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The Role of the Accountant in Carbon Accounting

KPMG Climate Change and Sustainability Services. The Role of the Accountant in Carbon Accounting. 18 November 2010 Paul Holland, Director, Climate Change and Sustainability. Why is KPMG talking to me about carbon accounting?. Why are stakeholders concerned about carbon accounting?. Requires

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The Role of the Accountant in Carbon Accounting

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  1. KPMG Climate Change and Sustainability Services The Role of the Accountant in Carbon Accounting 18 November 2010 Paul Holland, Director, Climate Change and Sustainability

  2. Why is KPMG talking to me about carbon accounting?

  3. Why are stakeholders concerned about carbon accounting? Requires cooperation Data systems may not be ready May not have been audited before Skills may not exist New and evolving Finance may not be involved May have this in their goals May know there are some issues Don’t know what to expect May be reliant on others’ data

  4. Carbon footprint – Simple isn’t it? Boundaries Completeness Audit trail Methodology Accuracy Conversion factors Verification Relevance Skillset No... not really

  5. Who’s involved in carbon accounting? Marketing Board Estates Carbon accounting Finance Energy Legal Procurement and others…

  6. Why might this be an issue for the Business? • Cost? • Cash flow? • Reputation? • Risk? • Opportunity? • License to operate? • Penalties ….or prison?

  7. Carbon Reduction Commitment (CRC) Scheme • Electricity bills more than 6000MWh/pa • 4,000 UK organisations are full participants • Originally designed to be a cap and trade scheme • Originally designed to be revenue neutral • Now it functions as a retrospective levy on emissions • League tables on performance • April 2010 was the first month of measurement • Expense impact starts in April 2011 • Cash flow impact starts in April 2012 • Annual evidence packs to regulators • 20% of participants a year will be audited

  8. CRC: The first 3 years (Phase 1) April 2010 Sept 2010 April 2011 July 2011 Sept 2011 Oct 2011 April 2012 July 2012 Oct 2012 April 2013 July 2013 Oct 2013 For Phase 1 For Phase 2 Energy use monitoring period Registration period League tables published Purchase of allowances Submission of evidence packs

  9. How much is the CRC going to add to costs? £2million pa on electricity and gas = 15,000 tonnes carbon pa Assumes an escalating carbon price of £2 / tonne pa £180k 9% £180k 9% £210k 11% £240k 12% £270k 14% Possible Fines Minimum fine at 5% misstatement = £30,000 Note this simplifies the impact and ignores fees and change in price of energy. Note: Numbers are illustrative only

  10. How do I account for CRC or other carbon allowances? • IASB IFRIC 3 was withdrawn 5 years ago • There is no other standard • Allowances are likely to be an intangible asset • CRC appears likely to be a levy, not a tax • Therefore we suggest, in most cases, it is OpEx linked to energy • Other carbon offsets etc are entirely voluntary • Therefore we suggest, in most cases, they are also OpEx • There is a need to accrue for the CRC liability during the year

  11. Financial implications of carbon pricing Trading….? Investment appraisal Modelling Cash flow and accounting Forecasting for budgets Footprinting

  12. CRC Readiness Reviews – Cause of data errors Primarily come from findings relating to recording/reporting issues. These can be broken down by cause:

  13. What questions are we asking our clients? • Could finance, estates and energy teams talk more? • Should someone be checking carbon numbers? • Does the strategy consider carbon? • Are your systems ready to report for the CRC? • Do investment decisions factor in a cost of carbon? What do you need to do to manage these risks and turn them into opportunities for your organisation?

  14. Any questions? Paul Holland Director Climate Change and Sustainability paul.holland@kpmg.co.uk 0118 964 2074 You can read more about KPMG’s Carbon Advisory Group, including our guidance on various issues at: www.kpmgcarbonadvisory.com You can read more about KPMG’s Environmental Tax Group, including our free ETHiC tool at: www.kpmg.co.uk/services/t/etig/index.cfm

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