Literature Review on Carbon Accounting, Emission, and its Footprint

This literature review provides a comprehensive overview of carbon accounting, tracing its evolution from a component of environmental management accounting to a distinct field addressing climate change. It explores the concept and stages of carbon accounting, highlighting the shift from measuring environmental management to encompassing product issues, supply chains, and climate accounting. The review also addresses environmental cost shifting, particularly the unequal flow of carbon emissions between developed and developing countries, and discusses the challenges in allocating responsibility for emissions, advocating for consumption-based approaches. Furthermore, it examines carbon emission as a measure of carbon footprint, detailing various factors such as system boundaries, calculation scope, and the importance of both direct and indirect emissions. The review concludes by emphasizing the need for accurate measurement and reporting to facilitate effective carbon emission reduction strategies.

Business Research Methodology
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1.0 Literature review
1.1 Introduction
As stated by Plevin et al., (2015), carbon accounting came into the interest of
practitioners and researchers after the Kyoto agreement was accepted. This led to the
formation of the Environmental Management Accounting Network (EMAN) that are one of
the biggest advocates of environmental management at the organizational level. Carbon
accounting was developed after the formation of EMAN. Stechemesser and Guenther, (2012)
claims that in the past decades, environmental issues such as climate are of the one of the
major sustainability that the world is going through. Globalization has changed the global
scenario where the level of carbon emission has increased significantly due to increase in
demand of fossil fuel for transportation, Liu, Wang and Su, (2016) states that carbon
accounting in the past 20 years have become specific from being a broad functional issue
where carbon accounting has been used for environmental management. This reflects that
there has been growing attention on greenhouses gases consideration in corporate decision
making. The work done by Intergovernmental Panel on Climate Change (IPCC) and emission
trading, carbon disclosure project and stern reports have made it compulsory for the
companies to record carbon dioxide emission in their financial statement. According to
Bebbington, Russell and Thomson, (2017), the main challenge in carbon accounting is the
identification of the climate-relevant aspects for managerial accounting.

1.2 Carbon accounting
According to Ascui, (2014), integration of different climatic change mitigation into
accounting is known as carbon accounting. However, it is difficult to deduce whether carbon
accounting is a key part of environmental accounting like the way environmental accounting
is a part of accounting. Ter-Mikaelian, Colombo and Chen, (2014) argued that carbon
accounting has different meanings to different people as it covers an eclectic range of diverse
practices. It can be divided into two categories, one is financial carbon accounting which
gives monetary market value to carbon and physical carbon accounting which quantifies the
physical amounts of greenhouse emission. Physical carbon accounting facilitates the
companies in maintaining greenhouse gas inventory by evaluating the amount of carbon
emitted by them. Butman et al., (2016) states that once the physical carbon accounting
identifies the amount of emission then target can be set to reduce the amount of emission.
This shows that carbon accounting will facilitate in developing strategies to mitigate the
excess carbon emission. However, there has been significant changes in carbon accounting in
the past two decades where the focus has become more specified and addresses definite areas
of ecological management (Jasinevičius et al., 2018). The transformation and development of
carbon accounting has been divided into diverse stages to analyse the change carbon
accounting has gone through.
1.3 Concept and stages of carbon accounting
Liu, Wang and Su, (2016) states that international environmental policy and change in
climatic condition has increased the demand of management and measurement of the carbon
emission data. Frank et al., (2015) states that carbon emission consists of range of activities

such as measurement, calculation, verification and reporting. Shao et al., (2014) has
distinguished among the different carbon accounting levels such as corporate, scientific,
political and economic. Scientific carbon accounting encompasses majority of the emission
tendencies, enhances awareness and provides valuable references of reducing carbon
emission and keep the levels within sustainability. The economic and political carbon
accounts contribute by translating the environmental information to economic terminologies
and policy development tools which facilitates business orientation. As stated by Biswas,
(2014), these carbon accounts can be used by the organizations to develop strategies and
actions for improving the performance based on the impact of climate change. Biswas, (2014)
highlighted the fact that corporate, national, industry and international level of carbon
accounting have different scopes and has emphasized on using carbon management
accounting as an alternative of using the carbon accounting. In order to capture the essence
of the shift in carbon accounting, four stages of carbon accounting have been used to classify
the progress.
The stage 1 depicts the use of carbon accounting as the measure of environmental
management accounting. Frank et al., (2015) states that environmental management
accounting focuses on functional areas rather than focusing on the topical areas. The
functional areas consists of material flow cost accounting, physical accounting, and capital
budgeting and financial accounting. Chaplin-Kramer et al., (2015) states that even though
carbon accounting has not been mentioned in any of these functional areas, but sill they have
gained their places. Physical accounting has addressed the emission of greenhouse and
carbon dioxide emission and financial accounting has focused on tradable emission permit

costs and carbon taxes. In management account, the energy cost has been considered as
environmental management cost. However, the coverage in this stage was minimal and
lacked focus.
The second stage was considering carbon accounting as a separate topic where more
attention to climate in environmental management accounting has been given for sustainable
business practices. The importance of greenhouse gases increased significantly where it had
been considered as a standalone topical issue which led to segregation of carbon management
accounting as separate research focus. Chaplin-Kramer et al., (2015) states that right before
the financial crisis, carbon emission was the top priority of environmental management. The
management and measurement of greenhouse gases has become the top priority of majority
of the companies that aim to reduce the carbon footprint under their area of operation. The
third stages considered carbon accounting as a measure of covering the product issues and
supply chain. As stated by Liu, Wang and Su, (2016), import of goods have been considered
as one of major contributors to the emission of the greenhouse gases due to the increase in
stages of transportation time. This has considerable the carbon emission accounts in
understanding the parties responsible for emission and their roles. The final stage of carbon
accounting is the shift to climate accounting where non emission of non-carbon based gases
have been included. The incorporation of the climate change accounting includes the
consideration of climate adaptation and mitigation costs along with the emission costs.
Therefore, all the impacts and costs related to climate change are systematically and
comprehensive covered using the climate accounting.

1.4 Environmental cost shifting
The Kyoto agreement considered only the domestic production of greenhouse gases
and carbon emission and the demand driven emission of the greenhouse gases are not taken
into account. Afionis et al., (2017) states that national emission of greenhouses due to the
exports needed to be taken into account as they are contributing significantly to the change in
the climatic conditions. There is unequal flow of carbon emission in different countries due to
the difference in demand in developed and developing countries. Millward-Hopkins et al.,
(2017) claimed that even though international is balanced in terms of monetary exchange but
it is unequal in terms of sink capacity and biomass exchange. Moreover, it is unsustainable
mutually or unilaterally due to ecological imbalance between the partners. Environmental
cost shifting of uneven nature affects the marginalised companies due to the flow of
materials. The majority of the developed countries have been transporting natural resources
and goods from developing countries at cheaper cost which is highly affecting the ecological
environment of the poorer countries. According to the environmental ecological paradox, the
countries having higher demand of natural resources cause less degradation to their own
natural environment. Afionis et al., (2017) states that the rich countries are indebted to the
poorer countries for the environmental consequences faced by the developing countries. Le
Breton and Aggeri, (2018) states that the ecological unequal exchange increases the
appropriation of sink capacity and global natural resources.
Chaplin-Kramer et al., (2015) argued that material flow in international trade will
takes the direct import and export into account and the indirect flow of the emissions, waste
and materials are not considered. This develops the unequal distribution of environmental

impact even though it seems to be balanced. Le Breton and Aggeri, (2018) claimed that
majority of the developed countries have shifted their ecological burdens to the developing
countries by means of ecological rucksack, emission and footprint.
1.5 Responsibility for emission
Ascui, (2014) examined the method of allocation and handling the transboundary
pollutants showing there is lack in the sustainability measures as each indicator provided
varied insights to the policy makers. The major dilemma that arises the fact that whether to
implement product based approach or consumption based approach. The handling of even
flow of resources have to be managed by the consuming country as they have generated the
demand of the exported products. This has to be applied cases where the importing country is
wealthier and have sounder economy than the exporting country (Plevin et al., 2015). This
evaluation shows that indirect emission has not been considered and by analysing the
consumption based approach of carbon emission it has been seen that indirect emission of the
greenhouses are not reported efficiently. This results in the unequal distribution and flow of
greenhouse gases in the company. Therefore, an indicator has to be developed that measures
the indirect impact. Plevin et al., (2015) states that one country is affected ecologically due to
the benefit of another country so it is the responsibility of the benefited county to measure
and reduce the greenhouse gas emission and manage the climatic condition.
1.6 Carbon Emission as a measure of carbon footprint
Sun, (2014) states that the amount of emission of carbon dioxide due to the corporate
entities is known as carbon footprint. In order to understand, different factors and aspects
have to be examined such as system boundary, calculation scope, carbon accounting

approach, measurement unit, and decomposition of carbon footprint and scope of accounting.
This first major concern is to identify the type of carbon accounting approach that has to be
used. There is a dilemma between the physical valuation and monetary valuation. The
monetary carbon accounting approach does not measure the emission itself whereas the
physical accounting approach accounts emission (Stechemesser and Guenther, 2012). This
shows that in order to justify the consumption based approach physical accounting is more
appropriate but in other cases the monetary approach is preferable.
The evaluation of the system boundaries shows that carbon emission values are
applied to business related, national and regional units. Bebbington, Russell and Thomson,
(2017) states that there is significant need of carbon accounting at diverse geographical
levels. The calculation scope determination is another key aspect where claims suggest
whether only direct emissions are taken into consideration or the indirect emissions also have
to be taken into consideration. In case of the national emission accounting the emission from
exports are included but the production related emissions are included. Butman et al., (2016)
suggested that the impacts of services and goods throughout the life cycle has to be taken into
consideration. Sun, (2014) claimed that the measure of the amount of carbon dioxide
emission both indirectly and directly due to the activities throughout the life cycle is known
as carbon footprint. The direct and indirect emission are botch considered in this case and this
shows that carbon footprint deals with the emission of carbon dioxide from all the possible
sources and due all the possible activities. Sun, (2014) states that carbon footprint concept is
linked to the life cycle assessment and considered as the simplest form of life cycle
assessment. Moreover, the author agreed that carbon footprint is not a new concept and it is

the indication of the global warming potential. However, only measurement of carbon
dioxide emission has been taken into account in measuring the carbon footprint. The last
concern is the measurement of carbon foot footprint and it can done in terms of carbon
dioxide equivalents and at the same time it can also done in terms of area. The units are
tonnes and global hectares which that both these measurement indicate different things but
are equally crucial in setting up targets of carbon emissions reduction.
1.7 Conclusion
The literature has provided a brief analysis of the carbon accounting history and how
it has changed over the years. Carbon accounting has become one of the key aspect of the
accounting for corporate organization and multinational companies have set targets to reduce
the emission of the greenhouse gases. The importance of climate change and emission of
greenhouse gases have gained significant important in the past decade and is one of the top of
the priority list of the environmental policies of major companies.

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