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Mandatory Carbon Reporting (But Not as We Know It)

The United Kingdom government’s decision last month to sidestep the question of mandatory carbon reporting has been met with disdain in some quarters. Its decision sees the UK, for the time being, left without a mandatory scheme for large companies.

This state of affairs mirrors the situation in the United States where, notwithstanding moves by some states to legislate on carbon reporting for large point source emitters, a unifying approach to federal mandatory carbon reporting is lacking.

However, the current position is not universally bad news.

Much carbon accounting work is already being done and valuable lessons are being learned. With the growing understanding of how to tackle these challenges come the opportunity to extract considerable additional value, extending well beyond the original projections. And as many organizations will testify, there is rarely one single driving force behind the decision to report and manage carbon emissions.

Tender submissions – It is virtually impossible to complete a major tender for a large company or government department without being required to enter information on your company’s carbon footprint. Whether you want to work for a local UK council, on a major government contract or become part of Walmart’s supply chain, you will be required to provide information on carbon emissions. Having this information available in your “carbon accounts” means more time can be spent on the tender submission, rather than attempting to develop a carbon footprint assessment at the last minute.

Investment due diligence – Investors are increasingly looking to understand carbon risks, to manage their own reputations and assess whether an investee company may harbor unquantified risks. Take for example a company that may not be part of a mandatory carbon scheme, which means they avoid carrying the associated costs of such schemes. However, they could be exposed through the supply chain if their suppliers are in schemes, such as the EU emissions trading scheme (EU ETS), the Western Climate Initiative in the US and Canada, or the recently introduced Australian carbon tax.

Managing and enhancing reputation – Most businesses would like to show that by using their goods and services customers are not indirectly causing environmental damage. The proliferation of “green labels” is testament to this, with carbon information well suited to communication, if used appropriately. Offering a quantifiable metric that can be compared to other businesses or activities, it is rapidly becoming a currency. As a result, accurate and transparent carbon information can distinguish those businesses with a genuine low carbon message from those that are simply greenwashing.

Saving money – An obvious benefit of managing carbon is that it often means understanding and reducing key costs, such as energy, logistics, fleets, refrigerant gases and business travel. Most companies achieve savings in some or all of these areas, while reducing costs, energy consumption and carbon emissions.

Staff engagement – Many employees feel motivated by working for companies that do more than “just make money.” Carbon accounting can be a useful tool to engage with staff on green issues and many companies are now offering household carbon calculators as part of their carbon management. This joins up a company’s own carbon management activities with those of the staff, creating greater engagement with the process and the company.

Multiple drivers will increase the probability that any given business will need to report carbon emissions. The good news is that this also increases the likelihood of finding additional value from the reporting process.

However, with governments in the US and the UK not yet prepared to legislate on carbon reporting, companies are left to deliver market-based solutions to market problems. Few would dispute the notion that this is a much-preferred position, against the prospect of poorly thought-out or executed legislation.

The UK’s CRC Energy Efficiency scheme is one example of an initiative, which is barely off the ground and now faces a major overhaul or the prospect of being axed and replaced with a carbon tax, largely due to its inability to reduce emissions and its overly bureaucratic and costly reporting rules.

If mandatory carbon reporting was based on equally poor legislation, the good work already done by many companies could be undone at a stroke. This would also render many of the more elegant carbon reporting solutions obsolete, which would represent a significant retrograde step.

The upshot is that we do not need legislation to force companies to report their carbon emissions, as the drivers and benefits already exist. We certainly do not want poor legislation, as that would be worse than no legislation at all. The hope is that governments do catch up with markets, by enshrining good carbon reporting practice in legislation. When this happens, there will be many companies with their carbon accounts at the ready.

Gary Davis is co-founder and operations director of Ecometrica, a global provider of web-based carbon emission measurement, land use and ecosystem technologies.

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