How ready is business for a price on carbon?

By Paula Wallace

In the past few weeks the mining industry has ramped up it opposition to the proposed scheme, with information issuing from the Minerals Council of Australia (MCA), the Queensland Resources Council (QRC) and the NSW Minerals Council, to name a few.
The QRC’s Michael Roche is encouraging people to visit the website of the ‘Cut Emissions Not Jobs’ campaign and send off the protest message to their local Member of Parliament.
The message says that the proposed CPRS will damage Australia’s most successful export industry, cause mines to close prematurely, reduce mine investment and see thousands of jobs lost.
The mining industry’s claims around CPRS are alarming: threats to the economy of the NSW’s Hunter coal producing region, massive job cuts across the coal industry and surrounding communities nationally, unknown levels of threat to Australia’s $17 billion gold export business, and on it goes.
The QRC said the proposed scheme could add $7 billion to the Queensland coal industry’s costs over the first 10 years of the emissions trading scheme (ETS). Similarly, the MCA quoted the possible cost to the gold industry at around $810 million over the next five years.
Speaking at the NSW Coal & Energy conference last week, Andrew Petersen, partner sustainability and climate change at Pricewaterhouse Coopers (PwC), told attendees, “Most of business in this country is alarmed and not necessarily alert. But the question is, what is it going to take in terms of that risk management approach that business in this country needs to change that to be alert rather than necessarily alarmed?”
The results of PwC’s ‘Carbon Ready or Not’ recent survey of 150 CEOs shows that the response of business is, so far, driven by compliance.
Chief executives of half the respondent companies could not answer survey questions themselves. PwC reported that only 23.8 per cent of businesses surveyed are comprehensively prepared for the introduction of the CPRS, while 22.5 per cent have done nothing at all to prepare.
But what the minerals industry and in particular the coal industry may not realise is that they appear to be swimming against the tide of opinion – PwC’s research shows that there is broad-based support within business for an emissions trading scheme – with 68.2 per cent of CEOs surveyed saying the believed the current proposed CPRS to be a more effective tool than a carbon tax or environmental regulation.
Recently, the G-20 nations put out a declaration to indicate there would be a cessation of all subsidies for fossil fuel based industries.
“Now that is dramatic, it’s dramatic for this industry, it’s dramatic for the globe,” said Petersen.
The communiqué has not yet been finalised or signed by Prime Minister Kevin Rudd, but Petersen believes it is significant that a year ago “that kind of conversation would not have been on the table”.
Recently the United States Environmental Protection Agency commenced its own form of NGERS, the National Greenhouse and Energy Reporting System of Australia - the threshold for reporting at the facility level is 25,000 tonnes as for Australian companies.
“So are we talking commonality, are we talking reciprocity, are we talking some sort of now language globally around how reporting emissions, management, and ultimately evaluation of carbon is going to commence,” said Petersen.
Another factor which should be of concern to the mining industry is what investors and consumers expect from business on this issue.
According to PwC’s report, “Carbon is emerging as one of the measures of corporate success in the 21st century, for markets, investors and consumers alike. Business leaders must therefore decide on a strategy that will protect and add value under the new scheme from 2011.”
The importance of investors can be seen in the increased participation of companies in the global Carbon Disclosure Project (CDP), which now represents investors worth more than $457 trillion of invested monies around the world.
Petersen said that the upcoming Australian report of the CDP would see a “significant increase” in the number of companies included.
This increase is attributed to the increase in investor assets supporting the CDP and the mounting awareness and increased media attention on climate change risks to companies.
“They are starting to get a real sense of the best performers as opposed to the laggards…so far as companies and sectors are concerned it’s interesting to observe that the oil and gas sector, so far as the CDP is concerned, is miles ahead of the minerals and minerals production sector,” said Petersen.
A similar group, the Investor Group on Climate Change Australia/New Zealand (IGCC) represents institutional investors, with total funds under management of approximately $500 billion, and others in the investment community interested in the impact of climate change on investments.
“These types of stakeholders are starting to ask hard and fast questions about what it is that businesses, particularly in this (mining) sector, are doing to manage the carbon risk,” said Petersen.
On a consumer level, Hong Kong Singapore Banking Corporation released a survey this year of around 12,000 people and conducted across 12 countries.
“When they asked them the question ‘are you willing to pay a premium for green and clean?’…the answer was ‘yes’,” said Petersen who was surprised by the result given it was surveyed in December last year at the height of the global financial crisis.
“And this survey indicated that they were not willing, into the future, to pay this price unless Government and business also started to show themselves that they were willing to pay the price,” he said.

To read the final part of this report click here.