Transcript Climate Change Climate Proofing Interview (Final) 3 2

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Transcript of interview I gave for a new book where I outline the risks and opportunities for businesses in respect of climate change.

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Transcript Climate Change Climate Proofing Interview (Final) 3 2

  1. 1. Creating a Climate for Change The Interview Series on How to Manage in Uncertain Times Climate-Proofing Your Business Di Worrall interviews Environmental Insiders Dermot Duncan and Antony Sprigg Book: www.aclimateforchangebook.com Web: www.humanresourceschange.com.au Email: enquiry@humanresourceschange.com.au © 2009 Worrall & Associates
  2. 2. Creating a Climate for Change The Managing Uncertainty Series © 2009 Worrall & Associates 2 Climate-Proofing Your Business
  3. 3. Creating a Climate for Change The Managing Uncertainty Series Di I was at a business lunch late last year, and I heard a senior executive remark how grateful he was that the economic crisis had finally put an end to that annoying fad we call climate change. Interesting perspective. Here’s the key question of this interview – Where should climate change sit in our list of priorities under these circumstances? To help us with the answers, I’ve invited two experts in their field – environmental lawyer Dermot Duncan and environmental business consultant Antony Sprigg. Dermot has just recently returned from the UK after about seven (7) years working in climate change and renewables. He pioneered Swaab Attorney’s Climate Change & Renewables Group as Special Counsel prior to leaving to establish his own consultancy business. Joining him is Antony Sprigg. Antony has got a background in management, science and engineering. He comes with around 10 years experience in sustainability and climate change and is the Principal Sustainability Consultant for GHD. So not only does he serve the needs of his external clients, he is also responsible for integrating all of GHD’s internal initiatives around sustainability and climate change. Di Aside from the obvious expertise you each bring to the climate change table, you have also partnered together in the development of a climate change risk assessment tool. As the title suggests, it’s a tool that’s designed to help business set a plan in place to manage all aspects of this incredibly complex issue. Including the legal issues, the technical issues, funding risks, but it is more than that. From what I can tell it also lays a foundation for business to identify the opportunities that this new field can offer them. I’d like to direct my first question to both of you. Climate change was certainly one of the hottest topics of conversation for business up until the last several months. Now all we seem to hear is constant commentary about a global financial meltdown and predictions of recession over the next three (3) to four (4) quarters. How should our businesses be responding to climate change under their circumstances? Is climate change still on the agenda? Dermot Di I think that is an excellent question. I don’t underestimate the financial position the global economy is in at the moment. I also acknowledge that it is a readjustment. It’s a readjustment economically and environmentally. We are seeing great changes on the share market from day to day but we are also seeing great changes environmentally and globally. If I was a business, which I am, I’d be looking at taking an opportunity now to make sure my business is restructured efficiently going forward for the environmental economy that is upon us and that will continue to be with us going forward. So that’s what I would do as a business and I think there are some core drivers there for us at the moment. We definitely have legislation in Australia. © 2009 Worrall & Associates 3 Climate-Proofing Your Business
  4. 4. Creating a Climate for Change The Managing Uncertainty Series Dermot The National Greenhouse and Energy Reporting Act which is commonly referred to as NGERS so there are legislative drivers. There’s also a case for equity, corporate social responsibility which links into change management, how business adapts and changes to its current environment. We go into due diligence, we look at our contractual liability which we will probably talk about a bit later and the real cost of carbon - the carbon economy. We are looking at our carbon footprint as a business and what our corporate obligations are, say the Corporations Act which is a good example. I read in today’s paper, the Sydney Morning Herald, Dr Paul Stolz who developed the Adversarial Quotient (AQ). He notes that ‘We’re the profits of doom and we tend to talk things down’, which is quite interesting in the financial situation we find ourselves in. But he does say we have a great tenacity and ability to knuckle down and sort through our problems, unlike our contemporaries in United States and Europe, so I think there is great opportunity for business at the moment. Antony Dermot, can I add a bit there? Dermot Absolutely Antony Thank you. I think the reality is business doesn’t have a choice and I know that sounds a bit hard but sometimes the truth hurts and sometimes you just have to say it like it is. Business does need to act now, does need to consider what it needs to do with respect to responding and restructuring to the financial crisis, as you said. But it is also the perfect opportunity to factor in these other issues into the cost of carbon: the introduction of the carbon pollution reduction scheme; and indirect associated costs as well as other costs associated with climate change - I think we will get into that a bit later. It’s also a stark reminder and Minister Reece recently, about 4 or 5 weeks ago, indicated that the financial crisis is a stark reminder of poor governance, and that’s why we have corporate social responsibility to engender and embed strong levels of governance in both in the public and private sector. And this is a reminder that strong governance is not pervasive, and that we need to continue to look at corporate social responsibility and embed it and drive it as hard as possible because there are financial risks associated with it. Financial risks have direct implications to the community (and hence social risks), and direct implications to our economy. And when you affect the economy, you obviously affect the environment and everything around that economy. So then you think the financial crisis is a big reminder to take emerging corporate social responsibility issues like climate change just as seriously if not more seriously and make sure that they are part of standard business practice, and that you simply don’t just hand over the responsibility of additional environmental reporting under NGERS to your environmental manager or re-branded sustainability manager which is quite often the case now and pass on that apparent responsibility. It’s actually got to be factored into your business into the future and as Dermot indicated there’s risks in not doing that but there’s also significant opportunities, and if you don’t factor it into your business thinking and your business strategy you miss out on identifying those opportunities. I think another point is with governance and that relates to intergenerational equity. It’s about the longevity of our organisations, of our governments, and therefore the wealth and health of our future generations of our children and our children’s children. And if we choose to ignore the issue of climate change through this financial crisis period, I think we’re at risk of ignoring our intergenerational equity and responsibility. © 2009 Worrall & Associates 4 Climate-Proofing Your Business
  5. 5. Creating a Climate for Change The Managing Uncertainty Series Dermot Absolutely Antony, I‘d like to make it clear to people listening to this. I think if you’re a climate change sceptic, just put the science to one side now, you know I have obviously had to do a lot of reading to understand it and I do, but, climate change is a business risk. We have legislation at the moment. No matter what people think about science it’s going to impact on their business. Antony Its actually due diligence not because they are aware of it Dermot That’s right. So if you are not acting, there are financial penalties under NGERS which is once again that National Greenhouse and Energy Reporting Act 2007. It’s a Commonwealth Act, so section twelve (12), if you’re liable and you don’t register by the end of financial year next year 2009 there’s a civil penalty of $220,000. Now that’s a substantial amount of money. So if you are a climate change sceptic and you say well I’m not going to partake in this, just be aware that if you don’t and you are liable, you will be hit with a penalty. There’s also personal liability for Directors under section thirty seven (37) of NGERS. So if you are a Director and you are not taking this into account, you may face personal prosecution either civil or criminal. So there are core drivers there in business at the moment which I suppose are sort of tier one drivers there, they are there in legislation There are also tier two drivers which are the real carbon economy. So even if I’m not affected by NGERS, there will be an increased cost to my business, so there will be increased electricity cost which Antony was talking about. Increased heat, increased competition amongst my suppliers. Will I be able to liaise with my suppliers if I’m climate change negligent? Antony So it’s a market economy and if you’re not seen to either internally or externally be acknowledging that, and keeping yourself ahead and abreast of the issues, and strategising and continuing to build your business whether that be through diversification or just clearly through the services that you normally deliver, you run the risk of actually, certainly losing your market. So if you don’t look at it from an opportunistic perspective you start losing the business perspective on it. And so yes, it’s probably not that tough to meet the present regulations and reporting, but it’s certainly a good time to actually start positioning yourself. I think it is an important message. Dermot There are also other drivers under the Corporations Act, such as sections 299A. Listed and unlisted companies need to ensure that they take the environment into consideration when making their decisions. The principles for responsible investment (PRI) of people buying shares look at and screen investments for a climate change strategy as well as impose such requirements through company ‘resolutions’ - not only strategy but are they implementing it? So there are drivers that are coming at climate change from different angles, and the businesses that adapt now when they have an opportunity to restructure, I believe will be very competitive and new market leaders. Antony And to compliment that, there is also a move to regulate corporate social responsibility at a federal level and this is actually good because we need to address climate change. But we mustn’t just address it purely meeting the regulators requirements and expectations. We do need to see it as a corporate social responsibility (CSR), and having that regulated as well should assist in driving better than business as usual outcomes. Dermot Absolutely © 2009 Worrall & Associates 5 Climate-Proofing Your Business
  6. 6. Creating a Climate for Change The Managing Uncertainty Series Di That’s a very powerful message, not only for compliance but opportunity. It’s interesting you have extended the issue, not just the climate change but it’s a much bigger issue - it’s about corporate responsibility. So it sounds like it’s still very much on the agenda, and in fact should be at the highest levels of our agendas in business. In case people want to get in touch with you, and find out about some more at this stage, can I get some information about how people can contact you? Dermot? Dermot Sure. People can easily contact me via email which is dermot_duncan@hotmail.com and +61 0422 082 195. Di Excellent thanks, Antony how can people contact you? Antony You can contact me on my mobile which is 0414 454 723. Alternatively on my email which is antony.sprigg@ghd.com.au Di Okay. Back in August this year, Senator Penny Wong, Australia’s Federal Minister for Climate Change and Water gave us a green paper and it contained a regulatory framework for dealing with emissions trading in Australia. In layman’s terms how essentially is this initiative intended to address climate change? Dermot Di, I will take that question first of all. I think in one word “critical”. I think there are some core drivers. Just hitting on the main issues. The Carbon Pollution Reduction Scheme (CPRS), which is our version of an emissions trading scheme is just a different name. The CPRS is meant to focus on the top thousand green house gas emitters in Australia - covering approximately 75% of Australians green house gas emissions. Importantly it is also our link in to the global carbon economy. So the UK introduced an emissions trading scheme back in 2002, which then linked into European trading scheme which commenced in 2005, and then the first Kyoto Operating Period started this year linking into 2012. So the UK, Europe - they introduced trading schemes early back in 2002 and 2005 as a means to prepare and adapt, and become international best users, so they can actually sell their expertise to the rest of the world. How do we link into that? Their systems are a cap and trade scheme, like our carbon pollution reduction scheme. So the US are also looking at, through President Obama, a cap and trade scheme under emissions trading, and Japan are also looking at it. So if we’re going to have a global response (and we all realise we need a global response at a higher level), it’s important that we all link into the same style of emissions trading. New Zealand also has a cap and trade scheme. It’s important to note that the CPRS is only one pillar of our strategy. It will be complimented by measures to rectify market failures in the trading scheme and they are commonly referred to as ‘complimentary measures’. I think one important aspect to remember about the carbon pollution reduction scheme is, it is one of the widest trading schemes in the world. It is actually intended to expand in the carbon sectors - so stationary energy, future emissions, and waste, agriculture by possibly 2015. And then also the thresholds are highly likely to decrease to cover more people especially in respect of the Corporate Threshold under s.13 of the NGER Act. So it will expand and there will be other complimentary measures, but I think Antony might like to add some more to this. © 2009 Worrall & Associates 6 Climate-Proofing Your Business
  7. 7. Creating a Climate for Change The Managing Uncertainty Series Antony The intent of the CPRS (Carbon Pollution Reduction Scheme) as with any ETS (Emissions Trading Scheme) cap and trade scenarios is to set a threshold, which is a practical threshold and relates to capturing your biggest emitters. In Australia I think that is the 25 kiloton threshold. Any organisations that emit more than that, therefore fall into the cap and trade net. The intent is that through trading within the mechanism of the CPRS (which includes the opportunity for some international trading though CDM that is not a great percentage of that), most of it is going to be Australian based trading opportunities. But the intent is that you need to purchase your certificates to then abate your emissions so that you get down well below that threshold. The driver behind that, is that it should be cheaper to reduce your emissions directly rather than have to trade. In a nutshell that’s the purpose of this, and hopefully this mechanism will be able to reduce Australia’s emissions, and as Dermot indicated that in time there will be more sectors that will be included in this which will be important. But I think it is important also to realise that Australia hasn’t just picked 2 of the CO2e gases, it has actually picked all 6 of them in this context, and that’s quite a commitment, which is excellent. And I think the other point that’s important to make is that in addition to hopefully driving down emissions over time particularly from those significant emitters, the indirect costs will also fall (indirect costs include the cost of electricity, fuel cost and the like). Anyone who isn’t actually captured in the net of the scheme (the 25 kiloton threshold), still has to be convinced and still has to structure its business to manage that (indirect) cost. One of the key messages (is), the best way to manage that (indirect) cost is (to) actually implement energy efficiency initiatives. Start looking at generating your own energy, start looking at your suppliers, your materials, raising your carbon and energy expectations of your clients and the like - so that sort of indirect cost. The incentive is that energy and fuel and the like will be more expensive and I think that in a nutshell is being the broader ethos and philosophy globally and that is what we are adopting here. There will be some industries that are trade exposed and I think they have mapped out some models that they’d look at those trade exposed industries and what may happen. Some of them may go off shore but predictions are that they will be coming back again once our economy restructures and has adapted to this. But there’s some challenges here. We obviously don’t want to lose our industries, we don’t want to reduce employment opportunities, and I think that goes back to the first question whereby we do need to think of this holistically. If the CPRS (Carbon Pollution Reductio Scheme) is going to be there, and if there are going to be implications to your business, you have got to be a forward thinker as to how to address that. So it’s that same message of market strategising and making it your core business to think about. © 2009 Worrall & Associates 7 Climate-Proofing Your Business
  8. 8. Creating a Climate for Change The Managing Uncertainty Series Dermot Absolutely Antony, I mean one lesson learned, and I suppose I was fortunate enough to have commenced work in the UK in early 2001, prior to the UK ETS coming into play so I saw the consultation and the early legislation in place, and so that lead me into what are the critical issues to the business? And as a lawyer you look at their contractual arrangements predominately, so you look at issues like change of law. So the way that is being structured in the UK is by a lot more mature change in law mechanisms and understanding who is at risk and who is able, best able to bear that risk and then structuring it appropriately. So for example operational costs, anything generally over 5 years in a contract term, you should be implementing say benchmark or market testing procedures. For capital expenditure; you can have a sliding scale depending on responsibility, all these sorts of mechanisms link in together into a mechanism that has been working efficiently seven years in international transactions. And I think that the second element that business has other hidden costs, such as insurance costs: insurance will obviously go up. An important element of 2001 in the UK was, and I’m sure it happened in Australia, was that terrorist insurance become uninsurable. You couldn’t procure it in the market place. So how do you deal with that? Climate change will it become uninsurable? Is it uninsurable in the marketplace? I’m sure it’s expensive it may well be the case if climate change does dramatically ramp up that it does become uninsurable, what do we do then? There are standard and mature mechanisms in place globally that do deal with that and, your indemnities; they are just 3 core elements that you need to be on top of in your contracts. But I also think from a practical perspective that (and its also been shown out in academic research) that if you look at the UK climate change strategy 2006, it was almost a ratio of 2:1 that the complimentary measures abated as opposed to the emissions trading scheme. That doesn’t undermine a trading scheme, a trading scheme is the ‘skeleton,’ and it’s the structure that we operate within but it needs to be clothed with appropriate ‘complementary measures’. In the first section of this interview, we heard climate change specialists Dermot Duncan and Antony Sprigg tell us why climate change is most definitely still on the agenda in the current economic climate. And not just because of the financial penalties to businesses and company directors for non compliance. They argue that the fundamental competitive position of your business could be at risk if you don’t take the issue of emissions reductions seriously in your business. They’ve described in detail how the carbon pollution reduction scheme works – Australia’s answer to an emissions trading framework. We heard that the scheme is intended to directly target our biggest emitters, and we also heard how it compares with similar schemes internationally. It would seem that the very presence of the carbon pollution reduction scheme is an incentive to get more efficient – and not just for big business. By getting more efficient and reducing our indirect costs in areas like electricity and fuel, we are also reducing our emissions – no matter what sort of business we operate in. In countries like the UK, the statistics tell us that efficiency measures like these, which compliment emissions trading schemes, can actually abate emissions more than the scheme itself. In the next part of the interview, we hear about the controversy surrounding Australia’s response to climate change. Are we on the right track with emissions trading? Is there too too much downstream impact on business viability. Is it too little too late? © 2009 Worrall & Associates 8 Climate-Proofing Your Business
  9. 9. Creating a Climate for Change The Managing Uncertainty Series Di I remember when this trading scheme was first introduced; well let’s call it its real name, the Carbon Pollution Reduction Scheme or CPRS. I remembered a lot of controversy at the time from business leaders about its implications. Where do you see that level of controversy heading? Antony I might just start just this to remind us all of where it came from. Because once you realise where it has come from it’s a reality. There has been a long train leading this. Essentially the Rudd Government made it clear that climate change litigation and adaptation was going to be a priority, and as soon as Prime Minister Rudd was elected he ratified the Kyoto Protocol which sent very strong signals with respect to the broader commitment in introducing a domestic emissions trading scheme. And despite of the recent economic turmoil, the Government hasn’t actually adjusted its position, it has kept it dated for the 15th of December for the white paper. The Department of Climate Change was actually established, and its core function is to design and implement this ETS and the timetable for the actual implementation is the second half of 2010. So you know one of the challenges, and I think this is where some of the controversy comes in, is it’s a very short timetable for something that is so complicated structurally from an economic perspective and a legislative perspective but to date we haven’t seen any adjustment to that so I think that that sends a signal as to how committed the Government is and therefore regardless of how controversial it may be, it’s still fundamentally going to happen. As I referred to earlier, (Professor) Garno and others have revealed that there are exposed industries in this. We are seeing obviously a lot of lobbying both as the trade exposed industries and obviously the coal mining community and the coal based electricity generators and this is an opportunity for that engagement that Dermot saw in the UK. And of course that is part of the controversy. But what it really is, to hopefully make sure that the CPRS is designed in a manner that is cognisant of Australia’s present economic structure and industries, but is a continual reminder of where it needs to go and that a diligent balance can be struck between it. And yes, controversy again, but there are market leaders that have picked this up in the last 18 months, almost 2 years ago and have already adapted and are responding to this strategically so yes there can still be arguments but the reality is those that realise that it is going to happen, and because they realise the history behind this, are adjusting accordingly. Dermot Absolutely Antony, I may just remind you that Australia’s signing of Kyoto was the trigger to Mr Duncan here returning from the UK so I think that was a great step forward, but you know yes, there has been significant controversy amongst business leaders, and I think some of that has been warranted. I think there have been some market failures where the scheme is at the moment. One example is recycling. Recycling as an industry has been at the forefront of abatement in the waste sector, yet people think that recycling waste is in a covered sector, but it’s actually not. The section of waste that is covered is actually the landfill side. Now landfill, even landfill gas extraction where you generate electricity from the syn gas. There was a Senate report in September (2008) which actually showed the findings of the efficiency or inefficiently actually I should say, of landfill gas extraction. Don’t hold me to this figure, it’s about 50%. So you know a lot of methane and other green house gases escape from a landfill, whereas a recycler is not getting any benefit for the actual abatement that they have done historically and/or the embedded energy benefits of recycling, because if you are recycling a piece of glass or paper you’re not using virgin materials, so you are avoiding cutting down trees and the amount of energy you need to produce recycled materials from recycled content is a lot less. © 2009 Worrall & Associates 9 Climate-Proofing Your Business
  10. 10. Creating a Climate for Change The Managing Uncertainty Series So that is a market failure and I know I have been involved in some lobbying of Government on that point. But there will be complimentary measures that we have talked about earlier which compliment the trading scheme, so where there are market failures, for example. If we use the waste example, we could talk about recycling; you could say what has happened now? There has actually been an increase in the landfill levy within NSW. One problem I think nationally in Australia is we don’t have a fixed landfill levy across Australia; it is different in each state. So Queensland does not have a landfill levy. WA is $3 per tonne. The landfill levy for people who don’t understand is a levy that is charged on a tonne of waste that’s been sent and deposited at landfill sites. Now landfill sites, obviously there is methane and a high organic content. If there was a national target that would be very good, but it also needs to be high. So New South Wales has recently, as of last week, the landfill levy at the moment is $45.60 per tonne and that’s if it is organic or non organic, so whether its food or green waste or whether it is glass or timber, it does not matter. For each ton you pay $45.60. Now that is going to increase by $10 up until 2016 which is going to result in a landfill levy of $128. Now I was speaking to Mike Richie who heads up the NSW Waste Management Association and is also the General Manager at SITA (Australia) which is one of the large international waste companies. He was very adamant that there wasn’t a sufficient price signal for new technologies to come into the market to assist the diversion of waste going to landfill that releases green house gases. On Monday, I spoke to him and he is now adamant there now is in New South Wales. The $128 tonne landfill levy will do that, now that’s a complimentary measure in essence. There are other complimentary measures for businesses, CSR (corporate social responsibility) is one of them, and as Antony pointed out earlier there are moves a foot at the federal level to legislate that CSR (corporate social responsibility) become mandatory. There is also energy efficiency. Professor Garnot is adamant that we need an energy efficiency lever and the UK is implementing another cap and trade scheme sitting underneath the European ETS (emissions trading scheme) which is a Carbon Reduction Commitment. And there is also things like - what is the social cost Antony? And so we have a market cost with the CPRS. It may be $20 per tonne, it may be $35 per tonne. But that’s not actually covering the ‘social costs’ that we face with climate change, so things like the loss of Nigaloo Reef, the Great Barrier Reef, the Kakadu Wetlands, Sydney foreshore, housing, so how do we deal with that? The UK has implemented another complimentary measure which is the Shadow Price of Carbon. It has put a price on the social cost, and in the UK it’s now implemented into government contracts. There is a set price per year depending on what the cost is to abate your emissions and whether the UK is actually meeting their trajectories, and this is for 2008, fixed at £26.50 so that is actually about $60 Australian dollars. So that is a separate cost. So in the UK there is a market cost on a trading scheme in the European union and there is a social cost or shadow price of $60 Australian dollars. So these sorts of things may come into Australia, Antony do you have any views on that? Antony Firstly renewable energy has certainly been a debate before CPRS was conceptualised where there was a significant argument regarding the managerial energy target and it not being sufficient. I think that it is pretty obvious that they were justifying that argument because it wasn’t sufficient, and hence we don’t see sufficient renewables. So that it’s not just an issue of clean versus unclean energy, but is actually a question of - is there sufficient energy leading into the future? And this controversy is now being led further -where are there efficient incentives and are we backing renewables as well as other © 2009 Worrall & Associates 10 Climate-Proofing Your Business
  11. 11. Creating a Climate for Change The Managing Uncertainty Series forms, such as clean coal and the like in the form of energy generation? I think that is an area which is quite controversial and everyone is seeking some clarity. But it is also a reminder to organisations that whether you are a power generator now particularly with intermittent energy opportunities you could become one in the future, and it is good to start thinking about that now. The other one is opportunities like carbon sequestration where previously there was a lot of debate very controversial, but the government is openly supporting that initiative and we are seeing the first pilot trial of that occurring in Victoria. So these areas they are controversial and yet they are a part of Australia’s response to climate changes as far as abatement and reduction and it’s going to be interesting to see how they evolve into the future because some of them haven’t been fully tested. I just wanted to touch on those because I think there are a lot of industries that are implicated there, but it also reminds us that there are a lot of opportunities. In the second part of this interview, we heard Dermot and Antony debate the controversy around climate change. They described the concern over the short timetable given by the Australian federal government for business to implement the emissions trading scheme. And that this exacerbates the economic and commercial downside for industries who are highly exposed to it. They also give an alarming account of the market failures in emissions trading schemes. Like the fact that although waste management is comprehended in the scheme, it doesn’t recognise the investment recyclers have already made in abating their emissions. Dermot and Anthony suggest that these shortcomings are logically giving rise to complimentary measures like higher landfill levies, business policies on corporate social responsibility, energy efficiency programs and the UK’s shadow cost of carbon. A process which monetises the social cost of emissions. The social cost of emissions means the impact on social welfare of environmental factors like water quality, increasing bushfires and our ability to grow food. Our panel experts reminded us that Renewable energy was also a source of controversy way before emissions trading, but now the debate has moved towards whether our targets for renewables on the right track. And finally, we talked through Carbon Sequestration. We are finally trialling the new technology after much research and debate, so how far do we go with it? In the last part of this interview, we will take a close look at the gaps in our ability to adequately measure and quantify the risk of climate change to our business- especially when it comes to the shadow cost or the social costs of carbon. We ask the key questions around risk like - Is the CPRS enough? Do we need to do more, like incentivise energy efficiency? We also move to the technical side of climate change and analyse the risks which come with the implementation of climate friendly measures. Questions like, How do we assess the up-front carbon DNA of our projects in the design phase. And What opportunities arise for business diversification? To wrap it all up, Dermot and Antony will share with us their unique new method of measuring and quantifying the issue of climate change in your business – essentially it’s their climate change health check. © 2009 Worrall & Associates 11 Climate-Proofing Your Business
  12. 12. Creating a Climate for Change The Managing Uncertainty Series With respect to what Dermot was referring to - the shadow cost of carbon - we’re presently undertaking a number of climate change risk assessments which is good. I mean this is local councils on single or multiple pieces of infrastructure for infrastructure owners and operators. This is really the precursor to understanding the direct physical impact of climate change so we’re talking about: rise in sea levels. We’re talking about inundation particularly through the rise in storm surges where we have the waves will be wider/higher and more frequent (which is really the risk with sea level rise not just the fact that it might rise a metre or so, it’s the compounded affect of more frequent storms and the impact of those waves and the volume of water and so on). We’re talking about the significant increase in frequency and intensity of bushfires, we’re talking about lack of water availability, whether it be through salt water intrusion or just simply through a more heated environment. We’re talking about weed infestation spread of certain diseases through the South, the ability to grow certain crops and provide the food to both Australians and being able to export it. So these are the physical risks that have been identified. There are some scenarios that have been modelled around that through IPCC data, through CYRO Australia and even more specific modelling that’s occurring regionally. But the message in all of this is that we’re only starting to identify the risk. We are not actually factoring this into the true cost to our organisations, to our government and to our population. That is probably our biggest message, is that although at the moment the financial crisis is overshadowing the carbon pollution production scheme, and the roll out of the white paper and the cost of carbon and how organisations deal with that. But the reality is to maintain our infrastructure to continue to supply electricity, to continue to supply water, to continue to have roads that are in a sufficiently maintained condition and in locations where they won’t be washed away, the fundamental services to our community just to mention a few, let alone some of the more social based aspects whether that be the ability to go to the beach, the ability to travel to certain areas. These issues haven’t actually been quantified yet and I think Dermot and I both feel very strongly about this is that obviously from a legal perspective, organisations need to consider this. We know that state government has handed the responsibility to local councils in the context of the government aspect with respect to climate change but really organisations need to start taking a policy position on this but also strategy, because when it comes down to asset management, procurement just to touch on a few, but also where they get their supplies from and what there import/export markets would be. These are issues that they need to start factoring in. So once again it’s that encouragement at looking at it from a strategy they need to look at the risks, climate change risks and the direct impact, and the shadow costs of those as well as the cost of carbon, and instead of seeing it as something else to hit us with, this is an opportunity to start looking at business diversification. How do we have a cultural aspect of our company? Where do we need to change? Because these are really really big drivers so if there is bright sparks in organisations saying I think we need to do this and I think we need to do that, we need to change the way we think. I think these are big enough drivers now to start articulating that. Dermot Can I just say that in the UK, climate change is number one on the foreign policy hit list. You know, it drives their foreign policy. It really links into security of supply which is how they refer to it as, really. But they view it so critically that they need to ensure they have a local power supply that’s renewable and they can’t rely on Russia’s gas which they did turn off for a day earlier this year. © 2009 Worrall & Associates 12 Climate-Proofing Your Business
  13. 13. Creating a Climate for Change The Managing Uncertainty Series So Australia is not in a dissimilar situation, we are the world’s largest continent. We have huge reserves of feed stock but we need to be smart about our future and whether that is more localised generation and whether it is looking after through complimentary measures, some of our manufacturing industries. I mean that might well be an interesting point that the government looks at, so do we want to develop an electric car in Australia and therefore we obviously reduce huge emission through electric cars internally but then we maybe export them. So very interesting things which are going on in government There is also things, constitutional issues being discussed in government and whether the federal government takes responsibility for the environment that may well be on the agenda and you know I have actually discussed that with the New South Wales government and they also acknowledge that although reticently. So interesting times. Antony Discussions I have recently had at a federal government level with Anna-Maria Rapier, the chief advisor to Anthony Albanese the Minister for Infrastructure. The first thing that was raised was climate change risk and the physical issues, but what is the liability of that?. These were open questions. What does it mean to coastal communities, like who is responsible for that? Is the individual in that house responsible I mean there an easement which is public land is and then it is theirs? That public land is it going to move back and therefore they have already lost their property whether it be through climate change and sea level rise or through the fact that that is not their property and more. Big questions and it’s being acknowledged and I think it is very important to remind ourselves of that. Also I just wanted to touch on the compliance and the regulatory side of things. One of the big questions, I think it is such a good question regarding controversy: Is the CPRS enough? Is it really going to be a sufficient carrot or stick to reduce our emissions to reduce the affects of climate change? Now one of the answers is there does need to be a global response which Dermot kicked off with initially. But it has also been identified in Australian that in energy efficiency given that it hasn’t been captured in the CPRS there really needs to be some sort of mechanism to incentivise and drive energy efficiency, whether that be voluntary or mandatory, the debate is open on that. The reality though is that it has been proven that energy efficiency implementation is a lot cheaper then actually retrofitting coal power stations really, so it’s clear that energy efficiency is a fundamental step we need to take if we want to reduce our emissions and assist our water industries in bringing them down that threshold, and there is a big financial market in this and I think that is an important one that we shouldn’t take our eyes off that because we really need to encourage that. Dermot Absolutely, I mean The Environment Corporation who we all know, their September report clearly said through analysis and studies and consultations that energy efficiency produces net gains on the whole. So business implementing energy efficiency concepts and behaviours, so that is sort of linking in to the change management concept there are net gains to be had so savings. Now I think in these economic times they are a great opportunity to possibly avoid a reduction in the work force by saving money elsewhere. An example, Newscorp their one degree program: say it costs, I can’t remember the a actual figure, say it costs them $200,000 AUD for their Australian operations. That was the cost of implementing some sort of mechanism to deal with their energy consumption. The savings paid for the capital cost. There was no payback period, as soon as it was implemented the savings they made paid for it. So I think people need to understand that and not be frightened of it but you need to talk to people who obviously know what they are talking about but there are savings to be made. © 2009 Worrall & Associates 13 Climate-Proofing Your Business
  14. 14. Creating a Climate for Change The Managing Uncertainty Series Di We have talked about a lot of things so far. I mean a lot about the controversy around this issue, a lot about the financial issues, financial risks and legal risks. There is also an element of technical risk though when it comes to climate change. Can you give an example of this and why it might impact business? And what they can do about it? Antony I’ll kick that off if that’s alright? Antony I think it is all technical risk generally whether you are a bank or you’re building a piece of infrastructure or generating electricity and it’s just the context of your business. I think it is about your technical solutions with respect to responding with carbon climate change in the CPRS (Carbon Pollution Reduction Scheme) and what we are seeing on a number of projects now are organisations and projects where they are thinking about this early. They are thinking about this at project inception or at the strategy level and they are actually measuring carbon, particularly on projects looking at it from both a construction and operational perspective. They are looking at what I call the carbon DNA, so they benchmark it. This is pre detail design, this is very early on and this is deep concept. The intent here is it allows the organisation that is going to be the owner and operator to identify where the most significant emissions and what they are related to. It allows them to work hard through the appropriate support: how to reduce that both in the short term and the long term and then you can factor that into your economic and financial models upfront. If there are commitments which have grown more and more to offset, you can start debating and actually being able to argue well you can offset less because if you invest now reducing and get a payback as Dermot just indicated with the energy efficiency example. So its actually measuring the carbon upfront and not just to meet compliance purposes. A lot of organisations will struggle even meeting compliance because of how they measure their carbon and therefore how they are going to report it, it’s actually going to cost them quite a lot internally to do that. If you take a more forward thinking approach to this you actually align your systems in a much wider fashion so you can facilitate reporting, but you also want to be encouraged to report well beyond your scope one and two emissions but start working to scope three. So those are your upstream and downstream issues: your suppliers, your materials and where your waste goes, who manages that etc. Because there are some opportunities, more and more opportunities that can be identified. There can be strategic opportunities in partnerships, with business diversification or you split the net wide enough to identify what you can actually achieve and then you start ranking that and start looking at well how do we factor these in. So it is actually a fairly straight forward process to measure but the numbers you get are very powerful as far as business determinations are concerned. So technical back-to-business, if I can relate it back to that as one example. Dermot Yeah, spot on Antony. I also think it is an opportunity to diversify your business so if we could possibly take for an example a GHD in this world Antony, if your business/company was going to build a brand new building at the moment and it would obviously implement some form of cogeneration in the basement of that building and depending on what the feed stock is, you may have added benefits and they would be looking to generate their own heat and power for that building. They may couple that with photovoltaics which is technology using the sun to generate electricity as opposed to solar hot water, you may also use solar hot water. You may have a bit of a batch of © 2009 Worrall & Associates 14 Climate-Proofing Your Business
  15. 15. Creating a Climate for Change The Managing Uncertainty Series technologies. Now the benefit to a GHD in this world would be twofold really they would not have any power, heat, electricity costs from the grid. They may be eligible for the federal renewable energy certificate under the proposed renewable energy target, which is the old restructured mandatory renewable energy target, so that’s a financial certificate. They may also, if they are using the solar photovoltaics on their roof, New South Wales recently announced last week a ‘net’ feed-in tariff for solar electricity for the surplus electricity which they could then feed back in to the grid for a price. So you can see that in essence they have diversified their business. So there are huge opportunities in Australia. Di It sounds like forward thinking organisations in the technical space can find opportunities, not just from the compliance perspective but as you say diversification, new business opportunities and all sorts of benefits, if they take a proactive and long term approach to what this can actually do for them. Like any major change initiative climate change is an area emerging which clearly drawing from a range of disciplines especially if we are going to see a comprehensive outcome. We have talked about regulation, we have talked about compliance. We have talked about financial management, technology and certainly about innovation and the much bigger area of opportunity that actually is present in this new field. Each of you has seen an opportunity here and has created something for business that cuts through all these disciplines and cuts through this complexity and you got together to collaborate on this unique tool and you have called it the ‘Climate Change Risk Assessment Tool’. Can you just outline for those listening or reading here, what is this tool all about? Antony Essentially it is a tool which acts as a diagnostic and a gap analysis which looking at present regulatory requirements of organisations. Future regulations will be coming out. The legal aspects associated with that as well as the technical aspects, mapping it out, overlaying it on your organisation and seeing where you sit with that. The process explores opportunities as well and that is very important to us, this isn’t about doom and gloom this is actually about change management. And although it is called a tool and all sounds very technical but the way we like to use it is really to get to know an organisation and understand its culture as well as where it is meeting and has to meet compliance requirements and what sort of opportunities there may be and assisting and aligning that organisation, that context. Dermot Absolutely, just adding what I can to that Antony, is we really see it as the skeleton. So it gives you a framework within which you can operate confidently that you are actually dealing with the risks of climate change within your business. Now that has direct legal implications in say the avoidance of green washing. So there have been claims in Australia based on Section 52 of the Trade Practices Act and also Section 53 where a business needs a mechanism and a tool, a diagnostic, where they can comfortably and confidently work through the issues with their advisors or independently, that will formulate their response to climate change in their business and that’s probably one of the core drivers of this diagnostic. It is not intended as the silver bullet, I suppose, nothing is a silver bullet, but what it does is, it enables a business to have a framework, a skeleton, to work with giving that confidence that they are actually dealing with the issues that their business faces or will face in the future and then when it does come to communicating what they intend, have or will do in respect to climate change it gives them the confidence to actually be able to communicate that to the market clearly and succinctly without breaching Section 52. Because the TPA is something that the government is looking at enforcing more strictly © 2009 Worrall & Associates 15 Climate-Proofing Your Business
  16. 16. Creating a Climate for Change The Managing Uncertainty Series in the future. So it is going to be used as a sword as opposed to a shield. Antony I think another point with this is, you may have a strategy, you may have a policy but the diagnostic is also a health check on that and we think that is really powerful with the way the world is changing so rapidly both from a regulatory perspective. We are looking at the financial crisis, emerging businesses and industries both the positive and the negative it is really good to get that sanity check that you are going the right direction. Dermot Absolutely, and look I’m a very visual person and so is Antony, and when we sat down and discussed this opportunity between the two of us, we thought a great way to do it and its how we both think, is through diagrams. So it is in a flow chart mechanism, so in essence we work through what your legal obligations are and then we attack it like a project so we phase it. So Phase One is Scoping, Phase Two is Evaluation, Phase Three is Implementing, Phase Four is Operating and we looked at all the elements that go in to a project that we need to consider. Di If people wanted to find out more about this tool how would they do that? Do they email, do they call you? How? Dermot They can email Antony and I on our emails. I will repeat my email: dermot_duncan@hotmail.com or my mobile phone number is 0422 082 195 Di Antony? Antony Thanks Di. My mobile 0414 454 723 or my email again antony.sprigg@ghd.com.au Di Great thank you. Well thank you Dermot, thank you Antony for today’s really comprehensive discussions and in closing I’d have to say that I was really very impressed when I first saw this tool, and what it could do for business helping them navigate through the issues of climate change. I encourage those of you listening to this audio or reading this transcript to get your health check done on your climate change policy and contact either Dermot or Antony to find out how this tool can help you. Dermot Thanks Di Antony Thank you © 2009 Worrall & Associates 16 Climate-Proofing Your Business
  17. 17. Creating a Climate for Change The Managing Uncertainty Series Learning Guide Climate-Proofing Your Business Di Worrall interviews Environmental Experts Dermot Duncan and Antony Sprigg 1. Why is climate change still on the agenda in the current economic climate? 2. How does the carbon pollution reduction scheme (the CPRS) work – Australia’s answer to an emissions trading framework for our biggest emitters? 3. How does the CPRS compare internationally? 4. How is the carbon pollution reduction scheme an indirect incentive for big business to get more efficient? 5. How does the CPRS impact small business? 6. How is it that measures which compliment emissions trading schemes can abate emissions more than the scheme itself? 7. Describe some of the key points of controversy surrounding Australia’s response to climate change: a. the timetable for implementation b. the economic and commercial consequences for exposed industries c. Market failures of trading schemes 8. Describe some of the complimentary measures arising to address the shortcomings of emissions trading schemes. 9. What is meant by the social cost of emissions? 10. Are our targets for renewables on the right track? 11. What is the status of Carbon Sequestration developments? 12. What is meant by the shadow cost of carbon and how does it create problems in the measurement of climate change risk? 13. How can we incentivise energy efficiency? 14. What is meant by the carbon DNA of projects and wht are the implications for measuring it? 15. What are the key components of a climate change health check on your business? © 2009 Worrall & Associates 17 Climate-Proofing Your Business
  18. 18. Creating a Climate for Change The Managing Uncertainty Series © 2009 Worrall & Associates 18 Climate-Proofing Your Business
  19. 19. Creating a Climate for Change The Managing Uncertainty Series Contact Information Di Worrall Author – A Climate for Change Principal, Worrall & Associates Tel 02 95996791 Mob 0417 062 152 PO Box 814 Rockdale NSW 2216 ABN 32 818 857 670 Book: www.aclimateforchangebook.com Web: www.humanresourceschange.com.au Email: enquiry@humanresourceschange.com.au Disclaimer. The information contained within this interview is general in nature and is not designed to address the specific circumstances of your organisation or entity. For specific strategies related to your situation, seek the advice of an appropriate professional. The views expressed by the guest interviewee/s in the recording and transcription are not necessarily the views of Worrall & Associates. © 2009 Worrall & Associates 19 Climate-Proofing Your Business

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