Management accountants are increasingly expected to measure, track, and report on an organisation’s greenhouse emissions.
As expectations to achieve net zero grow from governments, investors, and clients, carbon accounting is front and centre for finance professionals.
Tools for environmental management accounting exist, but most tools are designed for long-term planning rather than day-to-day operations. Therefore, these tools don’t easily plug into the systems businesses use to track short-term financial metrics like margins and performance.
The research report, Carbon Costing and Control through Activity-Based Emissions Accounting, introduces a management accounting method that views carbon as a cost that can be measured and managed.
This report is based on a case study at DP World Southampton, the UK’s second-largest deep-sea container terminal. Using operational and financial data, the report offers practical recommendations for treating carbon as a measurable and controllable cost with management accounting tools.
Taking a cost-based approach to net zero
Organisations that are committed to net zero understand that achieving this goal requires reducing carbon emissions as much as possible by transitioning to renewable energy, implementing energy-efficient systems, and offsetting emissions through carbon capture technology and other methods.
By applying activity-based costing principles, emissions are traced back to the operational activities that generate them — whether that’s electricity powering cranes, diesel (or its low-carbon substitute, hydrotreated vegetable oil) fuelling yard equipment, or refrigerants used in cooling systems. This approach enables a granular view of where emissions — and their associated costs — arise in the value chain.
Carbon can be measured, allocated, and managed like any other cost.
From data to decisions: real-world results
Four main research objectives are outlined in the report:
Study how companies measure pollution from fuel and electricity and include it in their accounting.
Examine how companies weigh choices between competing environmental and economic priorities (e.g., reducing emissions might require investing in cleaner technology, which could raise short-term costs.)
Understand how businesses adjust their spending to meet regulations like the UK Streamlined Energy and Carbon Reportingand the EU Carbon trading system.
Explore how companies factor climate risks and benefits into budgets and investments.
At DP World Southampton, detailed operational and financial data were analysed to calculate the cost per kilogram of carbon dioxide equivalent (kgCO₂e), according to the report.
In 2023, the port made two significant changes: a complete switch from diesel to hydrotreated vegetable oil, a renewable biofuel, and sourcing 50% of its electricity from renewable sources.
These changes resulted in an 88% reduction in total emissions, with emissions intensity dropping to 1.21 kg CO₂e per 20-foot equivalent unit.
Whilst emissions fell significantly, the cost per kgCO₂e rose from £1.07 to £8.24. The rise in cost is not a sign of inefficiency but reflects cleaner operations — each kilogram of carbon now represents a greater share of overall resource expenditure. In this context, a higher cost per unit of carbon is a positive indicator signalling that the company is achieving lower emissions for the same operational amount.
Familiar accounting tools find new applications
Activity-based costing can be extended to environmental costs, grouping emissions by activity.
By assigning costs and emissions at the activity level, you can refine pricing, target carbon-intensive processes for improvement, and even support carbon return on investment calculations for green projects.
Variance analysis techniques, a staple of financial management, are equally powerful when applied to emissions. The study reveals how volume, efficiency, rate, mix, and emission factor variances can be calculated for carbon, providing deep insights into what drives environmental performance and creating the ability to course correct.
Whilst focused on the port sector, the approaches are transferable to other sectors, like manufacturers. For example, you can allocate emissions to parts based on machine run time. In logistics operators, you can track warehouse energy per order, and hotels can calculate emissions per guest night.
By embedding carbon metrics into routine costing and budgeting, you can bring environmental accountability and transparency front and centre when advising on business decisions.
Embedding sustainability into everyday accounting
As climate regulations and market expectations evolve, you have a unique opportunity to create real change within your organisation.
Treating carbon like any other cost means that you measure, allocate, and manage through established accounting processes.
By adopting activity-based emissions accounting, you can ensure your organisation is both reporting on and actively managing sustainability — making every tonne (and pound) count on the way to net zero.
Explore Carbon Costing and Control through Activity-Based Emissions Accounting for detailed insights.