A Candid Conversation with Professor Karthik Ramanna about Carbon Accounting and Reporting

Photo Credit: Andrew Bailey

Professor Karthik Ramanna and I go back nearly 20 years when he joined the faculty of the Harvard Business School. These were the early days of ESG; little did either of us know the drama that would ensue. We were introduced by a graduate student who was Karthik’s research assistant who knew about our common interest in this topic. Karthik and I have kept in touch over the years and are now both at Oxford where he is a Professor of Business and Public Policy at the Blavatnik School of Government. Thanks to COVID and busy lives we lost touch over the past five or so years but his name came back on my radar screen due to his work on carbon accounting. For anyone who is involved in this topic, it’s an open secret that there are any number of tensions and controversies. A month or so ago Karthik contacted me to trade notes on what each of us saw going on. I very much enjoyed the conversation and asked him if he’d be willing to do an interview with me, one in which no controversial topic was left untouched. He kindly agreed and here is our discussions. I think you will find it interesting and illuminating.

Eccles: You were born in Mumbai? Rich family, poor family, middle-class family?

Ramanna: Yes, middle class, child of an academic and a business manager.

Eccles: And you went to public school?

Ramanna: Yeah, I went to an all-boys Catholic school, from kindergarten through high school.

Eccles: Was your family Catholic?

Ramanna: No, we just happened to live near the school.

Eccles: What was it like?

Ramanna: It was remarkably well-rounded. The principal, a priest, had a graduate degree in education from UCLA, I think. And he wanted to foster wholesomeness in the boys. So, athletics, debate, science fairs, theatre, music, etc., were all part of the curriculum. We were very lucky, especially when you consider broader norms in that time and place, which emphasized standardized testing.

Eccles: So, what were you like as a kid? Were you a nerdy kid?

Ramanna: Yes, I was mostly a quiz-nerd. Our apartment had hundreds of books, thanks to my academic mother. I was the kid who would be reading things like Encyclopedia Britannica for fun, from cover to cover, and quote from it. Very obnoxious.

Eccles: Do you have brothers and sisters?

Ramanna: One sister, older. Still much more popular and athletic and outgoing than me.

Eccles: Where did you do higher education?

Ramanna: After college in India, I got a free ride to go to Washington to do a master’s degree. It was a chance to do something very different from my undergraduate engineering degree – I studied law and politics, business and leadership, amongst other things. And I got to live in D.C., which I loved for all the free museums!

Amongst the master’s course requirements was an accounting class. The person who taught the class, Bill Baber, an outstanding teacher, got me interested in accounting as a subject. He was a fan of Bob Kaplan, and he used to mention Bob’s work often. That’s when I first heard of Kaplan. Then Bill, amongst other mentors, encouraged me to do a PhD. I eventually got my Ph.D. from MIT. I studied under Ross Watts, first in Rochester. After my Ph.D., I took my first faculty job at Harvard Business School.

Eccles: What was your dissertation about?

Ramanna: It was about how the accounting rules for mergers and acquisitions come about. If you think about it, we’ve had over $10 trillion of M&A activity in just the last few years, and yet most M&A deals fail.

Eccles: And people keep doing it. People keep doing it.

Ramanna: Yep, and so, I asked how can you have something that’s such a large part of economic activity mostly failing? My explanation was that the accounting rules, which are supposed to prevent that from happening, had become somewhat corrupted due to lobbying by special interests, including some investment banks that benefit from the huge deal volumes regardless of whether the deals are successful. I made some powerful enemies with that thesis, unfortunately.

Eccles: So why did you pick Harvard?

Ramanna: I was lucky on the academic job market and had a few offers. But I knew even then that beyond quantitative work, I wanted to write books and case studies. So, I figured Harvard would be a good incubator for me.

Eccles: And then you taught Financial Reporting and Control at HBS?

Ramanna: Yeah, I taught core accounting for several years. That’s where I got to meet Bob Kaplan in person. He was a stellar mentor.

Later, after the financial crisis hit and there were populist protests on the left and right – Occupy Wall Street and the Tea Party movements, I wanted to do something different. I figured that the big problem in the world is not that there aren’t enough MIT-trained economists teaching Harvard MBAs how to make more money. And that’s when I got the chance to teach Leadership and Corporate Accountability (LCA) in the Harvard MBA.

It was a very different experience from what I was used to. It was, you know, baptism by fire because the teaching group for LCA had some of the best of the best teachers at HBS. I was still very young and had a quant background. I had to learn very quickly how to teach a “soft” subject. I was shaky at first, but I had great, great mentors.

Eccles: And what was the sort of research were you doing then?

Ramanna: My research stream had grown out of my thesis. I was struck that financial accounting plays such a central role in the functioning of capital markets. And it had been stable for many years, but starting in the 1990s, financial accounting was moving beyond its core competence in prudential historical costing to what is called fair-value accounting, basically valuation. Early in the history of the SEC, in the 1930s, this had been debated and rejected – the role of accounting is to account, not to try best the market by predicting stock prices. Somehow, we were abandoning that starting the 1990s, and I was trying to understand why. What was behind this shift. I eventually wrote a book called Political Standards, which was published by the University of Chicago Press, that identified the ideological forces and special-interest lobbying driving that shift. The book generated some backlash from powerful players in the accounting establishment. One senior standard-setter even said to me that there was no legitimate role for the kind of analysis of standard-setters’ ideologies that I was doing. The reactions were not dissimilar, in some sense, to how a few in the climate community have received my work with Bob Kaplan.

Eccles: So, you had some training? You’ve been through it before!

Ramanna: Hah! One mentor called me a “troublemaker,” endearingly, I hope.

Eccles: How did you get to Oxford?

Ramanna: I got a message from the dean here at the Blavatnik School of Government at Oxford saying that they were looking for a first director for their new Master of Public Policy program, and would I be interested in applying? And I thought, well, I’d be an unusual candidate for this, given that I’ve never taught in a school of government, although by then I had a fair bit of experience teaching public leadership. But it was exactly the kind of broadening I wanted in my career next. So, when I got the professorship here, I couldn’t say no. It was the chance to be at the beginning of something important and timely. And I got to build the Oxford Case Centre on Public Leadership as well. This was important to me as so much of my research is case based.

Eccles: And then how did you and Bob reconnect and where did the whole idea for E-ledgers come from?

Ramanna: It was during the depths of COVID, January 2021, and I was busy managing the Oxford MPP. I got a call from Annette Mikes, who is an old friend and a professor of accounting in Oxford’s business school. And she said, I’m running this workshop on corporate sustainability, and there is a paper I want you to discuss on carbon accounting. I said, Annette, I’ve got my plate full. She pushed back: Come on, there’s a pandemic, it’s not like you can go anywhere, so just show up on a Zoom screen and, you know, discuss the paper.

So, I did.

The paper itself was okay, but it kept referring to this thing called Scope 3. I hadn’t been very plugged into developments in carbon accounting, so I went and read the Greenhouse Gas Protocol (GHGP) again. I was surprised, to say the least, because it looked like a disclosure policy with a particular outcome in mind – reducing fossil-fuel use. It’s not necessarily a bad outcome, but policy outcomes should not be used to bias accounting processes. So, that was the thrust of my comments at the conference: “Scope 3 is not accounting.” There was, shall we say, some pushback. But in the audience, as one of the Zoom tiles, was Bob Kaplan. And he wrote me afterwards to say he agreed with me.

So, we got to work on a solution – I sent him in a first outline of what would become E-ledgers in February 2021, and after some back and forth, we had a draft paper that we posted to SSRN and submitted to the Harvard Business Review. To our surprise, they got back to us almost immediately saying they would publish it. That’s when we suspected we might be on to something.

Incidentally, in preparing for this interview, I remembered that you had invited me to present at a conference you organized on sustainability accounting at Harvard in 2011, back when we were both there. The GHGP and other platforms were still early in their development, and I did a talk saying their structure wouldn’t work because it was flow-only, whereas accounting needs to have stocks and flows. I got little support from the room, so I dropped it, except it turns out for Bob Kaplan, who was also there and sent me an email later endorsing my analysis. It’s funny how things work out.

Eccles: Fun and good memory! Okay, so bring us up to speed. Where is E-ledgers now?

Ramanna: Well, we’ve substantially expanded the framework from emissions (E-liabilities), our initial focus, to removals (E-assets). We’ve written proto standards on how these principles can be applied in practice. We’ve run pilots with companies in cement, steel, energy, industrial manufacturing, automotive, tires, and even healthcare services in both developed and developing markets, to show proofs of concept. We’ve even run a pilot with a small business in Afghanistan to show that E-ledgers do not need sophisticated tools to implement, at least at first.

Scalability is a key focus for us now. We are working on solutions like distributed ledgers, together with building out the infrastructure for governance and enforcement. One scaling question we sometimes get is, well, this is a great idea if everybody were doing it, but everybody’s not going to do it, so what is your theory of change? The short answer is “recursion” – in effect, the system is self-reinforcing, it gets better over time.

Eccles: Say more.

Ramanna: At first, you don’t need everyone to do it – for instance, just companies in a few upstream emissions-heavy industries can kick us off. As they start to differentiate and compete over emissions, their customers will respond and the differentiated data moves downstream. Then, even downstream customers start to react and demand still better emissions performance, and more companies start to look for ways to differentiate. Because value chains are circular – e.g., downstream outputs like consulting services are inputs into upstream products like energy generation – there are reinforcing feedback loops that accelerate adoption with time.

Eccles: Yes, I’ve read that it’s like four or five iterations and you’re basically there.

Ramanna: Yep, under ideal conditions; in practice, perhaps a little longer. The key, though, is to have initial adoption to be sector-wide and for enforcement to have teeth – then all relevant players compete on a level playing field. This is what proposals like EU CBAM, which calls for differentiated steel, aluminum, etc., can achieve. This is why the E-ledgers Institute is spending time on improving proposals for carbon border measures in places like the EU, U.S., and Australia.

What we’ve learned from the pilots is that to get started using E-ledgers, companies need only focus on a handful of significant emissions that they can influence, a version of the 80-20 rule. If a company can identify a competitive advantage amongst these emissions categories, it should take the trouble to obtain primary data; else, it can use emissions factors. But the use of those emissions factors gets progressively punitive over time – in the first year of E-ledgers adoption, companies can use, for missing product emissions, values from the 60^th percentile of those product categories. By the fifth year of adoption, it must use emissions values from the 99^th percentile. So, the system creates turbo incentives to gather primary data – but only where there are competitive benefits. If there are no gains to differentiation in a sector, because everyone uses the same tech, companies will not mind using high emissions values. But in such a scenario, there will be strong incentives for an upstart to innovate and differentiate – and once that happens, that winning company can be richly rewarded. The system keeps all companies on their toes, just how capitalism works.

Eccles: That’s interesting. Okay, switching gears, I understand your point about GHG Protocol being about policy and not accounting in a rigorous sense, but what do you see the relationship to be between their work and yours?

Ramanna: At the core, I think we are solving the same problem – driving decarbonization. But we have different theories of change. E-ledgers sees competition between companies and products as the best way to accomplish decarbonization at scale; the GHGP’s focus appears to be on collective accountability for companies across a value chain, hence the multiple counting in Scopes 2 and 3. My concern with that is the multiple counting actually diffuses accountability because no company is then fully responsible for its own actions. This is one reason why, despite years of corporate climate reporting, the world hasn’t made much progress on decarbonization. For instance, between the year 2000 and 2024, fossil fuels went from contributing about 86% of the world’s primary energy to 81%. Meanwhile, in the same period, the world went from 94,000 terawatt-hours of fossil-fuel energy to 142,000 TWh. So, while the intensive margin decreased about 5%, the extensive margin increased over 50%. That’s not material progress; we haven’t even bent the curve.

The problem is that under this collective accountability view, companies approach decarbonization as a “side hustle,” not as core strategy. Why would they? The system doesn’t reward it. By aligning decarbonization with what companies do best – i.e., compete – the E-ledgers approach starts to reward product winners in low-emissions.

Eccles: What about the work of the ISO using a LCA approach to develop product-level carbon accounting standards?

Ramanna: I like the LCA approach. It’s basically already 50% of the way from the collective accountability of the GHGP “scopes” view to the E-ledgers’ competition view. A key advantage of LCA is it starts from the bottom-up product view rather than the top-down enterprise view – after all, products, not enterprises, move through value chains, so that’s where the incentive for primary data generation is. Product-level standards like PACT and Catena-X have also done some heavy lifting on allocation methods in different sectors, which will facilitate E-ledgers adoption at speed.

Where existing product-level approaches, including LCAs, fall short is that they are largely static, providing little incentive for companies to continuously improve product carbon footprints, even batch-by-batch, through innovations in emissions practices. So, these approaches don’t as yet drive the sort of competition at scale we need to make real progress on decarbonization.

The core innovation that addresses this problem is the E-ledger. The ledger, and in particular the inter-company accounting transactions that it enables, creates the incentive mechanism for transferring dynamic product-level emissions data in value chains. The ledger ensures material balancing of emissions and necessitates full accounting of an entity’s emissions to its products. So, unless an entity is focused on lowering its emissions relative to peers, it will have to transfer high E-liabilities to its customers’ E-ledgers when it sells its products. Very quickly, such an entity becomes uncompetitive, and it must either up its decarbonization game or die.

So, LCAs plus E-ledgers is the secret sauce.

Eccles: Okay. And then it gets back to recursion, which gets you started.

Ramanna: Yes, in a dynamically updating system like E-ledgers, we are on the recursive path, which we know will quickly converge. But without the ledger, we are stuck using static emissions factors in LCAs, which will be updated only because regulations require occasional updates. There’s no skin in the game for companies other than compliance.

Eccles: Got it and makes sense to me. Moving on, I’ve heard a number of people comment that they think you and Bob are trying to get rid of Scope 3 reporting. Is that true?

Ramanna: Bob and I have nothing against Scope 3 reporting – our concern is when it is presented as “accounting.” As I said earlier, Scope 3 is a policy-laden disclosure framework, which can be valuable. But it’s a lose-lose to confound accounting metrics with desired policy outcomes. Because when you do, neither will people take the performance measurement seriously, nor will you achieve the very policy you sought. For instance, even if you don’t like tobacco companies, it’s not a good idea to bias financial-accounting rules to make them look unprofitable. Rather, it is better to know exactly how profitable they are, relative to other companies, and then build good policy around that.

Some people worry that E-ledgers is pro-fossil fuel. It’s not pro or anti anything. It simply counts the moles of CO₂, CH₄, etc., embedded in products as they move through value chains, in a manner as close to physical reality as practicable. So, if a product has higher emissions than a substitute, because, for instance, it was made on a coal-fired grid rather than a gas-fired grid, the customer has that information when making their decision.

I’ll also say here that E-ledgers is certainly not the be-all and end-all of corporate carbon management. It is just one part of a complex ecosystem needed to make markets for decarbonization work at scale, just as financial accounting is one part – but an essential part – of making capital markets work. We also need disclosure policies like GHGP and climate intermediaries like VCMI, just as we need vibrant media, analysts, activists, enforcement, and so on. Robust carbon accounting is like the foundation of a building called “thriving carbon markets” with many floors. If you don’t have a foundation, the building comes tumbling down. But if all you had were a foundation, it wouldn’t be a very useful building.

Eccles: As you know, ExxonMobil is a supporter of the E-Ledgers idea and people think this is because it eliminates Scope 3 reporting for them. What exactly is your relationship with ExxonMobil? I mean, what I hear, is that ExxonMobil is giving you $10 million a year, $20 million a year, whatever it is.

Ramanna: Hah! I’m glad you asked this. Neither I nor the E-ledgers Institute have received money from any for-profit company for this work. The primary vehicle for my work in this area is my academic role and the non-profit E-ledgers Institute. We did consider a corporate-funded model for the E-ledgers Institute, earlier in its history, but decided against it. The Institute is funded by philanthropy active in the climate space, mostly family foundations. When the Institute does work on corporate pilots, we are not paid by the companies.

As for Exxon, the first employee from there that I ever met was at a conference on biodiversity in Ecuador in the summer of 2023. This was well after we had published several papers on E-ledgers. I do, now, have conversations from time to time with experts from Exxon, as I do with several other companies that are supportive of competitive differentiation of products based on emissions intensity. I value these conversations, as I don’t think one can meaningfully address climate change without engaging energy companies. As we discussed, over 80% of the world economy’s primary energy comes from fossil fuels. And, for instance, two barrels of oil from different sites and extraction processes can have different emissions intensities, just as two bars of steel from different mills can have different emissions values. Further, the emissions per kilojoule of natural gas can be different to coal and gasoline. So, my view is let’s articulate these differences in markets and allow companies to compete over them.

Eccles: Another common perception is that you and ExxonMobil were the motive forces behind the creation of Carbon Measures (CM). Is that true? What exactly is your relationship with Carbon Measures?

Ramanna: I was not involved in the establishment of Carbon Measures. In the early days of CM, I was approached to consider if I might serve as co-chair of the independent Technical Expert Panel (TEP), which is a joint initiative of the International Chamber of Commerce and Carbon Measures. Beyond my TEP co-chair position since November 2025, for which I receive a flat fee like other similar roles I’ve held, I have no connection to CM or ICC.

I’ll add that I am really enjoying the TEP co-chair role, as it is helping me understand what it will take to implement the E-ledgers principles across very different settings and at scale. Also, by happy coincidence, I had met Amy Brachio (my fellow co-chair and Carbon Measures’ CEO) a few months prior to the TEP’s establishment when she was still Global Vice Chair for Sustainability at EY. She had invited me to speak with her team about my recent book, The Age of Outrage, and we had hit it off.

Eccles: What is the objective of this TEP?

Ramanna: The panel is responsible for defining the principles, scope, and real-world applications of a carbon emissions accounting system designed to generate product-level emissions data that can be used to underpin both trade and regulation. There are twenty-four experts on the panel, drawn from academia, business, and civil society, and it is designed with a governance structure that ensures independence and encourages open dialogue across sectors and geographies, with the ICC acting as the main steward and convener.

I should also clarify here that as TEP co-chair, I am acting in my personal capacity, not on behalf of any institution with which I may be affiliated.

Eccles: I know others have done work in product level carbon accounting, including people you’ve worked with before. Names that come to mind are Stefan Reichelstein, Ulf von Kalckreuth, and Karl Richter. How does your work and their work relate to each other in terms of similarities and differences?

Ramanna: Sure. Ulf is a researcher with the Bundesbank. In December 2021, he sent Bob Kaplan and me a copy of a paper using Input-Output theory from macroeconomics to show how the recursive approach to determining product-carbon footprints can converge relatively quickly to theoretically “accurate” values, within a few iterations. He had been alerted to the Kaplan/Ramanna 2021 paper by a colleague in the Bank of International Settlements. Ulf is a statistician, not a carbon accountant, and his paper provides a macroeconomic proof to the microeconomic foundations that Bob and I developed. It is an important paper.

Karl Richter has a company selling sustainability software. He contacted us in April 2023 saying he was “applying a financial accounting mindset to carbon accounting,” had seen our work which he described as “much more refined in many respects” than his, and wanted to now refine his software “to include product level accounting and the idea of E-Liabilities.” Until you presented him as someone who claims to have developed ledger-based product carbon accounts independently of us, we never had that impression of him.

Stefan Reichelstein is a well-regarded academic with research interests in cost accounting, like Bob Kaplan. He contacted Bob in August 2021 after seeing our paper on SSRN, noting his own interest in carbon accounting. Initially, the three of us worked closely together, and we published in 2022 a follow-on paper to the Kaplan/Ramanna 2021 paper. Then, Stefan started to focus on the internal bookkeeping of carbon accounts, what he currently calls the Carbon Accounting Standards Initiative (CASI). He very generously asked Bob and me to join him as coauthors on this work. We reviewed the work and offered him comments, some of which he incorporated in later published papers, but we declined to coauthor on the project. Stefan’s CASI work largely focuses on intra-company bookkeeping arrangements for carbon assets and liabilities. These are nice to have, but, as I mentioned earlier, what’s foundational about the E-ledger is inter-company accounting, which is even distinct from financial accounting.

The E-ledger is the technology that enables incentive compatible transfer of primary emissions data across even the most complex of value chains. Without that, CASI’s internal bookkeeping will have to rely on the same secondary emissions factors as the GHGP “scopes” approach, so what problem will it really solve? E-ledger is also a full-allocation system, whereas CASI allows for partial allocation. The latter can be exploited for fraud (by reclassifying emissions to unallocated items). For these reasons, I don’t expect CASI, without an E-ledgers foundation, to be usable in high-stakes applications like carbon border assessments.

Eccles: Underneath all of this is the perception that you, Bob, and ExxonMobil are framing the work everyone is done in carbon accounting (and reporting) as a competitive rather than collaborative enterprise. What’s your take on that?

Ramanna: Bob and I have collaborators across universities like Oxford, Harvard, MIT, Stanford, and USC. We have also partnered with groups like the Atlantic Council, Bipartisan Policy Center, and Climate Leadership Council. We are very open to collaborate with those who wish to advance thermodynamically consistent and policy-neutral carbon accounting. Our goal is to enable competitive differentiation on decarbonization.

When Bob and I got started, we took flak for criticizing the GHGP’s “scopes” approach, but our view is that science advances through logic and evidence and that the candid challenge of a status-quo, no matter how well-established, is good for progress. As we’ve discussed, our criticism is not of the GHGP or its people but of the rigor and decision-usefulness of Scopes 2 and 3. As early as January 2022, months before we even created the E-ledgers Institute, we had our first engagement with the GHGP, on their gracious initiation. Again, in 2023, after we had run a few pilot studies to show proof of concept, we approached the GHGP to consider our ideas. Unfortunately, there was no follow-up.

But recently, we may have made some progress with longstanding climate standard-setters, after the Aspen conference that Peter Freed, Andrew Steer, and I co-chaired brought together many key players to talk about improving alignment. I stated there that the E-ledgers Institute would be delighted to dissolve itself once the idea of competitive differentiation via carbon accounting becomes mainstream. We do not see ourselves as rivals to established climate players; we simply seek to enable robust carbon accounting.

Eccles: What would you like the state of the world to be five years from now in terms of product level carbon accounting? Do you think the E-Ledgers idea could ever be formally incorporated into standards set by groups like the FASB, IASB, ISSB, and EFRAG’s SRB?

Ramanna: Carbon accounting is distinct from financial accounting, so I see E-ledgers to be separate from the work of FASB and IASB. I expect carbon accounting will merit its own standards board in the United States, especially if it is used in applications like carbon border assessments and “clean” public procurement. The U.S. government is unlikely to cede such an important standards task, with public revenue potential, to an international standard-setter. Perhaps the U.S. will establish an Emissions Accounting Board within the Department of Commerce’s National Institute of Standards and Technology.

Likewise, I expect the EU to establish its own consolidated Emissions Accounting Board to drive its CBAM and ETS applications. Then, perhaps China will want its own board too. Eventually, these boards will likely coordinate their work through a BIS-type body, like they do with central banking. This sort of public standard-setting network is probably better for long-run climate management than the current setup of voluntary INGOs, which lack official legitimacy. Of course, there should be a managed transition to such a setup.

Eccles: Finally, I want to ask you about your view on carbon pricing and its relation to product level carbon accounting.

Ramanna: I’m a huge fan of using prices to solve problems. Now, where do you get prices from? In a market society, you don’t get prices top-down from assumption-laden models; you get them bottom-up from well-functioning markets, when demand and supply meet in practice. That’s the whole point of E-ledgers – to create an informational foundation for a market that enables competitive carbon differentiation. Further, when market societies trade with non-market societies – or when societies that have invested in decarbonization trade with those that have not – E-ledgers can provide the basis for fairer competition at the border, so that prices better reflect carbon performance. What we are trying to do here is to seed an essential ingredient for a market that allows the pricing of carbon to drive decarbonizing innovations at scale without suffocating other economic activity.

Eccles: Karthik, thanks for your time! It’s been a very helpful and illuminating conversation. You are doing important work and do let me know if I can ever be helpful.

Ramanna: Thanks so much for hosting me on this platform, Bob. And don’t be surprised if I take you up on your offer someday!