Oh, brave new (carbon-constrained) world!

The next carefully wrapped iteration of the Federal Government’s Carbon Pollution Reduction Scheme is due in time for Christmas 2008. Kate Hennessy finds out the likely costs – and opportunities – for small businesses.

Due for introduction in 2010, the Federal Government’s Carbon Pollution Reduction Scheme (CPRS) will not directly impact small businesses in Australia. Carbon caps will only be imposed on companies that produce more than 25,000 tonnes of carbon pollution each year – less than 1% of the 7.6 million registered businesses in Australia.

As a result, big business has been the most vocal, warning the scheme will sap its profitability and the Australian economy.

Small businesses have mostly stayed quiet.

But the effects of the scheme will bleed into the small-business sector indirectly. Costs will be passed down through the supply chain, business relationships will alter and a new competitive arena will emerge under the ‘green economy. After all, this is entirely the point.

“The whole purpose of the scheme is to fundamentally change things,” says Jeff Angel, director of the Total Environment Centre. 

Switch off rising costs

The Government has promised to neutralize the impact of the CPRS on fuel by cutting the fuel excise for three years. For heavy vehicle users, fuel taxes will be cut on a cent-for-cent basis to offset the initial CPRS price impact and will be reviewed after one year.

However, a substantial hike in energy prices is inevitable. The Garnaut Review Interim Report released in June 2008 predicted a 16% rise. Saving energy remains the single most effective way to negate these rises.

“Many small businesses don’t pay much for electricity now but if they neglect to adopt energy efficiency practices soon, this price rise could hit them hard,” says Angel.

Sustainability consultant E3 operates a 60-Day Carbon Challenge aimed at small businesses. The challenge guides businesses through a structured program to reduce their carbon footprints by 20%.

E3 founder David Peart claims a 100% success rate with 50 participating small businesses. Any business following the program can effectively sidestep the 16% price rise predicated in Garnaut’s report.

“It’s really not that hard to achieve significant reductions through efficiency measures, peak demand strategies, and engaging and educating staff,” says Peart.

Voluntary sustainability

The Government wants the CPRS and related initiatives to reduce overall long-term CO2 emissions to 60% below turn-of-the-Millennium levels by 2050. By 2009, the Government will announce a target range for 2020.

In the vacuum preceding mandatory legislation, many businesses are acting voluntarily on their emissions through measures that outstrip those required by the CPRS. For this reason, carbon-offsetting companies such as Climate Friendly urge small businesses to continue voluntary measures after the scheme is introduced.

“The bulk of the change is not coming from the government or big business, it’s from voluntary actions of small companies,” says Climate Friendly spokesperson Jessica Miller. “Ninety percent of our clients are small businesses.”

Can your business go carbon neutral?

Carbon neutrality – offsetting 100% of a business’s carbon footprint – is an increasingly common measure. In fact, the concept has been leapfrogged by the new buzzword ‘carbon positive’, which means to offset more than 100% of your footprint. Other businesses are ‘mopping up’ the carbon footprint of their entire business history through offsets, throwing down the gauntlet to other companies to match or better them.

“It’s what you do in addition to the law that differentiates you as an environmentally responsible business,” says Angel.

Small business experts weigh in

The CPRS will compensate large trade-exposed, emissions-intensive (TEEI) businesses through the allocation of free carbon permits. Exactly which businesses will qualify is still under feisty debate.

Groups such as the Business Council of Australia have suggested a more generous compensation model for TEEI businesses. Yet according to Greg Evans, director of industry policy and economics at the Australian Chamber of Commerce and Industry, this compensation may result in a higher burden for small firms.

“We are concerned about the impact of the CPRS on small businesses, especially where they may have limited capacity to pass on increases in energy costs to consumers,” says Evans. “We are especially concerned about small businesses in regional and outer suburban locations – in these cases compensation arrangements to deal with adjustment costs may be required.”

Council of Small Business of Australia president Tony Steven agrees. “We support the scheme but if costs rise by $600 a year, for example, there needs to be an equivalent of $600 in savings, compensation or guidance for businesses to recover those funds,” he says.

Angel avoids the notion of compensation, instead preferring the concept of ‘adjustment funds’.

“We support adjustment funds where the money has strings attached,” he says. “It can’t just be a free handout – it has to directly assist an energy efficiency response or a broader carbon footprint reduction plan.”

Opportunities in sustainability

Factoring in the transition to a low-carbon economy, a recent CSIRO report found that national employment would increase by between 2.6 and 3.3 million over the next 20 years. The report forecast strong job growth in high-carbon sectors such as transport, construction, agriculture, manufacturing, and mining because around 3.25 million workers would need more sustainable skills.

The Government’s 2020 target of 20% renewable energy will also create new jobs. Australian Conservation Foundation research estimates that a renewable energy target of 25% by 2020 would deliver 16,600 new jobs in the solar, wind, and geothermal industries.

The market already swarms with hundreds of ‘low-carbon products and services, many of which are small-business initiatives. Eco directory The Green Pages has seen strong growth in business sustainability services and small companies that have added a green slant or service.

“A deli might introduce organic ranges, a small consulting group might offer a sustainability service, a bedding shop might start selling organic clothing,” says Green Pages director Katie Patrick.

“If it’s genuine and not greenwash, it can be rolled into their marketing. I don’t think there’s a business that couldn’t incorporate a green image into its marketing.”

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Carbon cap and trade scheme

The Carbon Pollution Reduction Scheme will place a cap on the total amount of carbon certain businesses are allowed to emit and issue permits up to that level. Industries that generate carbon pollution will need a permit for every tonne they emit above the agreed level.

Businesses that generate large amounts of carbon and therefore place a high value on the permits will pay the most for them, either at auction or from other businesses emitting below their own caps. The purpose is to encourage reduced emissions by making it cheaper to invest in less-polluting practices than to continue to buy permits.

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Money to help you go green

The Federal Government’s Clean Business Australia fund has committed $240 million over four years to support local businesses in their efforts towards improving energy and water efficiency. This includes:

• Re-Tooling for Climate Change ($75 million). Manufacturers can apply for grants from $10,000 to $500,000 for initiatives such as energy efficient manufacturing tools, small scale co-generation plants and water recycling
• Green Building Fund ($90 million). This fund helps Australian businesses implement cost saving energy efficiency measures through retrofitting and retro-commissioning of existing commercial office buildings.
• Climate Ready Program ($75 million). This funds research and development and commercialization activities to develop solutions to climate change challenges.
• Grow Me The Money is a free program for Victorian businesses to help them reduce their impact on the environment and save money doing it.