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Doing business in a carbon constrained economy

Understanding the accounting and assurance implications

In May 2009 the Australian Federal Government announced a one year delay to the start of the Carbon Pollution Reduction Scheme (CPRS) as outlined in the December 2008 CPRS White Paper. The proposed scheme is now scheduled to start in July 2011. Also delayed for one year are the various transitional assistance mechanisms such as the Emissions Intensive Trade Exposed (EITE) and Electricity Sector Adjustment Schemes (ESAS).

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At the same time, a change to the target reductions in greenhouse gas emissions was also announced. Instead of aiming for a 5% to 15% reduction in greenhouse gas emissions from 2000 levels by the end of 2020, the Government has set a target of achieving a 25% reduction (conditional on a global agreement on emissions). It is proposed that a fixed carbon price of $10/tonne will be introduced for the first year of the scheme. The CPRS, National Greenhouse and Energy Reporting System (NGERS) and the Renewable Energy Target will be combined under a single independent regulator. An interim regulator will be in place in the first half of 2009.

Key questions for you to consider:

  • What is your direct obligation under the CPRS and how will this impact your working capital management and balance sheet?
  • Do you know the earnings and cash flow impacts on your business as a result of the cost of carbon?
  • Are you across the accounting policy alternatives for permits under the CPRS?
  • What is the impact of the cost of carbon on your asset impairment calculations?
  • Does your existing risk management framework cater for the trading of financial instruments (permits) under the CPRS?
  • Are you confident that your emissions and energy consumptions data collections processes are robust and reliable?
  • Are you eligible for assistance under the various assistance programs?

Deloitte can help you understand, evaluate and apply opportunities in a carbon constrained world, including:

  •  Financial impact analysis of your carbon strategy and the CPRS on your earnings, cash flows and   balance sheet
  • Accounting policy selection and advice in relation to:
    • Accounting for permits under the CPRS in the absence of formal guidance from Australian and International accounting standard setters
    • Impacts on hedge accounting and the valuation of financial instruments
    • Impacts of the CPRS on impairment of assets
    • Accounting for upfront industry assistance
    • Independent third party assurance over your emissions data and collection processes
    • Assessment of your CPRS and NGERS compliance readiness, including recommendations for improvement
    • Development and review of governance, risk management and internal control structures for trading in carbon (i.e. permits).

Contact us to discuss how we can help you.

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