The impact of bringing forward the ETS on landfill operators

Bringing forward the emissions trading scheme (ETS) in Australia will affect landfill operators in two ways: by reducing certainty due to potentially volatile carbon prices and by reducing viability for Carbon Farming Initiative (CFI) projects due to the lower value of Australian carbon credit units (ACCUs) generated.

Currently in Australia the carbon price is fixed. For 2012/13 it was $23/tonne, in 2013/14 it rises to $24.15 and originally would have risen to $25.40 in 2014/15, before moving to the “flexible price period”, otherwise known as the ETS.

Bringing forward the ETS by one year means there will be a lower carbon price initially because it will be linked to the European price. This is currently around AU$6/tonne. However, it has been forecast to increase due to action being taken in Europe.

Bringing forward the ETS will mean landfill operators may be affected by these factors sooner than they originally thought. It is important to keep in mind that this is really only delaying the inevitable because a start date for the ETS was already scheduled for Australia. It just means that businesses will have less time to prepare.

A volatile carbon price

Landfill produces emissions over a long period of time from when it was first deposited. This is one of the elements landfill operators must factor into the prices they charge for dumping waste. Realistically, landfill operators should consider the cost of the waste over a 50-year period when setting prices.

Once the carbon price becomes fluid there is an increased risk of landfill operators charging the wrong price. Initially, an ETS will mean a lower price for emissions, which is positive for landfill operators, but there is concern around the potential volatility of the carbon price over the longer term. The variability is a risk factor for landfill operators in that it will be difficult to make predictions and plan for that variability in their pricing structure.

Viability of carbon farming initiatives

Landfill operators can generate revenue by capturing the methane emitted through CFI projects. However, there is a fairly large capital cost involved for landfill operators in setting this up. With an ETS, the value of credits generated through CFI projects will go down. This means that landfill operators potentially won’t see a return on investment. It could also mean that these types of initiatives won’t be sustainable going forward. Ultimately, it will reduce the viability for landfill operators to undertake these types of projects in the future.

What can landfill operators do?

Landfill operators need to be aware of potential changes to the ETS and keep an eye on where things are heading. The outcome of the upcoming federal election may result in significant changes or new initiatives. There are also some in the industry arguing against landfill operators’ inclusion in a carbon scheme. Whatever happens, Australia will face an ETS in the future and landfill operators can take steps now to be prepared for it when it happens.

Landfill operators will need to be vigilant in regularly reviewing their pricing strategies to make sure they reflect what is happening with the carbon price. Having a system in place to ensure that pricing is accurate will be essential in ensuring the best outcome. Landfill operators should also consider undertaking a cost-benefit analysis on CFI projects before investing or continuing to invest in these in the future.

Tim Pittaway is an experienced audit and assurance services principal at RSM Bird Cameron. He has more than 13 years’ specialist experience in the provision of internal audit, risk management, compliance audit, market audit, climate change and alliance audit services.