December 3, 2019
Summary: To drive progress towards national carbon emissions targets, many governments are introducing mandatory carbon reporting and carbon pricing programs. Learn about three recently introduced programs and how they impact businesses.
The 2016 ratification of the Paris accord confirmed a shared ambition of 187 nations to keep global heating to well below 2 degrees Celsius and 165 Nationally Determined Contributions have since been submitted, with some nations moving further and passing legally binding targets to decarbonize.
Achieving these critical targets clearly won’t happen overnight. A long journey lies ahead for a nation to meet such commitments and each successive step towards the target must be carefully considered to balance decarbonization and ongoing economic development.
To aid considerations, many nations have set out programs to monitor their progress though newly introduced or invigorated mandatory carbon emissions reporting programs. all have the same intended purpose there are variations in their structure.
This article presents three recently introduced mandatory carbon emissions reporting programs that each follow a different approach and then discusses how they are contributing to a country’s efforts to decarbonize.
Three mandatory carbon reporting approaches from around the world
United Kingdom Streamlined Energy and Carbon Reporting (SECR)
The UK’s SECR policy came into effect in 2019. As an invigoration of the Companies Act 2006, it requires businesses to report Scope 1 and 2 emissions, provide an appropriate intensity metric and a narrative on efforts to reduce carbon provided that they meet two of the following three criteria (1) generate more than £36 million in revenue (2) have over £18 million on the balance sheet or (3) have 250 employees to. SECR is overseen by the UK Department for Business, Energy and Industrial Strategy, and does not prescribe a set carbon accounting methodology.
Scale Expected to apply to 16,000 businesses
Scope Scope 1 + 2, energy usage, intensity metric, narrative on reduction plans
Strengths Large scale, alignment with financial reporting, application to smaller businesses
South Africa Greenhouse Gas Emission Reporting Regulations (NGER) and Carbon Tax Act (CTA)
South Africa’s NGER came into effect in 2017, followed by the CTA in June 2019. It is applicable within 40 designated sectors and application depends on whether capacity for on-site combustion of fuel exceeds 10 MW. For certain sectors the thresholds are defined differently, such as production output, but are intended to have equivalence. If above the threshold, the direct (Scope 1) emissions must be reported following Intergovernmental Panel on Climate Change (IPCC) 2006 guidelines. For those obliged to report, emissions beyond an allowance are taxed at about US$8 per tonne for a period from 2019 to 2022, the price will then escalate periodically to 2030. Failure to report or pay taxes may be punishable by fine or prison.
Scale 40 Sectors
Scope Capacity for on-site combustion of fuels over 10 MW
Strengths Penalties for non-compliance will improve participation and quality
Singapore Greenhouse Gas Measurement and Reporting Regulation (M&R) and Carbon Pricing Act (CPA)
The Singapore M&R came into effect in 2017 followed by the CPA in 2019 and is applicable to any facility of a registered corporation that emits more than 25,000 tCO2e per year. Registered companies in scope must submit a monitoring plan and facility-level emissions reports for both direct energy use and industrial processes at facilities under their operational control. All direct emissions sources must be included in the report even if they are negligible[i]. Added features of the M&R are that it requires the registered company to have a GHG manager with appropriate credentials on their staff and that the emissions report must be verified by an approved third party. The CPA was introduced in 2019 and applies a tax of US$ 3.5 per tonne. These prices will be reviewed in 2023 and are expected to rise to between US$ 7.3 and US $11 by 2030.
Scale Any registered company within scope (anticipated 30 to 40)
Scope Direct energy and process emissions of over 25,000 tCO2e
Strengths Requirements of a monitoring plan and third party verification of emissions report
How are these mandatory carbon reporting approaches facilitating decarbonization?
The UK SECR is impressive in its scale and its efforts to align with existing reporting processes under the Companies Act. It will likely trigger the “first attempts” at carbon reporting for thousands of businesses who have previously had no legal obligation to report, and the requirements for intensity metrics and narratives on action will likely stimulate decarbonization activities. However, the absence of a carbon tax at the reporting business level dilutes the imperative to act.[ii] Given the UK has set a legally binding target of being net zero emission by 2050, it is possible that programs such as SECR may introduce additional mechanisms to drive action towards this goal at some point in the future.
South Africa NGERS and CPA
The South Africa NGER and CTA are good and necessary steps forward for South Africa, which is the world’s 14th largest GHG and has made a pledge to peak emissions by 2025. However, the decision to link thresholds to a metric other than emissions may cause uncertainty, with queries already raised on their appropriateness from certain industries. Furthermore, the CTA is weakened by generous free allowances that begin at 60 percent and can reach up to 95 percent of reported emissions.[iii] This effectively reduces the tax to between US$0.4 and US$3 per tonne, which may constrain the investments required to support the pledge to peak emissions by 2025.
Singapore M&R and CTA
The Singapore M&R and CPA set a good example for other programs to follow and is a strong signal of the country’s intent to accelerate progress towards its pledge to reduce the carbon intensity of its economic activity by 36 percent by 2030 (2005 baseline) when its emissions will peak. Particular strengths include the requirement to submit a monitoring plan, appoint a member of staff as GHG manager and have the emissions report verified by a third party. Furthermore, the CPA is applied consistently with no exclusions or allowances, creating a simple tax system to encourage decarbonisation. Even at the relatively low price of US$3.5 per ton, emitters will still incur an expense of at US$87,500 each year, and the tax is expected to generate US$750 million in tax revenue over the first five years of its application. The one draw back of the M&R is that the threshold is quite high, meaning the M&R is only likely to apply to between 30 and 40 registered companies.[iv]
How can business prepare for mandatory carbon reporting approaches?
Mandatory carbon reporting and carbon pricing programs are becoming common place. To date there are over 90 mandatory reporting programs established and 57 pricing programs planned or in place. Furthermore, carbon pricing projections suggest a significant increase over time from often single digits to $75 per ton and above by 2030.
Therefore, it is beneficial for business to develop an accurate account of their carbon emissions so they can understand their obligations and exposure to existing or forthcoming programs, but also take data-driven action on reducing carbon emissions.
For many businesses, the skills required to navigate the complexities of carbon reporting may be limited, time may be scarce, and budgets to outsource small. Therefore, UL has developed Turbo Carbon™ – an online solution that makes carbon reporting simple, fast and affordable, allowing businesses to spend less time crunching numbers and more time taking action.
To find out more about Turbo Carbon ™ visit www.turbo.ul.com
Interested to know more about SECR? Download 10 slide pdf SECR summary here: UL Turbo Carbon.SECR Policy Overview
Article written by Adrian Wain, UL Carbon Management Expert
Adrian is a member of the team behind Turbo Carbon. He has almost a decade of carbon management experience under his belt ranging from setting corporate carbon strategy to verifying the carbon footprint of factories. He is convinced that efforts to avert the climate crisis must include the supply chain, and is often found in supply regions helping manufacturers understand and mitigate their climate impact.
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[i] Engineering estimates are accepted for negligible emissions if measurement is not feasible
[ii] Note that carbon tax is applied through other mechanisms in the UK such as the Climate Change Levy, a tax applied to electricity, gas and solid fuel use by businesses.