Students will work in Groups of 3 as assigned to the specific paper in a topic. My paper is Examining distinct carbon cost structures and climate change abatement strategies in CO2 polluting firms. Us

Design/methodology/approach–A triangulation of quantitative and qualitative data collected from Slovenian firms that operate in the European Union Emissions Trading Scheme has been deployed.

Findings–CO 2polluting firms exhibit differing carbon cost structures that result from distinctive drivers of carbon consumption (product output vs capacity level). Climate change abatement strategies also differ across carbon-intensive sectors (energy, manufacturing firms transforming non-fossil carbon-based materials, and other manufacturing firms) but are relatively homogeneous within them.

Practical implications–From a managerial perspective, the study demonstrates that carbon efficiency improvements are generally not effective in triggering corporate CO 2emission reduction when firms pursue a growth strategy.

Social implications–Global warming signifies that CO 2emissions constitute a social problem. The study has the potential to raise societal awareness that the causality of the manufacturing sector’sCO 2emissions is complex. Further, the study highlights that while more efficient use of environmental resources is a prerequisite of enhanced ecological sustainability, in isolation it fails to signify improved ecological sustainability in manufacturing operations.

Originality/value–The paper has high originality as it reports one of the first management accounting studies to explore the distinction between combustion- and process-related CO 2emissions. In addition, it provides distinctive support for the view that eco-efficiency is more consistent with the economic than the environmental pillar of sustainability.

KeywordsSustainability, Climate change, Eco-efficiency, Carbon intensity, Carbon efficiency, Cost drivers Paper typeResearch paper 1. Introduction A key characteristic of polluting firms concerns their dual output. As a by-product of producing“planned for”products and services, most firms also produce undesirable outputs. The planned for products or services (e.g. electricity, heat, cement, and steel) can be termed a“positive output”, and undesirable by-products, such as CO 2emissions that have a degrading impact on the environment (Karl and Trenberth, 2003), can be termed a “negative output”(Burnett and Hansen, 2008; Tyteca, 1996).

Since halting the growing environmental, social, and economic threats associated with global warming (Stern, 2007) will require a significant (and rapid) reduction of total CO 2 emissions (Meinshausenet al., 2009; Ramanathan and Feng, 2008), regulatory intervention Accounting, Auditing & Accountability Journal Vol. 30 No. 5, 2017 pp. 1041-1064 © Emerald Publishing Limited 0951-3574 DOI 10.1108/AAAJ-03-2015-2009 The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0951-3574.htm 1041 Carbon cost structures consistent with this objective is rising worldwide (Cook, 2009; McNicholas and Windsor, 2011).

While many countries have introduced some form of carbon tax (Andrewet al., 2010), there is also an increasing international interest in the introduction of emissions trading initiatives that particularly target large CO 2emitting sectors (Braun, 2009). Such carbon regulation is defining a new role for managers and management accountants. In addition to their traditional cost and revenue management analytical domains, they are now increasingly called upon to allocate resources using algorithms that recognise complex climate change issues (Howard-Grenvilleet al., 2014; Milne and Grubnic, 2011).

A quest for corporate ecological sustainability involves an appropriate alignment of strategy, structure, and management control systems (Bebbington and Thomson, 2013; Gondet al., 2012). A key sustainability focus in carbon-intensive firms (firms with a high incidence of CO 2emissions) concerns their reduction in CO 2emissions and a quest for heightened carbon efficiency (Hoffmann and Busch, 2008; Mir and Rahaman, 2007; Virtanen et al., 2013), the latter representing a particular dimension of eco-efficiency (Figge and Hahn, 2013). In light of management accountants’close involvement in seeking greater production efficiencies, their pertinence to promoting eco-efficiency appears as a natural corollary (Bouten and Hoozée, 2013; Burnett and Hansen, 2008). This corollary is underscored by eco-efficiency theory proponents who argue that an increase in ecological efficiency can trigger the double dividend of reduced costs as well as lower pollution (Al-Tuwaijriet al., 2004; Burnett and Hansen, 2008; Ferreiraet al., 2010; Figge and Hahn, 2013; Henri and Journeault, 2010; King and Lenox, 2002; Porter and van der Linde, 1995).

Yet eco-efficiency, which is a form of productive efficiency, is essentially a relative concept (Figge and Hahn, 2013; Tyteca, 1996). If a firm’sCO 2emissions are largely driven by its production capacity (Banker and Johnston, 1993; Leitch, 2001), as opposed to its product output volume, increases in product output will improve productive efficiency (costs per unit) and ecological efficiency (emissions per unit of positive output) automatically, irrespective of changes in total pollution emissions. An example of production capacity representing a driver of CO 2emissions is evident in manufacturing facilities that are heated through the burning of a fossil fuel such as gas. In such situations, the larger the facility to be heated, the larger the production of CO 2emissions. While cost driver analysis has a long tradition in the accounting literature (Foster and Gupta, 1990), to our knowledge this is the first study to examine the drivers of carbon-based resource consumption and the resultant carbon costs.

The main factors determining the size of a company’s carbon footprint are its product output volume, production capacity levels, and technology (Hoffmann and Busch, 2008; Milne and Grubnic, 2011). Since most businesses pursue a growth strategy (Baumet al., 2001), polluting firms confront a fundamental paradox: how to increase positive output levels while at the same time decreasing negative outputs (Arrowet al., 1995). The only way to attain both goals concurrently is through the adoption of improved technology (Tavoniet al., 2012).

However, such technology is often expensive, entails long implementation lead times or is yet to be commercialised (Blanford, 2009; Pinkse and Kolk, 2010; Sandoff and Schaad, 2009).

In effect, economic growth (Milne and Grubnic, 2011; Stern, 2011; York, 2012) and a lack of radical innovation to facilitate transition to a low-carbon society (Blanford, 2009; Tavoniet al., 2012) are the main reasons for the continuing rise of CO 2emissions across developed and under-developed countries (IPCC, 2014; Olivieret al., 2012).

The relationship between product output, carbon costs, and CO 2emissions is not uniform across carbon-intensive firms, however. The study reported herein investigates two propositions concerning relationships between these variables. The first proposition concerns the effect of positive output volume on CO 2emission levels. The magnitude of this effect is contingent upon what constitutes the primary carbon-based resource consumption driver. When positive output volume is the main driver, carbon-related costs 1042 AAAJ 30,5 (and resulting CO 2emissions) are largely variable. Whenproductioncapacityisthemain driver, carbon-related costs (and resulting CO 2emissions) are largely fixed (Banker and Johnston, 1993; Leitch, 2001).

The second proposition concerns companies’propensity to adopt distinctive CO 2 emission abatement strategies. It is proposed that such strategies are moderated by the interaction of two variables that collectively define a firm’s potential to reduce its level of CO 2emissions. The first variable is“deficiency gap”. This concerns the difference between a firm’s existing carbon intensity levels and its potential carbon intensity levels should it deploy all advanced technologies (Berroneet al., 2013). The second variable is the primary driver of carbon consumption (positive output volume vs production capacity level).

Four distinct contributions to the management accounting literature arise from the study. First, following calls for an inter-disciplinary integration of technical and managerial aspects of emissions management (Bebbington and Thomson, 2013; Milne and Grubnic, 2011; Virtanenet al., 2013), the study is one of the first management accounting works to examine the distinctiveness of combustion and process-related CO 2emissions.

Second, it identifies distinct carbon cost structures in CO 2polluting firms that arise from distinct drivers of carbon-based resource consumption. Third, it identifies diverse CO 2 emission abatement strategies across carbon-intensive sectors. Fourth, from a theoretical perspective, it demonstrates that eco-efficiency is a necessary, but not a sufficient, condition for reducing CO 2emission levels. The study provides support for Owen’s (2008) somewhat provocative view that eco-efficiency is more consistent with the economic than the environmental pillar of sustainability. This is because it has been found that increased production often signifies decreased emissions (and by implication, cost) per unit, whereas it rarely signifies decreased total emissions.

The remainder of the paper is organised as follows. The next section overviews the study’s literary context. This is followed by a section that develops the study’s propositions.

Then, the research method is described and the findings are outlined. Finally, a discussion of the study’s findings and their implications is provided in the concluding section.

2. Review of the climate change and accounting literature A long standing interest in environmental issues has been manifested in the accounting literature (Gray, 1992; Mathews, 1997). A particular interest in corporate environmental sustainability has become increasingly evident (Bebbington and Thomson, 2013; Gray, 2010; Lee and Wu, 2014; Thomsonet al., 2014; Thoradeniyaet al., 2015) and we have witnessed the coining of“sustainability accounting”as a generic term (Burritt and Schaltegger, 2010). In addition, specialist journals in the field have emerged (e.g.Sustainability Accounting, Management and Policy Journal, launched in 2010). It is somewhat paradoxical that an enhanced appreciation of sustainability issues is contemporaneous to a continuing increase, not a decline, in ecological problems (Whitemanet al., 2013). A parallel to this juxtaposition is apparent in Shrivastava’s (2010) comment:“the more I know about sustainability, the greater my eco-print grows”.

A particular prerequisite for ecologically sustainable management is the embedding of sustainability within the strategic objectives of organisations and the appropriate alignment of their strategies, structures,and management controlsystems (Bebbington and Thomson, 2013; Gondet al., 2012; Hopwood, 2009). Since progress towards ecological sustainability requires functional coordination, integrated performance metrics, and shaping motivations, the accountants’skill-set appears highly pertinent to the task at hand (Burritt, 2012). Accountants’contribution has so far been modest, however (Hopwood, 2009). This appears to be for a number of reasons that include the paradigmatic distinction between emerging environmental considerations and conventional accounting practice (Burritt and Schaltegger, 2010; Hopwood, 2009), 1043 Carbon cost structures the trans-disciplinary nature of environmental problems (Burritt, 2012; Virtanenet al., 2013), complexities endemic to developingenvironmental performance measures (Cooper and Pearce, 2011; Virtanenet al., 2013), a managerial predilection towards short-term economic orientations relative to long-term sustainability outcomes (Boston and Lempp, 2011; Hartmannet al., 2013; Mir and Rahaman, 2007), as well as theoretical challenges relating to alternative conceptualisations of accounting for sustainability (Bebbington andThomson, 2013; Gray, 2010; Thomsonet al., 2014).

Climate change is a key environmental issue that has been extensively addressed in this literature (Linnenlueckeet al., 2015; Milne and Grubnic, 2011). The importance of this topic is evident from the attention afforded to it by many leading accounting journals, such as the Accounting, Auditing and Accountability Journal(special issue on climate change, greenhouse gas accounting, auditing and accountability in 2011),Accounting, Organizations and Society(special issue on accounting and carbon markets in 2009), Critical Perspectives on Accounting(special issue on accounting for global warming in 2008), and theEuropean Accounting Review(special issue on accounting and the market of emissions in 2008).

Climate change-related accounting is concerned primarily with CO 2emissions, which is often referred to as carbon accounting (Ascui and Lovell, 2011; Hartmannet al., 2013; Lee, 2012). Carbon accounting research is fast growing and somewhat eclectic. Most studies have been published in non-accounting journals, with a substantial proportion appearing in theJournal of Cleaner Production(Vestyet al., 2015). Since this is an inter-disciplinary journal and because the term is used extensively across different disciplines, it is unsurprising that there has been some inconsistency in the way that the term“carbon accounting”has been interpreted (Stechemesser and Guenther, 2012). Some divergency in the term’s usage is also apparent in the accounting literature (Ascui and Lovell, 2011; Bowen and Wittneben, 2011).

The most prolific carbon accounting literary stream focusses on CO 2emission reporting and disclosure (Cotteret al., 2011; Cowan and Deegan, 2011; Kolket al., 2008; Liesenet al., 2015; Matsumuraet al., 2014; McNicholas and Windsor, 2011; Rankinet al., 2011; Ratnatungaet al., 2011; Solomonet al., 2011). Another significant stream of enquiry focusses on carbon markets, emission allowances, and compliance issues (Bebbington and Larrinaga-Gonzalez, 2008; Chappleet al., 2013; Cook, 2009; Engels, 2009; Lohmann, 2009; MacKenzie, 2009).

Relative to these literary streams, there has been a notably scant level of environmental accounting enquiry undertaken from a management accounting perspective (Burrittet al., 2011; Hartmannet al., 2013). This appears as surprising when one recognises that decisions on carbon technology investment, pursuit of carbon efficiency optimisation, and passing on the cost of carbon regulation to consumers, all require the development of financial information for management (Ratnatunga and Balachandran, 2009). Further, the consumption of carbon-based resources signifies a direct (carbon-based resource usage) and indirect (purchasing emission allowances) financial cost to a firm (MacKenzie, 2009).

The need for financial information in connection with climate change-related corporate decision making would appear to be most evident in carbon-intensive firms. This stems from the increasing pressure placed on such firms to scale back their carbon emissions, due to a growing societal view that global warming represents one of the most profound long- term challenges confronting mankind (Ramanathan and Feng, 2008).

Despite the dearth of management accounting research related to climate change, some pertinent research is starting to emerge. For instance, Engels (2008) observed managers in about two-thirds of European carbon-intensive firms to be unfamiliar with the costs of reducing CO 2emissions in their company. Virtanenet al.(2013) demonstrated how technically under-developed performance indicators have impeded energy efficiency management in a Finnish petrochemicals manufacturer. Burrittet al.(2011) reported that 1044 AAAJ 30,5 leading German firms are yet to realise the potential of carbon accounting to translate physical CO 2-related information into financially denominated information. Lee (2012) observed the use of eco-control to provide quantified emission information pertinent to Korean car manufacturing firms’decision making. Relatedly, Vestyet al.(2015) observed that the quantification of the volume of gas emissions and its subsequent translation to a dollar value has further mobilised the work of managers involved with carbon-related decisions. These studies point to the potential of the management accounting perspective to provide information pertinent to climate change-related decision making. Ratnatunga and Balachandran (2009) see strategic management accounting as particularly apt for this task, due to its distinct long-term outward-looking orientation (Cadez and Guilding, 2008).

It appears, however, that this potential remains largely unrealised.

One management accounting perspective that can be taken on climate change concerns the promotion of more carbon efficient production processes. Carbon efficiency (or inverse indicator carbon intensity), in general, concerns minimising the ratio of carbon emissions relative to a business metric (Figge and Hahn, 2013; Hoffmann and Busch, 2008; Virtanenet al., 2013). While carbon emissions are typically measured in tons, business metrics are much more diverse, including units of production, materials usage, energy usage, sales, profit, market capitalisation, amongst other things (Hoffmann and Busch, 2008). Carbon efficiency representsa sub-theme of eco-efficiency which is concerned with optimising the volume of economic returns relative to environmental resource usage (Burnett and Hansen, 2008; Figge and Hahn, 2013).

Prior research suggests that carbon-intensive firms’process efficiency improvements tend to occur in a marginal and symbolic manner (Blanford, 2009; Cadez and Czerny, 2016).

These typically occur at operating levels that can be complicated by complexities such as the interdependence of different processes and an inability to control firm-level efficiency factors, such as capacity utilisation rates. Such complexities can significantly impede efforts directed to carbon-input efficiency management (Virtanenet al., 2013).

Considered coordination of carbon management initiatives at the firm level appears to be critical to efforts directed to reduce worldwide CO 2emissions (Tang and Luo, 2014).

Such initiatives can concern decisions relating to scale (output volume, capacity levels) and technology (Hoffmann and Busch, 2008; Milne and Grubnic, 2011). These issues are pertinent to the propositions developed in the next section.

3. Proposition development Unlike the establishment of threshold quotas, market-based instruments enable CO 2 emitting companies to seek cost-effective strategies for complying with environmental regulation by giving them the flexibility to seek a technology and output level that optimises the trade off between higher revenues from increased positive output levels and lower costs associated with reduced negative outputs resulting from decreased production levels. Key to such a strategy formulation is striking the right balance between investments in CO 2 abatement and paying for CO 2emissions (Fanet al., 2013; Sandoff and Schaad, 2009).

In a regulated environment that is pursuing a reduction in total CO 2emissions through initiatives such as the European Union Emissions Trading Scheme (EU ETS), polluting firms can pursue one of three alternatives while maintaining compliance: implement new technology and/or processes consistent with reducing CO 2emissions; reduce positive output levels (and, by implication, negative output levels); or maintain the status quo and pay for their CO 2emissions. All three alternatives involve trade-offs between economic and environmental concerns. Option 1 has the potential to reduce a firm’s carbon footprint; however, it can signify a large investment outlay for the firm (Blanford, 2009). Option 2 is economically inefficient, and in some scenarios it would be detrimental from an environmental perspective. It would be detrimental if the production is merely transferred or 1045 Carbon cost structures outsourced to another country that has relatively low technology and environmental standards, as this would result in even higher total CO 2emissions for equivalent levels of output (Kuik and Hofkes, 2010). Option 3 can be costly for a firm and it is inconsistent with the overall objective of reducing a firm’s total emission levels.

From an economic and environmental perspective, it would be most desirable if a cost-effective solution enabling pursuit of alternative 1, to the point where CO 2emissions are reduced to 0, can be found, as it would signify the simultaneous achievement of economic and environmental objectives (Reid and Toffel, 2009). Realisation of such a panacea currently appears to be little more than a theoretical conjecture, however. Current market, regulatory and technology conditions do not provide sufficient incentives for the type of radical innovation required (Neuhoff, 2005; Petkovaet al., 2013; Pinkse and Kolk, 2010).

Determination of the options available to a firm that is interested in reducing its CO 2 emissions become particularly evident from the following functional equation that is designed to capture the determinants of CO 2emission levels:

CO 2emission levels¼fQ C T ðÞ This equation is intended to depict the notion that CO 2emission levels are a function of product output volume (denoted byQ), capacity level (denoted byC) and technology (denoted byT), and that these three causal factors can interact with one another in determining CO 2emission levels.

Product output volume, which is determined by a firm’s overall business strategy, determines resource consumption levels (Foster and Gupta, 1990). Carbon-based resources that release CO 2emissions into the atmosphere as they are transformed during a production process can be categorised according to two main types: fossil fuels (e.g. coal, oil, and natural gas) and other non-fossil carbon-based materials (from now on“other CBM”, e.g. limestone and iron ore).

The type of carbon-based resource consumed defines the type of emission released.

Combustion emissions result from burning fossil fuels due to the exothermic reaction of the fuel with oxygen. The principal source of combustion emissions is the energy-generating sector, in particular coal-fired power plants (Oliver, 2008). However, combustion emissions also occur in the manufacturing sector (e.g. a pharmaceutical company’s heating plant).

Process emissions do not result directly from combustion processes, they are emissions resulting from reactions between substances, or their transformation in manufacturing, such as in the production of cement, iron and steel, lime, glass, ceramic, pulp, and paper (IPCC, 2007). A major source of process emissions is the calcination of limestone to make cement and lime (Benhelalet al., 2013; Worrellet al., 2000). For example, when calcium carbonate is heated in a kiln, it is converted to lime and carbon dioxide. The lime is combined with other materials to produce clinker (an intermediate product from which cement is made), while the carbon dioxide is released into the atmosphere (Gibbset al., 2000; Worrellet al., 2000). Unlike combustion emissions, process emissions occur mainly in the manufacturing sector.

The relative magnitude of each source of CO 2emission is evident from Table I, which presents data for the EU ETS. In this context, combustion emissions represent 73 per cent of total CO 2emissions. The remaining 27 per cent are process emissions, mainly from cement and lime production, mineral-oil refining, and iron and steel production.

Capacity level can also determine the volume of resource consumption (Banker and Johnston, 1993; Leitch, 2001). Cadez and Czerny (2010) analysed a large manufacturing firm that had maintained a stable level of total CO 2emissions over an extended time period that coincided with major changes in production volume, but no changes in technology. In this firm, natural gas (a fossil fuel) was used to heat its large manufacturing facilities. It was 1046 AAAJ 30,5 found in this firm that the consumption of fossil fuels was not driven by variations in output, but by production capacity.

The third factor captured in the CO 2emission-level determination equation is technology.

Even highly homogeneous products, such as electricity, can be produced using different technologies. These different technologies can be classified according to two main categories: traditional carbon-based technologies and low-carbon technologies (Edenhoferet al., 2009; Neuhoff, 2005). While the energy sector is still heavily reliant on traditional carbon-based technologies (e.g. coal burning), there are several low-carbon technologies (e.g. nuclear, solar, and wind) available today (Oliver, 2008).

An important concept relating to technology is the deficiency gap. As already noted, the deficiency gap refers to the difference between a firm’s current carbon intensity levels and its potential carbon intensity levels, assuming the application of best available technology.

This concept acknowledgesex anteheterogeneity across firms, or in other words, their different starting positions due to past managerial decisions, institutional contexts, and factors unrelated toafirm’s environmental stance, such as inertia or bad luck (Berroneet al., 2013).

The deficiency gap concept is pertinent for firms operating in the traditional carbon paradigm, as well as firms operating within a low-carbon paradigm. For example, the energy sector which is still heavily reliant on low energy-value coal and out-dated boilers (Edenhoferet al., 2009), offers significant potential for emission reductions through relatively marginal improvements, such as switching fuels (e.g. natural gas instead of coal) and/or installing more efficient boilers (Oliver, 2008). The deficiency gap concept, when considered within the carbon paradigm, defines the potential to lower total CO 2emissions through more efficient use of carbon-based resources (as opposed to their complete abandonment, as in a low-carbon paradigm).

This study’s first proposition concerns the effect of product output volume change on the consumption of carbon-based resources (carbon cost structure) and resultant CO 2emissions.

Figure 1 depicts the driver of carbon-based resource usage (product output volume vs capacity level) as moderating the relationship between product output volume and CO 2 emission levels.

Sector Installations in % Emissions in % Combustion installations a 67 73 Mineral-oil refineries 1 7 Production of iron and steel 2 6 Production of cement and lime 5 9 Manufacture of ceramic 9 1 Manufacture of pulp and paper 7 2 Other 9 2 Total 100 100 Note: aThe combustion installations sector includes installations for the public supply of heat and electricity as well as installations in various industrial sectors Source:EEA (2013, p. 21) Table I.

European Union ETS sectors’installations and emissions for the 2008-2012 period Product output volume change Main driver of carbon-based resources usage (product output volume vs capacity level) Change in CO 2 emissions Figure 1.

Theoretical model 1047 Carbon cost structures In some production processes the product output volume is the main driver of carbon-based resource usage. This would appear to be the case in manufacturing firms that transform other CBM. For example, if more cement is manufactured, more calcium carbonate (i.e. limestone) is transformed, which carries the by-product of more CO 2emissions (Benhelalet al., 2013; Gibbset al., 2000). Energy-generating firms that are based on the consumption of fossil fuels would appear to have a similar carbon-based cost structure (and therefore driver of CO 2emissions). An energy-generating firm that operates a coal-fired power plant requires more coal to be burned if it is to produce more electricity (Oliver, 2008).

In effect, if the volume of production is the main driver of carbon-based resource consumption, carbon-related costs and resultant CO 2emissions are largely variable.

As already noted, in some production processes, however, the main driver of carbon-based resource usage is production capacity, not product volume. In such cases, emissions can only be reduced significantly if entire plants or operations are closed down. For these types of operation, carbon-related costs and resulting CO 2emissions are largely fixed (within the relevant range).

In many firms, both the product output volume and production capacity-level drivers of CO 2emission levels can be expected to be present. This is particularly the case in many manufacturing firms that transform other CBM, as many of these firms require also heat or electricity as a critical resource. For example, in cement manufacture, calcium carbonate is usually heated by burning fossil fuels, hence both process and combustion emissions are released in the production process (Benhelalet al., 2013; Gibbset al., 2000; Worrellet al., 2000). In effect, process emissions (and underlying carbon costs) respond to changes in product output, while most combustion emissions (and underlying carbon costs) do not.

The responsiveness of total carbon costs and CO 2emissions to changes in product volume depends on the relative proportions of process and combustion emissions involved in a production process.

Consistent with this discussion, we posit the following proposition:

P1.Distinctive drivers of CO 2emissions signify that carbon-intensive firms can be differentially classified according to the following three sectors: energy sector (where the main CO 2emission driver is product output volume); manufacturing sector transforming other CBM (where the main CO 2emission drivers are product output volume and capacity level); and other manufacturing firms (where the main CO 2emission driver is capacity level).

The second proposition concerns corporate CO 2emission abatement strategies. It is believed these strategies are affected by the interaction of two variables: the deficiency gap within the carbon paradigm; and the main driver of carbon-based resources consumption.

The combustion emission deficiency gap appears to be highly variable across industry sectors (energy vs manufacturing). The energy sector has often been characterised as relatively inefficient (high combustion deficiency gap), as it continues to be highly reliant on low energy-value coal and out-dated boilers (Edenhoferet al., 2009; Oliver, 2008). The high combustion deficiency gap of this sector combined with the variable nature of its combustion emissions (driven by product output volume) suggests that this sector has the potential to realise significant carbon efficiency gains and reductions in CO 2emissions through relatively marginal improvements such as switching fuels (e.g. black coal instead of lignite) and/or installing more efficient boilers (Oliver, 2008). Accordingly, we anticipate that firms in the energy sector will have a strategic focus that emphasises the exploitation of fuel switching advances as well as seeking more efficient production infrastructure.

For the manufacturing sector that transforms other CBM, both combustion and the process deficiency gap are highly pertinent. In terms of combustion, many firms in this sector already deploy the best available technology, i.e. burning natural gas in highly efficient boilers 1048 AAAJ 30,5 (Cadez and Czerny, 2010; Edenhoferet al., 2009; Markovic Hribernik and Murks, 2007), suggesting a low combustion deficiency gap. In terms of processes, Worrellet al.(2000, 2001) and Benhelalet al.(2013) explored options to lower CO 2emissions in cement and steel manufacturing processes, the two main sources of process emissions. They found that with current technology, the potential to lower process emissions per unit of positive output is fairly low, implying also a low process deficiency gap. A low process deficiency gap in combination with the variable nature of process emissions (driven by product output volume) suggests that this sector is relatively constrained both in attempts to improve carbon efficiency and total CO 2emission reduction with respect to process emissions. Furthermore, a low combustion deficiency gap in combination with the fixed posture of combustion emissions (driven by capacity level) also suggests limited potential to reduce total combustion emissions.

Firms in this sector can, however, improve carbon efficiency from combustion by seeking to lower their ratio of combustion emissions per unit of positive output.

Other manufacturing firms (not transforming other CBM) also exhibit a low combustion deficiency gap (Cadez and Czerny, 2010; Edenhoferet al., 2009; Markovic Hribernik and Murks, 2007). Low gap combined with the fixed nature of combustion emissions (driven by capacity level) suggests little scope for total CO 2reduction. A viable strategy is improving carbon efficiency by lowering the quotient of combustion emissions per unit of positive output.

Consistent with this rationale, and aligned toP1, we conjecture that distinct CO 2 emission abatement strategies across the three carbon-intensive sectors can be summarised in the following manner:

P2.Emission abatement strategies pursued in CO 2polluting firms focus on: improving carbon efficiency and reducing total CO 2emissions in energy sector firms; improving carbon efficiency (from combustion, but not processes) in manufacturing sector firms that transform other CBM; and improving carbon efficiency in other manufacturing firms.

4. Research design Quantitative and qualitative methods have been deployed to collect data that can shed light on the viability of the propositions developed. This signifies that a degree of data triangulation has been achieved. This triangulation facilitates consideration of the extent to which proposition testing using one data collection approach can be corroborated using data collected using a distinctly different approach.

The main advantage of quantitative analysis is potential generalisation of conclusions across populations (Hairet al., 1998; Hsiao, 2003). This is particularly desirable in this study for, as the label implies, global warming is a global issue (Meinshausenet al., 2009).

The quantitative analysis has involved an empirical examination ofP1via a panel regression analysis of archival data for Slovenian carbon-intensive firms included in the EU ETS.

The period examined in this analysis is 2007-2012. The main advantage of qualitative methods is a deeper understanding of complex interactions (Eisenhardt, 1989; Hoqueet al., 2013).

The qualitative phase has involved collection and analysis of interview data in six Slovenian carbon-intensive firms that are included in the EU ETS.

4.1 Data collection Quantitative archival data for product output volume were provided by the Agency of the Republic of Slovenia for Public Legal Records. Data for CO 2emissions were provided by the Agency for the Environment of the Republic of Slovenia. Although the National Allocation Plan for phase 2 of the EU ETS (from 2008 to 2012) comprised 94 Slovenian carbon-intensive 1049 Carbon cost structures installations, complete data were only available for 76 firms. The other 18 firms are either no longer in business or the pertinent data were not available. The sector distribution of these 76 firms is presented in Table II. The distribution is similar to the overall distribution of EU firms presented in Table I, with the majority of firms operating“combustion installations”.

Qualitative data were collected from several sources, including interviewing managers responsible for climate change and carbon management issues in selected firms. We focussed on the largest CO 2polluters, as a result of the view that they would have the richest data concerning the subject under examination. Following Eisenhardt’s (1989) suggestion of pairing cases that represent polar opposites with respect to whatever issue is under examination, we identified three company pairings drawn from each of the proposed carbon-intensive sectors (i.e. electricity vs heat; cement vs steel; insulation materials vs drugs).

We identified target interviewees within these six companies on the basis of their involvement with carbon management issues. All interviews were conducted at the companies’premises and audio recorded. The interview protocol was semi-structured, focussed on different aspects of corporate CO 2abatement strategies. The average interview duration was around 90 minutes.

Interviews were transcribed and translated into English by a bilingual native Slovenian.

A description of the companies representedin the interviews is provided in Table III.

In reviewing the transcripts we focussed on points of difference across the distinct sectors. Comparison is the dominant principle of the analysis process in qualitative research (Boeije, 2002; Glaser and Strauss, 1967). Since qualitative analysis suffers from the validity threat of researcher bias (Mertens, 2004) considerable effort was made to undertake the analysis objectively. When comparing interviews within and across groups, we compared Sector Number of installations % of installations Combustion installations–energy sector 9 12 Combustion installations–manufacturing sector 42 55 Mineral-oil refineries 0 0 Production of iron and steel 6 8 Production of cement and lime 5 7 Manufacture of ceramic 4 5 Manufacture of pulp and paper 9 12 Other 1 1 Total 76 100 Table II.

Slovenian sample’s alignment to European Union ETS sectors Case firm symbol Company descriptionSales revenues in€million 2012Average annual CO 2 emissions 2008-2012 in tonnesRelative proportion of process emissions (%) E1 Coal-fired power plant 242 4,300,824 0 E2 Coal-fired heat and power plant62 769,556 0 MP1 Cement manufacturer 68 423,819 70 MP2 Steel manufacturer 150 87,055 40 a MC1 Insulation materials manufacturer70 81,724 0 MC2 Pharmaceuticals manufacturer932 23,710 0 Notes: aThis proportion is relatively low for the steel manufacturing process because the company uses scrap steel as an input. Recycling steel is less carbon-intensive than primary manufacturing from iron ore Table III.

Description of the companies represented in the interviews 1050 AAAJ 30,5 fragments from interviews that concerned the same theme, as themes function as criteria for the systematic comparison of interviews (Boeije, 2002). The key themes examined were determined by the study’s propositions, i.e. relationships between positive and negative outputs and also CO 2emission abatement strategies.

4.2 Model and variable measurement for P1 Total CO 2emissions have been measured in terms of tonnes per annum. Securing a measure of product output volume proved to be more challenging, however. The preferred measure in carbon intensity studies is units of production (Hoffmann and Busch, 2008). This measure is problematical, however, when considering firms across diverse industries that produce very different products. Further, units of production are often not disclosed by firms. In light of this, consistent with the suggestion of Hoffmann and Busch (2008), sales revenue has been adopted as the proxy for output. In order to eliminate firm size effects and also potentially problematic outliers (Hsiao, 2003), the relative growth rate of both variables has been calculated. Hence, the panel model that we test is:

DCO 2it ¼aþb DSR itþe it whereΔCO 2it¼(total emissions t total emissions t 1 )/total emissions t 1 ;ΔSR it¼(sales revenue t sales revenue t 1 )/sales revenue t 1 ;i¼firm;t¼year.

Four variations of the model have been tested. The overall model includes all 76 sampled companies. Three sub-models have been tested for each carbon-intensive sector separately.

The energy sector is represented by nine firms (see Table II). Manufacturers of iron, steel, cement, lime, ceramic, and pulp and paper (25 firms in the sample) represent firms that transform other CBM. The remaining 42 manufacturing firms represent a variety of manufacturing subsectors.

5. Findings 5.1 Panel data analysis The results of the panel data analysis are presented in Table IV. The first data column in Table IV provides the results of fitting the regression equation to the entire sample.

This formulation reveals a degree of statistically significant association between the two outputs (po0.01). The regression coefficient is 0.12, signifying that a 1 per cent change in sales revenue triggers a 0.12 per cent increase in CO 2emissions. It is noteworthy that the explained variance of this model is only 7 per cent.

This general relationship masks, however, the different impacts of sales revenue on CO 2 emissions across the different carbon-intensive sectors that make up the whole sample.

For the energy sector (sub-model 1), the proportional changes in sales revenue are almost Parameter Overall modelSub-model 1 energy sectorSub-model 2 manufacturing firms transforming other CBMSub-model 3 other manufacturing firms Firms (observations) 76 (380) 9 (45) 25 (125) 42 (210) a(intercept) 0.03** 0.07 0.06** 0.02* b(coefficient) a 0.12** 1.01** 0.62** 0.05* F-value 25.36 11.54 128.66 5.39 R 2 0.07 0.36 0.51 0.02 Notes:CBM, carbon-based materials. aCoefficientbis interpreted as follows: a value of“1”indicates a symmetrical relationship, i.e. a 1 per cent change in positive output causes a 1 per cent change in negative output; a value of“0”indicates no relationship. *po0.05; **po0.01 Table IV.

Results of the panel data analysis for the period 2007-2012 1051 Carbon cost structures symmetrically related to proportional changes in CO 2emissions, (po0.01) and the model’s explained variance is strong at 36 per cent. For the manufacturing sector involved in transforming other CBM (sub-model 2), the relationship between the two outputs is fairly strong (po0.01). A 1 per cent increase in sales revenue results in a 0.62 per cent increase in CO 2emissions, and the explained variance of sub-model 2 is 51 per cent. Conversely, for other manufacturing firms (sub-model 3), while there is a statistically significant relationship between sales revenue and CO 2emissions, the size of the impact that sales revenue changes have on CO 2emission changes is small. A 1 per cent increase in sales revenue results in a 0.05 per cent increase in CO 2emissions and the explained variance of sub-model 3 is only 2 per cent. Overall, the coefficients in the three sub-models supportP1.

We also depict the relationships between sales revenue (positive output) and CO 2 emissions (negative output) graphically in Figure 2. It is striking how a parallel can be drawn between Figure 2 and cost behaviour graphs provided in the normative accounting literature (Horngrenet al., 2014) in order to highlight distinctions between variable, semi-variable, and fixed costs.

5.2 Interview findings The two companies drawn from the energy sector are the biggest CO 2emitters in Slovenia.

E1, the nation’s largest coal-fired power plant, is solely responsible for about half of Slovenia’s total CO 2emissions included in the EU ETS. E2 provides heat for Ljubljana, the nation’s capital.

Although E1’s representative indicated that the company’s management endeavours to reduce total emissions, he provided a strong affirmation that the relationship between electricity output and CO 2output is almost proportionate in the short term. E2’s representative provided similar insights. He provided a strong suggestion that the CO 2 emissions/heat output relationship is relatively fixed in the short term.

With respect to CO 2emission abatement strategies, in E1 reductions in total emissions are sought via changes in fuel used and technology improvements. At the time of the interview, E1 had recently pursued significant initiatives along both dimensions. With respect to fuel used, in 2008 the company’s two oldest lignite-fired boilers (capacity 2×30 MWh) were replaced by natural-gas-fired boilers (capacity 2×42 MWh) which enabled lower CO 2 CO 2 Q Energy sector Manufacturing combustion Manufacturing processes Figure 2.

Observed relationships between changes in positive and negative outputs across carbon- intensive sectors 1052 AAAJ 30,5 emissions for given levels of electricity output. Also in 2008, the company started co-burning biomass with lignite, which reduced total emissions by 2.3 per cent. In terms of technology, E1 is currently finishing a€1.3 billion investment in a new 600 MWh boiler that will replace all of the current out-dated lignite-fired boilers still in operation (a combined capacity of 695 MWh). This investment will secure the same electricity output with about 30 per cent lower total CO 2emissions, despite usage of the same fuel (lignite). In the interviewee’swords,“this is a substantial improvement in carbon efficiency”.

Despite notable efforts to cut total CO 2emissions, the interviewee noted a paradoxical dynamic that was inhibiting the company’s capacity to reduce CO 2emissions: Our plant traditionally burns local lignite from the next-door mine. The local lignite is low in quality and energy value and so we could substantially improve our carbon efficiency by using higher quality imported coal. The lignite is, however, the only domestic source of primary energy, thus the national energy strategy calls for the further burning of this coal because it reduces our dependence on imported primary energy. E2’s representative also contended that the only option to lower emissions is to change the fuel used or technology. E2 started the journey of seeking lower CO 2emissions more than a decade ago, primarily by switching fuels. The interviewee referred to three major initiatives that had been implemented. First, in 2002 the company had switched from dirty and low energy-value local lignite to cleaner and higher energy value imported black coal. Second, they had subsequently introduced co-burning of coal and biomass, which is considered to be carbon-neutral. Third, at the time of the interview, E2 was investing in a new natural-gas- fired boiler (capacity 60-90 MWh) to replace two out-dated coal-fired boilers. It was noteworthy that E2’s representative noted that while switching fuels had substantially reduced E2’sCO 2emissions, he felt the potential to achieve further process improvements was shrinking significantly.

The next two companies examined represent heavy industry. They involve a mix of process and combustion emissions. MP1 is a cement manufacturer and ranks as Slovenia’sfourth largest CO 2emitter. MP2 is a steel manufacturer and is Slovenia’s seventh largest CO 2emitter.

MP1’s representative emphasised that his company is highly environmentally conscious.

He noted though that fluctuations in his company’sCO 2emissions in recent years were largely attributable to changing levels of cement production (cement production was severely affected by the broad collapse of the construction industry in Slovenia during the 2009 global financial crisis). MP2’s representative also noted that his company maintains a continual vigilance forwaystoreduceCO 2emissions. To support this, he presented detailed carbon efficiency calculations dating back to 1986. In the 2000-2008 period, MP2 improved its carbon efficiency from 0.73 to 0.61 tonnes of CO 2emissions per 1 tonne of steel output. This indicator deteriorated in 2009 due to a steep reduction in steel output (by 50 per cent) not mirrored by the same relative decline in CO 2output (by 20 per cent). At the time of the interview, the ratio was moving back to its 2008 level. Aside from 2009 and 2010, MP2’s total CO 2emissions had been fairly stable for the ten years prior to the interview. This is because improvements in carbon efficiency had been offset by increased levels of steel output.

The efforts of MP1 to reduce CO 2emissions have been focussed almost exclusively on combustion emissions. For example, shortly prior to the interview they had introduced highly efficient boilers and started co-burning waste and biomass. Although further cuts in combustion emissions could be achieved by replacing coal with natural gas, the MP1 representative noted that this was not economically viable, as gas represented a more expensive form of fuel. MP1 had directed little effort to reducing process emissions, however, as is evident from the interviewee’s comment: Lowering process emissions is far more difficult and we yet have to bite into this apple […] A radical innovation to cut process emissions would be to invent a substitute for cement. 1053 Carbon cost structures Unlike MP1, MP2’s representative contented that his firm was already operating with the best available technology in terms of combustion emissions (burning natural gas), hence further efficiency improvements from combustion are unlikely. Similar to MP1’s interviewee, the MP2 interviewee felt there were unlikely to be any improvements made with respect to process emissions. He commented: A deliberate decrease in process emissions per unit of output is almost impossible with the current state of technology. The two manufacturing firms that do not transform other CBM are multinationals that operate under internationally recognised brand names. MC1 is a subsidiary of one of the world’s leading manufacturers of insulation materials. MC2 is one of the world’s leading generic drug manufacturers.

The representatives of MC1 and MC2 indicated that their companies’CO 2emission levels were more or less fixed. Both felt that their companies were applying best available technology, having switched to state-of-the-art natural-gas-fired steam boilers before the EU ETS was introduced. The interviewees claimed these boilers were operating at maximum efficiency. The MC2 interviewee commented: Although our total emissions were almost constant throughout the 2008-2012 period, we see this as a great success. During this period, we roughly doubled our sales and opened some new facilities, yet managed to keep total emissions stable. These interviewees also expressed similar views with respect to the management of CO 2 emissions. Both interviewees indicated that there was minimal scope for any further CO 2emission reductions with the current state of technology. The MC2 interviewee did acknowledge, however, that one option to further cut emissions would be to introduce solar panels, but he noted:

This is close to impossible with the current state of technology, due to the sheer size of our manufacturing complex and also because the installations are running non-stop. It was evident that both companies were highly focussed on optimising carbon efficiency/ intensity by minimising CO 2emissions per kg of output. The interviewee in MC1 indicated that this focus was not ecologically motivated, it stemmed from cost minimisation interests, as energy use represents a significant cost for the company. The interviewee in MC2 on the other hand indicated that ecology is also a notable motivation.

The primary findings emanating from theinterviews are summarised in Table V.

Essentially, qualitative observations concernedwith the dual output relationship are consistent with findings from the panel data analysis, thus providing additional support forP1.

As a validation of the qualitative findings, Table V also provides quantitative indices for positive and negative output performance levels for the period 2008-2012 (and also a derived carbon intensity index) for the six companies examined. As is evident from this table, although all examined companies have improved their carbon intensity (CI indexo100), only two companies also managed to lower their total CO 2emissions (NO indexo100). These indices also represent a corroboration of the study’s qualitative findings.

6. Discussion and conclusion Despite continuing warnings from the scientific community with respect to the social and economic implications of global warming, anthropogenic carbon dioxide emissions continue to rise, even in many developed countries (IPCC, 2014; Olivieret al., 2012). While there has been some technological innovation consistent with less and more efficient use of carbon-based resources (Blanford, 2009; Oliver, 2008; Tavoniet al., 2012), continued worldwide economic growth continues to escalate anthropogenic carbon dioxide emissions (Stern, 2011; York, 2012). 1054 AAAJ 30,5 This study contributes to our understanding of how different technological processes signify different drivers of carbon-based resource consumption (carbon costs), CO 2emissions, and corporate strategies concerned with efficient carbon management across carbon-intensive sectors. The study draws considerable novelty from the fact that despite growing interest in the climate change issue, there has been scant empirical research on CO 2emissions conducted from a cost management perspective. The study is believed to represent the first management accounting work to explore the distinction between combustion- and process-related CO 2 emissions. The view that eco-efficiency is more consistent with the economic than the environmental pillar of sustainability, represents a further distinctive facet of the study.

The study provides support for the view that the relationship between economic growth and CO 2emissions is not uniform across carbon-intensive firms, rather it is moderated by the main driver of carbon-based resource usage. It appears industries can be identified where product output volume has a major impact on CO 2emission volume. In other industries, however, it appears the main driver of fossil fuel usage (and hence combustion emissions) is capacity, not product output.

The data triangulation approach undertaken can be seen as a key facet of this study.

The extent to which this approach produced consistent findings across the two data collection methods deployed can be most easily assessed by comparing the analysis of the quantitative data reported in Table IV with the qualitative data observations reported in Table V. Table IV reveals that the highest degree of causality between sales revenue and CO 2emissions was in evidence in the energy sector (sub-model 1). The second highest degree of causality was found in the manufacturing sector involved in transforming other CBM (sub-model 2), and the weakest degree of causality was found for other manufacturing firms (sub-model 3). This ranking of the three sectors is replicated in Table V. In Table V, the revenue impact on CO 2emissions is assigned a“very strong”standing for the two energy firms examined, a“moderate”standing for the two manufacturers transforming other CBM and a“weak”standing for the two firms representing the other manufacturing sector.

From a cost and management accounting perspective, these findings provide useful insights into differential carbon cost structures across industries. Carbon-based resource consumption not only triggers undesirable emissions, it also signifies the incurrence of a financial cost. Although this study’s focus has been directed to the CO 2emission quantum component (not the financial cost component) associated with carbon-based resource consumption, insights concerning carbon cost structures are nevertheless evident. When consumption of carbon-based inputs is driven by product output, carbon costs are largely Actual performance index 2012/2008 CompanySales impact on CO 2emissions Observed climate change abatement strategy PO NOCI¼NO/ PO E1 Very strong Installing more efficient boilers, partially switching fuel 107.7 103.5 95.7 E2 Very strong Fuel switching, installing more efficient boilers 104.0 88.1 84.7 MP1 Moderate Combustion emissions: more efficient boilers Process emissions: no action taken99.7 85.4 85.6 MP2 Moderate Combustion emissions: operate with BAT Process emissions: no action taken128.1 104.3 81.4 MC1 Weak Operate with best available technology (BAT) Improving carbon efficiency367.7 105.0 28.5 MC2 Weak Operate with best available technology (BAT) Improving carbon efficiency175.2 107.6 61.4 Notes:PO, positive output; NO, negative output; CI, carbon intensity Table V.

Summary of the qualitative findings 1055 Carbon cost structures variable (in the energy sector). When carbon-based resource consumption is driven by capacity, the costs are largely fixed within a relevant range (in manufacturing firms not transforming other CBM). When carbon-based resource consumption is driven by both product output levels and capacity, carbon costs are semi-variable, i.e. they depend on the relative mix of resources used (in manufacturing firms transforming other CBM).

These findings are consistent with prior investigations that hold that cost drivers in the corporate context can be classified as output volume based or capacity based (Banker and Johnston, 1993; Leitch, 2001).

As a relative methodological novelty, this study investigated carbon cost drivers in a sample of companies that are similar in terms of resource consumption, not in terms of product offerings. Prior empirical studies concerned with identifying cost drivers have mainly investigated samples of companies from the same industry, such as airlines (Banker and Johnston, 1993), hospitals (Holzhackeret al., 2015; MacArthur and Stranahan, 1998), or a sample of facilities within the same electronics company (Foster and Gupta, 1990).

The study also examined CO 2emission abatement strategies in carbon-intensive companies. Data collected in two energy companies support the view that energy firms have a large deficiency gap within the carbon paradigm (Edenhoferet al., 2009; Markovic Hribernik and Murks, 2007). This was particularly evident in Slovenia’s largest CO 2emitter that was found to be generating electricity primarily by burning lignite in out-dated boilers, one of the least efficient electricity generating technologies (Oliver, 2008). CO 2emission abatement strategies were found to be similar in both energy firms examined, involving a combination of replacing lower energy-value fuels with higher energy-value fuels and installing more efficient boilers. A similar strategy was noted by Hoffmann (2007) for German electricity firms.

Consistent with prior evidence, the manufacturing firms examined were found to exhibit relatively low deficiency gaps (Cadez and Czerny, 2010; Markovic Hribernik and Murks, 2007). Both of the manufacturing firms that do not transform other CBM had already adopted state of the art technologies (i.e. burning natural gas in highly efficient boilers) and exhibited fixed overall emission levels. So, as expected, both entities pursued an increased carbon efficiency strategy based on positive output expansion. In the five year period examined, the insulation materials manufacturer had achieved a surprisingly largeincreaseinoutputof268percent.Althoughthesetwofirmsrepresentextreme cases with respect to their increased levels of output, it is significant for this study that, despite their large production expansion, both firms had managed to maintain stable total emission levels, signifying large improvements in their respective carbon intensity levels. The two manufacturing firms that transform other CBM appeared to be the most inhibited with respect to attempts directed to lowering total emissions or improving carbon efficiency levels. Representatives of the two firms representing this sector proclaimed that reducing the consumption of other carbon-based materials (process emissions) per unit of output is almost impossible, given the current state of technology. This view corroborates the findings of earlier studies that have explored the potential to reduce CO 2emissions in cement and iron manufacture (Benhelalet al., 2013; Worrellet al., 2000, 2001). Both firms investigated in this study had made improvements only in the area of combustion emissions.

Collectively, the distinctive emission abatement strategies that are evident across the three sectors examined provide support forP2. When sectors are defined by the main driver of carbon-based resource consumption, it has been found that emission abatement strategies are relatively heterogeneous across sectors, but relatively homogeneous within sectors.

As expected, low efficiency levels in the energy sector provide scope for significant improvements both in terms of reducing total emissions and securing greater carbon efficiency (Edenhoferet al., 2009). Relatively efficient manufacturing firms not transforming 1056 AAAJ 30,5 other CBM appear to pursue a strategy of seeking improved levels of carbon efficiency through increasing positive output without increasing productive capacities. Relative to the other sectors, manufacturing firms that transform other CBM pursue less uniform emission abatement strategies. Despite this, a factor that the two firms investigated have in common is the limited attention they have directed to tackling process emissions.

Some emission abatement strategic directions appear to be universal. All of the firms investigated in the study’s qualitative data collection phase demonstrated improvements in their carbon intensity (inverse indicator of carbon efficiency). For five of them, the improvement was considerable, and in the sixth firm (Slovenia’s largest CO 2emitter), carbon intensity was due to improve significantly, as soon as the planned new boiler was put into operation. This suggests that all firms were demonstrating degrees of eco-efficiency by improving their productive and ecological efficiency levels simultaneously (Al-Tuwaijri et al., 2004; Burnett and Hansen, 2008; King and Lenox, 2002; Klassen and McLaughlin, 1996). Yet, despite these carbon intensity improvements, four firms had increased their total CO 2emissions in the 2008-2012 period. This is due to efficiency improvements being more than offset by increased levels of positive output.

There is some resonance in the study’s findings with the wider accounting for sustainability literary discourse. First, the study is supportive of prior contentions that management accountants can easily embrace the language of eco-efficiency, due to its parallel with accountants’conventionally close association with promoting efficient use of inputs in production processes (Bouten and Hoozée, 2013; Burnett and Hansen, 2008; Figge and Hahn, 2013; Virtanenet al., 2013). Since eco-efficiency does not challenge traditional economic imperatives, decision makers with a short-term economic agenda (Boston and Lempp, 2011; Hopwood, 2009) can focus on eco-efficiency as consistent with an interest in economic efficiency (Owen, 2008). Second, in the external reporting context, the absence of generally accepted carbon performance indicators signifies that management accountants can provide the lead in interpreting carbon efficiency gains as a carbon performance success tale that can be relayed to external stakeholders (Bowen and Wittneben, 2011; Hartmannet al., 2013).

A worrying implication of the study’s findings is that eco-efficiency is a necessary, but not a sufficient condition for a reduction in total CO 2emission levels (Bebbington and Thomson, 2013). This finding is important in light of increasing scholarly interest in the relationship between corporate environmental and financial performance. Most studies in this area measure environmental performance in relative terms, such as waste prevention relative to firm size (King and Lenox, 2002), the ratio of toxic waste recycled to total toxic waste generated (Al-Tuwaijriet al., 2004), relative pollution levels across firms (Burnett and Hansen, 2008; Mir and Rahaman, 2007), toxic releases scaled by costs of goods sold (Clarksonet al., 2011), or by self-reported perceptual measures (Henri and Journeault, 2010). Many of these studies find a positive relationship between environmental and financial performance, which is seen as supportive of the eco-efficiency (win-win) theory, yet very few studies provide evidence that total pollution levels have also been reduced. Observations made in this study signify that although a company’s set of external reports might be unable to report success in terms of total decarbonisation, this should not be seen as signifying a company’sfailuretoengage in and maybe invest in decarbonisation initiatives. It could simply be that increased CO 2 emissions resulting from greater output have more than off-set reduced CO 2emissions resulting from recently implemented carbon efficiency initiatives.

From a holistic perspective, these findings support recent calls for segregating environmental performance into eco-efficiency and eco-effectiveness components (Milne and Grubnic, 2011; Thomsonet al., 2014). Eco-efficiency is concerned with optimising input/ output relationships (Figge and Hahn, 2013), without questioning the objective’s 1057 Carbon cost structures sustainability (Thomsonet al., 2014). Eco-effectiveness, on the other hand, is focussed on systematic changes that result in sustainable transformation (Thomsonet al., 2014).

This quest is consistent with at least reducing, if not eliminating, total, not just relative, pollution levels. Bebbington and Thomson (2013) argue that management accounting researchers have not yet crossed the eco-efficiency boundary but are urged to do so if they are to support sustainable development transition.

A key managerial implication is that a long-term improvement in carbon efficiency does not translate into a long-term reduction in CO 2emissions if outputs are rising at a higher rate than the rate of carbon efficiency improvements (Milne and Grubnic, 2011).

This highlights the problem of carbon-intensive firms stubbornly residing within the traditional carbon paradigm, despite their awareness oflow-carbon alternatives.

While efficiency improvements play animportant role in stabilising total CO 2 emissions (Pinkse and Kolk, 2010), much more radical improvements are required if there is to be a substantial decrease in anthropogenic interference with the climate system (Meinshausenet al., 2009; Ramanathan and Feng, 2008).

In addition to the paper’s key insights concerning industry groupings and differentials in CO 2emission drivers and CO 2emission abatement strategies, the study provides an important pointer for future research. This is because the findings call into question the eco- efficiency theory that posits a positive relationship between corporate economic and environmental performance (Burnett and Hansen, 2008). The revelations of this study are more consistent with traditional assertions that trade-offs in corporate sustainability are the rule rather than the exception (Pinkse and Kolk, 2010).

When interpreting the study’s findings, its limitations should be borne in mind.

The generally acknowledged limitations of quantitative and qualitative research give cause for exercising caution. There are also some study-specific limitations. With respect to the quantitative analysis, the panel model could have been strengthened through the inclusion of pertinent control variables. Further, the proxy for product output may include some measurement error. Sales revenue is not a perfect measure because firms’ product mixes and selling prices change over time (Letmathe and Balakrishnan, 2005), and for non-service industries, if there is a change in finished goods inventory, then output does not equate with sales volume. While data were collected from a large proportion of the population of firms under examination(76 of the 94 Slovenian firms operating in the EU ETS between 2008 and 2012), it should be noted that Slovenia is a small country and caution should be exercised whenseeking to extrapolate the study’s quantitative findings to other parts of the world. As for the qualitative analysis, it would be misleading to claim that the selected firms are archetypal for the different sectors examined.

At the same time, such a constraint might be countered by the phenomenon whereby more extreme cases can be richer in information than average cases (Eisenhardt, 1989).

Despite these limitations, there is high consistency in the conclusions drawn from the quantitative and qualitative phases of the study, a factor imbuing the study’s findings with relative validity.

It is hoped that this study will trigger more academic attention directed to examining ways that the management accounting perspective can be drawn upon to further man’s efforts to curtail CO 2emissions. In addition we would like to see a greater involvement of practicing management accountants in tackling the“CO 2emission problem”. It appears that accountants are in a strong position to embrace the language of eco-efficiency. In addition, as noted above, management accountants could lead the reporting of carbon efficiency advances reported to external stakeholders. One way to trigger such developments would be for management accounting professional bodies to include an examination of the costs associated with CO 2emissions, the drivers of these costs as well as CO 2emission abatement management, as part of their professional examination curricula. 1058 AAAJ 30,5 Acknowledgements The authors thank the anonymous reviewers and the Editor for their constructive comments which have helped in revising the paper. The authors thank the participants and organisers of the 2012 European Accounting Association Conference in Ljubljana and also the 2012 Manufacturing Accounting Research conference held in Helsinki. The paper has also benefited from presentations made at Bond University, Griffith University, University of Southern Queensland, and WHU Otto Beisheim School of Management. Comments provided by Sophie Hoozee, Matthias Mahlendorf, Jodie Moll, Mari Tuomaala, and Tuija Virtanen have been particularly helpful. This project was financially supported by Australian Government (Endeavour Grants program).

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