Strategy

Dirty realities: Emissions reporting

(For the second part of this feature, see Dirty realities: A list of the most dangerous pollutants .)

Readers of Canadian Business will be familiar with columnist Al Rosen’s profound skepticism about the quality and reliability of financial reporting in Canada. Were he to contemplate the current state of emissions reporting, however, he would likely short-circuit. Here’s why:

Only facilities that meet specific criteria must report their emissions. Those criteria have changed over time. Whereas only 1,800 facilities reported to the National Pollutant Release Inventory (NPRI) in 1996, for example, more than 9,000 did so a decade later. Moreover, entire industries fall outside federal reporting requirements. The GHG Emissions Reporting program does not include agriculture and transportation companies, even though both sectors contribute to Canada’s total emissions. Also, vehicles operated by a large transportation company emit massive amounts of carbon monoxide, but those releases aren’t covered by the NPRI.

Estimation methods proliferate. Methods of calculating emissions differ among companies, industries and substances. Although various guidelines exist, companies often have great latitude. Some actually monitor what comes out of their stacks; others estimate. Some turn to computer simulations. Still others come up with an estimate of emissions per unit of production, and then simply keep track of how much product their plant produces. Companies routinely change their methods, so year-over-year changes in reported emissions can be meaningless.

There’s little independent verification. The financial reports of public companies receive some degree of scrutiny from third-party auditors. For various reasons, this scrutiny routinely fails to prevent errors and fraud. But when it comes to reporting emissions, there’s rarely a formal requirement for any kind of auditing. This presumably makes inaccuracy, and possibly outright fraud, even easier. Following so-called best practices, however, some companies voluntarily seek third-party verification.

Some chemicals are ignored. The NPRI covers more than 300 substances, but those aren’t the only harmful ones pumped into the environment by businesses. In fact, tens of thousands of substances are in use in Canada. And not everyone agrees about what should be reported. Last November, Ecojustice, an environmental non-governmental organization, launched a lawsuit against federal Environment Minister John Baird, alleging that he encouraged mining companies to avoid reporting various pollutants to the NPRI, specifically mine tailings and waste rock.

Not all pollutants are born equal. Some are more toxic than others, or persist in the environment far longer. Mercury, a notorious neurotoxin, can cause extreme harm even in relatively small amounts. Sulphur dioxide, which causes smog and acid rain, is obviously also undesirable, but is typically emitted in far larger quantities. To understand the consequences of a particular company’s mix of emissions, one must first consider the properties of the chemical, where it’s being released, the local weather patterns and other regional characteristics, and the sensitivity of the surrounding region or people. But that’s not always easy — and sometimes there’s little research available on particular substances.

The data are always stale. Investors often complain that by the time financial reports are published, they’re months out of date. By the time emissions data are published, they’re years out of date.

Mistakes happen. And sometimes they’re doozies. The 2004 data provided to the NPRI by Zalev Brothers, a metal recycling facility in Ontario, contained a unit conversion error that over-reported its off-site releases and transfers a thousandfold. The error went uncorrected for years.

Incentives for misreporting may be mounting. Reporting to government emissions databases used to be a relatively academic exercise. But in the current climate of increased scrutiny, and pollution taxes and carbon trading schemes evolving, reported emissions are gaining importance. “It becomes ever more important to measure and enforce these things when you’re actually creating property rights, in essence, around [pollution] permits,” says Matt Price, project manager with Environmental Defence Canada. “The incentive to cheat goes up.”