Climate Change - How Will It Affect Your Business?

Wednesday 15 October, 2008

by Graham Noriskin

Often the impact of far reaching policy initiatives are only considered in relation to their effect on major corporations, but with small-to-medium enterprises (SMEs) making up 80% of Australian businesses, the challenge of climate change will be hardest felt by these organisations.

Climate change and carbon dioxide levels

Over the past 800,000 years, carbon dioxide (CO₂) levels, measured in parts per million(ppm) in the atmosphere, have historically fluctuated between 200 and 300 ppm. Interestingly, when CO₂ has been at 200ppm, this has usually been accompanied by a global ice age.

The world's climate is extremely sensitive to carbon dioxide levels, and while no one can be absolutely certain, scientists anticipate that an increase to 450 ppm, would cause an increase in global temperatures of around two degrees.

This seemingly small rise in temperature, would cause untold damage to our planet - a third of our species would be lost, there would be a rapid melting of the Greenland and Arctic ice caps and a substantial rise in sea levels.

In 2001, the carbon dioxide levels in the atmosphere were measured at approximately 370ppm, and the prediction for 2100 is 670ppm. This global outlook has caused concern for governments and the public at large who have realised that unless significant and sustainable global action is taken to forestall projected climate change trends, large-scale, irreversible damage to our planet, and its inhabitants, is likely to occur.

Government and regulatory policy

The policy and regulatory response of Government to the climate change issue is twofold:

• The introduction of the National Greenhouse and Energy Reporting Act 2007(NGER)
  
  The Act establishes a national framework that requires companies who exceed energy production, energy use or greenhouse gas emission thresholds to report annually on their greenhouse gas emissions and energy consumption and production. Thresholds and timelines are:
  

  Facilities	25,000 tonnes or 100 Terajoules
  Corporate groups	125,000 tonnes emissions or 500 Terajoules energy	87.5kt /  350Tj	50kt / 200Tj
  Corporations to apply for registration	31 Aug 2009	31 Aug 2010	31 Aug 2011
  Corporations to provide data report	31 Oct 2009	31 Oct 2010	31 Oct 2011
  Govt publish the data	28 Feb 2010	28 Feb 2011	28 Feb 2012

  
  *kt - 1000 tonnes, Tj- terajoule. Facility - ‘single site', part of production process, single industry sector
  Measurement of thresholds are to include direct but not embedded emissions or energy contained in materials or services you purchase.  
  To gain a relative perspective, a small 1800cc car travelling 15,000 km emits approximately 4 tonnes per annum and 1000sqm of office space emits approximately 125 tonnes per annum.
• Emissions Trading Scheme (ETS)
  
  Set up to commence trading in 2010, the scheme is based on a ‘cap and trade' arrangement in which the government sets a limit, or cap, on the total emissions for Australia and then issues permits or credits to match that level.
  
  Permits are then traded in a regulated marketplace. A permit/credit allows the holder to emit a certain volume of greenhouse gases.
  Businesses that exceed their limit would have to purchase additional credits. Credits can also be generated by activities such as reforestation and the use or purchase of renewable energy sources.
  
  The scheme provides market incentives for the more efficient use of energy and investment in renewable and low-emission technologies.
• Government's 'Green Paper'
  
  The Australian Government has released its Carbon Pollution Reduction Scheme Green Paper (‘Green Paper'), which sets out the Government's preferred position on emissions trading and the support proposed, to assist households and businesses adjust to the new regime.
  In addition to the Emissions Trading Scheme, the Green Paper proposes the development of provisions in the income tax law to deal with the acquisition, surrender and trading of emissions permits. This covers tax treatment in relation to the deductibility of the permit cost, deferral of deductions, proceeds on sale of permits, free permits, cash grants, penalty costs for insufficient permits and GST.

It does not address tax incentives for innovation and research and development expenditure on climate change related issues and adjustments to the capital allowance regime to increase incentives to lower emissions through the investment in new plant and equipment.

The effect on small and medium businesses

While small and medium sized businesses are unlikely to feel the direct impact of government policy in the immediate future, the indirect effects will be felt reasonably quickly. The downstream flow of government and regulatory requirements will ultimately force small and medium businesses to establish and monitor their carbon footprint.

The major source of emissions for small to medium businesses will be electricity usage, transport and waste.

• National Greenhouse and Energy Reporting Act (2007)
  
  While the reporting requirements under the Act are unlikely to directly affect small to medium businesses in the immediate future, there is likely to be an impact from larger companies requesting their suppliers to provide information on their energy and carbon footprints as well as providing sustainability reports.
  
  In time, an emissions and energy inventory may be required for every business, as part of the ongoing measurement and reporting of its carbon footprint, somewhat of an environmental equivalent of the GST.
  
• Emissions Trading Scheme
  
  For most small to medium businesses, it is likely that their emissions will be covered by permits embedded in their purchases. For example, the price of electricity will include the cost of permits, the cost to transport goods will include a permit cost (purchased by the transport company or already embedded in the cost of fuel).
  
  In addition to the compulsory ETS, some companies are trading carbon offsets through a voluntary system.
  
• Tax
  
  The tax aspects in relation to permit activities will impact on businesses that have a direct involvement in permit procurement and disposal. Other businesses will have the cost of permits included in the cost of the goods and services they purchase.

Grants to business

In an effort to assist businesses, the Government has made and will continue to make available a range of grants. The range and volume of these would be expected to increase, as the climate change agenda grows. Some of the grants which will assist companies conducting research and development and other precommercial activities, include:

• Climate ready
  
  Grants from $50,000 - $5million for activities that develop innovative products, processes and services that address the negative effects of climate change
  
• Re-tooling for climate change
  
  Grants from $10,000 - $500,000 for energy efficient manufacturing tools, small scale cogeneration plants, and water recycling
  
• Green building fund
  
  Grants up to $200,000 to retrofit and retro commission existing commercial buildings for cost saving energy efficiency measures

What should you do to address the looming requirements?

There are a number of steps that you can take to address this:

1. Establish the size of your carbon footprint
   
   Either obtain the assistance of an external consultant or use one of the many carbon footprint calculators available on the internet and check that you are below the NGER threshold.
   
2. Undertake cost modelling
   
   To determine the impact that the cost of permits may have on your costs and margins.
   
3. Undertake various saving initiatives to reduce your footprint
   
   Covering behavioural change, lighting changes, equipment changes, optimising transport requirements, waste reduction strategies and initiatives to reduce electricity and fuel use.