The price is still not right

04 Jun 2007Archived News Energetics in the News

PUBLISHED: BRW Magazine By Kate Burgess Tony Cooper, Managing Director, Energetics Pty Ltd is asked by BRW to comment on the compelling business case for the efficient management of energy when planning for a future emissions trading scheme in Australia.

 

The Federal government’s report on emissions trading leaves a lot to be desired – business still wants answers on carbon prices.

Industry associations and businesses breathed a collective sigh of relief at the Prime Ministerial Task Group on Emissions Trading’s report. Its findings – that a national cap and emissions-trading scheme should be established by 2012 at the latest – are a win for business in principle, but an overtly cautious approach only adds to mounting uncertainty.

Two glaring omissions mar an otherwise well-received report. The task group has sketched a high-level impression of what an emissions trading scheme should resemble, but essential details, including setting a carbon price – or at least an indicative price path – and an overall target for emissions reductions, have been conveniently overlooked.

Unfortunately for business, being kept in the dark about carbon prices and emissions targets does little to stifle growing uncertainty among owners and managers who need to know how a cap on emissions and a carbon-trading system will affect their operations.

The report’s precautionary tone almost spookily echoes Prime Minister John Howard’s stance on climate change – it justifies delaying action until after 2020 because it would require stopping emissions from all coal-fired power stations and taking all the cars off the road.

Environmental groups, of course, vehemently deny this logic. “People who advise a wait-and-see strategy ignore that we will have to have significant reductions in pollution by 2050,” The Climate Institute Australia’s chief executive, John Connor, says. “But the fact is, we can reduce emissions without significantly curtailing economic growth.”

Ironically, in mirroring the prime minister’s “economic” approach to dealing with climate change, the task group has in fact left much of the vital detail of establishing emissions trading to the government, PricewaterhouseCoopers partner Andrew Petersen says. “We need targets, time lines and prices. The report doesn’t provide the certainty that business needs.”

Without a carbon price or a reduction target, business will have a hard time playing the emissions game – it lacks both the ball and goal posts. Ecos Corporation managing director Paul Gilding says that such a lack of certainty will only lead to more excuses for inaction.

“Now you have to take into account carbon emissions but you still can’t calculate the cost of what these might be in analysing investment decisions,” he says. “Until we have clarity in the system, there will be no significant activity to cut emissions. Nothing of substance will happen.”

“While there may be good reasons for not setting a precise cap on emissions [now], in order to begin planning investments, business needs some guidance on . . . [expected] carbon prices,” Deloitte partner Jon Stanford says.

“It is a cop-out to claim that no economic modelling has been done to allow responsible caps to be set,” he says. “Australia is awash with modelling that has been undertaken in the last few years.”

The report at least encourages early abatement and indicates that companies that implement carbon reduction programs before 2012 may be able to earn credits when the scheme begins.

Energetics chief executive Tony Cooper points to a compelling case for early action.

“Look at how you use energy in your business today – cutting emissions improves your bottom line. So when a scheme comes in you’ll be ahead. Provided you keep good records, you will be able to claim benefits when it does come in.”

Industry groups welcome the scheme’s design fundamentals, particularly in terms of the sectors it covers. “By introducing fuel distributors into the scheme, 70 per cent of emissions will be incorporated into a reduction scheme. In Europe, it only encompasses 35-45 per cent,” Business Council of Australia policy adviser Monica Richter says. “It takes a long-term trajectory of at least 30-40 years – this gives a greater incentive for investment.”

While all sectors of the economy that emit carbon are included in the scheme – with the exception of the waste and agricultural industries – it is still too early to tell which sectors, if any, will profit at the expense of other parts of the economy.

Exactly who will receive free permits is the subject of fierce debate. Ecos Corporation’s Gilding illustrates a possible face-off between the oil and gas industries. “The coal industry, which emits the most CO2 will want to have free permits, but gas generators might want to purchase permits because they emit less [than a coal-fired power generator]. This will pit industry against industry. Winners and losers are entirely designed by the system,” he says.

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