Carbon emissions and evmnt auditing

8/7/2019 Carbon emissions and evmnt auditing

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Carbon emissions into the earth's atmosphere have resulted in drastic climatic

changes over the

years. Excessive emisson of carbon to the environment is one of the major cause

of Global warming , Air pollution and major Climatic changes.

Since the industrial revolution, extracting fossil fuels from deep within the earth

and combusting it for energy has resulted in an increased concentration of

carbon dioxide in the atmosphere.

Carbon emissions trading is the trading of harmful gaseous emissions

specifically for carbon dioxide and is currently responsible for major part of

emissions trading. It is one of the ways countries can meet their obligations

under the Kyoto Protocol to reduce carbon emissions and thereby

mitigate global warming. Carbon trading is strategy for mitigating these and

other emissions through a Cap-and-Trade system.

A central authority (usually a government or international body) sets a limi

t or on the amount of a pollutant that can be emitted by a company or any

organisation. Companies are not allowed to emit extra amount of carbon to the

environment, than they are allowed.


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When it was realised that the major culprits of excessive emisson of carbon are

the heavily industrialized nations i.e. the developed nations, then a treaty called

the Kyoto protocol was introduced in order to lessen the excessive emmisson of

greenhouse gases.

The Kyoto Protocol is a 1997 international treaty which came into force in2005, which binds most developed nations to a cap and trade system for the si x

major greenhouse gases. The idea of Kyoto protocol is to divide the whole

world into two, one who can afford making changes to their existing

infrastructure and the ones who cannot i.e. the developed countries and the

developing countries As everybody is polluting, be it a developed country or a

developing country, the financial aspect has to be kept in mind. All developed

countries will have to cut down their emissions by some percentage or else they

pay heavy fines.

The Kyoto Protocol is a global Cap-and-Trade program to mitigate the

anthropogenic (man-made) production of greenhouse gases that is driving

climate change.

Environmental auditing has been variously defined as:

'A management tool comprising a systematic, documented, periodic and

objective evaluation of the performance of the organization, managementsystem and processes designed to protect the environment with the aim of: (1)

facilitating management control of practices which may haveimpact on the

environment, and (2) assessing compliance wit h regulations and company

policies'.

The systematic examination of the interaction between any business operation

and its

surrounding. This includes all emissions to air, land and water, legal constraints,

the effects on

the neighboring community, landscape and ecology and the public's perception

of the operating company in the local area'

Many types of audit have been carried out by companies

Compliance audit - the most common type of audit consisting of checks

against environmental legislation and company policy; This type of audit


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compares the operations to the legal requirements to which it is subject.

Auditors gather information through visual observations at the site, document

reviews and interviews of staff. This data is then compared to the applicable

permits, regulations, ordinances, enforcement

agreements, etc to evaluate how well the operation is conforming to thoseapplicable legal requirements. The importance of compliance auditing is clear -

to assist the site and management in identifying legal risks to be corrected. In

the absence of audits, companies generally have no structured review or

oversight of environmental compliance activities.

Issues audit - an evaluation of how a company's activities relate to an

environmental issue or (e.g. global pollution, energy use) or an evaluation of a

specific issue (e.g. buildings, supplies);

Health and safety audit - an assessment of risks and contingency planning(sometimes merged with environmental auditing because of the interconnected

impacts of industrial processes and hazards);

Site audit - an audit of a particular site to examine actual or potential

environmental problems;

Corporate audit - an audit of the whole company and its polices, structures,

procedures and practices;

Due diligence audit - an assessment of potential environmental and financialrisks and liabilities carried out before a company merger or site acquisition or

divestiture (e.g. contaminated land remediation costs);

Activity or operational audit - an assessment of activities that may cross

company departments or units (e.g. energy or waste management) and

Product or life cycle audit - an analysis of environmental impacts of a product

throughout all stages of its design, production, use and disposal, including its

reuse and recycling (cradle to grave).

At the current time, other forms of environmental audit s are becoming popular.

Some of these include industry-specific green certifications (such as in the

forest products industry) and supply chain greening reviews/assessments/audits.

Benefits of environmental auditing


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While environmental audits are designed to identify environmental problems,

there may be

widely differing reasons for undertaking them: compliance with legislation,

pressure from suppliers and customers, requirements from insurers or for capital

projects, or to demonstrateenvironmental activities to the public. The benefits of environmental auditing

include:

ensuring compliance, not only with laws, regulatio ns and standards, but also

with company policies and the requirements of an Environmental Management

System (EMS)standard;

enabling environmental problems and risks to be anticipated and responses

planned;

to demonstrate that an organization is aware of its impact upon the

environment through providing feedback;

increased awareness amongst stakeholders; and

more efficient resource use and financial savings

Environmental valuation

From scenic beauty and recreational opportunities to direct inputs into the

production process, environmental resources provide a complex set of values to

individuals and benefits to society. Coastal areas, for example, offer scenic

panoramas and radiant sunsets. Fish and other ed ible sea life caught in coastal

areas provide a rich and nutritious source of food to consumers. Beaches are

also excellent recreation areas, used for relaxation, exercise, or bird watching.

These are only the direct benefits. There are also values that ar e not directly tied

to use, such as climate modulation, physical protection, and stewardship for

future generations. All of these benefits are relevant in environmental valuation.

Environmental Values

Use values, such as fishing and hiking, are the more di rect and quantifiable

category of environmental values, but they capture only a portion of the total

economic value of an environmental asset. Indirect -use values, non-use values,


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and intrinsic values are also associated with preserving environmental

resources. Total economic value is represented by the following equation:

Total economic value = direct -use value + indirect-use value + non-use value +

intrinsic value

Indirect-use values associated with coastal areas include biological support,

physical protection, climate modulation, and global life support. Non -use values

are less direct, less tangible benefits to society and include option and existence

values. The option value is the value an individual places on the potential future

use of the resource, for example, benefits a beach would offer during future

trips to the coastal area. Existence values include bequest, stewardship, and

benevolence motives. Bequest value is the satisfaction gained through the

ability to endow a natural resource on future generations. The stewardship

motive is derived from an altruistic sense of responsibility toward thepreservation of the environment and a desire to reduce environmental

degradation. The benevolence motive reflects the desire to conserve an

environmental resource for potential use by others. Finally, the intrinsic value of

nature reflects the belief that all living organisms are valuable regardless of the

monetary value placed on them by society. Table 1 presents a typology of

environmental values.

(a) Direct-use values: goods and services directly consumed by users

- Products (e.g., edible, ornamental, medicinal, inputs into

production process)

- Recreation

-Waste assimilation

- Research

- Education

(b) Indirect-use values: indirect benefits arising from ecological systems

-Biological support links to other species and habitats

-Physical protection coastal defense function

-Climate regulation


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-Global life support functions that aid in supporting life on Earth

(c) Non-use values

-Option value

-Existence value

Bequest motive

Stewardship motive

Benevolence motive

(d) Intrinsic value: organisms have a worth of their own regardless of usefulness

to humans

Methods for Valuing the Environment

Environmental valuation is largely based on the assumption that individuals are

willing to pay for environmental gains and, conversely, are willing to accept

compensation for some environmental losses. The individual demonstrates

preferences, which, in turn, place values on environmental re sources. Thatsociety values environmental resources is certain; monetizing the value placed

on changes in environmental assets such as coastal areas and water quality is far

more complex. Environmental economists have developed a number of market

and non-market-based techniques to value the environment. Figure 2 presents

some of these techniques and classifies them according to the basis of the

monetary valuation, either market-based, surrogate market, or non-market-

based.


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Market-Based Methods. Economists generally prefer to rely on direct,

observable market interactions to place monetary values on goods and services.

Markets enable economists to measure an individual's willingness to pay to

acquire or preserve environmental services. In turn, c onsumers reveal their

preferences through the choices they make in allocating scarce resources among

competing alternatives. There are a number of market -based methods of

environmental valuation. This article identifies and discusses three market -

based techniques: a) factor of production approach, b) change in

producer/consumer surplus, and c) examination of defensive expenditures.

Surrogate Market Methods. In the absence of clearly defined markets, the value

of environmental resources can be derived from i nformation acquired through

surrogate markets. The most common markets used as surrogates when

monetizing environmental resources are those for property and labor. The

surrogate market methods discussed below are the hedonic price method and the

travel cost method, with a brief look at the use of random utility models for

environmental valuation.

The hedonic price method of environmental valuation uses surrogate markets

for placing a value on environmental quality. The real estate market is the most

commonly used surrogate in hedonic pricing of environmental values. Air,

water, and noise pollution have a direct impact on property values. By

comparing properties with otherwise similar characteristics or by examining the

price of a property over time as enviro nmental conditions change and correcting


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for all nonenvironmental factors, information in the housing market can be used

to estimate people's willingness to pay for environmental quality.

The travel cost method is employed to measure the value of a recreat ional site

by surveying travelers on the economic costs they incur (e.g., time and out -of-

pocket travel expenses) when visiting the site from some distance away. Theseexpenditures are considered an indicator of society's willingness to pay for

access to the recreational benefits provided by the site.

Non-Market Methods. The Contingent ValuationMethod (CVM)is a non-

market-based technique that elicits information concerning environmental

preferences from individuals through the use of surveys, questionnaires, and

interviews.When deploying the contingent valuation method, the examiner

constructs a scenario or hypothetical market involving an improvement or

decline in environmental quality. The scenario is then posed to a random sampleof the population to e stimate their willingness to pay (e.g., through local

property taxes or utility fees) for the improvement or their willingness to accept

monetary compensation for the decline in environmental quality. The

questionnaire may take the form of a simple open -ended question (e.g., how

much would you be willing to pay) or may involve a bidding process (e.g.,

would you accept $10, would you accept $20) or take -it-or-leave-it

propositions. Based on survey responses, examiners estimate the mean and

median willingness to pay for an environmental improvement or willingness to

accept compensation for a decline in environmental quality.

Carbon emissions and evmnt auditing

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