The challenges in disclosing carbon emission information

The challenges in disclosing carbon emission information

Carbon emission is an important quantitative information in ESG sustainability disclosure, and high-quality corporate carbon emission information disclosure is of great significance for achieving the “dual carbon” goal. Especially solar energy applications also achieve the goal of “carbon neutral”.
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On the one hand, carbon emission information disclosure is conducive to helping companies improve their awareness and ability of climate risk management, and actively implement carbon emission reduction policies.

On the other hand, high-quality carbon emission information disclosure is conducive to exerting the pricing function of the carbon allowance market and promoting the whole society to achieve carbon emission and carbon neural reduction in a cost-optimized manner.

In addition, high-quality carbon emission information disclosure is also an important channel for the public to understand and supervise companies to achieve carbon emission reduction goals and carbon neutral.

The Central Economic Work Conference held in China at the end of 2021 clearly stated that it is necessary to create conditions to realize the transition from “double control” of energy consumption to “double control” of total carbon emission and intensity as soon as possible.

This means that the future assessment indicators will be changed from standard coal consumption to carbon emission equivalent. This is an epoch-making change.

Chinese enterprises need to establish and improve carbon emission statistics, monitoring, reporting, verification, and disclosure systems, which will help avoid misunderstandings and disputes between the data assessed by Chinese local governments and the data disclosed by enterprises in the future due to inconsistent standards and incomplete data disclosure.

Chinese enterprises have a certain basis for carbon emission information disclosure

The disclosure of carbon emission information of Chinese enterprises has a certain foundation

1. A series of standards and guidelines have been formulated for carbon emission calculation. China National Carbon Emissions Management Standardization Technical Committee (SAC/TC548) is responsible for the formulation and revision of Chinese standards related to carbon emissions and carbon neutral.

At present, 16 national standards have been issued, and six standard systems of basic general use, accounting reports, evaluation, verification, technology and management services have been preliminarily formed, and unified requirements for corporate greenhouse gas emissions have been put forward.

In addition, more than 30 standards are being formulated and revised, including industry and enterprise greenhouse gas accounting and reporting standards, project carbon neutral,carbon emission reduction accounting standards, verification series standards, corporate carbon management series standards, and unit product carbon emission quota standards.

Between 2013 and 2015, China’s National Development and Reform Commission issued the “Guidelines for Accounting Methods and Reporting of Greenhouse Gas Emissions (Trial)” for 24 industries, covering detailed descriptions of accounting boundaries and accounting methods, as well as relevant parameters applicable in China defaults.

The guideline refers to and draws on the “Greenhouse Gas Protocol – Corporate Accounting and Reporting Standards 2004” in the preparation process, and gives the notes on greenhouse gas accounting according to the characteristics of specific industries in China.

It is suitable for Chinese enterprises to account and report the greenhouse gas emissions generated by all production sites and facilities that they have operational control over, and can also be used as a reference for Chinese enterprises in related industries to establish a greenhouse gas emission information disclosure system.

2. China and Chinese localities have successively formulated management measures for carbon emission information disclosure

At the local level, since 2018, China’s Shaanxi, Sichuan, Jiangxi, Jilin and Zhejiang provinces have issued management documents on corporate greenhouse gas emission information disclosure, requiring participation in carbon market transactions and annual emissions of more than 26,000 tons of carbon dioxide equivalent Enterprises in key emission industries disclose carbon emission information.

At the national level, the Ministry of Ecology and Environment will issue the “Administrative Measures for Legal Disclosure of Enterprise Environmental Information” in 2021, requiring key pollutant discharge units, enterprises that implement mandatory cleaner production audits, listed companies that meet the prescribed conditions, bond issuers, and other laws and regulations. Enterprises and institutions disclose corporate carbon emission information.

formulated measures for the management of carbon emission information disclosure

China corporate carbon emission information disclosure is facing challenges at the current stage

1. China has not yet established a complete carbon emission information disclosure system, and corporate carbon information disclosure is still in its infancy. Up to now, some companies in China have begun to disclose carbon information.

However, the overall proportion and disclosure level are at a relatively low level, and there are cases of inactivity and inadequacy. The reasons mainly include the following aspects:

① Lack of uniform carbon emission information disclosure standards Disclosure of total carbon emissions and intensity needs to be based on uniform standards, methods and statistical calibers.

Although China already has relevant accounting guidelines, which can ensure the consistency of carbon emission calculation methods and principles, there is no unified definition of the subject boundary and scope of corporate carbon emissions information disclosure and corporate carbon emissions management.

In the absence of a unified standard, there will be inconsistencies in the caliber of corporate carbon information disclosure, and the data lack comparability. In order to achieve the purpose of improving corporate reputation,

Chinese companies may tend to selectively disclose favorable carbon emission information and send a signal to the market that companies are well-managed in terms of carbon emission, while seldom mention negative carbon emission information, resulting in less disclosure of carbon information. Credibility is not high.
② Lack of incentive and restraint mechanism for carbon information disclosure At present, China’s corporate carbon emission information disclosure management policy does not have a strict incentive and restraint mechanism, and the cost of violation is relatively low. One hundred thousand yuan.

In contrast, the cost of establishing a sound greenhouse gas emission accounting, monitoring and disclosure system for companies is much higher than the upper limit of fines, and companies that choose to disclose carbon emission information cannot receive additional incentives. In the absence of effective incentive and restraint mechanisms, most enterprises lack the motivation to implement.

③ There is a certain difference between the lack of a third-party certification system for carbon information disclosure, and the lack of motivation to urge enterprises to disclose carbon information objectively and accurately.

Verification refers to a set of methods of collecting evidence and checking facts to verify whether an enterprise accounts for carbon emission in accordance with industry guidelines, while assurance is a reasonable or limited assurance opinion issued on carbon information disclosure reports based on assurance standards.

At present, there are only mandatory third-party verification requirements for the carbon emission of emission-controlled enterprises, and other non-emission-controlled enterprises generally account for their carbon emission independently. For the carbon information disclosure of enterprises, there is a lack of third-party attestation with professional knowledge, and the objectivity and accuracy of the disclosed information cannot be guaranteed.

Some companies only disclose the effectiveness of carbon information disclosure, and conduct oriented screening and description of carbon information, but do not disclose the problem, and even falsify carbon information, which will damage the fairness and transparency of carbon information disclosure.

In addition, due to the particularity and complexity of the carbon emission monitoring process, the completeness of the monitoring plan, the accuracy of the measurement equipment, and even the frequency of laboratory data sampling will all have an impact on the carbon emission accounting results. Therefore, carbon information disclosure without third-party assurance lacks transparency and objectivity, and its credibility may be questioned.

④ Chinese enterprises generally lack the ability and talent team for carbon information disclosure.

differences between the carbon emission accounting guidelines and international practice

On the one hand, carbon emission information disclosure is still a new thing for Chinese companies, some companies have not yet established professional departments and talent teams for this purpose, and the companies themselves lack the ability to manage carbon emission information.

On the other hand, there are relatively few people in the market with professional knowledge related to carbon emission, and there are differences in the sources of greenhouse gas emission in various industries, resulting in industry barriers in the monitoring and accounting of carbon emission. Carbon information disclosure managers are required to have both carbon emission related Professional knowledge, but also need to be familiar with the process of the industry.

2. There are differences between the current corporate carbon emission accounting guidelines and international practices

The “Carbon Border Adjustment Mechanism (CBAM)” bill voted by the European Parliament at the plenary session in March 2021 calls for a carbon tax to be levied on some EU imports.

Although there is no fee for the commissioning phase, the five sectors covered by the carbon tariff (steel, cement, fertilizer, aluminium and electricity) are required to report carbon emission. It is expected that economies such as the United States and Canada will also establish a carbon border adjustment mechanism in the next few years, if the carbon emission information disclosure standards of Chinese companies are inconsistent with international common practices.

It is likely to form a miscalculation of its own carbon emission, resulting in an additional carbon tax on exported goods in the future. The differences between China’s current corporate carbon emission accounting and international practices are as follows:

① There are differences in the scope of carbon emissions accounting
In the process of corporate carbon emission accounting, some Chinese companies only account for their Scope 1 emissions (that is, direct emissions from the burning of fuels and production processes by the company).

Some corporate carbon accounting will include scope 1 emissions and scope 2 emissions (ie indirect emissions from purchased electricity or heat).

If a steel company accounts for carbon emission in accordance with industry standards set by the Sustainability Accounting Standards Board (SASB), it only needs to calculate its Scope 1 emissions; Guidelines, then it needs to calculate Scope 2 emissions in addition to Scope 1 emissions.

Industry leaders choose to disclose all emissions they generate, including Scope 1, Scope 2, and Scope 3 emissions (other than indirect emissions other than purchased electricity or heat), such as Apple, which began disclosing its emissions to the public in 2017. All Scope 1, Scope 2 and Scope 3 emissions.

This includes emissions from its upstream supply chain, employee travel and commuting, emissions from product transportation and use, and emissions from power transmission losses, among others.

② There are differences in the boundaries of carbon emissions accounting
Although the carbon emission calculation principles are generally the same, the differences in the boundaries defined by the carbon emission accounting standards will also lead to differences in the results of carbon information disclosure. According to China’s existing “Guidelines for Accounting and Reporting of Corporate Greenhouse Gas Emissions”.

The accounting boundary for Scope 1 and Scope 2 emissions is limited to all production facilities, excluding auxiliary production systems and auxiliary production systems within the plant, while the reporting boundary required by SASB includes the entire plant.

③ There are differences in the data sources of default values for carbon emission accounting
Chinese emission control companies generally refer to the “Guidelines for Accounting and Reporting of Corporate Greenhouse Gas Emissions for Power Generation Facilities (2021 Revised Edition)” (Draft for Comments) to calculate corporate carbon emission.

The default calorific value and carbon emission factor data provided in this guide are from the China Energy Statistical Yearbook and the Guidelines for Compilation of Provincial Greenhouse Gas Inventories, some of which are related to the internationally recognized United Nations Intergovernmental Panel on Climate Change (IPCC). ) provides a slight difference between the calorific value and the carbon emission factor default value.

The default fuel emission factor data used in the SASB industry standard is also partly derived from the U.S. Department of Environmental Protection, which is also slightly different from the IPCC emission factor. In the case of larger fuel values, small differences in emission factors can also lead to significant differences in total carbon emissions.

Summary and recommendations

To sum up, there is still room for further improvement in carbon information disclosure by Chinese companies. From the perspective of supervision, first of all, consider formulating and improving unified corporate carbon information disclosure standards, and clearly and reasonably define the scope and boundaries of corporate carbon information disclosure.

Enabling enterprises to have systems and regulations to follow in their carbon information disclosure. In the process of standard formulation, reference is made to internationally accepted emission factors and industry standards to ensure that the carbon emission accounting results are consistent with international practices.

Secondly, consider formulating an effective carbon information disclosure incentive and restraint mechanism, give preferential policies or incentives to enterprises that actively conduct carbon emission information disclosure and/or certification, and severely punish enterprises with information fraud. Finally, it is recommended that Chinese regulators establish a third-party authentication system for corporate carbon emission information disclosure.

further improvement in carbon information disclosure

On the one hand, third-party certification agencies issue certification opinions for companies’ carbon emission information disclosure based on certification standards, which is conducive to forcing companies to improve the measurement level of their own emissions data through certification steps.

On the other hand, third-party certification agencies are independent and can better ensure data openness and transparency, and play an important role in the corporate carbon emission supervision system. From the perspective of the enterprise, it should be based on the long-term goal, cultivate the carbon information disclosure management team as soon as possible, and establish the carbon information disclosure system within the enterprise.

Gradually improve the corporate carbon information disclosure system from various dimensions such as governance supervision, climate risk and opportunity analysis and assessment, carbon emission management measures, carbon neutral target setting, participation in initiatives, etc., to enhance corporate climate resilience and enhance sustainable development capabilities.

In particular, Chinese companies involved in the production of export commodities should establish a carbon emission disclosure system as soon as possible, so as to deal with any form of border adjustment mechanism at any time.

On the positive side, many changes have been made to reduce carbon emissions. For example, more and more people are starting to use new energy vehicles, and local governments and enterprises are also developing large-scale energy storage systems, using lithium ion solar battery to store excess solar power for subsequent use, reducing power abandonment.

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