Issues in Accounting Theory and Practice ( National Greenhouse Accounts Factor) - Case Study Example

?Activity Contex limited is a company that rents-out tools for mining sites and constructions. It has a different division that rents out and leases motor vehicles. The CEO of the company worries that the new tax placed on carbon will affect the company’s share prices. This is mainly because there has been a drop on the share prices since the listing of Contex a year before. Regulations define emissions as the discharge of greenhouse gases into the environment, which result to scope 1 and 2 emissions. Scope 1 emissions deals with a facility’s direct emission of GHG as a result of its activities. The greenhouse gases include methane, carbon dioxide, specified hydrofluorocarbons, nitrous oxide, sulphur hexafluoride and specified perfluorocarbons. There are four methods used to conclude scope 1 emissions. The first one is fuel combustion that focuses on fuel combustion and the emissions it releases. There is ‘emissions of industrial processes’ that deals with greenhouse gases resulted from carbonates consumption and using fuels as carbon reductants or feedstock. It also focuses on the release of synthetic gases in certain cases. Another method used in scope 1 is fuels’ fugitive emissions, which focus on emissions from the removal, manufacturing and supply of fossil fuels. The fourth method is ‘waste emissions’ that deals with release of GHG from the decay of organic material in facilities handling wastewater. The Contex Company has a lot invested in the use of transport fuel. It rents and leases motor vehicles, which means the company is responsible for direct emissions through fuel combustion. They also provide equipment used in mining that results to the release of methane. The first method is fuel combustion, and it is appropriate for Contex because the company deals with motor vehicles that release GHG through use of fleet fuel. This is also because the most vital source is GHG emissions from the combustion of fuel that account for more than 60 per cent reported emissions. Activity 2 Scope 2 emissions are in most cases a type of indirect emission. The scope deals with activities that produce electricity, cooling, heating or steam that a facility consumes, but are not part of the facility. They take place mainly at electricity generators because of the consumption of electricity at a different facility. The emissions of scope 2 also come from electricity obtained from outside sources. The scope provides the factors of emissions through the electricity’s supplier or by using the NT’s emission factor. The generation of NT electricity largely represents a combination of the generation of diesel and natural gas, which is a logical equivalent for the fuel mix employed in outside electricity generation. The factors of emission for scope 2 show data depending on on-grid activity specifically, year average of annual financials, state-based activity, and physical traits of the demand and supply of electricity (Australian Government 2011). To formula, calculate the scope 2 emissions purchase of electricity from an NSW. Y represents the emissions of scope 2 calculated in CO2-e tones, while Q is the amount of purchased electricity in the year and used from the facility’s operation. EF is the factor of scope 2 emission measured in KGs of carbon dioxide emissions for every kilowatt-hour, for a territory or state. GHG Source Quantities used Calculation Emissions tonnes CO2-e Scope 2 – Indirect Energy Purchased electricity - NSW 2,000,000 (2,000,000 x 0.89)/1000 1,780 Purchased electricity - Victoria 1,000,000 (1,000,000 x 1.21/1000 1,210 Purchased electricity - Queensland 250,000 (250,000 x 0.88)/1000 220 Activity 3 To calculate the emissions of scope 3, there is need to use a number of emission factors. The main emission factors covered for scope 3 are for organizations that engage in burning fossil fuel and those consuming electricity purchased from other sources. Scope 3 estimates the indirect emissions related to extraction, manufacturing and transport of fossil fuels for those organizations that burn it. It calculates the indirect emissions through measuring lost electricity from transportation. These indirect emissions include waste generated disposal, use of produced and sold products, transportation of employees to work or vacation, disposal of products that have reached end of life, consumption of purchased fuels, electricity generation consumed by a T&D system, and transportation of materials, products and waste. In some situations, it is possible to calculate emissions in scope 3 emissions the activities mentioned using the scope 1 factors of emission. For example, when a company chooses to use relevant data to report on GHG emissions from an activity off-site it is possible to use scope 1 factors of emissions. The emissions factors of scope 3 are products based on coal, gaseous fuels, liquid fuels, solid fuels, and products based on petroleum (Australian Government 2011). GHG Source Quantities used Calculation Emissions tonnes CO2-e Scope 3 – Indirect Other Own transport fleet indirect fuel extraction 400, 000 (400,000/1000)*34.4*( 69.22/1,000) 952 Purchased electricity (indirect fuel extraction and line loss) - NSW 2,000,000 (2,000,000 x 0.27)/1000 540 Purchased electricity (indirect fuel extraction and line loss) - Victoria 1,000,000 (1,000,000 x 0.15/1000 150 Purchased electricity (indirect fuel extraction and line loss) - Queensland 250,000 (250,000 x 0.12)/1000 30 Customer use of vehicles 800,000,000 (800,000,000/1000)*34.4*(69.22/1,000) 1,904,934 Scope 2 defines energy released rather than energy that a company delivers. The Contex Company should start allocating scope 2 emissions related to the electricity consumed by end-users. According to the guidance of GHG Protocol, an organization owning or controlling an equipment or plant should report scope 2 emissions where there is consumption of electricity. The company will need to calculate the amount of emission released by employees during any form of transportation. It is necessary for Contex to verify all emission factors and calculate the three scopes to recognize the amount of GHG released from various activities. There are many uncertainties identified in the determination of emissions released. According to the GHG protocol, it is necessary to access uncertainty so that an emission’s estimation range covers the real amount with at least 95% confidence. The NGER will set out the methodologies necessary for business to estimate emissions. A business can choose between default method, direct monitoring or facility specific methods (Australian Government 2011). Another barrier is climate change that will affect the amount of GHG emissions. A company may also categorize company activities into the wrong scope, which will result to inaccurate data. Contex can choose to collect and measure the emission data. Activity 4 1. Some of the places that will not experience the carbon prices because of used fuel include households, on-road business that employs light vehicles and industries such as agriculture, fishery and forestry. A number of businesses that do not effectively pay fuel excise will have to pay an effective price. Its implementation will be through modification to the existing fuel tax rule. Qualified businesses may opt to have their emissions through liquid fuel used for transport come charged in the carbon pricing mechanism instead of the system of fuel tax. Heavy on-road motor vehicle will not have a carbon price imposed from the beginning of the scheme. The Government plans to apply the mechanism on heavy on-road motor vehicles from July 1 2014 (Australian Government, 2011). A company that operates a car fleet will need to report the emission of greenhouse gas from petrol combustion in those vehicles under direct emissions. Likewise, a mining company will need to report the release of methane from a coal seam in the process of mining, which is fugitive emission, under direct emissions. A manufacturer of cement will need to report the release of carbon dioxide through the production of cement clinker under direct emissions. Calculation of direct emissions use Emission factors expressed in the quantity form of a produced GHG released for every unit of energy, fuel or a related measure. Emission factors calculate the emissions of GHG by multiplying the emission factor with activity data (e.g. kilolitres x energy density of petrol used). The NGER has emission factors for CO2, nitrous oxide, methane, and synthetic gases. There is standardization of all factors through expressing them as equivalents of carbon dioxide (CO2-e). Companies can achieve this by multiplying the emission factor by the corresponding gas Global Warming Potential (GWP) (Australian Government, 2011). Indirect emissions are those produced in the broader economy because of an organization’s activities. This is especially from its demand for services and goods. However, these are usually emissions physically produced by a different organization’s activities. The most significant type of indirect emissions is from electricity consumption. Further examples of such emissions consist of upstream emissions produced in the mining and manufacture of fossil fuels and downstream emissions from an organization transporting product to customers. There are also emissions from outsourced activities. The proper emission factor for such activities relies on the parts of downstream use and upstream production measured in calculating emissions related to the activity (Australian Government, 2011). 2. The company can use carbon accounting to calculate the levels of CO2 equivalent released by an entity. Direct emissions come from activities of an organization from internal sources. These emissions are a result of production of electricity, heat, energy, and steam involving CO2 and partial combustion products like nitrous oxide and methane. Processes of manufacturing that result to emissions and transportation of products, materials, people and waste using vehicles operated or owned by an organization that lead to direct emissions. Fugitive emissions involve deliberate or accidental releases of GHG such as emissions of methane from coalmines and waste management on-site that result to landfill emissions. Activity 5 The National Greenhouse Accounts (NGA) Factors is a preparation of the Department of Climate Change and Energy Efficiency. Its design is for employment by individuals and companies to approximate the emission of greenhouse gases. The publishing of the NGA Factors is not for use of reporting in the National Greenhouse and Energy Reporting Act 2007 (Australian Government, 2011). The methods found in the NGA Factors have a common application to the evaluation of a wider variety of GHG emissions inventories. Measuring the amount of emission is different for all the activities. Contex needs to identify the organization’s activities that release GHG. The company will then collect data such as use of electricity and fuel, vehicle mileage, receipts and invoices. Investments analysts require Contex to report the amount of fossil fuel consumed and the carbon content. They will use this information and multiply it with the emission factor to estimate an emission value. The company will need to report the amount of fuels usage, electricity purchased, fuel extracted and use of vehicles by customers. There is also need to measure the emissions released by clients because of the rented equipment used in mining and construction. It may not be possible to achieve an accurate reflection unless there is complete transparency, comparability and accuracy. A company should also complete measuring of emissions to ensure accuracy. The emission factors reported to the NGER are also estimates, which mean that accuracy is not a guarantee. The company will need to report the Global Warming Potential (GWP) of every emission of GHG to the investment analyst (Australian Government, 2011). Activity 6 The companies that produce more than 25,000 tonnes of GHG emissions every year are liable for carbon pricing. The first thing that the Contex Limited should do to reduce GHG emissions is create a commitment by senior management that will set up a target for reducing carbon emissions. The management should also create a system of incentive, internal accountability towards realizing the target and resource provision towards the reduction. The next step would be to determine the target boundary, which involves the activities and sources of carbon emissions. It would be better for the CEO of Contex Limited to plan how to decrease the emissions in the operations of the company as well as client companies. This means identifying the relationship between carbon emissions and other metrics of the business such as employee number, revenue and sales. If the company has business targets or initiatives that affect GHG emissions, then it is necessary for it to change these initiatives. Identifying the type of emissions projections in relation to the type of reduction policy will help a company choose the best policy. It is also necessary to perform standard checks to measure the GHG emissions. Contex Company may also become carbon neutral by buying carbon credits to cancel out its GHG emissions. These actions are in addition to fulfilling the scheme of carbon pricing, where companies can buy offsets from emission sources that lie external to the scheme. The National Carbon Offset Standard (NCOS) provides procedures to make certain that these carbon neutral products and offsets have environmental integrity. Bibliography Australian Government. 2011. National Greenhouse Accounts Factors. Available from http://www.climatechange.gov.au/~/media/publications/greenhouseacctg/national-greenhouse-accounts-factors-july-2011.pdf Read More