What is the real purpose of carbon management?  We have the opportunity to engage in one of the great challenges facing humanity, that of stabilising the world’s climate, as well as adapting to inevitable changes that are already in train. 

Most scientists believe that to manage climate risk in an acceptable range we will need to reduce GHG emissions by at least 50-60% globally by 2050.  To make room for developing countries to raise their living standards, rich countries will need to cut our emissions by a lot more proportionally. 

As Australia’s energy use is currently increasing by 2% annually, achieving significant decarbonisation of the economy will require substantial improvements in energy efficiency, use of lower carbon energy supply options, and improved application and recovery of carbon intensive materials.

The community expects business leaders to take up carbon management as a key issue – if this is not done voluntarily, governments will impose tough regulations. 

This is a leadership issue.  Hesitation and delays in addressing emissions at this critical time significantly increase the risk of damaging changes to the world’s climate.  There is no rewind button on climate change – we have to get the mitigation right the first time. 

As global warming really bites, what will you tell your children about your role in our common human mission to reduce the risks from global warming?  Will you be a leader for change, a passive participant, or will you delay taking carbon mitigation actions because it was all too threatening or not an inadequate business opportunity.

Or did you see climate change as an opportunity to gain short term market positioning without committing to real outcomes? 

If so, here is a warning:  Consumers are starting to understand the threats from climate change, and staff, particularly generation Y, get it too – and they will have very little patience for companies that take advantage of them. 

So businesses need to get real, for the benefit of the community and to protect their own reputations, which will be savaged if they are not perceived to be greenwashing. 

Climate change will be treated as a risk management issue by most businesses, and the response, whether that involves becoming carbon neutral or not, will be based on the anticipated commercial implications of these risks.

• The most obvious risks for business relate to direct carbon/energy costs due to the carbon content of activities and products.  Apart from direct carbon charges, business can expect rapid escalation in oil and gas prices as we approach global peak oil from 2015-2020 as Australia’s oil imports increase to over 50% of our supply needs.    
• Next there are direct costs of compliance with regulatory requirements e.g. reporting and investment cost to meet mandates. 
  
  The design of regulations and impact on permit/credit access and pricing will be important to carbon intensive businesses, who should be actively involved now in this process to protect their own interests.
• Regulatory uncertainty also imposes additional risk and cost on investment decisions. 
• There are risks from market responses.  We can expect changing consumer buying attitudes and patterns based on their perception of carbon content and climate friendliness of products. 
• There will also be serious reputation risk.  Companies need to studiously avoid green-wash, not only by their choices of mitigation options but also through maintaining excellent and auditable information, rigorously apply accepted international methodologies for estimating their C footprint, and verify their mitigation claims. 
• There are litigation risks and potential targeting by environmental groups for companies seen to cause carbon risk - This could impact new carbon intensive resource and industrial projects.
• Finally, companies may experience climate exposure though reduced availability of water, rising sea levels, exposure to extreme weather events, though this is not directly related to an individual company’s carbon footprint.

In addressing this challenge, we are perversely fortunate that our energy systems are incredibly inefficient, as radical improvements in efficiency can deliver at least half the change in carbon emissions required for climate stabilisation. 

Our current energy systems are not focused on the end service required by the consumer, but on the optimisation of centralised supply chains – mining fuel, transporting, converting it to electricity, and then distribution to customers, where there is a further conversion process to finally deliver the customer service.  These services: Cold beer, a warm room, cooked meals, hot water; are often delivered at less than 10% energy efficiency when you consider the whole supply chain.

To meet global warming targets we will have to do more than tinker at the edges with somewhat more efficient conversion and distribution steps.  We will have to turn the supply chain around and define the most energy and carbon efficient way to deliver the end service, and the optimal investments to achieve this. 

Whatever the future, it will be radically different, and, as an optimist, I see this future as being clean, green, comfortable and quiet – a substantial improvement from the present – not a hair shirt, doing-without world. 

There will be business winners and losers in this game - Clearly the winners will be those who can predict and exploit opportunities, understand the risks, and will be the leaders in this new market.  The reactive companies will be acted on by the new market, and some will decline as a result.  A global energy services market will emerge, generating revenues of up to $10 trillion over the next 40 years.    

Through our consulting with major businesses it is clear that most executive teams have very limited appreciation of how these changes could impact them.  Most still view the future as being pretty much an extension of the past, with a carbon price imposed.   By missing the signals of a potential discontinuity, businesses are failing to plan for a different future which is about to emerge.

All this discussion of risks should not overwhelm the opportunities gained by companies that effectively managing their carbon footprints in the form of cost reduction, market positioning/ branding and reputational benefits; improved access to green funds, and competitive advantage.

I will now briefly overview how to systematically implement a carbon management program in your business.  Please see our paper:

…for more detailed information about carbon management issues.

1.    Define Your Carbon Footprint Boundaries and Emissions

The first step is to determine the extent of your carbon footprint, i.e. your total carbon impact on the environment.  To answer this question rigorously you should conduct a ‘Life-Cycle Assessment’ (LCA), to determine the full extent of direct and indirect emissions caused by your business activities.

Many companies just calculate direct operational emissions from electricity, gas and transport.  But there is more to it – What about emissions from waste generated for example, or energy embedded in your packaging? The LCA methodology helps to define defensible boundaries and materiality of your emissions.  Our paper covers important issues about selecting and verifying boundaries and international standards and methodologies. 

The key point is to USE an internationally accepted standard for calculation and verification to protect your reputation.

2.    Secure the Data

You need to ensure that the base-line energy and non-energy carbon emission data is collected, is accurate, and is verifiable/auditable.  Most of Australia’s top 200 companies are not able to do this at present with reliable and auditable systems. 

In designing a data collection and management system, don’t do this with only your carbon footprint in mind – look at the full range of external obligations.  This includes:

ü     Energy Efficiency Opportunities (EEO) program.  This requires companies to maintain a reliable and accurate information management system for energy from December 31, and to report this in their Assessment and Reporting schedule and then annually.

ü     Mandatory State energy/water reporting in NSW, Victoria, and Queensland.

ü     Greenhouse reporting schemes including mandatory national greenhouse gas reporting. 

ü     Additional reporting to support carbon trading from 2011.

ü     Reporting to external rating agencies e.g. CDP, FTSEFG, DJSI etc

ü     EIS/licensing requirements for new energy intensive operations

ü     Mandatory CSR reporting for ASX 100 in coming years.

Good quality data is imperative for carbon management, as most companies have to release the information publicly.   The odd spreadsheet is not good enough any more, and integrated and auditable information management systems like our own Enterprize.EM have become an essential business tool.

3.    Leadership.  Leaders need to:

• Show it counts
• Define the strategy
• Set the policy
• Allocate resources to implement the program
• Allocate adequate budget to get results on the defined time-line.

Carbon neutrality places significant and costly demands on organisations and should not be undertaken lightly, so you need to be really clear about what you want to achieve. 

4.    Plan your mitigation strategy with a rollout blueprint and key milestones.

5.    Establish Accountabilities for delivery and ownership, and performance metrics.  Conduct awareness and training for staff

6.    Reduce your in-house operational emissions.   
The key for most companies is to improve energy efficiency, both for existing facilities and new plant and buildings.  Through energy efficiency measures, you can achieve cost reductions of 5-10% now and ultimately up to 30%+.  This is increasingly valuable at a time when energy and carbon costs are rapidly increasing. 

There are other ways companies can minimize their carbon footprint, like video-conferencing to avoid air travel, which saves money as well as emissions.

7.    Cut Remaining Emissions.  Once all the cost effective energy management is undertaken, green energy and offsets are used zero out a carbon footprint. Many companies are looking at integrated programs which can also engage and involve staff, and in some cases also suppliers and customers. 

Offset products vary in price and quality. It is crucial to the credibility of a carbon reduction claim that buyers ensure that their offsets are sourced from ‘legitimate’ greenhouse abatement activities.   The big advantage of GreenPowerTM is that it is an investment in sustainable energy infrastructure.  Accredited GreenPowerTM is controlled by a national program and the products are independently audited.

8.    Implement methods for measurement and regular review of the program, reporting and feedback.  This must be a dynamic process with at least annual updating and verification. 

9.    Establish a communications program – both external and internal.  Companies must communicate effectively to the public and the content must be is impeccably true and accurate, and independently verified.

10.  Participate in the establishment of Regulations and Protocols for Energy and Carbon, including the carbon trading scheme. 

There is a strong business case for the Commonwealth Government to establish an agreed framework for reporting on carbon neutrality, to assure consumers, analysts and investors of real outcomes.

We are embarking on a grand challenge together, to stabilise the climate of our only planet.  We need to get it right the first time as there is no rewind button.  Real leadership is needed from business to ensure that we do get it right.

Jon Jutsen, Founder and Director, Energetics

Jon Jutsen is a leading international expert on energy management his firm Energetics is one of Australia’s leading energy, greenhouse and sustainable solutions providers.

Ph: 02 99293911

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