ANZ's Gavin Murray, who heads up the Institutional Sustainability team, shares his insights on the proposed emissions trading scheme and the outlook for Australian businesses.

What is changing?

The Australian Government has released its Green Paper on the proposed design of the Carbon Pollution Reduction Scheme. The scheme's objective is to provide a mechanism to achieve Australia's greenhouse gas emissions goal of a 60% reduction by 2050. The scheme will have significant impacts on the way business manages and reports its carbon liability.

The scheme places a price on the six greenhouse gases that contribute to global warming. This will apply across our economy, not simply at the point of control. This represents a fundamental shift in Australia's approach to environmental regulation and pollution reduction. While only heavy carbon emitters will be required to purchase permits to produce emissions, the price signals are designed to be felt across all sectors. This will affect every Australian business, regardless of whether the business is obliged to participate directly in the scheme.

What will this mean for the economy?

The scheme defines carbon pollution as an economic issue and provides economic instruments in response, to encourage the lowest cost abatement opportunities across the economy. Similar approaches have been used successfully to control pollution elsewhere, such as sulphur dioxide emissions in the USA, emissions trading in the EU and, closer to home, salinity levels in the New South Wales Hunter River system.

A range of mechanisms are proposed to minimise economic disruption in the scheme's introductory stages. These include an initial price cap to reduce volatility, discounted allocation of permits for exposed industries, tax offsets, phased introductions of sectors such as agriculture, direct assistance to electricity generators and the ability to bank and borrow permits.

Will this mean increased costs for my business?

The proposed scheme will introduce new costs to all companies regardless of whether or not they are large carbon emitters. Businesses will need to consider the most effective ways to reduce their exposure. For some companies this will involve purchasing permits, and for others the focus will be on resource efficiency. Opportunities to buy offsets will be limited.

Around 1,000 Australian companies operating in sectors covered by the scheme, including stationary energy, industrial processes, waste, fugitive emissions and transport, will be required to purchase the right to emit greenhouse gases. The point of obligation to acquire permits will vary depending on the sector and quantity of a company's emissions. The broad nature of the scheme ensures it will have implications for all Australian businesses, even if they are not directly liable or in a covered sector. Although companies outside of the covered sectors will not be required to purchase permits, they will be impacted by the scheme through price increases in a range of inputs from the covered sectors, such as electricity, gas, petrol and manufactured materials.

For both directly and indirectly affected companies, energy efficiency initiatives are likely to be the most cost effective option. Energy efficiency will reduce carbon liabilities for directly affected companies, and reduce operating costs for indirectly affected companies. The Government is proposing a fund to provide capital for energy efficiency and low emissions technologies.

What about my customers, what will this mean for them?

The scheme contains a number of proposed measures to assist low and middle-income households to adjust to the flow-on price effects. Increased consumer awareness is likely to produce a trend in preference towards lower intensity products, and businesses can anticipate greater scrutiny over emission intensive goods and services. In addition, consumer confidence levels may be impacted by the introduction of the scheme, affecting consumer spending across all sectors.

Are there opportunities for my business?

Yes! The move to a low carbon economy represents a transformational shift for our economy. The opportunities for innovators and leaders are expected to be unprecedented across all sectors. Companies should consider the implications for their business and begin to prepare themselves for the potential effects of the scheme.

ANZ is working to assist our business clients position themselves to take advantage of these market opportunities. For more information, contact your relationship manager, contact us to be referred to a relationship manager or email Institutional Sustainability.

To download a copy of our "10 things you need to know" fact sheets, which include 'Business and a low carbon economy' and 'Business and the Carbon Pollution Reduction Scheme', visit our Business Guides and Support page.

This article was written to provide you with an insight into the Australian Government's Green Paper on the proposed Emissions Trading Scheme and its impact on Australian businesses.

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