BlackRock’s GIP joins Exxon in backing new CO2 accounting model

A group of firms including BlackRock Inc.’s Global Infrastructure Partners, Exxon Mobil Corp. and Banco Santander SA have joined forces to push for a new way to measure the carbon emissions of the products they make, buy and finance.

The coalition, which also lists chemicals giant BASF SE and consultancy EY as backers, will develop a framework that eliminates double-counting of carbon pollution and attributes emissions to their sources, according to Amy Brachio, the chief executive of the newly formed group, Carbon Measures. Brachio, who used to be global vice chair for sustainability at EY, said a separate goal is to design new standards to measure the carbon intensity of specific products.

The initiative feeds into an area of climate finance that is frequently controversial but set to become more consequential, as regulations such as Europe’s carbon border adjustment mechanism kick in. That’s raising pressure on companies and their investors to address their carbon footprints.

The Carbon Measures initiative represents a meaningful departure from existing standards, which were developed in the late 1990s. Critics of the current system say it allows multiple actors to count the same CO2 molecules, leading to inaccurate estimates of overall emissions. Proponents counter that the issue of double counting is a feature rather than a glitch, because it raises the likelihood that multiple actors will reduce their emissions. 

Carbon-accounting experts have expressed concern that an approach like the one targeted by Carbon Measures could become another delaying tactic, due to the practical difficulties entailed in building a global solution.

Brachio says the Carbon Measures framework will lay the groundwork for calculating the carbon intensity of individual products, a move that will allow investors to reward low-carbon production.

For example, “If you are buying a ton of steel, you need to understand how much carbon went into producing that ton of steel, so that when it’s sold you’re not only selling the asset of the steel, but you’re selling the liability — so to speak — of the carbon emissions that go along with it,” she said in an interview.

The Carbon Measures Model

Carbon Measures will support the development of a ledger-based framework that is similar to what exists in traditional financial accounting. The idea is to track emissions as products move through supply chains, just as financial ledgers plot costs and revenues through business transactions.

Brachio said the expectation is that Carbon Measures will grow from roughly 20 backers today to about 100 over time, with an emphasis on attracting high-carbon industries.

The model is expected to take two years to develop and between five and seven years to be used at scale.

Carbon Measures also intends to help design carbon intensity standards for key industrial products that account for the majority of global emissions, such as electricity, fuel, steel, concrete and chemicals. 

And it will call for new policies that support emissions reductions and advocate for carbon intensity standards for key industries that governments could then use to set policies for corporates, Brachio said.

Carbon Measures’ initial backers include representatives of industry, such as Linde Plc and Mitsui & Co., as well as financial actors. BlackRock’s GIP, which declined to comment for this article, says on its website that it views the clean-energy transition as the “single biggest investment opportunity.” GIP also says it wants to use its relationships with businesses and governments to help drive decarbonization.

Ana Botin, executive chair of Santander, said in a statement made available on Monday that the accurate and transparent calculation of carbon emissions “is the foundation for meaningful climate action.” Francois Jackow, CEO of Air Liquide — another backer of Carbon Measures — said harmonized product-level carbon intensity standards will enable investors “to reward low-carbon solutions.”

Other founding members of Carbon Measures include Brazilian mining giant Vale SA, Japan’s Mitsubishi Heavy Industries, Bayer AG of Germany and Abu Dhabi National Oil Co. U.S. corporations to join up include Honeywell International Inc., steel maker Nucor Corp. and clean energy company NextEra Energy.

The first step to reducing global emissions “is to know where they’re coming from—and today, we don’t have an accurate system to do this,” said Exxon CEO Darren Woods. The oil major has been advocating for a global system for measuring the carbon intensity of different products for several years.

Today the de-facto global accounting standard for measuring a company’s emissions is the GHG Protocol, with the vast majority of companies in the S&P 500 Index reporting emissions using its framework. Detractors of the protocol, including Exxon and some academics, say that it not only allows double-counting, but that it also can’t produce emissions data that’s consistently comparable across firms and supply chains.

Those responsible for its design, meanwhile, say double-counting is one of the framework’s “greatest strengths” because it encourages “comprehensive” greenhouse gas management.

Brachio says “precise and comparable data has proven something of a holy grail” in emissions tracking. But the current approach “simply won’t be sufficient going forward.”