Australian businesses believe carbon pricing is here to stay, says EIU survey

Almost three-quarters (72%) of Australian firms believe the carbon price is here to stay, in one form or another, and 85% of firms directly impacted already have a carbon reduction strategy in place, according to a new business survey.

The second annual ‘Australian Low-Carbon Readiness Barometer’ from the Economist Intelligence Unit, released 26 June and commissioned by GE, found that overall, more than two-thirds of all Australian firms have some sort of carbon reduction strategy in place, and almost a third (29%) have modelled the impact on their business operations.

The survey of 136 senior executives in Australia across a broad mix of industries - including energy and natural resources, manufacturing, construction and real estate, retailing, IT and more - found more than half of those firms directly affected have developed broad energy-efficiency strategies that encompass their external partners or supply chains. This is despite businesses feeling slightly less prepared for the transition to a low-carbon economy than they did last year, before the Multi-Party Climate Change Committee agreement on a carbon price was announced.

“Business is getting on with the job of reducing their energy usage and therefore reducing their emissions,” said Steve Sargent, President and CEO of GE Australia and New Zealand.

“Now it is about action rather than policy. It is encouraging to see that the companies that are directly affected by carbon pricing are taking action. The big opportunity for business is in improved productivity from lower energy usage and innovation aimed at cost reduction and growth.”

Key findings

The Australian Low Carbon Readiness Index is the second of an annual series analysing business preparedness for a low-carbon future in Australia. The key findings are:

• Now that we have policy in legislation, businesses are getting on with the job of reducing their carbon footprint and becoming more energy efficient. More than two-thirds of all firms surveyed already have some sort of carbon-reduction strategy in place and almost a third (29%) has modelled the impact on their business operations.
• Firms directly affected by carbon pricing are leading the way. Of the firms which will be directly affected by carbon pricing, some 85% have a carbon-reduction strategy in place, with a further 6% in the midst of developing one. Of the firms which will be indirectly affected by carbon pricing, only 10% have conducted such modelling.
• Business agrees carbon pricing here to stay. Three-quarters of Australian businesses agree that it is here to stay, at least in one form or another. Almost half believe a new, better pricing regime will eventually replace the current proposed scheme, with almost two-thirds believing the AU$23 per tonne price is too high and around 10% believing it is too low.
• The corporate agenda has shifted towards cost reduction. While opportunities in “improving relationships with customers” (33%) and “developing new products and services” (24%) remained appealing, this year “cost reduction” (35%) has risen to the top of the corporate agenda.
• Companies are investing in resources to capitalise on these opportunities. Of the companies directly impacted, more than half have set up dedicated roles or teams to identify greater energy-efficiency measures internally. Around 30% have hired external consultants to help identify opportunities.

“The results demonstrate that an imminent price on carbon is working to change behaviour and drive action,” said Ben Waters, Director of GE ecomagination in Australia and New Zealand.

“This is the new business reality; doing more with less will be important this century. As with all new trends, business will react and adapt in different stages, however it is encouraging to see that starting to happen.”

Two of these business reactions - Wesfarmers and Shell - are featured as case studies in the report, and have been summarised below.

Wesfarmers

Wesfarmers is the owner of supermarket chain Coles, as well as major coal and chemicals operations. Aside from power stations, it is Australia’s sixth biggest carbon emitter, producing 2.7m tonnes of direct emissions. The company, whose 2011 revenues were US$56bn, says it will incur an AU$100m net cost as a result of the initial carbon price of AU$23 per tonne.

The conglomerate believes it can maintain its margins by taking steps to reduce carbon emissions and improve energy efficiency. “We invested heavily in energy efficiency a few years back when it became clear that Australia would put a price on carbon,” said Cameron Schuster, the firm’s sustainability manager. For example, Coles is installing voltage optimisation technology that reduces overall store power consumption.

Furthermore, the carbon legislation provided some policy clarity. “While our greenhouse gas accounting, monitoring and reporting systems were purpose-built for a carbon price four years ago, the continuous flow of regulation and policy in the past six months has necessitated a review and some tweaking,” Schuster said.

Much of the group’s focus in the last year has been on intensive emissions reduction, particularly in the chemicals business. It is testing a new nitrous oxide reduction technology that could potentially cut emissions quite significantly. Meanwhile, Wesfarmers’ coal business has worked with regulators to find a way to improve the method of measuring coal-seam methane emissions. The company has also spent time developing internal policies to guide employees as they prepare greenhouse and energy reports and deal with customers and suppliers on issues to do with carbon pricing.

Though the carbon cost is significant, Wesfarmers believes it can mitigate it to a large extent with top-line growth and increased organisational efficiency.

Shell

Although the government has provided a clear outline of how Australia’s carbon-reduction policies will develop through to 2020, companies should not underestimate the organisational change required to respond, according to David Hone, the London-based global climate change adviser at oil and gas firm Shell.

Shell’s carbon management journey began in 1997, recognising that carbon reduction laws would be a reality and making an early effort to influence policy so as to spur corporate investment as well as meet environmental objectives. Hone says it was a big challenge getting all the businesses in Shell to recognise the importance of the issue and its long-term impact on the company.

In order for carbon reduction strategies to be effective, they need to be embedded within the organisation and underpin business procedures, practices and operations. “We had to ensure everyone understood how carbon management policies worked and their impact on the various businesses from a profit and loss point of view,” Hone said. Shell expanded on its existing trading activities to encompass carbon trading. It also implemented business processes in Europe so the refineries, exploration and production facilities would understand how to work with the new trading arm. Eventually, the issue was elevated to a highly strategic level in the group, which meant embedding a US$40 per tonne shadow carbon price into all new project evaluations.

Fifteen years after the start of Shell’s carbon management strategy, Hone still stresses the importance of delivering the right message within the organisation. “CO₂ emissions are not like sulfur emissions where you can clean them up a bit and they go away,” he said. “CO₂ is cumulative so until you go to zero emissions the problem won’t go away.”

Hone believes Australia has made good progress, but still has a long way to go. “While reducing energy use and improving energy efficiency are both good things to do, they are just one part of the solution,” he said. “A cap and trade system will also bring through the right energies, in the right mix at the right time.”

The full report can be viewed here.