Brave New World of Carbon Accounting

On January 28, 2010, the U.S.-China Green Energy Council met in Palo Alto, California to discuss “Enterprise Carbon Accounting: A Real Market or A Cleantech Bubble?” About 50 people, including a number of visitors from Beijing and Shanghai, listened to speakers from PG&E, the City of Palo Alto, Hara Software, Carbonflow and Applied Materials.

What is carbon accounting and why is it important? While the amount of carbon dioxide in the atmosphere can be directly measured (and is presently 387 parts per million as measured at the Mauna Loa Observatory on Hawaii), accounting for the amount of carbon emitted by a source or enterprise requires a more involved process. Calculating a carbon “footprint” is one thing, but understanding where in its operations an enterprise generates carbon is the key to managing (i.e. reducing) those emissions.

An excellent primer on corporate carbon accounting is the World Resources Institute’s Protocol on the subject. 

The discussion highlighted a number of emerging aspects of enterprise carbon accounting:

• All of the participants made the point that data acquisition, uniform calculation methods and simple ways of displaying the data underlie efforts to manage a carbon footprint. Chris Farinacci of Hara illustrated the tool his company offers, one of more than 60+ startups in this marketplace today. Karl Van Orsdol of Palo Alto described how his city is using such tools to save more than $700,000 annually by identifying power-hungry operations and by tracking improvement projects. By one estimate, more than $40 million in venture capital has been invested in this software sector because explosive growth is anticipated.

• Robust accounting is going to be required to support a carbon trading system, whenever it finally takes shape. The Copenhagen Accord states that emissions will be “measured, reported and verified” in large part because of the likely advent of carbon trading. Neal Dikeman of Carbonflow pointed out that in 2009 there was already more than $125 billion worth of carbon transactions, mostly in the European Union and China (for Clean Development Mechanism offset projects). A worldwide trading system might have to scale up to handle $3 trillion in transactions according to Neal.

• In terms of China, my quick research before the event revealed that province-level and enterprise level CO2 data is almost entirely unavailable. If China is going to make good on its pledge to reduce the carbon intensity of its economy by 45%, then considerably more data and greater transparency is required. Hara and others are beginning to market their software in China.

• In the U.S. and some other parts of the world, regulations may continue to drive the need for relatively precise carbon accounting. The U.S. EPA, California, the E.U. and Australia have mandatory reporting programs and several other schemes are under consideration. The U.S. Securities and Exchange Commission (link to: http://www.sec.gov/news/press/2010/2010-15.htm) just announced that publicly traded companies will be required to disclose the real and potential impacts of climate change relative to their businesses. That kind of analysis and disclosure cannot be handled meaningfully without a good carbon footprint of the business.

• Lastly, as the world becomes more “Hot, Flat and Crowded” (link to: book titleThomas Friedman’s phrase) supply chain management is going to be a significant driver for enterprise and product-level carbon accounting. Wal-Mart has already begun pressing its suppliers for such information and their buying power is creating enormous pull on companies to understand their carbon footprints and, hopefully, to begin active carbon management as well.

So, accounting is not just an unpleasant exercise to be undertaken around April 15. It is a subject that bears watching closely as the low-carbon economy continues to take shape.