What is carbon accounting? How it works for business, the methods and how to start in 2026
Carbon accounting is how a business measures the greenhouse gases its activities cause. You collect activity data such as fuel, electricity, travel and purchases, multiply it by emission factors, and report the totals as Scope 1, 2 and 3 in tonnes of CO2e, usually following the GHG Protocol so the numbers stand up to audit.
Last updated 12 November 2026 · By Ella Sustainability Team
Get startedWhat is carbon accounting?
| Term | What it means |
|---|---|
| GHG inventory | The full list of a company's emissions for a year, by scope and source |
| Activity data | The quantity behind an emission: litres of diesel, kWh, miles travelled, pounds spent |
| Emission factor | The emissions per unit of activity, such as kg CO2e per kWh |
| CO2e | Carbon dioxide equivalent: all seven gases converted to one unit using global warming potentials |
| Organisational boundary | Which entities and sites you count, set by equity share, financial control or operational control |
| Base year | The year you measure future reductions against |
Why carbon accounting matters for large companies in 2026
| Who asks | Requirement | Which scopes |
|---|---|---|
| UK Companies Act | Streamlined Energy and Carbon Reporting (SECR) in the annual report for quoted companies and large unquoted companies and LLPs | Energy use plus Scope 1 and 2; Scope 3 voluntary |
| EU CSRD | ESRS E1 climate disclosures for companies in scope after the Omnibus | Scope 1, 2 and 3 |
| Investors and UK listing rules | IFRS S2 and UK SRS S2 climate disclosures, comply or explain for UK listed companies from periods starting 1 January 2027 | Scope 1, 2 and 3 (with first-year Scope 3 relief) |
| California | SB 253 for US-formed companies doing business in California with revenue above $1 billion | Scope 1 and 2 first, Scope 3 later |
| UK public sector buyers | PPN 006 carbon reduction plans for central government contracts above £5m a year | Scope 1, 2 and five Scope 3 categories |
| Customers | CDP questionnaires, EcoVadis assessments and supplier surveys | Usually Scope 1 and 2, increasingly Scope 3 |
Scope 1, 2 and 3: what you are measuring
| Scope | What it covers | Typical data sources |
|---|---|---|
| Scope 1 | Direct emissions from sources you own or control: gas boilers, company vehicles, refrigerant leaks, on-site fuel | Gas bills, fuel cards, fleet records, F-gas maintenance logs |
| Scope 2 | Indirect emissions from purchased electricity, heat, steam and cooling | Electricity and heat bills, meter readings, supplier fuel mix, renewable contracts |
| Scope 3 | All other indirect emissions in the value chain across 15 categories, from purchased goods to business travel and use of sold products | Spend exports, supplier data, travel bookings, expense claims, logistics data, employee surveys |
Carbon accounting methods: activity-based, spend-based and supplier-specific
| Method | How it works | Accuracy | Best used for |
|---|---|---|---|
| Activity-based | Physical quantity times an emission factor (kWh, litres, km, tonnes) | High | Scope 1 and 2, travel, freight, waste, material categories |
| Spend-based | Money spent in a category times a spend-based factor (kg CO2e per £) | Low to medium | First-year Scope 3, long-tail purchases, gaps in activity data |
| Supplier-specific | Emissions reported by the supplier for what you bought | Highest when verified | Large suppliers, key materials, logistics partners |
| Hybrid | A mix of the above within one category | Medium to high | Most real Scope 3 inventories |
How to do carbon accounting in 7 steps
| Step | What you do | Output |
|---|---|---|
| 1. Organisational boundary | Choose equity share, financial control or operational control, and list every entity and site in scope | Entity and site list |
| 2. Operational boundary | Decide which Scope 1, 2 and 3 sources apply to how the business operates | Scope 1 to 3 checklist |
| 3. Collect data | Request bills, meter reads, fuel cards, travel and spend exports from each data owner, and track who has not replied | Raw data with a source per line |
| 4. Apply factors | Match each line to the right activity or spend-based factor for the year and country | Emissions by source in CO2e |
| 5. Check and fill gaps | Flag outliers, estimate missing months or sites, and write down every assumption | Reviewed inventory and method notes |
| 6. Report and baseline | Produce totals by scope, intensity ratios and the disclosures each framework asks for; fix the base year | SECR summary, CDP answers, inventory report |
| 7. Reduce and repeat | Turn the biggest sources into reduction actions and targets, then update yearly | Reduction plan and net zero roadmap |
Where carbon accounting goes wrong
| Problem | What it looks like | Fix |
|---|---|---|
| Hidden estimates | Spend-based and activity-based numbers mixed with no label | Tag every line with its method and report the estimated share per category |
| Moving boundary | Acquisitions or entity splits not reflected in the base year | Tie the boundary to the entity list and apply a recalculation policy |
| Data chasing | Weeks spent emailing data owners for bills and exports | Send collect links to each owner, track missing responses and accept files as they come |
| No audit trail | Totals with no link back to bills or exports | Keep the source document against every number |
What is changing in carbon accounting: the GHG Protocol and ISO revision
| Date | Milestone |
|---|---|
| 2015 | Scope 2 Guidance introduces dual location-based and market-based reporting |
| 20 Oct 2025 to 31 Jan 2026 | Scope 2 public consultation on hourly matching and deliverability |
| Q2 2027 | Consolidated public consultation on Scope 1, 2, 3 and market instruments (planned) |
| Q4 2028 | Joint GHG Protocol-ISO Corporate Standard publication (planned) |
Carbon accounting software vs spreadsheets
| Need | Spreadsheet | Ella |
|---|---|---|
| Boundary and scope checklist | Built by hand each year | Set from how the business operates, checklist built instantly |
| Collecting data from colleagues | Email chains and reminders | Collect links, automatic chasing and missing-response tracking |
| Emission factors | Copied in and updated manually | Applied automatically for activity and spend data |
| Audit trail | Separate folders, if at all | Source document attached to every number |
| Outputs | Rebuilt for each framework | SECR summary, CDP, reduction plan and net zero roadmap |
How Ella helps
Carbon accounting software
Guided Scope 1 to 3 inventory with automatic data collection, SECR summaries and reduction roadmaps.
ESG reporting software
Reuse your carbon data for CSRD, VSME, CDP and customer questionnaires with a source on every number.
ESG strategy software
Turn your footprint into targets, reduction actions and a net zero plan your board can sign off.
Related resources
Scope 1 and 2 emissions explained: definitions, examples and how to calculate them
Scope 1 emissions come from sources your company owns or controls, such as gas boilers, company vehicles and refrigerant leaks. Scope 2 emissions come from the electricity, heat, steam or cooling you buy. You calculate both by multiplying activity data, like kWh or litres, by an emission factor, then report Scope 2 two ways: location-based and market-based.
Scope 3 Categories Explained: All 15 GHG Protocol Categories, With Examples
Scope 3 has 15 categories under the GHG Protocol: eight upstream, from purchased goods and services to upstream leased assets, and seven downstream, from downstream transport to investments. You report the categories relevant to your business, and a services firm and a manufacturer will find their emissions in very different places.
Best carbon accounting software in 2026: an honest comparison
The best carbon accounting software in 2026 is the one that gets real activity data out of your organisation with the least chasing, then turns it into Scope 1, 2 and 3 figures you can defend to an auditor. For large UK and EU teams, compare Ella, Greenly, Persefoni, Sweep, Watershed, Plan A and Normative on data collection first.
SECR Reporting Explained: Who Must Report and What to Include
SECR (Streamlined Energy and Carbon Reporting) requires UK quoted companies, and large unquoted companies and LLPs, to report their energy use and greenhouse gas emissions in their annual report. A company is large if it meets two of three tests: turnover of £36m or more, balance sheet of £18m or more, or 250 or more employees. Scope 3 is optional.
Frequently Asked Questions
What is carbon accounting in simple terms?
Carbon accounting is measuring how much greenhouse gas your business causes. You gather data on energy, fuel, travel and purchases, multiply each by an emission factor, and add the results up by scope to get your carbon footprint in tonnes of CO2e.
How does carbon accounting work?
You set which entities and activities are in scope, collect a year of activity and spend data from across the business, apply emission factors to each line, check and fill gaps, then report the totals by Scope 1, 2 and 3 with the method and source behind every figure.
What are the main carbon accounting methods?
The main methods are activity-based (physical quantities times emission factors), spend-based (money spent times spend-based factors) and supplier-specific (emissions reported by your suppliers). Most inventories combine all three, using spend-based data to fill gaps in Scope 3.
Is carbon accounting mandatory in the UK?
For many large companies, yes. SECR requires quoted companies and large unquoted companies and LLPs to report energy use and emissions in their annual report, and UK listed companies face UK SRS climate disclosures on a comply or explain basis from 2027. Suppliers bidding for large government contracts need a PPN 006 carbon reduction plan.
What is the difference between carbon accounting and a carbon footprint?
A carbon footprint is the result: the total emissions figure. Carbon accounting is the process and records that produce it, including the boundary, data, emission factors, assumptions and audit trail that let someone else check the footprint.
Which emission factors should UK companies use?
Most UK companies use the government conversion factors for company reporting, published each year by DESNZ, for activity data such as fuel, electricity and travel. For spend-based Scope 3 estimates, Defra publishes spend-based multipliers. Use the factor set that matches your reporting year.
Is the GHG Protocol changing?
Yes. The GHG Protocol and ISO are building a joint corporate standard. A consolidated public consultation on Scope 1, 2, 3 and market instruments is planned for Q2 2027, with publication planned for Q4 2028. Current rules still apply until then.
What is the best carbon accounting software for large companies?
Look for software that collects data from colleagues for you, handles both activity and spend-based data, keeps a source on every number and produces SECR, CDP and reduction plans. Ella is AI-native carbon accounting software built as an agent that does this, with expert support from Ella's team.