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Carbon emissions - carbon formula

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Carbon emissions represent an increasing and potentially significant cost for business.  The case that carbon measurement and reporting systems can help organisations make significant reductions in their emissions and costs has been well made - but what are the quantum and source of these savings? Alan Waller, Carbon Consultant at Greenstone Carbon Management draws on the experiences of businesses that are already some way down this path and shares his findings.

Carbon emissions management, control and reporting is now firmly on the agenda for Chief Executives and Finance Directors  Going forward, 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 paramamount.  The drivers for more professional management, including the adoption of purpose built software, originate from five key areas:

·Control – an organisation can only control this key financial and regulatory issue if they have robust systems in place.  For most, spreadsheets no longer represent a viable option.

·Costs – achieving optimal reductions in energy and resource consumption and reduced administrative burden becomes key. This then provides for enhanced competitiveness and increased profit margins.

·Regulation – companies now face complex requirements to report emissions against multiple and multinational regulatory regimes. Fines and reputational risks face those who cannot comply.

·Growth – effective management ensures business retention and development through positive public relations as well as enhanced customer, investor and shareholder perception.

·Strategy - adapting the corporate strategy to address the demands of a future low carbon economy and its impacts on product, manufacturing, supply chain becomes key.

 

 

 

Illustration assumptions:

  UK-based organisation with ten sites and 1000 employees falls just within the remit of the CRC. Business operations consume 7000 MWh electricity and 2500 MWh gas at a total cost of £600,000, equating to a total of 4300 tonnes CO2 emitted per annum. The organisation currently has two FTEs engaged in meeting reporting requirements at a total annual cost of £100k and will require additional resource to meet the requirements of the Carbon Reduction Commitment (CRC).

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 £250k.

 1.Carbon management software allows companies to identify and achieve the most cost-effective emission reduction strategies through their analysis, modelling and monitoring capabilities.  In Greenstone’s experience this has resulted in consumption savings typically ranging from 5-30%.  In the above example of a large 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 CRC allowance purchases.

 2.UK businesses could face a significant increase in administrative burden in this area to meet new and developing reporting requirements, with international organisations facing a reporting requirement of even greater magnitude and complexity. 3.The CRC Energy Efficiency programme is an important mechanism in the UK 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.  In order to comply a company will need to be able to:

---      Fines

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4.  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.

Greenstone Carbon Management Limited is a specialist carbon solutions company – based in London, United Kingdom. For further information please visit   

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