by James Paton
It may not be part of the Rudd Government’s plan, but laws designed to tackle climate change are turning into a highly welcome economic stimulus for lawyers and accountants.
While a number of these professional firms are shooing redundancy victims out the back door, inside they are strengthening specialist teams to deal with the impact of what one source said was a regulatory change that would be as big as the introduction of the GST.
Everyone agrees the proposal to reduce greenhouse gas emissions has huge implications.
“It’s a very significant business opportunity for all firms simply because the legislation is far reaching and because the legislation is complex,” said Grant Anderson, a Melbourne-based partner at the law firm Allens Arthur Robinson. “It will have a transformative effect as Australia moves from a high carbon economy to a low carbon economy.”
Firms have published stacks of reports on their Web sites, created a mini boom in seminars and made key hires as they try to position themselves as leaders in the fast-growing sector.
And poaching is underway.
In one example, the law firm Freehills has wooed highly-regarded environment lawyer Peter Briggs from Clayton Utz. Briggs walked into his new office Tuesday morning as partner.
“Exciting times,” said John Taberner, a consultant at Freehills in Sydney and an expert in environmental law. “I’m looking forward to working with Peter very much. This is an important area of law, so it will add to our firm’s efforts and profile.”
Accounting firm PKF, with about 1000 employees in Australia, has a team of 20 working on issues related to the proposed carbon pollution reduction scheme, according to partner Tony Rose, who believes the effect of the government plan could be as significant as that of the GST. The groups in some of the larger firms are reaching up to 100 in size, he says.
Climate change is not a new topic for the firms ? Freehills said it has been focused on the field for more than a decade ? but it has become a much more significant one. A lot of the recent legal work has involved complying with a 2007 law requiring companies to report greenhouse gas emissions and energy use. Lawyers also are scrutinising contracts as businesses prepare to pass on higher costs resulting result from an emissions trading system.
Charmian Barton, who left Cutler, Hughes & Harris a year ago to drive DLA Phillips Fox’s climate change and environment practice in Sydney, said a number of Australian companies are waiting to see how the politics will play out before investing in additional legal services.
The real business would come once the legislation is passed, with many of the initial questions pertaining to compliance and the trading of permits, she said. Eventually, she expects the focus to shift to renewable energy as the laws drive investment in clean technology. Helping clients with intellectual property issues should keep lawyers busy.
“It’s going to impact so many businesses,” according to Barton, whose firm has 10 partners in Sydney working on carbon markets and renewable energy, on top of other specialties. “The reason so many firms are getting into this area is that clients are demanding it.”
At the heart of the government’s proposal is a cap-and-trade system that would impose limits on carbon emissions and require polluters to buy a permit for each tonne of carbon they release into the atmosphere. Businesses that curb their emissions could sell the permits to others. Citing a weak economy, Rudd pushed back the plan to introduce an emissions trading scheme by a year, to mid-2011, but the proposal is still being debated and faced defeat this week in the Senate, where an extra seven votes were needed to pass the laws.
For lawyers, it’s a question of when, not if. While the timetable and the details of a carbon pollution reduction scheme remain unclear, partners at the big law firms said they have no doubt that they must prepare their clients for sweeping legislative changes in some form.
Vishal Ahuja, one of a dozen partners at Mallesons Stephen Jaques concentrating on climate change among their other areas of expertise, said that an emissions trading system in Australia would have the biggest impact since the era of financial deregulation in the 1980s.
“This is a massive legislative change, which translates into real dollars and real change in the way business is done,” he said in a recent phone interview.
The competition to stand out in the field will be fierce. No one had an estimate for how much revenue would be generated by new laws, but everyone agreed the sum would be big.
“There is a huge amount of people trying to own the space, but it’s quite a large space, too,” said Ahuja, who had just walked out of a climate change session at a Gold Coast conference organized by the Australian Competition & Consumer Commission.
He added: “It’s fair to say every firm is investing in this area. It’s obvious why you would.”
Allens Arthur Robinson was forced to move a seminar more than a year ago from its Melbourne office to a conference center at Federation Square when 330 people, far more than expected, showed up seeking answers, the partner Anderson recalled.
Interest in the topic may have waned amid the delays, but would undoubtedly pick up again in the coming months. A wide range of businesses beyond the energy sector, everyone from retailers to banks, would likely be affected in some way as carbon costs flow through the economy and permits are bought and sold, climate change lawyers noted.
“Our work flow is only going to increase,” said Anderson, whose firm formally started a climate change group in 2007 and has 20 partners in Australia and Asia working on the team.
Grant Parker, a partner at the law firm Holding Redlich in Sydney, explained that lawyers across the field are “now looking at all the traditional areas with a sustainability hat on” and an emissions trading scheme in Australia would add a new twist to old issues.
In the property sector, for instance, “a lease is not just a lease any more,” as higher electricity costs over time make working out long-term agreements trickier, said Parker, one of six Holding Redlich partners in Sydney, Melbourne and Brisbane focusing on climate change.
The prospect of stronger demand for climate change services may ease at least some of the stress in the nation’s legal sector. A number of Australian law firms – most recently Mallesons – have taken steps to cut staff in response to the weak economy. Mallesons late last month announced a voluntary redundancy plan.
Law firms are not the only ones poised for an increase in activity.
The major auditing and accounting firms are analysing a host of complicated issues, helping clients figure out how to develop a trading strategy, deal with the tax implications, estimate the impact on earnings and cash flow and measure suppliers’ carbon footprints.
The Australian offices of Ernst & Young, PricewaterhouseCoopers, KPMG and Deloitte have bolstered their carbon teams and published papers and surveys, urging clients to act. In some cases, firms said clients are unprepared or do not fully understand the implications.
KPMG in Australia has boosted its recruiting over the past year, hiring experts who have experience with Europe’s cap-and-trade scheme, and has increased training for existing staff, said Jennifer Westacott, a partner who heads the firm’s climate change team and is a former director general of the NSW planning department. Once uncertainty surrounding a trading scheme is cleared up, KPMG will likely expand its climate change division further, she said.
KPMG announced earlier this year that along with Macquarie Bank it had developed a carbon trading simulation to prepare clients for auctions. The project in part can help companies avoid paying too much for permits and not buying enough of them, KPMG said.
The revenue possibilities for the firms are significant.
“We have very close, long-term relationships with clients impacted by the CPRS, and we feel not just a commercial, but a moral and ethical obligation to work with clients to make sure the risks are minimised and the opportunities are maximised and they create value,” she said.
Determining how many permits a company will need to buy, the price of carbon in the future and how much financial assistance would be available are the key issues, according to Deloitte Australia partner Brad Pollock. Among other questions, companies will ask when it becomes more cost effective to reduce emissions instead of buying carbon permits, he said.
“It’s not all negative consequences,” or costs, for businesses, Pollock noted. “There are a lot of companies that see opportunities and are moving quickly to take advantage.”
The delays in Canberra have given firms and their clients more time to consider the risks and the upside and to get ready for Australia’s move to a low-carbon economy, Pollock said.
“As we get closer and closer to introducing a CPRS, there will be a lot more of a need to understand the financial implications,” he said.
Taberner, who heads the climate change practice in Sydney for Freehills, said the proposed laws “mark the mainstreaming of environmental issues. The potential impact is enormous.”