Why Industry Should Still Track Emissions in a Post-Kyoto Canada

Now that Canada has officially withdrawn from the Kyoto Protocol, does the private sector still have a strong incentive to manage and reduce their emissions? In a word, yes.

Even if meeting nationwide emission reduction targets is no longer legally mandated, from the point of view of industry, the need for carbon accounting and reporting remains as strong as ever. Instead, the drive to manage emissions is strategic. Companies that evaluate their emissions stand to benefit financially, and are poised to take full advantage of regulatory opportunities as they arise.

Let’s first take a look at market forces operating on businesses. Identifying areas of cost reduction remains a very practical, but also fundamental, reason for companies to take a closer look at the carbon implications of their activities. Avoiding reputational risk and benefiting from green positioning are important drivers as well. In a survey on ethical consumerism, Canadians actually had the highest expectations relating to companies’ CSR measures and were most likely to have this affect their purchasing decisions¹. With growing consumer concern around greenwashing, companies can reduce the potential for distrust by publicly reporting sustainability metrics which are both credible and traceable.

Investors and suppliers are also creating financial pressure for more transparent, accurate and complete reporting of sustainability measures. Companies in the S&P 500 that publish their sustainability performance – which now account for over half – have actually been found to profit from higher financial returns than non-reporting competitors². More and more companies are recognizing the advantages of GHG assessments in particular, and are voluntarily reporting their emissions through the Carbon Disclosure Project (CDP). For example, 79% of Canada’s 200 largest publicly traded companies on the Toronto Stock Exchange (TSX) by market capitalization completed CDP questionnaires³.

Regulatory risk is another oft-cited reason why business leaders, particularly within heavy industries, report their firm’s GHG emissions⁴. Though the Kyoto Protocol Implementation Act was repealed, provincial governments across the country have implemented policies which affect companies’ emission levels. Nova Scotia has imposed a cap on emissions on regulated facilities, Saskatchewan requires regulated emitters to reduce emissions by 2% per year, and B.C.’s revenue neutral carbon tax on fossil fuel has now reached $30/tonne⁵.

Quebec’s newly launched carbon market, for example, provides early reduction credits for firms that voluntarily reduced emissions between 2008 and 2011. Companies not directly under the market’s cap can participate by developing and selling credits that meet one of the accepted project protocols. Though the first phase, from January 1, 2013 to December 31, 2014, only touches around 75 operators (largely from the industrial and electricity sector), the second phase will wield a much broader brush, bringing in operators that distribute or import fuel. The expected linkage with California’s market will also create further opportunities, broadening the market’s scope and reach. Firms with precise and comprehensive GHG accounting systems will be better able to achieve compliance and to develop internal emission reduction strategies with the goal of eventually selling – or at least reducing the purchase of – allowances.

Moreover, measures that will be implemented down the road must be borne in mind. North America can often look over at what is happening in Europe for a glimpse at future policies. The cap-and-trade system and feed-in tariffs employed in Europe inspired their application elsewhere. Though North American regulation currently focuses on heavy emitters, other initiatives around the world target companies based on their revenue or number of employees. We’ve discussed the Mandatory Carbon Reporting policy here before, which requires over a thousand of the UK’s largest publicly listed companies to report their GHG emissions. France passed a law in 2010 requiring private companies with over 500 staff to complete an assessment. These are the kinds of programmes which may eventually be enacted in Canada or the U.S., and which will no doubt benefit firms with emission tracking tools already in place.

A federal climate change plan may or may not ever be implemented in Canada, but market forces and policies implemented at other levels of government are creating a need for carbon management. For those companies savvy enough to be prepared, the rewards can be significant.