Posted by Jon Mortensen

Just on a year ago I wrote a blog referring to some research in Australia that Infor undertook in relation to the National Greenhouse and Energy Reporting Act, 2007. As you are no doubt aware we are now three months into the third year of mandatory reporting. The reportable limits have once again been dropped to bring more companies into the net. The new thresholds are now 50kt, or 200TJ, for the corporate entity. The individual facility remains at 25kt/100TJ. What I find fascinating about this process is that as each country brings on this sort of legislation people seem to believe that their country is leading the pack and imposing non-competitive burdens on their business.

Why do I mention this now? Very few people may be aware, but as of the 1st January this year US companies have had to start mandatory reporting of their own emissions, in a similarly designed scheme to ours. As a consequence of this AMR Research has carried out research (Technology Support for Enterprise Sustainability and Greenhouse Gas Emissions Management) along the same lines we reported last July for Australia. The sample size is similar and the breakdown of industries, whilst not the same, are similar. For example in the AMR Research study 64% of respondents are using manual techniques (read Excel). Our own local research last year demonstrated that the number was 68% here.

Of the surveyed companies in the US 34% were unsure whether they would have to report, the number in Australia for our survey was 58%. 22% in the US were certain they didn’t have to report whereas the number in Australia was 17%. The interesting thing, as reflected in the AMR graph to the right, is the drivers for reporting amongst the surveyed companies in the US were probably in place before the EPA made it mandatory. This graph represents those entities which had requested GHG data from them. Only a tad over a quarter was to do with the mandatory reporting, reflective of a broader concern for emissions.

Where my fascination lies though is in what is driving sustainability in companies. The AMR Research provided a broader depth of Response then our local survey did. In the Australian research 14% of respondents saw reducing GHG was an additional expense whilst 18% saw it as a way to reduce costs. Compare this to the drivers in the graph to the left that shows that 53% of US companies see participation in sustainability as one of the top three drivers for reducing costs. I will say though that there was a similarity of response to the number of companies that see it as a way of gaining competitive advantage with 12% as the top driver in the US compared to 14.6% in Australia.

One of my pet hates about Australian business is its focus on cost rather than “return on investment”. Having said that I think a lot of the fault probably lies with the way vendors sell here – I have the perception that our natural cynicism often prevents us from taking these forced opportunities and capitalising on them. Again, I turn to the AMR Research in the US (the Australian research results seem to have been predicated on cost) as to where savings are to be made. If you need help working out an ROI story get in touch with us and we’ll help you through the process.

If you are interested in the research I have referred to from AMR, Gartner has released a research paper based it. The research is titled Sustainable Manufacturing During and After Economic Recovery: Increased, Diversified and More Strategic Corporate Actions and has a Publication Date of 10th June 2010, with a research ID Number of G00200950.

Posted by Jon Mortensen

As part of my role at Infor I am very fortunate to visit many different sorts of organisations. Often when you read our literature you can be forgiven if you think that we are a manufacturing focused organisation. A thought mind you, that couldn’t be further from the truth. Over the last six weeks I have actually been visiting a lot of service oriented businesses. These have ranged from services outsourcers to Universities. Did you know for example that two Universities consumed enough energy in 2008-09 that they not only reported emissions under NGER but were positioned mid-field?

Under the previous federal government an education campaign was put to air that focused on how turning off standby appliances and putting less water in the kettle to boil would dramatically reduce our carbon footprint. At the same time in NSW there was a huge push to move to energy efficient light globes, now a federal legislative requirement. These techniques do in fact reduce consumption. In 2008 I presented at an education seminar and quoted from a now defunct government website that Australian houses on average produce 14 tonnes of Greenhouse Gas a year and that 5% of that was on lighting, I then showed an example of an inefficient 100HP engine and demonstrated that making it become efficient was the equivalent of 50 average houses switching to efficient light bulbs. I've relinked it here if you're interested - slide 7 through 13.

I digress. The problem seems to be that it has sunk into our sub-conscience that this is how we’re going to reduce our carbon footprint. We feel good about it, it is at front of mind, and more importantly has visibility. So, let us move to the University. Huge savings are to be made from focusing each student on reducing their consumption by more efficient use of the laptop or desktop computer. Again, it is sexy, and gets buy in from the students. But! There is always a but! There are non-sexy, routine and dull things that can take place on campus. Let us look at where some of the big consumption goes.

This graph is from one of the many University campuses I have visited in the last six weeks. The data is real and not theoretical. The reason I have chosen this particular graph is that in summer air-conditioning is used to cool lecture theatres and offices in summer and gas is used to heat in winter (a typical approach for Victoria). It is therefore easy to extract the amount of electricity being used for the air-conditioning and the amount of gas been used for heating. The figures are astronomical!

The air-conditioning alone is actually consuming over a megawatt hour per month in summer! On the other hand the heating is consuming an average of 10,000 GJs a month in winter. At each of the campuses that I visited the relationship between the maintenance and the sustainability team was a competitive one for funds. There did not seem to be an appreciation that managing these large assets could reduce power consumption, reduce the carbon footprint or reduce the energy bill significantly. Look at the statistics in the presentation I referred to above and also take a moment to view Bruce Richardson’s conversation with Amanda Navarolli, sustainability manager for Bentley University in the USA.

Posted by Jon Mortensen

First up, a mea culpa. In my last post I mentioned that last year over 600 corporations had registered for reporting under NGER. I have to admit that I was misled by the way the listing was posted on the Department’s website. The day after I posted that blog the listing changed and those companies that actually had reported were listed together with their Scope 1, Scope 2 and Energy Consumption information. This, when you think about it, provides much more useful information. It provides both the obvious and the interesting.

Scope 1 emissions, as you are aware, are emissions that you generate yourself either through industrial processes or through energy creation. Scope 2 emissions are defined as those where the energy consumed is purchased, which, if you think about it, are somebody else’s Scope 1 emissions.

The numbers that have been provided are an eye opener on why Scope 1 and Scope 2 have been separated out. In the first graph (to the left) we can see that 50% of Scope 1 emissions reported have been from power generation companies, which represents nearly 28% of Australia’s total emissions for the 2009-10 financial year. Now, obviously, power generation companies don’t just create energy for the hell of it. They create it because there is a demand for it.

The graph to the right shows who is using all this energy. At first glance you would be forgiven for thinking   that just two companies are responsible for a quarter of all consumption. And if you did, you’d be wrong. Total Scope 2 consumption from all reporting entities represents only about 16% of Australia’s 2009-10 emissions, so the figure for the two top consumers drops down to somewhere between 3% & 4% of Australia’s emission profile. Thus we come to the final conclusion: that there is no single entity we can blame our emissions on (if we leave aside the debate about whether generation systems should use renewable sources which is a long term solution rather than a short term one).

All of this means that in the short term the biggest savings will accrue through efficiency measures of all companies - because 75% of Scope 2 emissions generated by the top 10 Scope 1 generators haven't been accounted for, meaning that the majority of consumption is from small to medium enterprises (the smallest amount reported amongst the 223 largest emitters was 8 millionths of our emissions). The CPRS, should it ever get through the senate and become law, recognises this by pushing the carbon permit to the generator level and therefore pushing the cost of carbon into the electricity price. This of course means, as you’ve read here many times, that reductions will come from efficiencies from the average enterprise i.e. electricity prices will become so high that they will move from being an overhead in the P&L and become part of the O&M budget.

Finally, I have somebody to back me up. This particular article in the Age and the Sydney Morning Herald drew my attention to this report by the Energy Efficiency Council. In fact the last two paragraphs of this blog are a quote from page 41 – it could have been written by me (it wasn’t). Really, if this rings any bells with you, give your Infor rep a call. Particularly as large swathes of Table 12: Typical; approaches adopted by Corporations can be managed through Infor’s Enterprise Asset Management Asset Sustainability Edition – right out of the box!

"Particular electrical systems that were often suboptimal included motor, pumping and fan systems. Many corporations identified opportunities to adjust system configurations to demand, by correctly sizing motors, installing variable speed drives or automating control.

Similar approaches identified energy savings for pumping and fan systems, noting that the efficiency of fan and pumping systems varies depending on the efficiency of fluid flows in the upstream and downstream piping or ducting. Centennial Coal, for example, reconfigured the water pumping system at Clarence Colliery to reduce pump head, thus reducing the pump power requirements from 200 kw to 75 kw."

Posted by Jon Mortensen

Recently, in line with Section 16 of the National Greenhouse and Energy Reporting Act 2007, the Department of Climate Change has provided a listing of those controlling corporations which had registered to report their emissions for the 2008-09 reporting year. There are some 680 that were required to report in the first year. I would hazard a guess that there will be some 2,000 required to report for the current year.

What really amazes me is that all these reporting entities are still required to enter data into OSCAR manually. This is a massive task when you consider the sheer number of entites these companies control. The department put out a discussion paper early last year about allowing automated uploads of data and what format these should be. We have seen nothing of the outcomes of these submissions published on their website.

What is really interesting is that the Federal Government has a target of all corporations providing all their financial reports using XBRL (eXtensible Business Reporting Language) by July 1, 2010. Indeed the CPA in their submission to the Government’s Green Paper on the CPRS made the recommendation back in 2008 that all NGER related data be collected via XBRL.

For those people who are unaware of what XBRL is I will provide a description – you should however be aware that back in 2006 the Australian Government believed its introduction would save Australian Business $800 million dollars in 2010. More information on the Australian Government and XBRL can be found on the Government’s Standard Business Reporting (SBR) Site.

Last year Infor introduced through its Performance Management suite the capability of providing XBRL based reporting to those 22 jurisdictions that support the standard. The capability is therefore available to support the Infor Carbon Accounting Framework. Unfortunately, this has not yet been implemented because the Department of Climate Change has not yet released its strategy for allowing direct uploading of reports to OSCAR. Indeed, we can only hope that they will release their strategy soon. At this speed we won’t get a taxonomy (collection of reportable terms and their association with accounting and related concepts) in time for the current reporting year - or the next one either.

The definition I promised. XBRL (eXtensible Business Reporting Language) is an optimisation of the eXtensible Markup Language (XML) to represent business and financial data. Using a taxonomy it tags financial (and other data) to enable transfer of data between computer systems. For example, an early SBR analysis revealed that nine different names were used to describe the ABN in reports across participating agencies.

Staggeringly, SBR claims to have reduced the number of unique data elements required across more than 50 government reports from 9,648 to 2,838, a reduction of 70 per cent in the pieces of information businesses have to track, analyse and report on. This is being achieved by harmonising or standardising the names or terms describing reporting terms.

But none of this seems to have made it down to the department of climate change yet.

Posted by Jon Mortensen

Last week turned out to be a very interesting one for those interested in the price of electricity moving forward. The first big whammy, so to speak, was the release by the NSW Independent Pricing and Regulatory Tribunal of approved price rises for the next three years for electricity prices.

The second was the total kerfuffle surrounding Copenhagen and its outcome as an accord rather than the expected treaty. Both of these events dovetail into what we at Infor have been banging on about for over a year now – that the world is inexorably moving to put a price on carbon and that any company not trying to reduce their emissions is going to be paying for it at the meter.

Let us look first at the price issue. The Independent Pricing and Regulatory Tribunal have released a pricing schedule that will provide an increase in electricity prices of 58% over three years for Energy Australia business customers. In the graph to the left I have taken a baseline figure for the year of 2002 to represent $100 worth of electricity. For each subsequent year through to September 2009 I have taken the Australian Bureau of Statistics CPI increase for Electricity Prices for Sydney. These are represented in blue. I have then projected forward to September 2012 the IPART determination (represented in red). Considering that the first four years of the graph hardly budge, you would have to have your head in the sand not to be worried about electricity as a cost factor in your business.

Now, if we take the CPRS cost out of that we still end up with a significant increase. As the graph to the right shows the cost of the CPRS on the electricity price in 2013 – based on the federal governments carbon price estimates will be 15% of the cost of electricity.  The CPRS places a cost on carbon which is based on the market demand for carbon. It is in fact a cap and trade scheme. I have noticed that as world leaders in Copenhagen failed to reach any agreement on targets that the Opposition has positioned an ETS as a “great big tax” that will force Australian businesses to relocate overseas. This is referred to as carbon leakage.
 
Based on this thought I dragged through a bunch of statistics published by Point Carbon. This graphic represents leakage of business from Europe. Europe as you may be aware have been running an ETS for many years now. It is most interesting to note that the least leakage seems to have occurred in the power industry – which is where Australia produces over half its carbon. Laterally thinking this means it is the one industry that won’t be able to avoid the costs of an ETS and will have no option to pass on the costs – as proven by the IPART decision noted above.

Really, if you can’t get your asset energy consumption costs under control, you will be seeing a huge increase in costs. A huge increase if there is no ETS and even larger one if there isn’t. Don’t you think it might be time to talk to your Infor account rep on reducing these costs?

Oh, and by the way, have a fantastic Christmas and a great New Year, and I'll see you back here after Australia Day.

Posted by Jon Mortensen

What is the one thing that drives those in business nuts? It is regulatory uncertainty. So, for the time being Australia is not going to join the over 30 countries operating an Emissions Trading Scheme. I was looking at the Regional Greenhouse Gas Initiative (RGGI) which is implementing the first mandatory cap-and-trade program in the United States to reduce greenhouse gas emissions (participating states are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont). Why? Theirs would make more sense in the Australian environment than the US one.

The RGGI mechanism follows the same principles as the now defunct Australian scheme. A cap is set on the allowable emissions. Permits are auctioned and then traded. The scheme that commenced on January 1 this year is aimed at achieving CO₂ reduction of 10% by 2018.

• It only applies to electricity generators
• It contains no compensation
• All money raised is ploughed back into research and development of non-carbon electricity production

The trick with the scheme is to reduce the amount of allowable carbon very slowly. The advantage of slowly is that the longer you have the slower you can go and the lesser the impact on industry. Why is this sensible for Australia? Over 50% of our emissions are from energy production.
Here are some numbers:

• 1979 - The year Jimmy Carter warned the world we needed to do something about emissions and global warming.
• 60% - The increase in global emissions since 1979
• 0.6 - The measured increase in average global temperature since 1979
• 38% - The increase of CO₂ in the atmosphere since the industrial revolution 

 It is my suspicion that there will be some price on carbon and there are two ways of dealing with it. The first is to prepare ways of reducing consumption (usually achieved by increasing price) or in placing it within a market mechanism enabling better choice of source by the consumer. Both increase energy prices which means those of us in business will need to reduce consumption or change energy mix – both expensive so there is massive savings in dollar terms in managing our assets more effectively.

And a warning!!! Rudd’s ETS is not driving the reporting requirements, these are still in place. That’s the Howard Government’s National Reporting and Emissions Reporting Act, 2007, set up as a precursor to the Coalition’s ETS. Remember this year the boundary has dropped 30% to 350TJ and/or 87.5kt CO_2-e.