Carbon Management Accounting

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Analysing Carbon Management Accounting

Definition of carbon management accounting and four different ways within which companies can approach carbon management

Environmental pollution is one of the major issues that the corporate world faces. Therefore, it is critical for organisations to ensure their operations are sustainable. Carbon is one of the major environmental pollutants. Therefore, companies strive to reduce the carbon footprint in their products. Cap-and-trade system forces companies to reduce their carbon emissions.

Carbon management is one of the contemporary management issues of companies. Carbon management is the “management system that identifies greenhouse gas (GHG) emission opportunities from the production processes and implements corrective measures to reduce the GHG emissions” (Wimmer et al, 2010, p. 89).

Sequestration, separation, capture, and conversion to useful productions are the major techniques of carbon management. Sequestration involves removal of carbon from flue gases prior to storage for other purposes. Sequestration also involves use of non-carbon energy production processes (Tester et al, 2005, p. 179). These include nuclear, solar, or biomass. A company can convert waste carbon carbon to useful products.

These include plastics and construction materials, which the company may sell to earn an income. In addition, a company can separate carbon from fuels prior to combustion. This would create a hydrogen rich fuel, which is easily combustible. Separation and capture lead to a significant reduction in the amount of carbon in the fuel and waste of the company.

The company may use captured carbon in other production cycles within the manufacturing process of the company. This would lead to a significant reduction in the amount of carbon that the company releases (Eliasson, Riemer & Wokaun, 1999, p. 457). In future, technological advancements would make it cheaper for companies to manage their carbon emissions.

Currently, conversion of carbon to useful products is the most economically viable carbon management technique. This is because sale of the products offsets the cost of carbon management (Wang, Pereira & Hung, 2004, p. 101).

Characteristics of both monetary carbon accounting and physical carbon accounting: past oriented routinely generated short term and long term information; and future oriented routinely generated short term and long term information

There are two major methods of quantifying ecological debt of a company’s activities. These are monetary carbon accounting and physical carbon accounting. Physical carbon accounting is a measure of the ecological damage through pollution, depletion, or degradation. On the other hand, monetary carbon accounting is a monetary quantification of the effects of a company’s activities (Paredis, Goeminne & Vanhove, 2009, p. 71).

Monetary and physical carbon accounting information may be past oriented or future oriented. In addition, the focus of the information may be short term or long term. Cost accounting is the major short term, past oriented information of monetary carbon accounting. Carbon capital expenditure is the major long term, past oriented information of monetary carbon accounting.

On the other hand, carbon flow accounting is the major short term, past oriented information of physical carbon accounting. Carbon capital impact is the major long term, past oriented information of physical carbon accounting (Burritt, Schaltegger & Zvezdov, 2010, p. 82).

Monetary carbon operational budgeting is the major short term, future oriented information of monetary carbon accounting. Carbon long term financial planning is the major long term, future oriented information of monetary carbon accounting.

Physical carbon accounting is the major short term, future oriented information of physical carbon accounting. Long term physical carbon planning is the major long term, future oriented information of physical carbon accounting (Burritt, Schaltegger & Zvezdov, 2010, p. 82).

Determinants of the volume and type of information in an EMA system

Managers of an organisation are the primary users of carbon related information. Therefore, the quantity of managers who may require the carbon related information is the major factor that determines the volume and type of the information. The information needs of managers are dependent on the organisational structure. An organisation may have functional or decentralized managers.

Handling of carbon related issues may determine the likelihood of an organisation changing its organisational structure to accommodate the needs of the organisation. An organisation may add a new functional department to handle carbon related issues or develop new systems within the existing departments to handle carbon related issues (Burritt, Schaltegger & Zvezdov, 2011, p. 83).

In addition, the major activities of the organisation determine the type and volume of information that an EMA system provides. An industrial firm may provide more volume of information due to the huge financial impact of waste on the company’s profitability and competitiveness than a non- industrial firm (United Nations, 2002, p. 13).

Four factors that determined the selection of companies for the purpose of the exploratory study involving 10 German companies

An exploratory study involving 10 German companies helped in determining the efficient carbon management practice. Interviewers asked the German companies 40 questions. Researchers chose the companies on the basis of their sustainability management commitment and sustainability programmes. Interviewers chose companies that had recently worn sustainability awards and had exemplary sustainability reports.

The researchers also used the necessity to have a complex structure, and an accounting system that incorporates non-financial information in choosing the companies. The researcher chose the companies on the basis of the industry of the operation of the companies. The researchers ensured that the research covered a wider variety of industries.

Researchers also used the willingness of companies to allocate resources to facilitate their active participation in the research, instead of merely providing published reports, in choosing the companies that participated in the research (Burritt, Schaltegger & Zvezdov, 2011, p. 84).

How researchers collected the information

In any research, it is critical for researchers to get an overview of the research issues prior to the research. This increases the effectiveness of the research. In the study, researchers used initial interviews with sustainability managers of the companies to get a synopsis of the carbon related issues of the companies. Afterwards, the researchers interviewed a senior accountant of the company who was in charge of carbon related information.

Interviewers also interviewed internal users and providers of carbon related information. Interviewers carried out the bulk of the interviews on site. The researchers conducted the rest of the interviews by telephone. In conducting the research, the interviewers used 40 interviews. Each interview took around 90 minutes (Burritt, Schaltegger & Zvezdov, 2011, p. 84).

The researchers used semi-structured questionnaires prior to them main research. The semi-structures questionnaires helped the interviewers concentrate on management and information collection practices of the companies. The interviewers collected climate change related information with relation to the importance of the information to the company (Burritt, Schaltegger & Zvezdov, 2011, p. 84).

Analysis of Information that researchers collected from German companies for the purposes of carbon accounting in terms of physical and monetary information

Usually, monetary and physical quantification of carbon accounting is complementary. In most instances, monetary quantification is not a necessary step in determining the ecological debt of human activities. Physical quantification is the main measure that has policy implications. However, companies give special emphasis to the monetary quantification as shows the financial implications of carbon related information on the company.

Regulatory bodies usually give special emphasis to the physical quantification (Paredis, Goeminne & Vanhove, 2009, p. 71). However, the complexity of quantifying carbon in monetary terms makes it hard for some organisations to use monetary carbon accounting.

In the research, two companies collected only monetary information and four companies collected only physical information. The other four companies collected both physical and monetary information. Ease of collecting physical information makes most companies employ physical carbon accounting.

The Enterprise Resource Planning (ERP) system of a company can easily collect the physical information. The companies collected the physical information in order to determine the future costs of physical flows (Burritt, Schaltegger & Zvezdov, 2011, p. 86).

In some instances, companies used the physical carbon information to produce monetary information. Therefore, regardless of the focused on monetary or physical data, it had to collect physical information.

From the research, it was clear that the companies strived to reduce their emissions beyond the environment agencies requirements. CMA helps the companies in tracking their emissions (Burritt, Schaltegger & Zvezdov, 2011, p. 87).

Focus and orientation of the carbon related information

The focus of carbon related information of four companies that took part in the research was long term short term, whereas nine companies had a short term focus. On the other hand, eight companies focused on past oriented information and seven companies focused on future oriented information (Burritt, Schaltegger & Zvezdov, 2011, p. 88).

The companies were justified in employing the diverse information collection practices in their Environmental Accountability Framework. The companies fulfilled the four dimensions of the framework. The dimensions are physical and monetary, short term and long term, routinely generated and ad-hoc, and past and future oriented. The German companies recorded their weekly emissions of carbon due to traveling.

In addition, the companies had monthly collection of the expenses that they incurred due to emission reducing measures. Some of the emission reducing measures of the companies included purchasing carbon neutral electricity and emission certificates.

The companies also had investment appraisals that took into consideration the future price of carbon emissions, and the amount of funds that the company would save by utilising various alternatives (Burritt, Schaltegger & Zvezdov, 2011, p. 88). Thus, the companies had a long term carbon budgeting. This ensured the long term profitability and survival of the company (Marinova, Annandale & Phillimore, 2006).

Explain why the collection of carbon related information presents a “serious challenge” to existing information systems

The existing information systems of various companies face a serious challenge in collection of carbon related information. One of the major challenges is due to the vast amount of carbon related information. Carbon related information may traverse all departments of the organisation. This makes it difficult for an organisation to organize the vast amounts of information for use within the company.

In addition, the vast amount of information limits the integration of the information systems of a company, which is vital for the efficient running of the company. Lack of technical solution leads to generation of greater amounts carbon related information, which increases the inefficiency of the organisation’s processes (Burritt, Schaltegger & Zvezdov, 2011, p. 89).

Generally, different departments of an organisation collect information that is directly related to the department. However, if there are no uniform management systems, various departments may collect the same information instead of utilising information that a different department has collected previously.

This leads to inefficiency of the organisation. Therefore, it is vital for an organisation to have an integrated that system of collection of carbon related information (Burritt, Schaltegger & Zvezdov, 2011, p. 90). It is vital for an organisation to have an ERP system that incorporates carbon management accounting in its activities.

Differentiation of settings in terms of the number of professionals or departments that are involved in the information collection practices

One can differentiate two settings while taking into consideration the number of professionals or departments that are involved in the collection of carbon related information. In the first setting, an organisation may use few departments in collecting carbon related information, whereas in the second setting an organisation use many departments in collection of carbon related information.

In the first setting, a carbon related department may ask other departments to collect their carbon related data. The carbon related department then compiles the data for presentation to the higher management of the organisation. Usually, few people are involved in the collection of carbon related data.

This limits the resources available for collection of the data. In addition, since the carbon related department does not understand the working of the other departments intricately, it may neglect information that is relevant in collecting the carbon related data of the department (Burritt, Schaltegger & Zvezdov, 2011, p. 90).

Allowing various departments to collect their carbon related data increases the number of people who undertake the activity. This results in collection of more relevant data, as the employees in the departments are conversant with the carbon related activities of their department.

In addition, it enables the carbon related department to concentrate on compiling data. This leads to the generation of highly accurate carbon related information (Burritt, Schaltegger & Zvezdov, 2011, p. 90).

Impact of the number of departments and professionals that take part in carbon accounting practices on the transaction costs

There is a direct relationship between the number of professionals or departments are involved in carbon accounting practices with the transaction costs. Increasing the number of departments or professionals that collect carbon related information may increase the costs of collection of carbon related data.

This is because departments and professionals may collect similar information. This increases the inefficiency of the collection method. On the other hand, having few professional or departments collecting the carbon related information may lead to disregard of certain vital information. This may make the carbon related information be irrelevant.

Ideally, the carbon related department should collect all carbon related department. The department must avail the information to other departments that may need it in their decision making processes. A company should ensure that it has an integrated system enables all employees of the organisation to access all the carbon related data that they may require.

References

Burritt, RL, Schaltegger, S & Zvezdov, D 2011, Carbon management accounting – practice in leading German companies, Australian Accounting Review, no. 56 vol. 21 issue 1, 80-98.

Eliasson, B, Riemer, P & Wokaun, A 1999, Greenhouse gas control technologies, Elsevier, Oxford.

Marinova, D, Annandale, D & Phillimore, J 2006, The international handbook on environmental technology management, Edward Elgar Publishing, Cheltenham.

Paredis, E, Goeminne, G, & Vanhove, W 2009, The concept of ecological debt: its meaning and applicability in international policy, Academia Press, Gent.

Tester, JW, Drake, EM, Driscoll, MJ, Golay, MW & Peters, WA 2005, Sustainable energy: Choosing among options, MIT Press, Cambridge, MA.

United Nations, 2002, Environmental management accounting policies and linkages, United Nations Publications, Washington, DC.

Wang, LK, Pereira, NC & Hung, Y 2004, Advanced air and noise pollution control, Springer, London.

Wimmer, W, Lee, K, Quella, F & Polak, J 2010, ECODESIGN – The competitive advantage, Springer, London.

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