Coming to terms with climate change

In early 2006 the Total Environment Centre was approached to help Australian industry understand what climate change meant for individual companies and sectors.

Back then the issue had been on the minds of policy makers, emissions intensive industries, and environment groups for over two decades, but it was yet to become a truly public issue.

That all changed with the late 2006 release of the Stern Review on the Economics of Climate Change, and the documentary “An Inconvenient Truth”.

While the Stern Review raised the profile of the issue amongst academics, economists, the broader business community and the media, it was “An Inconvenient Truth” that made climate change a truly public issue.

The early 2007 release of the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report was all that was required to set the stage for what is now regarded as the world’s first climate change election.

The IPCC’s Fourth Assessment Report, a joint report of the worlds leading climate scientists thundered that the ‘warming of the climate system is unequivocal’, that global warming was being driven by human activity, and warned that the earth and the global economy would be in for a very rough ride if it did not dramatically reduce the rate at which it was injecting greenhouse gases into the atmosphere.

Sensing that it could lose government over its 11 years of inaction on climate change, the Howard Government responded by hastily convening its Prime Ministerial Task Group on Emissions Trading.

The then opposition leader Kevin Rudd reasserted his intention to introduce an emissions trading scheme in 2010 and immediately ratify the Kyoto Protocol if elected to government.

And the rest, as they say, is history.

Fast forward to the present day and many Australian companies are trying to find their feet in a new, carbon conscious world.

Some companies are now required to publicly report on their greenhouse emissions profile, others are required to identify and implement energy efficiency opportunities, other companies are increasingly negotiating procurement contracts that stipulate particular emissions intensities, and all Australian companies are contemplating what emissions trading and other ‘complementary measures’ mean for their business.

In an attempt to help transport companies understand what they face as a result of climate change the Total Environment Centre recently released its report Freight Transport & Climate Change: Exposures and Opportunities.

The report details the various exposures facing transport companies as a result of climate change. It also explores the options that are available to manage these exposures and discusses how freight transport stands to gain from Australia’s entry into a carbon constrained world.

The fundamental issue facing freight transport is that the sectors emissions are growing dramatically in a world where they’re expected to be falling.

Tail pipe emissions from freight transport are predicted to increase by almost 100% on 1990 levels by 2020 with emissions growing from 22.5 megatonnes (Mt) of carbon dioxide equivalent (CO2e) in 1990 to 44.6 Mt by 2020.

When considered alongside science based national emissions reductions targets this growth ensures a growing share of national emissions for the sector.

While tail pipe emissions from freight transport accounted for only 4.07% of Australia’s emissions in 1990, this figure had grown to almost 5.5% by 2006 and is set to increase to as much as 13.46% by 2020.

This fact alone presents a myriad of risks for the sector.

The key exposures facing freight transport include:

  • Demand risk- emissions reductions goals of both government departments and companies will see freight contracts increasingly tied to efforts to reduce emissions.
  • Compliance risk- As regulatory structures change to drive emissions reductions new compliance responsibilities will emerge for transport companies
  • Investor pressure- The financial materiality of climate change has driven the increase in investor pressure witnessed over recent years.
  • Rising energy costs- as transport fuels and emissions intensive electricity generators enter into an emissions trading scheme energy prices will rise.

Rising energy prices are not an unintended consequence of government policy- they are explicitly designed to penalise the inefficient use of emissions intensive energy.

Companies that embrace all operational efficiency options will safeguard existing margins against rising costs, and reduce the emissions intensity of operations.

Ultimately, the extent to which climate policy negatively impacts the fortunes of individual transport companies will depend on the emissions intensity of their operations.

Over the short term, company level emissions reductions will offer individual firms a competitive advantage over their rivals.

Over the medium to long term emissions reductions will simply be a defensive strategy.

Cameron Eren coordinates the Industry Partnership Program at the Total Environment Centre and is the author of Freight Transport & Climate Change: Exposures and Opportunities

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