The Greenhouse Gas (GHG) Protocol Corporate Accounting and Reporting Standard has been the de facto standard for corporate carbon emissions accounting for more than 21 years.
While GHG Protocol standards underpin every major environmental reporting regime, new proposals, such as E-Ledgers, Carbon Measures, and the Carbon Accounting Standards Initiative, have entered the conversation.
Each proposal has addressed the double-counting issue prevalent in the GHG Protocol, where emissions may be counted once by the emitter and a second time by a company in its value chain. This article, though, discusses the time dimension, a critical feature of decision usefulness, and the proposed General-Purpose Life Cycle Assessment (GP-LCA), which incorporates the passage of time into carbon accounting.
GHG standards and time
Published in 2001, the GHG Protocol’s Corporate Accounting and Reporting Standard introduced the concepts of Scope 1, 2, and 3 carbon emissions. Scope 1 is an entity’s direct emissions from combustion of fossil fuels in operations; Scope 2 is indirect emissions from electric energy consumption; and Scope 3 is indirect upstream and downstream emissions from the entity’s value chain.
In 2024, more than 24,000 companies, representing over 66% of total global market capitalisation, reported to CDP (formerly the Carbon Disclosure Project) using the GHG Protocol standard. Further, in September, the two main GHG standards bodies, ISO and GHG Protocol, announced a strategic partnership to blend their existing standards and codevelop unified global standards for GHG accounting.
However, climate finance, or using the resources of finance to support actions that address climate change, relies on both financial and GHG disciplines. Foundational to financial decision-making is the ability to compare choices that are spread out over long periods of time.
Concepts such as depreciation help investors compare investments in capital-intensive industries, such as manufacturing and railways, with capital light sectors, such as professional services. Measures such as interest and discount rates reflect the value of money over time. Further, managers use leading indicators, or forward-looking measures that signal future trends, together with lagging indicators, or backward-looking measures confirming what has already occurred, to guide strategic decision-making.
This raises a question: Does GHG accounting enable management decision-making on the timing of costs and benefits? This is especially valid, as decarbonisation investments today will create benefits in the future. Recent research at the Smith School of Enterprise and the Environment at the University of Oxford has found that the answer is “no”.
For example, to achieve net zero by 2050, a real estate professional might want to compare the upfront embodied carbon in construction with the ongoing operational carbon. The problem is analogous to optimising the allocation of financing between upfront CapEx and ongoing OpEx. Both the real estate professional and the finance and accounting professional share a perspective on such timeframes in their decision-making.
Constructing buildings under the Passivhaus standards, stringent energy-efficiency standards leading to net-zero homes and buildings, reduces operational carbon emissions by about 76%. However, the additional material needed to insulate the building can increase upfront embodied emissions by roughly 30%. This allocation affects carbon-aligned decision-making. When should the building be torn down? Retrofitted? When should solar panels be installed or clean energy alternatives used?
Other dynamics are more complex, as some greenhouse gases last in the atmosphere for 12 years, while others last for thousands of years. How should emissions be accounted for far beyond an asset’s useful life?
Contemporary carbon accounting: The value chain
The GHG Protocol standards are designed to elucidate emissions across the supply chain, identifying hotspots in products and production processes. While direct emissions, such as Scope 1, are due to a reporting entity’s actions, indirect emissions, such as consuming electricity (Scope 2) and purchased goods and services (Scope 3), occur elsewhere in the supply chain. In essence, the three Scopes are spatially organised: They inform which upstream and downstream processes are connected to the reporting entity.
One consequence of the GHG Protocol system is that emissions can be double-counted because every entity along the supply chain needs to record both upstream and downstream processes (see the chart “Stylised Examples of a Supply Chain Using GHG Protocol and E-Ledger System”).
For example, iron ore is a starting material for steel manufacturing. A steel facility needs to declare Scope 3 upstream emissions from iron ore production, while the entity producing iron ore needs to disclose its Scope 3 downstream emissions due to steel manufacturing. Although this view is useful in revealing the carbon intensity of an entity’s value chain, it is less conducive to making strategic decisions at the entity level.
E-Ledgers: An activity-based approach
The E-Ledger system (formerly E-Liability) fixes the double-counting weakness. It was first proposed by Bob Kaplan (Harvard Business School, and of activity-based costing and balanced scorecard fame) and Karthik Ramanna (Blavatnik School of Government, University of Oxford) in their highly influential 2021 Harvard Business Review article, “Accounting for Climate Change”.
They proposed that “the planet” is the only transacting entity that keeps track of global emissions, and, by drawing on activity-based inventory accounting techniques, their methodology allocates emissions to entities based on their production footprint. Each company shifts its upstream emissions to downstream customers upon a sale of a product, thereby removing the need for every company to count that product’s emissions.
To ensure there is no supply chain double-counting, one of the founding principles of the E-Ledger Proto-Standard is that all emissions of an entity must be assigned to its output. As a result, any entity can report an E-Liability of zero if it liquidates all its inventory (see the chart “Stylised Examples of a Supply Chain Using GHG Protocol and E-Ledger System”).
Stylised examples of a supply chain using GHG Protocol and E-Ledger system
This issue has come to the fore recently with the launch of the business coalition Carbon Measures. Backed by businesses from carbon-intensive industries, such as ExxonMobil, Honeywell, and Vale, the coalition seeks to establish a product-level, ledger-based carbon accounting framework that allows for market-based solutions to lowering emissions. Some individuals argue that such a framework provides more transparency for carbon emissions embodied in these companies’ products, while others are concerned that the companies would appear to have reduced their carbon emissions without necessarily having taken any positive actions to do so, such as direct carbon removal.
Carbon Accounting Standards Initiative (CASI): A product-centric approach
The Carbon Accounting Standards Initiative (CASI) focuses on rules to calculate and assign emissions to a product and mechanisms to transact emissions between entities. Developed by researchers at the universities of Mannheim and Stanford, it draws on accrual and historical cost accounting rules.
First, it proposes a method for how to match direct emissions from fossil fuel consumption to embodied emissions of manufactured products. Assets depict embodied carbon emissions of assets, such as raw materials, work-in-progress, and finished goods, while liabilities are a firm’s cumulative direct and indirect emissions into the atmosphere. In the chart “Values Within a CASI Carbon Balance Sheet”, the balance sheet matches the embodied emissions of an asset to the direct cause of the emissions (the liability). Equity represents the embodied emissions in sold goods, which is therefore negative, unless the firm or its suppliers have removed carbon directly from the atmosphere.
Values within a CASI carbon balance sheet
A key innovation is carbon emissions in goods sold (CEGS), the measure of flow. This is calculated as the sum of individual product carbon footprints × volume sold, analogous to cost of goods sold (COGS). It is added to owners’ equity at the end of each accounting period, leading to a negative equity balance increasing from year to year and reflecting how the products sold by the company have contributed to atmospheric carbon.
The ratio of CEGS to COGS provides a decision-useful measure of the carbon intensity of the company’s products.
Both E-Ledgers and CASI are welcome solutions addressing the double-counting issue. E-Ledgers focuses on the transfer of carbon emissions down a supply chain, while CASI proposes new calculative methods for assigning carbon emissions to a product.
However, the weakness in both methods is an erroneous application of depreciation. Both systems describe how carbon emissions should be depreciated over an asset’s useful life, thereby showing how an asset would have zero emissions upon disposal. Yet, methane lasts in the atmosphere for 12 years, while carbon dioxide persists for several thousand years. For a 75-year-old building, at end of life, both systems would significantly overestimate the methane footprint while severely underestimating the carbon dioxide footprint. In short, the temporal dynamics of carbon emissions are not accurately portrayed.
Introducing a time element to carbon accounting
Researchers led by this article’s coauthor Jimmy Jia at the Smith School of Enterprise and the Environment at the University of Oxford tackled the time-based problem head on.
Their solution: a temporal data structure for GHG accounting. Called General-Purpose Life Cycle Assessment (GP-LCA), it incorporates concepts of double-entry bookkeeping as a means to track the passage of time for carbon emissions accounting.
It proposes a statement of position (carbon balance sheet) to depict the accrued embodied emissions of assets and a trade statement (carbon releases and withdrawal) to depict the flow of carbon in and out of an entity due to economic activities. It borrows the concept of matching, where effort (expenses) is matched with accomplishment (revenue). Within the GP-LCA system, carbon emissions (effort) can be matched with carbon withdrawals (accomplishments).
GP-LCA also introduces two concepts of depreciation, one to account for the use of an asset over its useful life (the traditional depreciation definition) and another to account for the natural absorption of GHGs into planetary carbon cycles.
This distinction enables GP-LCA to differentiate between the use of a building over its 75-year lifespan with the several thousand-years lifetime of carbon dioxide due to construction of that building.
GP-LCA further introduces the concept of embodied emissions of an entity. This capitalises emissions from operating a business. Unlike E-Ledger, which assigns all emissions that arise from overhead activities to products, passing the emissions to customers, GP-LCA proposes accumulating overhead emissions into embodied emissions of an entity — where a carbon asset is matched with residual income. In this way, the carbon intensity of net income can be analysed, helping investors understand the carbon intensity of profits distributed to shareholders.
The model has been used successfully in real estate case studies to elucidate trade-offs between financial returns and net-zero progress. The chart “Carbon Emissions Payback of a Passivhaus” shows the differences between upfront emissions due to building construction (year 1) from the accrued emissions from ongoing operations (years 2–73). This simplifies the calculation of payback and other temporal-based decision-support metrics.
Carbon emissions payback of a Passivhaus
Further, it enables the analysis of the financial risk of carbon emissions. Aligning GHG and financial accounting streamlines analysis. It enables distinguishing the analysis of upfront cash investment, the supply chain emissions, and carbon risks from ongoing net operating income, energy price risk, and carbon price risk. In short, it brings clarity to carbon risks that may be hidden and pervasive within a company’s financial statements.
Ultimately, as climate considerations become inseparable from capital allocation and corporate strategy, carbon accounting must evolve to meet the same decision-usefulness standards long expected of financial reporting.
GP-LCA represents a significant step forward: embedding time, matching principles, and planetary carbon dynamics into a double-entry framework.
It enables decision-makers to distinguish between upfront and ongoing dynamics, understand hidden financial costs and risk exposures, and evaluate the carbon intensity of profits with far greater clarity.
If net zero is to be delivered with financial discipline and strategic clarity, collaboration between researchers and practitioners is essential. The GP-LCA project is looking for collaborations and practical implementation opportunities to continue developing the method as well as increasing the usefulness of GHG metrics in financial decision-making. Please contact Jimmy Jia at jimmy.jia@sbs.ox.ac.uk for more information on how to support this project.
Jeremy Osborn, FCMA, CGMA, FCPA, D. Phil., is global head of sustainability and vice president-Management Accounting Innovation, Research & Developmentat the Association of International Certified Professional Accountants, and Jimmy Jia, D.Phil., is a nonexecutive director and lead, Saïd Business School—Smith School Initiatives. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com
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“CIMA Urges Businesses to Rethink Business Models Amid Polycrisis”, FM magazine, 14 May 2026
“Accounting for Carbon: Lessons From a Port”, FM magazine, 13 March 2026
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