2. Scoping and Definitions

2.1 Scoping

The manual is intended to provide a guideline for companies that cause carbon emissions. The main objectives of this accounting manual are:

  • To establish an “accounting” model that reflects the actual cost of consumption of operational and value of embedded carbon by a reporting entity.
  • The preparation of a carbon balance sheet to serve both disclosure as part of external reporting and as the basis for internal management of emissions; and
  • Assist stakeholders and management in understanding and interpreting the carbon emission and related cost and benefits when making decisions about investments in either maintenance of existing assets and/or producing new ones.
  • To provide a framework that allows to illustrate the cost and value associated with carbon management at the corporate level.

While this framework has been conceived with the view of construction and management of real estate in mind, it could be conceptually adapted for other industries.

2.2 Definitions

AssetIs an asset as defined in the GAAP used by the reporting entity.
Carbon Asset Fair ValueThe fair value of a carbon asset does not consider the amount of carbon that has been used to produce the asset (as this carbon has already been emitted) but it considers the amount of carbon that would need to be emitted to produce an asset which would fulfill similar economic activities given the current state of technology. As such the fair value of embedded carbon asset is deemed to reduce as the world economy moves from a carbon-based economy to a decarbonized economy.
Carbon Asset productionA carbon asset is produced when the carbon emitted by the company results into the production of an asset that is able to generate additional future economic benefits to the company.  This is for example the case when real estate is built, or when new square meters are added to an existing building, or when a façade is being renewed.
Carbon equityIt is to be noted that the so-called carbon equity does not fulfill the definition of equity under IFRS. Under this model it is a measure of the difference between the carbon assets of a company and its carbonliabilities. Carbon equity is the reflection of what would be the liability to the shareholders (in case of negative equity), or the value to the shareholders (in case of positive equity) of the carbon operations at a given reporting date.
Carbon gain/lossThe theoretical financial gain/loss that results from a change in value of a carbon asset or a carbon liability.
Embedded carbonEmbedded carbon is the carbon footprint of all goods, material, assembly, that is emitted during the process of “producing” an asset. This is for example the carbon that will be emitted in the construction of a real estate asset, or in its refurbishment.
Future operational carbon liabilityIt represents the theoretical cost of future carbon emission that is committed at the time of the production. These emissions will be needed to allow the asset to produce its expected future benefit.
Operational carbonEmissions of carbon dioxide and other climate-impacting gases during the regular operation of a reporting entity. For a real estate company this is the carbon used in powering, heating, cooling its portfolio, but also the carbon used in its own office activities. Operational carbon does exclude the carbon used to produce an asset (which is considered in the Embedded Carbon)
Green DividendGreen Dividend results from the vote by the reporting entity´s General Meeting to reduce its ordinary dividend and instead invest the proceeds in carbon mitigation projects that do not meet the company´s financial return hurdles. In the carbon accounts Green Dividend accrues as Equity.
Price of carbonThe market price of carbon as determined for the purpose of this Carbon Accounting based on the trading of carbon on an active market.
Paid-Carbon EmissionA paid-carbon emission is a carbon emission that took place during the reporting period for which the reporting entity can link a direct cost in its GAAP items (for example an amount of carbon for which it had paid-carbon taxes). In GHG carbon accounting the difference between paid-carbon and unpaid-carbon will also sometime be referred to as market based and location based.
Retained earningsChanges that run through the carbon P&L are reflected in retained earnings at year-end and are as such recognized as “addition” to carbon equity in the balance sheet.
Unpaid-Carbon EmissionUnpaid-Carbon Emissions are carbon emission for which the company cannot link a direct cost in its IFRS or otherwise GAAP accounts. Direct cost can be a carbon tax, a compensation scheme, the cost of Direct Air Capture (DAC), Carbon Capture and Storage (CCS) technologies, or a market based clean energy procurement policy.

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