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Carbon on the balance sheet: it’s a “stock” in the atmosphere, not an annual flow

greenhouse gas coal fire station

Australian businesses and governments have been accounting for greenhouse gas emissions for well over 20 years. What was once a novelty is now business as usual for many, especially the large corporates that must report annually under the National Greenhouse and Energy Reporting Scheme.

The annual cycle of reporting keeps plenty of sustainability managers busy but there’s a risk that this annual account provides a very incomplete picture of environmental impact.

Reporting the accumulated load of greenhouse gas pollution in the atmosphere provides a better account of what the environment sees and provides a more compelling argument for urgent action.

Lots of companies can show impressive long-term trends of reducing annual emissions –  they’re doing less environmental damage, less bad each year. But while they still have emissions, these are accumulating in the atmosphere, slowly increasing the impact of climate change.

It’s like financial accounting where the P&L (profit and loss) is showing a positive result, but what’s needed for a full picture of financial success is the view of the balance sheet showing the full financial worth of the company. Carbon could be accounted as a “stock” in the atmosphere rather than as an annual flow.

Greenhouse gas emissions, especially CO2, once released into the atmosphere take a long time to be re-absorbed. Carbon that has been drawn down into geological structures – into coal, oil and gas over millions of years – once liberated to the atmosphere won’t be drawn back quickly.

Each of the greenhouse gases has different mechanisms and different timescales for re-absorption. For CO2, the most prevalent of the greenhouse gases, around 65 per cent of the pollution remains after 10 years, reducing to around 33 per cent in 100 years and 20 per cent in 1000 years, using the Bern equation.

The actual impact on climate will be far longer again in human terms and generally well outside of the planning horizons that governments and companies use.

Take a 25,000 square metre office building in Sydney commissioned into service and running at 2.5 stars NABERS Energy in 1990. The base building annual emissions at this point are a little over 4500 tonnes CO2e.

In 2010 an efficiency refurbishment lifts the NABERS energy rating to 5 stars and the annual emissions drop to around 2200 tonnes. Over a 50 per cent reduction in emissions, trumpets the media release. In 2030 the owner meets their commitment to net zero annual emissions.

Under the annual form of carbon accounting annual emissions peaked at 4500 tonnes in those early operational years.

Annual carbon emissions for the building before and after efficiency refurbishment

A chart of the accumulated stock of emissions in the atmosphere, allowing for drawdown of carbon using the Bern equation, see shows that environmental emissions actually peak in 2029 at just over 76,000 tonnes CO2e.

Cumulative CO2e emissions chart

Accounting for carbon in this way, as a stock on an environmental balance sheet, doesn’t change any facts but it can serve to highlight the urgency of emission reduction. The urgency to move from doing less bad year on year to even considering doing good.

In the case of this building, if the carbon neutral target had been brought forward to 2020 from 2030 the peak cumulative emissions would be almost 10 per cent lower occurring in 2019. Reporting cumulative emissions gives new urgency to the call to move to zero emissions.

Accounting for cumulative carbon also informs a discussion about remediation. Using the case study above, the owner can hold a celebration in 2050 of 20 years of zero emission operation, a wonderful record, yet the environment is still suffering the effects of 60,000 tonnes of residual CO2.

Other forms of environmental pollution are dealt with through remediation obligations – business owners that cause pollution are obliged to clean it up.

If there’s been any discussion in Australia about the responsibility for cleaning up any contribution to greenhouse emissions it hasn’t been widespread but that shouldn’t stop responsible, ethical, Australian companies from exploring how the various forms of sequestering carbon could be used to accelerate drawdown of carbon.

A few Australian REITs already have the notion of being “restorative” embedded in their environmental policies to encourage the business to be carbon positive, to engage in projects that sequester carbon and drawn down the pollution stock faster than nature could do otherwise.

Let’s account for carbon in a way that truly reflects the impact on the environment informing our policies, plans and targets more effectively.

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