Making carbon accounting a reality
Keeping accurate records of carbon emissions can now have a serious effect on a company's bottom line. If companies are to keep out of trouble, more sophisticated solutions than spreadsheet-based record-keeping will have to be implemented.
Ram Ramachander, chief operating officer and Hugo Seymour, carbon consultant from Greenstone Carbon Management explain why traditional methods of carbon accounting are no longer fit for purpose.
Companies in the UK – and in many other countries around the world – are about to experience a step-change in the way that carbon reporting is treated. Until now, emissions’ reporting has generally been a voluntary process for most companies, as part of their corporate social responsibility programmes.
Next April, however, the UK’s Carbon Reduction Commitment (CRC) scheme will switch carbon reporting to a legally mandatory requirement for approximately 5,000 UK companies.
This will have direct financial implications. Those companies included in the scheme will be required to pay in advance for their energy-related carbon emissions, and although most of this payment will be recycled to participants there will be stringent penalties for the failure to accurately report on energy use.
The quality, accuracy and frequency of emissions data gathering will increase rapidly. Until recently, energy use and carbon emissions were often only calculated once a year for the annual report, or quarterly at most.
To stay ahead of the new compliance environment and manage reductions, data will need to be gathered more frequently – particularly for those companies using half hourly metering. The effect that this has on the volume of data that is generated and analysed is significant.
We have already encountered one company that ran out of columns on their Excel spreadsheet as the volume of their reporting data has multiplied.
Manually inputting this amount of data onto spreadsheets is a laborious and expensive task. By contrast, modern carbon accounting software systems can integrate with companies’ recording and analysis applications to automatically download this information, or to enable people at individual parts of the organisation to input the data directly to the system.
As carbon emissions become more directly regulated, this will become an increasingly important advantage as the cost of manual centralised upkeep of records is likely to spiral.
Getting it wrong is expensive
The fines for inaccurate reporting under the Carbon Reduction Commitment are far more aggressive than the cost of buying emission permits in the UK. For a medium-sized company, the penalty for a 10% inaccuracy in reported emissions could be as much as £150,000 under the CRC scheme.
Under most voluntary regimes, the way that carbon emissions were calculated was largely at the discretion of the disclosing company. It was left to the CSR team to develop a methodology, which in many cases was a broad brush collection of qualitative and quantitative data with the result that there has been little standardisation between companies.
In a compliance environment, guaranteeing the accuracy of reports generated in this way is very difficult and financial directors would be unwise to trust their liabilities being reported on the basis of some algorithms on the back of a spreadsheet.
We consistently find that clients are underestimating their liabilities and in one exercise we ran on behalf of a client, we found that its internally developed methodology was under-estimating its carbon footprint by 50%.
Accurate forecasting is the future
As well as getting short-term forecasting right, it will be increasingly important for companies to develop accurate and achievable plans to consistently reduce their energy consumption and carbon emissions.
This is extremely difficult to do unless companies are able to monitor their detailed energy usage over time and produce a meaningful analysis which can used to build models for emission reduction.
This kind of functionality is built in to carbon accounting software, but is very complicated to replicate in a spreadsheet-based system.
While many companies have seen the effect of carbon reporting legislation coming, and planned accordingly, many have yet to realise the risks that they run. Broadly, companies divide into three camps: ostriches, recent converts, and early adopters.
Of these, the former may find themselves in trouble if they do not address the shortcomings of relying on spreadsheets for carbon reporting in the very near future.
Greenstone Carbon Management Limited is a specialist carbon solutions company – based in London, United Kingdom. For further information please visit: www.greenstonecarbon.com