Issues in Accounting Theory and Practice - Case Study Example

Case Study National Greenhouse Accounts Factor Department: Case Study National Greenhouse Accounts Factor Activity 1 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. Activity 2 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 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 3 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 4 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 5 The various activities that result to the emission of carbon include burning fossil fuels, steel or cement making, waste management and coal mining. Fossil fuel burning occurs in situations such as the generation of electricity or during transportation. 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. 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. 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. It is important for the company to determine the main activities that cause emission of GHGs. 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. 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