With the Prime Minister’s announcement today, the government has started the countdown to an Australian ‘cap and trade’ emissions trading scheme, to be launched no later than 2012.
Sean Lucy, Director, Climate Change Services at PricewaterhouseCoopers said, "The clock is now ticking for Australian businesses to develop an effective pricing and management framework for carbon.
"If you are in an emissions intensive business and you are not running scenario analyses and implementing the necessary internal reforms, then you are likely to be poorly informed when it comes to the all important debate about the allocation of permits.”
PricewaterhouseCoopers research conducted in early 2004 found that one year out from the launch of the EU emissions trading scheme, fewer than one in five of the European companies - questioned in our Global Utilities Insight 2004 - had a strategy in place for climate change and emissions trading. Even more worryingly, one in five said they had no climate change strategy at all.
Sean Lucy said, "Some businesses and some elements of the trading framework were ill-prepared under the EU scheme, which was one reason for the early volatility in the market. However in Europe, the plan all along was to learn by doing, so a ‘bit of give’ was to be expected. The Australian government has given a strong indication that the aim is to create a world-leading market, which could be less tolerant of those businesses that are not ready in time.”
Based on its experience in the EU market, PwC has identified three big milestones over the countdown period that Australian businesses need to be preparing for: The setting of Australia’s long term emissions reduction target, detail on the permit allocation and clarification on the early abatement opportunities.
National emissions reduction target
The next major milestone in the countdown to a carbon trading scheme will be further clarification around Australia’s long term aspirational emissions reduction target.
Sean Lucy said, "In the EU these targets were set by the Kyoto Protocol, which requires total emissions of greenhouse gases to fall to 92 per cent of their 1990 levels in the period between 2008 and 2012. The government’s announcement makes it clear that it will be moving quickly over the next 12 months to map out what our long term emissions target will be and how it will impact on the Australian economy.”
Permit allocation
Once the overall target is in place, industry will expect to see more clarification around crucial detail on how allowances are to be allocated, the nature of the allocations and carve-outs for energy intensive trade-exposed sectors.
The method of allocating emission rights will be extremely important in determining the net financial impact on companies. It will also play a part in shaping corporate strategy and tactics.
Sean Lucy said, "Some businesses already have a clear strategy to position themselves to maximise the available allocations. The government will be consulting widely with industry on this issue, as it will be fundamental to the future success of the scheme. The challenge is to follow a transparent, objective and clear process.”
Early abatement opportunities
The government has announced that, unlike the EU scheme, there will be significant early abatement incentives. An example of these types of schemes would be carbon sinks or opportunities around fuel switching.
Sean Lucy concluded, "Clarity on the early abatement opportunities will be eagerly awaited by business. Early adopters of a robust carbon management strategy are likely to receive real material benefit and see a positive impact on shareholder value. The effectiveness of a company’s carbon strategy is already becoming a key metric in investor decision-making.”
Media Enquiries
Matthew Ward
Communications Senior Manager
PricewaterhouseCoopers
Ph: +61 2 8266 4642
E: matthew.ward@au.pwc.com
Anita Poppi
Communications Manager
PricewaterhouseCoopers
Ph: +61 2 8266 0341
E: anita.poppi@au.pwc.com
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