1 understand the framework of corporate carbon management system. the definition of carbon accounting

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1 Carbon Accounting and Corporate Carbon Management Systems: a Holistic Approach Dr. Qingliang Tang School of Business, University of Western Sydney (q.tang@uws.edu.au) Learning objectives 1 understand the framework of corporate carbon management system 2 3 the definition of carbon accounting A holistic research approach 4 the role of carbon accounting in the development of carbon management system 1

2 Scientific Evidence of global warming Damage of global warming Kyoto Protocol Cost of carbon emission control Clean energy: e.g. Solar power generator, wind power, etc. Emission Trading Scheme The role of Carbon accounting 2

3 There are 10 basic elements within 4 perspectives in a theoretical carbon management system (Qingliang Tang & Luo 2014: Carbon Management Systems and Carbon Mitigation, Australian Accounting Review) Figure 2: The Carbon Management System Carbon Governance Perspective Elements Purposes Board function To develop overall climate-change strategy and policy Risk and opportunity assessment To identify and assess carbon risk and opportunity Staff involvement To motivate staff and enhance awareness of climate-change issues Carbon Operation Perspective Elements 4 5 Emission target Policy implementation Purposes To set up a mitigation target that is consistent with carbon strategy To enforce carbon policy by prioritising reduction actions and allocating resources to achieve targets 6 Supply-chain emission control To reduce supply-chain emissions Emission Tracking and Reporting Perspective Elements Purposes 7 8 Carbon accounting Carbon assurance To keep track of carbon inventory and emission footprint To increase the reliability of carbon data and information Engagement and Disclosure Perspective Elements Purposes 9 10 Engagement with stakeholders Disclosure and communication To strengthen the link with stakeholders To increase the transparency of mitigation activities and outcomes 3

4 There are five steps in the development of Carbon management Step 1: Carbon strategy and risk assessment system Step 2: Reduction Target setting Step 3: Adjusting organisational structure and operating process Step 4: Program Implementation Step 5 Carbon performance evaluation, reporting and Assurance Feedback 4

5 The role of carbon accounting in the step 1 of the development of carbon management system Analysis of impact of government climate policy Review of low carbon technology and Step 1a: Carbon Strategy Development Assessment of internal management and institutional 5

6 The role of carbon accounting in the step 1b of the development of carbon management system Assessment of regulatory and physical risks of global warming Assessment of product and process risk Step 1b: Carbon Risk Assessment and financial impact Assessment of market risk and consumer Assessment of supply chain risk 6

7 The role of carbon accounting in the step 2 of the development of carbon management system Analysis of Historical data of energy consumption Review of national target and industry level emissions Step 2: Carbon target setting Financial commitment of targets 7

8 The role of carbon accounting in the step 3 of the development of carbon management system New organisational structure New organisational procedure flow Chart Step 3: Organisational restructuring and operating process modification New departmental functions and Changes in internal control systems 8

9 The role of carbon accounting in the step 4 of the development of carbon management system Feasibility Study Project Budget Step 4: Carbon program (new technology, products) implementation Cost Control techniques Discrepancy analysis, monitoring and correcting errors 9

10 The role of carbon accounting in the step 5 of the development of carbon management system Measure of carbon performance at firm and individual staff level Internal and External Carbon reporting and disclosure Step 5: Carbon performance evaluation and reporting Carbon assurance 10

11 A holistic approach of carbon accounting system: a comprehensive and integrated view 1 All the parts of carbon accounting systems are correlated with each other 2 the communication, interaction, interrelatedness, interdependence, interconnectedness and feedback between components and parts is crucial 3 the nature of each component of the carbon accounting system and the relationship between a particular component with other component determines the function of component (element). 11

12 A holistic approach of carbon accounting system: a comprehensive and integrated view Functional module 1: Energy data collection Functional module 2: Carbon emission footprint tracking Carbon accounting framework: Basis concepts, principles and objectives Functional module 3 Carbon operation management Functional module 4: Carbon performance measure and reporting 12

13 Objectives: Carbon accounting is to minimise exposure to carbon risk and liability and reduce its operational carbon emissions. Carbon accounting helps the managers who adopt a balanced policy between maximisation of firm value and environmental protection. 13

14 Definitions of Carbon Accounting 1 (narrow) Carbon accounting is a set of techniques to quantify Greenhouse Gas Emissions. 2 (broad) An operational definition of CA: Carbon accounting is a system that uses accounting methods and procedures to collect, record, and analyse climate change related information, and account and report for carbon related assets, liabilities, expenses and income for the decision-making of internal managers and external stakeholders. 14

15 Future Research Questions: For each component (or element or module) of carbon accounting system What is the knowledge and skill known and what is unknown? This is the gap to be filled by future research. What is the accounting method available, what is unavailable and to be developed? 15

16 For example: Carbon performance measurement What is known: Measure of physical emissions reduction: scope 1 and 2; direct emissions, non-monetary aspects of emissions; What is unknown: how about supply chain emissions calculation and control? How about monetary aspects of emissions? Can the impact of emissions be monetised? How to recognise and measure carbon related items such as carbon assets? What is the difference: carbon assets v other intangible assets? 16

17 Regarding Carbon assurance: What is known: Standard on Assurance Engagements ASAE 3410, Assurance Engagements on Greenhouse Gas Statements, Issued by the Auditing and Assurance Standards Board (June 2014) What is unknown: What is the difference between financial and carbon assurance? How ASAE 3410 is applied in practice? 17

18 Structure of Carbon Accounting and Sustainability textbook Chapter 1: Introduction: Objectives of Carbon Accounting Chapter 2: Carbon Emission Footprints Calculation Chapter 3: Climate Change legislations and Regulations Chapter 4: Carbon Emissions Trading Chapter 5: Accounting Methods for Environmental Assets and Liabilities Chapter 6: GHG Emission Assurance and Auditing Chapter 7: An Introduction to Carbon Tax Chapter 8: Carbon Management/governance System Chapter 9: Carbon Disclosure and Reporting Chapter 10: Carbon Risk Assessment and Control Chapter 11: Environmental and Carbon accounting Research Chapter 12: Summary and Future Development: Sustainability and carbon accounting 18