Welcome to the new carbon culture

08/10/2008 - 22:00

IN its latest annual results presentation, engineering firm Downer EDI included a slide that was a telling sign of the times.

Welcome to the new carbon culture

IN its latest annual results presentation, engineering firm Downer EDI included a slide that was a telling sign of the times.

With the debate surrounding carbon trading having so far focused on the added costs for business, Downer EDI CEO Geoff Knox detailed the significant opportunities in what is now being referred to as the carbon economy.

Mr Knox believes there are numerous opportunities for the company in the area of energy efficiency and the reduction of clients' carbon footprints.

Significant opportunities also arise in the area of industrial facility upgrades for firms needing to meet more stringent emissions and energy efficiency requirements.

"One major enterprise in Australia will need to spend about $1 billion in additional capacity projects in the next three years in order to drive energy efficiencies, with no carbon tax," Mr Knox said. "With a $30 carbon tax, that spend increases to $1.6 billion of projects they will then bring on stream to drive better outcomes as far as their carbon footprint is concerned.

"There will be a huge demand in energy efficiency projects and plant efficiencies for emissions reductions."

In what is expected to be a major period of economic restructuring, there will clearly be winners and losers in the transition to a carbon-constrained economy.

For the losers, putting a price on carbon emissions - a previously unaccounted for commodity - will lead to the expenditure of millions of dollars on carbon permits.

For the winners, however, the carbon economy presents significant opportunities, undoubtedly fuelling the emergence of new industries and supporting the growth of existing ones.

Current government policies, including the National Greenhouse and Energy Reporting Act and the Energy Efficiency Opportunities Act, require large emitters to report their carbon emissions and identify energy efficiency opportunities.

These policies have fuelled the rise in the number of carbon consultants and advisers, offering businesses assistance with accounting for, reducing, and then offsetting their emissions.

In Western Australia, consulting firms dedicated to managing carbon reporting and offering strategic advice include EcoCarbon, HAC Consulting, Future Smart Strategies, Planet Carbon, Luceo Systems, and Energetics.

Almost all of the major law and accounting firms now have dedicated climate change branches to assist larger companies identify their liabilities and help them to prepare for carbon trading.

EcoCarbon executive director and founder of climate change advisory firm The Hodgkinson Group, David Hodgkinson, said while most of the large companies that would be liable under the trading scheme were aware of what was required, many small to medium enterprises were still in the dark about how it would affect them.

"In giving seminars to the CCI here and talking to participants in EcoCarbon and our clients, it's very clear people are unsure of the government policy and legislation," he said.

In the first instance, companies should know what their carbon emissions and energy use are, and then implement strategies to abate emissions and increase their energy efficiency.

Complementary to the consultants are the offset companies which, on a local level, are mostly tree-planting firms operating in the Wheatbelt and South West.

WA companies operating in this space include Carbon Neutral, Elementree, CO2 Australia and AusCarbon, which will be joined by emerging players Carbon Conscious, Wisper Forestry Services, and C@ Ltd subsidiary Carbon Dynamics.

A carbon trading system will also require new trading infrastructure and associated professional services.

This will include new or upgraded trading platforms for the secondary trading market in Australian Emissions Units (AEUs) and other tradeable environmental commodities including carbon offsets and renewable energy certificates.

Alongside that infrastructure will be a host of professionals - carbon brokers and analysts, as well as compliance and auditing professionals.

But while there have already been almost a dozen trades of carbon permits in Australia, almost two years ahead of the formal trading scheme, the financial services sector is a little way off from being ready.

Finsia CEO Martin Fahy said that, in the absence of a government decision on what the trading scheme was to look like, the preparation by the financial services industry, by and large, remained in the tentative stages.

"The mechanics of trading in the carbon pollution reduction scheme are not overly complicated," he said. "Businesses need to understand the offerings."

For the investment community, the reallocation of capital likely to result from a trading scheme presents opportunities for venture capital and private equity.

But there is room to improve in that sector, according to Mr Fahy.

A recent survey by Finsia and Griffith University found that wealth managers and financial planners were not as engaged with sustainable investments and climate change as the people they were advising.

"They have an awareness, but their level of engagement and promotion of sustainable investments is very modest. That could be built on and improved," Mr Fahy said.

Other industries, including renewable energy and waste management, are slated to experience strong growth following the introduction of carbon trading.

Renewable energy projects, which are generally more expensive than conventional electricity generation, are expected to become more commercially viable with a carbon price.

Freehills climate change lawyer Renee Garner said there had been strong growth in renewable energy developments in recent years, with banks now more likely to finance projects.

Ms Garner, who co-authored a recently released book on Australian climate change law and policy, said renewable energy targets being adopted in places such as China presented opportunities for companies in Australia and globally.

In the area of waste management, recycling and resource recovery are also likely to grow, as will the collection and utilisation of landfill gas.

While most of the growth in the carbon economy will come from the compliance market - companies that will be required to buy permits - the voluntary market is also expected to remain strong.

Currently, the voluntary market in Australia - those businesses that choose to buy and trade offsets - is estimated to be worth about $44 million a year. If it follows the European emissions trading scheme, that market is likely to grow with carbon trading.

While the European voluntary market is a small part of all carbon trading, its value almost tripled in one year to reach $US330.8 million in 2007.

That compared to the far larger mandatory markets, which doubled in value from $31 billion in 2006 to $64 billion in 2007.


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