Voluntary GHGs Emissions Reporting: Australian Evidence

This is a brief summary about my jointly-written research paper on Green House Gases (GHGs) emissions reporting, with my supervisors - Michaela Rankin and Carolyn Windsor - when I did my Master degree in Monash University. We examined voluntary corporate GHGs emissions disclosures in the absence of public policy regarding climate change in Australia. 
My video presentation is as follows:

PURPOSE

Our study looked at the determinants of voluntary GHGs emissions disclosures by Australian firms. In particular, we aimed to investigate two main points: (1) factors that associate with the Australian firms’ decision to provide voluntary (GHGs) emissions reporting in 2007; and (2) for those disclosing firms, factors that relate to the extent and credibility of corporate voluntary (GHGs) emissions reporting.

Institutional governance theory is introduced here to explain proactive corporate response to climate change in the Australian context. This theory is used to examine the hypothesised links between voluntary emissions reporting, internal governance systems and private regulations that guide GHGs emissions disclosures from external parties.

METHOD

We studied GHGs emissions disclosure in a voluntary setting in 2007. It is a point in time when global warming and climate change risks are acknowledged on the international stage as a crucial issue for corporations, and when a cap and trade scheme had been proposed in Australia, but before any mandatory reporting of corporate GHGs emissions was required in Australia.

Since the first July of 2008, Australian firms that meet certain thresholds, have to report their GHGs emissions and energy use to a government agency.

The sample includes all of the top 300 firms listed in Australian Securities Exchange (ASX).

Initially, we collected 295 firms that were recorded in the ASX300 as at 26 August 2008. But then we decided to study 187 firms as the final sample because the rest of them did not meet all testing requirements in our models.

We used a two-stage approach to test two different models.

First, we want to investigate the propensity to disclose emissions for ASX 300 firms as the sample. The first model includes both internal and external factors that relate to decision to provide or not provide voluntary GHGs disclosure.

Therefore, we use binary-choice logistic regression to test 187 firms that have all testing requirements.

Then we proceed to the next one.

The second model is to test whether the internal organisational systems and the external factors that are likely to impact on voluntary emissions disclosure, also relate to the extent and credibility of disclosures.

To measure the extent and credibility of emissions disclosures we designed an index based on the guidance provided in ISO 14064, part 1. 

It is a standard that details guidance on what should be included in a publicly available GHGs report.

We use an OLS (Ordinary-Least Squares) regression to test this more complex measure on a sub-sample of 80 disclosing firms as the dependent variables.

FINDINGS

Interestingly, we find evidence that 80 firms out of  187 Australian firms that we analysed, that is around 43%, provided voluntary GHGs emissions reports for the year 2007. That was before the Government required them to report this information to a government agency starting from 2008. They disclosed emissions information in their annual reports, and or stand-alone sustainability disclosures.

Firms are more likely to present voluntary (GHGs) emissions disclosures when they have an Environmental Management System (EMS) in place, either certified or uncertified, have stronger governance systems, make publicly available disclosures to the CDP (Carbon Disclosure Project), are larger in size, and operate in either the energy and mining, or industrial sector.

When we evaluate the extent and credibility of disclosures by the sub-sample of 80 disclosing firms, we find that they are more likely to have an EMS that is ISO14001-certified, use the Global Reporting Initiative (GRI) to guide their sustainability disclosures, and disclose to the CDP with those disclosures being publicly available. Firms that provide more credible emissions disclosures also tend to be larger and operate within the energy and mining, industrial, or services sectors.

CONCLUDING REMARKS

We find evidence of Australian firms’ willingness to move to a carbon-low future in the absence of public policy.

These proactive companies have implemented organisational systems, but also have relied on external private guidance provided by GDP & GRI to publicly disclose their responses to climate change risks, including GHGs emissions data. 

AAAJ

For more details about this research, the article is available in the recently released edition of AAAJ, Accounting, Auditing, and Accountability Journal in November 2011, volume 24 number 8 - which is a special issue on climate change & greenhouse gas - pages 1037-1070. 

Here is the link for the paper on Emerald

Hope you find it useful.

Dancing with Carbon Price: A Hybrid Scheme for Australia

Yesterday, the Australian PM, Julia Gillard, announced the architecture of carbon price policy to commence next year.

The blue print set out a hybrid scheme, with a carbon tax starting from 1 July 2012, converting to a cap-and-trade emissions trading scheme (ETS) in three or five years. Media reported that many complaints has been directed to Gillard as to her election campaign commitment last year: "There will be no carbon tax under the government I lead". There have been interesting debate afterwards regarding how Gillard will make them dancing to her tune. Broken promise or not, the government revealed that attaching price tag on pollution is back on the national primary agenda.

The proposed carbon policy will impose a fixed price that will gradually increase at a pre-set rate for a period of three or up to five years from 2012. At the end of fixed price period, two options will be considered: either to shift to a flexible carbon price that can be linked to international carbon market, OR to defer the transition to carbon price by continue applying  a fixed price with adjusted price level and rate. The decision to execute the deferral option of floating carbon price depends upon the impact of carbon price on Australian economy and on carbon emissions reduction, as well as the state of international emissions target and international carbon market.

The carbon price will charge emissions from electricity generators, transport, industry, fugitive emissions from mining as well as waste. It will not hit the agriculture sector due to the complexity of counting agricultural emissions. The dollars of polluting the atmosphere will be used to compensate households and businesses, and funding renewable energy programs. However, the starting carbon price and the assistance measures for both households and businesses are still in the discussions agenda of the Multi-Party Climate Change Committee (MPCCC).  The pricing scheme expected to passage its legislation by the end of the year, to come into operation on 1 July 2012.

In theory, putting a price on carbon pollution offers incentives to conduct cleaner businesses. The more emitting carbon pollution simply means the more costly the carbon compliance costs. Looking through a 'business spectacle', the indications of the starting level of carbon price and the forward curve, also the clarity of the transition measures and business compensations are essential for decision making, especially for long-term investments. The details of the interim measures, i.e. the transition rules from fixed to flexible carbon price mechanisms, can be translated into targets to be achieved in adjusting to a low-carbon economy while maintaining business competitiveness.


Click on Carbon Price Mechanisms 24 Feb 2011 for more (pdf).

A Carbon Price for Australia from July 2012

Carbon Price

What is a carbon price? It is a charge to those who pollute, either through a carbon tax or an emissions trading scheme (ETS). The carbon tax gives certainty about the carbon price, but uncertainty about the emissions reduction. Whereas the ETS offers certainty about the emissions cut, with uncertainty about the carbon price.

The Australian government has planned to use an ETS, the so-called Carbon Pollution Reduction Scheme (CPRS), as a market mechanism in transition to a low-carbon economy.  The CPRS, which was originally planned to start on July 1, 2010, has now been shelved until 2013. The legislation to implement the CPRS was defeated in the Australian Parliament three times, in August and December 2009, as well as early last year. The Greens rejected the CPRS bill as it set out too low emissions target and too much compensation to the coal and power industries.

As reported by news, carbon price is back on the table. Prime Minister Julia Gillard announced to deliver a fixed price on carbon emissions starting from July 1, 2012, for around three or four years. Putting a price on carbon will then move to an ETS after 2015 or 2016.

This climate action to involving a broad range of industry via a carbon price is crucial for Australia commitment to achieve its ambitious target of 25% emissions reduction on 2000 level by 2020. Otherwise, as highlighted in the latest emissions projection report for Australia which was released by the Minister for Climate Change and Energy Efficiency yesterday, Australia's emissions will continue to rise on a business-as-usual (BAU) projection without further policy action.

When to Take Up Carbonomics Challenge?

The impact of carbonomics policy to business remains unclear. As for companies operating in Australia jurisdiction, corporations with facilities emitting at least 25 kilotonnes carbon dioxide equivalent (25ktCO2-e) have been required to annually report their greenhouse gases (GHGs) emissions since 2008. From only just reporting their carbon footprint annually, it is possible that they are gonna start to paying for their emissions. I personally believe that polluting the environment will likely be no longer free. There will be a price tag on carbon emissions whether in form of a carbon tax or a pollution permit traded via an emissions trading scheme (ETS). The carbon pricing mechanism through taxation and/or ETS is another interesting debate.

Given uncertain carbonomics environment, so when do entities need to engage in carbonomics challenge? To kick start a brainstorming, below is a copy of Deloitte debates on when to tackle carbon_now or wait and see:

Point	Counterpoint
We’ll worry about it when we have to. And right now, we don’t have to.	Strategic decisions about product development, manufacturing facilities, and distribution centers can take years to implement. Without a carbon strategy, a choice that looks smart today could tie your hands over the long term.
Carbon lifecycle regulations aren’t going to happen anytime soon. They look too much like taxes, which could send the economy into a tailspin. There’s no way governments are going to take that risk.	It depends on what you mean by ‘soon’. Forward-thinking global companies are already positioning themselves for reduced carbon footprints, even as they attempt to shape public policy to their advantage. It makes sense to get ahead on carbon emissions. That starts with benchmarking.
It costs real money to document our carbon baseline. Reporting performance isn’t cheap either. It’s not worth the trouble.	You’re already investing to improve energy efficiency. The incremental cost of creating a carbon strategy is trivial in comparison to its value potential. Why not do things right?
If we want to have a say about future regulation policy, we need a seat at the table. That means taking carbon seriously.	That might be true for some companies, but most have zero chance of influencing policy. So why bother?
Manufacturing and supply chain decisions used to be simple. Cost (incentives, labor, taxation) and demand were all that mattered. But lifecycle carbon emission standards are coming. Any plan for the future has to factor that in.	Getting ready for something that may never happen doesn’t seem like a smart investment of time.
It’s the right thing to do. For our own financial benefit as well as for the environment and the health of local communities. There’s more than one bottom line.	Doing the right thing doesn’t matter if my company doesn’t survive.

source: Jaeger, 2009, 'A Blueprint for a Carbon Emissions Policy', www.complianceweek.com

It is true that the carbon price will not directly affect all business industries, but it will somehow will indirectly affect each business to some extent. Start your carbon thinking now or just sit, relax and watch the early movers reap their benefits? That's your options...