Gauging business’ understanding and response to Direct Action

Gauging business’ understanding and response to Direct Action

Energetics recently completed a series of briefings nationwide to outline and discuss the Direct Action plan and its implications for business should the Coalition win office. Representatives attended from a broad cross section of the economy including manufacturing, industrials, commercial, mining and government organisations. The feedback received provides insight into businesses’ readiness to manage the programs emerging from the Direct Action plan, and the questions that remain to be answered.

Read Energetics' full report.

 

Key findings from the Direct Action business briefings and webinar

Penalties should match the cost of abatement under Direct Action

Energetics conducted a poll in our webinar which 73% of participants indicated support for penalties being imposed on under-performing businesses, that match the cost of reducing emissions.  Currently, the Emissions Reduction Fund (ERF) outlined in the Direct Action plan only intends to reward emissions reduction activities.  The result suggests a preparedness to accept appropriate penalties for underperforming businesses, provided there is a level playing field.

Support for renewables to meet our international obligations

In this webinar poll, 51% supported renewables, 20% were in favour of energy efficiency measures and 19% supported a move from coal to gas powered electricity generation  (bearing in mind that gas prices are expected to escalate on the east coast from 2015, thereby reducing its use in the energy mix).  9% were in favour of purchasing international carbon permits and 3% supported carbon sequestration in soil.  

Questions across the briefings and the webinar were also raised about the future of the Renewable Energy Target (RET).  Business wanted to know if the RET would continue in its current form, whether it is Coalition policy to retain tradeable Renewable Energy Certificates, and whether support for solar from Small-scale Technology Certificates (STCs) would be abolished under Direct Action and if so, what mechanism would support small-scale generation.

These questions from business are particularly interesting in light of Energetics’ recent analysis which showed changes in the way Australians use energy.  One of the most significant trends we’re seeing is the rapid growth in renewables, particularly solar PV, which is reshaping Australia’s energy mix.  This, and a number of other factors, has reduced the national emissions forecast to 2020.  The abatement challenge that Direct Action must work to achieve has been calculated to be 275 million tonnes CO2-e reduction by 2020, down from the 2012 government forecast of 786 million tonnes.

Outstanding questions about the Direct Action plan:

  • Can Direct Action achieve emissions targets within the allocated funding arrangements, especially given ongoing Budgetary pressures?
  • Concerns remain about the operation of the Emissions Reduction Fund.  Questions span five major areas:
    • Businesses report emissions under the current National Greenhouse and Energy Reporting scheme as a single entity, so how will a Direct Action baseline, drawn from the National Greenhouse and Energy Reporting (NGER) Act, account for different business activities?
    • The relationship between production and emissions levels is not always obvious. How would a baseline account for variations?
    • Business is not clear about how a reverse auction would work under the Emissions Reduction Fund. Concern was also expressed that some energy efficiency activities might be regarded as ‘business as usual’ and therefore not eligible.
    • How does business growth and expansion effect the calculation of emissions reduction baselines?  How would a baseline be established for a new entrant? Will this be based on an industry average?
    • Will the Clean Energy Regulator be able to validate enough methodologies to allow the ERF to begin operation of 1 July 2014? What measures will be in place to assist business to reduce emissions and improve efficiency in the interim? 

 

If the Coalition wins office, how soon could we see Direct Action come into effect?

An implementation pathway for Direct Action has been outlined:

  • Repealing the Clean Energy Future package of legislation will be the first order of business for a new Coalition government.
  • A White Paper process will be held after the election.
  • It will provide an opportunity for industry to make submissions on issues such as the timing of the auction process and the setting of baselines.
  • It will start within 30 days of being elected, with consultation held between Days 60 and 100.
  • The White Paper will be released on Day 100 along with draft legislation.
  • The Coalition’s plan is to commence Direct Action and the operation of the Emissions Reduction Fund on 1 July 2014.

Energetics' advice to business

There are a number of issues that need to be considered ahead of time.  Energetics advises that your business consider the following:

  • Scheme requirements and timing. Prior to repealing the carbon price, the Coalition will need to consider the entirety of the legislative package, and whether there are other pieces of legislation that need to be repealed. Also, the impacts of repealing the carbon price in isolation will need to be assessed.  The Coalition intends to initiate a White Paper process within 30 days of the election, with consultation between Days 60 and 100, and drafting of legislation to start by Day 100.
  • Businesses should monitor policy developments, evaluate as details emerge, quantify business impacts and develop a position.
  • Repealing the Clean Energy legislation (consisting of 17 pieces) will be complex and time consuming.  As part of your risk management strategy, prepare for the possibility of the carbon price remaining and budget for this scenario accordingly.
  • There is uncertainty over the definition of baselines under Emissions Reduction Fund.  Baselines may be set at industry level, operations level or activity level.  Business should form a position on Direct Action and be ready to participate in the White Paper consultative process.
  • There will be financial penalties for emissions that increase beyond a business-as-usual scenario.  However, the actual incentives and penalties for emissions reductions activities are unknown. The size of the penalties will be on a sliding scale commensurate with the size of the business and the extent to which they exceed their ‘business as usual’ levels.  More details should become available during the White Paper consultation period. If cost effective, a business should consider direct investment at site and facility level to reduce emissions from the ‘business as usual’ baseline.

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Dr Peter Holt

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