September 28, 2021

TechBullion: Smoke and Mirrors – The Importance of Using AI to Calculate Carbon Emissions

With the aid of a calculator, Microsoft’s greenhouse gas emissions halved. In 2017, the technology company reported it was responsible for 22 million metric tons of carbon. Since then, the same 2017 figure was reduced to 11 million metric tons.

Explaining this change, Elizabeth Willmott, Microsoft’s carbon-programs director, said the company ‘doubled down on driving accuracy’ in calculating its emissions. For Microsoft, this meant recalculating what is known as Scope 3 emissions – greenhouse gases related to a company’s products but outside its direct operational control. For example, these emissions could include the carbon produced to make the parts for a computer or the power a customer uses to charge a laptop. 

Today, most businesses report Scope 1 and 2 emissions – meaning greenhouse gases produced directly from their operations and indirect emissions from purchased energy. However, very few report Scope 3 emissions. Indeed, only 25% of businesses in Europe do, despite the fact they make up the lion’s share of a company’s carbon footprint, with Scope 3 emissions on average 5.5 times greater than operational emissions. 

With businesses today facing increased pressure to disclose their total carbon footprint, it is important that they not only begin to publish Scope 3 data but take advantage of technological developments to do so accurately. 

Scope 3 data is notoriously difficult to gather, requiring accurate auditing throughout the supply chain and beyond. Companies typically rely on estimates of emissions from data reported by suppliers, as well as estimates of end-user consumption patterns. However, data quality is often poor, with companies lacking the resources and capability to develop an accurate understanding of their Scope 3 footprints. 

As Tom Cumberlege, associate director at the Carbon Trust, told the Financial Times, ‘There is a lot of data to collect, which can be daunting’. Cumberlege continues, there is also the issue that ‘Most of these (emissions) are, by definition, outside the influence of the business that is doing the reporting.’ 

Research by Stanford University found that the sheer complexity of calculating Scope 3 emissions makes it essential to use artificial intelligence (AI)-based tools. These tools can model the entire company’s value chain at a very granular level – from production to distribution and ultimately, customer usage. Armed with data, companies can subsequently work directly with suppliers and customers to reduce emissions and improve efficiency. 

As Taylor Francis, cofounder of the carbon accounting platform Watershed, explains, ‘Organisations make decisions every day with carbon impact—which supplier to procure from, how to transport a good—yet decision makers are blind to the carbon scores of their choices.’  

By drawing on new technologies, businesses can accurately pinpoint where emissions are produced along the value chain and transform that data into concrete actions that will reduce their carbon footprint. 

Despite the clear benefits of AI-based tools, far too few companies utilise them to calculate Scope 3 emissions, let alone publish this data at all. Nonetheless, it appears this may soon begin to change, with governments across the world poised to clamp down on negligent reporting practices.  

Indeed, the European Union is expected to announce new requirements for climate reporting for large businesses next year after members of the EU Parliament voted to consult on reforms to the bloc’s Non-Financial Reporting Directive. The G7 has also backed plans to introduce compulsory Scope 3 reporting, paving the way for greater enforcement of reporting practices.  

These policy initiatives cannot come at a more important time, with the UN reporting last Friday that global average temperature is expected to rise 2.7 degrees Celsius by the end of the century, even if all countries meet their promised emissions cuts. The impact of this rise will be devastating, with the United Nations Secretary General António Guterres affirming, ‘The world is on a catastrophic pathway’. 

To accelerate our transition to net-zero, it is important that impact investors such as myself prioritise investing in companies that currently publish accurate Scope 3 data. This will serve to create incentive structures that encourage other businesses to follow suit before the necessary regulatory framework is implemented. 

Indeed, ensuring businesses report their Scope 3 emissions and learn from this data will be vital in the fight against climate change. This is because only with data-driven climate mitigation plans can we begin to work towards our emissions targets and protect our planet for future generations. 

Read the article here: https://techbullion.com/smoke-and-mirrors-the-importance-of-using-ai-to-calculate-carbon-emissions/

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