Now that the results of the second Emissions Reduction Fund (ERF) auction have been released, I think it is reasonable (and important) to reflect on how being successful in an auction could assist an Australian company to remain competitive (and enhance their competitiveness) on the world stage.

In analysing the auction results, Climate Institute CEO John Connor pointed to the need for a policy focus that will show the world that Australia has a clean and modern economy. He also put the results into context in terms of the first two auctions contributing 3.5% of Australia’s total emissions to 2030, representing 8% of a 2030 abatement target commensurate with Australia making its rightful contribution to the 2°C warming cap and representing 15% of the Government’s current 2030 target.

The Media Release from the Climate Institute yesterday afternoon gave a very good analysis of auction outcomes and prompted me to think about “what next” from the point of view of an Australian company. This is prudent given the way that many international Governments and large very well known brands are moving on the opportunities that climate change is already presenting and will continue to present going forward.

See the Climate Institute’s Media Release here

Those of you that have read my previous blog posts will know that I analyse and comment on the international policy landscape with respect to climate change and the response of the business community. As a result of following both of these closely, five points come to mind that the Australian Government and companies will need to grapple with (and rather quickly find workable solutions for) in order to both reduce their emissions and maintain (and over time increase) their international competitiveness.

Governments will need to implement innovative policies that empower companies to identify and pursue low carbon opportunities

1) Governments will need to implement innovative policies that empower companies to identify and pursue low carbon opportunities. By its very name, the ERF offers Australian companies opportunities to implement lower emission projects. This assumes they were successful in the bidding process and can comply with all of the contractual compliance conditions including delivery timelines of course.

These conditions (and others that successful bidders are required to agree to) are quite onerous, and given that taxpayers’ money has been put up for the fund, many Australians would say that such conditions are perfectly justified. If an Australian company wasn’t successful or did not bid, it is difficult to see where the incentive to identify and pursue such opportunities are in a domestic context given that keeping the doors open is challenging enough in Australia at present.

2) There is a clear signal that future policies need to mandate or incentivise the procurement of a large percentage of a companies’ energy needs from renewable sources. In previous blogs I have highlighted examples of Governments increasing their investment in renewable energy and multinational corporations factoring this into their procurement decisions-for either goods or services (or even for both). As a result of doing this, not only have cost savings been realised, their corporate social responsibility profile has (in some cases) been significantly transformed.

The corporations that are making such procurement decisions have realised the importance of continuous improvement in terms of their own business performance, and therefore it is justifiable that they ask this of suppliers. At present I don’t see how the ERF or the Direct Action Policy assists Australian companies with this. I am aware of Australian Renewable Energy Agency (ARENA) funding for renewable projects, however again that is a competitive process and if you aren’t successful where is the incentive then?

3) It is clear that science based emission reduction targets are gaining significant traction in both Government and business spheres. The We Mean Business Coalition has published detailed guidance information on how to do this-whether by the 3% solution, by cutting absolute emissions, using value added approaches or lastly the Sectoral Decarbonisation Approach (SDA). Again targets like this clearly demonstrate that corporations understand the challenges and opportunities that climate change presents. Being market based, those that adopt these could see their competitive advantage grow over time.

The ERF is predominantly designed for individual projects rather than a series of projects one after the other, and while companies can reduce their emissions over time for that project (above comments regarding contractual compliance notwithstanding) I find it difficult to see how it encourages Australian companies to set science based emission reduction targets.

4) Pricing carbon internally

5) Investing in renewable energies and low carbon assets are both fairly self explanatory. Given that there is no longer a carbon pricing mechanism in Australia, once again it is difficult to see where the incentives are for Australian companies to do this. Perhaps the best illustration of the worldwide hunger to invest in renewables is the divestment movement. The sheer scale of the divestment movement, and the range of sectors that are embracing divestment shows that corporations have essentially charted their future course, irrespective of future developments (including the United Nations Climate Change Conference in Paris). At the risk of sounding like a broken record, under the current Government policy settings I can’t see how Australian companies are assisted to price carbon internally or invest in renewable energies and low carbon assets (above ERF and ARENA comments not withstanding).

Overall, I think it is reasonably clear that, successful in an ERF auction or not, Australian companies have a lot to do in order to remain internationally competitive in a world that is clearly intent on reducing carbon emissions. Given that trillions of dollars will be required post Paris to maintain the current pledges, the Australian Government will have to play its part in that investment and examine how their policy settings may need to change to support Australia’s share and ensure that Australian companies remain competitive.

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