Race against time on emissions

Australia's transition to a carbon-constrained economy is building momentum, with mandatory greenhouse gas emission reporting legislation - the precursor to an emissions trading scheme - coming into force on July 1.

The consensus in industry is that most businesses are unprepared for the possible implications on their operations and remain unsure if, or how, they will be affected.

Under the National Greenhouse and Energy Reporting Act (NGER), organisations that emit more than 125,000 tonnes of carbon dioxide each year, or individual facilities emitting more than 25,000t of CO2 a year, will need to report their emissions.

So too will organisations that use more than 500 terajoules of electricity a year.

The data reported through the system will underpin the Australian Emissions Trading Scheme (ETS), scheduled to start in 2010.

The legislation is expected to affect about 700 companies nationwide. But on the eve of implementation, a majority of those businesses are underprepared for the new compliance requirements.

To add to the confusion, reporting companies have until August 2009 to register with the government, after the first reporting period, the 2008-09 financial year, has concluded.

Clayton Utz partner, corporate advisory environment, Brad Wylynko, believes some companies might be unaware they need to register until after the first reporting season has concluded.

If they don't report, hefty penalties, including fines of up to $220,000 and daily penalties, could apply.

"My impression is that there's quite a few companies that are not prepared," he said.

"Companies have to have systems in place before the 2008 financial year even though they don't have to report or register until 2009. A couple of companies might get caught out."

But despite what appears to be a lack of action from some quarters, there has been a general increase in recognition of the issue at higher levels of company management.

"There's higher awareness now compared to two years ago. And there's a much higher awareness at the higher levels in companies now, the boards, the CEOs are taking it more seriously than one or two years ago," Mr Wylynko said.

"It's part of common consciousness, but it will be interesting to see how much that awareness translates into action."

The changing regulatory environment is expected to hit some of the state's biggest companies, which are also involved in some of the highest emitting industries, including LNG production, alumina refining, energy and manufacturing.

And while the framework for the ETS is yet to be finalised, major players in those industries want the government to soften the potential impact of an ETS on the so-called energy-intensive and trade-exposed industries.

Woodside chief executive Don Voelte has expressed concerns over the impact an emissions trading scheme could have on Australia's LNG exports, which he said would impose an extra cost burden that was not faced by Australia's major LNG competitors.

Chevron Australia's senior adviser for climate change policy, John Torkington, is concerned the government will rush the design of the ETS to meet the proposed 2010 deadline as per its election commitment.

Chevron's Gorgon project is expected to be one of the most greenhouse gas efficient LNG developments in the world, with plans to utilise carbon capture and storage technology to reduce emissions.

Mr Torkington believes industry concerns that an ETS will raise the cost of doing business in Australia and lead to projects moving overseas are very real.

"If we impose an added cost to LNG production we're going to have a hard time competing with our international competitors," Mr Torkington said. "LNG projects are quite hard to get off the ground, any extra costs will make it that much harder."

Mr Torkington said Australia was in the unique position of being one of the only developed nations involved in LNG production, with most of its international competitors in developing nations.

And with the industry driven by international capital, he warned that a carbon price could lead to WA being overlooked for the development of future LNG projects in favour of economies without carbon constraints.

"We compete in an international environment, and all of our international competitors in other economies aren't carbon constrained," Mr Torkington said.

"We need to be making sure that, with any policy, Australia remains a positive place for people to invest internationally."

In the meantime, the government should ensure the cost burden on energy intensive, trade-exposed organisations was minimised by administrative allocation of permits on a best-practice test, he said.

Companies with alumina refining operations in WA, including BHP Billiton and Alcoa, are also expected to be significantly affected by the ETS.

Both companies are planning expansions of their facilities - BHP Billiton Ltd recently pressed the button on its $2.5 billion expansion of its Worsley Alumina refinery, while Alcoa is looking to expand its Wagerup alumina refinery.

Alcoa managing director Alan Cransberg said while the company supported an ETS, it was vital that the scheme passed the fundamental test of reducing global emissions while protecting jobs and investment.

"Every tonne of alumina Alcoa makes in WA uses around half the energy and produces around half the greenhouse emissions than if it was made in China, so it makes no sense to force investment and jobs offshore if this leads to higher global emissions," he said.

"We need to ensure the competitiveness of Australian industry until such time that industry in China, India and Russia face similar carbon costs.

"If we don't make the commodity here it will be made elsewhere with an adverse environmental outcome."

In recent years, Alcoa has also worked towards reducing greenhouse gas emissions by improving the efficiency of its operations and deploying new technologies.

Its R&D team, based at Kwinana, developed carbon capture technology that locks up large amounts of carbon dioxide into bauxite residue.

A carbon capture plant is currently operational at the Kwinana Refinery, which is capable of locking up 70,000t of waste carbon dioxide each year, the equivalent to taking 17,500 cars off the road.

But Jonathan Jutsen, founder and executive director of sustainability consultancy Energetics, said it was unsustainable to exclude the biggest emitters from the ETS, or to over-allocate permits.

"The more exemptions we provide, the higher the price [of carbon] will be," he told WA Business News. "It will put the weight of the scheme on everyone else, and the price will have to be much higher to drive the same outcomes."

"Then you haven't solved the problem. The scheme will have to absorb them from an equity point of view.

Mr Jutsen said the government needed to provide transitional investment and incentive to encourage high emitters to reduce their carbon footprint.

"You need to provide positive support, not just allocations," he said.