FACULTY OF ACCOUNTANCY

BACHELOR OF ACCOUNTANCY (Hons.)

AC220

SEMINAR IN MANAGEMENT ACCOUNTING (MAF651)

TOPIC: ENVIRONMENTAL MANAGEMENT ACCOUNTING AND

CLIMATE CHANGE

6BS

PREPARED FOR

DR. ZARINAH BINTI HAJI ABDUL RASIT

NAME STUDENT ID

NURUL FARHAH BINTI RAZALI 2019631148

NURUL HAZLINDA BINTI ARIPIN 2019630602

NUR SYAZWANI BINTI KHAIRI 2019452244

ZAHIDAH MARNI BINTI MASWADI 2019607948

DATE OF SUBMISSION: 26th MAY 2021

 ACKNOWLEDGMENT

All praises and thanks to Allah SWT, the Almighty for His showers of blessing that
has made it possible for us in terms of time, energy, resources and financial to complete this
Group Project as one of our assessments in Seminar In Management Accounting (MAF 651)

First of all, a special thanks, deepest respect, and appreciation to our lecturer Madam
Dr Zarinah Binti Haji Abdul Rasit for providing us with invaluable guidance, comment and
suggestion to improve this group assignment. Her feedback and guidance helped us a lot.

The completion on this group assignment could not have been possible without the
cooperation and effort from all group members Nurul Farhah binti Razali, Nurul Hazlinda
binti Aripin, Nur Syazwani binti Khairi and Zahidah Marni binti Maswadi.

We would like to thank our beloved family and friends who give us moral and
financial support which has helped us in many ways especially during this pandemic
COVID-19. Thus, making it possible to complete and submit this group project within a
limited time frame as required.

Last but not least, we would like to take this opportunity to appreciate the support that
we get from those who have directly or indirectly helped us in the completion of this group
assignment.

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 TABLE OF CONTENT

CONTENT NUMBER OF PAGES

1.0 INTRODUCTION 4

2.0 CONTENT 5-7

3.0 APPLICATION TO INDUSTRY 8-12

4.0 CONCLUSION & RECOMMENDATION 13

5.0 REFERENCES 14-16

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1.0 INTRODUCTION

ENVIRONMENTAL MANAGEMENT ACCOUNTING

Environmental Management Accounting (EMA) is a practice of identifying, collecting,
analyzing and using two sorts of data to form internal decisions. The primary is physical data
about energy, water and material use, flow and rates. The second is monetary data about
costs, profits, and savings associated with the environment.

CLIMATE CHANGE
Climate change is a phenomenon of global climate change, which is characterized by changes
in the general climate (temperature, precipitation and wind) on the earth, especially changes
caused by human activities. Due to the imbalance of the earth's weather, the sustainability of
the earth's ecosystem, the future of mankind and the stability of the global economy are all
jeopardised. As a result, there are ways to mitigate climate change by instituting emissions
trading schemes and carbon taxes.

EMISSION TRADING SCHEME

Emissions trading, also known as “cap and trade” or “allowance trading,” is a method of
pollution reduction which has been successfully used to safeguard human health and the
environment. Emission Trading Scheme consists of two major components which consist of
cap and tradable allowance that is the same as the range allowed by the licensee to emit a
particular amount. This cap ensures that environmental objectives are met and that tradable
quotas allow individual issuers to establish their own compliance roadmap.

CARBON TAX
Carbon tax is a fee that a government imposes on the company that burns fossil fuels such as
coal, oil, and gas. Companies and consumers will take measures to avoid paying taxes by
reducing their emissions, for instance, adopting new technologies or changing to other fuels.
These emissions have been set price by the carbon tax. It is to encourage people, businesses,
and governments to produce less of them. Additionally, the burden of carbon tax would affect
mostly energy thorough industries and lower-income people. Carbon tax is a fundamental
policy to reduce and eliminate the use of fossil fuels. The burning of these fossil fuels
weakens the stability of climate and destroys the climate.

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2.0 CONTENT

PURPOSE AND HOW EMISSION TRADING SCHEMES WORKS ?

The main purpose of implementing the Emission Trading Scheme is to regularly reduce

carbon dioxide and other greenhouse gas emissions throughout the economy in a

cost-effective manner. Every major emitter or company limits the amount of greenhouse

gases it emits. Companies must have an "emission allowance" for each ton of carbon dioxide

released into the atmosphere. These powers limit the amount of greenhouse gas pollution that

a company can emit, or set imposed limits. Over time, these restrictions are stringent,

enabling less pollution until the ultimate goal of reducing emissions is reached. Companies

that are more efficient, emitting less than their allowance, can sell their additional licenses to

companies that cannot afford to cut them easily. It generates a system that allows the most

efficient companies to reach the maximum at the lowest possible cost in the compensatory

economy when the overall reduction is clearly defined.

PURPOSE AND HOW CARBON TAX WORKS ?

The purpose of a carbon tax is to reflect the true cost of burning carbon. These costs are
borne by those affected by this, such as homeowners, farmers, and the government. Carbon
taxes ensure that companies and consumers pay for the external costs they impose on society.

To implement a carbon tax, the external cost must be determined by the government for each
ton of greenhouse gas emissions. All fossil fuels contain gas and it will release the carbon
dioxide form when it is burned and release other greenhouse gases. These will contribute to
climate change and all its negative impacts, such as drought and flooding. These problems are
costly for society. In 2016, the Interagency Working Group on Social Costs of Carbon
estimated the total social costs of greenhouse gas emissions in 2020 will be $42 per metric
ton of carbon dioxide as measured in 2007, in the report they released.

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ADVANTAGES AND DISADVANTAGES

EMISSION TRADING SCHEMES

There are some advantages to the Emission Trading Scheme. Firstly, emission trading is
better able to respond to economic fluctuations than other policy instruments. Allowing a
free market to price carbon translates to more flexibility and avoidance of price shocks or
undue burden. For example, as seen in Europe, prices will fall during recessions when
industrial production, and thus emissions, decrease. Centralized taxes do not have the same
flexibility. Furthermore, ETS can respond globally to a global challenge. This allowing the
use of offsets, reducing compliance costs, can help engage jurisdictions in tackling climate
change. For example, in Chinese program, it may even encourage them to establish their own
emission rights trading system. Next, ETS all over the world, there are many opportunities to
link with the systems. As California did, connecting the ETS can expand the number of
participants in the transaction, which can reduce costs. This may allow a greater reduction in
emissions at a lower cost than before. Lastly, ETS achieves environmental goals. ETS is
designed to achieve environmental benefits; the cap must be reached, otherwise fines will be
imposed. Trading within this limit is the most effective method to minimize costs, which is
good for businesses and households. There is no guarantee to determine the physical actions
the company must take without the flexibility to achieve the necessary reductions.

There are some drawbacks of ETS. Discourages certain industries from changing their
behaviour. The critical issue for the system of cap and trade is that it will motivate industries
most reliant on fossil fuels to continue polluting. This system enables the purchase of
reasonable carbon offsets or credits at a lower cost than converting the fuels that emit
greenhouse gases in the first place. Next, ETS encourage some companies to cheat. The
approach to comply with restrictions and commercial systems is to set up a type of
monitoring device that tracks greenhouse gas emissions from each organization. If there is no
approach to analyze who the market capitalization is, the government depends on the honor
system to facilitate the mitigation of climate change-related factors. In addition, ETS provides
an unpredictable cost system. Cap and trade works with the unregulated economy framework
to decide the last expense of credits. Organizations that require additional capitals because of
greenhouse gas emissions cannot allocate their costs effectively because no one knows what
the end costs will be. Lastly, there is no consistency available unless a global cap and trade
system is available. Method for cap and trade systems to work all around the world is for

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each country participating in the programs to operate in the same framework. If one country
allows greater pollution levels than another, the annual amount of greenhouse gases released
into the atmosphere may have little impact. Some companies may choose to be extremely
strict, whereas others may be lenient in order to achieve greater compliance before intending
to reduce the amount of carbon dioxide produced.

CARBON TAX
There are several advantages of carbon tax which encourages innovation in the alternative
energy sector. People are being advised to observe such effective ways to use energy. It is to
drive the businesses, individual consumers, and households in avoiding the carbon tax’s
expenses. Therefore, some people rather use their energy by walking as an alternative to go
work or by using bicycles instead of wasting their money to pay the fuel expenses. Next, The
carbon tax encourages positive lifestyle changes. The businesses and individuals might
literally use less of the energy commodities that obtain from fossil fuels, when the carbon tax
becomes active in a community. It is because they would rather change or use public
transportation which leads to less use of it, instead of driving to work which might raise the
use of energy. Moreover, a carbon taxation policy is predictable in its outcomes. The
cap-and-trade scheme can lead to price changes, which fluctuates with economic conditions
or weather patterns, when carbon tax uses this approach. Thus, this approach is stable
because it can be predicted in its final outcomes. Therefore, it helps or ease the businesses to
foresee the value of future investment by knowing the current price of carbon.

There are also several disadvantages of carbon tax which are regressive. Carbon tax is
regressive and it imposes a severe burden on low income communities since fossil fuels are
pricey. It is because they need to use their income on paying a high percentage of it for
necessities such as electricity, daily expenses and other. Next, unsustainable. The carbon tax
creates an artificial economic market that is not sustainable. Carbon taxes often apply when
triggering thresholds get reached through mining, production, or fabrication activities. Every
business receives an allowance by the government for the emissions they produce.
If an organization does not reach their threshold, some Carbon tax plans allow the extra
amount to be sold to more significant polluters, thus reducing their overall tax obligations.
That does not stop the responsibility of the consumer to pay the tax, which means companies
come out ahead, and local households get left behind.

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3.0 APPLICATION TO INDUSTRY

GENERAL APPLICATION - IMPLICATION EMISSION TRADING SCHEME

The first implication of ETS is to ensure environmental effectiveness. The goal of ETS is to
reduce emissions. Evidence from the existing system shows that even taking into account
external factors, emissions trading system policies are still promoting emissions reduction. In
a perfect emissions trading plan, the environmental effectiveness of the plan is determined by
the upper limit, and the effective allocation of resources is ensured by the exchange of
information between trading entities through price and market mechanisms. For example,
after the inclusion of international emissions trading in the Kyoto Protocol of the United
Nations Framework Convention on Climate Change, the emissions trading plan has received
special attention. Within this framework, considering that in addition to its member states, the
European Union (EU) is also a signatory to the Kyoto Protocol, the European Union has
decided to implement a community-wide emission trading scheme (EU ETS) for greenhouse
gas emissions.

Next, ETS also supports further public policy objectives by generating money to fund further
public policy priorities. ETS can raise extra government funds by auctioning credits, which
can then be used to invest in additional climate change, reduce other rates, or reward
low-income families or negatively affected communities. At the end of 2017, ETS
governments had amassed almost USD 35 billion in revenue from auctions. This statistic is
expected to rise as ETS coverage and the share of auctioned allowances expand. From the
beginning of auctioning to the beginning of 2018, the EU ETS raised more than USD 25.8
billion in auctioning sales, RGGI USD 2.8 billion, California USD 6.4 billion, and Québec
USD 1.6 billion.

In addition ETS makes economic sense by providing flexibility. This is due to the fact that
ETS helps businesses to choose whether and when to limit pollution. The cheapest reduction
solutions are chosen first. Furthermore, participants should minimise pollution where doing
so is the most cost efficient. The price signal produced by an ETS automatically adapts to
changing economic conditions, making pollution reductions less costly when the economy
slows and more expensive when the economy speeds up.

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Besides, in an economic sense ETS promotes low-carbon production by reducing pollution
associated with economic growth. Emissions trading promotes the transition to a low-carbon
economy and assists countries in transitioning away from a carbon-intensive growth
direction. Many jurisdictions that have an ETS are also moving toward more carbon-efficient
economies. For example, California's carbon intensity has decreased by 33% since its peak in
2001, while the state's economy has increased by 37% over the same time span. After the
implementation of ETS the state’s emission in the years between 2012 and 2015 fell
gradually as GDP, economy, and jobs increased.

Finally, the ETS encourages the use and development of low-carbon technologies. ETS
creates a carbon premium, which shifts business dynamics in favour of low-carbon
manufacturing practises, materials, and technology while also providing an impetus for
creativity. Evidence suggests that ETS leads to the deployment of market-ready low-carbon
technologies as well as close-to-market technical advancement. For example, studies also
show that ETS is driving innovation. According to recent studies, the EU ETS increased low
carbon patenting by managed firms by 10% relative to otherwise comparable firms.

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APPLICATION TOWARDS INDUSTRY - CALIFORNIA AIR RESOURCES BOARD

The California Air Resources Board (CARB) is a federal body responsible for shielding the
public from the adverse impacts of air pollution as well as implementing policies and actions
to combat climate change. This can be seen in everything from clean vehicle and fuel
standards to the adoption of creative ways to reduce greenhouse gas emissions. California has
pioneered a number of effective approaches that have set the standard for effective air and
environment systems around the country and around the world.

CARB's purpose is to develop and preserve public health, welfare, and natural wealth by
reducing air pollution effectively while understanding and considering economic
consequences. CARB is the coordinating department for climate change initiatives and is
responsible for overseeing all air emissions reduction activities in California in order to
achieve and sustain health-based air quality standards.

Hence, CARB has implemented ETS by introducing The Cap-and-Trade Program which is a
key element of California’s climate plan. In this program, It imposes a statewide cap on
sources responsible for 85 percent of California's greenhouse gas emissions, as well as the
price signal needed to accelerate long-term investment in renewable fuels and more
sustainable energy usage. The scheme is intended to give covering agencies the freedom to
search out and adopt the most cost-effective solutions for reducing emissions.

Moreover, the program's scope includes about 450 institutions in California. This service was
launched in 2013 for power generators and major manufacturing facilities. While in 2015, for
shipping, natural gas, and other petroleum distributors. As for 2014, California's initiative
collaborated with the Canadian province of Québec. Designed to connect with other states
and regions similar trade programmes.

Finally, the cap was set in 2013 at around 2% less than the projected pollution level for 2012.
This strategy reduced greenhouse gas emissions by about 2% in 2014, and it is expected to
reduce emissions by about 3% every year from 2015 to 2020.

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APPLICATION OF CARBON TAX

Impact on welfare

A carbon tax would raise the cost of using fossil fuels and any goods or services that follow.
Increased energy costs would increase costs for industry and households, resulting in lower
profits, wages, and consumption. Reduced carbon use, on the other hand, would lessen the
true costs of climate change and air pollution.

Primary consumers like oil and gas refiners, electric services and transportation face
increasing costs. This matter resulted in shifting the cost to the downstream consumers.
Means, the people that are really affected by the carbon tax are the consumers where they
need to pay a higher price for goods and services.

Consumers will suffer more of the carbon tax cost than investors and workers if demand for
goods is less elastic where the demand responds less to price changes than supply. A carbon
tax would be regressive, costing poorer households a larger portion of their income than
wealthier families, because low-income households use more energy-intensive goods than
wealthier families.

Effect of Carbon Tax on Country’s International Competitiveness

Companies that produce energy-intensive products are likely to be impacted by the

implementation of a carbon tax. First, it would raise their production costs, reducing their
competitiveness, particularly for companies that compete in worldwide markets and are
unable to quickly adapt to technological developments. Second, due to a loss of
competitiveness, many businesses would most certainly transfer to nations with less stringent
environmental legislation and worse enforcement.

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How does carbon tax affect companies?
In 2022, the Canadian carbon tax will be $50 per tonne. Costs will rise for industries that emit
greenhouse gases as a by-product of their operations. Some businesses can simply pass on the
expense to their customers. However, Agricultural Chemical Manufacturing, Petroleum and
Coal Product Manufacturing which competes with companies in other countries that do not
practice carbon taxes are unable to pass on such costs, hence lose a competitive advantage.As
a consequence, companies in these industries will relocate their investment and economic
prospects. Overall, the carbon price will have a different impact depending on the industry.
More trade-exposed industries are less likely to pass increased costs on to consumers. These
industries and the businesses that make up these industries must bear the additional costs,
resulting in lower profitability, weakened competitiveness, and a loss of investment. As a
result, the carbon tax would certainly have a major impact on tradable carbon-intensive
sectors' facility location selections in Canada.

APPLICATION TOWARDS INDUSTRY- TAIHEIYO, JAPAN

Taiheiyo Cement Corporation is a construction materials company based in Japan with

operations in China, Vietnam and the United States. It operates 30 cement plants and
limestone mines across the world. It has set a goal of reducing emissions of gas at individual
cement plants by 2025 by relying on the waste-derived fuels and biomass at the same time
reducing the usage of fossil fuels.

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4.0 CONCLUSION AND RECOMMENDATION

CONCLUSION

These issues are amenable to resolution by EMA. The accounting methods described above
will help EMA define and distribute environmental costs. There are also alternate methods
for estimating environmental costs, such as the environmental cost decision. The most serious
issue with EMA is the lack of a consistent understanding of environmental costs. As a result,
it is obvious that organisations are not tracking and documenting those expenses. If a broadly
defined definition of environmental costs is developed, EMA is likely to expand, with
beneficial consequences for both organisations and the community in which they work. In the
future, not only big corporations would be able to afford to incorporate EMA, but also small
to medium-sized businesses with limited financial capital.

RECOMMENDATION

Although these environmentally responsible firms are aware of the necessity of

environmental conservation and, in some circumstances, use environmentally conscious
practises, financial considerations are always the primary focus. Companies are prepared to
use EMA-related instruments if the financial benefits outweigh the risks. If a country is
serious about achieving sustainability, the federal and state governments, businesses, and
other stakeholders must work together to ensure that environmental protection and economic
well-being coexist. The government must play a role in providing help and clear regulations
for businesses to follow. Financial institutions should also make certain that only ecologically
feasible initiatives and capital investments are approved. Furthermore, the general population
should be aware of and assert their rights in order to achieve long-term well-being.

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overview.pdf

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