Sally Miles is a freelance writer on sustainability and climate change.
This piece has been written on behalf of the Carbon Reduction Institute (CRI). CRI is one of Australia’s most experienced and reliable carbon management organisations. CRI offers carbon management and energy efficiency solutions for business and industry, with a strong emphasis on disclosure and communication. CRI’s flagship program, the NoCO2 Certification Program is the most recognisable climate change certification for organisations
With the carbon tax set to go ahead and potentially change the shape of Australian industry, what does it all mean for your business and how can you go about preparing for it? Better yet, how can you take advantage of thes changes to benefit your business?
A price on carbon, referred to by the Federal Government as ‘like a tax’ is indeed a tax which will come into effect from July 1, 2012 and evolve into an emissions trading scheme by 2015.
Making sense of the tax
The legislation to be introduced is essentially a mix of former Federal Government Climate change Advisor, Professor Ross Garnaut’s recommendations and what was originally in former Prime Minister Keven Rudd’s ‘Carbon Pollution Reduction Scheme (CPRS). It includes 18 bills, the flagship one being the Clean Energy Bill 2011. This bill will create the mechanism to place a dollar value on emitting greenhouse gases into the atmosphere.
One tonne of CO2e (Carbon Dioxide equivalent) emitted after July 1 2012, will require a payment of $23 to the government from the 500 largest energy users or ‘polluters’ in the country. This price of $23 is expected to rise by about 2.5% each year until it will be set by the market three years later.
These 500 largest energy users or ‘polluters’ subject to the tax, will account for more than 60% of Australia’s climate change impact. A carbon price will not apply to agricultural emissions or emissions from light on-road vehicles. Farmers won’t have to pay it, but they will receive incentives for every tonne of carbon they save from entering the atmosphere.
Only approximately 10% of these operate nationally – the rest are state based operators.
These estimates are based on the National Greenhouse and Energy Reporting (NGER) data. According to the Government, ‘The NGER Act will underpin the proposed carbon pricing scheme by providing the emissions data on which to base reporting obligations.’
The tax is projected to cut Australia’s emissions by 5% by 2020 and 20% by 2050. The equivalent of 45 million cars off the road, or 159 million tonnes of CO2e reduced. Whilst this might appear to be a weak target, it can also be looked at as an important first step towards transitioning to a Low Carbon Economy.
Whilst the tax hits big industry the hardest, it also compensates generously – for a few years anyway. A government initiative in the form of the Steel Transformation Bill will introduce compensation tohelp the steel industry. It contains a very favourable package for the industry with five years worth of benefits which will actually see a gain of ~$4.50 a tonne. However this will need to be used to adapt and prepare for after that period when there are no longer cost protections in place.
This is hopefully the key to driving industry to innovate. The cost pressures this tax creates need to be perfectly aligned with the benefits so as to incentivise change whilst not damaging business.
Rob Cawthorne, Managing Director of the Carbon Reduction Institute, says “Emissions intensive industries have a great opportunity to leverage off the government’s compensation package andimprove their operational efficiencies. This could see a turnaround of some sectors towards becoming the most efficient in the world.”
How will it affect you?
Exactly what impact this major tax reform will have on the Australian businesses can’t be fully known until it happens. With all its good intention to drive industry to innovate, it will of course drive prices up for everyone.The most visible effect of the tax on the population will be in electricity prices. Every household and business in the country will see a price rise, in addition to those already occurring due to significant network expenditure requirements. In NSW this is estimated to be at least 10% per year.
Of course, the government will be providing compensation for this too. More than 50% of the money raised from the tax will be returned to households. According to the Government, the average household costs will rise by ~$9.90 per week, whereas the average compensation will be worth $10.10 per week. The compensation comes in the form of tax cuts (the tax free threshold will be tripled), increases in the pension and family assistance payments.
Most businesses will experience price rises through electricity costs, general price increases of goods and services resulting from increased cost of resources and probably waste disposal costs. The best way to prepare for these cost increases is to counter them with reductions in expenditure, and additional marketing to attract new business.
What can your business do?
So where do you start? If your organisation is ready, willing and able to improve its efficiency and lower its climate change impact, the steps to achieving this are relatively simple. There are several credible means by which a company can go through the process of lowering its carbon footprint or even ecoming carbon neutral.
In order to create an effective carbon reduction plan, you must first measure what your carbon footprint is. This usually comes in the form of an ominously named ‘carbon audit’. This can be as complicated or as simple as you like, though if you’re looking to make any environmental claims such as carbon neutrality, you will need to undergo a full carbon assessment. It doesn’t need to be as painful as it sounds.
Most calculation methods are based on the Greenhouse Gas (GHG) Protocol. This is the ‘most widely used, international accounting tool for government and business leaders to understand,quantify and manage greenhouse gas emissions... It provides the accounting framework for nearly every GHG standard and program in the world.’
The GHG Protocol categorises emissions into Scopes 1, 2 and 3 and requires organisations report on Scope 1 and 2, with Scope 3 as optional. Scope 1 covers all of the direct emissions ‘on-site’ that a company owns or controls such as the combustion of fuels, vehicle fleets and refrigerants. Most companies eligible for the carbon tax will have large Scope 1 emissions.
Scope 2 covers indirect emissions a company purchases such as that from electricity generation, heat or steam. Scope 3 covers all other indirect emissions such as those embedded in products purchased, services used, waste disposal, business travel and employee travel in non-company owned vehicles.
Given most of this dictates the measurement of carbon related to purchases by a company, the most efficient way to measure a carbon footprint is to study a company’s chart of accounts, among other things. Most service-based businesses will not necessarily have a high Scope 1 impact, though may find emissions from electricity use and travel to be their largest impact depending on the nature of the business.
Much like analysing expenditure or paying attention to a budget; the mere process of undergoing a carbon assessment can make reductions apparent.Many companies make their staff and stakeholders aware of the assessment process and this in itself can inspire a positive reaction.
Behavioural changes in a company should not be underestimated. Electricity bills can be cut by as much as 40% from simply guiding staff to do the right thing and switch machines and lights off when not in use.
There are also very elegant solutions to improve energy efficiency. Lighting controls, power factor correction and compressor optimisation technology are just a few of the relatively small investmentswhich can return dollars in a very short time.
The well known ‘low hanging fruit’ of changing light globes is also becoming more refined. Products are continually improving in quality and performance and now can be easily retrofitted over existing globes and tubes to literally halve lighting costs while maintaining or even improving lux levels.
Energy efficiency can be the most attractive way for a company to reduce its emissions. It’s best to have a well thought out strategy which uses the carbon assessment to determine most effective actions to take and optimal returns on investment.
If you’re after the added marketing advantage of lowering your climate impact, there’s the option to purchase carbon offsets – effectively reducing your emissions immediately by paying someone else to reduce emissions elsewhere. If you offset all of your emissions, you are in a position to be certified carbon neutral.
Offsets or ‘Carbon Credits’ represent one tonne of CO2e which is avoided being emitted due to a project successfully displacing the need for polluting greenhouse gases; examples include new wind farms, energy efficiency installations or methane capture ventures.
Each tonne of greenhouse gas that is saved by these projects can be registered through 3rd party accreditation agencies and then sold as a carbon offset. A company can then purchase these carbon offsets to negate their own emissions.
Companies eligible under the carbon tax can do this, though they will need to purchase Certified Emission Reductions (CERs) which are a type of carbon credit issued by the Clean Development Mechanism (CDM) and verified under the Kyoto Protocol.
While all carbon offsets represent the sequestration of one tonne of CO2e, different projects, even with the same accreditation can have different outcomes for the environment. Therefore it is crucial that you carefully assess what type of credits to buy and where to purchase them. The Carbon Reduction Institute has a guide to purchasing carbon credits downloadable from their website which also explains the National Carbon Offset Standard (NCOS), the Australian Government’s rebranded Greenhouse Friendly program.
It is also important to remember that once a commitment is made to be branded carbon neutral, it is not a set-and-forget exercise. It requires ongoing effort to monitor and reduce emissions. It should reflect a cultural change in your organisation and one which should be embraced by employees and stakeholders to ensure its sustainability.
Turning a tax into a goldmine
There are numerous examples of companies voluntarily implementing sustainability and energy efficient measures and reaping the benefits of these with customers, staff and stakeholders.
Australian Mercure Hotels, a customer of the Carbon Reduction Institute’s (CRI) NoCO2 Certification Program have seen a marked improvement in their revenue since making their Mercure Meetings Service carbon neutral.
Their carbon impact is measured and monitored by CRI and the proportional impact of each meeting or conference held at their venues is calculated and offset with verified carbon credits. The hotel chain absorbs the costs, with the expectation of increased business. And it’s working. They experienced a 41% increase in revenue the year they became certified, attracting new customers from companies looking to improve their own practices and profile. For theircustomers, they get to hold an external meeting which is certified carbon neutral at no extra cost, which also happens to make a great impression on stakeholders.
Emily Hoare, Assistant Brand Manager at Accor Asia Pacific says “We are confident we will see a further increase in performance of the Mercure Meetings Service. Feedback from the National Advisory Board supports this. They have confidence in the Mercure Meetings product both from an environmental and service perspective.”
Mercure meetings have offset 7,363 tonnes of CO2e since 2008 which is the equivalent of 2,907 vehicles off the road annually.
Whilst this is an example of a self-imposed price on carbon, it demonstrates a case where there is enough customer interest to provide a tangible incentive for making changes to an organisation’s carbon impact. It shows genuine ‘Green’ Marketing can produce results which are more than just rhetoric.
There are opportunities everywhere to create a niche market or an improved sustainability angle. Carbon neutral products are exploding onto the marketplace. As are carbon reduction and energy efficiency products.
Companies which operate in the energy efficiency sector have a great opportunity to sell to this expanding market. With the assistance of statebased statebased
programs such as the Victorian Energy Efficiency Target (VEET) and the NSW Energy Savings Scheme (ESS), energy efficiency is further incentivised.
The ESS is a mandatory scheme that creates a market for tradable Energy Savings Certificates (ESCs). These ESCs are created by accredited parties when they undertake activities to improveenergy efficiency in commercial, industrial or residential locations in NSW. Electricity retailers in NSW are required to purchase these ESCs, creating a market and price incentive to undertake the energy efficiency activities.
This particular scheme commenced in 2003 and was one of the first mandatory Greenhouse Gas Emissions Trading Schemes in the world. So we’ve actually had an emissions trading scheme all of this time, which works well and encourages both consumers and industry to take action on climate change.
What about the rest of the world?
Despite the GFC and other roadblocks, action on climate change is set to take centre stage around the world. Other countries with a carbon tax include Finland, The Netherlands, Denmark, Sweden, Switzerland, Ireland, Costa Rica and India. The list of countries involved in an operating emissions trading scheme is long and includes many European Countries under the EU ETS as well as New Zealand, Republic of Korea (trial) and 10 of the US under the Regional Greenhouse Gas Initiative (RGGI).
As the Australian public’s understanding of climate change deepens, we are likely to see even more sentiment towards lowering our climate impact. Whilst many currently feel that the carbon tax is anun welcome imposition, the changes it will bring about and the long term effect of those changes are hoped to overcome this. In fact, the government is relying on it.
For many businesses, the politics and the climate have very little bearing on day-to-day business decisions. However, activities such as improving marketing and cutting operational costs make too much sense to ignore. It’s time toembrace these changes, adapt to them and turn them to your advantage.