Carbon Auditing 1.0’s fatal flaws exclude those who need it most – Small and Medium Enterprises 

A brief, sad, history of Carbon Auditing 1.0

The current carbon auditing system – let’s call it Carbon Auditing 1.0 – has had three decades to prove itself. 

Carbon Auditing 1.0 has been a huge success at creating a multi-billion-dollar global carbon auditing, trading and consultancy industry. 

Unfortunately, it’s also been a huge failure at measureably reducing carbon.

From its 1990s origins, carbon accounting mimicked financial accounting. Carbon Auditing 1.0 was based on the alluring notion that market forces could be tweaked to incentivise carbon reduction. This is not a bad idea in principle – indeed it’s hard to imagine a non-catastrophic path to sustainbility that doesn’t, but our first attempt has turned out disastrously in practice. It apes regulated capitalism’s worst aspects, and neglects the best.

However elegant the economic theory may have been, in practice the current system of carbon credits, carbon markets, carbon trading has done nothing to speed up carbon drawdown. Arguably, it’s created a complacency that has slowed it down. Some studies reckon it’s made things much worse..

Let’s not waste time debating past mistakes in detail. Experts have concluded the current system is a bust and should be dead in the water. The problem is that at present there’s no other lifeline out there to grab hold of.

Worse still, there’s a huge industry struggling to convince the world it can really change this time. After three decades of second, third and nth chances, such promises ring as hollow as those of Big Oil, or any other addict.

The uncomfortable truth is that Carbon Auditing 1.0 is irredeemably broken. It’s understandable why a multi-billion dollar industry keeps pleading for more time, and believes one more tweak will fix it, but until and unless it addresses its two fundamental flaws, there’s no reason to suppose tinkering with the rest of the collapsing mechanism will make any difference.

Fatal Flaw #1: wrong customers

The first flaw is that Carbon Auditing 1.0 is based on Sutton’s Law. This is a variant of Keep It Simple, Stupid (KISS), or Occam’s Razor, all of which could be rolled into the ‘Duh Principle’, that the simplest solution is usually the correct one. Sutton’s Law is named after the eponymous prolific American bank robber who, when asked by a reporter why he kept robbing banks, supposedly replied ‘Because that’s where they keep the money’.

Like Willie Sutton and his bank fixation, Carbon Auditing 1.0 focuses on big businesses and multinationals because they have money to pay for their audit standards, trading schemes and consultancy. 

Whether they or their clients are compelled by guilt, idealism, greenwashing or government regulation doesn’t particularly matter. The fact is that big businesses have the resources to budget for Carbon Auditing 1.0, and in turn, the business models of most current carbon standards/auditor/consultants depend on attracting paying customers with their version of the truth.

This may make business sense, but if you want to reduce carbon, makes no logical sense, for one head-slappingly simple reason.

Big businesses are not the ones generating most of the greenhouse gases.

The vast majority comes from their supply chain of smaller companies who can’t afford Carbon Auditing 1.0 – Small and Medium Enterprises (SMEs).

Carbon Auditing and SMEs

Because Carbon Auditing 1.0 doesn’t measure carbon emissions properly, no one can confidently give an exact figure for the collective emissions of the world SMEs.

Most experts estimate it at around two-thirds. The OECD gives a range of 50-70%, an approximation that exposes the inadequacy of our current system. Let’s call it 70%.

The point is, even if Carbon Auditing 1.0 did work (it doesn’t), it’s only addressing 30% of the problem. If you have a massive fire, and a much smaller one, which one would you tackle first?

This is childishly obvious, but needs stating, even before we think about the other fatal flaw, because the current system has done so little to address is over the past three decades.

Fatal Flaw #2: money

If Carbon Auditing 1.0 doesn’t fancy SMEs because they don’t have any money, the solution is surely to come up with a system that’s free for SMEs to use.

The same applies to specialist carbon-reducing consultancy. Big business can afford to pay experts to advise them on their net-zero strategy (though they still spend more on greenwashing PR consultants). Few SMEs, however, have the resources for such ‘luxuries’.

The fact that our current system regards carbon reduction as a ‘luxury’ tells you all you need to know about how far short we are of a sustainable future.

Carbon reduction is currently, in effect, a voluntary tax paid by larger businesses who can afford it. And in most cases, all they’re doing is  paying other people to pretend to reduce carbon (this article explains why ‘carbon offsetting’ is a sham).

The mighty storm on its way for SMEs

But things are changing. A perfect storm is on the horizon for struggling SMEs to stay afloat, onrushing faster than any of them realise.

The inescapable reality that climate change is already upon us, in the form of increased floods, fires and drought, is prompting more governments to show more urgency in implementing and enforcing carbon drawdown.

Each time summits are held, targets set, and commitments made, the pressure to account accurately for carbon emissions percolates further down. First, nations have to come up with – and prove – their national carbon footprint. To do that accurately, they push big businesses for their numbers. To do that accurately, big businesses need to account for their full emissions, which means the need for accurate carbon footprint reports is about to filter down to the levels of the SMEs that supply them.

Until recently, big businesses have got away with only reporting Scope 1 emissions (i.e. those they directly control). Now governments are getting serious about requiring them to include Scope 2 (indirect emissions from their supply chains).

If they’re not already, big businesses will very soon be requiring their SME supply chain to report accurate carbon footprints, in order to satisfy the new regulations.

This is exposing Carbon Auditing 1.0’s two fatal flaws: 

• supply chains consist of the SMEs that emit 70% of the carbon
• SMEs can’t afford to pay for carbon audits

The problem seems intractable, but only if you try using Carbon Auditing 1.0 to fix it.

The Solution

The obvious solution is to retire Carbon Auditing 1.0 as a failed project, and replace it with a new version that:

• Measures carbon footprints as accurately as possible
• Is free for SMEs to use
• Is open source, so can be constantly updated to improve accuracy

In short, See Through Carbon.