Biofuel Carbon Accounting Report could signal shift in carbon auditing practices

A recent International Energy Agency (IEA) report on carbon accounting for sustainable biofuels could herald significant changes in auditing practices for UK accountants. The report, which examines the complexities of measuring greenhouse gas (GHG) emissions in biofuel production, emphasises the need for robust verification processes in carbon intensity calculations.

The report highlights that the need for verification of carbon intensity calculations could lead to new auditing requirements and practices. This signals a potential shift in how accountants approach environmental audits across various industries, not just in the biofuel sector.

The report states that “sound regulatory frameworks supported by transparent, science-based carbon intensity calculations will be required to attract the investments needed to scale up biofuel production”. The report goes on to specifically mention that “policy measures include additional effort and attention to verify GHG reduction effects in practice, as emission reduction calculations can be unreliable.”

This development comes as carbon accounting plays an increasingly crucial role in regulatory compliance globally. The report’s findings suggest that accountants may need to adapt their skillsets to meet these emerging challenges, particularly in understanding and implementing lifecycle assessment (LCA) methodologies.

The report says that “LCA is a commonly recognised methodology for assessing environmental impacts of products and services, and it is applied widely in both science and industry.” However, it also points out that “while LCA provides a solid framework, the ISO standards have a certain amount of flexibility in defining key methodological aspects.”

This flexibility underscores the need for accountants to develop expertise in interpreting and applying these methodologies consistently.

Standardised carbon accounting

The IEA report notes the importance of consistent international standards in carbon accounting, which could impact how UK companies report their emissions, especially those operating globally. It states that “international collaboration on carbon accounting methodologies is important, especially through bodies like ICAO and IMO for aviation and shipping.”

This push for standardisation aligns with the increasing focus on Environmental, Social, and Governance (ESG) reporting in the business landscape.

However, the report acknowledges significant challenges in carbon accounting, particularly regarding indirect land use change impacts, which are difficult to measure and verify. The report states that “emissions from indirect land use change cannot be observed directly” and that “indirect land use change occurs when bioenergy growth generates an indirect expansion of cropland into high carbon stock land elsewhere.

Furthermore, it notes that “iLUC emissions of the produced fuel can be estimated based on this information” but emphasises that these estimates are “based on models that assess how markets respond economically to increasing biofuel demand and the resulting land use changes.”

The report highlights that this uncertainty presents both challenges and opportunities for those specialising in environmental reporting. It states that “iLUC values cannot be measured or verified, only modelled. Moreover, different modelling runs can produce divergent iLUC estimates for the same biofuel pathway, not providing the consistency needed to formulate effective GHG reduction policies.”

To address these challenges, the report recommends that policies should prioritize measures with high GHG reduction potential and low uncertainty, while using risk-based approaches for indirect land use change in the near term. Specifically, it suggests to prioritise support measures that have significant GHG reduction potential.

As governments consider new environmental regulations, the report implies that professionals in the field, including accountants, will play a crucial role in helping businesses navigate these changes.

It notes that “policies need to adopt pragmatic approaches to foster verifiable and performance-based continuous improvement of sustainable biofuels”, suggesting an ongoing need for expertise in interpreting and implementing these evolving standards.

Biofuels and beyond

While the report focuses on biofuels, its implications extend to broader carbon accounting practices. It suggests that accountants may find themselves at the forefront of a new era in environmental reporting, where their expertise will be crucial in addressing climate change through accurate and verifiable carbon accounting.

The report concludes by noting the need for transparent, consistent methodologies and use of verifiable data in GHG accounting to support effective policymaking. As the profession adapts to these new challenges, the role of accountants in tackling climate change is set to grow significantly in the coming years.