Carbon Price 2011: What energy and carbon managers need to know

12 Oct 2011Archived News Climate Change Matters

Energy managers need an informed understanding of the carbon impacts and a clear strategic response. Carbon brings opportunities, and energy managers should investigate energy efficiency and renewable energy projects.

Carbon will increase prices on current energy contracts, but you do not have to be a passive price taker

Carbon cost pass through clauses have been included in most energy contracts in recent years, however the specifics of the pass-through can be unclear and leave considerable room for negotiation. You do not have to be a passive price taker in this process: don't accept the outcome that is best for your energy retailer. Instead, lobby for the outcome that is best for your business. The difference in cost can be very material.

Key considerations:

  • Energy managers need to understand pass through clauses.
  • There are opportunities for saving money, but there are also complexities. Consider seeking assistance from an energy expert and a contract expert.
  • This is a tactical negotiation informed by contract law, and built on energy market knowledge and plausible alternatives.

Carbon creates a step change in energy prices. Using past prices in budgeting and forecasting will be misleading

A carbon price presents a new paradigm for energy costs, not just because of carbon but because of a range of fundamental changes. You need an informed view of future prices for budgeting and forecasting, not projections based on historic costs if you want them to reasonably reflect future reality.

Carbon prices are likely to be variable and volatile

The history of carbon prices around the world is one of variability and volatility. The Australian carbon price is fixed for the first three years, but once trading starts we expect to see all of the volatility and uncertainty that carbon and environmental products have shown in the past. This creates real challenges for budgeting, forecasting and large projects. Prices may turn out to be half or double what you expected them to be. Carbon is not a static cost: it is a variable, volatile financial instrument.

Energy managers need to build their knowledge of likely future carbon prices, and develop plans based on informed price forecasts.

Data knowledge is key to making informed decisions and identifying abatement opportunities

Data will continue to underpin the key business decisions around carbon and ensure effective internal management strategies are developed. As energy managers, you have a good understanding of facility processes and operations. Your function in the business provides you with access to a vast amount of valuable information. This can be used to calculate your emissions baseline, overall carbon footprint, assess the business carbon liabilities and advise your managers.

Understanding your emissions profile, and the sources and activities causing the emissions will facilitate the identification of abatement opportunities, process improvements and projects to effectively reduce carbon impact and liabilities. Your business will have a greater sense of control over the risks and opportunities facing it in a carbon-constrained environment. Data knowledge is power.

To compliment the information, manage reporting risks and continually identify opportunities, a robust information management system should be in place. This will track your energy usage and emissions generation, and is crucial to accurate tracking and management of the information from which your managers will be making key business decisions.

Evaluating greenhouse gas abatement options and accessing the $1.2b funding

The changing market conditions (the current exchange rate, energy price escalations) compounded with the carbon price, can dramatically shift payback periods for energy efficiency and energy savings projects. Energy and carbon managers should review these opportunities within the renewed environment.
There are three key steps to assessing the value of large emissions reduction projects:

  • Develop your business' carbon management strategy
  • Prioritise and understand the relative value of different mitigation project options - the investment required and the emissions' reductions possible.
  • Conduct feasibility studies for key, large scale emissions-reductions projects.

Taking these steps will position your business to proactively respond to the carbon legislation and funding opportunities as they become available.

Understanding carbon costs in the supply chain

Energy managers need to understand and plan for all of the supply chain and other indirect costs, as well as the compensation mechanisms in place for many sectors. To position your business to best advantage, it is important to understand the impacts on sensitive customers and the ability to pass-through costs: as received from suppliers and in turn, pass onto customers.

Align your business with new international energy management standard

The newly released ISO50001 International Standard for Energy Management will enable organisations to establish the systems and processes necessary to improve energy performance, including energy efficiency, use, and consumption. Implementation of this standard is intended to lead to reductions in greenhouse gas emissions, energy cost, and other related environmental impacts, through systematic management of energy.

There is a strong correlation between the list of EEO requirements and the ISO50001 International Standard for Energy Management.

Next steps

Preparation is the key to an effective response to the introduction of a price on carbon. Building a sound knowledge of where carbon costs will be incurred, likely future prices, the overall carbon footprint of the business and the opportunities that exist to reduce emissions will help position an organisation for the emerging low carbon economy. 

Join the conversation