Goalposts shifting on climate change

The Diplomat magazine | July 2007

It only took a Saturday afternoon of footy in Melbourne for Colin le Duc, the London-based head of research at Generation Investment Management, the firm that counts Al Gore and former Goldman Sachs chief executive David Blood among its founders, to realise just how far the goalposts had in shifted Australia on the issue of climate change.

As le Duc told the National Business Leaders Forum on Sustainable Development in Brisbane a few days later, prior to watching the Essendon Bombers play the Brisbane Lions in Melbourne he and fellow Generation director Mark Mills had been invited to lunch with the directors of the Essendon Football Club. The keynote speaker was Adrian Williams, chief executive of Geodynamics, the company developing hot-rock technology to produce electricity from the heat deep below ground. “An audience of Aussie Rules directors and this guy was talking about geothermal energy and climate change,” le Duc recalls. “It led to those Essendon supporters discussing climate change for about an hour.”

The Australian Football League’s goalposts shifted dramatically last September when, in a world-first for a sporting code, it declared its intention to make league games and the operations of its Melbourne headquarters carbon-neutral. The decision to join the market for voluntary carbon offsets pre-empted by three months John Howard’s appointment of his taskforce to report on establishing a mandatory emissions trading system. Since then most of the league’s clubs have signed on. If AFL Green goes according to game plan, the league will be carbon neutral three years before the federal trading scheme kicks off in 2012.

“Football clubs see themselves as part of the community, playing a big part in many people’s lives” explains Rupert Posner of the Climate Group, which helped coax Collingwood and other clubs to embrace AFL Green. “Taking action now on climate change, an issue that concerns the entire community, is an extension of that.”

In doing so the AFL is far from being in a league of its own. From individuals to some the largest corporate players in the land, there is a small but significant market for voluntary greenhouse gas emission reductions. As well as managing AFL Green, Origin Energy provides carbon reduction solutions to the likes of National Australia Bank, Transurban, Lend Lease and Insurance Australia Group. Origin, the nation’s biggest retailer of accredited renewable energy, of course hopes such initiatives will encourage broad-based voluntary carbon reduction by Australian businesses, but there is evidence the hopes are not too fanciful. Says le Duc: “So-called gourmet carbon or voluntary carbon markets are going to be very significant.”

“It’s a really fascinating part of the market,” agrees Andrew Grant, managing director of CO2, an accredited carbon-credit firm that is one of the two Australian operations to have joined the Chicago Climate Exchange, the hub of voluntary carbon emissions trading in the US (the other is AGL). “In Europe the voluntary market has grown tremendously in parallel to the mandatory scheme. I think it’s really quite a profound insight into what are the drivers for companies taking action. It’s more than just regulatory compliance.

“I get it every day. I ask new clients why? You don’t have to do this, why do you want a voluntary offset? There can be a whole suite of reasons: they just want to because they can invest a certain percentage of their profits into activities that they value; they want it for brand; they want it for customer or supplier relationships; they want it to motivate their employees.

“There is a broader mood and sentiment in the community that people want to take the initiative and respond to this challenge, and one of the ways they can do it is through their business. In Europe that’s been the case. While the EU scheme is broad in its regulatory net, it’s not all emitters nor all organisations. So there are a huge number of companies and organisation that have no regulatory requirement but are still motivated to act, and that then becomes a huge part of the voluntary market.

Lifestyle-based offsets for jet travel, cars and households, and for small to medium enterprises, are examples Grant cites as composing growth markets beyond the province of a regulatory scheme. Joining the CCX was a matter of having a chair at the table. “It might be a minor opportunity or it might be a major opportunity,” he says. “If the price of carbon doubled or tripled, which it can do in these markets, we’d shift all our sales agreements there. The market circumstances at this stage aren’t attractive but if the dynamic changed we’d respond to it accordingly.”

Tony Wood, Origin’s general manager of public and government, says voluntary carbon markets have two key drivers. The first is the demand for voluntary offsets, motivated partly because employees or other stakeholders expect it, partly because it is seen as good corporate social responsibility, and partly (“and absolutely”) for reputational reasons.

“Take the AFL, for example,” Wood says. “There’s clearly a positioning issue. At the other end there’s someone like Intrepid Travel which basically see this sort approach as very consistent with their own brand: it organises travel programs for individuals who are interested in eco-tourism.” Origin itself, which sells an otherwise highly undifferentiated product like electricity, has marketed itself by pushing its Green Power products, gaining both the biggest share of the renewable energy market as well as “a significant reputational benefit with spin-off effects elsewhere”.

The second driver is that voluntary trading provides a chance to prepare for the main game. “If you’re seriously wanting to participate in a carbon-constrained world in the future, then starting to change your business model sooner rather than later makes an awful lot of sense,” Wood advises. “Getting experience in trading markets and valuing various forms of supply and demand for carbon seems to be a sensible thing to do.

Both of those reasons dovetailed in Origin’s reason for investment in its own carbon reduction scheme: on the on hand, interest in getting experience in the carbon market as maybe a precursor to mandatory carbon markets. On the other hand, the wants of larger customers. “They were interested in things that might not currently qualify under existing schemes so we came up with some alternatives. What creates a voluntary market? At the end of the day, supply and demand.”

Wood says while he thinks mandatory carbon markets will eventually overwhelm voluntary markets, “that eventuality will take quite some time to evolve. It makes sense to be involved in voluntary markets so you are at the very least prepared for mandatory markets”.

It’s a bit like learning to kick a footy. “Are you better off getting the experience yourself and learning from it, or are better off watching someone make their mistakes and learning from them? I suspect you can mount an argument either way,” Wood says. “Just watching someone else do it is never a match for doing it yourself.

“We’re already behind the eight ball because the EU has been doing this for the best part of two years already. It’s not as though we’re going to be breaking absolutely new ground. But we could be positioning to become a regional centre for emissions trading by getting out there, being ahead of the pack and having done it first … Is it absolutely guaranteed? Of course not, but at least by being part of that global market and getting an Australian system up and running, there is the potential.”

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