Accounting

Carbon accounting obscure AI’s footprint

Published

5 months ago

August 21, 2024

An Amazon Web Services data center in Ashburn, Virginia, in 2024

Tech companies’ relentless push into artificial intelligence is coming at an undisclosed cost to the planet. Amazon, Microsoft and Meta are concealing their actual carbon footprints, buying credits tied to electricity use that inaccurately erase millions of tons of planet-warming emissions from their carbon accounts, a Bloomberg Green analysis finds.

Recently Microsoft reported that its emissions are 30% higher today than in 2020, when it set a goal to become carbon negative. Other tech companies’ emissions are rising, too. However, Microsoft and other AI leaders insist that the increase is because of the carbon-intensive materials used to build data centers — cement, steel and microchips — and not because of the massive amount of energy AI requires. That’s because they have said the power is mostly or all from zero-carbon sources, such as solar and wind.

Is AI being powered exclusively by clean energy? “There is no physical reality for that claim,” said Michael Gillenwater, executive director of the Greenhouse Gas Management Institute.

Companies are buying credits — called unbundled renewable energy certificates — that can make it seem that power consumed from a coal plant came from a solar farm instead. Amazon, Microsoft and Meta rely on millions of unbundled RECs each year to claim emission reductions when making voluntary disclosures to CDP, a nonprofit that runs a global environmental reporting system.

The current carbon accounting rules allow for the use of these credits for calculating a company’s carbon footprint. However, work that many academics have done shows the accounting rules need to be updated in order to accurately reflect greenhouse-gas emissions.

That’s because these carbon savings on paper are not actual emissions reductions in the atmosphere. If companies didn’t count unbundled RECs, Amazon could be forced to admit that its 2022 emissions are 8.5 million metric tons of CO2 higher than reported — that’s three times what the company disclosed and matches Mozambique’s annual impact. Microsoft’s sum could be 3.3 million tons higher than the reported tally of 288,000 tons. And Meta’s reported footprint could grow by 740,000 tons from near zero. (See below for methodological details.)

“Companies shouldn’t be allowed to use unbundled RECs to claim emissions reductions,” said Silke Mooldijk, who focuses on corporate climate responsibility at the nonprofit NewClimate Institute. “It’s misleading to consumers and investors.”

Not all tech companies have gobbled up unbundled RECs to obscure the rising emissions that have resulted from the hotly-contested AI race. Alphabet Inc.’s Google phased out its use of unbundled RECs several years ago after acknowledging that it doesn’t amount to real emissions reductions. “Studies have raised legitimate questions about whether [these credits] displace fossil-powered generation,” said Michael Terrell, senior director of energy and climate at Google.

Amazon relied on unbundled RECs for 52% of its renewable energy in 2022, making it the most dependent of the four on the instruments. A spokesperson for Amazon said the number of unbundled RECs the company uses is expected “to decrease over time” as more of its directly contracted renewable energy projects come online. Microsoft, which relied on unbundled RECs for 51% of its renewable energy, also plans “to phase out the use of unbundled RECs in future years,” a company spokesperson said.

A spokesperson for Meta, which relied on unbundled RECs and power from utilities labeled “green” for 18% of its renewable energy, said the company takes “a thoughtful approach” and that the “majority” of the company’s “renewable energy efforts” are focused on projects that “would not have otherwise been built.”

The thousands of companies using Amazon-powered AI for their customer chat bots, Microsoft’s AI Copilot for summarizing meetings, or Meta’s Llama for generating images may assume there are few or no energy emissions from relying on these models. It’s a powerful marketing tool for these big tech companies, helping to allay concerns of potential customers who are themselves likely under pressure from users and investors to lower their own carbon footprints. In reality, it’s creating a cascading impact of misreported emissions and growing demand for energy-intensive AI products.

“If consumers do not understand what the climate impact of AI is, because tech companies do not transparently report on it, then there’s no incentive for consumers to change their behavior and change to a different AI model,” said Mooldijk.

It’s a concern across finance, too. Banks and investors which tend to stuff big tech in sustainable funds too often take emissions claims at face value. “At the moment, there’s just not a sophisticated understanding of this issue,” said Gerard Pieters, a director at Tierra Underwriting that helps banks on clean-energy deals. “We’re still in a period where people make claims quite easily and they’re just copied and accepted as fact.”

Tech companies are the largest buyers of unbundled RECs in the world. Whether or not they continue buying these credits to make climate claims matters a great deal as more corporations look to cut their carbon footprint and green their credentials.

Back to the source

To understand how the companies’ use of RECs works, consider the origins of the power generated on a grid. Usually it comes from a mix of sources: from coal and gas to wind and solar. Climate-conscious companies are increasingly looking to secure power exclusively from sources that generate the least planet-warming emissions.

One way to do this is to sign a contract for clean power directly with the supplier through a power-purchase agreement, where a tech company is signing a long-term contract and thus taking on some of the risk for a period of 10 or 15 years. That, in turn, makes it easier for the developer to acquire the financing to build the solar or wind farm.

To help tech companies trace the source of that power, renewable-energy producers also issue energy attribute certificates, or RECs, which are a type of tracking instrument. However, RECs can also be bought on their own, separate from an electricity purchase. The idea behind these so-called ‘unbundled’ RECs is that there’s value in renewable energy generation beyond simply the electrons produced and sold — its lack of emissions also has a value. So since renewable energy generators produce two things of value — energy and, specifically, low-emissions energy — they should be able to get paid not just for producing electricity but also for being green.

This idea — and the calculation that sprang from it — was developed when renewable energy was expensive to produce and not price-competitive with fossil fuels. The thinking was that the extra money renewable energy developers would receive in the form of a REC might work as an incentive to produce more wind and solar development than would have been otherwise and thus be “additional.”

Studies as far back as 2010 showed that unbundled RECs weren’t delivering on that theory of stimulating the production of renewables. But that inconvenient fact was mostly ignored, and the enthusiasm for RECs led to a quirk in emissions reporting rules that allows companies to buy unbundled RECs and then deduct the emissions from their CO2 accounts. This means companies can report reduced emissions from their electricity use even if their actual use has not changed in any way (and may still come from a coal power plant).

Solar and wind power have now become cheaper than the fossil-fuel alternative, and a growing body of evidence shows that most unbundled RECs aren’t what those who count emissions call “additional.” That is, they don’t spur new wind or solar farms and thus there is no second value producers should be paid for, and certainly no emissions reductions for the buyer.

“The widespread use of RECs … allows companies to report on emissions reductions that are not real,” Anders Bjorn, assistant professor at the Technical University of Denmark, and a team of researchers, wrote in a paper published in the scientific journal Nature in June 2022. After adjusting for companies’ use of RECs, they found 40% no longer showed alignment of their activities with the Paris Agreement goal of keeping global warming to within 1.5C.

Last month, Amazon claimed that it had reached 100% renewable energy use in 2023 using its own accounting methodology and thus will have no emissions from electricity use. The company has not yet reported the details underpinning its 2023 renewable energy consumption, but Bloomberg Green’s analysis suggests that the claim likely relies on the use of unbundled RECs. In response, an Amazon spokesperson said, “It can take several years for the projects we invest in to come online, so we sometimes utilize unbundled RECs — a fundamental part of the global renewable energy market — to temporarily bridge the gap to a project’s operational date.”

Like Amazon, Google claims to be 100% renewable powered on an annual global basis. In lieu of using unbundled RECs, Google purchases more clean energy than it consumes in some places, like Europe, and less in others, like Asia-Pacific, depending on the availability in those locations. Google, however, makes clear that it does not consume carbon-free energy on an hourly and location-specific basis. That’s now “our ultimate goal,” said Terrell.

Amazon, Microsoft, Meta and Google are following the accounting rules set out under the Greenhouse Gas Protocol that was first developed in 2001. Those disclosures underpin the analyses that investors rely on to make decisions about what counts as a green company. While the protocol has received small updates over the years, it’s due for a big update and experts are working to propose changes. All the big tech companies are now involved in lobbying on those changes.

“Standards need to evolve, because measuring carbon emissions isn’t an exact science,” said Google’s Terrell. “It’s continuing to improve and we’re committed to helping improve it.”

Accounting

Tax Fraud Blotter: On the record

Published

4 hours ago

January 9, 2025

Business Finance News

On the record

Chicago: Attorney Michael Abramson, of Wilmette Illinois, has been convicted of tax fraud, attempting to tamper with a witness and violating a court order.

Abramson filed and caused to be filed false individual returns for himself and false corporate returns for a company in which he held an ownership interest, Illinois-based Leasing Employment Services Co. Inc.

Abramson also provided more than $1 million for personal expenses to a woman with whom he was romantically involved, then deducted what were falsely characterized as commissions or loans and included the fraudulent loans as an asset on the company’s returns. The expenses included money for a condo, luxury automobiles and travel, shopping and restaurants.

Following the indictment in this case, the court ordered Abramson not to contact witnesses, including his bookkeeper. Weeks before trial last February, Abramson gave the bookkeeper a copy of her previous court testimony on which he had handwritten notes changing or otherwise scripting her answers. The bookkeeper turned the transcript over to law enforcement.

Sentencing is May 1.

Mustang, Oklahoma: Education official Kim Weinrich has pleaded guilty to wire fraud and to making and subscribing a false return.

Between 2014 and April 2022, Weinrich was employed by Mustang Public Schools District as payroll supervisor and was promoted to director of payroll services in 2021.

Beginning in 2016, Weinrich manipulated the district’s payroll accounting software to increase her net pay each period, depositing the stolen money into her personal bank account. Weinrich’s scheme also resulted in several district employees underreporting federal and state withholdings.

Between July 2016 and April 2022, Weinrich defrauded the district of some $471,657.91.

She also manipulated the payroll software to make it appear as if she’d paid substantial federal income taxes when she’d had no federal income taxes withheld. In April 2022, she filed a federal return reporting income of $91,295, substantially lower than her real income from the scheme.

She faces up to 23 years in prison and fines up to $350,000.

Newark, New Jersey: A federal court has held in contempt tax preparer Abraham Taylor, a resident of Florida and formerly of New Jersey, for continuing to prepare returns after the court permanently barred him and his business, Chentay Consulting Services LP (d.b.a. CCS Tax Services) from preparing federal income tax returns for others.

According to the court’s order, Taylor concealed his violations of the permanent injunction by using e-filing privileges assigned to Fredrick Gibson, of Uncle Sam Tax Services in Pennsylvania. Taylor agreed to the entry of the contempt order and a disgorgement judgment; Gibson agreed to forfeit his e-filing privileges.

Taylor was held in contempt in 2021 for using e-filing privileges assigned to his son O’Neal Taylor and his son’s business. Through the contempt order, Taylor agreed to a disgorgement judgment and O’Neal agreed to forfeit his e-filing privileges.

The most recent contempt order requires Taylor to provide the U.S. with a list of his clients and to send a copy of the court’s injunction order to all clients for whom he prepared returns. It also provides that the court can order the sale of Taylor’s house to satisfy the two disgorgement judgments if he continues to prepare returns.

Washington, D.C.: CPA Timothy Trifilo has pleaded guilty to making a false statement on a mortgage loan application and to failing to file an income tax return.

Trifilo worked in tax compliance for several large accounting and finance firms. In recent years, he was managing director at a tax firm where he specialized in transaction structuring and advisory service, tax compliance and tax due diligence.

For a decade, Trifilo did not file federal income tax returns or pay all his taxes despite earning more than $7.7 million during that time. He caused a tax loss to the IRS of $2,057,256.40.

In February 2023, Trifilo sought a $1.36 million bank-financed loan to purchase a home in the District of Columbia. After the mortgage company told him that the bank would not approve the loan without copies of his filed returns, Trifilo provided the mortgage company with fabricated documents to make it appear as if he had filed returns and provided copies of 2020 and 2021 returns that Trifilo in fact had never filed with the IRS.

On these returns and other documents, Trifilo listed a former colleague as the individual who prepared the returns and uploaded them for filing with the IRS. This individual did not prepare the returns, had never prepared returns for Trifilo and did not authorize Trifilo to use his name on the returns and other documents. Based on false representation, the bank approved the loan and Trifilo purchased the home.

Sentencing is May 19. Trifilo faces up to 30 years in prison on the charge of making a false statement on a loan application and a maximum of a year on the charge of failure to file a tax return. He also faces a period of supervised release, monetary penalties and restitution.

San Diego: Business owner Wahead Raz has pleaded guilty to paying an IRS officer $35,000 to erase a six-figure tax debt.

On July 23, Raz offered the bribe to an IRS revenue officer during a meeting at the San Diego IRS office to discuss his outstanding tax debt of some $500,000. After the meeting, the IRS officer reported the bribe to the Treasury Inspector General for Tax Administration and agreed to be part of an undercover operation.

The next day, TIGTA video-recorded a meeting between the IRS officer and Raz during which Raz told the officer that he could pay in cash so the bribe would not be traceable. On July 25, the IRS officer recorded a call during which Raz said, “If you save me money, then I’ll take care of you,” and asked the officer to name a price. When the officer asked for $30,000, Raz countered with $20,000. After the IRS officer insisted on $30,000, Raz agreed, offering to pay $10,000 up front and the remaining $20,000 when the debt was cleared.

On July 30, TIGTA recorded a meeting between the IRS officer and Raz during which the latter provided the $10,000 cash and asked the officer to eliminate some $50,000 in tax debt owed by Raz’s business; Raz offered to pay the officer an additional $5,000 to have that debt cancelled.

On August 22, TIGTA recorded another meeting during which Raz gave the officer $15,000 in cash and told the officer he did not have the entire $25,000 originally agreed upon. On August 29, Raz paid $10,000 cash to complete the bribe. During two of the recorded meetings, Raz also offered to introduce to the officer other “clients” who also owed federal taxes and said he would introduce the agent once Raz’s tax debt was cleared.

Sentencing is March 19.

Accounting

IRS, Treasury finalize rules for clean energy investments in low-income communities and Indian land

Published

5 hours ago

January 9, 2025

Business Finance News

The Treasury Department and the Internal Revenue Service have released final rules and procedural guidance for the Section 48E(h) Clean Electricity Low-Income Communities Bonus Credit Amount Program.

The 48E(h) program expands the 48(e) bonus credit designed to lower home energy costs and accelerate clean energy investments in low-income communities and helping low-income households, on Indian Land, or as part of affordable housing developments. A Treasury analysis of the first year of the 48(e) program indicated the program received over 54,000 applications from 48 states, the District of Columbia and four territories.

Approved applications for the tax credit are expected to generate $3.5 billion in investments in low-income communities and on Indian Lands and are estimated to generate $270 million in offset energy costs annually. During the second year of the 48(e) program, the program received over 57,000 applications, totaling over 1.9 gigawatts of clean energy generation.

The approved applications are also expected to generate approximately $4 billion in public and private investment into communities and almost $350 million in offset energy costs annually.

The rules released Wednesday highlight the expanded list of program-eligible technologies beyond wind and solar to zero-emissions technologies like hydropower and geothermal. The full set of program-eligible facilities and how that list will be updated in the future is defined in the Section 48E Clean Electricity Investment Credit final regulations. On Tuesday, the Treasury and the IRS also released those final rules. The allocated credit provides a 10 or 20 percentage point boost on top of the 30 percent 48E investment tax credit (assuming prevailing wage and apprenticeship requirements are met).

“Expanding the Clean Electricity Low-Income Communities Bonus Credit will help lower energy costs in communities that have been overlooked and left out for too long and empower developers to work alongside communities to provide tailored solutions to meet their energy and economic needs,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo in a statement Wednesday. “The final rules announced today will help ensure that all Americans benefit from the growth of the clean energy economy.”

The 48E(h) program will allocate bonuses to 1.8 gigawatts of clean electricity generation serving low-income communities each year, from 2025 through at least 2032. For the 2025 Program Year, the application period will open on Jan. 16, 2025 at 9:00 a.m. ET and close on Aug. 1, 2025 at 11:59 p.m. ET. For the 2026 Program Year and subsequent program years, the application period will open the first Monday of February at 9:00 a.m. ET and close the first Friday of August at 11:59 p.m. ET.

The final rules announced Wednesday make some notable changes from the 48(e) program, including changes due to the statutory transition to the 48E Clean Electricity Investment Credit along with incorporation of feedback received through public comment and lessons learned from previous years. The final rules highlight the list of eligible facilities defined in the updated 48E Clean Electricity Investment Tax Credit regulations from solar and wind to also include facilities that utilize zero-emission technologies like hydropower, marine and hydrokinetic, geothermal and nuclear.

The final rules clarify eligibility requirements for some of the main categories, including expanding the list of housing programs that are eligible to participate as a qualified low-income residential building project and clarifying the financial value that certain projects must provide to low-income households.

The final rules also offer a pathway for emerging clean energy businesses to receive priority in applying for the program.

The guidance released by the Treasury outlines the annual capacity limitation available for allocation, divided across the four facility categories. For the 2025 program year, around 174,243 kilowatts (DC) are being carried over from previous program years and distributed evenly between the four categories. Individuals interested in learning more about the program or submitting an application should visit the program’s landing page on the IRS website here.

Accounting

M&A roundup: EisnerAmper, BDO and Brady Martz expand

Published

7 hours ago

January 9, 2025

Business Finance News

EisnerAmper, a Top 25 Firm based in New York, has added HDA Accounting Group, a firm in the Denver area that caters to dental practice clients.

The deal is expected to close in early 2025. Financial terms were not disclosed.

HDA was founded in 2011 and has two partners and a staff of over 65 professionals. EisnerAmper has 450 partners and approximately 4,500 staff members. The firm’s Eisner Advisory Group ranked No. 17 on Accounting Today‘s 2024 list of the Top 100 Firms, with $848.7 million in annual revenue.

HDA provides services exclusively to dental practice owners and has over 800 dental practice clients across all 50 states. The firm offers tax compliance and planning, monthly accounting, benchmarking, profitability analytics and revenue advice, using proprietary software tailored to dental practices.

“This combination with EisnerAmper will allow us to enhance our clients’ experience through additional expertise, technology, and service offerings,” said HDA managing partner Morgan K. Hamon in a statement Thursday. “We can now offer our dental practice clients value-added advisory services such as cybersecurity, real estate, business valuation, wealth management and much more. We’re really excited about this big leap forward.”

EisnerAmper sees dental practices as an important niche for outsourced accounting. “As the outsourced accounting sector becomes ever more focused on industry-tailored solutions, HDA represents a strategic move in both a key practice area and niche,” said Dan Gardiner, managing partner of outsourced solutions at EisnerAmper, in a statement. “We warmly welcome HDA and look forward to the exciting growth opportunities with EisnerAmper’s Health Care Group.”

Koltin Consulting Group CEO Allan Koltin advised both firms on the deal. “One reason for EisnerAmper’s continued growth has been its ability to add new, in-demand practice niches,” Koltin said in a statement. “This strategic pairing of EisnerAmper and HDA is all about the cultural fit along with the client-focused resources that each brings to the table.”

EisnerAmper has been busy on the M&A front since it received private equity funding in 2021 from TowerBrook Capital Partners, setting the stage for other accounting firms to follow its lead. The firm split into an alternative practice structure with Eisner Advisory Group LLC providing nonattest services and EisnerAmper LLP offering attest services to clients. Last fall, it added Tighe, Kress & Orr PC, a CPA firm based in Elgin, Illinois. In August, the firm announced it had added Krost CPAs, a Top 100 Firm based in the Los Angeles area, in a combination that’s expected to close this month. In May, it announced it would be adding Edelstein & Co., a Regional Leader based in Boston, in June. In March, EisnerAmper announced it was adding the Tidwell Group in Birmingham, Alabama, effective May 1. In 2023, it merged in Spielman Koenigsberg & Parker in New York, Morrison & Morrison in Chicago, and Top 100 Firm Postlethwaite & Netterville in Baton Rouge, Louisiana. In 2022, it added Lindsay & Brownell in La Jolla, California, Hoffman Group in Baltimore, Lurie in Minnesota and Florida, and Top 100 Firm Raich Ende Malter and Popper & Co. in New York.