Busi­ness can­not ig­nore car­bon

Com­pa­nies fail­ing to adapt to car­bon trad­ing will be left be­hind in the econ­omy of the fu­ture, writes Keith Orchi­son

The Weekend Australian - Review - - Investments -

THE in­tro­duc­tion of car­bon emis­sions trad­ing in Aus­tralia her­alds an in­dus­trial revo­lu­tion, say man­age­ment con­sul­tants Price­wa­ter­house­Coop­ers, and com­pa­nies un­able to adapt risk dam­age to their rep­u­ta­tion and brand.

The Rudd Gov­ern­ment in­tends the scheme to com­mence in 2010 and PwC warns that in­dus­trial com­pa­nies must act ur­gently to as­sess the risks they face, and to set up ro­bust sys­tems to man­age their car­bon costs.

Graeme Billings, in­dus­trial prod­ucts leader for the con­sul­tants, in in­tro­duc­ing a re­port on Aus­tralian busi­ness pre­pared­ness for a car­bon- con­strained era, says that ma­jor en­ergy users have a lot of work still to do. They have been slow to re­spond to the chal­lenges of cli­mate change man­age­ment com­pared with their in­ter­na­tional peers and com­pa­nies in other in­dus­try sec­tors.

PwC claims that, while Aus­tralia’s re­sources sec­tor is a leader in its aware­ness of the is­sue and its prepa­ra­tion for a car­bon­con­strained econ­omy, the in­dus­trial prod­ucts sec­tor ap­pears a weak link’’ in the sup­ply chain for a range of mar­kets. The sec­tor, pro­duc­ing ma­te­ri­als such as steel, glass, chem­i­cals and plas­tics, sits in the mid­dle of the chain run­ning from en­ergy sup­pli­ers to con­sumer goods providers and re­tail­ers.

Man­u­fac­tur­ers are ac­count­able, ac­cord­ing to the con­sul­tants, for about 69 mil­lion tonnes of green­house gas emis­sions a year — 12 per cent of Aus­tralia’s to­tal — mak­ing them the third- largest emit­ting sec­tor.

The first step in the revo­lu­tion’’ is the start of the Na­tional Green­house and En­ergy Re­port­ing Act next month. This af­fects some 700 com­pa­nies, in­clud­ing power gen­er­a­tors, min­ers and large man­u­fac­tur­ers. Data gath­ered from them will un­der­pin emis­sions trad­ing.

The new sit­u­a­tion, PwC warns, ex­poses in­dus­trial com­pa­nies not only to stiff penal­ties for fail­ure to com­ply with reg­u­la­tions on re­port­ing emis­sions un­der leg­is­la­tion that takes ef­fect in July, but also to pres­sure from their share­hold­ers and fi­nanciers as well as from com­pa­nies fur­ther down the sup­ply chain, com­peti­tors, con­sumers and their staff.

Com­pa­nies, urges PwC, should see car­bon trad­ing as an op­por­tu­nity to seize a strate­gic ad­van­tage rather than as a reg­u­la­tory com­pli­ance is­sue.

Big en­ergy users will face cost in­creases in 2010, they say, and can ex­pect that the mar­ket­place will im­pose penal­ties on firms that lack strate­gies to man­age such costs once the car­bon charge regime is in place.

Fi­nanciers and share­hold­ers, they add, will de­mand in­vest­ment- qual­ity data on com­pa­nies’ emis­sions and en­ergy costs. Compa- nies that do not pro­vide it might face dif­fi­culty in se­cur­ing fund­ing, or lose share­holder sup­port and see their share price de­cline.’’

A sur­vey car­ried out by the con­sul­tants last Novem­ber found that, while 80 per cent of in­dus­trial prod­ucts com­pany ex­ec­u­tives agreed that busi­ness should play a role in green­house gas abate­ment, 76 per cent of man­u­fac­tur­ing man­agers were un­sure of the risks they faced and 73 per cent said they had taken no ac­tion to man­age the is­sues.

Only 20 per cent of in­dus­trial prod­ucts busi­ness lead­ers said they un­der­stood how their com­pany could profit from emis­sions re­duc­tion and off­set op­por­tu­ni­ties.

Ninety- six per cent of man­u­fac­tur­ers, PwC claim, did not fully un­der­stand their re­port­ing obli­ga­tions and less than 2 per cent had a high level of con­fi­dence in their data.

By con­trast, say the con­sul­tants, 95 per cent of re­source com­pany ex­ec­u­tives re­ported that they had taken ac­tion, such as in­tro­duc­ing new busi­ness poli­cies or pro­ce­dures, had changed their strat­egy or had hired ad­vis­ers to iden­tify the risks and op­por­tu­ni­ties con­fronting them.

Price­wa­ter­house­Coop­ers urges Aus­tralian busi­nesses to pur­sue an eight- point plan to­wards build­ing in­come, brand value and rep­u­ta­tion in a car­bon- con­strained econ­omy:

Make the is­sue a pri­or­ity at board level and em­power ex­ec­u­tives to over­see a car­bon man­age­ment strat­egy.

Es­tab­lish a bud­get to fund the cor­po­rate re­sponse.

Re­view op­er­a­tions to as­sess the true cost of car­bon to the or­gan­i­sa­tion and the risks it faces in the new econ­omy.

Set up in­de­pen­dent au­dit­ing sys­tems for track­ing and re­port­ing en­ergy con­sump­tion and green­house gas emis­sions.

Fore­cast emis­sions and set tar­gets.

Re­port on emis­sions within the com­pany and ex­ter­nally to meet the ex­pec­ta­tions of reg­u­la­tors, share­hold­ers, cus­tomers and staff.

In­ves­ti­gate new mar­kets and how the com­pany can ben­e­fit from car­bon trad­ing.

Niche prod­ucts that re­spond to the new en­vi­ron­ment have the po­ten­tial to be a ma­jor growth en­gine for man­u­fac­tur­ers,’’ says PwC.

Bench­mark progress against the com­pany’s com­peti­tors.

re­duc­tion

Mean­while, in its 2008 global util­i­ties re­port, PwC notes that un­cer­tainty over how emis­sion per­mits will be al­lo­cated un­der the Rudd Gov­ern­ment’s pro­posed scheme re­mains a crit­i­cal is­sue for the Aus­tralian power gen­er­a­tion sec­tor.

How the is­sue is re­solved will have a ma­jor in­flu­ence on Aus­tralia’s en­ergy sup­ply cer­tainty and on private sec­tor in­vest­ment in gen­er­a­tion, the con­sul­tants add.

They re­port that Aus­tralian en­ergy sup­ply re­spon­dents to the global sur­vey view en­vi­ron­men­tal com­pli­ance as the num­ber one chal­lenge fac­ing their busi­ness in the pe­riod ahead. Sup­pli­ers also ex­press a high level of un­cer­tainty about the fu­ture of en­vi­ron­men­tal schemes that sup­port

green’’ in­vestors.

Man­ag­ing: Prime Min­is­ter Kevin Rudd vis­its the Huan­geng Bei­jing power plant to see a CSIRO in­ven­tion de­signed to cap­ture car­bon

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