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Issue 6 - June 2012 www.carbonmarketinstitute.org

CMI Review

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And so the market begins...

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Australian National Registry of Emissions Units Article 2 | Page 3

Administrator of the carbon pricing mechanism, the Clean Energy Regulator, is encouraging entities to register for an account in the ANREU.

Practical Tips for Applying for an AFS Licence Article 3 | Page 5

The window for registering to apply for an AFSL is closing soon. Read practical tips on how to plan and prepare for the application process.

Carbon Risk Management: How Ready Are Australian Firms? Article 4 | Page 8

A university survey of liable entities finds not everyone has undertaken a comprehensive assessment of the impact of the carbon pricing mechanism.


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Carbon Market Institute

Message from the Executive Director Mike Tournier

I have just returned as a guest of the World Bank from Carbon Expo Cologne 2012 which is the northern hemisphere’s premier event for global carbon participants both from the business and policy sectors. Although numbers were down on last year, the mood of this year’s Expo was certainly up on previous years. It was great to see a large number of Carbon Market Institute members both from Australia and other international locations present at Carbon Expo.

Back home, it’s less than a week to go before the commencement of the Carbon Pricing Mechanism on 1 July 2012 and the Institute has been busy working with the regulators and key stakeholders. We were pleased to see that ASIC has provided a pragmatic solution for transition to holding an Australian Financial Services Licence (AFSL) which enables traditional carbon market participants a window to 29 June to register their intention to obtain a licence and additional time to make an application whilst they continue trading. To further assist members in this area, CMI has compiled a list of professional service providers who have expertise in assisting organisations with planning for and obtaining their AFSL. Whilst not a mandatory requirement of the regulations, many new participants who do not have a traditional financial markets background may find it beneficial to engage the services of specialist advice when applying for and maintaining an AFSL. If this sounds like you, please do download the list from our website. Over the last month, as many of you will know, we have been busy presenting our most recent publication

Reporting and Accounting Requirements for the Australian Carbon Market - A Guide for Business which has been very well received, particularly from those members who are direct points of obligation or provide consulting services to the same.

I am also pleased to announce that the Institute has secured a contract to supply the Australian Government an initial tranche of 5000 copies of our Implementing the Carbon Farming Initiative – A Guide for Business which will be used by Department of Agriculture, Fisheries and Forestry as part of their outreach and communication program. We continue to roll out our program of works with more major events. The first being the inaugural Academic Symposium to be held in Melbourne in early July which will bring together key industry leaders and academic providers to advance education and training in response to the needs of Australian industry in moving to a low carbon economy. The second is the keenly awaited release of our final 2011/12 research publication on the Evolution of the Australian Carbon Market - lessons from commodity and financial markets which will set us up nicely for the 2012/13 research program which we hope to make public announcement about shortly – please watch this space! In the meantime, do enjoy reading this CMI Review with timely articles on setting up registry accounts and practical tips for applying for an AFSL along with some interesting results from a survey about readiness for the carbon pricing mechanism.


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Carbon Expo Cologne - The Resilience of the Carbon Market >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Mike Tournier, Executive Director, Carbon Market Institute and Brendan Bateman, Director, Carbon Market Institute and Partner at Clayton Utz

Carbon Expo again demonstrated the resilience of the carbon market. It is continuing to evolve and mature and, most importantly, expand with the development of new compliance markets.

This year’s Carbon Expo held in Cologne was decidedly upbeat. Some cynics might suggest that this would not be difficult to achieve given the pessimism which pervaded the international carbon market in 2011 - anything would be an improvement on that.

It is essential for anyone involved in the carbon market to have an optimistic disposition. However, the events of the past 12 months at both international and domestic levels have provided a much needed boost to an essentially Euro-centric market struggling with economic recession and allowance over supply.

Foremost among the events which renewed participants’ hopes for a growing and evolving carbon market was the relative success of COP 17/CMP7 which culminated in the Durban Platform. There was considerable discussion at Carbon Expo around what the agreement that succeeds the Kyoto Protocol might look like, and in particular about the proposed new market mechanism. While some of the events at the more recent Bonn conference suggested that the UNFCCC had reverted to its norm, the fact is that Bonn was successful in resolving a number of administrative issues and arrangements which will enable substantive work to now begin on key elements of the Durban Platform in the lead up to COP18/ CMP8 in Doha. In addition to renewed international efforts to address climate change, there were also significant developments at a national and sub-national level which gave the carbon market hope. Australia’s own contribution should not be underestimated. Indeed, the speed with which Australia has progressed from the release of a new climate change policy in July 2011 to

the passage of legislation underpinning an emissions trading scheme in November 2011, with the Carbon Pricing Mechanism to commence from 1 July this year, has demonstrated that where there is a will, there is a way. Discussions regarding the ambition of the Australian scheme and certain of its features were prominent, both in the formal sessions and the chatter that took place in the corridors. No doubt, the strong representation from the Department of Climate Change and Energy Efficiency as well as from the Victorian Government’s Department of Business and Innovation assisted in providing a significant focus on Australia’s contribution. The Victorian Government’s trade stand was well supported and it was great to see a large number of CMI members in attendance as part of this group and also as individual delegates taking advantage of our strategic relationship with IETA and associated discounts. Discussion continued regarding the emissions trading pilot trials in China and the rapidly approaching commencement of the Californian scheme. These initiatives however were buoyed by more recent efforts to establish emissions trading schemes in Quebec (with the potential of other Canadian provinces joining in), South Korea and South Africa among others. While these initiatives illustrate the continued fragmented and multilayered evolution of the carbon market, they nevertheless provide confidence that market based mechanisms will continue to play an important role. As one of the key emerging markets, Australia was high profile with great interest in what was happening “down under”. CMI members made the most of the business networking opportunities that an event like Carbon Expo affords. Attendance also provided an opportunity to identify key areas for program development of our own Carbon Expo Australasia which will be held in Melbourne from 7 to 9 November. One of the key takeaways for us from Carbon Expo Cologne was the quality of CMI’s research compared with what was being presented on the international stage. CMI is punching well above its weight and feedback from international participants was that CMI publications are well respected and received, with the quality and depth of our analysis clearly differentiating us from others.


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Carbon Market Institute

Introducing the Clean Energy Regulator >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

The Clean Energy Regulator (CER) was established in April 2012 as an independent statutory authority under the Clean Energy Regulator Act 2011. The CER is an agency within the Climate Change Portfolio and replaces the former Renewable Energy Regulator, the Carbon Farming Initiative Administrator and the Greenhouse and Energy Data Officer. The responsibilities of the CER are to administer the carbon pricing mechanism, National Greenhouse and Energy Reporting (NGER) scheme, the Renewable Energy Target

Left: Chloe Munro, CER Chair and CEO

(RET), the Carbon Farming Initiative (CFI) and the Australian National Registry of Emissions Units (ANREU). CER Chair and Chief Executive Officer, Chloe Munro said: “We are committed to performing our functions in a way that emphasises voluntary compliance and enables secondary markets and financial services to evolve and support the operation of the carbon pricing mechanism.”

“To this end, we will be publishing a range of information, including the Liable Entities Public Information Database and emissions liabilities, to provide transparency and help market participants to make informed investment decisions. We look forward to hearing the perspectives of CMI members as we implement our market-based schemes,” Munro said.

“We are also working closely with other regulators who have responsibility for different aspects of carbon pricing. On 1 June, I was pleased to sign a Memorandum of Understanding (MOU) with the Australian Securities and Investments Commission which will regulate financial services and markets based on emissions units. This MOU provides a framework for cooperation, including information sharing, mutual assistance in the implementation of our respective legislation and supervision of auditors involved in CER schemes.”

Right:Greg Medcraft, Chair, Australian Securities and Investments Commission

Australian National Registry of Emissions Units >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

“With the commencement of the carbon pricing mechanism in about a month, we are encouraging entities to register for an account in the ANREU, which is the primary electronic online system designed to track emissions units,” Munro said. The ANREU was originally implemented to fulfil Australia’s obligations under the Kyoto Protocol and has recently been expanded to support domestic emissions unit trading in Australia.

Who needs an ANREU account? Opening an ANREU account is an essential step for participation in the Australian carbon market. An organisation or individual must have an ANREU account to: »» »»

receive, hold or transact valid emissions units, including Australian carbon credit units, fixed-charge carbon units and free carbon units issued under the Jobs and Competitiveness Program (JCP) and Energy Security Fund receive, hold or transact valid international emissions units issued under the Kyoto Protocol, and


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acquit a liability through the surrender of emissions units.

When to apply for an ANREU account?

You can apply for an ANREU account NOW.

Generally, processing of applications for ANREU accounts takes approximately two months due to the external identity verification processes. Delays in this timeframe may be caused by incomplete applications. If you are issued free assistance units under the Jobs and Competitiveness Program, please be aware that 1 September 2012 is the scheduled start date for units to be issued and you must have an account open in order to receive your units. In order to have an account opened by this time, you will need to apply as soon as possible.

The first due date for unit surrender under the carbon pricing mechanism is 15 June 2013. Liable entities will need to have an ANREU account in place in order to surrender units at this time and avoid paying a unit shortfall charge. How to register for an ANREU account To open an ANREU account, applicants must complete an application form and supply relevant identity documentation. In addition, prospective account holders need to complete a declaration regarding their status against specified ‘fit and proper person’ criteria. As part of the application process an applicant will be required to provide identity information for authorised representatives who will be given ANREU user credentials. This allows those representatives to perform transactions on behalf of the account holder. Please note that changes made to the Australian National Registry of Emissions Units Regulations on the 28th May 2012 require the Regulator to determine the fit and proper person status of all nominated authorised representatives. To enable this determination to occur, all nominated authorised representatives must complete and sign the Supplementary Information form. A separate Supplementary Information form must be completed for each nominated authorised representative.

The application process for an ANREU account is one of several security measures being put in place to ensure the integrity of the Registry, and safeguard the emissions units, which are personal property owned by account holders.

Compliance, education, and enforcement The CER recently published a policy outlining its approach to monitoring and optimising compliance with the laws it administers.

“We expect scheme participants will want to do the right thing and we will work with them to ensure they understand their statutory obligations.” “We are committed to educating scheme participants so that it will be easier for them to comply with the law,” Munro said. Our proactive compliance approach involves: »»

educating and engaging with scheme participants so they are aware of what they need to do

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responding appropriately to any non-compliance and actively pursuing those who choose to break the law.

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monitoring compliance by analysing information provided and, if needed, gathering more information through independent audits, information gathering powers and inspections, and

We will also ensure our decisions are taken within a rigorous governance framework, that procedural fairness is consistently applied, and that facilitating and monitoring compliance are integrated into our business processes.

Key dates to remember 1 September 2012—first issue of free carbon units scheduled for Jobs and Competitiveness Program

1 September 2012-1 February 2014—first buy-back period for emissions units 15 June 2013—first deadline for surrender of units 1 February 2014—Final units surrender More information More information on ANREU can be found at www. cleanenergyregulator.gov.au or by phoning 1300 553 542. Email enquiries to ANREU at: registry-contact@cleanenergyregulator.gov.au

To open an ANREU account, you will need to provide:

A completed ANREU application form

A National Police Check consent form

Proof of identity documents

♦ application forms are available for

♦ this will be used to assist the CER

♦ please refer to your application form

individuals, non-individuals and trusts

to verify the applicant’s fit and proper person status. This is a consent form only - you will not need to supply a police check yourself

for details on what documents to include

♦ You can apply to open an ANREU account on the same form if you intend to apply under the CFI to be a Recognised Offsets

♦ There are different forms for individuals and non-individuals

♦ Applications should only send in certified copies of documents rather than originals, as documents will not ne returned


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Carbon Market Institute

Practical Tips for Applying for an AFS Licence >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> By Su-King Hii, Principal of Innoinvest Consulting

For most carbon participants, obtaining an AFS licence (AFSL) can be an unfamiliar and daunting process. Those who wish to advise on, and deal in, carbon units, carbon credits and eligible international emissions units should have applied for registration to transition to the AFSL regime by now and start preparing the AFSL application documentation.

There are several practical tips you should follow to make the process easier and ensure full compliance with the law.

Applying for an AFSL involves a lot of planning, documentation, and a clear understanding of the myriad of regulatory requirements. Many applicants and licensees have had their applications delayed or refused simply because they have not done their homework properly. This article seeks to give you some practical tips on how to plan and prepare for this process.

Tip 1: Know your business Knowing your business and the precise nature of your service offerings is essential. This will determine the authorisations that you need to apply for. For most carbon brokers and advisors, the activities will involve the provision of financial product advice and dealing services. Advisory services that do not involve you taking into account the client’s personal circumstances are classified as general advice. In some cases, the distribution of marketing and promotional material can also be deemed general advice, for which licence authorisation is needed.

When you are involved in broking activities, these will most likely be treated as “dealing” under the Corporations Act. If you apply for, acquire, or dispose of a carbon product on behalf of another person, you will be engaging in dealing activities. Where it gets tricky is where the activities involve “incidental” products and services. For example, if you need to advise on capital raising requirements or procuring investment in a carbon project which involves the acquisition of shares or units, you may need “securities” or “managed investment schemes” authorisations. Where you have clients wishing to purchase or dispose of international emissions units and currency conversion is required, you may need foreign exchange and/or derivatives authorisations. There are also contracts tied to carbon products such as futures contracts,

which are classed as “derivatives”. In rare cases where you deal with your clients as principal that involves the quoting of buy and sell prices, you may be making a market. Many applicants have a “rough” idea of what to do. But often they fail to appreciate the importance of defining the exact parameters of their services and products – resulting in deficient or inadequate authorisations.

The above examples illustrate the importance of knowing your business and products, and the need to define the precise scope of your financial services because an inadequate or deficient licence will lead to regulatory enforcement actions.

Tip 2: Know your people Knowing your people is a critical element in a successful application for AFSL, and one which is often ignored as well.

Having worked out what you want to do, you will need to seriously consider whether you have suitably qualified and competent people to supervise your financial services business. These people are known as “responsible managers” (RM). The success or otherwise of an application will largely depend on the competency of the nominated RMs. You will need to determine whether the RMs have the qualifications and experience to collectively cover all of the authorisations that you apply for. The competency requirement generally involves three years of relevant experience over the past five years, and a diploma or university degree in the relevant industry or discipline. In some cases, you may be able to demonstrate competency by providing submission to ASIC on your experience over a number of years without the need to possess the relevant qualification. Although the length of service is important, it is also equally important that the experience is a “relevant” one. For example, a person that only has 10 years experience in carbon broking is unlikely to possess the relevant experience in providing capital raising advice. Likewise, a person who has predominantly worked under a wholesale licence will have difficulty convincing ASIC that he or she is equally competent to deal with retail clients. So, it is important to examine the qualification and experience of your RMs carefully and seek professional assistance before putting together the application documents. Without a competent RM, your application will surely fail!


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Tip 3: Plan your resources You must have adequate financial, technological and human resources to perform the financial services.

It is a core requirement that you submit a cash flow projection covering a period of three months and financial statements as part of the application process. The cash flow projection must conform to ASIC Regulatory Guide 166. It is necessary to clearly document your cash inflow and outflow projection, and such projection must be supported by reasonable basis and assumptions. You must also have positive net assets at all times. More onerous financial requirements will apply if you hold client money, or operate a registered scheme.

ASIC may also ask for additional information on your technological and human resources. You must, therefore, plan for adequate resources at the time of application. Matters to consider include a disaster recovery plan, business continuity plan, recruitment process, appointment of external service providers, compliance arrangements and conflict management.

You should have a clear idea as to how some of the financial services related functions are carried out. For example, if you wish to outsource some of your functions, you will need to ensure the service provider is competent to perform such functions. You need to have a documented process to undertake the relevant due diligence prior to engagement, have appropriate monitoring procedures in place, and ensure the service provider is adequately insured.

Tip 4: Plan Early The preparation of ASIC documentation is a time consuming process. You can make this an efficient and quick process if you put in place a well defined business plan, budget and a management team. Finding suitable RMs may also take time so plan early. There are also other preliminary steps that you will need to undertake, such as: »» »» »» »» »» »» »»

Applying for an Australian Federal Police criminal history check (this process may take weeks or months if overseas authorities are involved) Organising a bankruptcy search

Obtaining two business references

Collating qualifications and transcripts (ensure these are properly certified)

Putting together a comprehensive CV detailing all of the RMs’ relevant employment history and experience relating to the financial services authorisations being sought Discussing terms of engagement with your external service providers

Organising professional indemnity insurance and becoming a member of Financial Ombudsman Service (if you have retail clients)

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»» »»

Appointing an ASIC registered auditor

Preparing for the establishment of a compliance and risk management framework.

Applying for an AFSL is a lot of hard work and it involves more than completing a few forms, and it takes careful planning, strategising and execution. Comments are welcome and can be emailed to info@innoinvest.com.au

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Training to support AFSL applicants CMI is working to ensure organisations who

have registered to apply for their AFSL to trade

in carbon will be able to access the appropriate

training and qualifications prior to the end of 2012.

31 December 2012 is the date ASIC has declared is the

end of the grace period they will give to carbon traders before an AFSL holding is mandatory.

CMI has been involved in the development of new units covering what ASIC has deemed essential knowledge

in their Regulatory Guide 146. This development work, in partnership with the Australian Financial Market Association (AFMA), is near completion. With the

support of the industry skills council, Innovation and

Business Skills Australia (IBSA) who are responsible for

the building of capacity in the financial services industry, it is hoped these units will be accredited by the National

Skills Standards Council and become part of the Diploma of Financial Services qualification.

In parallel with this work, CMI is also developing with AFMA a set of learning and reference resources to

support the delivery of the carbon units. CMI members, through its Education and Advisory Panel have the

opportunity to review and comment on these materials. If you are interested in the progress of this work please feel free to contact CMI’s Education and Professional

Standards Manager, Peter Robertson on 03 92450940 or peter.robertson@carbonmarketinstitute.org


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Carbon Market Institute

Carbon Risk Management: How Ready Are Australian Firms? >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Prof Nava Subramaniam, Mr David Sewell, Prof Barry Cooper and Prof Graeme Wines (Deakin University), Prof Paul Collier (LaTrobe University), Prof Colin Ferguson (University of Melbourne), and Prof Philomena Leung (Macquarie University)

Introduction Managing risks is an integral part of managing an organisation and conducting business. In recent times, an unprecedented set of risks has emerged to confront organisations. Globally, a variety of greenhouse gas (GHG) emissions reduction schemes have come into being, including cap and trade systems and adaptation rebates (IPCC, 2007; DCC, 2009). In Australia, the carbon pricing mechanism (colloquially known as the carbon tax) comes into effect from 1 July 2012 and is legislated to become an emissions trading scheme in 2015.

Research Methodology We contacted managers with responsibility and/or substantial knowledge on carbon risk management in 603 organisations that were registered under Section 17 of the National Greenhouse & Energy Reporting Act 2007. The final useable response rate was 15.9 per cent (96 useable questionnaires). Respondent organisations were large with 72 per cent earning more than $251 million in annual revenue. The organisations were from a variety of industries, with 68 per cent of respondent organisations from four industries: energy and utilities, manufacturing, mining, and construction and transport. Figure 1: Industry Distribution

The Australian Government estimated that the carbon tax will directly apply to approximately 500 entities operating in Australia. Companies affected are expected to innovate and improve current practices as they strive to reduce their emissions and resultant obligation. Consideration of issues related to carbon may also lead to new innovations that can not only improve organisational processes and outcomes, but also lead to distinct competitive advantage. No doubt, risks related to carbon emissions are complex, inter-related and often sector-specific and firm-specific. These risks need to be identified and assimilated in the formal risk management system of organisations to ensure that they are effectively managed through mitigation or control strategies. Yet, extant practice of carbon risk management is viewed as underdeveloped and poorly governed. This research report provides evidence on the perceived risks and extant risk management systems in Australian organisations that are deemed to be high emitters of carbon; i.e. those reporting under the National Greenhouse & Energy Reporting Act 2007. A questionnaire survey was conducted over a seven-week period from December 2011 to January 2012. We present results from 96 respondents in relation to: 1. 2. 3.

perceived risks connected with the implementation of carbon pricing legislation

perceived risks related to carbon emissions (including financial, commercial, operational and reputational risks) the nature and extent of risk management strategies and frameworks being used to manage such risks.

The majority of survey respondents had the following job titles: Environment Health and Safety Managers (38 per cent), Environment and Sustainability Managers (22 per cent) and General Manager or Operations Manager (17 per cent).

Key Findings Carbon Price Impact Assessment Around half of the respondent organisations have NOT


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undertaken a comprehensive assessment of the impact of the carbon pricing mechanism (CPM). See Figure 2. »»

The debate on carbon pricing has existed for a number of years now. Despite this, 11 per cent of respondent organisations have not done a CPM assessment or have only just begun to do so. More than one third (35 per cent) have only done a ‘partial assessment’. Fifty-four per cent have undertaken a ‘comprehensive assessment’.

Figure 2: Extent of assessment of the carbon pricing mechanism impact

9 2. Legislative risks and related uncertainty »» »»

Almost three-quarters of respondents (74 per cent) believed it was likely that changes to existing systems to ensure compliance would be required as a result of the CPM. Uncertainty surrounding legislation, carbon pricing and supply chain impact was also found in additional comments, for example, a key risk as noted by one participant, was:

“Uncertainty of political landscape around longevity of CPM” – (Senior climate change officer)

Other aspects that concerned respondents related to meeting compliance and reporting requirements, included the complexity of carbon pricing: “There is no practical and real information available to assist business. The information is way too complex. Most people don’t even understand the costs this tax will (have on) business. It is a totally unnecessary burden”. (Compliance Manager) 3. Drop in profits »»

A reduction in profit due to not being able to pass through cost increases to consumers was seen as a highly likely outcome of the CPM by a third of the respondents (31 per cent).

4. Development of carbon friendly products/services »»

Top Five Perceived Risks of Carbon Pricing The top five perceived risks of carbon pricing are presented below, together with additional comments which respondents provided on the impacts of carbon pricing. 1. Increased costs »»

»»

A significant increase in input costs such as raw materials and energy was perceived as a highly likely outcome of the CPM by the majority of respondents (66 per cent). In particular, cost increases and a lack of ability to pass costs on to customers were some of the concerns raised. Another implication of cost increase relates to possible down-sizing of operations, and even shifting or closure of production facilities. The sentiment of the following respondent reflects this concern.

“We have seen our industry contract from 19 plants to 3 with the direct loss of 1000 jobs as we compete against China. The 3 have continued to invest into productivity and cost reductions. This on top (of carbon tax) will kill at least 1 of the remaining plants” – (General Manager)

The development of carbon friendly products/services was perceived as a likely outcome of the CPM by 59 per cent of respondents.

5. General uncertainty over long-term plans and investment »» »»

Delays or reluctance to invest in new or replacement infrastructure due to uncertainty over CPM implementation was seen as likely by around half of respondents (54 per cent).

Further political uncertainty was also reported as a factor for not wanting to plan too far into the future. As noted by one respondent:

“Opposition party proposal to repeal carbon pricing legislation has resulted in immediate focus on short-term compliance with ‘fixed price’ phase.” – (GHG advisor)

Carbon Risk Management Systems Existence of a formal strategy: A significant proportion of respondent organisations still do NOT have a formal strategy developed to address carbon related risks. »» »»

More than a third of respondents (35 per cent) either have no strategy or are only in the strategy development stage. About one-half (48 per cent) of respondents report having a carbon risk management strategy which only covers some parts of the value chain.


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Carbon Market Institute

Only 17 per cent of respondents believe that they have a fully developed strategy that covers their entire value chain.

was to a high extent, there is room for improvement for organisations to improve disclosure to stakeholders. Almost a quarter of respondents (23 per cent) stated public domain disclosure was on the lower end of the scale and 15 per cent stated this wasn’t done at all.

Internal Risk Management System

The survey also aimed to assess the degree to which Overall Conclusions and Suggestions organisations have given priority to dealing with carbonrelated risks, providing appropriate resources, and The present study provides a number of preliminary insights communicating and internally assuring into the risks and risk management the risk management processes in processes and practices within carbon Boards of directors and relation to carbon risk management. intensive Australian organisations. Of related governing bodies particular concern is that nearly a third of will need to take swift respondents either do not have a formal action on understanding Key Observations strategy or are still developing a strategy and integrating carbon risks for carbon management, and that almost Funding allocated to reduce carbon into their risk management half the respondents have not undertaken emissions is largely perceived as systems, as there are a a full assessment of the impact of carbon inadequate. number of significant legal pricing. The issue of resourcing, training and fiduciary implications.” and reporting on carbon risks are clearly »» The allocation of funding to reduce areas that will need more attention. carbon emissions to target levels Effective risk management systems rely on was not seen as adequate by a good planning, resourcing, knowledge of the different risks, the number of respondents, with only five per cent stating this likelihood of risks eventuating and their potential impacts, and has been done to a great extent. timely communication among the stakeholders. To this end, we Formal policy addressing carbon-related risks is thought to be present the following as critical suggestions: inadequate.

»»

One-half of the respondents thought that formal policies addressing various carbon risks were inadequate.

Organisational support towards managing carbon emissions Organisational support in managing carbon emissions, particularly financial and training support, appears to be lacking. »» »»

Though a majority of respondents (46 per cent) report receiving a high level of technological support, more than a third of respondents (39 per cent) indicated that financial support was lacking.

The majority of respondents (65 per cent) reported that they have not received formal training (in-house or external) in managing carbon risks.

The Internal Audit function is not being fully utilised to assess carbon mitigation plans. »»

Almost a third of respondents (31 per cent) stated their organisation did not have their carbon mitigation plans assessed by an internal audit function.

Disclosure of carbon information

The disclosure of carbon-related information can be improved upon. »»

Although respondents stated their company’s reporting on ‘carbon-related risks and strategies’ and ‘carbon emission management achievements’ in the public domain

»»

»»

»» »»

Boards of directors and related governing bodies will need to take swift action on understanding and integrating carbon risks into their risk management systems, as there are a number of significant legal and fiduciary implications. Organisations will need to take a more enterprise-wide approach to managing carbon risks. In particular, while the major concerns appear to be centred on issues of regulatory compliance and cost increase, firms will need to undertake a more comprehensive review of the implications of both up-side and down-side risks in terms of the impact on costs, pricing and margins. Communication of risks will need to improve both internally and externally.

The role and capacity of internal audit could be improved to enhance the assurance of carbon risk management.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

This paper is part of a series of studies on carbon risk management issues undertaken by the above-named authors. The full findings of this survey will be made available on www.deakin.edu.au/buslaw/ research/csaro/ as a monograph, published by the Centre for Sustainable and Responsible Organisations (CSaRO).

Acknowledgements: This research is funded by the Australian Research Council in partnership with the Association of Chartered Certified Accountants (ACCA) in Australia and the Institute of Internal Auditors (IIA) in Australia as part of the Linkage grant program. We would also like to acknowledge the invaluable assistance provided by Kathryn Chalmers for her dedicated work.


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CMI Calendar of Events >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 3 July Melbourne CMI Academic Symposium - Building Capacity for the New Low Carbon Economy

12 July Melbourne Launch of Evolution of the Australian Carbon Market: lessons from commodity and financial markets

13 July Sydney Launch of Evolution of the Australian Carbon Market: lessons from commodity and financial markets 25 - 26 July Dubbo Carbon Farmers of Australia conference

27 July Perth Launch of Evolution of the Australian Carbon Market: lessons from commodity and financial markets 22 - 23 August

Auckland

7-9 November

Melbourne

Carbon Forestry Conference

October Sydney World Bank’s Partnership for Market Readiness (PMR) Carbon Expo Australasia 2012

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

IS YOUR BUSINESS READY FOR THE CARBON TAX?

The carbon tax will impact almost every aspect of a business’s supply chain. Cash flows, risk profiles, financial statements, tax positions and compliance obligations may all be affected. This practical guide will provide business leaders and accounting professionals with a stepby-step approach to dealing with all of these complex issues.

ORDER ONE TODAY! Authored by

Call (03) 9245 0900 or visit www.carbonmarketinstitute.org


Carbon Market Institute Academic Symposium 2012 Building Capacity for the New Low Carbon Economy Melbourne 3 July 2012

Australian industry is experiencing a paradigm shift with the introduction of a carbon price on 1 July 2012. To support industry effectively transition to become competitive in a global low carbon economy, the Carbon Market Institute is bringing together industry and academia to identify and address the skills, competencies and capabilities required. In a first-of-its-kind one day carbon skills symposium, industry representatives will share their views and expertise about the carbon skills for the future. Leading industry players will outline the capabilities they see as key to

operating in a new low carbon world. All aspects of business will be impacted by the carbon price, and industry leaders from legal, accounting, engineering, energy, finance, commerce, environment and agribusiness sectors will discuss their organisation’s strategies to deal with the carbon price and their organisation’s future human capital needs. Anyone wanting to plan their career progression and gain a competitive advantage in the future can hear directly from industry about the carbon skills they will need to participate in this new market.

To register, email registration form to rsvp@carbonmarketinstitute.org Partners:

Hear from industry leaders aligned to university faculties: Finance/Accounting: Paul Simshauser, AGL, Chief Economist and Group Head of Corporate Affairs Policy: Emma Herd, Westpac, Executive Director Emissions and Environment Agriculture/Land: Chris Mitchell, CO2 Group Limited, Executive Director Corporate Development Law: Brendan Bateman, Clayton Utz, Partner Engineering: Chris Raine, Alstom, President and Managing Director, Australia and New Zealand General information Venue: The University of Melbourne, Carillo Gantner Theatre, Parkville Campus, Melbourne SIDNEY MYER ASIA CENTRE Room: B02 - Floor: Basement Enter building from Swanston Street or Monash Road entrance and go down the stairs at the south end of the building.

Carbon Market Institute Level 1, 486 Albert Street

East Melbo urne VIC Austr alia 3002

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Copyright ©2011 the Carbon Market In stitute (the CMI ). No part of this document may be reproduced without consen t. Per mission is granted for normal and limited qu otation provided that credit is given to th e CMI. Th e opinion s expressed in this publication do not necessarily reflec t the opin ions of the C MI direc tors, spon sors, partners or memb ers. No responsib ility is accepted b y the C MI, its d irectors, sponsors, partner s, or members or the authors of any artic les for the accuracy of any information conta ined in this publicatio n or the consequences of any person relying upon any information. The contents of th is pub lication should not be relied upon as a sub stitute for professional advice.


CMI Review - Issue 6