CPRS deferral should not delay climate action

13 May 2010Archived News Climate Change Matters

With rising energy prices, the mandated renewable energy target, government energy and carbon reduction programs and public/ customer support for climate change action, it would be wrong to assume that carbon management should no longer be a priority for Australian organisations: particularly large energy users.

Australia is committed to achieving an emissions reduction target of 5 per cent below 2000 levels by 2020 (up to 25 per cent if there was international agreement). While 5 per cent is a modest target, this represents a 25-30 per cent cut in emissions from the ‘business as usual’ (continuation of present trends) case in less than ten years. As Australia hasn’t begun to curb its carbon intensity growth, this target alone will have a major business impact.

The later we start, the harder it will be.

The deferral of the Carbon Pollution Reduction Scheme (CPRS) has led to considerable speculation in the media that Australia now has no mechanism, or urgency, to drive the decarbonisation of the Australian economy.

However, business should anticipate much tougher regulations on energy use in buildings and appliances, and expect that the government will initiate policies and / or incentives to support the improvement of energy efficiency in the economy.

As such, there is still a strong case for all businesses in Australia to focus on achieving emissions reductions.

Governments and businesses around the world are increasingly acknowledging energy efficiency as the least cost and most readily achievable way to reduce greenhouse gas emissions.

In Australia, the Prime Minister’s Task Group on Energy Efficiency is well advanced in its work to develop a policy direction to focus efforts to achieve emissions reductions through energy efficiency measures. Removing barriers that prevent businesses from taking up energy efficient technologies and behaviours will dramatically reduce the cost of meeting our 2020 emissions reduction target. Cost effective energy efficiency improvements can also lift the productivity of businesses, contributing to our competitiveness and positioning the Australian economy to take up opportunities in a changing global economy that will increasingly require lower carbon goods and services.

For further discussion on the increasing importance of energy efficiency in the Federal Government's emissions reduction strategy, please see Energetics’ article A step change in energy efficiency policy in Australia.

In addition, a range of mandatory Federal and State government programs, such as National Greenhouse and Energy Reporting (NGER) scheme and Energy Efficiency Opportunities (EEO) program, are requiring more organisations to measure and report on their greenhouse emissions, mitigation plans and outcomes.

Finally, energy costs are continually rising. Regardless of Australia’s committed targets and any policy that may come in the future, our residential, commercial and industrial sectors have begun to experience substantial price hikes in energy costs. This is due to a fundamental shift in prices for primary fuels, a shortage of water and the cost of maintaining an ageing infrastructure. World demand for energy is also pushing up the cost of our primary fuels, especially natural gas and coal.

As we rapidly approach world parity prices for energy commodities such as electricity and gas (notwithstanding the CPRS, energy prices will increase by 30 per cent), our historic lack of investment in alternative energy resources and energy abatement action may well catch up to us and become a competitive disadvantage.

It is inevitable that within five years (more likely within two) there will be a price on carbon, in some form. Uncertainty about a carbon price will also threaten investment in power generation and lead to demand exceeding the nation's capacity to supply beyond 2014. This will expose customers to potentially more price volatility in a few years.

Surely these arguments are compelling enough for Australia’s businesses to sit-up, listen and take action to decarbonise their operations despite the lack of clear leadership and policy from our Government?

The loss of a bipartisan political environment in Australia, with the advent of the Tony Abbott opposition leadership, has presented a major set-back for Australia’s climate response. This has resulted in many businesses delaying decisive action on energy efficiency and carbon mitigation. This delay places Australia at risk of a competitive disadvantage to proactive nations for decades to come and will cost business dearly as energy prices continue to escalate.

In fact, many of Australia’s largest companies must be congratulated for leading the way to decarbonise their business despite the Government’s clear inaction. At Energetics, we are seeing some of Australia’s leading companies taking a considered, long term position on climate change and making serious investments in carbon mitigation in response to strong public demand for them to move at pace to transition into a low carbon economy. These leading companies are largely consumer orientated organisations such as Commonwealth Bank of Australia and National Australia Bank, Woolworths, Stockland Property Group and AGL.

These organisations recognise the brand value of effective action in this area, and that major investments in carbon mitigation are paying off in their own right through energy savings in an environment of escalating energy prices.

Woolworths, for example, is reducing its effective emissions/floor area by 40 per cent over eight years, and banks like The Commonwealth Bank of Australia, which has a carbon reduction target of 20 per cent by June 2013, and NAB, which is working towards becoming carbon neutral, is substantially reducing its emissions and energy costs.

The Stockland Group is committed to "going beyond compliance" as a stated principle within its Environment Policy, and AGL, describing itself as "Australia's leading renewable energy company", has stated that "..given current policy and market settings, AGL does not have any plans to invest in the development of new conventional coal-fired power stations as the emissions profile is inconsistent with the achievement of these targets" (AGL Greenhouse Gas Policy).

The leadership demonstrated by these household Australian brands should be a strong enough message to the Government that it needs to move ahead with business leaders and accept that this is where the world is heading – eventually.

At Energetics, our advice to businesses has not waivered. We are continuing to advise businesses to take action now to mitigate their climate change risk. Our advice is to:

  • Undertake a broad review of their energy procurement opportunities, which can potentially identify cost reduction opportunities. Recent softening in the wholesale market and changes in network tariffs has shown that there are often good savings for many businesses.
  • Develop a carbon management/climate change strategy: especially those with a significant carbon exposure.
  • Form a view of their full range of emission reduction options – ideally on a three-five year horizon, and also on a ten and twenty year horizon to plan a mitigation strategy. This information forms the basis for planning energy efficiency, energy substitution, renewables and other mitigation options.

align their climate change response strategy to core business objectives. For example, the climate change strategy of a university would include the major training and research and development opportunities associated with climate change response, not just ensuring compliance and determining the (relatively small in this case) impact from a carbon price on the bottom line. A building materials company might consider different building products and perhaps even different business models that would deliver value in a low carbon building future.

Business leaders are responsible for managing risk and seizing business opportunities resulting from a change in business conditions. Climate change is amongst the greatest challenges to humanity for this generation. Action will be taken both internationally and in the domestic sphere – with or without a CPRS - to mitigate this risk. The policies instigated will result in a very significant change to market conditions for many businesses in the short to medium term, and ultimately have an impact on all businesses.

All companies with significant exposure should have a carbon management/climate change strategy. Those businesses that do not have a strategy, risk missing potentially market changing business opportunities as they arise.

To read further information on the deferral, The Minister for Climate Change and Energy Efficiency and Water, Senator Penny Wong, and the Department of Climate Change and Energy Efficiency have released the following factsheet as part of the Budget 2010-11. 

 

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