THE government's decision to delay the carbon pollution reduction scheme (CPRS) to 2012-13 creates a climate of business uncertainty and a risk of complacency among Australian businesses.
Not withstanding that policy uncertainty, this is the time for business to take charge. If business doesn't take a leadership position and prepare itself for the transformation that is taking place in the world economy, we run many risks. These include falling behind on technology and innovation, lack of business preparedness, and failing to create new products and markets. Ultimately, we risk losing our competitive advantage. Not just now, or in five years, but forever.
Lets get the facts on the table.
Business has largely underestimated the Copenhagen Accord; after all, it did not represent a binding legal agreement. But the fact remains it is still a significant policy. Many fail to realise that it resulted in a powerful agreement by the world's leaders, including developing and developed nations, that there must be a global, long-term response to climate change. This includes $100 billion of funding for investment in low-carbon economic growth in the developing nations to assist them in their transition. Understanding and preparing for the different scenarios that may arise from the accord and subsequent policies are business imperatives. Businesses that fail to understand this will be left behind.
Another key outcome from Copenhagen was a global agreement to limit temperature rise to less than 2 degrees. This target was chosen to limit the most serious effects of climate change on water security, the food supply and agricultural output. However, 2 degrees is not business as usual and to meet this target requires transformational changes to the world economy.
In addition to the Copenhagen Accord there will be other pressures to transform how we do business. We are experiencing worldwide population growth and resource constraints. Australia's population is projected to reach 35.9 million people by 2050 and it will require a radical rethink of the way we manage water, energy and our natural resources. Given these facts, there is a strong case for business to invest in energy and resource efficiency, now.
Let's look at what's happening with three of Australia's nearest trade partners and competitors: China, Indonesia and Japan.
China plans to reduce the intensity of its emissions by up to 45 per cent. That requires a fundamental structural change for its economy - for example a transition from coal-fired generation to gas. Alarm bells should be ringing. Imagine the investment and innovation needed to transform an economy of its size by that scale.
Indonesia, one of Australia's biggest competitors in the resource export market, intends to reduce 26 per cent of emissions on a business as usual basis.
Japan's plan to achieve an absolute reduction of 25 per cent of emissions will also bring widespread industrial change to its economy and likely investment in industrial process technology. Opportunity bells should be ringing.
As world governments, and indeed our own, work to refine policy, it is clear that the business community needs to begin work to maximise opportunities, including the development of financial instruments and carbon mitigation. KPMG believes that a low-carbon and energy-efficient economy is inevitable.
So what should business do?
First, understand the context of your industry. Then understand the government regulations in the regions you operate in or may operate in. Understand how the price of carbon dioxide will affect you directly and indirectly through the supply chain. Gather intelligence on what your competition is doing and how you compare. Finally, understand the strategic and tactical risks that affect your industry.
The simple fact is that most Australian businesses weren't ready for an emissions trading scheme. Let us not spend the next three years going over old ground and whether or not to have a climate change policy. This time should be spent preparing Australian business for the new and emerging competitive environment it will face. Let's get back to basics and make this work.
We have two choices. Either we have an unplanned, ad hoc response to climate change regulation and global trends; or we can take control of our business preparedness in order to maintain Australia's competitive advantage. Our regional neighbours, and indeed the world, are getting ready, so too should we.
Jennifer Westacott is a KPMG partner in charge of sustainability, climate change and water.
