MANAGEMENT AND ENVIRONMENTAL DEGRADATION ACCOUNTING:

The main cause of environmental degradation world over has been the relentless industrialization resulting in the release of huge amount of effluents, emission of various chemicals and creation of hazardous wastes by industrial units endangering quality of life and unmindful of the future social and economic consequences of their managerial decisions. This necessitated a global movement for environmental protection, the beginnings of which can be traced to the Stockholm Declaration in 1972, followed by Vienna Convention for the Protection of Zone Layers in 1985 and the signing of Montreal Protocol in 1987 to reduce the layer of Ozone Depleting Substances (ODS) from atmosphere.

The movement truly gathered momentum after the hugely successful First International Earth Summit in 1992 in Rio de Janeiro, with more than hundred heads of nations attending and signing the United Nations Framework Convention on Climate Change (UNFCCC) and the Convention on Biological Diversity (CBD). The aim was to stabilize the density of greenhouse gases, especially carbon dioxide, whose increase triggered Global Warming and the attendant climate change issues. Sustainable development since then has become an ubiquitous theme of discussions the world over. The buzzword today is Kyoto Protocol of 1997 under which the signatory countries have agreed to accept Environmental Degradation Accounting (EDA) as a mandate for action. As of November 2007, 175 countries including Brazil, China and India have ratified the Kyoto Protocol signifying that EDA has now become an essential feature of environmental policies of most governments of the world.

ACCOUNTABILITY

Currently, the phrase Corporate Environmental Responsibility (CER), like Corporate Social Responsibility (CSR), has attained ethical overtones in the pronouncements of industry leaders. Corporate releases often make it a point to express their allegiance to the CER concept out of a sense of duty, if not a sense of guilt. It is agreed by all that economic growth is accompanied with increase in industrial production, rise in income levels and greater exploitation of natural resources as raw matter; but unhappily it also brings with it the curse of environmental degradation irrespective of whether the country is developed or developing. It is the industrial organizations which are both the ‘users’ and ‘polluters’ of environment and they spoil the quality of air, water and land disfiguring landscapes, distorting skylines and debasing water bodies in the process. Obviously they have to be held answerable for their sins of commission and omission.

The damage to environment has serious implications for human life: for instance, air pollution can cause serious health problems affecting work efficiency of people, increasing medical care expenses and causing loss of earnings. Water pollution – both surface and ground – due to discharge of unprocessed effluents may pose health hazards.. River and sea water contamination due to oil spill can affect fish yield and production of other sea foods. Deforestation and stone quarrying can lead to soil erosion and destruction of ecological balance. Degradation issues like green house effect, destruction of rain forest, acid rain, floods and hurricanes, irreversible depletion of natural resources and high levels of all kinds of pollution therefore need to be accounted for in terms of their social and economic costs. It is also incumbent to fix the moral responsibility for ecological damage control and mitigation.

METHODOLOGY OF ENVIRONMENTAL ACCOUNTING

It has to review activities which affect the environment by continuously gathering relevant data and information about the company’s environment related assets and liabilities.

Difficulty arises in imputing monetary values to loss of welfare associated with pollution of air, water, soil or sunlight. Specialized valuation techniques have been evolved for this purpose, although they have their own limitations. Most cost benefit analyses follow the method of shadow pricing under which values are assigned for items having no market price. Shadow price techniques certainly need to be adopted to fix monetary denominations for items of environmental degradation.

Environmental accounting is done in three stages (i) a comprehension of the business environment (ii) identification of impact of industrial activities on environment and (iii) the determination of environmental costs and expenditure for inclusion in financial accounts.

EVIRONMENTAL REPORTING

One of the important tools of environmental management is the Annual Report of a company incorporating and disclosing all activities having environmental implications. The Report has to be published and circulated by the company to all its stake holders with in order to communicate and furnish to them details of pollution effects of the company’s activities along with various measures adopted by it to mitigate the adverse effects. The Report has also to delineate company’s policy regarding environment protection and the specific areas where it may have failed to make amends. It has to provide information on compliance with government legislation on the use of clean technologies, trademark and discharge of effluents, disposal of waste material, ventilation for light and air, noise reduction – in short, all measures relating to safety and health of the workers and the welfare of local community.

The report has to carry quantitative information about the total expenditure incurred by it item wise for the protection or improvement of environment both within the company premises and the surrounding area, as also an assessment of the costs and benefits of having an environmental budget. In fine, the company should disclose in its report both the positive and negative impact of its activities on environment,

REGULATORY FRAMEWORK

In India, due to increased public outcry and also judicial intervention, the attitude towards compliance of environmental, health and safety regulations by companies has undergone a favourable change in recent times. The regulatory provisions laid down under various Acts like Factories Act (1948), Water (Prevention and Control of Pollution) Act (1974), Air (Prevention and Control of Pollution) Act (1981), Environment (Protection) Act (1986), Hazardous Wastes (Management and Handling) Rules (1989/2000), Manufacture, Storage and Import of Hazardous Chemicals Rules (1989), Public Liability Insurance Act (1991), Bio-medical Wastes (Management and Handling) Rules (1998), Noise (Regulation and Control) Rules (2000), Ozone Depleting Substance ( Regulation and Control) Rules (2000), Chemical Accidents (Emergency Planning, Preparedness and Response) Rules (1996), and such other Rules relating to explosives, petroleum, electricity, boilers, diesel engine emissions etc have all been updated from time to time in conformity with world standards.

The government has specified the obligations and responsibilities of companies in regard to limit of discharge of pollutants, furnishing of information to prescribed agencies, permission of entry by officials for inspection and collection of samples, submission of Environmental Statements and obtaining of prior clearances for new projects or modernization and expansion of projects. The government is also encouraging the integration of environmental issues at the planning stage of a plant as also the use of pro-active compliance related tools like voluntary agreements and charter on corporate environmental responsibilities

In 1994, the Government of India had issued a notification requiring industries to undertake Environment Impact Assessment (EIA). It had also issued a list of 29 categories of polluting industries needing special attention. For purpose of illustration, an effort has been made here to throw light on the environmental performance of two industries viz. steel and cement which are included in the polluting category.

INDIAN STEEL INDUSTRY

The Steel Industry today is having a good time with private and public sector units enjoying greater volume of turnover, better capacity utilization and higher sales and profit margins. Global market conditions are also favorable with great upsurge in steel consumption by sectors like construction, real estate, infrastructure and transportation.

The National Steel policy, announced by Government of India on 3rd November 2005, aims at modernizing the steel industry to global standards by improving efficiency and productivity in all areas of operation including environmental management. It is notable that in the post deregulation period 1991 onwards, the private sector has expanded much faster than the public sector in terms of capacity creation and today it accounts for 59 percent of country’s total crude steel output and 71 percent of finished steel output. Currently, India is the largest producer of sponge iron in the world thanks to rapid expansion in the small scale coal based units.

Considering the industry from the environmental point of view, concern is often expressed about the relative neglect of Research and Development by our steel industry resulting in non-application of such technologies as are relevant to our natural resources endowment and which could minimize the damage to environment. The priority areas where R&D efforts need to be directed are effluent control in coke ovens, development of technology for ultra low carbon dioxide steel making, waste recycling and utilization, reduction of power consumption etc. The National Task Force for steel industry on environment, constituted by the Government of India in 1989, had identified certain critical areas for R. & D. with a view to optimize raw material consumption, minimize generation of pollution and also energy consumption. The idea was to make the whole process of steel making more eco-friendly.

Steel making is basically an energy intensive process. The Indian plants consume energy in the range of 6.45 – 8.5 giga. cal per tonne of crude steel, while the world consumption norm is 4.5 – 5 giga cal. We therefore need to evolve energy- saving and conservation technologies and put them to use urgently. Re-use of internally generated fuel gases or utilization of waste gas can help in minimizing energy consumption.

Green House Gas (GHG) emissions are a matter of great concern for the steel industry it being the third largest contributor of GHG in India. Our steel plants emit an average of 2.7 tonne of carbon dioxide per tonne of crude steel as against a Japanese and German plant average of less than 1.5 – 1.8 tonne. The sulphur oxide and nitrogen oxide emissions are also much higher in India and need to be reduced through desulphurization of fuel gases and use of efficient combustion system.

The steel industry should hitherto be more resourceful in the utilization of raw materials and in waste minimization. The generation of slag in blast furnace and steel smelting operations needs to be further reduced. Ways and means should be found for recycling of wastes like sludges and dusts through import of technology from other countries. By the end of Eleventh Five Year Plan the estimated dust emissions from steel production overall are feared to rise to over 500 tonnes per day. This needs to be brought down by installing high efficiency fabric filters.

The Report of the working group on steel industry for the Eleventh Five Year Plan states that recycling of steel is environmentally friendly and since steel is 100% recyclable and maintains its properties through successive product cycles without loss of quality, it can be recycled unlimited number of times. Recycling can also help avoid environmental degradation involved in iron ore mining operations. Of course, recyclability will depend very much on the availability of used steel.

Progressive manufacturers of steel in India are nowadays trying to improve their environmental performance by following the currently available Integrated Management Systems like: for Quality (ISO 9001), for Environment (ISO 14001), for Safety and Occupational Health (OHSAS 1800) and for Social Accounting (SA 8000). The government has in recent years introduced several laws pertaining to Handling of Hazardous Wastes, Application of Emission Standards and Corporate Responsibility for Environmental Protection (CREP)

According to the Working Group Report, the technology initiatives of Indian steel industries include: Environmental Accounting, Carbon Accounting, Life Cycle Analysis (LCA), Eco-restoration of Degraded Land, Phasing out Ozone Depleting Substances (ODS), Clean Technology Development, Greenery Development etc.

The costs of installation of measures for pollution control, energy conservation and safety and health are generally high and have to be borne by the industry in the interest of social good. A right strategy needs to be evolved for controlling various physical hazards in the form of noise, vibration, heat stress, dust stress and radiation, chemical hazards caused by inhaled gases, fumes, vapors, asbestos etc, safety hazards from electrical, mechanical or pneumatic sources of energy and accident hazards caused by cranes, hoists, falling weights etc, with the help and advice of experts and in keeping with the legislations enacted by Central and State Governments.

INDIAN CEMENT INDUSTRY

The Indian Cement Industry made up of 125 large and over 300 small plants and having an installed capacity of 165 million tonnes enjoys the second largest market, next to China. Although the dominant players have brought about consolidation of units, the industry still remains pretty fragmented. The industry was freed from price and distribution regulations in 1989 and subsequently de-licensed in 1991.

Production of cement takes place in five stages: (i) quarrying, (ii) preparation of raw mixture from limestone in silo, (iii) kiln processing, (iv) grinding in clinker silo with flash ash and blast furnace slag as additional material, and (v) The packing and transportation of cement to end-user or consumer.

The energy intensive character of cement industry and the release of heat and significant amounts of carbon dioxide have serious Global Warming implications. The manufacturing process releases oxides of nitrogen (NO and NO2), dust including PM10, mercury, cadmium, carbon monoxide, sulphur dioxide and green house gases like carbon dioxide and nitrogen dioxide. The environmental degradation caused by all these pollutants has a material impact on air quality, land quality, habitats, biodiversity and human health. The transportation of cement either in bulk or in bag packs – the latter being the normal mode of delivery in developing countries – also causes air borne pollution in the form of dust. Besides, noise and vibration is caused while operating heavy machinery and blasting in quarries. In fact, all stages of cement production – sourcing of raw materials, on-site manufacture and distribution to the end user – have the potential to exert pressure on environment.

It is time we in India learn from the happenings in China where a study of air quality in the heavily industrialized Pearl River Delta Region of Southern China has revealed that cement factories have given rise to a choking pollution that blankets the entire region. The construction materials including cement have contributed heavily in terms of sulphur dioxide, nitrogen dioxide, ozone and soot in the air. Similar exposure to hazardous air pollutants in our country can cause untold permanent harm to the health of not only our factory workers but also the community in the surrounding region.

Environmental damage by cement industry can be mitigated by using new equipments to reduce dust emissions during quarrying and manufacturing, using modern technology to trap and separate exhaust gases, by returning closed down quarries to nature or re-cultivating them. Concentrations of CO2 and SO2 could be periodically measured through tests for emissions and kept under control as per the government regulations.

The CO2 emissions, which are the main culprit in global warming, need special attention.. They fall in 3 categories (i) those derived from de-carbonization of limestone, (ii) from kiln fuel combustion and (iii) produced by transport vehicles within the plant and outside as part of distribution chain. The typical value worldwide for CO2 from category (i) is 0.50 kg of CO2 per kg of cement, from category (ii) it is 0.24 kg of CO2 per kg of cement in the case of an efficient plant, and for category (iii) it is insignificant at 0.002 – 0.005. All the three add up to around 0.80 kg of CO2 per kg of finished cement. Similarly the typical energy consumption in cement production is around 90-150 KWh per tonne of cement. With the use of hydro-electric or nuclear power and introduction of efficiency in manufacturing, the energy consumption can be brought down to a sufficiently low level.

Data available for the years 1991, 1992 and 1993 for CO2 emissions in India vs. Best Practice give some idea of the relative position. As can be seen, our CO2 emissions at least during the 1991-93 period were higher than the Best Practice.

Carbon Dioxide Emissions in Cement Production: India Vs Best Practice

Tonne Co2 per tonne cement

1991 1992 1993

India 0.86 0.91 0.89

Best Practice 0.63 0.63 0.63

Source: Katja Schumacher and Jayant Sathaye E.O.L.A.N. Laboratory Berkeley, USA (1999)

Happily the Indian Cement Industry today is seized with the problem. Since the wet process consumes excessive energy, 96.3 percent of the cement kilns have now switched to using the energy efficient dry process for clinker production and the wet process is gradually getting phased out. Shift to low carbon fuels, application of alternative waste fuels like lignite, pet coke, tires, rice husks, groundnut shells as substitute for coal in cement kilns, are some of the emission mitigation measures which are being adopted by the industry today.

The Indian cement industry is actively pursuing policies which improve productivity and energy efficiency. Technology is being upgraded in all sections of plants like quarrying, manufacturing, equipment and machinery, packaging and transportation. Detailed diagnostic studies of production processes and energy audits are being carried out. The Central and State Pollution Control Boards have laid down standards for CO2 emission levels at different stages of manufacture and the industry is cooperating in sheer self-interest.

SUMMING UP

There are two ways in which environmental degradation can be dealt with: either the companies or authorities should try to prevent it before it happens, or reverse it once it has happened. This is what is meant by avoidance and restoration. However, managerial decisions in regard to measures of avoidance and restoration need the support of dependable data from company’s environmental degradation accounts. The crux of the matter therefore is a faithfully carried out evaluation of environmental performance of the company and its proper audit from the angle of pragmatically applicable laws and regulations laid down by government for the corporate sector.

Mandatory corporate environment accounting statements can alone reflect the environmental losses, costs and liabilities of a company and help in allocation of investment to salvage the situation. It is time the government agencies, regulatory bodies and accounting associations come together to evolve a fool proof system of proper disclosure of environmental degradation accounts based on well formulated guidelines for measurement, costing and appraisal..

The first thing to do in laying down guidelines is to explain how the environmental effects can be identified and then measured and reported in the statement. The second is to spell out how to allocate for hidden environmental costs. It is also necessary that an exhaustive inventory of cost related items like liquid effluents treatment, waste gas, solid waste, recycling, safety measures, preventive devices, employee training for environmental awareness, R&D costs of innovation of environment-friendly processes and products is also prepared . In a parallel step, the environmental benefits of new processes or products, and other fiscal benefits etc. should also be quantified to complete the accounting exercise.

In fine, corporate environment accounting statements should have the quality of transparency, inclusiveness, neutrality, accuracy and audit ability to make them purposive and meaningful.

REFERENCES :

Dr. Bhabhatosh Banerjee, 2006, Corporate Environmental Accounting and Reporting, the Chartered Accountant, April 2006. Dr. Bhaskar Bora, ‘Environmental Accounting for Sustainable Development: A Case Study of Proposed Seismic Survey of Oil in Assam, North-Eastern India

http://ne-cord.org/.

-Environment Agency, November 2005, Measuring Environmental Performance, Sector Report for Steel Industry, Bristol, U.K. Global Reporting Initiative (GRI) Guidelines, June 2000 Jonathan Reuvid (Ed),2007, Sustainable Enterprise – Profiting from Best Practice, Simmons and Simmons, London Katja Schumacher and Jayant Sathaye, July 1999, India: Cement Industry: Productivity, Energy Efficiency and Carbon Emissions, E.O.L.B.N. Laboratory, Berkelay, USA . Planning Commission, G.O. I., 2007, Report of the Working Group on Steel Industry for the Eleventh Five Year Plan (2006-2011) Quality Council of India, Workshop on Auditing for EHS Legislation Santimoy Patra: Accounting and Reporting for Environment – A Case Study of TISCO Siddhartha Mitra, “An Accounting Framework for Environmental Degradation: An Attempt to Bridge Gaps in EKC Literature” www.ssrn.com Swapna Mujumdar, 2005: Heard of Green Accountancy?” Women’s Feature Service, http://www.infochangeindia.org Wikipedia, the Free Encyclopedia, Portland Cement A Report by Crisil for IAEF (India Brand Enquiry Foundation)

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