The growing international impetus to address climate change means that it is increasingly important for organisations to understand and manage their environmental impacts. In a 2012 article, Nonna Martinov-Bennie reviewed the introduction of carbon management legislation in Australia, and explains the key reporting and assurance issues.
The main climate change legislation in Australia is the Clean Energy Act 2011. The Clean Energy Act has four major initiatives: a carbon pricing mechanism, support for innovation in renewable energy, energy efficiency and enhancement in land management. Arguably, the policy with the most significant reporting implications – and also the most controversial – is the carbon pricing mechanism or ‘carbon tax’. The carbon pricing policy establishes an initial fixed price of $23 per tonne of CO2. This price will increase at 2.5% plus inflation until 2015, and then transition to a price determined by a carbon market. While the carbon price is new, it builds on an on-going legislative and reporting framework in Australia that began with the National Greenhouse and Energy Reporting Act in 2007.
Carbon pricing: key issues
As Martinov-Bennie explains, carbon reporting and pricing challenges business to improve their reporting and management in several key areas:
Reporting rigour: Because organisations’ survival has not historically depended on its control of environmental impacts, non-financial reporting has not attained the same rigour as financial reporting. By putting a cost on environmental performance, carbon pricing provides incentives for firms to bring environmental reporting standards and controls up to the same high standards.
- Timely data: Emissions data is typically reported annually. However, the creation of a carbon price questions whether annual reporting is adequate. More frequent reporting better reflects organisations’ costs and liabilities and can support more effective management of outputs. At least one large mining company is already moving to monthly reporting for operations of over 50-kt CO2.
- Robust reporting systems: The current legislative framework requires secure data storage and audit trails of changes for five years. Most firms are reporting based on spreadsheets, but it is unlikely that this will be adequate over the long term.
Effective reporting teams: Producing effective carbon data requires organisations to create interdisciplinary teams that have the range of skills that effective carbon reporting requires.
Measuring carbon: organisational strategies
Martinov-Bennie also highlights new governance and measurement challenges involved in measuring carbon output:
- Periodic or Continuous Carbon Reporting: Periodic reporting is the cheapest and most popular method of measuring carbon liability; however, it is also the least accurate. Organisations need to consider whether a more expensive continuous measurement system might better manage the risk of highly variable emissions.
- Measuring the Right Activity: Accurately measuring carbon emissions requires a thorough and holistic understanding of production, especially when using contractors. For example, a landfill company that outsources emissions to a third party through gas flaring needs to report those emissions.
The future of carbon pricing in Australia?
Despite calls for certainty by the business community, the federal opposition in Australia has promised to repeal carbon pricing legislation if elected in September. However, while many commentators are predicting a change of government and policy, the long-term future of carbon pricing is uncertain. As a small, trade dependent nation, there are limits on Australia’s capacity to remain isolated if other nations move towards carbon reporting and assurance, as recent suggestions that China is considering a carbon pricing mechanism have highlighted.
Also, the long-term value for organisations in rigorous reporting and management of climate change data is not solely a consequence of the Clean Energy Act. Independent international initiatives to report environmental impacts, such as by the Global Reporting Initiative and the International Integrated Reporting Council, suggest growing pressure from stakeholders to report environmental outcomes. The growth in investment funds with sustainability criteria will also benefit firms who can report on their environmental management practices, and suggests a growing need for assurance of these reports.
Finally, as Martinov-Bennie’s article highlights, developing effective reporting of carbon outputs is one part of understanding and evaluating an organisation’s production process. From this perspective, carbon reporting and assurance is not solely an exercise in compliance, but also an opportunity to develop a more rigorous assessment of an organisation’s non-financial impacts and management strategies.