Part 3: Auditing councils' greenhouse gas emissions
3.1
In this Part, we describe some of the issues and challenges councils and auditors face when councils voluntarily report on their efforts to reduce greenhouse gas (GHG) emissions.24 We discuss:
- the complexities involved with measuring and reporting GHG emissions;
- our auditing of councils' reporting on their GHG emissions; and
- issues and challenges that councils and auditors identified.
3.2
We also set out our observations from our audits of councils' performance reporting, the measures and targets they used, and some of the challenges that arose. See Part 5 for more information on audit reporting issues.
Summary of findings
3.3
We are encouraged to see that councils are including climate-related performance targets and measures in their long-term plans. This will allow them to assess and report on progress and be accountable to their communities, including those who want more done to address the effects of climate change.
3.4
Councils that have formally reported their progress on climate actions are among the first public organisations to do so. They are well positioned to report on their contribution to the government's targets to reduce GHG emissions over time.
3.5
This is an evolving area with inevitable challenges. We acknowledge councils' efforts to measure, reduce, and report their GHG emissions and other climate-related activities.
Measuring and reporting greenhouse gas emissions
3.6
Some councils are giving greater consideration to how their activities affect the climate. They are doing this by measuring and reporting their GHG emissions as part of their broader climate action plans and strategies.
3.7
Councils that included climate-related performance measures in their 2021-31 long-term plans have begun reporting against these measures in subsequent annual reports. Measuring and reporting GHG emissions involves having systems to record and measure emissions from activities (such as fuel use) and converting them into metric tonnes of carbon dioxide equivalent (tCO2e).
3.8
Councils need to be clear about what sources of emissions they report. Councils also need to be clear about any significant sources of GHG emissions that they have not measured and reported.
3.9
Disclosures should also describe any significant uncertainties about the council's quantification of its GHG emissions, as well as the standards, methodologies, and assumptions it used to calculate or estimate emissions.25
Guidance and support are available
3.10
Because of the complexities involved in measuring and reporting climate-related activities, including establishing a GHG emissions baseline, some councils get help from external providers.
3.11
There is considerable guidance available for reporting on GHG emissions, including from the External Reporting Board,26 the Ministry for the Environment,27 and international frameworks such as the Task Force on Climate-Related Financial Disclosures.28
3.12
We expect that, during the next few years, the climate reporting regime will evolve and mandatory assurance for GHG emissions disclosures for climate reporting entities will be introduced.29 Councils that choose to report on their emissions will be able to learn from climate reporting entities that are required to report on their emissions.
Measures and targets in long-term plans
3.13
Our 2021/22 and 2022/23 audits considered how councils with climate-related measures reported against targets in their 2021-31 long-term plans.
3.14
Examples of measures and targets that councils included in their 2021-31 long-term plans are:30
- a reduction target from a baseline starting year decreasing over time, expressed in tCO2e;
- a reduction target expressed as a percentage (for example, a 10% decrease year on year in gross GHG emissions from the council's corporate emissions), or applying to certain emissions only (for example, fuel use in council-owned vehicles);
- tangible measures such as increasing the number of electric vehicles/buses in the council fleet by specified targets each year; and
- targets that are aligned with central government targets.
3.15
Some councils also included measures for GHG emissions for all their subsidiaries and business units (and their share of jointly owned council-controlled organisations based on ownership share).
3.16
Some councils had district-, city-, or region-wide measures, including:
- a percentage reduction of GHG emissions from public transport services and assets;
- a reduction in total city GHG emissions over a time period (for example, 43% reduction by 2030);
- waste reduction targets with associated emissions reductions; and
- the number of native trees planted in the region.
Auditing councils' reporting on greenhouse gas emissions
3.17
When we audit councils' performance information about their progress towards achieving climate-related measures, we need enough evidence to conclude that it is materially correct. This evidence must be based on reliable and current information.
Reporting by councils in 2021/22
3.18
In our article "Results of the 2021/22 council audits", we briefly described audit issues that a small group of councils had with their measures of GHG emissions in their performance information.31 We said that we:
- issued two modified audit reports for GHG emissions reporting by Wellington City Council and Greater Wellington Regional Council; and
- included emphasis of matter paragraphs in the audit reports for Auckland Council, Hawke's Bay Regional Council, Palmerston North City Council, Hutt City Council, Wellington City Council, and Greater Wellington Regional Council, drawing attention to their disclosures about the inherent uncertainties involved with estimating and quantifying their GHG emissions.
Reporting by councils in 2022/23
3.19
More councils reported against performance measures for GHG emissions in their 2022/23 annual reports (13 councils) than in their 2021/22 annual reports (nine councils).
3.20
Despite making some progress with their reporting, Wellington City Council and Greater Wellington Regional Council received qualified audit reports in 2022/23. The reasons for this were the same as for 2021/22 (see paragraphs 5.46-5.52).
3.21
Upper Hutt City Council also received a qualified audit report because it relied on 2007 data about spend-based emissions factors, which was the most recent available. However, there was not enough evidence that these factors were relevant to measuring the Council's 2022/23 emissions (see paragraphs 5.53-5.55).
3.22
We also continued to draw attention to disclosures by councils about inherent uncertainties involved in measuring and estimating GHG emissions by including emphasis of matter paragraphs in their audit reports (see paragraphs 5.95-5.96).
Issues and challenges identified by councils and auditors
Incomplete reporting
3.23
Some climate-related performance measures and targets did not cover all emissions sources. For example, some councils' initial reporting focused on scope 1 and 2 emissions (although some of these councils intend to begin measuring and reporting scope 3 emissions).32
Timing issues and delays
3.24
Some councils' reporting on their emissions was in arrears or for the previous year rather than for the current reporting period.33
3.25
Some councils relied on out-of-date data about spend-based emissions factors. There was not enough evidence that these factors were relevant to measuring the council's current emissions. There also was no other evidence to enable us to conclude that the reported performance was materially correct.34
3.26
Some councils needed to adjust baseline emissions data and restate previous results when better information became available.
3.27
Some councils were not yet able to report on set targets and measures because they had issues with data or verification or had delays in putting measurement and reporting systems in place.
Mistakes or lack of supporting evidence
3.28
Some councils lacked systems and controls to produce reliable evidence to support the data inputs and estimations used to measure emissions, including data provided by third parties. These councils received a qualified audit report.
3.29
Some councils understated the total amounts of emissions reported by omitting data for some of the less significant emissions sources. However, for these councils, the resulting error was within the allowable threshold.
Unrealistic targets
3.30
When councils set GHG reduction targets they need to have realistic plans for achieving them, otherwise targets or time frames might need to be adjusted.
Effect of severe weather events
3.31
In some instances, GHG emissions are increasing because of factors a council cannot control. For example, Bay of Plenty Regional Council aimed for a 5% decrease in GHG emissions from the previous year in 2022/23. Instead, the Council reported a 52% increase in GHG emissions.
3.32
This largely came from operating flood pumps during significant wet weather events. The Council is investigating electrifying its drainage pumps to help reduce these emissions.35
3.33
Similarly, Hawke's Bay Regional Council reported a 37% increase in emissions from 2021/22 to 2022/23. The Council attributes this to the increased use of vehicles and equipment for the recovery efforts and rapid rebuild from Cyclone Gabrielle in February 2023.36
Scope 3 emissions
3.34
The following are some of the issues and challenges councils have when measuring and reporting scope 3 emissions:
- For some scope 3 GHG emissions activities, measuring relies on modelling and assumptions that have limitations.
- Some measuring relies on historical spend-based emissions factors where the factors used do not reflect any changes in the underlying causes of emissions or subsequent methodological changes in how GHG emissions are measured since that date.37
- It is challenging to report scope 3 emissions comprehensively, and it can be harder to provide assurance over that information.
3.35
There can be significant differences between reported emissions and actual emissions. Therefore, climate reporting entities need to make appropriate disclosures about the inherent uncertainties in measuring and estimating their GHG emissions. Our audit reports draw attention to those disclosures.
The need for clear language and definitions
3.36
Clear language and concepts are also important. Councils should be careful about using terminology that might be misunderstood. Care is needed with terms such as "carbon-neutral", "net-zero", and "climate positive". It is important for councils to explain exactly what these terms mean to them to assist transparency and reduce any risk of "greenwashing".38
3.37
Councils that want to develop climate action plans have plenty of good examples and experience from other councils to draw on. There is also guidance and direction from the External Reporting Board and international frameworks such as the Task Force on Climate-Related Financial Disclosures framework.
What we expect to see in long-term plans
3.38
When we reviewed councils' 2021-31 long-term plans, we noted a marked improvement in climate-related content and approaches from their 2018-28 long-term plans. We expect a similar improvement in councils' 2024-34 long-term plans. There is likely to be a greater focus on adaptation as well as reducing GHG emissions in the next round of long-term plans.
3.39
We expect that climate reporting in the local government sector will increase over time as councils and council-controlled organisations increase their focus on the effects of climate change and mitigation and as climate reporting becomes more established.39 We acknowledge the work councils are doing in leading the sector in this area.
24: A small number of local government organisations are subject to mandatory climate reporting under the Financial Markets Conduct Act 2013 (as amended by the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021).
25: For example, see Appendix 1 of Wellington City Council (2023), 2022/23 Te Pūrongo ā-Tau Annual Report, which sets out the Council's approach to these matters.
26: See "Aotearoa New Zealand Climate Standards", at xrb.govt.nz.
27: See Ministry for the Environment (2024), "Measuring emissions: A guide for organisations: 2024 detailed guide", at environment.govt.nz.
28: The Task Force on Climate-Related Financial Disclosures has stopped its activities, but resources will remain on its website for a period of time. See fsb-tcfd.org.
29: For a definition of climate reporting entity, see section 461O of the Financial Markets Conduct Act 2013 (as amended by the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021).
30: See Controller and Auditor-General (2022), Matters arising from our audits of the 2021-31 long-term plans, at oag.parliament.nz.
31: See Controller and Auditor-General (2023), "Results of the 2021/22 council audits", at oag.parliament.nz.
32: Scope 1 emissions are GHG emissions directly from sources owned or controlled by the council – for example, emissions from combustion of fuel in council vehicles. Scope 2 emissions are GHG emissions produced indirectly from the consumption of purchased electricity, heat, or steam. Scope 3 emissions are much broader and include other indirect GHG emissions that occur because of the council's activities. However, these emissions are generated from sources the council does not own or control – for example, emissions caused by suppliers of goods and services to the council.
33: These councils include Central Otago District Council and Greater Wellington Regional Council.
34: For example, Upper Hutt City Council (2023), Mahere ā-Tau Annual Report 2022-23, at upperhuttcity.com, and Wellington City Council (2023), 2022/23 Te Pūrongo ā-Tau Annual Report, at wellington.govt.nz.
35: Bay of Plenty Regional Council (2023), Pūrongo ā-tau Annual Report 2022/23, at atlas.boprc.govt.nz.
36: Hawke's Bay Regional Council (2023), Pūrongo ā-tau 2022-2023 Annual Report, at hbrc.govt.nz.
37: See Wellington City Council (2023), 2022/23 Te Pūrongo ā-Tau Annual Report, at wellington.govt.nz.
38: See our blog post "Climate reporting and the need to avoid greenwashing", at oag.parliament.nz/blog.
39: We have not focused on council-controlled organisations in this Part. However, we are aware that several of them report on their GHG emissions.