The sustainability age has, in theory, replaced bean-counting with carbon-counting. Richard Chirgwin looks at what is happening in practice... Here’s a paradox: businesses have the opportunity to save money and improve business processes – but many resist doing so. Welcome to the world of ‘carbon accounting’, and a lesson to be learned from the potato crisp. The potato crisp in question is sold in the UK under PepsiCo’s Walkers brand – as iconic there as Smith’s in the antipodes. Undertaking a comprehensive audit of its carbon footprint (an exercise in detailed carbon accounting), Walkers discovered a perverse incentive in its supply chain. By paying its suppliers strictly by delivered weight, the chip-maker was encouraging everyone from farmers to its factory door to maximise the potatoes’ water content. This was energy-expensive twice: the suppliers spent money on temperaturecontrolled humidifiers to protect their precious crop, while Walkers then spent money on extra frying time to drive off the extra moisture.

1. Feature
62 Issue 41 | Quarter One 2013

2. Carbon
accounting:
burden or benefit?
The sustainability age has, in theory, replaced bean-counting with
carbon-counting. Richard Chirgwin looks at what is happening in practice...
H
ere’s a paradox: businesses have lower water content, and cut its own emissions by segment in the business software industry, carbon
the opportunity to save money and saving 10 percent of the frying time. accounting is a straightforward enough proposal.
improve business processes – but If there’s a good enough reason to make the National emissions reduction schemes are based
many resist doing so. Welcome to attempt, the dull business of carbon accounting on attributing and charging, in some way or anoth-
the world of ‘carbon accounting’, and can pay for itself, not under the coercion of regula- er, for carbon emissions, which means that to com-
a lesson to be learned from the potato crisp. tory compliance, but because it helps identify and ply with such schemes, businesses need to account
The potato crisp in question is sold in the UK eliminate waste. for their emissions.
under PepsiCo’s Walkers brand – as iconic there as Steven Hafey, product manager at Pronto That’s an opportunity for the IT sector, met vari-
Smith’s in the antipodes. Undertaking a compre- Software in Australia, says many companies can ously by integrating carbon accounting into exist-
hensive audit of its carbon footprint (an exercise in benefit by the greater visibility into costs that car- ing systems (vendors such as Pronto, SAP, Epicor,
detailed carbon accounting), Walkers discovered a bon accounting can provide. “Why is our biggest TechnologyOne and others), or by creating stand-
perverse incentive in its supply chain. cost here in diesel?” is a good rhetorical example, alone systems (Carbon Systems in Sydney).
By paying its suppliers strictly by delivered he says. “‘Why is a particular facility using more car- Today, it’s an activity which companies seem only
weight, the chip-maker was encouraging everyone bon?’ If you’re not tracking it, you can’t do anything willing to complete under compulsion – something
from farmers to its factory door to maximise the about it. It starts with having a look.” which has hampered the deployment of purpose-
potatoes’ water content. This was energy-expensive SAP’s Asia Pacific-Japan director of sustainability, built carbon accounting systems’ ability to take the
twice: the suppliers spent money on temperature- Darren Green, says “Really, it’s all about energy. If place of nearly everybody’s default entry to carbon
controlled humidifiers to protect their precious crop, you can focus on energy, there’s a real cost saving. accounting, the spreadsheet.
while Walkers then spent money on extra frying Three percent is a genuine bottom-line saving. So
time to drive off the extra moisture. carbon accounting is about understanding energy Carbon schemes
Having discovered the wasted carbon input use, because for most companies, that’s where the There are also international differences between
during a joint project with the UK’s Carbon Trust, real savings are going to be.” carbon schemes, even between Australia and
Walkers crafted an incentive to reward farmers for An emerging, but as yet inconsistently applied New Zealand, which can make carbon accounting ››
Issue 41 | Quarter One 2013 63

3. Feature // Carbon accounting
more complex to execute and, in the case of New of (for example) energy purchases.
Zealand, often voluntary. Scope 3 emissions: those associated with a prod-
NZ carbon accounting Australia’s emissions trading scheme, the Carbon uct’s lifecycle after sale (such as the consumer’s
a non-event Pollution Reduction Scheme (CPRS), targets com- usage of a microwave oven) are not mandated for
panies whose annual emissions exceed 25 kilotons reporting.
of carbon units – given the media shorthand of the Offsets and abatement activity are also required
Some commentators have criticised New
“top 500 emitters” (the list, maintained by the Clean to be reported, and in the case of offsets, the regu-
Zealand’s more recent revisions of its
Energy Regulator, names 317 companies as at 12 lations demand the identification of the source,
ETS scheme. Gordon Shaw of Auckland
December, 2012). because developed and developing nations are
sustainability consultant SempriAvanti
These are the companies required to obtain per- treated differently under the Kyoto Protocol.
explained that 50 percent of New Zealand
mits under the CPRS – permits which attract a fixed The bulk of Australia’s reporting regulations are,
emissions are associated with agriculture.
price today, but which will become a fully-tradable in fact, concerned with outlining the special cases
This makes greenhouse gas abatement
instrument between 2015 and 2017. The scheme is involved in particular industry sectors – mining,
extremely sensitive at the grassroots
also to be linked to Europe’s ETS in 2015, allowing energy, mineral production, and waste businesses.
political level.
the purchase of permits from European sources as There is, additionally, a set of what Erwin Jackson,
That, he explained, is why the New well as Australian. deputy CEO at the Climate Institute in Australia,
Zealand Government has now said it will All of this rests on a dataset much older than called “onerous obligations” for proving that some-
defer indefinitely the date that farms the CPRS itself: the 2007 National Greenhouse and one is “fit and proper” to engage in carbon trading.
will be brought directly under the ETS – Energy Reporting Scheme (NGERS) established NGERS imposes penalties of up to AU$200,000
leaving the scheme only covering the fuel reporting requirements that are the foundation of (with extra penalties for running late) for companies
and forestry industries it now covers. the CPRS. whose reporting isn’t compliant.
Calling the decision an “unwinding” of That Act requires reporting companies to track While the long years of international debate over
the Government’s commitment to the emissions under three ‘scopes’: climate change abatement have failed to produce
ETS, Shaw says the lack of policy from Scope 1 emissions: the direct impacts of their dramatic international action to reduce greenhouse
the Government means that New Zealand operations in terms of carbon dioxide equivalent emissions, they are clearly visible in much more
businesses are “operating in a vacuum”. emissions (with the Act’s accompanying regulations prosaic outcomes – such as the development of
listing equivalencies for 23 other chemicals, all the international reporting, recording and classification
Shaw also pointed out that there is no way up to Perfluorohexane whose greenhouse standards. Hence, both Australia and New Zealand –
mandated reporting scheme analogous potential is 7400 times that of carbon dioxide). along with a large number of other countries – base
to Australia’s NGERS in New Zealand, Scope 2 emissions: the indirect impacts by way their greenhouse policy on the Greenhouse Gas
so with neither a requirement to report,
and with an ETS with a very small busi-
ness footprint, there’s little reason beyond Greenhouse sources: Australia & New Zealand
corporate citizenship for any company to
80% 75%
attempt accurate carbon footprint mea-
surements. 70%
Australia
One vendor contacted for this article was 60%
privately more blunt: “Carbon accounting New Zealand
isn’t a discussion topic in New Zealand. 50% 47%
43%
The New Zealand emission trading
40%
scheme isn’t a happening thing.”
Whether or not that last statement is 30%
hyperbole, it’s a fact that New Zealand’s 16%
20%
ETS is trading well below expectations
– as New Zealand Herald commentator 10% 6% 7%
3% 3%
Brian Fellow put it, the roughly $2.50 per-
tonne price means “$200 per million dol- 0%
Industrial
Agriculture Energy Waste
lars in revenue”. Processes
Sources: New Zealand - Ministry of the Environment, Environmental Snapshot, April 2012, Australia – Department of
Climate Change, Quarterly Update of Australia’s National Greenhouse Gas Inventory, June 2012
64 Issue 41 | Quarter One 2013

4. Protocol (ghgprotocol.org/). standardisation embodied in documents like the nicely with the way people structure their finan-
New Zealand stipulates the same Scope 1-2-3 Greenhouse Gas Protocol, he said, “the calculation cials,” Pronto’s Hafey explained.
classifications as Australia for reporting purposes. algorithms are pretty much international … nice and He says Pronto looked at the required data struc-
However, New Zealand’s reporting regime is being generic.” tures and implementation challenges for some time
rolled in gradually. As the Environmental Protection However, Hafey notes, governments in both before launching into the carbon accounting seg-
Authority’s 2012 Climate Change Response Act countries are lagging behind IT reality in the matter ment. Its two key decisions have been to integrate
report states: of reporting, with mechanisms that rely on online carbon accounting for free, and to make it back-
• The forestry industry has been reporting under forms without the convenience of a published API wards compatible to older versions.
the ETS since 2008; (application programming interface) – meaning Even if the software problem is easy to solve,
• The stationary energy, industrial process and that whatever IT system a customer puts in place, SAP’s Green says, business processes – the simple
fossil fuel sectors had their first full reporting year there’s inevitable double-handling of the data. decision of who should capture carbon data at
in 2011; and what point in a business process – need consider-
• The waste and agricultural sectors’ data will first Why Bother? ation.
be published in 2013. The market as it now stands poses a problem. “Accounts payable is a familiar, well-thought-out
A Ministry of the Environment spokesperson Carbon accounting has arguably reached most of process,” he says. A data entry operator “takes a bill,
noted that New Zealand treats some sectors differ- the Australian organisations covered by the manda- the data, the vendor, the price – but until now, not
ently from Australia. For example, emissions from tory scheme (and probably those at its periphery, the kilowatt-hours.
fossil fuels are reported by the source, rather than since they will be watching their emissions closely “So one question is: do you re-engineer accounts
by the users: a coal mine reports the carbon, rather to try and avoid crossing the 25,000-tonne mark); payable to capture it, or design a separate process?”
than the factory that burns the coal. On-farm agri- and in New Zealand, government policy has dra- Pushing cost data back to departments also
cultural emissions, on the other hand, are shifted matically reduced the need for such systems. needs thought. “It might even be a concern for
down the supply chain to processors, however, the That has turned the IT industry’s mind to other cost-centre accounting. In SAP’s branch office in
New Zealand government recently announced that things: whether carbon accounting can find its Melbourne we have half a floor of a commercial
it would put off, indefinitely, the date at which farms payoff in other ways. According to Green from SAP, building that we don’t own but there are five depart-
will be brought directly under the ETS. projects rarely get off the ground on feel-good ments represented here. Do we try and allocate a
An important administrative detail is that rather alone. carbon cost against the three people in the corner,
than a single regulatory instrument as has been “The world of carbon accounting has changed in because ‘Melbourne office’ isn’t a single cost centre?
adopted in Australia, New Zealand has opted for Australia,” Green stated. “Before there was no board- “We’re asking our customers to think about the
sector-based regulations (the full suite of regula- level motivation to get rigorous.” For companies like level of granularity they want,” he noted – and this is
tions is listed at the government’s Climate Change BHP Billiton or Macquarie Generation, “If the carbon not a software challenge, but a business challenge.
information page, at tinyurl.com/c7by4kc) and other bill is in the hundreds of millions of dollars, you can’t However, in spite of such considerations – and
than the companies covered by the ETS, all report- run it on a spreadsheet.” the fear that the words ‘new business processes’
ing is voluntary. The record-keeping looks relatively straightfor- can engender in IT departments – Green firmly
ward, Dr Sumit Lodhia of the University of South believes that the payoffs are worth the effort,
Standards and interfaces Australia’s School of Commerce explained – but the regardless of the strength of the reporting obliga-
Erwin Jackson, deputy CEO of Australia’s Climate scope of the data gathering can be surprising, espe- tions that exist.
Institute, identified international standardisation as a cially for large emitters. “Some companies might get caught up in the
key issue, especially for companies with an interna- Scope 2 emissions, Lodhia says, are the easiest to negative aspects, and miss the opportunity. You can
tional footprint. report – since they can be easily derived from the start to compare, measure, benchmark, and under-
“You need consistency with the international energy bills. The challenge for companies reporting stand your opportunities to improve.”
rules – you don’t want it to be a wild west.” Scope 1 emissions is not that they’re especially com- Hafey agrees: “Even though we’re not charging
Standardisation also helps reduce compliance plex, he says, but that they can involve a very large for it, a lot of customers are still looking at [carbon
costs, he says. “Having alignment across the globe number of data points. abatement schemes] with a sense of fear. It’s some-
in terms of common accounting metrics is in every- thing extra that they don’t want to do.”
body’s national interest.” Market responses But the understanding that leads to examples like
Measurement that’s based on “robust science” The reasoning behind integration into financial Walker’s chips, he says, is something that benefits
builds confidence in carbon accounting, he added, software is simple: “The structure of the informa- both the company’s finances and the environment.
and simple regulations makes compliance more tion that the [Australian] government wants, and Why not see if the ROI exists independently of
likely. how they want you to report it, is very similar to a regulation? he asks.
Hafey agrees: because of the international general ledger profit and loss – and that ties in very
Issue 41 | Quarter One 2013 65