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Step - by - step
Climate Change
Arvind Sharma
Setting the Context
Providing insight and strategies to
help organizations understand
and manage the business
implications of climate change
Climate Change…hitting the headlines!!
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
Stakeholder View on Climate Change
Consumers are starting to avoid carbon
intensive products and services
Increased
Demand of
Go Green
CO2 neutral
Shipments
by
consumers
• Consumers want
information on the
effects of products
on climate change
• Consumers willing
to pay a premium
for goods
produced and
transported
responsibly
• Consumers want
credible,
independent
verification
Governments are increasing the amount of
regulations and penalties
• Kyoto Protocol
• EU Emissions Trading Scheme
• WEEE Directive
• Climate Change Levy
• Renewable Energy Certificates
Leading Corporate are already responding to
the opportunities
GE plans $6billion green
investment by 2010
Tesco to ‘Carbon label’ its products FT
Significant investments made by logistics
companies for green fleet procurement
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
CDP G 250 Report 2011
Double Digit Growth
of Cys listed on CDLI /CPLI
68%
74%
disclose absolute or
intensity emission
reduction targets
Integrate CC into
business strategy
65%
45%
Provide monetary
incentives to staff for
achieved emission managing climate
change issues
reductions in
some/all initiatives
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Low carbon
growth is now
widely accepted
as fundamental
to generating
long term
shareholder
value, avoiding
dangerous
climate change
and helping the
global economy
recover from
recent turmoil.
4
Regulatory / Voluntary codes
1. Kyoto Protocol
•
Adopted in Kyoto, Japan, in Dec. 1997
Sets binding commitments for industrialized countries to return their GHG emissions to an average of
approx. 5.2% per cent below their 1990 levels during 2008-2012
•
The major greenhouse gases as per the Kyoto Protocol are:
•
•
Carbon Dioxide (CO2)
•
Methane (CH4)
•
Nitrous oxide (N2O)
•
Per fluoro carbons (PFCs)
•
Hydro fluoro carbons (HFCs)
•
Sulphur hexa fluoride (SF6)
Carbon Markets
Voluntary
JI Market
Clean Development
Mechanism (CDM) Market
2000
2012
The Kyoto Protocol has the following schemes to mitigate greenhouse gas emissions:
•
•
European Union Emission Trading Scheme
•
Joint Implementation
•
Clean Development Mechanism
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
Regulations related to Climate Change
2. Carbon Tax
•
An environmental tax that is levied on the carbon content of fuels
•
implemented by taxing the burning of fossil fuels proportional to their carbon content
•
increases the competitiveness of alternate energy sources
•
countries including Denmark, Finland, Italy, Germany, Sweden have imposed energy taxes based partly on
carbon content
3. Legislations in California
•
California has been extremely proactive in the fight against climate change
•
taken legislative steps by implementing stringent caps on polluting industries
•
provided incentives for clean cars
•
promoted renewable energy very aggressively (utilities must provide a third of their energy from renewable
sources like wind, solar and geothermal power)
•
developed a Scoping Plan that mandates reduction of greenhouse gas emissions to 1990 levels by 2020
•
full deployment of Million Solar Roofs initiative
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
Other Bodies in the Climate Change Arena
1. Carbon Disclosure Project
•
Independent, not-for-profit organisation
•
Launched in 2000
•
Over 2500 companies from 60 countries around the world disclose their greenhouse gas emissions and
climate change strategies through CDP
•
Holds the largest database on corporate climate change information
•
Represents 534 institutional investors, holding $64 trillion in assets under management
2. Intergovernmental Panel on Climate Change
•
Established in 1988 - develops Assessment reports (state of knowledge on climate change)
•
Special Reports and Technical Papers on topics where independent scientific information and advice is
deemed necessary
•
Methodology reports -supports the UNFCCC through its work on methodologies for national GHG
inventories
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Other Bodies in the Climate Change Arena
3. Cement Sustainability Initiative
•
A voluntary business initiative
•
formed to help the cement industry address the challenges of sustainable development
•
founded in 1999
•
21 members across the globe
•
is currently working to understand the impact of cement’s whole life cycle, i.e., as concrete and recycled
aggregates, and a potential next step from this is the development of a technology roadmap to reduce
greenhouse gas emissions
4. Funding Available
•
World Bank
•
Asian Development Bank
•
First Climate
•
Syndicate and Carbon Capital
•
Climate Change Capital
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
Other Bodies in the Climate Change Arena
5. Bureau of Energy Efficiency
•
Created in March 2002, under the Ministry of Power under the provisions of India’s 2001 Energy
Conservation Act
•
Function is to develop programs which will increase the conservation and efficient use of energy in India
6. Carbon Trust
•
A company created by the UK government, with an objective to help businesses and public organisations
reduce their emissions of greenhouse gases
•
Promotes energy efficiency and low carbon technology
•
The Carbon Label Company is a subsidiary company that labels products with their embodied carbon
footprint
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
9
India’s Response to Climate Change
Indian government:
•
Has ratified the Kyoto Protocol
•
Currently does not have any binding emission reduction targets
•
Has declared the National Action Plan on Climate Change (NAPCC) in June 2008,which outlines
the Government’s long term strategy to address issues of climate change
National Solar
Mission
National Mission
for Enhanced
Energy Efficiency
National Mission on
Sustainable Habitat
National Mission
for Sustaining the
Himalayan
Ecosystem
National Mission
for a “Green India”
National Water
Mission
National Mission
for Sustainable
Agriculture
National Mission on
Strategic
Knowledge on
Climate Change
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
What Makes Management of Carbon a Strategic Priority?
Forecasts of
negative climatic
impacts
Competitors investing
in carbon management
Preparing for energy
supply risks
Challenges from the
investor community
Correlation between
emissions and
energy costs
Financial Risks
due to Regulation
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Customer
expectations
Strategic
Risks and
Opportunities
Procurement
Criteria
11
Getting to measure
Measurement and
reporting are a vital part of a
company’s overall carbon
strategy
Carbon Footprint – The First Step
Accounting of the exclusive amount of Green House
Gases (GHG) emitted on account of human as
well as organizational activities and / or
accumulated over the full life cycle of a product or
• Carbon dioxide (CO2);
• Methane (CH4)
• Nitrous Oxide (N2O)
• Hydrofluorocarbons (HFCs);
• Perfluorocarbons (PFCs);
• Sulphur hexafluoride (SF6).
Measuring the
footprint is
precursor to
determining the
plausible
mitigation steps
service, in a specified boundary and over a
limited time period
A few steps towards carbon efficiency:
• Reducing CO2 emissions by improving efficiency
• Purchase of renewable energy
• Moving towards carbon neutrality
• Working with suppliers to reduce carbon footprint
• Developing low Carbon products and services
• Engaging with key stakeholders and create awareness
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
13
Footprint Measurement – A Precursor to Climate Change Mitigation
Global Mitigation Policies:
Reporting, measurement
and verification
Use of renewable energy
Funding:
• The CDP represent s
543 institutional investors
with a combined $ 65
trillion under
management
• The investor network
on climate risk consists
of 70 investors managing
nearly $ 7 trillion in
assets
Carbon offset
Energy efficiency
Alternative fuels
Technology Transfer
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Action on Ground
In the energy industry
Exxon mobil and BP are
the leading figures in
climate change and are
making huge
investments in working
towards mitigation steps
All the major players in
the manufacturing sector
are increasingly directing
their efforts towards
attaining a low carbon
economy
Dupont has reduced its
CO2 emissions by 65%
from the 1990 levels
saving hundreds of
millions of dollars in the
process
14
Footprint Measurement – A Precursor to Climate Change Mitigation
9
Reporting Standards
Setting of baseline and targets
Transparency of reporting
issues related to Setting scope and boundaries
Carbon footprint
Identification of high impact areas
measurement
and reporting
Data management, data quality, KPI’s
that one must
and calculation methods
get right
Double counting of GHG emissions
Forecasting of GHG emissions
Assurance challenging the reporting
process
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
15
Governing principles of GHG accounting
1
Relevance
Ensure the GHG inventory appropriately reflects the GHG emissions of the company and
serves the decision-making needs of users – both internal and external to the company.
Transparency
2
Address all relevant issues in a factual and coherent manner, based on a clear audit trail.
Disclose any relevant assumptions and make appropriate references to the accounting and
calculation methodologies and data sources used.
Accuracy
3
Account for and report on all GHG emission sources and activities within the chosen inventory
boundary. Disclose and justify any specific exclusions.
Consistency
4
Use consistent methodologies to allow for meaningful comparisons of emissions over time.
Transparently document any changes to the data, inventory boundary, methods, or any other
relevant factors in the time series.
Completeness
5
Ensure that the quantification of GHG emissions is systematically neither over nor under
actual emissions, as far as can be judged, and that uncertainties are reduced as far as
practicable. Achieve sufficient accuracy to enable users to make decisions with reasonable
assurance as to the integrity of the reported information.
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
16
Plotting a course
1
4 stage process to plan an
effective way to measure
footprint, reduce emissions and
report on performance
4
2
3
STEP1: Strategy
“It is extremely important to consider the
overall objectives and drivers for a
successful Carbon strategy”
1
The overall objective of Carbon
Footprint should answer
• What is the baseline and what
kind of targets need to be set?
4
2
• What is the scope of the footprint?
• What is the expectations from the
external stakeholders form
reporting?
3
• What kind of systems are in place/
needed to track progress against
targets?
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
18
STEP1: Strategy
3 levels of reporting…
III
II
I.
Product/ Service
Level
Company Level
I
Specific reductions/
efficiency projects
The scope broadens with
each level of reporting
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Specific reductions/ efficiency projects- Typically this
covers regulated projects (Projects that qualify for
compliance credits), Voluntary Projects (projects aimed
at delivering tradable carbon credits to the voluntary
markets) or projects demonstrating action towards climate
change. The projects should deliver long term sustainable
reductions that would not occur in business as usual
scenario.
II.
Company level accounting- This involves accounting for
all emissions generated form all company operations.
There are specific standards and guidelines such as the
WBCSD/ WRIGHG Protocol and ISO 14064 for GHG
accounting. It is essential to use a recognized
methodology to ensure credibility.
III.
Product/ service level accounting- Measuring emissions
from the product/ service perspective requires
information from the entire life cycle (cradle to grave). The
challenge in this type of accounting lies in assessing the
ease in collecting the data from all stakeholders
throughout the life cycle of the product
19
STEP 2: Defining boundary
The scope and boundary of accounting
should be pre decided to freeze on…
1
• Whether the company should report only
on its own operations or include holding
company’s operations as well (control or
equity based approach)
4
2
• Whether it should report on upstream
and downstream operations as well.
• Whether to report on direct/ indirect
emissions or both.
3
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
• Whether to report on third party
emissions related to the company’s
operations such as employee
commuting, business travels etc.
20
STEP 2: Defining boundary
Process Emissions:
Chemical/physical
changes in the
materials during the
manufacturing
process
Scope 1
Stationary Emissions:
Burning fuels in
stationary machines,
equipment, boilers,
kilns/furnaces etc.
(Including Captive Power
Generation
Scope 2
Use of purchased electricity from the grid or use of purchased energy
(Steam)
Scope 3
Other indirect emissions such as Inbound Logistics, Outbound
Logistics, Production of purchased materials, employee business
travel, employee commute, disposal of waste etc.
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Mobile
Emissions:
Combustion of
fuels in the mobile
equipment/vehicles
owned by the
company.
21
STEP 2: Defining boundary - Example
Scope III
III Emissions
Emissions
Scope
Emissions
Electricity
consumed
by the plant
Fuel
burnt
in kiln
•• Logistics
(Inbound/Outbound)
Fuel burnt business
power generation
•• Employee
travel
••
••
Preparationofofpurchased
raw material
Production
material
Equipment
and onsite
Disposal
of waste
vehicles(company owned)
• Employee Commute
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
22
STEP 3: Data Collection
1
Developing internal procedures and
guidance for data collection is essential to
ensure correctness and reliability of data
The 3 necessities…
4
2
• Establish data requirements- data
collection formats, frequency of data
collection, materiality, accuracy and
treatment of anomalies.
• Establish quality control/ monitoring
procedures to reduce reporting risk.
3
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
• Integrate systems with the day to day
management reporting framework
23
STEP 3: Data Collection
Identify Sources
Select Calculation Approach
Collect data and choose emission factor
Apply calculation tools
Roll up data to corporate level
Fossil Fuel Emissions
Calculation Method
Scope 1
(metric tonnes)
Scope 2
(metric tonnes)
CO2
Power Generation
CH4
N2O
Mobile Combustion ( within the
boundary of the plant)
CO2
CH4
N2O
CO2
Fugitive Emissions
CH4
N2O
CO2
Consumption of Purchased Electricity
CH4
N2O
Mobile Combustion ( transportation of CO2
fuels/waste, employees business travel, CH4
employee commuting
N2O
Fugitive Emissions ( CH4 and CO2 from CO2
waste landfills, pipelines, SF6
CH4
emissions)
N2O
Total (metric tonnes CO2e)
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
24
Scope 3
(metric tonnes)
STEP 4: Reporting
The report may touch upon:
• The baseline and targets and
assumptions made when deciding the
baseline.
1
• The scope of report, methodology used
and assumptions made for calculations
4
2
• An understanding of risks and
opportunities for the business from
Climate change.
• A description of the governance
structure and data collections
systems, controls and KPI’s in place.
3
• Performance data with respect to GHG
emissions
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
25
STEP 4: Reporting – 11 point checklist
1. Assurance – are you realising maximum value from assurance or is it
just a tick-box exercise? Independent challenge of your reporting
processes can help identify improvements in efficiency and data
integrity
2. Data management – have you set up practical and reliable
procedures to collect data on an ongoing basis?
3. Double-counting – will any of your partners be accounting for the
same emissions?
4. Forecasting – does your system allow you to forecast performance
and report regularly, therefore effectively manage progress against
targets?
5. Impact areas – will your emissions scope allow you to identify your
largest impact areas – where your reduction efforts will be most
effective?
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
26
STEP 4: Reporting
6. Internal engagement – have you communicated with and trained
your international operations around your measurement and reporting
objectives, requirements and the likely benefits?
7. Internal reporting – are you reporting the organisation's carbon
footprint internally? This is equally as important as external reporting
and is often forgotten.
8. Legislation – are you aware of upcoming legislation that requires you
to report on your emissions – for example an emissions trading
scheme?
9. Organisational Boundaries – will your organisational boundaries
enable you to account for the emissions your stakeholders think you
are responsible for?
10. Standards – have you chosen a recognised reporting standard?
11. Transparency – have you disclosed any omissions or assumptions
made in estimated calculations?
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
27
Benefits of accounting Carbon
• Differentiate from competition (voluntary action)
Strategic
• Attract investment by improved access to capital through ratings
• Informed investment planning (CAPEX, emissions trading, etc.)
• Management decision making
Tactical
• Manage risks (carbon risk exposure)
• Prepare for impending legislation
• ISO 14064 certification
Operational
• Cost reduction opportunities
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
28
Peek a boo
Low carbon business is profitable
and examples here are the
testimony of this fact
Kobe Steel Group
Kobe committed to minimize environmental impact by
adopting measure against global warming through resource
recycling measures, proper control of chemical substances
and reducing environmental burden.
To reduce specific energy consumption in fiscal 2010,
Kobe promoting alternative fuels to improve combustion
efficiency.
Over the years Kobe made cautious effort to address
global warming and it allocated considerable amount
towards energy saving related initiatives in the last few
years.
Kobe committed to reduce average specific energy
consumption by an average of 9.05% and 12.2% in their
Aluminum and Copper & Brass units by fiscal 2012
Kobe disclose carbon emission by participating in Carbon
Disclosure Project (CDP)
Klobe’s Energy – Saving related investment
“Promoting energy savings in every aspect of our business activities Reducing greenhouse gas emissions
in partnership with industry”
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
30
BASF
Conducted first GHG emissions inventory in fiscal year
2008 and updated in October 2009
BASF have succeeded in reducing absolute greenhouse
gas emissions by 27% and the reduction in specific
greenhouse gas emissions, i.e. per tonne of product sold,
is as high as 61% despite 86% increase in product
volumes.
 Goal is to reduce specific greenhouse gas emissions per
metric ton of sales product by 25% compared with 2002.
Involved in reforestation project at Ethiopia and the
goal is to create greater biodiversity and more jobs and
this project expect to reduce approximately 5 million
metric tons less CO2 in the atmosphere over the next 10
years.
BASF offers CDM, JI projects and also a complete
greenhouse gas project service to support its customers
from the application process through to the issuance of
greenhouse gas certificates.
“We see energy efficiency as the key to combining climate protection,
conserving resources and achieving a competitive advantage."
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
31
BASF
BASF offers CDM, JI projects and also a
complete greenhouse gas project service to
support its customers from the application
process through to the issuance of
greenhouse gas certificates.
In United States, BASF has been a member
of the Business Environmental Leadership
Council of the Pew Center on Global Climate
Change since 2008. Membership is attained
by invitation from the Center and is offered
to companies that actively advocate climate
protection.
 BASF became the first German company to
join the World Bank’s climate fund. The
Community Development Carbon Fund
(CDCF) invests in projects in developing
countries that reduce greenhouse gas
emissions
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with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
32
Rio Tinto
Rio Tinto has a programme of stakeholder
engagement, which includes advocating for climate
change policy as well as detailing Energy and Climate
strategy.
The company has a internal standards on Greenhouse
Gas Emissions to ensure continuous improvement in
GHG emission minimisation by identifying GHG sources,
evaluating and prioritising according to significance,
and then designing and implementing a greenhouse
gas and energy efficiency action.
 Reducing the greenhouse gas emissions intensity of
Rio Tinto production is a key performance indicator for
the company and it aim to improve the energy intensity
of all the operations
“Reducing the greenhouse gas emissions intensity of our production is a key performance indicator
for the Group and we aim to improve the energy intensity of all our operations”.
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
33
Rio Tinto
Achieved 7.5% reduction in total greenhouse gas emissions per unit
of commodity production in 2009 and planned to deliver an overall
ten per cent reduction by 2015 against fiscal 2008.
Rio Tinto is a member of the US Climate Action Partnership
(USCAP). Committed to work with International sectoral agreements
(ISA) and advocates transitional arrangements for Energy Intensive
Trade Exposed industries (EITE) on Emissions Trading Scheme (ETS)
when implemented, so as to avoid carbon leakage. These
arrangements could include free allocation of allowances.
“Reducing the greenhouse gas emissions intensity of our production is a key performance indicator
for the Group and we aim to improve the energy intensity of all our operations”.
© 2011 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
34
Thank You
© 2010 KPMG, an Indian Partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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