Countdown: Preparing business for a carbon constrained world

Tuesday, 19 July 2011

• Business advised to develop strategy for carbon price immediately
• EY's 10-step plan to help business prepare

Australian businesses need to explore the challenges as well as analyse the raft of stimulus packages being offered under the government's Climate Change Plan: Securing a Clean Energy Future, to avoid missing opportunities.

With a confirmed starting date of 1 July 2012 and draft legislation to be released later this month, there is less than a year to develop and implement a comprehensive strategy that identifies opportunities and reduces risks in the new business environment.

Mathew Nelson, Ernst & Young's Oceania Leader, says that the plan clarifies many important details of the proposed carbon pricing policy allowing corporates to make strategic business decisions ahead of the implementation date.

"The government's plan is comprehensive yet complex and the implementation timetable is extremely challenging. Business now have the details of key scheme design elements, including a starting carbon price and dates for the fixed price period and confirmation of what is in and what is out," says Mr Nelson

"We are advising businesses to develop their response immediately. This will give business the maximum time to think through the complexity of options and ensure opportunities are maximised," says Mr Nelson

Mr Nelson says companies will be well prepared for the 1 July 2011 start date if they understand the direct impacts to their business, review monitoring and reporting procedures, develop marginal abatement cost curves, understand their supply chain, understand their exposure to the carbon price and have undertaken a fully-costed impairment test.

Ernst & Young's quick '10 step' implementation checklist for liable and impacted entities

To help in planning for the implementation of the fixed price period commencing 1 July 2011, business should consider undertaking the following tasks, if not already completed:

1. Establish a Governance Committee or equivalent to ensure issues are effectively managed across the business and roles and responsibilities are clear
    
2. Validate the quality of your emissions data and build your forward emissions profile into your strategic plan to provide a sound basis for strategic decision-making
    
3. Identify your direct obligations
    
4. Review supply chain implications and consider the impact of carbon on upstream suppliers and downstream customers
   
5. Trade exposed, emissions intensive industries to gather data for the implementation of EITE assistance arrangements if not already completed
    
6. Develop marginal abatement cost curves to assess the internal cost of reducing emissions to establish a hierarchy of investment under:
   
   
   1. The fixed price of $23/tonne
       
   2. A range of scenarios for flexible price period, using the price collars as guidance
   
    
7. Determine asset valuations and perform fully costed impairment tests
    
8. Develop a carbon strategy that covers internal abatement and purchasing credits based on your marginal abatement cost curve assessments; use modelling tools to optimise a risk weighted carbon portfolio; consider tax and accounting treatment for new carbon commodities
    
9. Evaluate options to migrate greenhouse gas data into your mainstream financial systems; plan to gather and review emissions data in close to real-time to help assess carbon assets and liabilities accurately
    
10. Identify the various grant schemes where you could be eligible to receive funding, and be prepared to apply

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