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Prospering & Profiting in the Low Carbon Economy


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Examining the key carbon management issues facing business in a rapidly changing economic environment

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Prospering & Profiting in the Low Carbon Economy

  1. 1. Prospering & profiting in the low-carbon economy Examining the key issues facing business in a rapidly changing economic environment © Carbon Training International 2009 NSW Department of State & Regional Development Parramatta 15 th May 2009 This material was used by Carbon Training International Pty Limited to assist an oral presentation and is not a complete record of the discussion or information presented The material provided in this presentation represents information only & does not constitute advise nor that action of any particular nature should be taken without first obtaining expert opinion
  2. 2. About CTI Who We Are: CTI is a professional carbon management training organisation led by some of the best climate change specialists & instructors in Australia Why We Exist: for the development & delivery of workplace training solutions that are focused on creating a carbon conscious, carbon skilled and carbon responsive workforce Our focus: is on the delivery of workplace capacity building solutions for the low carbon economy Our Services: Facilitated Workshops, VET accredited CertIII & CertIV qualifications in carbon management, coaching for carbon management success & strategic support services © Carbon Training International 2009
  3. 3. Workplace Training for Business Certificate III Carbon Management Total Units:5 Core:4 Electives:1 Mode of Delivery: Face2Face & web-based e-learning Certificate IV Carbon Management Units:10 Core:8 Electives:2 <ul><li>operational frontline </li></ul><ul><li>team supervisors </li></ul><ul><li>trainees & apprentices </li></ul><ul><li>tradespeople </li></ul><ul><li>job seekers </li></ul><ul><li>school leavers </li></ul><ul><li>general & middle managers </li></ul><ul><li>line supervisors </li></ul><ul><li>professionals looking for carbon management accreditation </li></ul><ul><li>school leavers </li></ul>© Carbon Training International 2009 CTI’s is presently the only VET organisation in Australia that provides CertIII & CertIV level carbon management courses to the criteria specified under the National AQTF2007 standards <ul><li>increase the carbon consciousness of participants </li></ul><ul><li>build capacity to modify the workplace to thrive in a low carbon economy </li></ul><ul><li>raise awareness of opportunities as well as risks </li></ul><ul><li>provide the tools for compliance with an overview of offsets, accounting, reporting and marketing. </li></ul><ul><li>enable participants to identify, reduce, eliminate, abate and offset their carbon emissions </li></ul><ul><li>provide to capability to manage all of this with a Carbon Management Response Plan </li></ul>Course Outcomes Who Courses
  4. 4. What’s Covered <ul><li>Carbon policy and legislation developments </li></ul><ul><li>Business risks and opportunities arising from a low carbon economy </li></ul><ul><li>The growing importance of Scope 3 emissions </li></ul><ul><li>Business casing carbon reduction initiatives </li></ul><ul><li>A look at a low carbon business </li></ul><ul><li>Developing and implementing a carbon management response plan </li></ul><ul><li>The importance of embedding carbon management skills </li></ul><ul><li>Financial assistance programs </li></ul>© Carbon Training International 2009
  5. 5. Organisation adaptation is the way to surviving in the low carbon economy <ul><li>“ Its not the strongest species that survives, nor the most intelligent, but the one most adaptable to change” </li></ul>Charles Darwin © Carbon Training International 2009
  6. 6. Carbon Policy & Legislation Developments © Carbon Training International 2009 Institutional Compliance Frameworks for a Low Carbon Economy
  7. 7. The CPRS is only one mechanism in the governments climate change toolkit <ul><li>Emissions Trading Scheme designed to establish a market driven price for carbon </li></ul><ul><li>Energy Efficiency – move to national standards for buildings, electrical goods, machinery, plant equipment & whitegoods </li></ul><ul><li>Renewable Energy – with supporting legislation & establishment of a new independent body Renewables Australia to facilitate commercialisation </li></ul><ul><li>Sequestration Technologies – CCS, establishment of R&D institutes (GCCSI) </li></ul>© Carbon Training International 2009 <ul><li>Latest developments: </li></ul><ul><li>Start of Emissions Trading Scheme (CPRS) to be delayed by 12 months with 4 key amendments introduced </li></ul><ul><li>CPRS has been examined by two separate Senate Review Committees (with recommendations from the first completed) </li></ul><ul><li>Emissions Trading Scheme legislation introduced into parliament 14/05/09. Expected to be voted on by the end of June </li></ul><ul><li>COAG has agreed to the creation and adoption of national energy efficiency standards supported by a national strategy </li></ul>There are four prominent mechanisms that are been adopted & legislated to fight the affects of climate change The first two are going to have a direct impact on the performance of business while the other two will have feed through effects
  8. 8. GHG and Energy reporting is mandatory for firms that exceed thresholds that are dictated by the schedule 1July 2008 marked the start of mandatory reporting for threshold affected firms Reporting Obligations <ul><li>The threshold limits for firms become progressively tighter over a 3 year period increasing the number of businesses who fall into the net </li></ul><ul><li>Under the NGER Act, strict thresholds have been put in place for a firms aggregate emissions as well the separate facilities over which it has operational control </li></ul>Source: NGER Policy Paper NGER Thresholds & Reporting Timeline <ul><li>Firms not in the initial reporting group could become affected in future years </li></ul>Don’t get caught out, make sure you know if & when you are going to be affected © Carbon Training International 2009 Compliance legislation for managing carbon emissions is already in place in the form of National Greenhouse & Energy Reporting Act
  9. 9. The Business Risks & Opportunities linked to Climate Change © Carbon Training International 2009 (climate change as the new metaphor for environmental, economic & social reform)
  10. 10. Types of Business Risks <ul><li>Regulatory Risk </li></ul><ul><li>Compliance Risk </li></ul><ul><li>Supply Chain Risk </li></ul><ul><li>Product & Technology Risk </li></ul><ul><li>Competitive Risks </li></ul><ul><li>Litigation Risk </li></ul><ul><li>Reputation Risk </li></ul><ul><li>Physical Risk </li></ul>© Carbon Training International 2009 Impacts will be felt by every business irrespective of their size, location, markets, products and services, and will affect all elements of their business model . Its imperative to know the business risks an manage the accordingly
  11. 11. Business Opportunities <ul><li>Preferred supplier </li></ul><ul><li>Employer of choice </li></ul><ul><li>Positive brand image </li></ul><ul><li>Capture new customers </li></ul><ul><li>Extend into new markets </li></ul><ul><li>Bottom line contribution </li></ul><ul><li>Reduce waste & save money </li></ul><ul><li>Emissions (permit/offset) trading </li></ul>© Carbon Training International 2009 Business needs to be focused on seizing the opportunities to be created from the low-carbon economy
  12. 12. The Growing Importance of Scope 3 Emissions © Carbon Training International 2009 Embedded Emissions in the Supply Chain
  13. 13. Scope 3 Emissions – the big sleeper risk for business <ul><li>A firms supply chains emissions (Scope 3) are often the highest contributor to aggregate emissions </li></ul>Emission Categories Around 80% of a business carbon emissions are contributed by scope 3 activities Source: GHG Protocol Scope 3 emissions are an increasingly important category for business to manage because of how expectations are shaping in the marketplace to take control <ul><li>Scope 3 emissions include: </li></ul><ul><li>Contractor Vehicles </li></ul><ul><li>Employee Business Travel </li></ul><ul><li>Outsourced Activities </li></ul><ul><li>Production of purchased materials </li></ul><ul><li>Waste Disposal </li></ul><ul><li>Product Use (& disposal) </li></ul>© Carbon Training International 2009
  14. 14. Scope 3 risks are moving from possibility to a reality <ul><li>B2B Compliance Policies & independent measurement standards </li></ul><ul><li>New assessment criteria for business health / credit worthiness / lending suitability / insurance coverage </li></ul>“ We need more and better information about how companies and other assets will be affected so that we can make better informed decisions as to how we allocate our long-term capital.” Banking sector representative Are you prepared to risk your preferred supplier arrangements with established customers or line of credit providers? Westpac’s Sustainable Supply Chain Compliance Tool for all vendors As financial institutions begin to overhaul their risk management practices in the shadow of the GFC they are doing so with consideration to climate change risk as well © Carbon Training International 2009
  15. 15. B2B Compliance Policies Organisations like Westpac have now adopted policies that require their suppliers to comply with their own stringent sustainability policy & risk management processes Westpac’s Sustainable Supply Chain Compliance Tool for all vendors
  16. 16. Business Casing Carbon Reduction Initiatives © Carbon Training International 2009
  17. 17. Where are the emission reduction opportunities in the business? © Carbon Training International 2009 Every emission reduction opportunity across the business value chain should be assessed against stringent financial criteria that can show how the business benefit is to be unlocked <ul><li>Energy Use </li></ul><ul><li>Change form of energy used e.g. electricity to gas </li></ul><ul><li>Increase the proportion of renewable energy used </li></ul><ul><li>Production </li></ul><ul><li>Decrease waste volumes </li></ul><ul><li>Increase scale </li></ul><ul><li>Decrease the amount of processing </li></ul><ul><li>Re-engineer manufacturing practices & improve efficiency </li></ul><ul><li>Logistics/Distribution </li></ul><ul><li>Decrease heating/cooling in storage & in transport </li></ul><ul><li>More effective scheduling & demand management </li></ul><ul><li>Eliminate distance travelled </li></ul><ul><li>General </li></ul><ul><li>Include energy/carbon criteria in purchasing / supplier choices </li></ul><ul><li>Build in energy/carbon criteria into design criteria </li></ul><ul><li>Change product design/configuration/materials </li></ul><ul><li>Change Technology - more energy efficient </li></ul><ul><li>Improve inventory management </li></ul>
  18. 18. Modelling the Business Benefits/Returns <ul><li>Its imperative to start with the correct assumptions about the carbon reduction project to be embarked upon – especially timeframes </li></ul><ul><li>Its about identifying the upfront as well as the long term business benefits </li></ul><ul><li>A discounted cash-flow (DCF) analysis is the best way for demonstrating where the financial business benefits of pursuing a carbon reduction strategy exist </li></ul><ul><li>Along with accounting for the true cost of capital (WACC) DCF takes into consideration the time value of the investment </li></ul><ul><li>By truly project modelling a fully integrated carbon management response plan the cost synergies will be properly accounted for and the financial business benefits fully maximised </li></ul><ul><li>Many individual projects will fail to stack up on their own simply because alone they can’t extract the full cost savings that will enable them to clear the hurdle rates required </li></ul><ul><li>Look to reduce the costs of the establishing & running the project through government grants and subsidies </li></ul><ul><li>Capital costs are likely to be a significant up-front component of the project, especially when it comes to re-tooling a factory or purchasing energy efficient machinery </li></ul><ul><li>Renewable energy projects e.g. installing a solar panel system, come with access to RECs which can be sold (traded) under RETs therefore representing some income to the project </li></ul>© Carbon Training International 2009
  19. 19. Business Benefits - Examples of projects being pursued by business to reduce energy & carbon emissions Kellogg (Aust) Pty Ltd Project: Utility Management System Purpose: To improve the energy efficiency of cereal production through the monitoring of energy use & performance of factory equipment Energy Savings: 1,564 MWh p.a. GHG Savings: 2,712t CO2-e Sara Lee Bakery Pty Ltd Project: Optimization of Refrigeration Systems Purpose: To optimize the refrigeration system at its major manufacturing facility to improve the energy efficiency of one the most energy-intensive processes of food manufacturing which accounts for 50% of total electricity used Energy Savings: 1,090 MWh p.a. GHG Savings: 1,164t CO2-e Qantas Airways Ltd Project: Fluorescent Tube Light Replacement Purpose: To replace more than 7000 fluorescent light fixtures with 6625 energy efficient light fittings in 3 buildings Energy Savings: 1,434 MWh p.a. GHG Savings: 1,532t CO2-e Vinidex Pty Ltd Project: Extrusion Chiller Upgrade Purpose: To replace the energy intensive chillers in the cooling system in each production line with chillers that are 30% more energy efficient Energy Savings: 309 MWh p.a.* GHG Savings: 341t CO2-e * Calculated using the supplied GHG figure & multiplying by coefficient of 0.906 Source: DECC Climate Change Fund © Carbon Training International 2009
  20. 20. The cost savings from these energy reduction projects speak for themselves Kellogg (Aust) Pty Ltd Energy Savings: 1,564 MWh p.a Using an average cost of $169 per MWh the annual energy cost savings equate to: $264,316 a year Sara Lee Bakery Pty Ltd Energy Savings: 1,090 MWh p.a. Using an average cost of $169 per MWh the annual energy cost savings equate to: $184,210 a year Qantas Airways Ltd Energy Savings: 1,434 MWh p.a Using an average cost of $169 per MWh the annual energy cost savings equate to: $242,346 a year Vinidex Pty Ltd Energy Savings: 309 MWh p.a.* Using an average cost of $169 per MWh the annual energy cost savings equate to: $52,221 a year * Calculated using the GHG figure & multiplying by coefficient of 0.906 The energy cost savings could be up to 20% higher under the ETS As stand alone projects most of them have a payback period of between 3-4 years with an annual IRR of around 30% © Carbon Training International 2009
  21. 21. A look at a low carbon business © Carbon Training International 2009
  22. 22. Case Study – A greenfields low-carbon business: Unity4 Group <ul><li>Unity4 is an innovative & worlds best practice distributed contact centre </li></ul><ul><li>The Unity4 Group, is an Australian owned & operated business that is focused on developing and deploying the world's best home based agent contact centre services and technology. It is a market leader in its field </li></ul><ul><li>Its unique marketplace difference is that it’s business model is built around having its staff work from home. This avoids the need for a large business premises and large daily workforce movements </li></ul><ul><li>By developing world-leading software to enable its call centre staff to work from their own homes Unity4 is providing a better work-life balance, a better service to customers while maximising profits for its shareholders </li></ul><ul><li>The business model is not only cost effective its also operates with a very small carbon footprint compared to other call centres </li></ul><ul><li>Carbon Emissions Savings - over 2,000t CO2-e per year </li></ul><ul><li>Cost savings - over $1,000,000 a year on avoided fuel costs </li></ul>Organisations like Unity4 represent the new generation of business where consideration to minimising the carbon footprint was made as part of the business design © Carbon Training International 2009
  23. 23. Developing & Implementing a Carbon Management Response Plan © Carbon Training International 2009
  24. 24. No business will be left unaffected by the impacts of climate change & the associated structural reforms <ul><li>Natural resources and raw materials </li></ul><ul><li>Supply chains and logistics </li></ul><ul><li>Fixed asset design and construction </li></ul><ul><li>Asset operation, performance and maintenance </li></ul><ul><li>Business processes </li></ul><ul><li>Asset values </li></ul><ul><li>Markets, customers and competitors </li></ul><ul><li>Products and services </li></ul><ul><li>Workforces </li></ul><ul><li>Local community and environment </li></ul>As well as a clear and coherent climate change & carbon strategy, its imperative that business has in place a SMART carbon management response plan that can be performance managed A carbon management response plan needs to address critical elements within the entire business model: Business Elements Management Response Carbon Management Response Plan Illustrative “ Companies should assess the risks and opportunities and develop risk management processes and actions to meet these challenges” Insurance sector representative © Carbon Training International 2009
  25. 25. The importance of carbon management skill sets in the business © Carbon Training International 2009
  26. 26. The importance of embedding carbon management skill-sets in the business <ul><li>Provides essential workplace competencies that link directly to job functions e.g. procurement </li></ul><ul><li>Emergence of new competencies & roles e.g. carbon technicians, para-professionals </li></ul><ul><li>Source of competitive advantage  responding better than your competitors </li></ul><ul><li>Supports the creation of business value </li></ul><ul><li>Removes dependence on outside 3 rd Parties - consultants, energy auditors, NGERs reporting & carbon accounting specialists, Carbon Offset brokers </li></ul><ul><li>An enabler to building a low carbon business culture </li></ul><ul><li>Recruit & retain your talented people </li></ul><ul><li>Risk management & compliance </li></ul>Investing in the skills of the organisation will help the business to build capacity to effectively transition into the changed business system of the low carbon economy © Carbon Training International 2009
  27. 27. Government Financial Support Programs © Carbon Training International 2009
  28. 28. Government Financial Support Programs AusIndustry – Climate Ready Program A competitive grants program providing grants from $50,000 up to $5m on a matching funding basis to support research and development, proof-of-concept and early-stage commercialisation activities to develop solutions to climate change challenges AusIndustry – Re-tooling for Climate Change A grant program to help small and medium sized Australian manufacturers reduce their environmental footprint, through projects that improve the energy and/or water efficiency of their production processes. The program provides grants of between $10,000 and $500,000, up to a maximum of half of the cost of each project AusIndustry – Green Building Fund A grant program to reduce the impact of Australia's built environment on green house gas emissions, by reducing the energy consumed in the operation of existing commercial office buildings NSW DECC Climate Change Fund – NSW Green Business Program A program that provides $30 million over five years for projects that will save water and energy in business operations in NSW. Climate Change Action Fund An assistance program that will be introduced as part of the Carbon Pollution Reduction Scheme legislation Federal Govt’s Small Business & General Tax break A short term assistance package that provides business with a 30-50% tax reduction on capital equipment purchased before 30th June 2009 © Carbon Training International 2009 Both state & Federal governments have established a number of industry support programs to assist business with the financial costs of adapting to the low carbon economy
  29. 29. About the Presenter Robert Nicholls – B.Ec; B.Bus(Hons); MBA Rob is Carbon Training International’s Director of Innovation & Organisational Adaptation. Within this role Rob is charged with working with industry, business, local government & community groups to help them identify & understand the risks & opportunities associated with the low carbon economy, the strategies for responding and the capacity building needs of the organisation to do so. Rob is involved with delivering CTI’s facilitated workshop programs on developing and implementing an organisational carbon management response plan. As well as being a market economist, he is an experienced business strategist & operational improvement specialist with diverse industry experience gained from working both in Australia & overseas over the past 13 years. Rob has an extensive working knowledge of the evolving climate change & carbon management business system gained from projects associated with sustainability planning, risk mitigation, eco-focused investments and carbon markets. He has a solid understanding of the international and national climate change frameworks, protocols, mechanisms, policies, legislation & governance systems related to mitigating & abating GHG emissions and the related implications for business continuity. Rob can be contacted via [email_address] © Carbon Training International 2009