Business still considering how to plan for a carbon price: Ernst & Young
Tuesday, 8 November 2011— Speaking today at Carbon Expo Australasia, Ernst & Young’s climate change and sustainability leader Mathew Nelson said businesses now had short term certainty with the passing of the Clean Energy legislation, but without bipartisan support for the legislation they were hesitant to plan for the medium to long term.
This view was echoed by senior executives at the expo today.
“Uncertainty is impacting on the way businesses are making medium and long term investment decisions that incorporate carbon pricing. The sooner we move to an unrestricted market then business can make concrete plans around their valuations and transactions and the sooner they can appropriately price their products and services,” Mr Nelson said.
“The ability of businesses to begin to prepare for full trading is also impacted and there is a sense of hesitancy in getting into the forward market until there is greater certainty,” Mr Nelson said.
Mr Nelson said it is critical that businesses respond and focus on the development of climate change and emissions reporting strategies in the short term because not doing so runs the risk of:
- not fully understanding and as a consequence, not meeting compliance requirements and obligations
- ending up with longer term disputes associated with legal contracts related to the ability to adjust prices to recover costs associated with a carbon price
- being the subject of Australian Competition and Consumer Commission scrutiny, particularly where economic analysis for cost pass through can’t be justified
Measures that need to be undertaken immediately include:
- Establish a Governance Committee or equivalent to ensure issues are effectively managed across the business and roles and responsibilities are clear
- Develop systems for compliance
- Consider joint venture agreements and confirm or agree who will take on liability
- Determine asset valuations and perform fully costed impairment tests
- Develop or review model to assess the impact of carbon from upstream suppliers
- Assess strategies to pass on the carbon pricing costs to downstream customers and markets
- Develop accounting treatment policy
- Validate the quality of emissions data
This should be part of a comprehensive carbon strategy which covers internal abatement, purchasing credit based on marginal abatement cost curve assessments and re-engineering of business processes.
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