The Guardian has noted this morning that:
Major businesses and investors in the world's largest economies should brace themselves for a turbulent transition to a low-carbon future because none of the G20 countries are on track to meet their climate ambitions, according to a new report.
There is “no longer any realistic chance” for an orderly transition for global financial markets because political leaders will be forced to rely on “handbrake” policy interventions to cut emissions, according to research from risk intelligence company Verisk Maplecroft.
They added:
Although high polluting companies, such as fossil fuel producers, are likely to be hit hardest by the growing risk of kneejerk political crackdowns to limit dangerous levels of greenhouse gas emissions, other industries, including transport, agriculture and mining, should all brace themselves for a turbulent future, according to Rory Clisby, one of the authors of the report.
And they warn of growing financial risk from climate disruption that will hit the financial sector hard.
Four thoughts. First, they could be wrong. However, given how many warnings have now been ignored or missed that seems unlikely. I think that they are likely to be right.
Second, the reason for this is apparent. Business, and so government, is resisting change because they still think that there is money to be made from carbon use. And money persuades. So they carry in burning the planet because they still ignore the externality from doing so.
Third, I believe these forecasters on carbon pricing, which they say will not work. I admit to having never had much confidence in its ability to deliver.
Last, changing the metric is the answer. And the relevant metric is financial viability. We have to show now which companies can make it through to be carbon net zero and which cannot. It is as simple as that. Only with data on that can rational decisions on the allocation of capital within financial markets take place. Mark Carney's TCFD disclosure plan does not meet this criteria because it does not put the costs of climate change on a balance sheet upfront, but instead allows those costs to be delayed for as long as possible, off the balance sheet. That is the exact opposite of what is required.
My sustainable cost accounting does put that cost on the balance sheet upfront. Of course it will be an estimate, and of course it will require revision over time. But it requires a company to say how it will be net carbon neutral without permitting unsupported assumptions on offset or unproven technology, and it requires that the full provision for eliminating the cost of carbon be accounted for upfront. That way the information that a market requires to appraise future risk would be available now. And that is what markets need.
So the question is what is the problem with making progress on this? And, as ever, it is vested interests trying to maintain as much as possible of the status quo whilst appearing to make change. That's going to be a deadly approach in this case. The sooner we realise it and go for real change the better.
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What would Sustainable Cost Accounting look like for a given example, like your own Tax Research LLP?
What are it’s Scope 1,2 and 3 emissions. How much would it cost to eliminate them? Would it be carbon insolvent?
Please don’t try and make some excuse so as not to answer – I’ve seen you claim that you don’t need to bother because Tax Research would be under the size limit. Pretend it isn’t, for the sake of argument.
I have just answered that
When you say you’ve just answered that, I’m not sure if you are referring to your answer to Charlie Harper? It wasn’t posted when I submitted my comment. I’ll assume you are.
Using his example, where Tax Research UK is over the small company threshold, I can’t see how it would not be carbon insolvent.
TRUK’s Scope 1 and 2 emssions will be positive. There are emissions from the creation of the equipment used for it (laptops etc). I am sure there will be emissions from travel and communication related to the business. The power you use will also create emissions, given energy is not going to be 100% renewable. Even if using 100% renewable energy, sustainable cost accounting demands you look down the supply chain for emissions. Wind farms and solar panels produce a lot of emissions in their construction.
So TRUK will have net positive Scope 1 and 2 emissions.
Looking at Scope 3, I understand that you can track the visits and duration of those visits to the site. But then you have to account for the emissions they create, both in terms of the energy used directly but also (going back to the whole of supply chain issue) the emissions used to create the equipment used to read the blog as well. Again, it is unlikely that even the energy used will be 100% renewable, but you have the supply chain emissions on top as well.
So TRUK’s scope 3 emissions will also be positive. There is physically no way the can be negative.
Given that TRUK doesn’t have any processes which net reduce emissions, and will by default have positive emissions – and that you state very clearly that offsetting is not allowable under sustainable cost accounting, doesn’t that make TRUK carbon insolvent by default?
You make an interesting claim
You suggest it is impossible to be net zero carbon and yet very clearly that has to be the goal
I’ll go with those who say it is possible and no your world view, which ignores just what is happening in the real world out there which it seems. you would rather deny
You are conflating two issues.
Net zero indeed has to be the goal.
That doesn’t change the basic problem TRUK has, which is that it isn’t and can never be net zero. This isn’t something unique to TRUK, it is just a function of the business. It does nothing to reduce emissions, but creates emissions in the course of operating. It can minimize it’s emissions, but nothing TRUK actively removes emissions so TRUk will always have a net positive emissions balance.
You then, as I mentioned, very clearly state that offsetting emissions is not allowed under SCA.
Given these two considerations, TRUK would be carbon insolvent. Given that it can never be net zero and cannot offset, it should be would up under the rules you created.
Do you not agree?
I have indicated a timescale
By then I expect it will be net zero carbon – or we will have very much bigger problems to worry about
Your answer seeks only to avoid the problem TRUK or any other business would have, and therefore the major flaw with SCA. It’s obvious that you are being evasive because giving the answer SCA points to would be more than a little embarrsing, I can imagine.
TRUK can never be carbon neutral. Some of it’s inputs and outputs generate emissions. That much is clear. Nothing TRUK does remove those emissions in any way. Over time, TRUK may be able to reduce it’s emissions, but never totally eliminate them.
This should not be shocking in any way. Very few process net eliminate emissions, so almost every business will be a net emitter. The same is true for households and government as well, by the way.
By your own rules, TRUK should be declared carbon insolvent and would up. As would almost every business out there.
You are avoiding giving a straight answer to this because it highlights what are clearly very obvious flaws in SCA.
Namely:
1. Companies cannot offset emissions.
2. Scope 3 emissions can’t easily be measured, can’t be controlled in any way, and could probably lead to double counting.
3. Costing a transition to net zero is very difficult, and essentially impossible if a process can never be emissions free and you cannot offset.
The result of the above means that almost every company would be carbon insolvent. I’d hazard a guess at 99%.
It also strikes me that you have not considered the fact that we only need the global sum to be net zero, not individual companies. Your plan also totally puts the onus on companies to reduce emissions when households and government are major emitters.
In the end, I think the problems with SCA – as I have pointed out – are very severe. So much so that you aren’t willing to give a straight answer, as seen above. Almost every company would be rendered carbon insolvent, and eventually forced to shut down. I’m not sure a solution which involves shutting down most functions of modern life is very sensible.
I suggest you go and read what I am suggesting
I also suggest you learn what Scope 1, 2 and 3 might be
Of course TRUK will use power, but it is entirely plausible that these will be net carbon neutral. So there is good reason to think all TRUK scopes will be zero.
As for your later comments, precisely because I consider scope 3 I have not ignored these issues
What I discern is someone who has not a clue about this issue. All your claims are wrong. Those who know assure me that I am not.
I will not be wasting time with more comments from trolls on this
I am not trolling, but pointing out a serious issue with SCA. I am also well aware of the definitions given for the different scopes of emissions.
You however, are steadfastly avoiding the inevitable conclusion for TRUK from your own SCA.
The power TRUK uses might plausibly be 100% renewable at some point in the future, but it might not be. I am not sure this is a good basis for an accounting principle. Remember also that it would have to be no less than 100% renewable for TRUK to create no emissions from it’s direct power use.
That fails to account for the emissions caused creating the infrastructure for that renewable power though, some of which would fall on TRUK as I understand SCA. It also fails to capture the power used by your readers – which would also have to be 100% renewable. In addition, TRUK would still create some emissions down to the equipment it uses in the course of business, which generate emissions in their creation.
Given that TRUK does not do anything to directly remove any emissions, and will generate some emissions, it stands to reason that TRUK (or almost any other business) can never be net zero without offsetting. Which means it would be carbon insolvent.
This is my main point, which you seem very unwilling to address.
SCA makes several mistakes, but principally it treats the environment in a micro fashion, when we are really in the macro. By disallowing offsetting you ignore this. In addition, you haven’t considered the basic practicalities of most industrial processes. Almost without exception they create emissions, but by disallowing offsetting you are essentially calling for a stop to almost every modern manner of production – even down to basics such as construction and agriculture.
As I said, this does not seem sensible. The problems with SCA are obvious.
And I completely disagree with you for very obvious reasons.
I can guarantee scope 1 zero by my choice of tariff
If I cannot by net zero IT the world will not be net zero- fact. For example, we are expecting net zero steel, glass and much else, you can deny it, but companies are committing to it
And we are moving toward net zero for all domestic electricity
If we don’t we cannot meet the CCC projections.
So, with respect, the problem is yours, not mine
And if it is my problem it is the world’s too
Plus you ignore that I did not say no offsetting: I saud no offsetting as an assumption unless the resources to offset are already under the entities control. So if I acquired a wood (or a bit of one) I could make the assumption of that offset , but only if I can prove the commitment to that offset
I could also, of course, generate power on my roof as offset
You are really making your complaints up
I’ll try and deal with your points in turn, but in general, I think you have missed the point by a long way. On other points, you are simply incorrect.
“I can guarantee scope 1 zero by my choice of tariff”
Surely you mean scope 2? Scope 1 are emissions from firm activities. In this case, the IT infrastructure you use, not the power you use – which would be scope 2. Making such a basic error about what scope means what doesn’t suggest you have a great grasp of the subject.
I would have also expected you to know that even 100% renewable energy suppliers are not technically 100% renewable. It is 100% backed by renewable sources, but that doesn’t guarantee 100% renewable energy provided. Most 100% energy providers make up any renewable shortfall by offsetting – which is not allowed under SCA. Nor would that offsetting be under your control, which you later talk about, so again, not allowed under SCA.
“If I cannot by net zero IT the world will not be net zero- fact. For example, we are expecting net zero steel, glass and much else, you can deny it, but companies are committing to it”
Net being the operative word here. You cannot make steel without emitting, by simple fact of the chemical process involved. Net zero steel is managed by offsetting.
“And we are moving toward net zero for all domestic electricity”
Again, through offsetting. Even renewables are not net zero. Whilst in use, they generate no emissions, but producing them is highly emissions intensive. Better for sure, but not net zero.
“So, with respect, the problem is yours, not mine”
With respect, I’m not sure it is. I’m really not sure why you are clinging on to it so desperately when it is obvious that it is so deeply flawed as to be totally useless.
“Plus you ignore that I did not say no offsetting”
The document I read, produced by you, about SCA very clearly states no offsetting. Nowhere does it say that you can as long as the offsetting is under the same entities control. You seem to have made this change on an ad hoc basis, not that it really changes the basic problem of SCA. If anything, it compounds it.
Regardless, you still miss the point. We do not need each individual company to be net zero. We need the system as a whole to be.
Your internal offsetting is highly problematic. It would drive the price of land up dramatically, and force the largest companies to hoard land for offsetting reasons. It would not be efficient in terms of land use or reducing emissions. It would also decimate industry in many countries which physically don’t have the land mass to support as much offsetting.
“I could also, of course, generate power on my roof as offset”
As above, generating power on your roof would not be an offset. You would not be creating any emissions (apart from the ones created in the manufacture of your solar panels, which you would still have to account for) but neither would you have a net negative emissions source (which you would by owing a wood). So TRUK would still be a net emitter, and other than buying a forest, have no way of reducing it’s net emissions to zero. Given an average trea can absorb about 100kg of C02, but the average household creates about 45t per year, can TRUK afford to buy a small forest somewhere? If not, it would be carbon insolvent.
“You are really making your complaints up”
I’m really not. Apart from you not seeming to ave a very good grasp of the subject matter, you have clearly made very basic mistakes in the formulation of SCA. Forcing each company individually to be net zero, essentially removing the ability to offset externally and by totally missing the point that individual companies do not need to be net zero as long as the world as a whole is, are critical errors in the formulation of SCA. It is totally unworkable.
Yes, I admit, I gave a blind spot on scope 1 and 2. Whoopee.
Now, let’s cut through this to your claim TRUK cannot be met zero.
And that you agree that offsetting will be very costly is everyone tries to do it.
And that every household needs a first to offset. Which means offsetting is not viable.
But that you also agree the system as whole must be net-zero.
So, a question, because you suggest no business and no household can be net zero and offset is not viable. How then can the system by net zero in your view?
The reality is that unless most businesses are, the exceptions being licenced by government, and unless there is radical household transformation, then we are not going to achieve this goal.
I think you are simply saying the goal is not possible.
The CCC say it is
I believe it is so I think my assumptions plausible (without offset, by the way)
Answer the macro question. Why not just admit you are simply saying you do not think this can be done.
If you do think it possible say how.
“Yes, I admit, I gave a blind spot on scope 1 and 2. Whoopee.”
I would have thought a deep and thorough understanding of the subject matter would be a per-requisuite for someone attempting to create a set of accounting standards for a given area.
“Now, let’s cut through this to your claim TRUK cannot be met zero.”
By your SCA rules, TRUK cannot be net zero, unless you buy land to offset.
“And that every household needs a first to offset. Which means offsetting is not viable.”
No. What I said is that your are solely focused on companies, when households create over 40% of emissions, and government another 25%. Placing the burden solely on corporates is nonsensical.
“But that you also agree the system as whole must be net-zero.”
Yes indeed. But net zero does not mean zero C02 emissions. More so from any individual company.
“So, a question, because you suggest no business and no household can be net zero and offset is not viable. How then can the system by net zero in your view?”
I think this is another large gap in your understanding of the problem. You don’t understand what it really means, and defaulted to thinking it means zero emissions. It doesn’t. Zero C02 emissions would be potentially more catastrophic for the planet. Plant life depends on it.
Which is why net zero does not mean zero. It means maintaining a net balance. The planet has various naturally occurring C02 sinks, not least plant life and the oceans. Net zero is about finding and achieving a balance, not about total elimination.
“The reality is that unless most businesses are, the exceptions being licenced by government, and unless there is radical household transformation, then we are not going to achieve this goal.”
I’m not sure where government licensing suddenly appears from. I agree that households also have to change. However, the change is already happening, with emissions decreasing rapidly. In the UK emissions are now at pre-industrial levels. This has been achieved without SCA, and without the destruction of modern industry that SCA would entail.
“I think you are simply saying the goal is not possible.”
No, I never said that. I said that SCA is not the means to achieve the goal because it is fatally flawed. We don’t want to remove all the advantages of modern life, so change has to be iterative and solutions based, not by simply shutting things down wholesale which is essentially the end case of SCA.
“I believe it is so I think my assumptions plausible (without offset, by the way)”
What are those assumptions? You haven’t described them anywhere. Do you have the models to show them and their outcomes? Given your earlier basic errors I would be surprised if you had any, so are you just relying on guesswork?
“Answer the macro question.”
I think I have, in detail. It would be kind of you to answer the questions I put to you as well, rather than steadfastly ignoring them and answering ones of your own making, as you have been doing thus far.
Specifically the questions relating to the various flaws in SCA I have pointed out and would TRUK be carbon insolvent?
So, let’s get down to it
Ignoring the personal comments (which are very revealing) you are saying companies cannot be net zero carbon
The FT is riddled with reports on how they are going to be today, and how they are tackling the Scope 3 problem which they must do because consumers cannot be net-zero unless business is (glaringly obviously, except it seems to you, who seems to think their emissions have nothing to do with their consumption of business made products).
And yes, I know net-zero means offsets. Of course it does. But what I am staying is no business can assume the right to an offset unmless it has committed the resources to make that offset – or has a licence to offset which I think will be essential, which inevitably are going to be required to ensure offset claims are controlled.
In the absence of a licence then net-zero has to be the aim – and I define it, correctly for an organisation
Can TRUK comply? Yes, because big business is going to be forced to. That is the model. If TRUK is carbon insp0vent so is big business. So they are the right targets, which is why I chose them wholly appropriately.
Will that involve life-changing difference to consumption? I suspect so. And that is what you do not want. You want to continue to consume without limit. At least you gave the game away.
You have not pointed out a flaw with SCA. You have said you do not like it. That’s not the same thing, at all
But at least you gave the game away.
Don’t call again.
What would be the effect upon the balance sheet of Tax Research LLP of insisting it become carbon neutral over Scope 1, 2 and 3 emissions? That Scope 3 would, for example, have to include the energy used — from whatever generation mix, on whatever form of machine — to download pages from the Tax Research website.
How could that even be calculated?
First you ignore the fact that SCA will not apply to small businesses because they do not have the supply chain clout to demand change
Second, the plan will be to stop publication if electricity is not net zero carbon by 2035
That’s a plan
“First you ignore the fact that SCA will not apply to small businesses because they do not have the supply chain clout to demand change”
well let me ask the same question about Tax Research but assume an identical identity has a business of massive scale – how could they possibly make a calculation?
Easy
How much power is consumed per read – the number and duration of which I know
And what is the likelihood these are powered by renewable energy
That wasn’t hard, was it?
In other words it’s little more than finger in the air estimate, with enormous margin for error and myriad unknowns, but it’ll be used to asses the viability of a business? One for the loony bin..
Or as the head of technical accounting at a Big 4 firm put it to me, intensely auditable and relatively easy to do
And there are armies of people already doing such stuff
Whose view do I give credence to? Not yours
Surely, the macro context must first be considered before discussing the accounting minutia of an individual, small/medium sized business.
How do you make macro change without requiring that businesses change their behaviour?
I deliberately focus SCA on the biggest businesses. They are, after all, not micro entities. They are bigger than many countries. How macro do you have to get?
You are right though: Tax Research UK’s emissions are not the issue. Those who say they are miss the point, almost certainly deliberately.
“Tax Research UK’s emissions are not the issue.” Hmmmm…..
Ultimately they are because all emissions are the issue. You have probably found the above conversation somewhat tedious, but I thought it quite interesting if only because it gives some indication of the massive changes in behaviour that will be necessary to get anywhere close to net zero emissions. Marc has a point…..without major changes in energy infrastructure, and more besides, we will never be able to make small outfits like TRUK zero carbon.
I have just read a piece about the proposed new coal mine in West Cumbria published in the Guardian and it seems the miners’ emission claims totally disregard the burning of the coal produced; that by their reckoning is somebody else’s problem. Without effective SCA they can get away with that and simply pass the emission costs and consequences down the line ultimately to small businesses like TRUK (and domestic consumers) with no means of achieving real zero emissions operation.
So yes, we have to start with the big companies and I’m not hearing anything from government sources that
indicates that assurances of achieving a net zero target by 20..-whatever-year are more than hot air (yet more unaccountable emissions 🙂 )
Greenwash won’t do. SCA might. At least is pushing in the right direction.
Andu
Of course TRUK’s emissions matter
My point is that [pushing small business is getting on the wrong end of the string
I cannot be net zero unless my suppliers change
That is why I start there
And that is why the questions on TRUIK in isolation are tedious, because they are just trolling when the real question is being asked by me in SCA
Richard
“I cannot be net zero unless my suppliers change”
Quite so. I’m seeing that.