Keeping tabs on carbon with an accounting system

Such a system — on the lines of a financial balance sheet — will help bring the nation under one carbon accounting framework

October 05, 2023 12:08 am | Updated 01:32 am IST

‘We need to measure carbon emissions from that of individual citizens to that of the nation as a whole, including all that is in the flow’

‘We need to measure carbon emissions from that of individual citizens to that of the nation as a whole, including all that is in the flow’ | Photo Credit: Getty Images

The climate ‘polycrisis’ — a term made popular by Adam Tooze — refers to the interconnected and compounding crises related to climate change that are affecting the planet not just in a few sectors but across several sectors and domains. It encompasses the physical impacts of climate change (rising temperatures, sea-level rise, and extreme weather events) and the social, economic, and political challenges that arise from these impacts. In India, one can see the interconnections between seemingly different sectors such as energy, infrastructure, health, migration and food production that are being impacted by climate change.

Recognising the complexity and interconnectedness of the climate polycrisis, it is crucial in developing a holistic approach that takes into account the diverse perspectives and priorities of different stakeholders, while ensuring resilience, equity, and justice. While it seems easier to pursue our response to climate change in a sectoral fashion, the very nature of a polycrisis means that tweaking one corner of the climate challenge leads to unexpected consequences elsewhere.

Instead, we need a deep transformation — one that lays the foundation of a new economy that is sensitive to the planet. Just as digital infrastructure enables new startups and public services, we need to imagine ‘carbon infrastructure’ that creates opportunities for a flourishing future carbon regime that takes the flows of carbon into account in the formulation of policy at every level: household, panchayat, district, State and country.

Measurement as the first step

The first step is measurement, for whatever cannot be measured cannot be accounted for. We need to measure carbon emissions from that of individual citizens to that of the nation as a whole, including all that is in the flow. Once we have a measurement system in place, we can build an accounting system that helps us balance our carbon books.

We are all familiar with financial balance sheets, with their sources and their applications. What if the same thing is done for carbon? Existing carbon accounting methodologies such as those championed by Karthik Ramanna at Oxford are already capable of tracking carbon balance sheets at the corporate level.

A national carbon accounting (NCA) system is both an evolutionary and a revolutionary generalisation of these ideas. It will bring the entire nation, starting from individuals and households, under one carbon accounting framework. This will be a paradigmatic change in the way we look at all human and non-human “activities” in the world. This is necessary if we intend to truly internalise carbon reduction goals of the country and the world.

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Just imagine a world in which we file carbon tax returns alongside our income tax returns, or maybe only the carbon tax returns. Take a moment to consider the revolution in public finance that will be triggered when carbon is recognised, captured, valued, accounted for and taxed.

Carbon accounting

Public finance is the primary mechanism of development. Governments apportion funds for different developmental activities, each competing with the others for the exchequer’s purse. The revenue to fund the public exchequer comes from taxes, and that, in turn, requires that individual entities — businesses, households — keep an account of inflows and outflows of money. ‘Money accounting’ is an integrated system, all the way from the spending of individuals to the Reserve Bank of India that helps us keep track of the circulation of money within the system. The keeping of accounts makes money visible and makes public finance possible.

In contrast, the stocks and flows of carbon are not tracked at a granular level anywhere in the world. As a result, there is no possibility for a progressive carbon tax that penalises large buyers of petrol more than the average consumer. A progressive carbon tax requires us to keep track of the inflows and outflows of carbon, i.e., national carbon accounting. Carbon accounting is a way for companies to keep track of the carbon they are producing, removing, storing and offsetting. It helps companies keep carbon books alongside their financial books.

An NCA will bring the concept of carbon books to the nation and will make it mandatory for businesses and individuals to declare/report their carbon inflows and outflows. It will make the circulation of carbon visible, and just as with financial accounting, other goods and services can be ‘financed’ using carbon surpluses, especially if there is convertibility between the carbon accounts and the rupee accounts. Once we have an NCA, we will be able to set targets, make predictions about future emission reductions and track our progress against those goals.

We can speculate about a future national carbon budget that helps us re-imagine the entire economy, including new technologies and new forms of collective action. Instead of the single goal of increasing economic GDP in money terms, as we already do, there will be a parallel goal of a carbon GDP which countries will try to reduce.

As a polysolution

An NCA will not only help India meet its commitment to becoming net zero by 2070 but also help it and other countries (if adopted globally) create new livelihoods and new forms of organising its economy and society. Everyone understands GDP growth and, more recently, alternative measures such as Gross National Happiness. By making transparent the carbon footprint of human activities, we open up the possibilities of a new form of public discourse and an alignment between development and ecological sustainability. In short, an NCA is a polysolution to a polycrisis.

Amar Patnaik is a Member of Parliament, Rajya Sabha, from Odisha and an advocate. He was a former Comptroller and Auditor General of India bureaucrat. Rajesh Kasturirangan is a mathematician and cognitive scientist from the Massachusetts Institute of Technology (MIT), United States, and co-founder and CEO of Socratus Foundation, MIT. The views expressed are personal

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