03/11/2025
Summary
As the effects of climate change intensify, businesses across the globe are turning to carbon accounting to measure, reduce, and report their greenhouse gas (GHG) emissions. In 2025, this practice has become even more critical, especially with the European Union’s Carbon Border Adjustment Mechanism (CBAM) entering its full implementation phase.
In this updated article, we’ll explain what carbon accounting is, why it matters for your business, and how the EU’s new carbon border tax will affect global trade and sustainability strategies.
In this blog post, we will delve into the current state of energy use in the aerospace industry. We will explore the opportunities for improvement, the challenges and solutions for improving energy efficiency in this energy-intensive sector.
What Is Carbon Accounting?
Carbon accounting, also known as Greenhouse Gas (GHG) accounting, is the process of quantifying an organization’s impact on the climate by calculating the greenhouse gases it emits, also called its carbon footprint.
This process helps identify which activities or operations produce the most emissions and enables companies to take action to reduce their climate impact. It also supports participation in carbon markets by helping organizations earn and trade carbon credits.
Carbon accounting is generally divided into two categories:
- Physical carbon accounting measures direct and indirect GHG emissions (Scope 1, 2, and 3).
- Financial carbon accounting assigns a financial value to carbon produced or absorbed.
To learn how Wattnow’s energy management platform helps you measure and optimize your energy use, visit our Solutions page.
Benefits of Carbon Accounting
Economic
Companies can identify high-consumption operations, reduce energy waste, and cut costs through efficient energy management.
Social
Transparency in carbon reporting attracts investors, customers, and top talent, while enabling access to green funding and sustainability-driven partnerships.
Environmental
By tracking and reducing GHG emissions, companies help combat global warming and contribute to the transition toward a net-zero future.
How to Calculate GHG Emissions
To measure GHG emissions, two key elements are required:
- Activity Data: e.g., kWh of electricity consumed.
- Emission Factors: the rate of GHG emissions for each activity, based on international databases such as those from the International Energy Agency (IEA).
Formula:
CO2e Emissions = Activity Data × Emission Factor
Learn more about emission factor databases from the IEA.
Understanding Scope 1, 2, and 3 Emissions
The Greenhouse Gas Protocol divides emissions into three scopes:
- Scope 1: Direct emissions from owned operations (e.g., fuel combustion, company vehicles).
- Scope 2: Indirect emissions from purchased energy (electricity, heating, cooling).
- Scope 3: All other indirect emissions along the value chain (transportation, suppliers, product use).
While Scopes 1 and 2 reporting are mandatory for many organizations, Scope 3 is increasingly becoming a focus area under new EU and global regulations.
The EU Carbon Border Adjustment Mechanism (CBAM)
In 2025, the EU’s Carbon Border Adjustment Mechanism officially enters its full operational phase as part of the “Fit for 55” climate package.
CBAM is designed to prevent “carbon leakage”, when companies move production to countries with weaker emission rules.
How It Works
The mechanism applies a carbon price to imported goods based on their embedded emissions. Initially covering steel, cement, aluminum, fertilizer, hydrogen, and electricity, CBAM will expand to other sectors by 2030.
This encourages exporters to adopt cleaner technologies and aligns global trade with the EU’s climate neutrality goals for 2050.
Learn more from the European Commission’s official CBAM page.
ETS vs. Carbon Tax: Understanding the Difference
Both carbon taxes and Emissions Trading Systems (ETS) are policy tools designed to reduce greenhouse gas emissions by putting a price on carbon , but they work in fundamentally different ways.
|
Section |
Description |
|
1. The Carbon Tax: A Fixed Price on Emissions |
A carbon tax directly sets a price per ton of CO₂ emitted, giving companies a predictable cost for their carbon footprint. Governments use this tool to incentivize emission reductions by making it more expensive to pollute and more rewarding to adopt clean technologies. However, while it ensures price certainty, it does not cap total emissions. If companies are willing to pay, emissions may still rise , making it less effective for meeting strict climate goals. Examples: Sweden, Canada, and Japan have implemented carbon taxes, often combined with renewable energy incentives and efficiency regulations. |
|
2. The EU Emissions Trading System (ETS): Cap and Trade |
The EU ETS follows a cap-and-trade model. It sets a total emissions cap on industries like energy, manufacturing, and aviation within the EU. This cap is reduced annually, ensuring a gradual decline in overall emissions. Companies receive or buy emission allowances, each representing 1 ton of CO₂ equivalent (CO₂e). Organizations that cut emissions can sell unused allowances, while high emitters must buy additional ones, encouraging innovation and decarbonization. The ETS therefore provides environmental certainty through the cap and economic efficiency through market trading. |
|
3. ETS in 2025: Rising Prices, Stronger Impact |
In 2025, the EU carbon allowance price ranges from €85–€100 per ton of CO₂, driven by higher energy costs and tighter climate policies under the EU Green Deal. This strong price signal pushes sectors like steel, cement, chemicals, and power generation to invest in low-carbon technologies such as hydrogen, carbon capture, and renewable energy. The EU also plans to expand ETS coverage to include maritime transport and buildings, integrating carbon pricing across more economic sectors. For up-to-date allowance data, visit: |
|
4. ETS and the Carbon Border Adjustment Mechanism (CBAM) |
The ETS operates in tandem with the Carbon Border Adjustment Mechanism (CBAM) , the EU’s external carbon pricing system for imported goods. CBAM ensures equal carbon costs for EU-based and foreign producers, preventing “carbon leakage” and promoting global climate fairness. Together, ETS and CBAM form a comprehensive climate framework that rewards sustainability and penalizes pollution, strengthening the EU’s position as a global leader in carbon regulation. Explore how Wattnow’s carbon monitoring solutions can help your organization calculate emissions, model carbon costs, and prepare for ETS and CBAM compliance. |
FAQ’s
1. What is the EU Carbon Border Tax (CBAM)?
The CBAM is a mechanism that charges imported goods for their carbon emissions, ensuring that EU industries are not undercut by high-emission competitors abroad.
2. How does carbon accounting help companies?
It allows businesses to measure and manage their carbon footprint, meet compliance requirements, and attract eco-conscious investors.
3. Which industries are affected by the EU Carbon Border Tax?
Initially, CBAM applies to steel, cement, aluminum, fertilizer, hydrogen, and electricity, with more sectors to follow by 2030.
4. Is carbon accounting mandatory in 2025?
While not all companies are legally required to report, most large organizations under the EU Corporate Sustainability Reporting Directive (CSRD) must disclose their carbon emissions and climate risks.
5. How can Wattnow help with carbon accounting?
Wattnow offers a complete Energy Management platform that simplifies data collection, tracking, and reporting , helping your business meet CBAM and CSRD requirements efficiently.
Join our community
Join forces with like-minded individuals to revolutionize the way we manage energy.
Subscribe to our newsletter
Join our energy-saving tribe and receive regular blog updates, news, and inspiration straight to your inbox!
