582 Accounting: Business Reporting for Decision Making
The numerator in the indicator is related to the economic dimension while the denominator is related
to the ecological dimension. The result will show the environmental impact added per chosen unit of
economic performance. The environmental performance (measured as the environmental impact added)
can be assessed from the socio-political perspective or the natural science perspective. It can be applied
to a large number of environmental and social information. The ‘eco’ refers to both ecological and econ-
omic and is sometimes referred to as E^2 efficiency. It could be quite general, such as the residual income
per workforce diversity improvement, the EVA per unit of contribution to global warming, or the taxes
paid per ozone depletion unit. It could also be quite specific, such as the cost per litre of oil consumed,
the revenue per tonne of forest consumed or the shareholder value per unit of CO 2 emitted. The main
principle of its use is the link between an environmental or social issue and a relevant economic metric.
Like all performance indicators, it becomes more real and understandable when benchmarked over time,
across industry sectors and when compared to best practice.
Greenhouse gas accounting
Many companies and countries report on their performance in relation to their CO 2 emissions. Green-
house gas accounting has developed since the signing of the Kyoto Protocol, where a number of countries
committed to reducing their carbon emissions. The Kyoto Protocol recommends a cap and trade scheme to
help in the reduction of carbon, although some countries prefer a carbon tax. The European Union Emis-
sions Trading Scheme (EU ETS) was one of the earliest schemes to be adopted and works on the basis that
each company has allocated carbon emission limits. If its emissions are less than the company’s limit, it
can sell its surplus credit. If its emissions are more than allowed, then it must purchase extra credits. The
objective of placing a price on carbon is to promote lower carbon ways of living, either by paying the price
or investing in lower carbon emitting processes. Emission trading schemes are also expected to promote
more gas-fired and renewable energy generation, incentivise business and households to consume less
energy, promote innovation in technology and encourage better management of land and reforestation.
The concept of a carbon price and an emissions trading system has been a political hot topic in Australia.
In 2011, the Australian government passed the Clean Energy Future Legislative Package, which came into
effect on 1 July 2012. The package included a mechanism to set a carbon price and the establishment of a body
to regulate the mechanism. However, with the change of government in 2013 moves to repeal the carbon tax
commenced, the result being the repeal of the carbon tax legislation by Royal Assent on 17 July 2014.
The UK plans to introduce a carbon floor price to its scheme in 2016, and carbon pricing schemes have
been set up in South Korea, California and Quebec, with China expected to introduce a scheme in 2016.
One concern for environmentalists has been the drop in the price of carbon in the European market;
as at September 2015, it was €7 ($10.85) per metric ton due to a surplus number of permits becoming
available. There are plans to remove 1.6 billion surplus credits to boost the carbon price in 2019.
Environmentalists also fear that the drop in the cost of emission permits will not encourage large emit-
ters to seek out and employ energy-efficient practices. The Australian Chamber of Commerce wants any
sort of carbon pricing to be eliminated altogether as they believe the carbon price will burden business
unnecessarily and encourage investment offshore in countries that do not have a carbon tax imposition.
These countries will be at a competitive advantage. Further, the tax per ton of carbon is considered not
to be significant enough to encourage innovation. Australia emits about 600 MT per annum (1.5 per cent
of global emissions) and critics question the likely impact the system will have on reducing global emis-
sions. If entities do move their operations offshore, then the total global emissions will not be reduced.
This, coupled with an entity’s ability to purchase carbon credits from the global market, thus reducing
the Australian government’s revenue that would be used to compensate households and small businesses
affected by rising costs, has brought about some disillusion regarding the system.
Climate change is the most significant threat to sustainability. The threat is so significant that Pope
Francis, in an unprecedented step in 2015, called for urgent action. Scientific reports indicate that we have
halved the numbers of megafauna, fish populations have been significantly depleted, and the Thwaites Gla-
cier in the Antarctic has irreversible damage and will collapse in the next century (even if from today no more