Welcome to the May issue of INSIGHT
	Interview with Geoff Masters, Pacific Environment Limited (PEL)
	Impact of the CPRS Rob Cawthorne - Carbon Reduction Institute

I would like to make a special mention to the wonderful participants from Leadership09 in Fiji. Having just completed our 6th annual conference with a true international Fijian flavour, it’s fair to say that with a rating 8.93 out of 10 across the 3 days Leadership09 was an outstanding success! The 3 themed days of ‘positioning your firm’, ‘breaking the mould’ and ‘growth towards 2015’ assisted each firm to gain clarity to their business model, strategy and unique selling proposition (USP). On day 1 we led the thinking of ‘what’s the next big thing?’ for our industry, where the top 3 turned out to be:

1. Outsourcing
2. Value Adding
3. Carbon Accounting

Our focus this month is again on Carbon Accounting, with only 3 weeks remaining until our first Carbon Accounting Conferences to be held in Melbourne (25 May) and Sydney (27 May). We are very pleased to have an exclusive interview with Geoff Masters, CEO of Pacific Environment Limited (PEL) – a group of companies that identify and create real workable and sustainable solutions to climate change, air quality and related environmental problems. In addition to this, we are very excited to announce that Geoff will be one of our keynote speakers at our Carbon Accounting Conferences later this month. Also in this issue, an article written by Rob Cawthorne from the Carbon Reduction Institute around the “Impacts of the CPRS” on businesses, upcoming GPL events including our Manager Development Workshops in June and On the Bus Workshops scheduled for July.

As announced Monday, the Rudd Government has now delayed the Emissions Trading Scheme (ETS) for 12 months from the original proposed rollout of July 2010 – now July 2011. According to Prime Minister Kevin Rudd, the global economic crisis made the delay a necessity. Rudd also indicated that he is prepared to increase targets from 15 to 25 per cent by 2020 if the rest of the world agrees to take action later this year. Carbon will be priced at $10 per tonne and fixed for the first year. Although this recent chain of events will ultimately delay the inevitable, GPL Network still firmly believes that early education is the key, with early adopters reaping the benefits and opportunities associated with the scheme. It is also important to remember that the NGER Act is still in force and will be increasing the obligations that businesses have to measure, monitor and report on their greenhouse gas emissions. That will have an impact on businesses that have footprints over a certain size, publically listed companies and their supply chains. Increasingly more SME businesses around the country are being asked to report on their emissions to comply with supply agreements they have with key clients. Accountants are perfectly placed to assist SME clients with these increasing reporting and audit obligations.

Interestingly, we had 90% of the Leadership09 participants in Fiji unaware of the Carbon Accounting growth opportunity that awaits, with now 85% having it as a key strategy for the new financial year. It’s my belief that Carbon Accounting will be bigger than GST, and positioning your firm to provide this value add service to your clients for the new financial year and the on going auditing work could be your unique selling proposition. With that in mind, I would like to offer every firm reading this issue of INSIGHT a FREE subscription to GPL’s EMission newsletter, which will be specifically designed with news worthy articles specific to our industry, your firm, and for your clients. GPL’s EMission will be distributed monthly via email from July. To take advantage of this offer, simply click on the EMission icon on the right to register or visit www.gplnetwork.com.

Enjoy the read!

Paul Jansz
Managing Director

1. Geoff, can you please give everyone a background on yourself and what attracted you to join PEL?

PEL actually came to me as a potential investment through my accountant Andrew Stanning of Northstar. My background is in Technology and I was looking for ways to apply Technology with the dramatic increase in awareness of the Environment and saw PEL as a way to converge the two.

2. What is your position at PEL and what does this entail?

I hold the role of CEO and Managing Director. Ultimately I’m responsible for implementing and tuning the Boards Business and Strategy Plan. Tactically I need to make sure we have the very best people in and around the business and that they are getting the resources and support they need to succeed.

3. Can you please give everyone a brief run down on what PEL specialises in and the different companies under the PEL banner?

PEL works with its clients to understand and manage their environmental risk through consulting and technology. This takes us from doing Environmental Impact Studies through complaint assessment and energy audits and efficiency programs. We have acquired 6 businesses since inception in 2007 that cover areas such as air quality, energy management, Toxicology and emissions monitoring.

4. What type and calibre of companies does PEL work with?

Today PEL works with a diverse set of clients across industries such as Energy, Water, Mining, and Property Developers. Our companies also work with State and Federal Governments developing policy and review programs.

5. What major projects are you currently working on and what are PEL’s plans for the next 3 years?

We are very fortunate that the vast majority of our business is driven by the regulatory and compliancy needs of customers. Customers such as BHP, NSW and QLD Road and Traffic Authorities, RIO Tinto, Blue Scope, Caltex regardless of the economic climate still need to fulfil their licence requirements to operate. We are a growth company and while we expect to see organic growth in our existing businesses we will continue to pursue growth through acquisitions. In just one year we have doubled our revenue so I expect to see continued rapid growth. It’s an incredibly exciting time for our company.

6. How is corporate accountability affecting your clients and what level of reporting requirements are involved?

I believe that the increase in reporting is likened to the shift in responsibilities implemented around GST so it will become pervasive.

7. Although PEL are working at the larger end of town, what risks and opportunities do you see the new carbon economy presenting for SMEs?

Over time it will be hard not to have SME’s affected. In the very least if you are involved in supply of products and services to large enterprises then they will want you to be able to account for the footprint of that product or service because it rolls up into their final finished products and services. Companies such as Woolworths are already briefing their suppliers on the reporting they will be required and contracted to deliver.

8. What do you believe all businesses need to be doing now to prepare for the introduction of the CPRS?

The very least you want to do is to understand your footprint and ways in which you might be able to reduce it in the next 6, 12 and 24 months so you can manage rather than being on the back foot.

9. Do you believe accountants are well placed to assist SMEs in this space and why?

Absolutely. These regulatory initiatives in my mind are just another form of tax or obligation and ultimately this will impact the cost of a client doing business. Being able to work with clients to understand how this impacts a client’s assets and liabilities, risk and cost base is absolutely key.

10. What is your take on corporate social responsibility?

At the end of the day if these initiatives reduce the pollutants we all throw at the environment every day then that’s a fantastic outcome. It’s finally starting to realise the true cost and consequence of doing business on our planet.

There is a common misconception that the Carbon Pollution Reduction Scheme (CPRS) is only going to affect the large emitters; this could not be further form the truth. Those organisations that are below the CPRS threshold but are large users of energy, or energy intensive products and services will see significant increases in the cost of operating their business.

The CPRS will work by requiring companies that release 25 thousand tonnes of greenhouse gases at one site to retire a permit for every tonne of greenhouse gas they release.  This is the equivalent of burning 10 million litre’s of petrol. The aim of the scheme is to encourage organisations to search for technologies and organisational changes that will reduce greenhouse gases where these changes can be enacted a lower cost than purchasing a permit.

Companies who don’t have to comply with the scheme will be subject to downward price pressures from the large emitters, who will ultimately pass on the cost of the carbon permits in the products and services they supply. As these permits costs are passed down through the supply chain, gross margins will be applied and permit costs could be several folds the cost of a permit at the final point of consumption.

All companies should prepare themselves for the introduction of the emissions trading scheme whether they are a large emitter or not. Concern is growing about passed down permit costs that may render existing contracts that are no longer viable. This is particularly noticeable in industries like the construction and transport industries.

Any organisations that take early action will be able to mitigate the impacts of the CPRS through efficiency gains, reduced risk and better price understanding. Those who do not prepare early run the risk of having unviable contracts and uncompetitive prices. Consider a loaf of bread produced using Australian wheat, and grown using fertilizer which was produced in Australia. Even though agriculture is not to be included until 2015, there will still be notable price increases on agricultural outputs through the increase in energy prices and diesel. Prices will increase from the energy input into the production of the fertilizer, further energy into the transportation and storage of the grain and finally more energy for baking the loaf itself. As all of these energy inputs increase so will the price of that loaf of bread.

Businesses in Australia no matter what size need to prepare themselves for the introduction of the CPRS. Start by understanding your carbon footprint, including yoursupply chain impacts, this will provide you with understanding of supply chain price increases once the scheme starts. The second step is to develop a marginal cost of abatement curve.  This is done through identifying the greenhouse emissions savings and cost of implementation for a range of technology implementations that apply to your business.  These reduction measures can then be ranked in order of ‘best emission reduction per dollar’ which will show you the cost of reducing each tonne of greenhouse gas in your business, known as a marginal cost of abatement curve.  Once you have this you will be able to make educated decisions about what measuresto implement as the price of energy or materials increases due to the introduction of the emissions trading scheme.

The emissions trading scheme will affect all businesses in Australia in different ways.  Some businesses will be shocked by the unexpected extra costs it will introduce in their supply chain and operating costs but businesses that are prepared will have a significant advantage and will be ableto succeed well into the low carbon future.

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