Many scientists believe that the emission of carbon dioxide (CO2) and other greenhouse gases (GHG) into the atmosphere is causing climate change. A growing number of governments are trying to reduce their countries’ contribution to climate change by committing to official targets. That should result in economies eventually becoming ‘net-zero’ emitters of GHG, where a balance is achieved between the greenhouse gases put into the atmosphere and those taken out. To find out whether the data on emissions is being recorded accurately, we spoke to Dr Matthew Brander, senior lecturer in carbon accounting at the University of Edinburgh. He answers our queries below.
How comfortable are you with the accuracy of carbon data that companies publish in their GHG emissions accounts?
There is increasing interest among investors in using company GHG data in their investment decisions
I believe the focus should be on whether companies are moving in the right direction in terms of reducing emissions, rather than whether specific targets are being met. There is increasing interest among investors in using company GHG data in their investment decisions. But there is much debate about whether it is possible to compare companies using this data and whether it is better to invest in a company that already has low emissions or in one that has high emissions but needs investment to help lower its output of GHG.
Companies can buy ‘carbon offsets’, where the money is used to pay for environmental benefits such as tree planting and other initiatives that can help to remove carbon from the atmosphere. However, that raises the question of which offsets are best?
There is a lot of debate in this area. Companies may buy an offset simply to ensure their emissions have fallen to a particular level, while others wish to achieve a particular goal, such as avoiding deforestation and enhancing biodiversity.
Can somebody without financial expertise read a company’s financial accounts and understand the carbon management strategy?
It is difficult – although companies do write reports to explain what they have done and why, with a general audience in mind. Perhaps we could draw a parallel with health messaging on food packaging? Most people do not understand what the numbers mean, and I think it is the same with carbon information. Learning to understand all this information is difficult.
So, is it fair to say that we are some way off agreeing a clear rulebook?
There is a lack of agreement on how to report the financial value of GHG ‘credits’ and ‘debits’ in a company’s accounts, and so it is hard to compare across different companies’ accounts.
Investors have varying motives
Moreover, investors have varying motives. Some, like the Church of England, wish not only to reduce their risk exposure to companies involved in environmentally questionable practices but also to achieve a reduction in emissions. They may look at larger questions than just the offsets a company is buying – such as whether it has a well-costed and credible plan to reduce emissions.
Are some companies misleading investors with their carbon data?
It is difficult to say, but there are some misleading practices and there should be penalties for those that withhold or distort information.
Does that mean progress is not as advanced as we think?
Yes, accounting tricks are overstating the progress made to date, although these will be scrutinised much more carefully in the future as the risks posed by climate change grow.
Is internal carbon pricing a useful tool or inherently flawed, and at what level should it be set?
Internal carbon prices put a monetary value on GHG emissions, and businesses take account of this when making business decisions. Companies can use whatever internal carbon price they like when planning, but it is worth looking at the price other sources are using to establish whether the company’s price is credible.
Are there any practices designed to reduce carbon emissions that are not as environmentally friendly as they appear?
Increasing use of biomass may drive up the overall price of timber and speed up deforestation
Biomass, or the use of plant or animal material to produce electricity or heat, is an example. An energy company may use timber from a forest managed in an environmentally friendly manner, but that could drive other users to source supplies from forests that aren’t managed so well. Increasing use of biomass may also drive up the overall price of timber and speed up deforestation.
What place do you see for government in driving the transition to a low-carbon world?
We need clearer and better regulation by government, such as has been successful in encouraging the transition away from polluting fossil fuels such as coal and towards the greater use of renewable energy such as wind and solar power.
Three points to remember
- The data companies publish on their activities surrounding the reduction of greenhouse-gas emissions can be misleading and is not always comparable between one company and another.
- It is also important to look at any plan a company has put in place to reduce emissions, rather than simply relying on the data it publishes.
- Better regulation is needed to ensure we achieve the transition to a net-zero world.