Date issued: 30 June 2008

Climate change is a business and economic issue front and centre, and how businesses respond will determine their survival, CPA Australia President Alex Malley said today.

'Climate change and the introduction of an Australian Emissions Trading Scheme (AETS) will affect businesses on an unprecedented scale. Both the business community and government must be attuned to dealing with the serious repercussions for businesses' day-to-day operations,' he said.

'The AETS and the broader business response to climate change will require financial, strategic and operational considerations. Although the vast majority of businesses will not be directly involved in the AETS, they will be affected nevertheless, and they have to realise that and prepare for it.

'Resource allocation will be a central issue and this is where companies' chief financial officers, and the accounting profession more broadly, will be crucial.

'Businesses must accept that an emissions trading regime is about to become a fact of life and that the business response will need to be much more comprehensive than one of narrow compliance.' 

Among the issues attached to an AETS and a broader response to climate change will be:

• the need to develop strategies for the purchase and trade of emissions permits and carbon offsets
• accommodating the costs of emissions in strategies around planning, investment and pricing (e.g. how much, if any, of extra cost should be passed on to the customer)
• the centrality of resource allocation as businesses consider how best to produce their goods and services with the focus squarely on cost of emissions
• the effect on businesses not directly involved in the AETS as suppliers, contractors, clients or other links in the supply chain to the biggest emitters. They will have to factor this into their day-to-day operations
• the need for incentives (especially tax-based) for the 2 million (approx) businesses not directly involved in the AETS to encourage the uptake of low emissions practices must be considered

Mr Malley said any AETS would need to take into account the international context of the Australian economic and business environment.

'An AETS will not occur in isolation. Australian businesses, large and small, increasingly operate in global markets and any AETS must take this into account,' he said

'These issues pose important questions about the AETS. How Australian businesses compete with overseas competitors not subject to emissions trading obligations presents strategic challenges that require urgent resolution.

The kind of questions we need to ask, and find answers to, include:

• How will the AETS accommodate a business with a supplier based in a country without an emissions trading scheme, or even with one, but one which is different?
• Should emissions permits purchased by an Australian company from a European Union country for example, be redeemable in Australia?
• If so: what should be the pricing relationship between the two schemes so as to avoid the incidence of a company obtaining emissions credits elsewhere at a significantly reduced rate?
• What regulatory architecture must be put in place to govern the AETS? Do we need a body to maintain a floor and ceiling permit value, similar to the role of the Reserve Bank in Currency value?
• Should emissions permits have a finite life?

'Clearly a business's everyday operations will be fundamentally affected by the global response to climate change,' Mr Malley said.

'The AETS must take into account just how broadly this sweep of factors will affect business and business in turn must ensure it is well prepared.

'Accountants as the managers of strategic business resources with their skills in the accumulation and analysis of business information will be relied on by everyone from the largest emitter to the single-person contractor to ensure their survival.

'We would hope, of course, that these and other issues raised are considered in the work currently undertaken by Professor Garnaut and in the Government's own pending Green Paper.'  

Further information

• download Emissions trading and other related policy matters
• download CPA Australia's Submission on the proposed Australian Emissions Trading Scheme
   

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