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Environmental Accounting

What is Carbon foot print/Environmental accounting and why is it needed?

Carbon footprint is the amount of greenhouse gases produced in our day-to-day lives through burning fossil fuels for electricity, heating and transportation, etc.” Carbon footprint accounting measures these greenhouse gas emission in terms of carbon dioxide equivalent (CO₂e).

Environmental accounting is a broader term and is aimed to introduce a methodology to account for full environmental costs, integrate them into budgeting, proactive decision making and comply with future mandates of sustainability reporting.

EA (Environmental Accounting) is seen by corporate and environmental advocates as a necessary complement to improved environmental decision making which will in turn help corporate identify and implement financially desirable environmental innovation.’

Provides an incentive for companies to improve data management about their eco-efficiency and accountability for environmental impacts and thus have an edge over competition.

What is the current US stand on carbon accounting?

The largest single contributor to climate change is carbon dioxide. The Kyoto Protocol in 1997 has established mandatory emissions reductions of carbon dioxide for participating nations. The participating nations were European Unions, USA, Canada, Russia, Japan and Australia. By agreement, this treaty will not come into force until there were enough ratifiers to constitute at least 55% of 1990 emissions report. Russia in 2005 had ratified this treaty, whereas US which accounts for nearly quarter of carbon dioxide emission refused to ratify the treaty under Bush Administration. Within weeks of taking office, President Obama has radically shifted the global equation, placing the United States at the forefront of the international climate effort. His chief climate negotiator, Todd Stern, said that the United States would be involved in the negotiation of a new treaty — to be signed in Copenhagen in December — “in a robust way.” Obama administration has promised to push through federal legislation this year to curb carbon dioxide emissions in the United States.

Which countries have mandated the carbon accounting?

Currently Thirty-seven developed countries, including Japan, Australia and nations in the European Union, ratified the accord, agreeing to reduce or limit the growth of carbon dioxide emissions by specified amounts. All UK companies should disclose their total national emissions, for example. Emissions from industrial processes, heating, transport and refrigerant and all electricity consumption should also be included.

What are current standards on environmental reporting?

Regulators to date have opted for a relatively "non-interventionist" approach to environmental accounting reform. The U.S. Environmental Protection Agency, for instance, through surveys and case studies, has identified weaknesses in private sector environmental accounting and promotes the diffusion of accounting "best practices." This outreach- and communication-based approach may be expanded upon in the future, however. There currently are calls from some environmental advocates for more aggressive regulatory actions in this area, such as mandated environmental accounting. And several states have commenced experiments in this area. Pollution prevention statutes, in particular, are seen as a potential legislative vehicle for mandated environmental accounting.

Yet, despite progress in the identification of problems and the development of improved methodologies -- and the possibility of regulatory initiatives that feature mandated environmental accounting -- the field lacks a methodology for evaluating the social and private benefits of improved environmental accounting. Whether regulators continue to motivate EA indirectly via outreach to the private sector, or more directly via incentives such as tax breaks or mandates, private sector resources and regulatory attention should be focused on initiatives that promise the greatest benefit.

What are measures required by the company to implement carbon accounting?

The first and foremost thing is to have improved information flow- Environmental accounting is more than just accounting for environmental benefits and costs. It is accounting for any costs and benefits that arise from changes to a firm’s products or processes, where the change also involves change in environmental aspects. It is any information with explicit or implicit financial content that is used as an input to a firm’s decision making.
Information is better if it corrects a pre-existing inaccuracy. Information is better if it reduces uncertainty surrounding some future cost or benefit. Information is better if it is more detailed.

How can Environmental Accounting save money for businesses?

Business transactions today must include consideration of environmental issues. Complex law can impose significant environmental liabilities on purchasers, sellers and lenders involved in a financial transaction, whether or not they caused the environmental impacts or own the assets. Environmental liabilities associated with merger, acquisitions, and similar business transactions can present substantial risk and environmental accounting is an excellent risk management tool and improving company image at the same time.

For those reasons, it is essential to use Environmental Due Diligence as a tool for determining environmental liabilities when financial transactions are being negotiated. This not only provides greater management assurance over the transaction, but also enhances the organization’s credibility in the eyes of the skeptical shareholders.

Adopted from KPMG 2002 Research Report on Environmental Liabilities in South Africa

Direct & indirect emissions?

Direct GHG emissions are emissions from sources that are owned or controlled by the reporting entity and Indirect GHG emissions are emissions that are a consequence of the activities of the reporting entity, but occur at sources owned or controlled by another entity.

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