‘In responding to the challenges of global climate change, businesses will increasingly have to account for and report on greenhouse gas emissions,’ says Nick Hughes, BP’s climate manager for Europe. The oil major has recently introduced a group-wide GHG trading scheme as part of its programme to achieve cost-effective emission reductions.
In 1998 BPs CEO Sir John Browne committed the company to reduce GHG emissions by 10 per cent below their 1990 level by 2010. Based on an estimated emissions level of 100 million tonnes in 1998, this commitment represents a total reduction of more than 50 million tonnes over the period to 2010, taking into account growth over the period.
Nick Hughes explains, To deliver this target in the most cost-effective way, BP has launched a group-wide system of emissions trading between our business units. This trading system went live at the start of this year and is the first-ever corporate global GHG emissions trading system.
Each business unit (BU) is allocated an annual GHG allowance. Those BUs which can reduce emissions below their allowance can sell excess allowances to other BUs facing higher emission abatement costs or needing extra allowances to accommodate growth. The trading system will allow the BUs to find innovative and cost-effective ways to reduce emissions.
Transparency
To reinforce its commitment in a transparent way, BP commissioned a team from DNV, together with financial auditors KPMG and US-based GHG specialist ICF, to undertake an independent audit of its GHG emission data. Says Hughes, This project was designed to underpin BPs commitment to reduce its GHG emissions in a transparent way, establishing the credibility of emissions reductions to all internal and external stakeholders. The project was also to provide valuable learning in the audit and verification of GHG emissions across a diverse business, making this experience available to other interested organisations; and to help ensure that GHG allowances are traded on a transparent and credible basis.
Risk-based auditing by DNV
The initial audit focused on emissions reported for 1990 (this represents the baseline for the Group target) and 1998, on which trading allocations have been based. According to Philip Comer, DNVs project manager, the audit proved a challenging assignment as there are no agreed GHG reporting standards. Says Comer, A special feature of the audit was the amalgamation of principles of both financial and environmental auditing practices, which has given added value to the process. A risk-based audit approach was used, drawing on an understanding of BPs risks and controls as they relate to GHG information and their impact on the completeness, accuracy, and consistency of the reported data.
The audit team verified that the GHG data collected and reported by BP was of high quality, although a number of issues were identified such as the need to identify best practice for data management systems and transfer these across the Group. Says Hughes, Given the developmental nature of BPs GHG emission reporting programme, the audit findings are consistent with expectations of a pioneering effort where industry and international GHG emission reporting and verification guidelines are only now emerging. The learning from BPs efforts to secure high quality group-wide GHG reporting, and the auditors experience in verifying the accuracy and consistency of the reported data, will provide valuable input into this rapidly developing discipline.
National trading systems
Commenting on the future of external gas trading, Hughes believes that governments are becoming increasingly interested in the concept of greenhouse gas trading. Its one of the mechanisms proposed in the Kyoto protocol. Five or six countries are interested in establishing national trading systems to help meet each countrys commitments made under Kyoto. As an example, the British government has recently set aside GBP 30 million to help build a U.K. trading system. Norway is also looking at setting up a trading scheme, and the EU as a whole is working in this direction.
Concludes Hughes, As a result of increasing interest in greenhouse gas trading, city traders see a potential market; and are sensing that a carbon-constrained economy will lead to business opportunities. After all, scarcity is one of the first laws of economics. Its interesting that were now seeing people in legislative circles thinking about how they can encourage it, and companies like ourselves and Shell trying it out internally and the finance sector is beginning to position itself. A level of momentum is building up that would certainly suggest that the concept is being taken seriously.