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“If sustainability is so good, why aren’t all businesses
                         doing it?”

                     John Thwaites
            Chairman, ClimateWorks Australia

                           4 August 2010
             Business and Higher Education Roundtable
Sustainability: Opportunities for business

• Clean energy, low carbon and sustainability
   – Renewable energy
   – Energy efficiency
   – Sustainable water systems
   – Green buildings
   – Waste and recycling
   – Vehicle efficiencies and technologies
   – Farm technologies and services
   – Carbon market services

• 500,000 new green jobs could be created in six sectors by 2030 in
  Australia- ACTU/ACF Report 2008
Business Opportunities - World




World
• Venture capital and private equity investment in clean energy increased by
  nearly 2000% between 2003 and 2008
• Renewable energy sector grew faster than conventional sources in 2009
• Market for low carbon and environmental goods and services now worth $6
  Trillion
All businesses can benefit from sustainability

• Reduce waste and increase productivity
• Reduce energy and water bills
• Marketing advantage
• Reputation advantage - social ‘license’ “green door”
• Investors and financiers will prefer investment in
  sustainable, low emission development
• ‘ready’ for carbon constrained future and tougher
  regulation
Green buildings make sense for business


• Lower annual operating
  costs -
• Better working conditions
  and staff productivity
• Marketing advantage and
  higher rents
• Reputation
Financial Incentives for green buildings

• Green Buildings fund - grants $50k to $500k
   – Grants to owners of existing buildings for
     retrofitting projects e.g. HVAC, lighting and
     heating
• Australian Carbon Trust
• Tax breaks for Green Buildings
Some companies are leading the way
Some improvements are underway
                  - water




QenosAltona already achieved 30 % water savings – 1.3 billion litres
Further use of recycled water to take this to 90 % water savings
Some improvements are underway
             - water



        Waterless woks
        Restaurant saves 12,000
        litres per day




Overall non-residential water consumption has reduced
more than 40 % compared to the 1990’s
Some improvements are underway
MtCO e per annum
         2
                       - carbon
                  702

                                                                                                                                              -5%
                                                                                                                                        664




             Dec 2006               Energy                  Cleaner fuel            Change in              Non-energy              Aug 2009
             forecast               efficiency              mix (e.g.               economic               sector                  forecast
             (AGO)                  measures1               RET)2                   assumptions            changes4                (DCC)
                                                                                    and trends3
1 Includes measures such as phase out of electric hot water heaters, sustainable housing and insulation rebate
2 Includes impact of the Renewable Energy Target (RET) which increases the use of renewable sources of energy, and an increased use of gas
3 Includes impact of a decrease in power generation growth and power station emissions intensity
4 Includes mainly changes in land use and forestry
SOURCE: Department of Climate Change (2009); Australian Greenhouse Office (2006)
But most companies are not taking much
                  action




Survey of 1,600 SME owners in two phases Sept 2009 and April 2010

The majority (77% and 69%) of SME’s say they are willing to take action
BUT most are doing very little.
Sustainability Index 14.1% (2009) to 12.6% (2010)

Reasons for lack of action
    Don’t trust the available information (up from 29% to 46%)
    Couldn’t find enough information (50%)
    Choices too expensive (60%)
Business as usual emissions are continuing to
                    grow




                            ClimateWorks Australia 2010
Low Carbon Growth Plan for Australia

• Lowest cost / best value opportunities to reduce emissions
     • From society and individual investor perspective

• Barriers to capturing the opportunities

• Policies and other measures to overcome the barriers and
  capture opportunities

• Prioritised roadmap of action
Overall Key Findings
 Australia has the potential to achieve GHG emissions reductions of 249 MtCO2e
  (25% below 2000 levels) at a low average cost in the next ten years
       • The average cost in 2020 is the equivalent of $185 per household

 Reducing GHG emissions can be profitable for businesses
       • 22% of the opportunities are profitable to investors today

 A combination of a carbon price and targeted actions is required to achieve
  Australia’s full potential of low cost emissions reductions

 A portfolio of prompt action is required
       • There are 54 practical actions – no silver bullet!
       • Some can be implemented now; others need attention from government
         and business to ensure they are implemented by 2020




                                                                                  14
2020 GHG emissions reduction societal cost curve
                                       1
                                                                                                                                                                                             Power
                                                                                                                                                                                             Industry
Lowest cost opportunities to reduce emissions by 249 Mt CO2e                                                                                                                                 Transport
                                                                                                                                                                                             Buildings
Cost to society                                                                                                                                                                              Forestry
                                                                                                                                                                                             Agriculture
A$/tCO2e
200
            Commercial retrofit energy waste reduction                                      Cement clinker substitution by slag                                  Gas CCS new build
                    Other industry energy efficiency                                                   Reduced deforestation and regrowth clearing                              Solar PV (centralised)
                         Commercial retrofit HVAC                                                           Cropland carbon sequestration                 Coal CCS new build
150                                                                                                                                                                                Wind offshore
                            Residential appliances and electronics                                                     Reforestation of marginal land
                               Mining energy efficiency                                                                with environmental forest           Degraded farmland restoration

                                 Residential lighting                                                                                                                    Solar thermal
100                                                                                                                                              Coal CCS new build with EOR
                                    Residential new builds
                                      Commercial retrofit lighting                                                                    Capital improvements to existing gas
                                                                                                                                               plant thermal efficiency
                                         Commercial elevators and appliances
  50
                                             Commercial new builds
                                                    Commercial retrofit insulation


    0
                                                                                             Anti-methanogenic treatments                                        Emissions reduction potential
                                                                                     Pasture and grassland management
                                                                                                                                                                 MtCO2e per year
                                                                                Aluminium energy efficiency
 -50                                                                                                                                                                                             Onshore wind
                                                                             Mining VAM oxidation                                                                                                (marginal locations)
                                                                         Reforestation of marginal land with timber plantation
                                                                                                                                                                                               Biomass co-firing

-100                                                                  Active livestock feeding                                                                                         Coal to gas shift (increased
                                                                     Operational improvements to existing coal plant                                                                   gas utilisation)
                                                                     thermal efficiency                                                                                             Geothermal
                                                                Reduced T&D losses                                                                                             Improved forest management
-150                                                          Petroleum and gas maintenance                                                                                  Biomass/biogas
                                                          Cogeneration
                                                                                                                                                                      Coal to gas shift (gas new build)
                                                       Commercial retrofit water heating
                                                                                                                                                            Onshore wind (best locations)
-200                                           Petrol car and light commercial efficiency improvement
                                            Reduced cropland soil emissions                                                                             Chemicals processes and fuel shift
                                         Diesel car and light commercial efficiency improvement                                                Strategic reforestation of non-marginal
                                    Operational improvements to existing gas plant thermal efficiency                                          land with environmental forest
-250
        0                                      50                                          100                                     150                                       200                                        250
1 Includes only opportunities required to reach emission reduction target of 249 Mtpa (25% reduction on 2000 emissions); excludes opportunities involving a significant lifestyle element or consumption decision,
   changes in business/activity mix, and opportunities with a high degree of speculation or technological uncertainty
SOURCE: ClimateWorks team analysis (refer to bibliography)
                                                                                                                                                                                                                        15
Exhibit 15

     Australian 2020 emissions reduction potential by sector1
                                                              Average cost per tonne
                       Volume                                 Real 2010 A$
                       MtCO2e                                 Societal     Investor                    Example opportunities

          Power                                                      54                  87               Renewables
                                                                                                          Coal-to-gas shift
       Forestry                                                      25                  24               Reforestation
                                                                                                          Reduced deforestation
       Industry                                                     -48                 -25               Industrial energy efficiency
                                                                                                          Ventilation air methane oxidation

   Agriculture                                                       25                  25               Degraded land restoration
                                                                                                          Reduced deforestation
      Buildings                                                     -99                 -90               Commercial retrofits
                                                                                                          Residential new builds
     Transport                                                      -60               -194                Combustion vehicle efficiency
                                                                                                          Hybrids

            Total                                     249             7                  19


1 Includes all emission reduction opportunities required to achieve 249Mtpa
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
                                                                                                                                               16
Percent of total opportunity                       Power

     Key investor cost curve metrics                                                                                   GHG reduction, MtCO2e
                                                                                                                       Average cost, A$/tCO2e
                                                                                                                                                                          Industry
                                                                                                                                                                          Transport
                                                                                                                                                                          Buildings
                                                                                                                                                                          Forestry
Cost to an investor                                                                                                                                                       Agriculture
A$/tCO2e
                               Profitable1                                         Moderate cost                                                      Higher cost
     200
                    22%            54 Mt          -$103                    41%          102 Mt             $18                             37%           93 Mt               $90
     150


     100


       50


         0
                                                                                                                                                   Emissions reduction potential
                                                                                                                                                                MtCO2e per year
      -50


    -100


    -150


    -200


    -250
             0                               50                                100                                  150                                 200                             250
1 In this report, profitable is defined as positive return on incremental invested capital and operating expense (excluding transaction or policy implementation costs)
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)                                                                                      17
2020 Buildings GHG emissions reduction                                                                                     Residential
                                                                                                                                           Commercial
                          investor cost curve                                                                                              New builds
                                                                                                                                           Additional potential1
  Cost to an investor
  A$/tCO2e
 600                                                                                          Residential building envelope advanced
                                                                                                          Residential building envelope
 500
                                                                                                       Commercial retrofit insulation
 400                                                                                         Commercial retrofit water heating
 300                                                                                              Commercial new builds
 200                                                         Residential new builds to 7.2 stars
                                                                                Residential HVAC
 100
                              Commercial retrofit cooking and refrigeration
      0
          0                           5                          10                          15                20                25
-100                                                                                                        Residential lighting CFLs to LEDs
-200                                                                                                    Commercial new builds elevators and appliances
                                                                                 Commercial retrofit lighting
-300                                                                     Commercial retrofit appliances
                                                                 Commercial retrofit HVAC
                                                          Commercial retrofit electronics
                                                 Residential lighting high efficiency halogen
                                     Commercial retrofit energy waste reduction                                                    Reduction
                    Residential appliances and electronics                                                                          potential
1 Higher cost opportunities not required to meet target emissions of 25% below 2000 levels                                    MtCO2e per year
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)                                                        18
Positive interaction HVAC                Refrigeration
            A total of 16.3 MtCO2e emissions reduction is                                                                        Insulation                               Lighting
         possible in commercial buildings1, accessible across                                                                    HVAC                                     Electronics

               all sub-sectors and technologies by 2020                                                                          Water heating                            Appliances
                                                                                                                                 Cooking                                  Rationalisation

                Emissions reduction opportunity in commercial buildings retrofits                                                         % of total             Energy savings
                MtCO2e, 2020 estimates                                                                                                   opportunity           % of BAU case, 2020


                Offices                                                                                                   3.8                 23%                       42%


                Non-food retail                                                                               3.2                             20%                       39%


                Education                                                         1.7                                                         11%                       36%


                Community                                                   1.4                                                               9%                        29%


                Food retail                                             1.3                                                                   8%                        40%


                Accommodation                                         1.2                                                                     7%                        37%


                Health                                            1.1                                                                         7%                        34%


                Other                                            1.0                                                                          6%                        38%


                Wholesale                                       0.9                                                                           6%                        33%


                Food service                                                                                                                  4%                        33%
                                                          0.7


                Total                                                                                                     16.3             100%                         37%

1 Commercial buildings represent 58% of the total 28 MtC02e opportunity in the Buildings sector, with residential new builds comprising the remaining 11.8 MtC02e of the total
opportunity
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (p.9)
For underlying numbers, see cells AA24:AJ33 in supporting spreadsheet.                                                                                                                      19
2020 Industry GHG emissions reduction                                                                        Energy efficiency

                 investor cost curve                                                                                 Cogeneration

   Cost to an investor                                                                                               Other
                                                                                                                     Additional potential1
   A$/tCO2e                                                                                        Remote area power
  300                                                                                Iron and steel smelt reduction
                                                                                                         Fuel shift
  250                                                                          Iron and steel energy efficiency
                                                               Iron and steel cogeneration (flat products)
  200                                                          Aluminium smelting new technologies
                                                                            Chemicals processes
  150                                                         Iron and steel coke substitution
  100                                        Iron and steel cogeneration (long products)
                                                           Mining VAM oxidation
    50                                            Chemicals cogeneration
                                    Cement clinker substitution by slag
      0
  -50 0                       5                  10                  15                  20            25   30       35
                                                                                     Petroleum and gas energy efficiency
                                                                                                                                         40
-100                                                                       Chemicals motor systems
                                                                         Petroleum and gas maintenance
-150                                                                Aluminium smelting energy efficiency existing technologies
                                                                Other industry cogeneration
-200                                                      Mining equipment improvements known technologies
                                             Other industry efficiency
-250                                   Pulp, paper and print energy efficiency
                                  Mining operational/controls improvements                                       Reduction
                        Food, beverage and tobacco energy efficiency
                  Cement energy efficiency
                                                                                                                       potential
1 Higher cost opportunities not required to meet target emissions of 25% below 2000 levels
                                                                                                                 MtCO2e per year20
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 5)
2020 GHG emissions reduction opportunities for                                                                Agriculture
                                                                                                                  Forestry
                 rural landowners                                                                                 Power
 Cost to society                                                                                                  Transport
 A$/tCO2e
                                                                                                              Biofuels
                                                                         Restoration of degraded natural grasslands
                                                                    Restoration of degraded improved pastures
                                                                         Restoration of degraded cropland
550                                                                Onshore wind (marginal locations)
                                                                     Improved forest management
                                                                              Biomass power
                                                       Onshore wind (best locations)
  50                                Strategic reforestation of non-marginal
                                           land with environmental forests

    0
        0                15               30                45                60                75     90   105               120
                                                                            Reforestation of marginal land
 -50                                                                        with environmental forests
                                                                     Cropland carbon sequestration
                                                         Reduced deforestation and regrowth clearing
-100                                                Anti-methanogenic treatments
                                                Natural grassland management
                                      Improved pasture management
                                                                                                   Emissions reduction
-150
                                Reforestation of marginal land with timber plantation                         potential
                         Active livestock feeding                                                       MtCO e per year
                                                                                                                    2
                  Large articulated truck efficiency improvement

            Reduced cropland soil emissions
                                                                                                                                21
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
If sustainability is so good –
   why aren’t we doing it?
John Thwaites
If sustainability is so good why don’t we do it?

• We don’t charge for externalities (pollution)
   – Need a price on carbon
• Access to capital
• Market structure
• Lack of information
• Lack of skills and education
• Non-economic reasons
• Human psychology
Impact of carbon price on investor economics
                                                                                      Tonnes available at internal rate of
                                                                                      return (IRR) above cost of capital
                  200
                                                                                      Change in tonnes available at IRR
                                                                                      above cost of capital
                                          54 Mt
  Investor
  cost
  curve
  without
  carbon
  price

                                                                                             3.7X
                  -450

                  200                                                                                                                           199 Mt


  Investor
  cost
  curve
  with
  carbon
  price
  (A$69/t1)


                  -450

1 Carbon price in 2020 of A$69 per tonne based on Treasury Garnaut -25% estimate (Australia’s Low Pollution Future) converted to 2010 dollars
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
                                                                                                                                                         25
Capital intensity of opportunities by sector
 2020 capital intensity and emissions reduction cost

             Societal cost                                                                                         Size of bubble represents
              A$/tCO2e                                                                                             emissions reduction potential of
                                                                                                                   sector
            120



                           Forestry
  Agriculture                                              Power




                                                      Industry
             -60
                                                                                                               Transport


                                                                 Relatively high capital               Buildings
             -120                                                intensity restricts the
                                                                 capture of otherwise
                                                                 profitable opportunities


             -180
                                                                                                                        Capital intensity
                                                                                                                           Capex/tCO2e
SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
                                                                                                                                                      26
Capital constraints and investment priorities

Barriers                        Tools to overcome
• Banks reluctant to offer      • Third party funding
  loans                         • Loan repayments collected
• Long payback periods            through utility savings
• Not raising funds for core    • Energy performance
  business – finite access to     contracts
  capital                       • Property levies (USA)
• Investment hurdle rate too
  high
Market structure

Barriers                        Tools to overcome
• Split incentives              • Energy service contracting
• Lack of project scale -         and leasing contracts
  increases transaction costs   • Aggregation (bundling) of
• Long decision cycles            small projects
• Availability of equipment     • Facilitating competitive
• Reliability of savings          market
  estimates                     • Improved pricing regulation
• Non-market electricity
  pricing
Lack of information, skills and education

Barriers                         Tools to overcome
• Information gaps               • Research and development
• Don’t trust information          funding
                                 • Awareness campaigns
• Difficulty in measuring (eg
  soil carbon)                   • Peer based campaigns and
                                   trusted sources
• Inadequate skills (eg how to   • Mandatory labeling and
  use equipment efficiently)       energy performance
• Lack of understanding of         disclosure
  sustainability principles      • Skills development and
                                   education for sustainability
Sustainable businesses need new skills

• “Achieving the transition to a low carbon sustainable
  economy will require a massive mobilisation of skills
  and training.” - CSIRO Report 2008

• ‘Green collar’ skills include: planning and design,
  entrepreneurship, building and project management,
  and specific expertise e.g architecture, engineering
Skills: also need a new mindset

• Need flexibility and ability to adapt - not possible to predict
  exactly what the jobs will be or the impact of climate change

• Need to have skills and values sympathetic to the
  environment and generic skills such as sustainable
  approaches, innovation and problem solving
Non-economic factors

Barriers                          Tools to overcome
• Management tradition and        • Leadership
  habit                           • A coordinated sustainability
• Long term procurement             strategy
  arrangements
                                  • Sustainability auditing and
• Other goals of decision
  makers (eg staff comfort)         reporting
• Administrative structures (eg   • Public disclosure
  building management
  decisions separate from
  operating costs
  management)
Sustainability: the problem of human psychology
Why climate change doesn’t prompt behaviour
                  change
Human brain evolved to respond to threats that

•   Involve other humans

•   Violate our moral sensibilities

•   Are immediate: clear and present danger

•   Can be appreciated by our senses

Daniel Gilbert
                   Professor Psychology
                   Harvard
Why sustainability and Climate Change don’t rate

  • Long term climate hard to detect from personal experience

  • Risks (and benefits of mitigating) are in the future - heavily discounted

  • Many of the risks are remote - someone else’s problem

  • Cultural and political attitudes heavily influence climate attitude

  • Challenge to the status quo:
                  » need to change many things about modern life
                  » Challenges growth paradigm

  • Finite pool of worry
Ways to encourage behaviour change

• A price on carbon and economic incentives

• Targeted polices to overcome structural barriers

• New technologies that make behaviour change easy

• Smart regulation

• Providing information

• Better communication and social marketing

• Better understanding of psychology
                » Show collateral benefits of action
                » Competition and comparison

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John Thwaites

  • 1. “If sustainability is so good, why aren’t all businesses doing it?” John Thwaites Chairman, ClimateWorks Australia 4 August 2010 Business and Higher Education Roundtable
  • 2. Sustainability: Opportunities for business • Clean energy, low carbon and sustainability – Renewable energy – Energy efficiency – Sustainable water systems – Green buildings – Waste and recycling – Vehicle efficiencies and technologies – Farm technologies and services – Carbon market services • 500,000 new green jobs could be created in six sectors by 2030 in Australia- ACTU/ACF Report 2008
  • 3. Business Opportunities - World World • Venture capital and private equity investment in clean energy increased by nearly 2000% between 2003 and 2008 • Renewable energy sector grew faster than conventional sources in 2009 • Market for low carbon and environmental goods and services now worth $6 Trillion
  • 4. All businesses can benefit from sustainability • Reduce waste and increase productivity • Reduce energy and water bills • Marketing advantage • Reputation advantage - social ‘license’ “green door” • Investors and financiers will prefer investment in sustainable, low emission development • ‘ready’ for carbon constrained future and tougher regulation
  • 5. Green buildings make sense for business • Lower annual operating costs - • Better working conditions and staff productivity • Marketing advantage and higher rents • Reputation
  • 6. Financial Incentives for green buildings • Green Buildings fund - grants $50k to $500k – Grants to owners of existing buildings for retrofitting projects e.g. HVAC, lighting and heating • Australian Carbon Trust • Tax breaks for Green Buildings
  • 7. Some companies are leading the way
  • 8. Some improvements are underway - water QenosAltona already achieved 30 % water savings – 1.3 billion litres Further use of recycled water to take this to 90 % water savings
  • 9. Some improvements are underway - water Waterless woks Restaurant saves 12,000 litres per day Overall non-residential water consumption has reduced more than 40 % compared to the 1990’s
  • 10. Some improvements are underway MtCO e per annum 2 - carbon 702 -5% 664 Dec 2006 Energy Cleaner fuel Change in Non-energy Aug 2009 forecast efficiency mix (e.g. economic sector forecast (AGO) measures1 RET)2 assumptions changes4 (DCC) and trends3 1 Includes measures such as phase out of electric hot water heaters, sustainable housing and insulation rebate 2 Includes impact of the Renewable Energy Target (RET) which increases the use of renewable sources of energy, and an increased use of gas 3 Includes impact of a decrease in power generation growth and power station emissions intensity 4 Includes mainly changes in land use and forestry SOURCE: Department of Climate Change (2009); Australian Greenhouse Office (2006)
  • 11. But most companies are not taking much action Survey of 1,600 SME owners in two phases Sept 2009 and April 2010 The majority (77% and 69%) of SME’s say they are willing to take action BUT most are doing very little. Sustainability Index 14.1% (2009) to 12.6% (2010) Reasons for lack of action Don’t trust the available information (up from 29% to 46%) Couldn’t find enough information (50%) Choices too expensive (60%)
  • 12. Business as usual emissions are continuing to grow ClimateWorks Australia 2010
  • 13. Low Carbon Growth Plan for Australia • Lowest cost / best value opportunities to reduce emissions • From society and individual investor perspective • Barriers to capturing the opportunities • Policies and other measures to overcome the barriers and capture opportunities • Prioritised roadmap of action
  • 14. Overall Key Findings  Australia has the potential to achieve GHG emissions reductions of 249 MtCO2e (25% below 2000 levels) at a low average cost in the next ten years • The average cost in 2020 is the equivalent of $185 per household  Reducing GHG emissions can be profitable for businesses • 22% of the opportunities are profitable to investors today  A combination of a carbon price and targeted actions is required to achieve Australia’s full potential of low cost emissions reductions  A portfolio of prompt action is required • There are 54 practical actions – no silver bullet! • Some can be implemented now; others need attention from government and business to ensure they are implemented by 2020 14
  • 15. 2020 GHG emissions reduction societal cost curve 1 Power Industry Lowest cost opportunities to reduce emissions by 249 Mt CO2e Transport Buildings Cost to society Forestry Agriculture A$/tCO2e 200 Commercial retrofit energy waste reduction Cement clinker substitution by slag Gas CCS new build Other industry energy efficiency Reduced deforestation and regrowth clearing Solar PV (centralised) Commercial retrofit HVAC Cropland carbon sequestration Coal CCS new build 150 Wind offshore Residential appliances and electronics Reforestation of marginal land Mining energy efficiency with environmental forest Degraded farmland restoration Residential lighting Solar thermal 100 Coal CCS new build with EOR Residential new builds Commercial retrofit lighting Capital improvements to existing gas plant thermal efficiency Commercial elevators and appliances 50 Commercial new builds Commercial retrofit insulation 0 Anti-methanogenic treatments Emissions reduction potential Pasture and grassland management MtCO2e per year Aluminium energy efficiency -50 Onshore wind Mining VAM oxidation (marginal locations) Reforestation of marginal land with timber plantation Biomass co-firing -100 Active livestock feeding Coal to gas shift (increased Operational improvements to existing coal plant gas utilisation) thermal efficiency Geothermal Reduced T&D losses Improved forest management -150 Petroleum and gas maintenance Biomass/biogas Cogeneration Coal to gas shift (gas new build) Commercial retrofit water heating Onshore wind (best locations) -200 Petrol car and light commercial efficiency improvement Reduced cropland soil emissions Chemicals processes and fuel shift Diesel car and light commercial efficiency improvement Strategic reforestation of non-marginal Operational improvements to existing gas plant thermal efficiency land with environmental forest -250 0 50 100 150 200 250 1 Includes only opportunities required to reach emission reduction target of 249 Mtpa (25% reduction on 2000 emissions); excludes opportunities involving a significant lifestyle element or consumption decision, changes in business/activity mix, and opportunities with a high degree of speculation or technological uncertainty SOURCE: ClimateWorks team analysis (refer to bibliography) 15
  • 16. Exhibit 15 Australian 2020 emissions reduction potential by sector1 Average cost per tonne Volume Real 2010 A$ MtCO2e Societal Investor Example opportunities Power 54 87  Renewables  Coal-to-gas shift Forestry 25 24  Reforestation  Reduced deforestation Industry -48 -25  Industrial energy efficiency  Ventilation air methane oxidation Agriculture 25 25  Degraded land restoration  Reduced deforestation Buildings -99 -90  Commercial retrofits  Residential new builds Transport -60 -194  Combustion vehicle efficiency  Hybrids Total 249 7 19 1 Includes all emission reduction opportunities required to achieve 249Mtpa SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4) 16
  • 17. Percent of total opportunity Power Key investor cost curve metrics GHG reduction, MtCO2e Average cost, A$/tCO2e Industry Transport Buildings Forestry Cost to an investor Agriculture A$/tCO2e Profitable1 Moderate cost Higher cost 200 22% 54 Mt -$103 41% 102 Mt $18 37% 93 Mt $90 150 100 50 0 Emissions reduction potential MtCO2e per year -50 -100 -150 -200 -250 0 50 100 150 200 250 1 In this report, profitable is defined as positive return on incremental invested capital and operating expense (excluding transaction or policy implementation costs) SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4) 17
  • 18. 2020 Buildings GHG emissions reduction Residential Commercial investor cost curve New builds Additional potential1 Cost to an investor A$/tCO2e 600 Residential building envelope advanced Residential building envelope 500 Commercial retrofit insulation 400 Commercial retrofit water heating 300 Commercial new builds 200 Residential new builds to 7.2 stars Residential HVAC 100 Commercial retrofit cooking and refrigeration 0 0 5 10 15 20 25 -100 Residential lighting CFLs to LEDs -200 Commercial new builds elevators and appliances Commercial retrofit lighting -300 Commercial retrofit appliances Commercial retrofit HVAC Commercial retrofit electronics Residential lighting high efficiency halogen Commercial retrofit energy waste reduction Reduction Residential appliances and electronics potential 1 Higher cost opportunities not required to meet target emissions of 25% below 2000 levels MtCO2e per year SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4) 18
  • 19. Positive interaction HVAC Refrigeration A total of 16.3 MtCO2e emissions reduction is Insulation Lighting possible in commercial buildings1, accessible across HVAC Electronics all sub-sectors and technologies by 2020 Water heating Appliances Cooking Rationalisation Emissions reduction opportunity in commercial buildings retrofits % of total Energy savings MtCO2e, 2020 estimates opportunity % of BAU case, 2020 Offices 3.8 23% 42% Non-food retail 3.2 20% 39% Education 1.7 11% 36% Community 1.4 9% 29% Food retail 1.3 8% 40% Accommodation 1.2 7% 37% Health 1.1 7% 34% Other 1.0 6% 38% Wholesale 0.9 6% 33% Food service 4% 33% 0.7 Total 16.3 100% 37% 1 Commercial buildings represent 58% of the total 28 MtC02e opportunity in the Buildings sector, with residential new builds comprising the remaining 11.8 MtC02e of the total opportunity SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (p.9) For underlying numbers, see cells AA24:AJ33 in supporting spreadsheet. 19
  • 20. 2020 Industry GHG emissions reduction Energy efficiency investor cost curve Cogeneration Cost to an investor Other Additional potential1 A$/tCO2e Remote area power 300 Iron and steel smelt reduction Fuel shift 250 Iron and steel energy efficiency Iron and steel cogeneration (flat products) 200 Aluminium smelting new technologies Chemicals processes 150 Iron and steel coke substitution 100 Iron and steel cogeneration (long products) Mining VAM oxidation 50 Chemicals cogeneration Cement clinker substitution by slag 0 -50 0 5 10 15 20 25 30 35 Petroleum and gas energy efficiency 40 -100 Chemicals motor systems Petroleum and gas maintenance -150 Aluminium smelting energy efficiency existing technologies Other industry cogeneration -200 Mining equipment improvements known technologies Other industry efficiency -250 Pulp, paper and print energy efficiency Mining operational/controls improvements Reduction Food, beverage and tobacco energy efficiency Cement energy efficiency potential 1 Higher cost opportunities not required to meet target emissions of 25% below 2000 levels MtCO2e per year20 SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 5)
  • 21. 2020 GHG emissions reduction opportunities for Agriculture Forestry rural landowners Power Cost to society Transport A$/tCO2e Biofuels Restoration of degraded natural grasslands Restoration of degraded improved pastures Restoration of degraded cropland 550 Onshore wind (marginal locations) Improved forest management Biomass power Onshore wind (best locations) 50 Strategic reforestation of non-marginal land with environmental forests 0 0 15 30 45 60 75 90 105 120 Reforestation of marginal land -50 with environmental forests Cropland carbon sequestration Reduced deforestation and regrowth clearing -100 Anti-methanogenic treatments Natural grassland management Improved pasture management Emissions reduction -150 Reforestation of marginal land with timber plantation potential Active livestock feeding MtCO e per year 2 Large articulated truck efficiency improvement Reduced cropland soil emissions 21 SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4)
  • 22. If sustainability is so good – why aren’t we doing it?
  • 24. If sustainability is so good why don’t we do it? • We don’t charge for externalities (pollution) – Need a price on carbon • Access to capital • Market structure • Lack of information • Lack of skills and education • Non-economic reasons • Human psychology
  • 25. Impact of carbon price on investor economics Tonnes available at internal rate of return (IRR) above cost of capital 200 Change in tonnes available at IRR above cost of capital 54 Mt Investor cost curve without carbon price 3.7X -450 200 199 Mt Investor cost curve with carbon price (A$69/t1) -450 1 Carbon price in 2020 of A$69 per tonne based on Treasury Garnaut -25% estimate (Australia’s Low Pollution Future) converted to 2010 dollars SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4) 25
  • 26. Capital intensity of opportunities by sector 2020 capital intensity and emissions reduction cost Societal cost Size of bubble represents A$/tCO2e emissions reduction potential of sector 120 Forestry Agriculture Power Industry -60 Transport Relatively high capital Buildings -120 intensity restricts the capture of otherwise profitable opportunities -180 Capital intensity Capex/tCO2e SOURCE: ClimateWorks team analysis, derived from 2020 GHG emissions reduction cost curve (exhibit 4) 26
  • 27. Capital constraints and investment priorities Barriers Tools to overcome • Banks reluctant to offer • Third party funding loans • Loan repayments collected • Long payback periods through utility savings • Not raising funds for core • Energy performance business – finite access to contracts capital • Property levies (USA) • Investment hurdle rate too high
  • 28. Market structure Barriers Tools to overcome • Split incentives • Energy service contracting • Lack of project scale - and leasing contracts increases transaction costs • Aggregation (bundling) of • Long decision cycles small projects • Availability of equipment • Facilitating competitive • Reliability of savings market estimates • Improved pricing regulation • Non-market electricity pricing
  • 29. Lack of information, skills and education Barriers Tools to overcome • Information gaps • Research and development • Don’t trust information funding • Awareness campaigns • Difficulty in measuring (eg soil carbon) • Peer based campaigns and trusted sources • Inadequate skills (eg how to • Mandatory labeling and use equipment efficiently) energy performance • Lack of understanding of disclosure sustainability principles • Skills development and education for sustainability
  • 30. Sustainable businesses need new skills • “Achieving the transition to a low carbon sustainable economy will require a massive mobilisation of skills and training.” - CSIRO Report 2008 • ‘Green collar’ skills include: planning and design, entrepreneurship, building and project management, and specific expertise e.g architecture, engineering
  • 31. Skills: also need a new mindset • Need flexibility and ability to adapt - not possible to predict exactly what the jobs will be or the impact of climate change • Need to have skills and values sympathetic to the environment and generic skills such as sustainable approaches, innovation and problem solving
  • 32. Non-economic factors Barriers Tools to overcome • Management tradition and • Leadership habit • A coordinated sustainability • Long term procurement strategy arrangements • Sustainability auditing and • Other goals of decision makers (eg staff comfort) reporting • Administrative structures (eg • Public disclosure building management decisions separate from operating costs management)
  • 33. Sustainability: the problem of human psychology
  • 34. Why climate change doesn’t prompt behaviour change Human brain evolved to respond to threats that • Involve other humans • Violate our moral sensibilities • Are immediate: clear and present danger • Can be appreciated by our senses Daniel Gilbert Professor Psychology Harvard
  • 35. Why sustainability and Climate Change don’t rate • Long term climate hard to detect from personal experience • Risks (and benefits of mitigating) are in the future - heavily discounted • Many of the risks are remote - someone else’s problem • Cultural and political attitudes heavily influence climate attitude • Challenge to the status quo: » need to change many things about modern life » Challenges growth paradigm • Finite pool of worry
  • 36. Ways to encourage behaviour change • A price on carbon and economic incentives • Targeted polices to overcome structural barriers • New technologies that make behaviour change easy • Smart regulation • Providing information • Better communication and social marketing • Better understanding of psychology » Show collateral benefits of action » Competition and comparison