Carbon footprints issues and opportunities FPRF Issues & Opportunities Seminar Dr Stewart McGlashan Senior Consultant Johns Environmental stewart@johnsenv.com.au Johns Environmental 2009
Carbon footprints - Summary C-footprint is not a trivial exercise C-footprints differ to Emission Trading Corp. sustainability will drive the issue Strategic & creative footprint reduction Stakeholder communication is critical Johns Environmental 2009 Slide 2
Carbon Footprints What are they? Life cycle assessment process Sub-set of Ecological Footprints System-wide view of emissions profile Definition (UK Carbon Trust) the total set of greenhouse gas (GHG) emissions caused directly and indirectly by an individual, organization, event or product Johns Environmental 2009 Slide 3
Current applications Carbon Footprints Manage footprint & reduce over time Benchmark current operations/business Scope 1 & 2 focus Internal focus Some external/marketing implications 3 rd party (Customer & Government) reporting External demand for emissions profile Sustainable business practices Scope 1, 2 & (sometimes) 3 focus Significant stakeholder implications E.g. WalMart Johns Environmental 2009 Slide 4
Examples of Scope 1, 2 & 3 Johns Environmental 2009 Slide 5
Carbon Footprints Motivation Manage the footprint & reduce emissions Understand & quantify emissions Relatively quick and straightforward Emissions reductions program Accurate 3 rd party reporting For CSR or marketing purposes To fulfil requests from business or retail customers, or from investors To ascertain what level of emissions they need to offset in order to become carbon neutral. US EPA Mandatory Reporting of GHGs Non-tariff, technical barrier to trade Johns Environmental 2009 Slide 6
Case Study: Food Miles Food miles is refers to the distance food is transported from the time of its production until it reaches the consumer Background Implications Outcome UK origin (1990s) One dimensional assessment of environmental impact of food. Significant issue for trading nations (Australia & NZ) Does not account for production efficiency Up to 80% of emissions produced prior to farm gate Encouraged potential carbon inefficiencies Non-tariff technical barriers to trade Johns Environmental 2009 Slide 7
Carbon Footprints & Sustainable Business Walmart and Global Sustainability Advocating for one set of social and environmental standards, and one thirdparty auditing system, to be used by all global retailers and brands. Strengthening compliance requirements, supplier standards and developing a more comprehensive audit and supplier development program. Partnering with suppliers on reducing their environmental impact and on improving efficiency and product quality. Johns Environmental 2009 Slide 8
Queensland Government Department of Environment and Resource Management Business Sustainability Roadmap. Johns Accessed Environmental from http://www.epa.qld.gov.au/register/p00771aa.pdf 2009 on 24/09/2009 Slide 9
Managing Carbon Footprints Basic approach Direct emissions & electricity Onsite fuel usage Onsite electricity usage Use of own transport Government standard reporting Emissions Trading Schemes approach AB 32 Scope 1 & 2 emissions only Internal carbon efficiency and offsets Johns Environmental 2009 Slide 10
Carbon Footprints calculation Basic approach Direct emissions & electricity Onsite fuel usage Onsite electricity usage Use of own transport Emissions Trading Schemes approach State kg CO2-e/kWh New South Wales and Australian Capital Territory 0.89 Victoria 1.22 Queensland 0.91 South Australia 0.84 Western Australia 0.87 Tasmania 0.12 National Greenhouse and Energy Reporting (Measurement) Technical Guidelines v1.1 Table 7.2 pp307 v1.1 2008 Johns Environmental 2009 Slide 11
AB 32 - Global Warming Solutions Act of 2006 many businesses in California will need to make investment decisions with regard to expansion, modernization, relocation, etc. This creates a great deal of regulatory uncertainty for these businesses because the requirements are not yet known. That uncertainty could lead to delays in projects that create jobs, increase economic activity and in some cases reduce greenhouse gas emissions. http://www.ab32ig.com/documents/certifiedearlyaction.pdf California signed Kyoto Protocol 2020 emissions reduced to 1990 levels Scoping Plan (options) May have Cap and Trade scheme Johns Environmental 2009 Slide 12
Full Carbon Footprints LCA Methodology Emissions Trading Schemes use this approach Full carbon footprint (Life-cycle assessment) 1. Define the methodology 2. Specify the boundary and scope of coverage 3. Collect emissions data and calculate the footprint 4. Verify results (optional) 5. Disclose the footprint (optional). Johns Environmental 2009 Slide 13
Full Carbon Footprints - methodology First of two critical elements GHG Protocol www.ghgprotocol.org ISO 14064 (Parts 1-3) 1. design, develop, manage and report GHG inventories. 2. GHG projects specifically designed to reduce GHG emissions or increase GHG removals 3. describes the actual validation or verification process Johns Environmental 2009 Slide 14
Full Carbon Footprints boundary & scope Second of two critical elements UNFCCC UNFCC.it Framework Convention on Climate Change Underpins technical guidelines 1. Scope 1-3 emissions 2. Collect emissions data and calculate the footprint 3. Verify results (optional) 4. Disclose the footprint (optional). Johns Environmental 2009 Slide 15
Current applications Emissions trading Example schemes Waxman-Markey (Cap & trade) EU ETS Australian CPRS Implications for renderers Scope 1 & 2 focus Energy intensive industry Financial penalty Little chance to pass on costs Major stakeholder/customer consequences Source non-taxed products Johns Environmental 2009 Slide 16
The Cap and Trade Scheme Govt. sets limit on permitted emissions (cap) Govt. allocates rights (allowances) to emit below expected emissions levels Allowances are given for free or auctioned Emitter can then Cut production Invest in clean technology Domestic or international Buy allowance to cover the short fall Johns Environmental 2009 Slide 17
Waxman-Markey EU ETS AU CPRS Emissions targets 3% below 2005 levels by 2012. 20% below 2005 levels by 2020. 83% below 2005 levels by 2050. 21% below 2005 levels by 2020 in absence of global agreement. 30% below 2000 levels by 2020 in event of global agreement. 80% below 2000 levels by 2050. 108% of 2000 levels by 2012. 5% below 2000 levels by 2020 in absence of global agreement. 15% below 2000 levels by 2020 in event of global agreement. 60% below 2000 levels by 2050. Coverage 86% of US emission 52% of EU emissions 75% of Australian emissions Price controls Minimum auction price of No price cap. US$10, rising at 5% plus CPI each year. No price cap. Price cap of A$40 for first 5 years, rising at twice CPI. Johns Environmental 2009 Slide 18
Business implications of Carbon Footprints Carbon is not an environmental issue a market issue Regulations will alter the price of carbon New rules will affect energy pricing Strategy 1. Know your carbon exposure 2. Take action to reduce your carbon footprint & assess business opportunities 3. Influence the Policy-Development Process Johns Environmental 2009 Slide 19
Know your carbon exposure Analyse carbon emission profile through the value chain Anticipate company s vulnerability to regulation Knowing how your business model will be impacts Identify source, types & magnitude Assess vulnerability of business lines to constraints on those emissions Know whether you will be a buyer or seller in carbon markets Compare your vulnerability to your industry peers What gets measured gets managed Tools and techniques Data management systems Look at financial risk/exposure Johns Environmental 2009 Slide 20
Reduce Carbon Footprint & Seek Opportunity Assess reporting obligations Are you required to report? Capital Expenditure & Depreciation issues Product life Business case Future value of carbon Involve leadership Employee buy-in Opportunities Biogas generation Biofuels Capture within corporate boundaries Johns Environmental 2009 Slide 21
Influence the Policy Development Process Seek to influence the debate of the rules of scheme Gain a seat at the policy development table Need to have taken credible action if you are not at the table you are on the menu (source unknown) Five issues to resolve: 1. What to count 2. Credit for early action 3. Allowance allocation in a cap & trade system 4. Cost-control mechanism 5. Whom to regulate There will be Government funding programs Johns Environmental 2009 Slide 22
Finally Full C-footprint is not a trivial exercise C-footprints differ to Emission Trading Corp. sustainability will drive the issue Look at financial risk/exposure Strategic & creative footprint reduction Stakeholder communication is critical Johns Environmental 2009 Slide 23
Contact details Stewart McGlashan Ph.D., GAICD Senior Consultant Johns Environmental Pty Ltd P.O. Box 534 Aspley QLD 4034 M: 0450 901 213 P: 07 3863 0051 F: 07 3863 0057 E: stewart@johnsenv.com.au Johns Environmental 2009 Slide 24
Case study Australian CPRS impact on renderers Assumptions 1 No transport fuel estimations Typical data supplied by ARA Production (tonnes raw material) Medium 250 tonnes per day 90000 tpa Large Wastewater Treatment Yes (NGERS method 1) Gas (GJ/tonne water removed) Electricity (kwhr/tonne water removed) Yield (tonnes/tonne raw material) 4.5 100 0.45 500 tpd 180000 tpa Johns Environmental 2009 Slide 25
Case study Assumptions 2 Carbon Permit Price $10 (2011-12) Low Base High $10 Carbon permit price (AEU)# $15 $25 $35 $10 Scope 1 pass through (Coal, Natural gas, LPG etc) Scope 2 pass through (Electricity price increase)* 80% 100% 120% 100 15% 20% 25% 15% # CPRS White Paper page (xxxi) * Department of Treasury, Australia s Low Pollution Future, The Economics of Climate Change Mitigation, 2008, Table 6.15 Johns Environmental 2009 Slide 26
Case study - Energy and Emissions results (Units per annum) Medium Large Raw Material (tonnes per day) (tonnes per annum) 250 90000 500 180000 Product (tonnes per annum) 40500 81000 Wastewater (tonne CO2-e) 7175 14351 Gas (TJ) Gas (tonne CO2-e) Electricity (kwhr) Electricity (tonne CO2-e) 225 11543 4,950,000 4505 450 23085 9,900,000 9009 Johns Environmental 2009 Slide 27
Case study result Medium (250 tonnes per day) NGERS -> YES (Energy = 240TJ) CPRS -> No direct liability (Scope 1 = 18,700 tco2e) Cost Impacts Low Base High $10 Direct Scope 1 (WW) $0 $0 $0 $0 Indirect Scope 1 (Gas) $138k $289k $485k $115k Scope 2 (Electricity) $37k $50k $62k $37k Scope 3 - - - - Total CPRS cost impacts $176k $338k $547k $152k Total per tonne RM $1.95 $3.76 $6.07 $1.70 Total per tonne Product $4.34 $8.35 $13.50 $3.77 Johns Environmental 2009 Slide 28
Case study result Large (500 tonnes per day) NGERS -> YES (Energy = 480TJ + 46,400 tco2-e) CPRS -> Yes (Scope 1 = 37,400 tco2e) Cost impacts Low Base High $10 Direct Scope 1 (WW) $215k $358k $502k $144k Indirect Scope 1 (Gas) $277k $577k $969k $231k Scope 2 (Electricity) $74k $99k $124 $74k Scope 3 - - - - Total CPRS cost impacts $567k $1,035k $1,596k $449k Total per tonne RM $3.15 $5.75 $8.86 $2.49 Total per tonne Product $6.99 $12.78 $19.70 $5.54 Johns Environmental 2009 Slide 29
Minimising exposure/risk Purchase carbon permits (AEUs) Efficiency Change fuel source Abate Gas flare e.g. Cover pond then: 1. Flare 2.Use onsite 3.Transmit offsite Johns Environmental 2009 Slide 30
Australian Emission Units 600 million tco2-e generated annually (Garnaut) $12 Billion p.a. @ $20/tCO2-e Large plant = 37,400 tco2-e Thus Purchase of permits will be at a premium Key issue avoid the liability Johns Environmental 2009 Slide 31