As widely expected the Australian federal government has confirmed its intentions to scrap the carbon tax (along with the mining rent tax) and instead implement its widely criticised program of Direct Action. Under this policy, companies responsible for large scale Greenhouse Gas emissions will be paid by taxpayers to reduce their emissions. The slightly reassuring news is that these carbon pollution reduction subsidies will only be paid on evidence that emissions have in fact been reduced, ensuring a level of accountability but putting the onus on emitters to fund mitigation projects they believe will be cost effective once the subsidy is applied.

The re-indexation of the petrol excise levy is a more positive step in terms of sending pricing signals that may incentivise fuel users to reduce their consumption and emissions, though from a budgetary perspective the measure is mainly pitched on terms of helping to get the budget back into surplus.

On the other hand the government has not chosen to adjust the Fuel Tax Credits scheme, which subsidises the fuel used by companies by exempting them from the fuel excise, providing considerable benefit to the mining sector amongst others.

Even before the Warburton report into the Renewable EnergyTarget has been completed, the axe has fallen on the Australian Renewable Energy Agency (ARENA), with all but priority, in progress initiatives to be cut. Funding for he Carbon Capture and Storage Program has also been reduced significantly.

Mitigation to one side, the government has honoured its pre-election promise to commit $9m in funding to prolong the work of the National Climate Change Adaptation Research Forum (NCCARF), an academic research body. Its role will be that much more critical if Direct Action leads to less emissions reductions than the Carbon Tax / ETS was expected to deliver.

Talk to Adaptive Capability today for strategic advice relating to environmental and climate change risks.

David.McEwen@AdaptCap.com

Superannuation funds and other managed investments control significant holdings in many companies, large and small. Currently, most funds have featured a high proportion of stocks in resources firms and other businesses with significant exposure to the fossil fuel industry, in line with the relative weightings of major market indices. Some estimates suggest this exposure is over 50%, compared with only about 2% invested in the renewables and energy efficiency sector.

Now imagine fossil fuel stocks fell out of favour with institutional investors. Portfolios worth trillions of dollars would be rebalanced in favour of clean tech and other non polluting industries. The share prices of fossil fuel exposed firms would plummet and it would become increasingly difficult or expensive for them to raise capital to fund new projects.

Couple this with the threat of regulation preventing resources firms from extracting much of their reserves of coal, oil, tar and so on that are still in the ground and it paints a bleak picture for the extractive sector and major downstream users of fossil fuels, whose cost base would rise dramatically.

But how realistic is this scenario? Increasingly, given the growing chorus of respected business and political leaders (in addition to the traditional activists) who are throwing their weight behind the so-called divestment movement.

Take former Australian Liberal Party leader and co founder of Macquarie Bank, John Hewson. His latest venture, the Asset Owners Disclosure Project, asks global institutional investors about their exposure to fossil fuels, rates fund managers according to their divestment actions, and names and shames the recalcitrant. After two years of surveys they are having an impact with a number of large funds announcing plans to divest from fossil fuels.

On the debt finance side of the equation, green groups are targeting major banks that lend to miners, urging customers to switch their accounts to institutions that don’t.

It’s a long road ahead though. Currently in Australia even the so-called ethical and socially responsible investment (SRI) funds continuing to have some level of fossil fuel exposure. But momentum and pressure is building rapidly.

What does this mean for your organisation? Depending on how fossil fuel exposed it (or its supply chain) is, then in the short to medium term reputational and regulatory risk and rising costs could become significant headaches. Talk to Adaptive Capability today about safe guarding your business’ future.

David.McEwen@AdaptCap.com

There’s a lot of talk about carbon and ecological footprints, but what are they and how do you start?

Basically a footprint assessment aims to calculate an organisation’s (or in some cases a product’s) direct and indirect use of natural capital assets (i.e. inputs provided by nature) and/or its contribution to one or more forms of pollution. A carbon footprint concentrates on measuring the emission of man made greenhouse gases (including carbon dioxide, methane and a number of others as defined by the GHG Protocol – a global measurement standard developed as part of the World Resources Institute and World Business Council for Sustainable Development and aligned with the measurement objectives of the Kyoto Protocol).

For many services based organisations it is relatively simple to calculate direct emissions based on use on use of fuel (e.g. by fleet vehicles or building generators). These are called “Scope 1” emissions under the Protocol. For industrial firms, consumption or creation of the full range of GHGs needs to be considered.

Scope 2 emissions are associated with purchased electricity, heat or steam. These are generated by a third party organisation and it’s necessary to understand how they have been produced (black coal, brown coal, oil, gas, wind, hydro) and in what proportion to in turn decide upon an appropriate coefficient to apply to consumption units such as kWh and in turn determine the associated emissions. Fortunately, many state governments have taken the guess work out of this process and publish official coefficients.

Finally, Scope 3 emissions deal with emissions arising because of the organisation’s activities that are not within the organisation’s control. This is where it gets a bit complicated because  at its logical extent it involves understanding the emissions associated with every step of your organisation’s upstream supply chain right back to the extraction of the raw materials and all intermediate processing steps. And not just main suppliers, but everything from office supplies and computers to your use of taxis and flights.

If you’re considering the footprint of a product, you also need to follow the supply chain downstream and look at the emissions associated with all life cycle stages including shipping and distribution (including packaging), lifetime use of the product and end of life disposal.

The bad news is that fully determining Scope 3 emissions and undertaking a full product life cycle assessment can be extremely challenging. In some cases the science and standards are still developing around measuring the impact of different activities. The process also involves the cooperation and effort of numerous organisations who must all be consistently applying a common measurement framework.
Moving beyond GHG emissions and looking at the organisation’s broader impact on the planet’s limited natural capital resources is even harder. Here the Global Reporting Initiative’s measurement standards for ecological footprint reporting are a good place to start.

However, armed with this information an organisation can start to understand how they can reduce their footprint and what changes and innovations will generate the best bang for buck environmentally. They can use their measurement data to benchmark against peer organisations, track their progress towards footprint reduction, and communicate their success to current and potential customers. As awareness of environmental issues grows, more customers and regulators will be demanding comprehensive footprint data.
Talk to Adaptive Capability today for help with starting to measure your footprint or to understand best practice measurement standards.

David.McEwen@AdaptCap.com

We’re starting to see examples of how climate change is impacting our economies, with super storms like Hurricane Sandy disrupting millions of people and causing tens of billions of dollars worth of damage. That’s just the beginning, with water and food shortages, public health and coastal inundation risks set to cause widespread disruption, rising prices and more in the coming decades.

Even now there’s another threat emerging to business as usual, with a global divestment movement urging investors to get their money out of banks and stocks that finance or contribute to fossil fuel emissions.

Enlightened consumers are becoming more discerning in their purchasing, preferring products and services with lower environmental footprints and becoming less susceptible to “greenwash” marketing. Regulation is likely to play catchup over the next 10 years, putting the financial viability of certain industries at risk or outright shutting

Foresighted organisations are thinking hard about the prospects for their products and services, markets, geographies and industries. In some cases they’re realising that business as usual isn’t a medium to long term option and are starting to reinvent their business models to find opportunity in a climate changing and environmentally challenged world.

And it’s not just energy companies. Take coral coast tourism. Australia’s Great Barrier Reef generates over $5 billion per annum in tourism revenues. But the reef is being hit hard by the interrelated quadruple whammy of agricultural runoff creating nutrient rich waters that are attracting destructive pests such as the crown of thorns starfish; rising water temperatures and increased acidification due to increased concentrations of greenhouse gases threatening coral bleaching and loss of biodiversity; increasingly intense storms damaging the reef and coastlines; and, ironically, government endorsed pollution risks in the form of dredging sediments and increased bulk shipping as coal terminals are expanded along the coast. Indeed, UNESCO recently reviewed the status of the World Heritage listed area and criticised Australia’s stewardship of the reef.

Any owner of tourism infrastructure assets along the coral coast should be extremely nervous about the value of their investments. Operators may be able to take advantage of “last glimpse” tourism before the reef is degraded to the point that it ceases to be a viable attraction. Exposed organisations should be starting to plan for the reinvention of their business models.

Talk to Adaptive Capability today about safeguarding your business’ future.

David.McEwen@AdaptCap.com