A brief, sad, history of Carbon Auditing 1.0

The current carbon auditing system — let’s call it Carbon Auditing 1.0 — has had three decades to prove itself.

It’s been a huge success at creating a multi-billion dollar global carbon auditing, trading and consultancy industry.

And a huge failure at measurely reducing any carbon.

From its 1990s origins, carbon accounting mimicked financial accounting — not a bad idea in principle, but one that turned out disastrously in practice. It was based on the theoretically alluring notion that existing market forces could be tweaked to incentivize carbon reduction.

The economic thetory was, and remains, elegant. In practice, the current system of carbon credits, carbon markets, carbon trading has done nothing to speed up carbon drawdown. Arguably, it’s created a complacency that has slowed it down. Some studies reckon it has accelerated it.

Whatever the sordid details, experts have concluded it’s a bust. Our current system of carbon auditing should be dead in the water, but there’s no other lifeline out there to grab hold of.

Carbon Auditing 1.0 is irredeemably broken. It’s understandable why a multi-billion dollar industry keeps pleading for more time, and that one more tweak will fix it, but unless it addresses its two fundamental flaws, there’s no reason to suppose any tinkering will make any difference.

Fatal Flaw #1: wrong customers

The first flaw is that Carbon Auditing 1.0 is based on Sutton’s Law. This is a version of the Keep It Simple Stupid (KISS), or Occam’s Razor notion that the simplest solution is usually the correct one. It was named after the prolific American bank robber who, when asked by a reporter why he kept robbing banks, supposedly replied Because that’s where the money is’.

Like Willie Sutton, Carbon Auditing 1.0 is focused on big businesses and multinationals because they have money to pay for their audit standards, trading schemes and consultancy.

Whether they’re compelled by guilt, idealism, greenwashing or government regulation doesn’t particularly matter. Big businesses have the resources to budget for Carbon Auditing 1.0, so the current carbon industry is focused on them.

But they’re not the ones generating most of the greenhouse gases.

The vast majority comes from their supply chain of smaller companies who can’t afford Carbon Auditing 1.0 — Small and Medium Enterprises (SMEs).

Carbon Auditing and SMEs

The proportion of global emissions that come from SMEs is frustratingly inexact. This rather critical fact is a perfect illustration of Carbon Auditing 1.0’s inadequcies.

Most expert estimates SMEs account for around two-thirds. The OECD gives a range of 50 – 70%, an approximation that exposes the degree of guesswork involved. Imagine the World Bank saying America’s definitely in the world’s top three economies, but it couldn’t say exactly where.

Let’s call it 70%. If this seems inconsistent, irrational, and irritatingly arbitrary, we’ve made our point about Carbon Auditing 1.0.

Even if the current system did work (it doesn’t), it only addresses 30% of the problem.

If you have a massive fire, and a much smaller one, which one would you tackle first?

This is childishly obvious, but needs stating, even before we think about the other fatal flaw.

Fatal Flaw #2: money

If Carbon Auditing 1.0 doesn’t fancy SMEs because they don’t have any money, the solution is to come up with a system that’s free for SMEs to use.

Same for specialist carbon-reducing consultancy. Big business can afford to pay experts for advice on their net-zero strategy. We know this because most spend even more on greenwashing PR consultants. SMEs, however, don’t have the resources for such luxuries’.

The fact that our current system regards carbon reduction as a luxury’ tells you all need to know about how broken our current system is.

Carbon reduction is currently, in effect, a voluntary reputation tax paid by larger businesses who can afford it. In most cases, all they’re doing is paying other people to pretend to reduce carbon — this article explains why carbon offsetting’ is a sham.

The impending SME storm

But things are changing. A perfect storm is on the horizon for struggling SMEs to stay afloat, onrushing faster than any of them realise.

The inescapable reality of climate change, in the form of increased floods, fires and drought, is already upon us. Governments are showing more urgency in implementing and enforcing carbon drawdown.

Summits are held. Targets are set. Commitments are made. The pressure to account accurately for carbon emissions is rapidly percolating down from national level, to big business, and is about to hit SMEs.

Until recently big businesses have got away with only reporting Scope 1 emissions (i.e. those they directly control). Governments are increainsgly serious about requiring them to include Scope 2 (indirect emissions from their supply chains).

Some are already demanding more rigourous carbon accounting from big business. If they’re not already, big businesses will very soon be passing on this demand for better reporting to their SME supply chain.

For the numbers they report upwards to government to be meaningful, the numbers they collect downwards need to be accurate and consistent. Businesses (by and large) don’t get to choose which tax accounting standard to apply, so the same logic applies to carbon accounting.

Carbon Auditing 1.0 has created a huge market of carbon accounting standards, all competing to deliver the lowest number, with built-in flaws that would never be tolerated were money involved.

It’s simply not designed to satisfy what governments are now requiring — SMEs providing accurate carbon footprints.

This is exposing Carbon Auditing 1.0’s two fatal flaws: supply chains consist of the SMEs that emit 70% of the carbon SMEs can’t afford to pay for carbon audits

The problem seems intractable, but only if you try using Carbon Auditing 1.0 to fix it.

The Solution

The obvious solution is to retire Carbon Auditing 1.0 as a failed project, and replace it with a new version that:

  • measures carbon footprints as accurately as possible
  • is free for SMEs to use
  • is open source, so can be constantly updated to improve accuracy

In short, See Through Carbon.