net zero emissions

Environmental, Social, and Governance (ESG) is shaping up to be the corporate mantra of the 2020s, with the majority (83 per cent) of Australians concerned about climate change, according to the annual Ipsos Climate Change Report 2022. 

In Europe, we have seen the introduction of supply chain legislation that will make companies accountable for the behaviour and performance of their suppliers in a way never seen. As is the way of these things, we will no doubt be seeing a similar legislative effort on our own shores in the near future. 

The way we view our responsibilities as corporations, from the board down, is shifting. But this change has been slow. Current measures are not enough, on their own, to push corporate Australia down the necessary path to Net Zero.

Board buy-in is necessary  

Only 18 per cent of businesses have set a Net Zero goal, and of those businesses that have set a goal, only 21 per cent are taking steps to achieve it, according to research at Energy Action. That’s a fraction of the buy-in that we need.

At present, it can seem complicated and expensive for companies to get on board with Net Zero, which we know from just going through the journey ourselves.

There’s a growing demand for not only the cheapest power but the cleanest power. Before anything else, you need board buy-in. Currently, only around three in 10 Australian boards consider the Net Zero strategy a priority. To lift this number, a board-level commitment is non-negotiable.

Sometimes getting to that place can require a cultural shift, but it can be easier to achieve once you realise that solid environmental, social, and corporate governance (ESG) credentials aren’t just a feel-good box to tick off. Done right, ESG can be profitable and drive positive social and financial outcomes.

Steps toward Net Zero 

Net Zero certification doesn’t have to be expensive or difficult; it just requires an organised approach. In many cases, you can distribute the initial costs over time. The key steps to Net Zero energy are simple: measure, reduce, buy green, and offset. 

First, comprehensively measure your emissions. If you don’t measure what you’re currently consuming, you can’t bring that number down, and you won’t know what your offset burden will be. We thoroughly audited our last two financial years to find that number and identify several ways to reduce our energy usage.

Then, you convert your power to as many green sources as possible. Different companies will have different capacities to switch to green sources. Some might be able to install solar panels, upgrade to electric vehicles, and so forth, but everyone can change their purchasing decisions to make greener choices.

In our case, energy consumption was our biggest emissions contributor, so we were able to change our buying to mitigate that. We also switched to make the greenest possible purchasing decisions for all items we might need to run our business.

In some cases, these products may be slightly more expensive, but this is a cost distributed throughout the year, so it doesn’t have to be painful. Long-term, we hope to continue to transition to more and more Net Zero suppliers as those options come to market.

Carbon credits are the last piece of the puzzle. A range of certified credits – both nationally and internationally created – can be purchased to suit different needs and budgets.

But it all starts with board direction and the belief from the board level that Net Zero is important to the future of your business. If you aren’t there yet, you may want to consider it sooner rather than later. With investor mandates becoming more routine and consumers are increasingly interested in the ESG credentials of the products and services they buy.

The future; reporting, strategies, and commitment 

Current mandatory reporting, including National Greenhouse Emissions Reporting (NGERs), has been in place since 2007, but realistically this is a regulatory reporting doorstop with limited ability to change behaviour.

On the other hand, voluntary reporting through the government’s Climate Active program produces quantifiable and auditable emissions reporting but is just that – voluntary – and not without cost.

At a policy level, the challenges are that emissions reductions or, more broadly, ESG outcomes are driven by standards rather than a mandate to “achieve Net Zero”. Those standards have complicated implementations that take years to achieve and will be frustrated by paid lobby groups.

Instead, a strategy that leverages what we have already seen with domestic photovoltaic solar uptake around the country is needed. Incentives introduced in the late 2000s resulted in a vibrant and sustainable PV installation industry to this day, effecting meaningful long-term impacts on improving Australia’s energy security.

Targeted Net Zero could have the same effect. Properly supporting Climate Active certification could result in many more businesses finding innovative and cost-effective ways to reduce emissions and accelerate Australia’s Net Zero economy.

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Last week, Australia passed its first significant climate legislation in more than ten years, establishing legally binding targets to reduce emissions further.

The Climate Change Bill mandates a 43 per cent reduction in carbon dioxide emissions from 2005 levels by 2030, up from the previous administration’s target of 26 to 28 per cent.

Australia will have mandatory climate targets under the legislation, which the Senate approved with a vote of 37 to 30, and Climate Minister Chris Bowen will be required to report annually to parliament on the government’s progress on emissions. 

Experts believe that many details remain hidden about Australia’s plans to reduce carbon pollution. For instance, in mining and resources companies, the uncertainty in policy and regulation is high and increasing. 

As of November 2021, the Australia Institute identified 44 new gas and oil projects and 72 new coal projects in the planning stages. It predicted that if fully utilised, these would produce 200 coal power plants’ worth of CO2 emissions annually or 1.7 billion tonnes.

Australia’s carbon credit programme is now being reviewed, and the Climate Change Authority just published a study on how Australia’s carbon markets ought to connect with international systems.

Rob Fowler, a Partner in the Energy Transition practice at Partners in Performance, believes that the real work in transitioning to renewable sources of energy has just begun.

“Australia is waking up to the challenges and the opportunities of rapidly reducing carbon emissions across the economy. And once again, Australia’s high-carbon companies are dancing with the policy wonks and bureaucrats to chart a path forward. Many of us have been here before.”

“Australia would remain on track to reach net zero emissions by 2050 because of the enhanced pace of carbon reductions. The faster rate of decarbonisation will present several difficulties in a country where fossil fuels produced 67 per cent of the electricity in 2021 and renewable sources made up 32.5 per cent. Rob adds that a few crucial components are different this time as Australia attempts to end the long-running carbon warfare. 

The first difference is that investors will actually care in 2022. They put significant pressure on boards and management to explain and implement their decarbonisation strategies.

Technology is the second significant distinction. It really has a positive net present value (NPV) to replace diesel or fuel generators on a mining site with a sizable hybrid wind-solar-storage solution. Thirdly, Australia possesses the knowledge to accelerate the transition at a lower cost than we initially anticipated.

“A critical aspect of the decarbonisation challenge includes what is known as basic chemicals — ammonia, fertilisers, and explosives, all of which are crucial inputs to our economies and food systems. Key producers of these basic chemicals are exploring how the enormous investments already made in these value chains can be leveraged in a decarbonised world,” Rob says. 

“They are asking how their feedstocks and carbon emissions can be changed and transitioned while demand for these important chemicals increases rapidly.

“While these fundamental changes roll through capital expenditure programs of the chemicals sector, there is a growing demand for ‘carbon neutral’ cargoes,” Rob adds. 

“Everything from LNG, to ethylene, to metallurgical coal has been delivered to customers in East Asia with carbon offsets stapled to the physical products. If this trend continues, there will be massive demand for carbon offsets to meet the needs of traders, and customers, in these new types of commodity trades.”

New opportunities

Earlier, in order to remedy the “broken” environmental regulations in the country, the Greens have proposed a climate trigger. The proposal would prohibit new fossil fuel developments emitting more than 100,000 tonnes of carbon dioxide from receiving environmental approval. 

It also establishes a cut-off point for projects that emit between 25,000 and 100,000 tonnes of carbon annually to be subject to environmental reviews. While the party would support the government’s emissions measure in the legislature, according to Greens leader Adam Bandt, more needed to be done, like its climate trigger legislation.

“As the world comes together in Glasgow to fight climate change, Australia is putting its foot on the accelerator and doubling down on fossil fuel expansion,” Richie Merzian, Climate & Energy Program Director at the Australia Institute, said in a statement last year.

“The Australian Government is aggressively pursuing a huge expansion of coal and gas projects, equivalent to over 200 new coal power stations. To point to China is disingenuous; Australia’s planned gas and coal expansion would be four times the amount of new coal power stations planned by China and almost double the carbon footprint of global aviation.

“This scorched earth policy has exposed Australia’s net zero 2050 plan as a fraud. Australia cannot claim to be acting on climate change while simultaneously expanding fossil fuel projects.”

Meanwhile, Rob notes that reusing and repurposing existing power grid infrastructure will be critical to meeting Australia’s ambitious target. This includes retaining and leveraging the existing electricity infrastructure in coal-fired power complexes across the Latrobe Valley, Hunter, Illawarra and Collie regions.

“With just 87 months until 2030 begins, Australia has an enormous amount of work to do and a huge dose of uncertainty to digest,” added Rob.

“The sooner we combine and deploy the finance, technology and smarts at our disposal, the sooner we will truly see the green mining, green metals and green basic chemicals that our ‘Net Zero future’ undoubtedly demands.”

For more information on Partners in Performance’s solutions, visit pip.global.

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