By Lynne Blundell

In Europe the greatest benefit from an emissions trading scheme has been to consumers of energy intensive businesses – Henry Derwent

The head of the world’s carbon trading association has urged Australian businesses and consumers to focus on the benefits of an emissions trading scheme and to make some decisions ahead of the international meeting in Copenhagen.

Henry Derwent,  chief executive officer of the International Emissions Trading Association, was in Australia last week to talk with government and business about the impending introduction of the Australian ETS and to offer some tips from the European experience.

Formerly the international climate change director for the UK Government and the man responsible for overseeing the introduction of Britain’s ETS scheme in 2005, he had a lot of useful advice to pass on.

Mr Derwent spoke to media representatives at a joint conference with KPMG last week about the implications of delaying the ETS scheme in Australia, emphasising the importance of certainty for business. He said the rise in energy prices was inevitable and putting a definite price on carbon and a framework for operating allowed more to be achieved at less cost.

“People are focusing on the detail of the CPRS [Carbon Pollution Reduction Scheme] and arguing for compensation. What seems to be lost is that this is the first application of something that will entirely change the economy of the world.

“It is the first gust of the winds of change of how business will be done in the future and how the world will operate. If we concentrate on that it would be better,” Mr Derwent said.

The greatest benefit following the introduction of the European Union’s emissions trading scheme was to consumers of electricity and goods and services from energy intensive businesses, said Mr Derwent.

While the retail price of electricity rose by 15 per cent in some EU economies, this was much lower than it would have been without a scheme.

“Prices have risen [in the UK] but not as much as they would have without a scheme. If you don’t have some sort of [carbon trading] system energy intensive companies who bear the additional costs of doing business pass these costs on to consumers.”

Mr Derwent said there was a level of acceptance and understanding in the UK regarding price rises, albeit somewhat grudging.

It was possible, he said, to achieve 40 per cent more reduction in emissions for the same cost if done through carbon trading rather than not introducing a scheme.

Henry Derwent: The price of carbon is now a regular feature of the business environment in Europe and the carbon trading market, currently worth around US$120 billion, is anticipated to double in size each year

The ETS scheme proposed by the Rudd Government was in many ways more sophisticated and ambitious than the UK scheme as it covered 75 per cent of the economy compared with the 47 per cent covered by the UK’s.

The Australian scheme would allow benchmarking of appropriate allocations and use more sophisticated methodology than the EU scheme. It would also allow unlimited international offsets where companies can purchase credits from developing nations to offset their own emissions.

“The usual approach is to do it all at home rather than allow companies to offset emissions on the back of other countries.  But this condemns business to spend more than necessary to achieve what is needed globally. It is important to remember this is a global issue – emissions don’t differentiate which country they’re coming from. We need to concentrate on reducing global emissions,” said Mr Derwent.

European businesses and consumers had changed their behaviour since the introduction of the ETS, with the International Energy Commission reporting a 5 per cent reduction in emissions for the industries covered during the first phase of the scheme.

The price of carbon is now a regular feature of the business environment in Europe, Mr Derwent said, and the carbon trading market, currently worth around US$120 billion, is anticipated to double in size each year.

“Nobody has been pricing the cost of damage [to the environment] until now,” said Mr Derwent. “But along with the cost is a whole set of opportunities. If you compare the current situation to the IT industry, it was inconceivable not that long ago what computers would do to the economy – the number of jobs that would be created.

“People thought computers would be the end for so many other businesses but it has created a whole new set of opportunities.”

Jennifer Westacott, KPMG’s National Partner in Charge of Sustainability, Climate Change & Water, told the media conference that small and medium sized companies in Australia were very unprepared and confused about the ETS.

“Larger companies have the resources to prepare but for smaller organisations it is a daunting task,” said Ms Westacott. “The sooner a scheme is finalised, the better as it will allow time for them to prepare.

“Right now there is a great deal of confusion about how the scheme will work. When we ask companies about their abatement programs we get some very ordinary answers.

“This makes us nervous as business needs to be thinking how they can manage their risk and identify their competitive advantage. They are not thinking ‘How do I create value in this scheme?’ Readiness involves a lot more than people realise.”

Disadvantaged and low income households would also need more targeted assistance from government once carbon trading was introduced – an area which has not been properly addressed in the Rudd Government’s scheme, said Ms Westacott.
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