Carbon reporting countdown

Companies that get power from coal-fired plants have yet another source of emissions to count.

In America’s fast-growing and complex world of carbon footprint reporting, the spreadsheet is still king. But sophisticated software solutions are starting to crop up to replace manual data entry, and no one questions that they are the future. While the U.S. Congress continues to debate cap and trade, federal and state regulations and pressure from the investment community mean greenhouse gas (GHG) reporting is increasingly being tied to financial reports.

Companies are hunting for the standout tracking tool that can do the heavy lifting.  Observers say the integrity of emissions trading markets will depend on it.

“As emissions reporting evolves and
companies are able to increase sophistication for reporting, they are realizing that spreadsheet calculation … is not sufficient and can lead to errors,” says Eric Israel, head of U.S. climate change and sustainability services at accounting firm KPMG.

Writing on the wall

Starting in early 2011, U.S. Environmental Protection Agency (EPA) will require more than 30 industry sectors to collect annual emissions in the first federal mandatory greenhouse gas (GHG) reporting system. The rule covers about 85 percent to 90 percent of U.S. climate pollution.

At the same time, the Western Climate Initiative (WCI), a group of seven western states and three Canadian provinces, plans to mandate carbon accounting for its coming cap-and-trade pact; the scheme is set to go live in early 2012, according to a detailed plan released by the initiative in July. Currently, California; New Mexico; Quebec, Ontario; and British Columbia are completing their regulations, representing 70 percent of the region’s GHG emissions. 

The California Air Resources Board (CARB) has been pulling together provisions for a state-only carbon trading market to meet the Global Warming Solutions Act (AB32) which aims to cap emissions at 1990 levels by 2020. The state’s largest polluters began reporting emissions in 2009 because of the law.

These are just the most far-reaching regulatory systems on the books.

The Obama administration may soon force government contractors to track GHG output or lose contracts under a General Services Administration plan. And in a step that could accelerate reporting among businesses, the Securities and Exchange Commission says it is planning to require U.S. corporations to assess and reveal the effects of climate change on their financial health.

Across North America, more than 400 firms are now reporting to The Climate Registry (TCR), a nonprofit collaboration based in California that runs a central repository for reporting GHG emissions. Last year, more than half of U.S. Fortune 500 firms revealed their emissions through the Carbon Disclosure Project (CDP), a London-based global climate change reporting system. In April, Google (Nasdaq: GOOG) added CDP’s carbon disclosure ratings to the “key stats and metrics” section of its Finance search results, adding pressure for improved reporting.

With all this proof that GHG reporting is becoming important to investors, analysts agree that current collection tools do not match the complexity of the task.

“The core of the reporting is a guy and a meter and a spreadsheet,” says Neal Dikeman, a partner at merchant bank Jane Capital Partners and chairman of CarbonFlow, a software firm that verifies carbon offset projects. “We’re struggling just to get the spreadsheets up and posted and accurate. …Very, very little of it is actually being done in software.”

Dikeman, says that’s about to change.