Setting a base year in carbon accounting

Setting a base year in carbon accounting is an essential part of any successful climate strategy. It allows organizations to track their greenhouse gas (GHG) emissions over time and assess progress toward their reduction goals.

With more and more regulatory pressure to disclose emissions in 2024, you should absolutely start your Net Zero journey sooner than later – if you haven’t done so yet.

This guide will walk you through the process of setting a base year for carbon accounting, best practices to follow, and what to do when your organization changes significantly.

What is a base year in carbon accounting?

In carbon accounting, the base year is the year against which an organization’s future GHG emissions are compared. Its emissions data serves as the benchmark for carbon reduction targets and to measure overall progress.

As the name suggests, the base year sets the foundation for your emissions progress over time. Its emissions data should be included in all your ESG and sustainability reports and any carbon disclosures you publish.

The base year usually represents the first year for which you have collected comprehensive data and knowledge of your corporate GHG emissions. We will look further into how to select an appropriate base year below.

Baseline Emissions are the GHG emissions reported for the base year.

It comes as no surprise that with a successful climate strategy, your company’s emissions should decrease over time and show a significant difference from the initial benchmarks.

Setting the right base year for your company

The simplest way is to select the first year you have obtained any GHG emissions data for.

However, that’s not super accurate, right? Here are a few more considerations, as outlined by the GHG Protocol:

• Data Availability: The base year should be the first year for which comprehensive and reliable data is available. This means including all emissions from Scopes 1 and 2 and at least all significant sources from scope 3.
• Relevance: The base year should be relevant and representative of your organization’s current operations. If you recently underwent major changes in your business model or expanded rapidly, you might have to recalculate your baseline emissions.
• Alignment: If the organization is part of a larger group or sector, it may help to align the base year with other entities to make comparisons easier.
• Regulatory Requirements: If there are any regulatory requirements or industry standards that specify a base year, these should be considered. For example, some sectors like cargo shipping or construction have sector-specific requirements for baseline calculations.

While you might think most of the Fortune 500 have base years that date at least 10-20 years back, you’d be surprised. Most are not older than 3-7 years maximum.

As you see, selecting the right base year is a bit more involved than it may appear initially. Here is how to do it right:

1. Understand your Organization’s Operations

This one might sound a little strange…after all, you probably know your own company pretty well. However, to select an appropriate base year for carbon accounting, it’s crucial to really understand the ins and outs of your operations.

Some questions to ask yourself:

• What are your company’s main activities?
• How and where does it consume fossil fuels or energy?
• Have there been recent M&A activities?
• Did the organization have any major shifts in operations lately?

2. Select the most appropriate year

Select the first year that accurately represents your current operations and for which you are sure you can obtain enough emissions data.

Don’t worry if you notice halfway through that some assumptions weren’t correct. It’s always possible to recalculate your baseline emissions later. A carbon accounting software like Reegy can make this process much simpler!

3. Collect Data

Once the base year is set, data collection is crucial. Identify and measure all significant sources of GHG emissions. This includes direct emissions from owned or controlled sources (Scope 1), and indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the organization (Scope 2).

All other indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream activities, fall under scope 3. These are usually the hardest to measure and track but often largely exceed the other two categories.

4. Calculate the Baseline

After the data is collected, the next step is to calculate the total GHG emissions for the base year. These are called “baseline emissions” and you’ll probably come across this term regularly.

Our Eco Hub platform automates your baseline emissions calculations and takes the hassle out of carbon accounting.

5. Set Reduction Targets

Once the baseline emissions for the base year are known, you can set reduction targets. These should be Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). The targets can be absolute (reduce emissions by X% from the base year) or intensity-based (reduce emissions per unit of output).

A popular approach is using Science-Based Targets that follow strict guidelines and increase transparency.

6. Monitor and report your progress

After setting the base year and reduction targets, regular monitoring and reporting are essential.

All your carbon reports and disclosures should include your baseline emissions for reference. This gives investors, stakeholders, and customers the ability to understand the progress you’re making and evaluate your climate action.

7. If applicable: Recalculate your baseline emissions

Sometimes, businesses change. This could be a merger or acquisition, a major shift in production, or more accurate data you have obtained.

If there are significant changes in the business that affect emissions, it may be necessary to recalculate the baseline or adjust the base year entirely.

We’ll show you below how that works.

7. External Verification

External verification by a third-party auditor can provide assurance that the organization’s GHG emissions data and reduction achievements are accurate and credible. This is especially important if the organization is participating in a voluntary emissions reduction scheme or if it’s required by regulation.

8. Review and Update

The base year, emissions data, and reduction targets should be reviewed and updated regularly. This will ensure that they continue to be relevant and aligned with the organization’s evolving business operations and sustainability goals.

Remember, setting a base year for carbon accounting is not just about compliance with regulations or achieving certification. It’s about making a commitment to sustainability and taking concrete steps to reduce an organization’s environmental impact.

When to recalculate base year emissions?

Companies are required to recalculate base year emissions when significant changes occur that have an impact on the inventory.

Some examples include:

• Mergers & acquisitions
• Outsourcing or insourcing of activities
• Changes in calculation methodologies
• Improvements in data accuracy, or discovery of significant errors
• Changes in the categories or activities included in scope 3

Conclusion

Setting a base year for carbon accounting purposes is a crucial step in reporting your GHG emissions. While there are a few guidelines and basic rules, the most important one is: Select a year for which you are able to obtain reliable and complete data.

Reegy’s climate management platform can help you with this and give you suggestions on which data you should use.

Talk to us and let’s get your climate efforts on track!