Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report Contents Preface Executive summary Introduction The Australian Low-Carbon Readiness Barometer: Jan 2011-May 2012 Corporate sentiment towards a low-carbon future Carbon pricing schemes Threat or opportunity? 10 Impact on business 11 Case study: Wesfarmers 12 Corporate action for a low-carbon future 13 Modelling the impact of carbon prices 13 Reducing carbon footprints 13 Case study: Shell 14 Capitalising on opportunities in a low-carbon economy 15 Conclusion: Action without emotion 16 Appendix: Survey results 17 © The Economist Intelligence Unit Limited 2012 Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report Preface Cleaning up: 2012 progress report on Australia’s readiness for a low-carbon future is an Economist Intelligence Unit report, commissioned by GE The Economist Intelligence Unit (EIU) conducted the survey and interviews independently and wrote the report The findings and views expressed here are those of the EIU alone Elizabeth Fry and Sudhir Vadaketh were the authors of the report and David Line was the editor Gaddi Tam was responsible for design and layout The cover image is by Ivan Loh The quantitative findings presented in this report are based on two surveys of executives in Australia about low-carbon readiness at the firm, industry and country level The results of these surveys, conducted in January 2011 and repeated in May 2012, have been used to determine the Australian Low-Carbon Readiness Barometer, an ongoing index of corporate sentiment about readiness for a low-carbon future We would like to thank the survey respondents and interviewees for their time and insights June 2012 © The Economist Intelligence Unit Limited 2012 Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report Executive summary Australia will begin pricing carbon in July 2012 The government announced the scheme more than a year ago, during which time corporations have had the opportunity to prepare for it Do Australian corporations feel they are ready for a low-carbon economy? What actions have they taken to prepare for it? What are the biggest threats posed by Australia’s shift to a more sustainable model? Do corporations believe the current carbon pricing scheme is here to stay? And, crucially, have Australian firms identified opportunities for growth or alternative markets that are emerging or may emerge from a lowcarbon economy? This report, based on a survey of over 130 senior executives in Australia, attempts to answer these questions The key findings of the research are as follows: l Australian firms feel less prepared now than last year for a low-carbon future Based on the overall findings from the Low-Carbon Readiness Barometer, Australian corporations today feel less ready for a low-carbon future than they did in January 2011, before the carbon pricing scheme was announced Australia’s overall lowcarbon readiness is 2.9 out of 5, down slightly from 3.1 last year (on a scale of to 5, with denoting excellent readiness) There are several reasons that may explain this change in sentiment First, executives may have been overconfident before the carbon pricing scheme was announced and explained in detail This year they have a much better grasp of their individual firms’ level of preparedness, and their sentiment has been tempered somewhat Second, corporate nervousness on the eve of the introduction of the carbon pricing scheme is bound to be at its peak, as with any new piece of legislation Third, with national business and consumer confidence down slightly this year, and given uncertain global and regional economic outlooks, corporations may be feeling more sceptical about any new costs— real and perceived—that they have to face l More Australian firms are taking action to prepare for carbon pricing, particularly those which will be directly affected by the carbon pricing scheme Almost a third of Australian companies have modelled the impact of different carbon prices on their business operations, a three percentage point jump from last year (29%) Firms that will be directly affected by the carbon pricing scheme have made much more progress in improving their environmental performance, with two-thirds of them already modelling carbon’s impact Still, that leaves a third which have yet to so Moreover, only 9% of companies which will be only indirectly affected by carbon pricing through higher costs have conducted such modelling © The Economist Intelligence Unit Limited 2012 Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report That said, more than two-thirds of firms surveyed have some sort of carbon-reduction strategy in place The primary driver for developing this strategy is the need to comply with laws and regulations Of the firms which will be directly affected by carbon pricing, some 85% have a carbon-reduction strategy in place, with a further 6% in the midst of developing one More than half have developed broad strategies that encompass their external partners or supply chains, in addition to their own business These findings indicate that Australia’s carbon pricing legislation has spurred firms to take action to reduce their carbon emissions This will ultimately reduce the country’s overall carbon footprint Policy clarity has given firms a much better understanding of the expected impact to their businesses, and this has allowed them to make informed investment decisions l Carbon pricing is here to stay, but perceived price uncertainty will be the biggest barrier to further progress on carbon reduction Close to three-quarters of survey respondents believe that carbon pricing is here to stay, but almost half of them think that a new, better pricing regime will eventually replace the current proposed scheme (of a fixed price followed by emissions trading from 2015) This is partly due to disagreement about the optimal carbon price Close to two-thirds of respondents believe that the A$23 per tonne starting price is too high Still, there are a few others in favour of a higher price: almost 10% of survey respondents feel the A$23 per tonne starting price is too low And a plurality of respondents (38%) considers uncertainty about the future price of carbon as the primary barrier to making further progress on carbon reduction in their companies This uncertainty may not be resolved quickly Even in the EU, which began trading carbon emissions in 2005, there is still debate about what the optimal price should be It is likely that Australia, which is just about to take its © The Economist Intelligence Unit Limited 2012 first steps towards carbon pricing, will have to go through several years of discussion and trading before reaching equilibrium More concrete action depends on greater certainty about the costs carbon pricing will impose l The corporate carbon agenda has shifted towards cost reduction While respondents last year sniffed opportunities in “Developing new products and services” (47%) and “Improving relationships with customers” (47%), this year “Cost reduction” has risen to the fore This perhaps reflects an increasing certainty about the added costs, particularly among companies directly affected by the scheme Any potential new opportunities, however, remain relatively unexplored Unsurprisingly, firms that will be directly affected by the carbon pricing scheme have made more progress on this score In particular, more than half of this group has set up dedicated roles or teams to identify greater carbon or energy efficiency measures internally Around 30% of them have also recruited a government lobbyist, or hired an external consultant to help identify opportunities This reflects these firms’ willingness to engage third-party help as part of a broad stakeholder engagement strategy Meanwhile, reflecting the current anxiety about carbon pricing, only a third of respondents believe that the opportunities created by imposing a carbon price will outweigh the risks in the long term This is down from about onehalf last year About the survey: The research involved surveying 136 Australiabased senior executives who are familiar with their companies’ sustainability strategy Many of the respondents are in senior management—40% are in the C-suite or sit on the board In terms of size, 51% work at companies with a global headcount of over 1,000 people Some 46% of respondents work at firms with global annual revenues in excess of US$1bn Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report The respondents work in a broad mix of industries—24% work in the energy and natural resources sector; 15% are in manufacturing; 12% work in construction and real estate; 12% work in the retailing sector; 10% are in IT and technology; and the remainder work in logistics and distribution; transportation, travel and tourism; agriculture and agribusiness; consumer goods; and telecoms © The Economist Intelligence Unit Limited 2012 Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report Introduction After years of debate about how to curb carbon emissions, Australia’s parliament passed legislation in 2011 that introduces a carbon pricing scheme from July 1st 2012 Under the scheme, heavy emitters will be required to purchase fixedprice permits at A$23 for each tonne of carbon they produce The permit price will be fixed for each year but will increase annually at a pre-set rate, ahead of a full emissions-trading scheme, with a A$16 price floor, in 2015 Despite the legislation, there is still a bit of uncertainty about Australia’s climate-change policies Julia Gillard, the prime minister, leads a Labor Party government that depends on the support of independents and the Greens’ sole member of parliament for its slender parliamentary majority Tony Abbott, the opposition leader, has vowed to scrap the carbon pricing scheme if he wins power (the next election must be held by November 2013) Meanwhile, as the global economic outlook gets gloomier, and corporations, governments and consumers focus on more basic concerns, the “The Lowy Institute Poll”, The Lowy Institute, 2006 and 2012 desire to address climate change has waned According to a recent poll by The Lowy Institute, an Australian think-tank, 57% of Australians are in favour of scrapping carbon pricing altogether—when as recently as 2006, some 68% wanted aggressive action taken to address climate change.1 Against this backdrop, the Economist Intelligence Unit (EIU) surveyed Australian corporations in May 2012, just weeks before the start of carbon pricing, to gauge their sentiment on the imminent scheme and determine what actions they had been taking to prepare for it Our survey base is comprised of companies directly and indirectly affected by carbon pricing (see Chart 1).2 This is an update of a survey we first conducted in January 2011, before the government had announced its carbon pricing plans In this report we examine corporate Australia’s readiness both to face the risks and and seize the opportunities of a low-carbon future In particular, we look at whether corporate sentiment and action has shifted over the past year Chart Will your company be impacted under the carbon pricing legislation? (% respondents) Yes, we will be directly impacted No, we won’t be directly impacted, but will feel the impact indirectly through higher costs 38 49 Survey respondents are split in this way only for 2012 results No, we won’t be directly impacted, and don’t expect to feel any indirect impact Don’t know © The Economist Intelligence Unit Limited 2012 Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report The Australian Low-Carbon Readiness Barometer: Jan 2011-May 2012 two questions—“Please rate the overall readiness of each of the following for minimising their carbon footprint” (see appendix: Chart 1); and “Please rate the overall readiness of each of the following to capitalise on growth opportunities in a low-carbon economy” (see appendix: Chart 2) Based on the survey conducted for this report, we have updated the Australian Low-Carbon Readiness Barometer, an ongoing index of perceptions of “low-carbon readiness” The barometer seeks to measure the degree to which companies believe Australia is prepared for the transition to a low-carbon economy, both in terms of minimising carbon emissions and seizing growth opportunities that this transition may present in terms of new markets for cleaner products and services Using this methodology Australia’s overall lowcarbon readiness is 2.9, a small drop from 3.1 in the baseline report last year This indicates that, on average, Australian corporations today feel slightly less ready for a low-carbon future than they did in January 2011, before the carbon pricing scheme was announced The overall score is the average of three qualitative scores by senior executives on their perceptions of “low-carbon readiness” of their company, their industry, and Australia overall, on a scale of to 5, with denoting excellent readiness.3 In turn, perceptions of “low-carbon readiness” at the company, industry and national level are measured by averaging respondents’ scores for Overall score—an average of the three scores below Company score—low-carbon readiness of “your company” Industry score—low-carbon readiness of “your industry” Country score—low-carbon readiness of “the Australian economy” 2011 2012 3.1 2.9 3.6 3.2 3.0 2.9 2.6 2.6 There are several reasons why this may be so First, as we noted in last year’s report, executives may have been “overestimating their own firms’ readiness in relation to their competitors and the overall economy” Last year, before the carbon pricing scheme was announced, executives would have witnessed their own firms’ efforts at improving their environmental performance— without firm national guidelines—and possibly been buoyed by what they saw This year, with details of the carbon pricing scheme well known, they have a much better grasp of their individual firms’ level of preparedness Hence, this year’s company score has been normalised somewhat, and brought more in line with Australia’s overall score © The Economist Intelligence Unit Limited 2012 For clarity, the scoring system in the barometer has been reversed from that used in the original survey questions (where 1=excellent) The original survey questions are reproduced in the appendix Cleaning up: Australia’s readiness for a low-carbon future 2012 progress report Includes agriculture and agribusiness, energy, and natural resources sectors Includes construction and real estate and manufacturing sectors Includes IT and technology; logistics and distribution; retailing; telecommunications; transportation, travel and tourism; and consumer goods sectors Second, corporate nervousness on the eve of the introduction of the carbon pricing scheme is bound to be at its peak, as with any new piece of legislation In January 2011, carbon pricing must have seemed a long way off Many firms might not have regarded it as an immediate, pressing business concern Today, as July 1st 2012 draws near, concerns about preparedness have risen Carbon pricing is here, and Australian firms are still unsure about its budgetary and strategic implications for their businesses Third, with national business and consumer confidence down slightly this year, and given the uncertain global and regional economic outlooks, corporations may feel more sceptical about any new costs they have to face Broader economic uncertainty may be affecting their confidence about low-carbon readiness Barometer by industry When asked for their perceptions of low-carbon readiness in their own industry, executives in the agriculture and natural resources and services sectors seem slightly more upbeat than those in the construction and manufacturing sectors Agriculture and natural resources firms are feeling slightly more confident than last year, perhaps because they have been slowly readying themselves for carbon pricing Export-oriented manufacturing firms, by contrast, have been going through difficult times, given the uncertain global economic outlook and the strong Australian dollar That, along with the imminent © The Economist Intelligence Unit Limited 2012 imposition of carbon pricing, is forcing some of them to rethink their corporate strategies; some have opted to move capacity abroad Finally, services firms, many of which will not be directly affected by the carbon pricing scheme, may have been more relaxed about it last year, before the full details were released Now that they better understand the actual impact of the carbon pricing scheme to their businesses, they may be feeling a little less optimistic 2011 2012 Agriculture and natural resources 2.9 3.0 Construction and manufacturing5 2.9 2.6 Services6 3.1 2.9 Barometer by company size Perceptions of low-carbon readiness also depend on the size of the company Although all firms are feeling a little less positive, medium-sized firms are still the least upbeat But it is large firms that have seen the sharpest drop in perceptions of low-carbon readiness These firms typically have deep pockets and plenty of resources to commit to any carbon-reduction initiative, and hence would have been feeling extremely bullish in January 2011 However, many of them are also the heaviest emitters As carbon pricing draws near, they perhaps have a more realistic view of the scope of change needed 2011 2012 Small ([...]... Limited 2012 23 Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report 20 What are the primary barriers to making further progress on carbon reduction in your company? Select up to three (% respondents) Uncertainty about the future price of carbon 38 Availability at acceptable cost of relevant technologies 32 Lack of international standards (eg, an agreed method of calculating carbon. .. easy nor difficult 7 Reasonably easy Very easy 1 38 © The Economist Intelligence Unit Limited 2012 11 Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report Case study: Wesfarmers Wesfarmers, owner of Coles, Australia’s largest supermarket chain, as well as major coal and chemicals operations, will be among the companies most heavily affected by the new carbon price scheme Aside... up: Australia’s readiness for a low- carbon future 2012 progress report 3 Corporate action for a low- carbon future Modelling the impact of carbon prices Though firms are feeling more anxious this year about carbon pricing, they are nevertheless taking action to prepare for it Almost a third of companies have modeled the impact of different carbon prices on their business operations, a three percentage... a backlash,” he says “At that point the policy makers will do something else and you can bet the something else will be mandated, less flexible, less easy to manage and more challenging,” he says © The Economist Intelligence Unit Limited 2012 15 Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report Conclusion Action without emotion Australia’s carbon pricing legislation has... government will be able to attract more low- carbon investment into the country, and drive clean-product innovation within local firms This will position Australian companies for success in low- carbon economies around the world Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report Appendix: Survey results Note: Percentages may not total 100 due to rounding or the ability of respondents... Improving relationships with suppliers 7 Other, please specify 2 We don’t see any opportunities in this 24 Don’t know 4 10 © The Economist Intelligence Unit Limited 2012 Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report Impact on business A national carbon price will inevitably have an impact on many aspects of business When compared to last year, respondents are generally more... Limited 2012 19 Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report 9 How easy or difficult will it be for your business to be able to pass along any additional costs incurred by the carbon legislation to your customers? (% respondents) Very difficult 38 Somewhat difficult 49 Neither easy nor difficult 7 Reasonably easy Very easy 1 38 10 In your scenario planning, have you assessed.. .Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report Still, there are a few others in favour of a higher price Almost 10% of survey respondents feel the A$ 23 per tonne starting price is too low David Hone, the London-based global climate change adviser at Shell, an oil and gas firm, thinks Europe’s current carbon price is undermining the region’s efforts to reduce corporate... main reason is that they consider their firms too small for it to be affordable or practical Over the years, Adelaide Brighton has already significantly reduced its carbon footprint in Australia through the use of energy-saving cement substitutes such as fly ash and slag, the use of alternative fuels and changes to cement standards The company has also prompted changes in industry standards around... one 6 24 No, and we have no plans to develop one 0 18 Don’t know Australian firms are preparing themselves in different ways to capitalise on opportunities in a low- carbon economy Once again, firms that are directly affected by the carbon pricing scheme have made more progress (see Chart 8) In particular, more than half of this group has set up dedicated roles or teams to identify greater carbon or energy ... Limited 2012 Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report The Australian Low- Carbon Readiness Barometer: Jan 2011-May 2012 two questions—“Please rate the overall readiness. .. growth and increased organisational efficiency Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report Corporate action for a low- carbon future Modelling the impact of carbon. .. Cleaning up: Australia’s readiness for a low- carbon future 2012 progress report Corporate sentiment towards a low- carbon future Carbon pricing schemes Last year, before Australia’s carbon pricing