How Carbon Accounting Can Discourage Circular Economy Actions

The Problem: When Carbon Accounting Hinders Progress 

The path to a sustainable, net-zero future is paved with innovation, collaboration, and a commitment to rethinking traditional systems. At the heart of this transformation lies the circular economy—a model that keeps materials in use for as long as possible, minimizes waste, and reduces pollution. Yet, paradoxically, a tool meant to guide us toward lower emissions, carbon accounting, often discourages the very practices that define a circular economy. Let’s explore why this happens and how we can address it. 

Inaccurate Accounting and Disincentives 

Carbon accounting frameworks like the Greenhouse Gas (GHG) Protocol are designed to quantify emissions and hold businesses accountable. However, their current methodologies frequently fail to capture the true environmental benefits of circular strategies[3] such as reuse, repair, and remanufacturing[2]. Instead of incentivizing these practices, they can unwittingly penalize businesses embracing circularity. 

Examples of Disincentives 

• Multiple Use Phases: Circular solutions often involve extended use cycles across multiple phases, making their emissions more complex to assess. Unfortunately, current frameworks struggle to account for these intricacies accurately.

• Re-use: Emissions from production are typically assigned to a product's first user. This approach discourages reuse by failing to recognize the avoided emissions from disposal and new production. 

• Durability and Upgradability: Companies designing durable or upgradable products may face higher emissions reports in their year of sale. Future upgrades, which extend the product's lifecycle, are rarely captured in these calculations. 

• End-of-Use Management: Accounting methods often ignore emissions from end-of-use options like reuse, repair, or recycling. This omission makes it harder to compare the environmental impact of various disposal strategies. 

• Investment Portfolios: Investors are not required to report Scope 3 emissions from companies in their portfolios. This oversight undermines the potential emissions savings from shifting from linear to circular models. 

  
  

Broader Implications 

The consequences of these accounting gaps are far-reaching. Without accurate and fair measurement systems: 

• Businesses and investors lack the data needed to make informed decisions about circular initiatives. 

• Progress toward transitioning from the linear "take, make, waste" model to circularity slows significantly, delaying net-zero goals. 

• Inaccurate methods raise concerns about greenwashing, eroding public trust in sustainability claims. 

  
  

Steps Toward True and Fair Accounting 

The Ellen MacArthur Foundation is advocating for revisions to existing methodologies to better reflect circular economy practices.[2] Draft standards for improved GHG accounting are expected for public consultation by 2026, with final versions slated for release in 2027. This updated approach aims to incentivize circular solutions by addressing the shortcomings of current frameworks. 

The Potential of the Circular Economy 

Circular strategies hold immense potential for emissions reduction. By retaining the embodied energy of products and keeping materials in circulation, research suggests these practices could cut global greenhouse gas emissions by 40% by 2050 in key industrial sectors.[1] Accurate carbon accounting will not only unlock these benefits but also catalyze investment, foster innovation, and accelerate regulatory alignment. 

Conclusion 

To transition to a truly circular economy, we must align our measurement tools with our goals. Revising carbon accounting standards to accurately reflect the environmental benefits of circular strategies is an essential step forward. By doing so, we can ensure that businesses and investors are motivated to embrace circularity, paving the way for a sustainable and resilient future. 

[1] How product-embedded emissions accounting frameworks offer opportunities for circularity. [World Economic Forum]

[2] Improving climate emissions accounting to accelerate the circular economy transition. [Ellen MacArthur Foundation]

[3] Carbon Emissions and Circularity: The Scope 3 Accounting Quagmire. [Trellis]