Why Sydney and Melbourne are big markets for carbon offsets
Willow Aliento | 13 April 2017
Carbon emissions reductions and offsetting are starting to gain serious traction in Sydney and Melbourne, according to consultants in the emissions reductions sector. Queensland, meanwhile, is lagging.
Iain Smale, managing director of Pangolin Associates in Sydney, said it was not just the top end of town participating in the federal government’s National Carbon Offset Standard, but levels of interest from mid-range companies have also “gone through the roof” in the past 6-9 months.
Activity in this area of the business is three to four times higher than it was a year ago.
He said many of the mid-tier firms were seeing a competitive advantage in becoming certified carbon neutral.
“Instead of it being an optional extra, they are [increasingly] seeing it as essential.”
Firms looking to win government tenders, for example, are aware they stand a better chance if they have carbon neutral credentials.
Mr Smale said new clients were coming from “quite diverse” sectors.
“It is generally about an individual in the C-suite level understanding the reality of climate change and its relevance to the business,” he said.
Some are motivated primarily by an environmental perspective, some from a commercial one.
He said many smaller businesses have been “surprised” by the commercial outcomes.
Ross Hill Wines, for example, achieved NCOS Carbon Neutral certification last year and is now finding its products are in demand from top tier law firms and others that want to promote themselves as sustainable, and therefore choose suppliers that have good green credentials.
People want a story behind the credits
Mr Smale said there had also been a shift in how companies were approaching the type of carbon credits they purchase.
“Five to 10 years ago, it would be, ‘Just get a bunch of carbon credits,’” he said.
“Now a lot of the time people want to have a story.”
This means adopting a mix of credits across their portfolio, for example some Tasmanian forest credits, some orang-utan habitat protection, some renewable power and a project helping farmers in Brazil.
“Those companies who have been offsetting for a while, they see the benefits.”
Ethical organisations “coming into the fray” selling credits are also bringing with them “stronger stories”, Mr Smale said.
Mandates creating business
There is also action coming from projects where offsets are mandated by the client, for example the North West Rail, where the state government has mandated 20 per cent of project energy emissions must be offset.
Mr Smale said more companies were also looking to “science-based targets” that align with Paris to guide their carbon reduction efforts. They are moving beyond an “ad-hoc” approach.
The science-based approach means setting the target first, then working out how to get there.
Two popular pathways include looking to reduce value-chain carbon, and moving to 100 per cent renewable power.
Options for the latter include sourcing power from the local area, or where there is sufficient roof space like a business park building, adding solar PV to the roof.
For large energy users, a power purchase agreement with a wind farm or solar farm out in regional NSW is also an opportunity.
“Typically 30 to 40 per cent of the carbon [footprint] of a business is electricity, so they switch to renewable or Green Power,” Mr Smale says.
To reduce value-chain carbon, firms look to the growing number of carbon neutral suppliers that are coming online, including suppliers of carbon-neutral bricks, plasterboard and paper.
Matt Drum, the Melbourne-based managing director of Ndevr Environmental said business has remained “fairly steady” in terms of requests to join the NCOS scheme and achieve carbon neutral compliance.
The scheme is mainly aimed at corporations, products and organisations, he said.
Federal push, but it’s the states driving outcomes
There is currently a push underway from the federal government and its partners in the scheme to increase the profile of NCOS and uptake of the scheme.
The Carbon Market Institute in particular is leading that awareness raising, Mr Drum said.
“But I haven’t seen it yet increasing action on the ground.”
Partially, this is because the national scheme is voluntary.
“What is really driving activity in Australia is the state-based initiatives,” Mr Drum says.
These include the Victorian government’s mandate for statutory authorities and agencies to reduce their emissions.
Big emitters like the water authorities are joining in the government’s Take 2 initiative.
“Victoria is leading the way.”
Mr Drum said his consultancy was also seeing a lot of enquiries from organisations looking to decrease their emissions in line with the Paris two degree target, which requires everyone to get to net zero by 2050.
There is a lot more awareness of science-based targets, he said.
His consultancy is currently tracking nationwide emissions generated by the economy and tracking them against the two degree trajectory. This information is being made publicly available.
The NSW government is also generating some activity for the carbon reduction sector. Mr Drum said a pilot study with the Department of Industry and the NSW Office of Environment and Heritage is helping businesses set a two degree target and look for opportunities to reduce their emissions profile.
The majority of the consultancy’s work is with heavy emitters because that’s where the biggest opportunities to save carbon are.
Solar and batteries are a big ticket item for these companies, as they help to overcome the need for 24/7 electricity availability.
Fuel switching opportunities are another win, particularly with gas prices going through the roof.
In working with industrials, the big savings come with switching from LPG or mains gas to biomass boilers fuelled by wood waste.
“We are seeing real opportunities in this, and savings of tens of thousands of tonnes of CO2 per annum,” Mr Drum says.
“Those big, chunky carbon savings are what organisations need to do.”
Consider a mix of offsets
When clients are looking to purchase offsets, he said they were advised to consider a mix taking into account the type of emissions they are offsetting.
Scope One emissions generated directly by business activity should be balanced with “high value offsets”.
That is because the emitter should be “taking more responsibility” for their direct emissions.
That means looking for offsets that have higher co-benefit value, Mr Drum said, and preferably offsets that involve domestic abatement.
“Stakeholders like to see local abatement,” he said.
The co-benefits they like to see include projects that grow technology and skills, increase biodiversity, protect national parks, or provide jobs and economic benefits to Indigenous communities in Australia.
For Scope 2 emissions from energy use and Scope 3 emissions from the supply chain, Mr Drum said they usually had to be offset within a budget.
So a mix of international offsets – which are generally cheaper than Australian ones – is the main recommendation for these emissions.
Mr Drum said Scope 2 offsets should also be high quality, such as avoided deforestation in Papua New Guinea or Timor Leste – “Gold Standard” offset projects.
Then there’s the renewable projects, such as hydro in India or wind power. These offer the cheapest offsets and are suitable for the Scope 3 emissions that are largely out of the company’s control.
“Scope 3 can actually be a big part of the emissions profile,” Mr Drum said.
All offsets purchased by a company needed to be accepted under the NCOS, he said.
ASX-listed companies taking notice
He said the big ASX-listed companies were starting to “sit up and take notice” of companies that are setting carbon reduction targets, such as Lendlease.
The recent requirement set by APRA for company directors to address, mitigate and disclose climate risk is also having an impact.
Mitigation puts the onus on the big players to decarbonise their activities and supply chains, Mr Drum said.
The bottom line can also be a powerful driver when company earnings are driven by a “good solid strong CSR brand”. Carbon reduction actions in this case will have a “definable impact”.
Banks are also starting to see there is growing investor interest in the carbon exposure of assets they are investing in.
However, there still needs to be the overall policy settings in place.
“At the end of the day the government needs to mandate these things for industry [as a whole] to take action,” Mr Drum said.
“People are doing plenty of good things, but the government is not driving it.”
Policy vacuum affecting Queensland
In Queensland the lack of state government policies is leaving a lot of companies wondering what they should do, according to Conversio director Alex Stathakis.
At the same time, the conversation about carbon emissions has “matured significantly” in the state.
“Companies are interested in doing the right thing.”
The majority of emissions reduction activity is coming from companies that are being driven by policies developed at a Sydney, Melbourne or offshore head office.
Mr Stathakis said there had been a general move away from simply thinking about green power to looking at what can be done within an organisation.
Companies are leaving behind mandatory reporting, and his consultancy is seeing a high level of enquiry into voluntary reporting.
Small and medium enterprises are showing a definite rise in interest, particularly due to rising energy prices.
However, they are questioning whether they should spend money on offsetting emissions or invest money in reducing them through internal carbon abatement measures such as upgrading lighting or HVAC.
This may mean in the case of a company like a legal firm, needing to engage with the building owner or landlord about implementing measures.
Others might look to replacing equipment within their business, or investing in rooftop solar.
“There is no driver from the Queensland government,” Mr Stathakis said.
Brisbane City Council, however, is something of an exception, and this is starting to play a role for businesses within the 1300 square kilometre council area or those looking to do business with council.
Mr Stathakis said one recent council tender wanted to know what the applicant was doing about climate change and emissions management.
“It is becoming more and more of an issue in terms of supply chains,” he said.
For individual businesses, that means needing to have an understanding of where they sit within the supply chain of their immediate and downstream customers.
Mr Stathakis said during his two years administering the NCOS, there were “very robust” conversations with companies about Scope 3 emissions.
The growing awareness of supply chain emissions has to do in part with the maturing of the emissions conversation, he said.
“Five years ago there was a lot of noise about sustainability. But [many] companies didn’t get the right advice about what is fit for purpose or right for the organisation.”
Mr Stathakis said the largest organisations were concerned about science-based targets. For the small and medium enterprises, it was questionable whether the time and effort spent developing their own target was “worth the result”.
“Setting a target is one thing. Being able to achieve it is another,” he said.
SMEs are more strongly focused on the main imperatives – being able to make a profit, survive and pay the staff.
In Queensland, there is also no scheme like Victoria’s VEET or the NSW Energy Savings Scheme to support interest and uptake in energy-efficiency activities that in turn reduce emissions.
For carbon to become a stronger focus in Queensland, he said there was also a need for more long-term policy certainty at the national level.
“At least until the next election, there is not going to be any additional guidance from the federal government on energy efficiency, climate change or carbon.
“So, businesses just need to make the best of it.”