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The Environment, Climate Change and Carbon Markets 

Although the environment has been a traditional driver for responsible business, climate change will drive a new generation of responsible organizations into action. Aspects to be addressed include:

Emissions and Inventories, Trading and Offsetting, Accounting and Disclosure, GHG Management Systems, IT, and Data, Financial and Tax Incentives, Compliance and Certification, Eco-efficiency (Water, Waste, Energy, Emissions), and Protecting and Preserving Biodiversity.

Emissions and Inventories
Climate change presents one of the greatest environmental challenges of the 21st century. Greenhouse gas (GHG) emissions are widely accepted as a contributing factor to climate change, and the emissions reduction debate challenges Canadian organizations to respond with innovative and environmentally intelligent solutions.

The world's attention is tuned to the Copenhagen Climate Change Summit, which will take place in December 2009. This summit will be the stage for the development of a post-Kyoto climate treaty, and hopes are high for success since President Barack Obama stated intention to achieve an 80 percent GHG emissions reduction by 2050. As the American administration rapidly navigates policy development to achieve this target, the business world is gearing up for changes in regulation, which will likely result in a framework that will regulate GHG emissions and cover up to 85 percent of the American economy. The Canadian government's formal response to climate change will likely take into consideration the choices of the American administration in order to achieve homogeny throughout North American markets.

From a business perspective, the approach to building objectives and achieving reductions stems from an organization-wide inventory of emissions. It is the first step in the process of identifying, monitoring, and reducing the organization's emissions, and fundamental to the development of a climate change strategy.

A strategic approach to reducing emissions can change the way an organization thinks about regulation and participation in climate initiatives by promoting the investigation of opportunities to reduce emissions and by aligning emissions reduction objectives with core business objectives.

Trading and Offsetting
The complex assortment of regulatory and voluntary frameworks in North America are supported by fully functional carbon markets, which are continually growing in importance and size as talk of regulation gains momentum. These markets create tremendous challenges and opportunities for all organizations in Canada, as they fundamentally change the way organizations will plan and conduct business in a carbon sensitive world.

The successful approach to creating a carbon strategy that benefits both the organization and the environment will depend on an organization's ability to identify and mitigate risks, and create opportunities to reduce emissions through both emissions trading and technology development. Offsetting is one of the many ways an organization can achieve its reduction objectives; however, given the lack of clear federal regulation in this area, the balance of credits and offsets can create real risk for organizations participating in carbon markets.

Organizations gaining experience in these markets today are preparing for the future and building the knowledge and technology that will solidify their position as leaders in the low carbon economy.

Accounting and Disclosure
Regulation is, at the moment, a few paces behind action. Leaders in sustainability and those wishing to gain experience in the low carbon economy have been reporting and valuing the risks and opportunities presented by carbon markets. Given the lack of formal accounting guidance, the integrity of information being reported is at risk, creating challenges for shareholders, investors, and other decision makers.

It is important that organizations begin to understand how this can impact financial statements from a variety of perspectives, such as:

• Timing of recognition of assets, liabilities, profits, and losses
• Measurement of balance sheet items at nominal value, cost, or fair value
• Current and deferred tax implications
• Presentation and disclosure.

Assurance is a measure that can increase the confidence decision makers have in the information presented, in light of the variety of accounting treatments and methods currently used. Given the growing importance of these issues, it is essential that rigorous methods are applied in their evaluation and verification.

GHG Management Systems, IT, and Data
Regulatory uncertainty and ever-growing public demand for a response to climate change can create many opportunities for proactive organizations to become leaders in carbon management. Data management software can enhance the scope, quality, and ease of emissions data capture and analysis, and can reduce the administrative burden on employees. It can also enable the identification of activity-based emissions reduction opportunities, such as those associated with a specific operation or function. By tracking emissions on a micro level, inefficiencies are quickly identified.

These types of systems form a fundamental part of a Carbon Reduction Strategy, as they create auditable data and enable tracking of performance against objectives.

Within a more broad scope, Environmental Management IT systems can facilitate the tracking and reporting of company-wide environmental Key Performance Indicators (KPIs). They can also help an organization gain control of environmental information and analyze costs associated with KPI performance, reduce error and risk, and simplify processes.

Financial and Tax Incentives
Whether operating in voluntary or regulated markets, many organizations are approaching the GHG reduction challenge by:

• Exploring operational changes to reduce GHGs
• Investing in existing plant and equipment
• Acquiring assets with inherent GHG reduction potentials
• Purchasing or trading in emission allowances or carbon credits.

Organizations participating in clean technology experimental development may qualify for the Scientific Research and Experimental Development (SR&ED) federal tax incentive program, which is aimed at encouraging and supporting innovation in technology. Should expenditures qualify as SR&ED, even if capital in nature, they could be eligible for current deduction and may qualify for investment tax credit treatment. This tax credit could apply to GHG emissions reduction activities that involve the systematic search for new knowledge (i.e., scientific research) or for new or improved capabilities, products, or processes (i.e., experimental development).

By having a thorough knowledge of the various aspects of the SR&ED program rules, your company can take advantage of the tax benefits associated with experimental development activities.

Compliance and Certification
Regulators are increasingly implementing audit-based approaches to monitor compliance with regulation as a cost-effective solution to gaining regulatory oversight with limited staff resources.

As the methods of regulatory oversight change and new regulation is introduced, organizations have an increasing need to effectively manage exposure to regulatory issues.

Some of the most important issues to consider include a management system assessment, training, and certification, in order to meet the requirements of nationally and internationally recognized standards, including broadly applicable quality, environmental, occupational health and safety, and forest management standards.

Eco-efficiency (Water, Waste, Energy, Emissions)
Before climate change took the lead in the environmental debate, organizations were tasked with reducing the environmental impact of operations by enhancing eco-efficiency and reducing raw materials consumption. By moving beyond concern to action, and in an effort to achieve operational eco-efficiency, organizations are now able to lower costs and offer alternative products and services by protecting the environment and reducing the use of scarce natural resources.

A number of different approaches, including employee education, supplier management, procurement policies, changes to the energy mix, and the use of clean technology, have tremendous impact on the ability of an organization to reduce their consumption of scarce natural resources and become more eco-efficient.

Protecting and Preserving Biodiversity
The care and protection of biodiversity are critical elements of a sustainable future for all organizations. Organizational values and policies that create the framework for the protection and preservation of biodiversity can help reduce, or, where possible, entirely prevent the impact caused due to operations. By doing this, the organization is inherently recognizing the value of biodiversity, and by making explicit commitments to its protection and preservation, defining appropriate action that guides future decision making.

Initiatives designed to benefit both the organization and the environment drive innovation by encouraging the development of technological solutions that reduce environmental and biodiversity impact, while simultaneously creating value within the organization. The promotion of education and awareness, coupled with conservation and restoration projects, aid by allowing the organization to enhance the impact of its commitments both internally among employees, and externally among stakeholders and community members.