Climate Change Legislation: What Does This Mean For My Business?

Showing commitment to reducing emissions, the Climate Change Bill 2022 passed both Houses on 8 September 2022.

The law now sets an emissions reduction target to achieve a minimum of 43% reductions (from the 2005 level of emissions) by 2030 and to achieve net zero emissions status by 2050. This will have far-reaching impacts on businesses of all sizes, with ESG considerations now required for SMEs through to large enterprises. Practically, this means that most businesses will be affected by this, and at this early stage, it is a great time to learn more about what this may mean for you and your business.

Australia’s net Greenhouse Gas (GHG) emissions across all sectors were 559.1 million tonnes of CO2 equivalent (Mt CO2-e), of which the energy sector alone contributed 390 million tonnes of CO2-e. This means, by 2030, the target is to reduce the total GHG emissions by at least 240 million tonnes of CO2-e and achieve a net zero emissions status as a country by 2050.

Australia’s commitment under the Paris Agreement is to; “Hold the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change”.

While the bill target of 43% reduction seems aggressive, this is compatible with keeping temperature rise below 2°C above pre-industrial levels, but not with the Paris Agreement target of keeping the temperature rise below 1.5°C above pre-industrial levels.

This target has been identified by modelling based on the government’s; Rewiring the Nation ($20 billion initiative to update the electricity grid); Driving the Nation (incentivizing electric vehicles) and updating Safeguard Mechanism initiatives (limits placed on Australia’s largest GHG emitters); ensuring that limits on Australia’s largest GHG emitters are established.

As part of this new legislation, the government is obligated to report annually on its progress towards the goal and the Climate Change Authority has been made responsible for advising on future goals and increasing the transparency and accountability towards this goal.

Along with the energy sector, as part of the Safeguard Mechanism, facilities including coal mines, aluminium smelters, gas production, steel, and manufacturing plants as well as airlines will be considered for the setting of baselines, limits on emissions and/or use of offsets, and introducing tailored treatment for emissions-intensive and trade-exposed businesses.

Since the emissions reduction target of a minimum 43% of the new bill is still not completely compatible with the Paris Agreement (to keep the global temperature rise below 1.5°C above pre-industrial levels), there is likely a gap between the target and the reality of achieving the goal (net zero emissions by 2050).

SMEs can consider ESG (Environmental, Social, Governance) principles to begin to understand the steps they can take to reduce their emissions. It is wise for all businesses to understand the requirements of the Climate Change Bill 2022 and the future impacts this may have on their business.

Whether you are engaged in the plight or not, sooner or later you may find the tide too strong as eventually, by the size of impact, you will be caught in the net. It’s important you are aware of all the contributing factors and consider the discussion about baselining your business, or minimum, consider or assess the opportunities or risks as part of your ongoing management, including:

1. Meeting the needs of consumers demanding carbon neutral products,
2. Working with suppliers who may require you to act on your carbon footprint to help reduce theirs, or;
3. Understanding the potential cost exposure of any mandated reduction in carbon.

For any business wanting or needing to make changes to their management practices, it is important you first seek advice before taking any action. The changes you make may reward you with carbon offsets or abatement, in turn providing you with credits. These credits cannot be achieved after the work has already begun. Registering for a Carbon Project could see great benefit for you, or indeed be necessary for you to continue to sell your products and achieve your own carbon neutral status. It is not just farms that can benefit from a Carbon Project, many businesses may have projects that generate credits under the relevant methodologies.

Noting that the Climate Change Bill 2022 is not completely compatible with the Paris Agreement, it is likely that stricter limits on emissions over the largest emitters of Australia can be expected, as well as possible limits that may also be imposed on sectors that were previously excluded from limits.

Given this is a new legislative environment, you are not expected to understand it without guidance and support. Talk with your advisors to ensure any oversight of legal, tax or reporting requirements do not cost you dearly. While the topic of ESG is broad, there are factors impacting every business today, no matter the size. Our expert advisors can help you understand where to begin and what you can start doing now.

Want to know more about how Bentleys can help you?

Make a time for a chat with us today. We’re here to help you get where you want to be.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.