Getting on with the business of climate change

Monday, 5 November 2012 — Over the past 12 months many Australian businesses have implemented the processes required to comply with the clean energy legislation, but many have not gone far enough with many businesses still believing that ‘trading’ or other market based activity is risky, according to Ernst & Young.

Ernst & Young’s new report Beyond Implementation is designed to help businesses optimise their strategy under the Carbon Pricing Mechanism (CPM) and to manage liabilities beyond the implementation phase.

Ernst & Young Oceania Climate Change and Sustainability Leader Mathew Nelson says while some businesses are choosing to ‘play it safe’, others are just getting on with the job despite the continued uncertainty.

“This includes an assessment of various internal abatement projects and investigating the market based options that are available or those that may be available in the future.

“To not consider and compare the full range of options may be as big a risk as doing nothing at all,” Mr Nelson said.

Mr Nelson said although the Opposition has suggested it will repeal the CPM if it is voted into office at the next election (due to take place in the second half of 2013), there obviously remains significant uncertainty about how and when this might be achieved.

“It is critical that businesses not consider a potential repeal as the basis for applying a ‘do nothing’ approach, but it does need to be taken into consideration and factored in decision making,” Mr Nelson said.

“For example, businesses are unlikely to forward purchase significant volumes of Carbon Units (CUs) at advance auctions (expected to commence in FY14) until it is clear that this will be necessary or that there will be some form of compensation for the CUs they purchase, which at this stage appears unlikely under the Opposition’s policy.”

Mr Nelson said domestically, across both the fixed and flexible price periods there a range of options for buying and selling CUs that can benefit businesses by improving cash flow and reducing the cost of compliance.

“What we are seeing domestically is while businesses are still unlikely to buy advanced options they are selling their freely allocated CUs now to the major banks,” Mr Nelson said.

Internationally, Mr Nelson says with the recent changes announced by the Government to the legislation linking the CPM with the European Union Emissions Trading Scheme and the removal of the floor price, international trading has become much more important for business to consider.

“In particular, the Government’s decision to remove the price floor in the flexible price period (originally proposed to be the AUD$15) has resulted in many businesses revisiting the option to purchase and bank Certified Emission Reduction Units (CERs), which are currently valued at just above €1, now, ahead of the flexible price period. If your business has not already assessed the viability of this option, now is the time to consider doing so.

“If businesses are prepared to look beyond the standard ‘purchase and surrender’ regime and explore, compare and assess the available options, businesses may have significant value to gain,” Mr Nelson said.

Ernst & Young will be launching the Beyond Implementation thought leadership at the Carbon Expo in Melbourne this week (7-9 November) on Wednesday 7 November at 6:10pm. The Ernst & Young booth (44-45) is the first booth on the right as you walk through the double doors.

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Contact details:

Katherine Meier
Ernst & Young Australia
Tel: +61 3 9655 2620 or 0417 859 323