Accounting for diverse greenhouse gases in the environmental balance sheet : How to account for CO2 and CH4 using different emission metrics

Abstract

The ongoing challenges of global warming and climate change emphasize the importance of reliable and concrete sustainability reporting. Continuous rise in greenhouse gas emissions should hold a significant place in such reporting. It is essential to quantify, measure, and compare these emissions, as each greenhouse gas affects the climate differently. Our thesis investigates how to account for diverse greenhouse gases in the environmental balance sheet, with particular focus on CO2 and CH4 emissions. Initially, the thesis delves into financial accounting to demonstrate how it forms the basis for climate accounting. We present the financial transactions of a steel mill, which are linked to the generation of its emissions. These emissions will be illustrated in our presentation of climate accounting, particularly in the environmental balance sheet and the income statement. Furthermore, we present the mechanics of carbon footprints, explaining the transfer of emissions from one company to another. To convert diverse greenhouse gases to CO2 equivalents, we introduce various emission metrics. The metrics we have chosen to utilize are the Global Warming Potential and the Global Temperature Change Potential. We provide critical assessments of these metrics and facilitate a comparative analysis. The thesis emphasizes the importance of time horizons and the persistence of emissions. We note that selecting varying time horizons when utilizing emission metrics changes the presentation of the quantity of CO2 equivalents. This primarily arises from their differing approaches in accounting for the shorter lifespan of CH4. We also recognize that distinct metrics serve specific purposes, and the choice of metric depends on the intended measurement. This includes measurements such as radiative forcing and temperature changes. Regarding emissions reduction, we present some of the key measures within climate policy. Implementing effective measures is pivotal for transitioning towards a low-carbon economy. Finally, we calculate the decay of CO2 equivalents to demonstrate how emissions diminish in the atmosphere over time.