CARBON ACCOUNTING AND ISO 14064: GETTING READY FOR CAP AND TRADE

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1 CARBON ACCOUNTING AND ISO 14064: GETTING READY FOR CAP AND TRADE Nashua, New Hampshire, February 2010 Even though no firm action was taken during the 2009 Climate Conference in Copenhagen, the U.S. administration has still pledged that the country tighten carbon emission regulations. The most plausible possibility is what is referred to as a cap and trade system where the government sets a cap on how much pollution a company can product and companies that need to exceed the cap can buy credits from those who pollute less. While the concept of regulating carbon emissions may be new for American businesses, many foreign governments and companies - as well as American businesses that have a global presence - have been struggling with how to identify and regulate their greenhouse gases since the Kyoto Protocol was passed in If there is a silver lining in all of the discussion, it s that it is much easier to implement a proven system to monitor your carbon emissions that it was just four years ago and often reducing carbon output results in a company saving money on utilities and other products. Background While global warming is still being debated in some circles, concern about global warming was the force behind The Kyoto Protocol. Many scientists say excess carbon and similar gases in the atmosphere create a greenhouse effect, trapping heat in the form of ultraviolet radiation which has been naturally transformed to infrared in the earth's atmosphere. The principal concern is anthropometric gases (those gases which are emitted by man's activities), which became a concern from the time of the industrial revolution but worsened with the globalization of industry, the discovery and use of fossil fuels, and the growth in personal freedoms and wealth. The most abundant greenhouse gas is

2 carbon dioxide and therefore CO 2 is the gas that is most sought to be regulated by governments. While carbon dioxide isn t the only greenhouse gas, all other gases with a Global Warming Potential (GWP) are rated with a CO 2 equivalent. For example, methane is a greenhouse gas that is 72 times more potent than CO 2, so it is given a GWP rating of 72, says Richard Hadfield, Technical Services Manager with the National Standards Authority of Ireland, a company that specializes in management system assessment and verification. NSAI has been providing carbon certification services since 2005 and has clients ranging from large facilities emitting millions of tons of CO 2 per year to smaller operations. The Kyoto Protocol established mechanisms to control the emissions of greenhouse gases including global and regional initiatives, such as the EU Emissions Trading program. But in order for these programs to work, companies must account for their carbon output and determine exactly how much carbon they are putting into the atmosphere. This can be problematic. Hadfield says there are many of carbon footprinting programs active across the globe but it s difficult to make them meaningful. It s one thing to study and determine the carbon emitted by a single activity but we live in interactive systems with many direct impacts and hundreds of indirect impacts; at this level it is important to define boundaries, understand interactions and bring the results of a carbon footprint determination to a level which can be understood and help in decision making. The carbon accounting industry is still nascent, so even if a company can determine how much carbon it is creating, it s another challenge having the public understand just exactly what that number means. For example, Lufthansa recently did a self-declaration of its carbon footprint, calculating how many pounds of CO 2 are produced per mile per

3 passenger. But since this accounting was not done by a licensed certification body like NSAI, it s difficult to know exactly how precise the study is and gauge the public s reaction. Self-certifications are good in the sense that companies show an interest in accounting for their carbon output and can determine a baseline value, says Hadfield. A baseline is important because it lets a company say we re here and we are going to reduce our carbon emissions by X and set up real targets and start putting together plans to address the situation. But when the time comes to comply with real legislation, these companies will need to be certified by an outside body to a real standard. One such method is ISO ISO As with all ISO programs, the ISO standard lays out a logical and codified management system. Hadfield says ISO is being used in many different ways. For example, in the most stringent form, companies are using it to integrate a formal carbon reporting and accounting system into everything they do. The results are then used in an annual report and have a fiscal impact on the company. If companies are looking to implement a full carbon offset structure such as a cap and trade system currently under consideration in the United States full implementation of ISO would facilitate this and is likely to be the chosen methodology. Fully implementing ISO is along the lines of Sarbanes/Oxley; it becomes a corporate governance document, says Hadfield. If a company declares its data incorrectly it will have a negative impact on that business. Full implementation of ISO is very rigorous and comprehensive. For this reason we have not seen many adoptions of the full standard. Companies simply don t want the liability or are unable to devote so many resources to it. Lacking a mandate from governing

4 bodies, many companies are waiting to see what they will be required to do before taking the hard core leap. Hadfield says the most popular use of the ISO scheme at this point is as a guide for how to determine what a company s carbon baseline output is and to start to formulate plans on how to address and lessen carbon outputs in the future. A good example of how we have seen it used is when we were approached by a person from the beef industry in Ireland who had done a lot of work on trying to determine a carbon baseline value. However, because of the changing nature of the rules and lack of a formal government program to work with, he had a lot of questions, says Hadfield. We used ISO as a guideline, not performing a full audit, but using it as a roadmap to help him figure out his carbon baseline, form a strategy to address carbon output, and determine the gaps that would present problems down the road. In this example we found that the processing plants were easy to analyze but further down the carbon chain, when you tried to determine the carbon intensity of the farm, it was very difficult to come up with more than general estimations. The ISO framework can also help a company figure out its carbon baseline in a more difficult setting, such as a department store in a mall. In this case many of the carbon producing systems such as heating and air conditioning and electrical come from the mall and not the store, but the store will still need to account for a portion of those systems carbon output. The same holds true for a multinational company that may own stock in other companies or hold a partial interest in other firms. The ISO framework gives us a methodology on how to account for this, says Hadfield. In many of these complex cases, companies simply want to

5 know what their current position is and how they can start the process of accounting for and mitigating their carbon output. Can they come up with a proper program that will address all of their carbon management needs within ten years? Using the framework we can do that. So Should You Do It? Whether or not to pursue ISO all boils down to determining if there is an incentive for you to do so. And Hadfield says there are many positives to knowing your carbon footprint. The primary benefit at this point would be energy savings, he says. The more carbon you emit, the more energy you are using, so if you can find ways to limit the amount of carbon you produce, chances are you can find more efficient ways to use energy. This will translate into a bottom line savings. For example, I m working with a cement producer right now, which is a very energy-intensive company. If we can reduce their carbon outputs, then we can reduce their energy usage which will make them more profitable. Later this year ISO will publish its energy management standard - ISO Hadfield says this new standard, or its precursors of I.S. 393 and EN or other environmental management systems, are very complementary to Carbon footprinting because they provide a holistic approach to reviewing, controlling and reducing the impacts of an organization. And then, of course, there is the whole public relations aspect of carbon accounting. For better or worse, many members of the public will have a better opinion of a company and may choose to purchase its products and/or services based on what it is doing to address its carbon footprint. But Hadfield sees the biggest benefit being the fact that you are positioning yourself ahead of the regulatory curve. I think it s inevitable

6 that there will caps on carbon output in the near future or the introduction of carbon taxes, he predicts. By starting the process of finding out your company s baseline and figuring out what steps you should be taking to reduce your output now, will make you all the more prepared when such legislation passes. In Europe, for example, there is already talk of a carbon tax where companies would be assessed a fee based upon what the emissions are for their plants and other buildings. If this happens or is even formally proposed companies that know their baseline will be easily able to predict the fiscal impact and will be able to start positioning themselves to be more competitive in a carbon-regulated marketplace. Conclusion Right now ISO and self-auditing is a nice to have, not a need to have, says Hadfield. The United States government is still caught up in the healthcare debate. With a lack of definitive action in Copenhagen, a carbon cap and trade program has been put on the back burner, but that doesn t mean it s going away. There are also local efforts that are starting up, like in California, where companies will have to start knowing their baseline. And while the United States isn t yet moving forward, other governments are and companies that are doing business on a global basis will need to comply. Forward thinking companies will start their efforts now so that they can continue business without interruptions once carbon starts to be officially regulated. Companies that are not currently taking a stock of their carbon outputs risk major difficulties in the future. About NSAI For over 50 years, the National Standards Authority of Ireland has been offering a full range of services relating to Management Systems Standards and Certification Services throughout the world. Known for

7 offering the industry s only time-to-market and fast track options for certifications, NSAI specializes in the Medical Device, Environmental, Tele-communications, and Aerospace industries. For more information visit or call end-