Climate change and carbon accounting

In short

Climate change is the long-term shift in temperature and weather patterns caused mainly by the build-up of greenhouse gases (GHGs) from fossil fuel burning, land-use change, agriculture and waste. Carbon accounting is the measurement, calculation and reporting of those emissions in tonnes of CO₂ equivalent (tCO₂e), for a country, a company, a product or a project. It matters because India's climate commitments under the Paris Agreement, SEBI's BRSR Core disclosures and the new Carbon Credit Trading Scheme (CCTS) turn emissions into a legally reported and tradeable quantity. The topic is examined in B.Sc/M.Sc Environmental Science, GATE Environmental Science & Engineering (XE/ES) and UGC-NET, and is used daily by sustainability analysts, ESG consultants, EHS officers and energy auditors at firms such as EY, Deloitte, KPMG, Tata Steel, Ultratech, Infosys and TERI.

Explained

The physics: greenhouse effect, forcing and feedbacks

• Greenhouse effect: the atmosphere is largely transparent to incoming short-wave solar radiation (peak ~0.5 µm) but absorbs outgoing long-wave terrestrial infrared (~4-100 µm), re-radiating part of it downward and raising surface temperature by about 33 °C above the no-atmosphere value.
• Radiative forcing (RF): the change in net downward energy flux at the tropopause, in W/m², caused by a perturbation. Positive RF warms. Cumulative anthropogenic RF since 1750 is of the order of +2.7 W/m² (IPCC AR6), CO₂ alone contributing roughly +2.1 W/m².
• Natural vs enhanced: the natural effect (water vapour, CO₂, CH₄, O₃, N₂O) makes Earth habitable; the *enhanced* effect from anthropogenic additions causes warming.
• Feedbacks: positive - water vapour, ice-albedo (melting ice exposes dark ocean), permafrost methane release; negative - increased cloud reflectivity (uncertain), enhanced CO₂ fertilisation of plants.
• Climate sensitivity: equilibrium warming for a doubling of CO₂; AR6 best estimate ~3 °C (likely range 2.5-4 °C).
• Observed signals: global mean surface temperature now roughly 1.1-1.3 °C above 1850-1900; CO₂ past 420 ppm (pre-industrial 280 ppm); sea-level rise ~3.7 mm/yr recently; Indian signals include erratic monsoon, Himalayan glacier retreat, heatwave frequency and cyclone intensification in the Arabian Sea.
• Ozone depletion is a different problem (CFCs destroying stratospheric O₃, Montreal Protocol) though CFCs/HFCs are also potent GHGs - the Kigali Amendment links the two.

Greenhouse gases, GWP and CO₂ equivalent

• The Kyoto basket of seven gases: CO₂, CH₄, N₂O, HFCs, PFCs, SF₆ and NF₃.
• Global Warming Potential (GWP): time-integrated radiative forcing of 1 kg of a gas relative to 1 kg of CO₂ over a horizon, usually 100 years (GWP₁₀₀). CO₂ = 1 by definition.
• Representative AR6 GWP₁₀₀ values (fossil CH₄ ≈ 29.8, biogenic CH₄ ≈ 27.0, N₂O ≈ 273, SF₆ ≈ 24,300). Older inventories use AR5 or AR4 values (CH₄ = 25 in AR4), so always state the assessment report used - mixing them is a classic error.
• Atmospheric lifetime: CH₄ ~12 yr, N₂O ~109 yr, SF₆ ~1,000 yr; CO₂ has no single lifetime (a fraction persists for millennia), which is why cumulative CO₂ governs peak warming.
• GWP*/GTP: alternative metrics; GWP* better represents short-lived gases like methane. Mentioned in advanced syllabi.
• CO₂e: emission of gas i × GWP of gas i, summed over gases.
• Biogenic vs fossil carbon: CO₂ from biomass combustion is reported separately (outside the Scopes) as it is assumed to be part of the short carbon cycle; CH₄ and N₂O from the same combustion are always counted.

Policy architecture: global and Indian

• UNFCCC (1992, Rio): framework convention; principle of common but differentiated responsibilities (CBDR-RC); Annex I (developed) vs non-Annex I (India) parties.
• Kyoto Protocol (1997, in force 2005): binding targets for Annex I only; flexibility mechanisms - Clean Development Mechanism (CDM), Joint Implementation, International Emissions Trading. India was a major CDM host (CERs).
• Paris Agreement (2015, in force 2016): all parties submit Nationally Determined Contributions (NDCs); goal to hold warming well below 2 °C and pursue 1.5 °C; five-yearly ratchet and Global Stocktake; Article 6 provides for cooperative approaches (6.2 bilateral ITMOs) and a centralised mechanism (6.4, successor to CDM); Enhanced Transparency Framework replaces the Annex split for reporting.
• India's updated NDC (2022): reduce emissions intensity of GDP by 45% from 2005 levels by 2030; achieve about 50% of cumulative installed electric power capacity from non-fossil sources by 2030; create an additional carbon sink of 2.5-3 billion tCO₂e through forest and tree cover by 2030 (carried from the 2015 NDC). Net zero by 2070 announced at COP26 (Panchamrit).
• Domestic instruments: National Action Plan on Climate Change (NAPCC, 2008) with eight missions (notably National Solar Mission, National Mission for Enhanced Energy Efficiency, National Water Mission); State Action Plans; PAT scheme (Perform, Achieve and Trade - ESCerts for designated consumers under the Energy Conservation Act, 2001); Renewable Energy Certificates; National Green Hydrogen Mission; LiFE (Lifestyle for Environment).
• Energy Conservation (Amendment) Act, 2022 created the legal basis for the Carbon Credit Trading Scheme (CCTS), notified 2023, administered by the Bureau of Energy Efficiency with MoEFCC/MoP. It has a compliance mechanism (GHG emission intensity targets for obligated entities in sectors such as aluminium, cement, chlor-alkali, fertiliser, iron and steel, pulp and paper, textile and petrochemicals, with Carbon Credit Certificates tradeable on power exchanges) and an offset mechanism for non-obligated entities. Target trajectories and compliance years have been notified in phases - check the latest BEE notification, as sectoral targets and dates are still being amended.
• Disclosure: SEBI requires the Business Responsibility and Sustainability Report (BRSR) for the top 1,000 listed companies, with BRSR Core KPIs (including Scope 1 and Scope 2 intensity) subject to reasonable assurance on a phased basis; value-chain reporting has been shifted to a voluntary/phased footing - verify the current SEBI circular, as timelines have been relaxed more than once.
• Standards: GHG Protocol (Corporate Standard, Scope 2 Guidance, Corporate Value Chain/Scope 3 Standard, Product Standard); ISO 14064-1 (organisation-level quantification), 14064-2 (projects), 14064-3 (validation/verification), ISO 14067 (product carbon footprint), ISO 14068-1 (carbon neutrality); IPCC 2006 Guidelines + 2019 Refinement for national inventories; PCAF for financed emissions; ISSB IFRS S2 for climate disclosure.
• CBAM: the EU Carbon Border Adjustment Mechanism charges embedded carbon on imports of iron and steel, aluminium, cement, fertiliser, electricity and hydrogen - definitive obligations from 2026, directly affecting Indian exporters and a very common interview topic.

Carbon accounting: boundaries and the three Scopes

• Step 1 - organisational boundary: choose the equity share approach, or control approach (financial control or operational control). Operational control is the most common Indian corporate choice.
• Step 2 - operational boundary: classify emissions into Scopes.
  • Scope 1 - direct: combustion in owned/controlled sources (boilers, furnaces, DG sets, company vehicles), process emissions (calcination of limestone in cement, reduction of iron ore), fugitive emissions (refrigerant leaks, methane from pipelines).
  • Scope 2 - indirect from purchased energy: bought electricity, steam, heat, cooling. Reported two ways: location-based (grid average emission factor) and market-based (contractual instruments - PPAs, RECs, green tariffs).
  • Scope 3 - all other value chain emissions, in 15 categories: 1 purchased goods and services, 2 capital goods, 3 fuel- and energy-related activities, 4 upstream transport, 5 waste generated in operations, 6 business travel, 7 employee commuting, 8 upstream leased assets, 9 downstream transport, 10 processing of sold products, 11 use of sold products (usually the largest for vehicles and appliances), 12 end-of-life treatment, 13 downstream leased assets, 14 franchises, 15 investments (financed emissions).
• Step 3 - base year: fix a base year, state recalculation policy for structural changes (acquisitions, divestments) exceeding a significance threshold.
• Step 4 - data collection: activity data (litres of diesel, kWh, tonne-km, kg of clinker) from meters, invoices and logbooks.
• Step 5 - calculate: activity data × emission factor × GWP.
• Step 6 - report, verify, reduce: disclose absolute and intensity figures, get third-party assurance (limited or reasonable), then abate.
• Quantification tiers (IPCC): Tier 1 default factors; Tier 2 country-specific factors; Tier 3 plant-specific models/CEMS measurement. Higher tier = lower uncertainty.
• Approaches: *activity-based* (physical units × factor) is preferred; *spend-based* (₹ spent × factor per ₹) is a fallback for Scope 3 category 1; *hybrid* combines them; *supplier-specific* data is the most accurate.
• Indian emission factors: the CEA CO₂ Baseline Database for the Indian Power Sector gives the grid factor (recent combined-margin/average values in the region of 0.7-0.8 tCO₂/MWh; use the current CEA version for any calculation). Fuel factors come from the IPCC Guidelines, GHG Platform India and the BEE/ MoEFCC inventories.

Project accounting, offsets and net zero

• Carbon credit: 1 credit = 1 tCO₂e reduced, avoided or removed, verified against a methodology and issued by a registry (Verra VCS, Gold Standard, UNFCCC CDM/Article 6.4, India's CCTS offset mechanism).
• Baseline and additionality: emission reduction = baseline emissions − project emissions − leakage. The project must be additional - it would not have happened without carbon finance (barrier, investment and common-practice tests).
• Other integrity criteria: permanence (risk of reversal, buffer pools for forestry), no double counting (serial numbers, retirement, corresponding adjustments under Article 6), MRV (monitoring, reporting, verification), no overestimation, safeguards/co-benefits.
• Avoidance vs removal: renewable energy and cookstoves *avoid* emissions; afforestation, soil carbon, biochar, BECCS and direct air capture *remove* them. Net zero claims under the SBTi-type framework need deep cuts first, with removals only for the residual.
• Compliance vs voluntary markets: compliance (EU ETS, India's CCTS) is mandated by law; voluntary (corporate purchases) is price-setting and credibility-sensitive.
• Carbon tax vs cap-and-trade: a tax fixes the price and lets quantity vary; a cap fixes quantity and lets price vary. India has no explicit economy-wide carbon tax; the erstwhile Clean Environment Cess on coal (₹400/tonne) was subsumed when GST came in.
• Terminology: *carbon neutral* (emissions balanced by offsets, usually Scope 1-2), *net zero* (deep absolute reduction in line with 1.5 °C plus removal of residuals, including Scope 3), *climate positive/net negative* (removes more than it emits). Carbon footprint = total CO₂e of an entity, activity or product; water footprint and ecological footprint are separate metrics.
• Mitigation vs adaptation: mitigation reduces emissions or enhances sinks; adaptation reduces vulnerability (drought-tolerant crops, cyclone shelters, early-warning systems). Loss and damage funding addresses residual harm.
• Carbon capture: post-combustion (amine scrubbing), pre-combustion, oxy-fuel; storage in saline aquifers or basalt; utilisation into urea, methanol or aggregates. NITI Aayog has a CCUS policy framework; costs remain high.

Life cycle thinking and product footprints

• LCA stages per ISO 14040/14044: goal and scope, inventory analysis (LCI), impact assessment (LCIA), interpretation.
• Cradle-to-gate (raw material to factory exit), cradle-to-grave (including use and disposal), cradle-to-cradle (closed loop).
• Functional unit is essential: "1 tonne of cement" or "1 kWh delivered" - comparisons without a common functional unit are meaningless.
• Global warming potential is one impact category among many (acidification, eutrophication, ozone depletion, water scarcity) - reporting only carbon is "carbon tunnel vision".
• Embodied vs operational carbon: in buildings, embodied carbon sits in materials (cement, steel); operational carbon comes from running energy. ECBC/ENS (Energy Conservation Building Code) and GRIHA/IGBC ratings address the operational side mainly.

Key points

• Greenhouse effect - atmospheric absorption of outgoing infrared that warms the surface by ~33 °C naturally; anthropogenic GHGs enhance it.
• Radiative forcing - energy imbalance in W/m²; CO₂ contributes the largest single positive forcing.
• GWP₁₀₀ - warming effect of a gas relative to CO₂ over 100 years; CO₂ = 1, CH₄ ≈ 29.8, N₂O ≈ 273 (AR6).
• CO₂e - common currency of carbon accounting: mass of gas × its GWP.
• CBDR-RC - UNFCCC principle that developed countries must act first and support others; basis of India's negotiating position.
• Paris Agreement - universal, bottom-up NDC architecture with five-yearly ratchet, replacing Kyoto's top-down Annex I targets.
• India's NDC - 45% cut in GDP emission intensity by 2030, ~50% non-fossil power capacity, net zero by 2070.
• CCTS - India's carbon market under the Energy Conservation (Amendment) Act, 2022, with compliance (intensity targets) and offset mechanisms, run by BEE.
• PAT - earlier intensity-based trading scheme using ESCerts for designated consumers; the precursor to CCTS.
• Scope 1/2/3 - direct, purchased-energy, and value-chain emissions; Scope 3 usually dominates the total.
• Location-based vs market-based Scope 2 - grid average factor versus contractual green power instruments; both must be disclosed.
• Organisational boundary - equity share, financial control or operational control; it decides what you count.
• Emission factor - CO₂e per unit of activity (kg/litre, tCO₂/MWh); Indian grid factor from the CEA database, around 0.7-0.8 tCO₂/MWh.
• IPCC Tiers 1-3 - default, country-specific and plant-specific quantification; higher tier, lower uncertainty.
• Additionality and baseline - a credit is valid only if the reduction is beyond business-as-usual and measured against a defensible baseline.
• Carbon neutral vs net zero - offsetting a balance versus deep absolute cuts plus removals for residuals.
• BRSR Core - SEBI-mandated assured ESG KPIs for large listed companies, including GHG intensity.
• CBAM - EU border carbon charge on steel, aluminium, cement, fertiliser, electricity and hydrogen imports; a direct cost risk for Indian exporters.

Formulas and examples

Example 1 - CO₂e of a mixed gas stream. A plant emits 5,000 t CO₂, 120 t CH₄ (fossil) and 8 t N₂O in a year. Using AR6 GWP₁₀₀:

• CO₂: 5,000 × 1 = 5,000 tCO₂e
• CH₄: 120 × 29.8 = 3,576 tCO₂e
• N₂O: 8 × 273 = 2,184 tCO₂e
• Total = 5,000 + 3,576 + 2,184 = 10,760 tCO₂e. Note CH₄ and N₂O together exceed the CO₂ itself, though they are only 128 t by mass. Using AR4 values (25 and 298) the total would be 10,384 tCO₂e - which is why the GWP source must be stated.

Example 2 - Scope 1 and Scope 2 of a small factory. Annual consumption: 40,000 litres of diesel in a DG set, 18,000 kg of LPG in an oven, 1,200 MWh of purchased grid electricity. Factors: diesel 2.68 kg CO₂e/litre, LPG 2.98 kg CO₂e/kg, grid 0.75 tCO₂/MWh.

• Diesel: 40,000 × 2.68 = 107,200 kg = 107.2 tCO₂e
• LPG: 18,000 × 2.98 = 53,640 kg = 53.64 tCO₂e
• Scope 1 = 107.2 + 53.64 = 160.84 tCO₂e
• Scope 2 (location-based) = 1,200 × 0.75 = 900 tCO₂e
• Scope 1 + 2 = 1,060.84 tCO₂e. If the factory signs a PPA covering 500 MWh of solar, market-based Scope 2 = 700 × 0.75 = 525 tCO₂e, and total falls to 685.84 tCO₂e - the location-based figure is unchanged at 900.

Example 3 - emission factor from first principles. Diesel has roughly 86% carbon by mass and density 0.84 kg/litre.

• Carbon per litre = 0.84 × 0.86 = 0.7224 kg C
• CO₂ per litre = 0.7224 × 44/12 = 0.7224 × 3.667 = 2.649 kg CO₂/litre, close to the standard 2.68 (which includes CH₄ and N₂O as CO₂e and slightly different composition).
• Cross-check on an energy basis: NCV ≈ 43 MJ/kg → 0.84 × 43 = 36.12 MJ/litre = 36.12 × 10⁻⁶ TJ; × 74,100 kg CO₂/TJ = 2.677 kg CO₂/litre. The two routes agree within 1%.

Example 4 - rooftop solar project: credits and money. A 500 kWp rooftop plant in Gujarat generates at a capacity utilisation factor of 17%, displacing grid power at 0.75 tCO₂/MWh.

• Annual generation = 500 kW × 8,760 h × 0.17 = 744,600 kWh = 744.6 MWh
• ER = 744.6 × 0.75 = 558.45 tCO₂e/year (project emissions and leakage taken as nil for operation)
• At a credit price of ₹1,200/tCO₂e, revenue ≈ 558.45 × 1,200 = ₹6,70,140/year
• At an avoided tariff of ₹7.50/kWh, electricity savings = 744,600 × 7.50 = ₹55,84,500/year - carbon revenue is only about 12% of the energy saving, the standard point that offsets rarely drive the investment.

Example 5 - intensity target under a CCTS-type compliance scheme. A cement plant emits 1.65 million tCO₂e producing 2.5 Mt of cement. The notified target intensity is 0.62 tCO₂e/t cement.

• Actual intensity = 1.65 ÷ 2.5 = 0.66 tCO₂e/t
• Gap = 0.66 − 0.62 = 0.04 tCO₂e/t → shortfall = 0.04 × 2.5 million = 1,00,000 tCO₂e
• The plant must buy 1,00,000 Carbon Credit Certificates; at ₹1,500 each that is ₹15 crore. If instead it raises blended-cement share and cuts intensity to 0.58, it earns 0.04 × 2.5 M = 1,00,000 CCCs to sell - a ₹30 crore swing on a 0.08 t/t change in intensity.

Where it is used

• ESG and sustainability consulting: EY, Deloitte, KPMG, PwC, Bureau Veritas, TUV and Ernst-type teams prepare GHG inventories, BRSR Core data and assurance files - entry roles are "Sustainability Analyst" and "ESG Associate".
• Hard-to-abate manufacturing: Tata Steel, JSW, Ultratech, Dalmia, Hindalco, Grasim and fertiliser majors run obligated-entity accounting under CCTS, CBAM reporting for EU exports, and plant-level decarbonisation projects.
• Energy and carbon auditing: BEE-certified Energy Auditors and Energy Managers under the Energy Conservation Act; PAT/ESCert verification; ISO 14064 and ISO 50001 implementation.
• Carbon project development and registries: developers of cookstove, biogas, afforestation, solar and waste-to-energy projects registered with Verra, Gold Standard or CDM; MRV and validation/verification body (VVB) roles.
• Banking and finance: PCAF-based financed emissions at SBI, HDFC and large NBFCs; green bond reporting; climate risk under RBI's climate-risk and green-deposit framework.
• Government and research: MoEFCC's Biennial Transparency Reports and national GHG inventory, CEA emission-factor database, NITI Aayog, TERI, CSTEP, WRI India, state climate action cells.

Interview questions

• Q: What is the difference between Scope 2 location-based and market-based reporting? A: Location-based uses the average emission factor of the grid you draw from; market-based uses the factors of contractual instruments like PPAs and RECs. Both are disclosed because only location-based reflects physical grid reality.
• Q: Why is CO₂ the reference gas when methane is far more potent? A: Because CO₂ is emitted in by far the largest quantity and persists longest, so it dominates cumulative warming; GWP simply expresses other gases in CO₂-equivalent terms for a common accounting unit.
• Q: A company says it is carbon neutral. What would you check? A: Whether the claim covers Scope 3, how much comes from offsets rather than real reductions, and the quality of those offsets - additionality, permanence, vintage and whether they are retired without double counting.
• Q: What is additionality and why does it matter? A: A project is additional if it would not have proceeded without carbon revenue. Without it, credits pay for business-as-usual and the buyer's "offset" delivers no atmospheric benefit.
• Q: How would you build the first GHG inventory for a 10-plant Indian manufacturer? A: Set the organisational boundary (usually operational control) and base year, map all Scope 1 and 2 sources per plant, collect fuel and electricity data from invoices and meters, apply IPCC fuel factors and the current CEA grid factor, then screen Scope 3 categories for materiality.
• Q: Which Scope 3 category is usually the largest and why? A: It depends on the business - purchased goods and services for retail and FMCG, use of sold products for vehicles and appliances, and investments for banks, because that is where the bulk of value-chain energy is consumed.
• Q: How does India's NDC target differ from an absolute cap? A: India commits to reducing emission intensity of GDP by 45% from 2005 levels by 2030, so absolute emissions may still rise with growth; an absolute cap would fix total tonnes regardless of output.
• Q: What is CBAM and what does it mean for an Indian steel exporter? A: The EU's border carbon adjustment charges embedded emissions on imports of steel, aluminium, cement, fertiliser, electricity and hydrogen, so exporters must measure product-level emissions and may pay the difference between their carbon cost and the EU price.
• Q: Why is biomass CO₂ reported outside the Scopes? A: Because the carbon was recently absorbed from the atmosphere by the plant, so it is treated as part of the short carbon cycle and reported separately as biogenic; the associated CH₄ and N₂O are still counted in Scope 1.
• Q: What is the difference between PAT and CCTS? A: PAT traded energy-saving certificates (ESCerts) against specific energy consumption targets for designated consumers; CCTS trades Carbon Credit Certificates against GHG emission-intensity targets and also has an offset mechanism for non-obligated entities.
• Q: Carbon tax or cap-and-trade for India - which would you recommend? A: A cap-and-trade intensity scheme like CCTS fits better in the near term because it protects output growth and uses the existing PAT and exchange infrastructure, while a tax gives price certainty but is politically harder on coal and transport fuels.
• Q: Two reports give different totals for the same plant. What are the likely causes? A: Different GWP sets (AR4 vs AR6), different grid emission factors or vintages, a different organisational boundary or Scope 3 coverage, and recalculation after an acquisition or divestment.

Common mistakes

• Mixing GWP sets from different IPCC assessment reports in one inventory, or quoting a GWP without saying the time horizon.
• Confusing ozone depletion with global warming - treating the Montreal Protocol as a climate treaty, or blaming CFCs for the greenhouse effect alone.
• Double counting Scope 2 inside Scope 3 category 3, or counting a supplier's Scope 1 as the buyer's Scope 1 instead of Scope 3.
• Unit slips: kg versus tonnes, kWh versus MWh, tCO₂ versus tCO₂e, and forgetting the 44/12 factor when converting carbon mass to CO₂.
• Treating an offset purchase as equivalent to an emission reduction, and calling it net zero without Scope 3 or absolute cuts.
• Using a stale or wrong grid emission factor - the CEA figure is revised each year, and state/regional values differ.
• Comparing products or processes without a defined functional unit or a stated system boundary (cradle-to-gate versus cradle-to-grave).

Related topics

ESG and sustainability reporting · Renewable energy · Environmental impact assessment · Environmental laws in India · Environmental monitoring and analysis · Waste management rules: plastic, e-waste and biomedical