Are All Carbon Emissions (And Credits) Created Equal?
The Need To Consider Sources Of Energy
by Michael Kraten / Jason Dodier
Consider this scenario: the employees who work at a firm’s downtown office location are uncomfortable taking public transportation home after working late hours on critical projects. The Chief Human Resources Officer recommends contracting with local limousine companies to drive them home, but the Chief Sustainability Officer warns that individual trips in gas-guzzling limousine vehicles are inconsistent with the practices of carbon-neutral firms.
So the Chief Financial Officer (CFO) decides to authorize limo services while supporting a carbon-neutral policy by purchasing carbon credits. She then asks her finance staff to research available credit options.
Then … Yikes! The CFO realizes that all carbon credits (as well as emissions, for that matter) are clearly not created equal. The firm could purchase credits from an overseas entity to plant seedlings that will eventually grow into trees, for instance, but she realizes that Mankind will need to wait a very long time to achieve any carbon reduction benefit. Alternatively, she could pay a property owner to maintain an existing forest, but she realizes that Mankind would recognize no net carbon benefit at all if the trees simply remain in place.
The finance staff then points out that the firm could generate a significant decline in net carbon emissions by transitioning from its current source of energy to a cleaner one. The firm is currently purchasing energy from a solar / wind provider who has arranged with a relatively clean-fuel natural gas company to provide back-up power whenever necessary. By shifting to a biomass-focused energy provider, the firm could eliminate the need for a back-up carbon-based energy source.
The CFO and her staff then discuss reporting implications. As a publicly traded company, the firm is expecting the S.E.C. to issue mandatory reporting requirements in the near future. Which of these potential net changes in carbon emissions would impact those requirements? Which would not?
So … how should the Chief Financial Officer evaluate her options? And more importantly, if you were in her position, how should you?
Next installment … The case example of biomass
