Preparations under way for ETS

BUSINESSES have been warned not to become complacent and halt their readiness programs despite some relief from the revised start date of Carbon Pollution Reduction Scheme.

While uncertainty remains on the fundamentals of the scheme, companies are being urged to try and position themselves to comply with the proposed new energy regulatory regimes.

Accounting firm KPMG touts a range of carbon management capabilities, including strategy formulation, carbon footprint determination and mitigation strategies, supply chain strategies, advice on tax implications and compliance, carbon accounting and insurance considerations.

KPMG head of sustainability and climate change, Jennifer Westacott, said the changes to the CPRS meant that business would need to deal with two types of allocation mechanisms - the sale of fixed price permits for 2011-12 and the auction of permits from 2012 onwards.

"KPMG recommends business view 2010 as a transitional year to start the scheme, moving to compliance in 2011-12," she said.

She said companies need to first investigate whether they are required to report under the National Greenhouse Gas and Energy Reporting Act.

If a company controls a facility that emits 25,000 tonnes or more of greenhouse gases, produces or consumes more than 100 terajoules of energy, if their corporate group emits 125,000 tonnes or more of CO2 equivalent, or if the corporate group produces or consumes 500TJ or more of energy, they will be required to report under the act.

For companies above the threshold, KPMG performs a readiness check and looks at aspects such as quality assurance, the data collection system employed by the company and whether the data can be used for reporting.

It then formulates a marginal abatement cost curve and determines what price carbon becomes too expensive for the company and whether cheaper abatement options are available.

Once all the relevant data is collated, KPMG will run a full-scale carbon trading simulation under the proposed CPRS, which the firm created with the Macquarie Bank.

The simulation, an Australian first, helps the business identify the gaps in strategy and areas that require greater focus, such as the marginal abatement cost curve, which is essential in achieving the right balance between the purchase of permits and investments in emissions reductions.

Ernst & Young climate change leader Lorraine Stephenson said the firm runs a similar readiness check to determine whether a company will meet the reporting requirements.

She said the firm advises clients on possible tax benefits associated with carbon sequestration.

Parsons Brinckerhoff is an international planning, environment and infrastructure firm with an office in Perth offering services regarding emissions reduction, carbon accounting, risk minimisation and climate change adaption strategies.

Parsons Brinckerhoff national technical executive climate change, Arek Sinanian, said the first thing businesses should do is determine is whether or not they are above the threshold captured under the NGER Act.

"Effectively, we will all be affected by the CPRS, directly or indirectly," Mr Sinanian said.

"Particularly those businesses that use significant amounts of energy or those which have a proportionately high costs of energy, will incur increasingly higher energy costs.

"So, there is a need for businesses to assess their vulnerability and exposure to higher energy costs which will be passed down to them from high carbon energy providers.

"Comprehensive carbon and energy accounting will also prepare major emitters for the CPRS which will include a limit on emissions applied to all covered emissions sources.

"And companies will surrender an eligible compliance permit for every tonne of their emissions at the end of the compliance period.

"This will effectively put a price on carbon emissions and is expected to encourage lower carbon alternatives to energy generation, manufacturing processes, and transport."

Mr Sinanian also urged companies to use the revised start date of the CPRS to undergo further due diligence in regards to their adaption strategies, which involves the identification of the risks of climate change such as sea level rise, temperature increases, drought and storm events, particularly on infrastructure.

"This is of particular importance to WA, and the desalination plants are a good example of adaptation measures," Mr Sinanian said.

Clayton Utz environment corporate advisory partner Brad Wylynko said it was usually at the adaption stage that his law firm assists businesses, with respect to their obligations under the legislation.

"We have been providing advice to businesses as to what are their options in acquiring permits," he said.

"One option, for example, is that you bring in technology to reduce your emissions, so if that cost is lower than buying permits, that's what you'll do.

"Or now with the $10 a tonne capped credits for the first year, you can look at the option as to whether you just go to auction and get them."

Mr Wylynko warned businesses to be aware of the "parent trap" under the current scheme, which refers to the liability for emissions from facilities resting on the parent company of the operator of the emitting facility.

Commercial law firm Freehills is advising businesses to review existing and future contracts to determine pass-through of carbon costs for supply and procurement arrangements, sale and purchase agreements, as well as financing arrangements.