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CARBON ACCOUNTING

Exposure management

The World Bank publishes detail on the expansion of carbon pricing schemes on a regular basis. Whether a consistent global market for trading carbon is implemented or not remains to be seen. In the meantime however, companies may be exposed to emissions trading schemes, baseline and credit schemes, direct carbon taxes or indirect carbon pricing - depending on where they operate. No matter what type of scheme it is, the end result is that same, that a price ends up being associated with the externality of emitting greenhouse gases.

Management of the exposure to carbon prices is the heart of carbon accounting. The current emissions footprint for a company, and estimates of future emissions are used to determine potential future liability - which depends on both the volume of emissions exposed and the price they may be exposed to. Current and future liability should be accounted for by finance and accounting teams with estimated costs into the future recorded in accounts and any holdings of credits that have not yet been acquitted carried as assets.

Exposure management is then the process of deciding how best to address future liability estimates. There are a number of options available ranging from purchase of credits on the primary or secondary markets, investing in offset projects that generate credits through to completing technical abatement projects and reducing the volume exposed directly. A marginal abatement cost curve is a useful tool to determine relative costs of different abatement or offset projects - and these can be compared to purchasing directly on the market.

engeco is skilled in analysis of these options and is able to assist companies with decision making. engeco also tracks and analyses ongoing negotiations on an international level. The outcomes of the UN Framework Convention on Climate Change will have a profound impact on future national policies, which will be reflected in forecasts of carbon prices and potential changes to the volume of exposed emissions for a company.