s your outbound footprint as well. You are NOT responsible for any carbon in your organization associated with products or services that are being sold to another business. You are only responsible for the carbon footprint of products are services that are being sold to a consumer or that you incur in running your operations.

In other words, what you need to be tracking and addressing is your e-Liability, which was well defined in a recent Harvard Business Review article on accounting for climate change. And this is not scope 3 carbon tracking or ESG reporting under the GHG protocol which contains flaws that result in the same emissions reported multiple times throughout the chain by different companies and other emissions being completely ignored. All emissions need to be captured ONCE and allocated as appropriate between the different entities in the supply chain, depending on which business is the last business to acquire the products or services that the emissions are directly correlated with.

Note the concept of direct correlation. All of the GHG produced mining a rare earth mineral is direct GHG associated with that rare earth mineral, and is passed up the supply chain to the buyer who buys that ore to process it, whereas all of the GHG produced by the CEO flying around on his private jet just because he can is indirect GHG that is the liability of the corporation that needs to be accounted for, and offset in someway, but that cannot be passed on to an organization that buys its ore (as it was not GHG absolutely necessary to extract the ore).

The best part of the HBR e-Liability recommendation by Kaplan and Ramanna is that it is based on financial accounting principles which track liability inflows and outflows the same way an accountant or economist would track inflows and outflows. It’s mathematically sound, makes perfect sense, doesn’t double count, and properly used, won’t miss anything either. If you want calculator, get a proper e-Liability calculator.

But remember that understanding your e-Liability is only your first step. The next step is to find ways to actually reduce your GHG footprint by reduction of unnecessary activities, production process improvement (including energy and water efficiency), and product design improvements. (Not BS credits.)