On Wednesday 14 December Ndevr Environmental Consulting’s Principal Consultant Matt Drum took part in the DCCEE run stakeholder reference group to discuss the Regulations that will sit under the Clean Energy Act 2011.

There is still a lot of detail to be finalised under the Act, however one thing is clear – all businesses whether directly or indirectly liable will face increased energy and compliance costs. Some other less thought of factors such as solid waste removal and waste water services will also have a carbon cost applied.

Trying to calculate exactly what this means to your bottom line is a complex exercise, but some issues organisations will need to consider are:

Direct Liability – where the Clean Energy thresholds are triggered

  • Is your company directly liable?
    • Facility level thresholds apply on covered sources.
  • The cost of purchasing permits and cash-flow concerns.
    • Permits or ‘units’ have to be acquired in two ‘tranches’ – an interim purchase (75% of projected emissions), and a ‘true-up’ where the remainder of reported liable units must be acquitted
  • The cost of other compliance obligations
    • Additional reporting and assurance requirements
    • Improving measurement and reporting accuracy and audibility

 Indirect Liability – where carbon costs occurring elsewhere will be passed to you from common energy sources and waste services

  • Grid  electricity
    • Each generator will face different carbon costs depending on their generation mix
    • Some emissions intensive generators in Victoria will receive some free permits which may limit the pass through cost
    • Competitive forces will come into play in Australia’s complex electricity markets as generators and retailers decide the amount of cost to pass on the amounts to absorb
    • Pass-through of the carbon cost associated with transmission/distribution line losses may or may not be applied
    • It may be time to re-evaluate procurement strategies and request the ‘itemised’ carbon cost to be applied by your retailer when the Act comes into play
  • Natural Gas
    • A carbon cost will be applied to natural gas – this may shift slightly due to the energy value embodied in the gas
    • Large users can apply for an Obligation Transfer Number (OTN) that allows them to manage their own carbon liability – effectively they have a direct liability
  • Liquid Fuels
    • Depending on when a liquid fuel is used for stationary or transport purposes will have an effect on how the carbon cost is applied and the net cost to business
  • Waste removal
    • As solid waste breaks down in landfills methane is released and this is a covered source under the Act. Landfill operators are currently working out their liabilities going forward, which will be passed back to your business via waste services contractors
    • Waste water also emits Kyoto gases covered under the Act. Similarly to solid waste, water service providers will be looking to pass this cost back to the consumers

The legislation is extremely complex, and just as business is grappling with how it will affect them, government is grappling with exactly how they will administer it from the start date, which is only six months away.

There is however some strategies you should consider as soon as possible to reduce your risk:

  1. Supply chain analysis: Understand the costs you can reasonably expect to be passed through. Your NGER report and procurement team can be key sources of information here.
  2. IT systems: Ensure your current system appropriate. IT implementations do not happen overnight, your system should have; change control, password protection, links to source data such as invoices or higher order emissions and energy content data.
  3. Funding opportunities: Investigate your eligibility for funding such as that administered under the Clean Energy Finance Corporation (CEFC)?
  4. Audit and compliance: Confirm whether or not you will be required to undergo mandatory audits. Consider a voluntary audit of your 2011/12 NGER report as this will be your last ‘free-hit’ before the Act takes affect
  5. Procurement: Arm yourself with the knowledge you need to negotiate with suppliers (step 1 above is the basis for this).
  6. Brief the Executive and/or Board: Ensure the leaders understand the impact the Act will have on your business and make sure budgets reflect the risk
  7. Opportunities under Carbon Farming Initiative: Your business may have opportunities to generate credits under the CFI – which can be used internally or sold on a market.

If you have any questions on the issues raised above, or would like to analyse these issues in more detail, please contact us.