Carbon Pollution: Business Opportunities For 2009
2009:Green opportunities become a reality
2008 has seen many significant changes in the environmental sector culminating in the release by the Federal Government (Government) of its White Paper titled 'Carbon Pollution Reduction Scheme, Australia's Low Pollution Future' on Monday 15 December 2008 (White Paper) and the revised National Renewable Energy Target (RET) released for consultation on Wednesday 17 December 2008. My initial review of the RET, coupled with the NSW Government's planned introduction of a 'feed-in tariff' for surplus solar power, is that 2009 could be a great year to incorporate renewable technologies into your business and household.
The White Paper sets Australia's interim target for national emissions as well as the final design of the Carbon Pollution Reduction Scheme (CPRS).
The White Paper sets an interim target of either:
- an 'unconditional' 5% reduction in carbon pollution below 2000 levels by 2020; or
- a 'conditional' up to 15% reduction in carbon pollution below 2000 levels by 2020 if a global agreement is reached between the major economies to substantially 'restrain' carbon pollution and advanced economies take on reductions comparable to Australia.
Much has been written recently about the interim target in the media and how effect such a target will be. What has become clear, is that if Australia's long term target is for a 60% reduction in carbon pollution below 2000 levels by 2050, then at least 55% of that 60% target will be required to be met between 2030-2050. My 7 years Renewable Energy experience in the UK suggests that, if we are to meet that target, we need to have a smooth running green economy in place that can gear up to these challenges in the future.
Energy Efficiency: the low hanging fruit
As McKinsey & Company's cost curve on greenhouse gas abatement shows, we can make quick and easy gains through incorporating energy efficiency measures at home and in our businesses. So the RET and the NSW 'feed-in tariff' are important drivers. In addition, the Federal Government propose to release Energy Efficiency measures shortly.
There are also two new funds available to assist business implement Energy Efficient technologies, namely:
- the $2.15 billion Climate Change Action Fund invested over five years to help business, community sector organisations, workers, regions and communities adjust to low pollution future; and
- for larger projects, the $500 million Renewable Energy Fund to help develop, commercialise and deploy renewable energy in Australia.
What is of immediate importance to 'all' business (not only those businesses statutorily liable: because all businesses will be affected by a carbon price of $25 t/GHG), is that they understand the risk and opportunities available to them so that they can not only 'abate' but 'adapt' to the new carbon economy.
Coupled with a need to 'adapt' is the realisation that more measures that complement the CPRS are likely to be required as this has been the reality in the UK and businesses that 'adapt' today will be better placed tomorrow. One example is the Shadow Price of Carbon (SPC) that has been implemented in the UK which is a separate price on carbon from the market price implemented by the UK Government: its intention is to put a price on the social costs, which in Australia's position is the loss of the Great Barrier Reef, Kakadu Wetlands and Ningaloo Reef.
The Renewable Energy Target
The RET creates Renewable Energy Certificates (RECs) which are tradeable commodities for each megawatt hour of electricity generated from a renewable source. The RET is Australia's core 'complementary measure' designed to incentivise renewable energy development.
The proposed regulations for the RET introduce a 'multiplier' for RECs created by small generation units (small solar PV, small wind turbines and micro-hydro systems) from 1 July 2009. The multiplier would decrease over time from five RECs for every megawatt-hour of deemed renewable energy for systems installed from 1 July 2009 to 30 June 2012, to one REC for every megawatt-hour installed from 1 July 2015 onwards. For each micro-generation system, the multiplier would apply to the first 1.5 kilowatts of system capacity. Generation above the 1.5 kilowatts will still be eligible for the standard 1:1 rate of REC creation.
The 'multiplier' should be a huge incentive to business and households in implementing renewable technologies into their business, coupled with the proposed feed-in tariff in NSW for photovoltaic's.
However, what is missing is a similar concept for larger base load projects which is coming into force in the UK in April 2009 with the 'banding' of their Renewable Obligation Certificate (similar to our REC). This is important, because it assist large base load projects become bankable.
Remember, the 'green economy' is the fastest growing economy in the UK: so, first movers, take note.
Climate Change Business Risk & Opportunity
We recently launched, in association with GHD (International Technical Consultants) a Climate Change Business Diagnostic (Diagnostic).
The Diagnostic enables businesses to use a structured and transparent process to identify the core Climate Change legal drivers affecting their business and/or bespoke projects. The Diagnostic then identifies the auditing, disclosure, reporting, technical, funding, legislative, contractual and operational options available to assist you implement your own Climate Change Strategy. Such an approach can ensure your business has a structured approach and is able to identify any 'gaps' that exist in your current strategy. It will also assist your business effectively communicate your Climate Change strategy to the market as well as reduce the risk of liability your business faces for 'greenwashing'.
A snapshot of the Diagnostic and an evaluation questionnaire can be downloaded at www.swaab.com.au.
Other Drivers of Change
Some of the other core drivers of business Climate Change compliance are:
- reporting and monitoring under the Energy Efficiency Opportunity Act 2006 (Cth) (EEO Act) as well as the National Greenhouse & Energy Reporting Act 2007 (Cth) (NGER Act). Many businesses may not know that the 'corporate group' thresholds in s.13 of the NGER Act actually decrease during the first three years of the NGER Act's operation and are likely to capture many businesses. Failure to comply with the NGER Act may result in fines and/or personal liability;
- a businesses' corporate obligations (whether it is listed or unlisted) under ss.180, 181 and 299, 299A of the Corporations Act where it is clear that business must consider the 'environment' when operating their business. Listed companies must also comply with ASX Corporate Governance Principles, in particular, Principle 3 (Ethical Decision Making) and Principle 7 (Risk Management);
- a businesses' Environmental Corporate Social Responsibility (E-CSR); and
- Principles for Responsible Investment (PRI) which are now a feature of investors' investment analysis which is evidenced through their 'screening' of investments as well as 'shareholder resolutions'; and
- Reputational Risks to Business.
Businesses need to address their Climate Change risk head on if they wish to adapt and prosper as there are opportunities as well as risks. Due to the popularity of the first conference introducing the Diagnostic, Dermot (with Antony Sprigg: GHD) will be hosting a second in-house conference in mid/late February 2009. The focus of the second conference will be specific drivers/risks/opportunities to business, such as: the White Paper, the RET, the NSW Feed-In Tariff, Contractual Clauses dealing with, carbon pass through, change in law, third party income and termination risks and how business can mitigate their legal exposure as well as technical input on abatement and adaption options.
Swaab was recently named winner 'Best Law Firm in Australia (Revenue < $20m)' and 'Attribute Award for Exceptional Service (Australia Wide)' and at the 2008 BRW- Client Choice Awards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.