Why the secrecy on company emissions?

The transparency of reporting on companies’ emissions in Australia is completely inadequate. Justifications for this secrecy don’t add up.

Data around firms’ emissions for the prior financial year were released yesterday as part of the Government’s National Greenhouse and Energy Reporting System. The figures are highly aggregated, with data reported only at the level of the controlling corporation. Data should instead be provided by an individual physical facility – such as a power station, chemical plant, metal smelter or mine – where it is a significant emitter or energy user.

To illustrate with an example, in relation to Rio Tinto you get just one single line of data, which covers a myriad of businesses and assets across several industry sectors including coal mines, iron ore mines, smelters, and alumina refineries. At this level of aggregation, trying to detect trends and patterns or assess the performance of facilities within the same industry is near impossible. A range of corporates’ emissions have substantially increased and some have decreased by as much as 20 per cent compared to the prior reported year, but trying to pinpoint reasons for the change requires extensive investigation.

It could be that emissions have grown because the firm’s individual facilities have become less energy-efficient, providing reason for concern. It might actually be that the firm is improving its efficiency, but one particularly emissions intensive section of the business has grown more quickly, or they’ve acquired a new business, or built a new plant. This is a real problem because it prevents the kind of effective external scrutiny essential to ensuring efficient markets and government policy.

To allocate capital efficiently between firms, equity analysts need to evaluate how the carbon price will affect the relative competitiveness of firms’ underlying assets (factories, steel mills, mines etc.), including benchmarking their emissions efficiency in producing products. Participants in the carbon market need to evaluate how production decisions in various firms and industries will impact on supply and demand for emissions permits and credits. Some claim that this is unimportant because the aggregate emissions are what ultimately drive markets. But this completely ignores the need for investors to evaluate impacts well before aggregate data becomes available (the government publishes estimates of aggregate emissions data by very broad categories on a quarterly basis but with significant lags). It also doesn’t take into account the fact that investors don’t just care about the current year, they want to be able to project into the future.  This requires a good understanding of the underlying physical assets which produce the emissions.

People external to government and emitting firms will also have a greatly enhanced capacity to scrutinise the effectiveness and efficiency of the carbon pricing scheme if they have access to data by facility. Over the past five years businesses have been making all kinds of claims about how the sky will fall in the moment they are required to pay a fee for polluting. As a consequence they have received generous allocations of emission permits for free. When the data is aggregated by firm it’s really hard to evaluate the genuine extent to which a carbon price might impact on employment and the viability of production activities in Australia. This is because whether a plant stays open or shuts is not a function of the performance of the firm as a whole, but rather the cost competitiveness of that individual plant relative to other plants that produce the same product. Emissions data by individual production plant will also give us a much better idea of where and how we are reducing emissions in the economy.

So there are important benefits from publishing emissions data by facility and the justifications set out below for keeping the data secret simply don’t add-up.

It is vital to our competitiveness that the data is kept secret.

This argument doesn’t wash for the vast majority of facilities because either:

1) The carbon price is such a small proportion of their overall cost structure that it is almost immaterial to competitiveness; or

2) Their competitors already have a very good idea what their emissions intensity and production levels are. Most major emitting facilities in Australia have been around for a long time and are well understood by competitors and often information is available in the public domain about emissions, albeit not in one easy to access location. Also new facilities have typically had to disclose emissions estimates in order to obtain environmental and planning approvals. Businesses make it their business to know what their competitors are up to and can afford to spend the resources to find out. But noting and interpreting this information for those outside the industry is far more difficult.

It would be administratively onerous

Again complete nonsense as the data has to be entered into the NGERs reporting system on a facility-by-facility basis anyway. It would be a matter of simply pushing a button on a keyboard to report NGERs data by facility.

Under the US EPA’s emissions reporting program and the European emissions trading scheme, emissions data are publicly accessible on a facility-by-facility basis. There are very good reasons for why this should be the case in Australia.