Policy uncertainty continues to hamper carbon emissions management

Uncertainty surrounding regulatory requirements is the main hindrance to carbon-intensive companies taking long-term action on managing emissions, my research finds.

I interviewed 32 managers directly involved in carbon emissions management from 18 of Australia’s largest companies. The interviews were conducted over two periods, in 2013 (before repeal of the carbon tax) and in early 2016 after the repeal of the carbon tax.

Even though almost all companies sampled for the research believe the carbon tax was an effective mechanism in driving climate change actions, political uncertainty surrounding climate change policies was seen as a significant restraint on strategy.

Australia has been particularly prone to uncertainty surrounding climate change policies. For example, in 2012, a fixed price carbon tax was implemented with plans to proceed subsequently to an emissions trading scheme by 2015. This was expected to put a price on Australia’s carbon pollution.

However, in July 2014, the Coalition government repealed the carbon tax and replaced it with the “Direct Action Plan”, which remains the centrepiece of Australia’s current greenhouse gas reduction efforts.

The managers I interviewed said there were concerns over the uncertainty of emissions policies before and after the carbon tax was repealed. One manager commented:

“One of the main challenges for us, from a carbon emission management perspective, is the absence of long term government policies that appropriately prices carbon or values carbon in the national context.”

Not only was there concern about long term emissions policies, managers were also concerned about uncertainty surrounding the Direct Action policy, which they saw as still evolving.

While regulatory requirements on emissions were the main factor driving significant management action in companies, this same factor hindered companies taking long-term action on climate change issues. For example, the financial pressure exerted through the carbon tax forced companies to take actions to manage their emissions. One manager said:

“The carbon tax works. Nothing would have changed. We’d be using 25% more energy today if it wasn’t for the carbon tax because nothing would have been done.”

Managers also claimed uncertainty hindered them from investing in long-term projects on renewable energy. This was because they claimed it was difficult to factor in the costs of mitigating emissions to their business activities. A manager commented:

“I don’t believe anyone’s factoring in carbon tax type costs in terms of looking at the cost of doing business. I think it’s too uncertain - what might happen is just so unknown that it’s pretty difficult to know what to factor in.”

Managers felt it was difficult to create long term business strategies around decarbonisation if they didn’t have appropriate regulations or pricing. What managers specifically wanted from the Australian government was long-term policies to be able to plan for the future.

They wanted these policies to be, in the words of one manager: “equitable, fair and drive lowest cost carbon reduction and doesn’t penalise Australian business ahead of our international competitors.”

What matters, one manager explained, is not the mechanism (for example, the carbon tax or direct action plan) but rather the detailed design of the scheme so that it covers whole sectors, gives attention to trade exposed industries and is administratively streamlined within the current energy and climate change policy framework.

The Australian government has recently ratified the Paris Agreement. With enormous pressure from the international community, this ratification will put significant pressure on the Australian government to bring effective emissions management policies. These could drive urgent and significant emissions reduction management actions by Australian companies.

The longer Australia stays without an effective emissions management policy, the more meeting international targets will be impractical. As I found from the interviews, the momentum for urgent action on emissions management is declining and certain companies are reluctant to proceed with long-term investment in emissions management because of uncertainty around climate change policies.

It’s time for those in parliament to leave party politics behind and find enough common ground to design a climate change policy which is economically efficient and environmentally effective.