Carbon emissions - carbon formula

Carbon emissions management, control and reporting is now firmly on the
agenda for chief executives and finance directors. In the not-too-distant
future, carbon will be budgeted and controlled in the same way as business
finances, with the identification of initiatives to reduce emissions and, of
course, costs becoming paramount.

There are many reasons why a company would want to take a more professional
approach towards carbon emissions management – greater control of resources,
positive public relations and enhanced perception, alongside the need to meet
regulatory requirements – but most businesses will be interested in the
financial benefits such a strategy can bring.
There are four key areas where financial savings can be made by the
implementation of carbon management and reporting.

Consumable cost savings

Carbon management software allows companies to identify and achieve the most
cost-effective emission reduction strategies through their analysis, modelling
and monitoring capabilities. In our experience, this has resulted in consumption
savings typically ranging from 5-30%. In a typical large multinational company,
this would translate to a £1.25m to £7.5m saving per annum and a cash flow
phasing benefit of between £100,000 and £600,000 in annual Carbon Reduction
Commitment (CRC) allowance purchases.

Administrative cost savings

The collection and processing of data to measure and report emissions against
multiple complex global regimes requires significant staff resource and
expertise.

UK businesses could face a significant increase in administrative burden to
meet new and developing reporting requirements, with international organisations
facing a reporting requirement of even greater magnitude and complexity. We have
estimated an increase of 50% in current costs for UK companies and 100% for
multinationals. At an average loaded cost of £50k per head, this represents
increases of £50k and £250k respectively.

The implementation of automated carbon measurement software can enable
savings of at least 75% in man-days , which translates into administrative
savings of £110,000 to £375,000.

Regulatory compliance

The CRC energy efficiency programme is an important mechanism in the
government’s efforts to meet its carbon reduction targets of 34% by 2020. The
reporting and regulatory regime will be no less rigorous than the financial
reporting regime. A company will need to accurately measure its carbon
emissions, calculate the number of allowances and report to government (20% of
submissions will be audited).

Failure to implement an accurate system can be costly. It can result in
fines, penalties for consequent under-purchase of allowances, and there are
financial penalty implications from being in the bottom 10% of the league table.

If emissions were underreported by, say, 15% UK companies would incur
penalties of £15,000 while multinational fines could reach £670,000, based on
the current fine of £40 per tonne of CO2 misreported.

Reputational risk

We are increasingly seeing companies placing requirements on their suppliers
to provide information on carbon emissions at the corporate and product levels.
This is having a direct impact on competitiveness and on the award of contracts.
Regulatory initiatives such as the CRC will ‘name and shame’ organisations that
do not make good progress in reducing their emissions.

In addition, reporting against voluntary initiatives such as the Carbon
Disclosure Project is becoming an indicator for ‘responsible’ organisations.
Absence from such initiatives is often viewed with scepticism. All of these
influences can negatively affect the company’s perception and in turn impact
revenue, investor confidence and attractiveness to current and potential
employees.

For those able to professionally measure, reduce and report their emissions
at the corporate and product levels, there is the potential for revenue gains
and opportunities through competitive differentiation and enhanced reputational
value.

Management of carbon in an organisation is about to become as mainstream as
financial management. To date, investment in this area has been somewhat limited
to a small group of enlightened corporates prepared to focus time and money on a
voluntary activity.

This all changes with the advent of regulatory regimes like the CRC.
Companies without efficient carbon management systems will quickly fall foul of
the new compliance regime with the costs of inefficiency and failure showing
clearly in their P&L accounts.

Alan Waller is a carbon consultant at Greenstone Carbon Management

Further reading:

greenstonecarbon.com

Carbon cost savings

Reduce consumables – £30,000-£180,000 (UK company) / £1.25m-£7.5m
(multinational)
Reduce administrative costs – £110,000 (UK company) / £375,000 (multinational)

Avoid regulatory fines – £15,000 (UK company) / £670,000 (multinational)
Avoid reputational damage – £? (UK company) / £? (multinational)
Total saving – £155,000+ (UK company) / £2.3m + (multinational)

Illustration assumptions:
UK Company: UK-based organisation with ten sites and 1,000 employees falls just
within the remit of the CRC. Business operations consume 7,000MWh electricity
and 2500MWh gas at a total cost of £600,000, equating to a total of 4,300 tonnes
CO2 emitted per annum. The organisation currently has two FTEs engaged in
meeting reporting requirements at a total annual cost of £100,000 and will
require additional resource to meet the requirements of the Carbon Reduction
Commitment (CRC).

Multinational Company: A UK-based multinational organisation with more than
100 global sites and 50,000 employees. UK operations consume 300,000MWh and
125,000MWh of electricity and gas respectively, at a total cost of £25m. UK
emissions equate to 185,000 tonnes CO2 per annum and the organisation comes
within the remit of the UK’s CRC. Additionally, French operations subject to
national carbon tax of ?17 per tonne CO2 emitted, and Australian operations
subject to the National Greenhouse Emissions Reporting Framework. The
organisation currently has five FTEs engaged in meeting global reporting
requirements at a total annual cost of £250,000.