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The Business of Climate Change WHAT A MESS! Australian Business Business Leaders The Carbon Economy is real? US$ 3.1 trillion by 2020 Two Challenges International Experience Indications of things to come EU ETS began 2005 • Now in 2nd phase, tougher targets & pressures • Real outcomes • It is working • Environmental policy is highly valued • Greener supply chains • Consumer sentiment changing • Mitigating future cost increases Good carbon management can reduce costs, help create more efficient and resilient organisations whilst delivering a competitive advantage Today’s focus Legislation • Compelling analysis from McKinsey • Reasons for you to act • Case studies • Next steps • Carbon Planet • Carbon management solutions • Expert scientific and strategic advice • 1 million tonnes of GHG “assessed” Legislation Federal Government and the Carbon Economy NGER - National Greenhouse and Energy Reporting • Commenced July 2008 • First Reports were due by 31 October 2009 CPRS - Carbon Pollution Reduction Scheme • Draft exposure legislation released • Due to start July 2011 NGER Compliance Act Requirement Penalty Units (PU) Penalty $ PU/Day overdue $/day penalty 12.1 Requirement to apply to register 2000 $220,000 100 $11,000 19.2 Report to be submitted 2000 $220,000 100 $11,000 20.4 Liability of other persons to provide information Individual 400 $44,000 100 $11,000 Organisation 2000 $220,000 100 $11,000 21.4 Reports content relating to GHG projects 1000 $110,000 22.1 Group members activity reports to be kept 1000 $110,000 22.2 Reports to be kept of a persons activities Individual 200 $22,000 Organisation 1000 $110,000 61.3 Response to questions of Authorised officer 10 $1,100 69.2 Failure to provide facilities assistance 10 $1,100 71.3 Power to request information - compliance 50 $5,500 71.4 Power to request information - misleading information 60 $6,600 73.5 External audit - compliance 1000 $110,000 Act Ref Case Study: Knowledge Major Transport Company Leading carrier servicing Adelaide, Melbourne and Sydney. Completed 2008 GHG Assessment and developed Carbon Management Plan. Outcomes • Exceeded NGER threshold and avoided $220,000 fine • Opportunity to offset all emissions via embedded carbon pricing (less than 1.8% increase) Source: Carbon Planet CPRS snapshot • Action on climate change crucial to economic prosperity • Encourage polluters to a cleaner future • Prices will rise • Covers 75% of Australian emissions • Broader offset strategies allowed • Permits treated as financial products • EITE industry given greater support • Households given support McKinsey Report Key findings • Significant GHG reductions to 30% below 1990 levels by 2020 and 60% by 2030 are achievable without major lifestyle changes or technology breakthroughs • Reducing emissions is affordable $A290 per household • Achieving significant reductions requires prompt action • Failure to do so will have real consequences in upcoming commitment periods Cost Impact Source: McKinsey Australia Climate Change Initiative Cost Impact Source: McKinsey Australia Climate Change Initiative Carbon Action Meet the challenge of the Carbon Economy Reasons to Act 1 – Compliance 2 - Reduce energy use, emissions and costs 3 - Build credibility and increase market share 4 - Recognise and account for new carbon costs Carbon Action - ROI 2. Reduce energy use, emissions and costs. Pathways Behavioural change - minimal cost, immediate return Minor infrastructure - low cost, quick return Major infrastructure - higher cost, long-term sustainability Case Study: Quick Return Scan Conversion Services Quality assured company that delivers highly effective document and drawing management solutions. Completed a GHG assessment in 2008 and commenced a range of environmental programs. Outcomes • Reduced emissions by 55% • Reduced energy use by 18% • Implemented new lighting and water saving systems • Substantial staff engagement Source: Carbon Planet Carbon Action - Opportunity 3 - Build credibility and increase market share Action Identify clients that are greening their supply chains Build credibility with carbon business planning Communicate and promote carbon credentials Supply Chain Govt ASX M/L SME Actual tender questions • What is your environmental policy? • What are you doing to reduce your carbon footprint? • Has your company set targets for reducing emissions? • 20% of tender weighting based on carbon neutrality “We will only deal with organisations that have their own green policy in place and are aiming to reduce their own carbon footprint” Source: James Scott, CIO, Toyota Motor Corporation Australia Case Study: Supply Chain Macquarie Telecom Recently awarded $1 million Information Communication Technology (ICT) contract to Sun Microsystems over long time incumbent Hewlett-Packard due to their; “solid environmental credentials” and their ability to “really deliver on their green promises” Source: Business Review Weekly …and remember If you’re involved in a supply chain ensure you have included a “Carbon Variation Clause” in your supply contracts if they extend into 2011. Carbon Action - Risk 4 - Recognise and account for new carbon costs Focus Identify increasing prices and measure the impact Explore alternatives, cleaner and cheaper options Implement changes Embedded cost of carbon CPRS early estimates Electricity Gas Steel Aluminum Flights Cement Petrol Diesel Potential Increase Permits @ $23 Permits @ $40 11% 19% 8% 14% 4% 8% 67% 116% 3% 5% 4% 7% 6%* 10%* 5%* 8%* * Fuels prices to be offset via reductions in fuel taxes for first 3 years NB - Due to free permits final cost impacts may vary Source: Carbon Planet Carbon Impact On Profits Case Study: Innovation Manufacturing sector example As % of turnover Electricity Gas Steel Aluminum Net Profit8% 4% 3% 30% 10% CPRS 11% 8% 4% 67% Runaway costs Electricity Gas Steel Aluminum 4.4% 3.2% 31.2% 16.7% Cost Increase Net Loss (0.5%) Case Study: Early Adopter Best International Technical service provider to leading Tier 1 vendors like Dell. Conducted a GHG assessment and designed an embedded carbon strategy. Outcome • 20 cents was added to the cost of their service calls • This generated enough revenue to offset all emissions • Now recognised as a green service provider Source: Carbon Planet Carbon Action Three clear steps 1 - Reduce energy use, emissions and costs - save money 2 - Build credibility and increase market share - win more customers 3 - Modify business to account for new carbon costs - make money The Big Picture Investor Risk “Investors will consider a range of factors, such as a credible mitigation strategy, when assessing the impact of an emissions trading scheme on the value of a company.” Source: Carbon Disclosure Project Report 2008 Australia & New Zealand (On behalf of 385 investor groups with assets of $US57 trillion) Strategy for business “Your company needs to beat competitors in 2 areas: Reducing exposure to climate related risks and find business opportunities within those risks.” Source: Harvard Business Review: Fred Wellington, Jonathon Lash Benefits of Acting Where to from here? Measure your carbon footprint & Do something about it Carbon Management Planning Grant Assistance Take advantage of Government funding Clean Business Australia Initiative • $240 million fund • Four year period • Improve energy and water efficiency • Increase sustainability Key elements • Australian Carbon Trust • Re-Tooling for Climate Change • Green Car Innovation Fund