Climate change risk with QRMCFollowing the repeal of the price on carbon for Australian businesses, some might have been tempted to consider the business risks from climate change issues to have been reduced.

However, with uncertainty in the energy market, increasing pressure from trading partners to act on climate change, and growing recognition of the likely impacts of falling fossil fuel commodity prices and stranded assets, there are certainly many more business risks to consider and be prepared for.

Prices for energy seem unlikely to become more affordable, despite the removal of the carbon price and promises from the Government of positive flow on effects. Renewable energy technologies are becoming more efficient and more affordable, however the sector is under threat from Government-driven policy uncertainty. LPG was touted as the saviour of a low cost energy market, however the increasing unpopularity of coal seam gas exploitation and the export plans of the industry are likely to result in LPG prices rising rather than falling.

Meanwhile, Australia’s current inconsistency with world trends in this area gives rise to risks resulting from potentially sudden changes in policy. There is pressure on the Government to do better in its policy settings for action to mitigate climate change: both internally, from advisory bodies such as the Climate Change Authority, from industry groups such as the Energy Supply Association of Australia, and from progressive political parties and activists; and externally, from Australia’s major trading partners. China, USA and the European Union have all announced much more aggressive cuts to carbon emissions than Australia. The EU has had a price on carbon in place since 2005, China is on the verge of introducing national carbon pricing (planned for 2016), and even conservative politicians in the USA are beginning to seriously discuss the use of this market-based mechanism. Australia’s out-of-step policy settings has an impact on business confidence and investment decisions.

Underlying all of this is the increasingly poor outlook for fossil fuel commodities and mining projects, and the concepts of stranded assets and divestment. As outlined in a recent episode of ABC’s investigative program Four CornersThe End of Coal?”, claims for the recovery in coal prices made by backers of planned mining projects in Australia are not supported by the evidence. With Australia’s economic policy settings strongly founded on a rosy view of fossil fuel commodity prices and investments in mining projects, very few eggs are being placed in other baskets. Organisations such as the Rockefeller Foundation are getting out of fossil fuel investments as fast as they can as an unjustifiable financial risk, while in Australia, State and Federal Governments continue to strongly back these investments. The outlook for all Australian businesses will be negatively impacted if the economy is stalled by predicted underperformance in the mining sector.

For businesses needing to come to grips with the potential threats resulting from all of this, risk management principles apply. To avoid potential negative impacts, preparedness is key. Actions can include:

  • Identify the financial and non-financial climate change-related risks that could impact your business objectives, such as input pricing increases, supply chain reliability, resilience to economic downturns, and exposure of key customers to the same risks (potentially impacting on their viability too).
  • In addition to implementing controls for the risks identified above, streamline operations to minimise exposure to the effects of regulatory changes in the space, such as the reintroduction of carbon pricing.
  • Give consideration to how your organisation is performing in comparison to your competitors as regards climate change adaption and risk management, and how this can provide a marketing advantage.
  • Revise internal policies and processes to ensure that climate change risks are considered in strategic decision-making.

Please contact QRMC for more information.