Environmental Project risk – 2015, no option to do nothing

There is a rise of project risk if you ignore sustainable practices. Banks are introducing the need to consider that you be aware of that responsibility. 2015 is shaping itself as the review year of regulatory response and licenses to assign risk. It follows that we are on track to the need to focus on compliance action verses the risk of no action being greater. The evidence is you are endangered as a species or at best targeted by Australian jurisdictions if you ignore what your facility or business might do to reduce the risk. For instance environmental licensing regimes are being reworked so that compliance activity can be aligned with actual facility risks. These checked activities take into account the operator history and what is a nearby sensitive environment.

You may not be aware of AELERT – their website says:“We are a collective of environmental regulators from all levels of government across Australia and New Zealand.  We create a platform for environmental regulators to connect and collaborate in their work.

Member officers connect through AELERT to exchange resources, knowledge and experience about environmental regulatory practice and work together to drive continuous improvement and new approaches to the ‘regulatory craft’.”

What is growing from this collaboration is NSW will launch its risk-based licensing scheme on July 1, 2015, and Victoria’s three-year roll-out of its Licensed Operator Risk Assessment scheme will be completed in 2015, while Queensland is also well into a process of risk-profiling the sites it regulates.

The other issue is that compliance to regulatory needs has another element in 2015: It is called ‘social licence’ and is likely to be the dominant phase of 2015. Our opening paragraph referred to banks, and this form of license, and we quote:

“And it’s no good having the official go-ahead to build a coal port or mine if activists have made sure that no financial institution will back it (see related article).

Many environmental groups have become so dismayed at what they perceive to be a large-scale wind-back of environmental legislation that they no longer consider official processes capable of delivering a fair result. Their concerns have been magnified by the de-funding of public interest environmental lawyers (see related article), new restrictions in Queensland on rights to appeal decisions or even be notified about projects (see related article), and Tasmania’s new law cracking down on rights to protest (see related article).

For many groups, that means strategic community campaigning – ranging from blockades to shareholder activism – is now often seen as the best option.”

To Co2land org these license events are the equivalent to the actions of the political pendulum and as history displays no matter what the swing the middle is where it will travel.

The pendulum for carbon pricing was set in 2014 with the repeal of the Carbon Tax, and the reliance on the Emission Reduction Fund to take the battle over the policies of what Australia should use to reduce emissions. To again to use out quoted source:

“But 2015 will mostly be about how deeply the nation should cut them. In Australia, one legacy of the 2014 struggle over carbon policy is that we will have two major reviews of suitable targets – one led by Prime Minister and Cabinet (see related article) and another by the Climate Change Authority (see related article).

Both will be important. Although the PMC review will represent Australia’s official position, other governments are likely to judge the Government harshly if its proposals fall far short of what the Climate Change Authority suggests. Meanwhile, businesses themselves will come under increasing pressure to set corporate emissions reduction targets that are based on climate science.

There is now an international campaign – with high-profile backers including CDP, the World Resources Institute and WWF – urging companies to do so.”

Our current Government has introduced an emission reduction scheme – albeit with a $0 baseline and it is called Direct Action Plan. The Senate referred to the Environment and Communications References Committee for inquiry and report on the matter on 10 December 2013. All good to go now and you expect no problems!

Then SAI GLOBAL, 2 February 2015 reports in the Carbon + Environment Daily that in the climate change arena, “nervousness about the capacity of Direct Action to deliver emission cuts and about the Federal Government’s commitment to renewable energy will lead to growing pressure for states to pick up the perceived slack.

The actions of the NSW, ACT and South Australian governments show they already consider they have a major role to play in helping their citizens deal with climate change, and the newly-elected Andrews Labor Government in Victoria has indicated it shares this view.

As well, both NSW and Victoria are reviewing coastal legislation in 2015, a task that will inevitably have a strong focus on climate change adaptation.”

Co2land org is taken back to the Howard years of government and recalls the shift from Greenhouse Gas Abatement Actions to Climate Change Adaptation strategies. So if this all sounds back to the future it really only means the makeup of our current government is recycling its policies as business as usual. A rebadge of funding here and there of course. If you think this is cynical it is not meant to be it is a concern that we are seeing the continuing rise of risk and that even the most strident of climate change deniers are acknowledging risk is risk, and exposure to risk requires assessment to minimize the fallout. That is a fact it is not a political position and it is common to survival.

An excellent example of taking risk seriously is Cotton Australia where in their periodical Cotton Matters, 28 January 2015 they write:

“The Australian cotton industry supports programs to reduce emissions through improving efficiencies and a first assessment indicates the draft method is technically sound. However, Cotton Australia considers that at this stage it could be challenging to garner involvement due to a potentially inadequate benefit:cost. Implementing a project involves administrative obligations and costs (e.g. for independent audits) as well as the need to manage financial risk.

Nevertheless, businesses in the carbon market are working to develop smarter services and products to help manage complexity, risk and reduce project costs. A sufficient price for carbon would help overcome these.

For these reasons, the researchers, economists and technical specialists at CottonInfo eagerly await the results of the first Emissions Reduction Fund reverse auction the coming months of this year to firm up the likely carbon price and revenue potential for future projects.”

From this Co2Land org finds the price of carbon will prevail, and the mid point of the pendulum will not be $0. There will be ‘degrees’ of difference that will set the price and price has the capacity to reduce greenhouse gas emissions adequately and effectively.

One risk for the Emissions Reduction Fund (ERF) is as the federal government’s centrepiece for emissions reduction, and it relying on being used to purchase lowest cost abatement, and participation in the ERF is voluntary and open to everyone is that it may be window dressing.  The key is the reference of being ‘open to everyone’. The issue is that interested parties must establish a project, which must follow the rules outlined in a ‘method’. What is not well know is that a minimum block of emissions reduction from the method exists and set by an arbitrary decision process. In short individuals may not particulate without complexity. Complexity by virtue of the need to be fully aware, upfront behaviour of how the detail and requirements in undertaking a project: the risks, costs as well as the benefits are presented. That said the other aspect is the market is immature and finding who to trust as having your interests as a ’license’ is a risk.

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The White – ERF paper

Have you read the Energy Reduction Fund White Paper released 24 April 2014? No, but I heard Hockey say the Clean Energy Regulator is gone – was the reply. Then another said: Isn’t Hunt the Minister. We replied yeah, but it was an interview for the news and you know what that means. But seriously, what does it mean?

The answer may have come from a company that markets itself as emphasising Climate Change Matters. No, not left wing, not opportunist. Just pragmatic of what is best for you to plan for what is ahead and how to best cope with it. So what can you do to cope? How do you position to be safe?

It is not really that simple. But at least it gives you a chance to prepare. So what is the greater risk? The hubris (excessive ambition, self-confidence) of the government, other parties not supporting the government position for the Direct Action Plan and appearing to support the repeal of the carbon pricing mechanism. Add to that those other parties that will not support either plan and you could say now and into the next senate period the legislation to support the Direct Action Plan will not pass the senate vote.

So the risk is prolonged regulatory uncertainty. But, prudent behaviour and textbook risk management says you must assess risk by anticipating that risk has associated alternatives.

What alternative? The bluster of government says the Energy Reduction Fund will be implemented and the related reverse auction process will commence 1 July 2014. Or, the Clean Energy Act – and the regulator stay put. Or, nothing happens – we blunder on and questions remain in terms of price liabilities. And, of course for business that is not good not good for spruiking ‘open for business’.

What methods would you use to profile your risk? I hear some say a scenario-based approach. But, is it really safe to say the stories lines are plausible because the causal relationships can be demonstrated? In these cases when scenario planning is integrated with a systems thinking approach to scenario development, it is sometimes referred to as dynamic. That is the point here the nature of dynamic is difficult to assess as certainty. Maybe good ‘old fashioned’ (Howard era) sensitivity analysis might be a better way to manage your risk profile. Nonetheless it would be remiss to say you can avoid the need to develop your position and become involved.

Assuming the Emissions Reduction Fund is on track as described in the White Paper: The reverse auction, with $300 million to spend, will begin on 1 July 2014. There are a set number of eligible type projects to participate. Methodologies can include a method to enable facilities reporting under NGERS to bid in the auction.

Baselines have a threshold, but what is different is the inclusion of ‘meaningful’. This differs from ‘generic’ and you need to have an understanding of the likelihood of what happens when or if you exceed the baselines. For example in July 2014 you are in one threshold and after 1 July 2015 above the line.

What is your safeguard position – it is up to you to get involved.

We will give you time to read the paper. But shortly, we might talk more on the bidding process.   If we decide to get involved!

 

Rock and Hardplace – RET and DAP predictions

Let us now predict: Soon after the RET review the fossil fuel generators will celebrate with a short-term price relief. It is a two edged sword, as they will discover the relief may be temporary. Partly because large-scale renewables facilities are likely to continue to experience cost reductions, and the Federal government’s Direct Action Plan may further dampen electricity demand – not a good outlook for coal fired generation known for its baseload dependability to be profitable.

It is scheduled for the Australian government’s Direct Action Plan (DAP) to release its white paper -Emissions Reduction Fund, this month April 2014. Also scheduled for mid-2014, the Government’s Renewable Energy Target (RET) Review expert panel will report to the Prime Minister. We might even guesstimate that the PM will find DAP will be unlikely to be a benefit or too expensive for the resources sector, and simply drop it. It could be easier than you think, why because it is not yet funded!

Apart from funding, the Governments’ own wording suggests the final design of the government’s Direct Action Plan will be critical for coal generators, and their survival, with potential for emissions baselines and penalties to curb potential growth prospects. Add to this that individual states do more and encourage energy efficiency, and other large-scale efforts to improve energy efficiency via the Emissions Reduction Fund will be a terrible place for coal fired generators to be if the predicted demand for electricity continues to decline. This will put significant pressure on profit margins of these generators.

CO2Land org feels the PM is in a rock and hard place, by his own doing. Come July he will have no choice but to continue with the threat to repeal the Carbon Price Mechanism (which he refers to as the Carbon Tax) – Which results in a short term gain for coal fired generation. Even if RET is reduced or halved, the long term trend for coal output is still dependent on the price effectiveness of that form of supply – it might even need a ‘subsidy’ to continue supply.

That said, if energy security is the stated reason for a subsidy, it is likely the penetration of renewable energy will continue because it will continue to be subject to falling prices to its advantage, and those prices are dropping because of efficiencies in the way it can deliver. Let us not forget – business too will be more efficient, and in order to survive will factor in the need to reduce energy demands, or at least be more efficient in the use of energy.

Lastly, if the PM were thinking of killing off the Direct Action Plan (DAP) it would be unwise. It is the only mechanism the government has to show they care, or are earth aware. Even South Africa has come to recognize a price on carbon + Renewable Energy + Energy Efficiency + Land use change = business success. We don’t want to appear dumb do we!