The Impact of the Carbon Price on the Meetings Industry

On 10 July 2011, the Government provided full details of its carbon price package.  It is expected that the carbon price will flow through the economy and have either a direct or indirect impact on all businesses.  The Meetings Industry will not be an exception.  There is a lot of uncertainty about what the exact impact from the carbon price may be.  Here we speculate how the carbon price is likely to affect the Meetings Industry.

Article written by Jason Croston.  

Background

This market mechanism is designed to reduce pollution in the economy. Although it is proposed 60% of pollution will covered by the Carbon Price, this will not include agricultural sectors or light on-road vehicles. It is forecast Australia will cut 159 million tonnes of carbon pollution from our atmosphere annually by 2020.

The package key points are:

• pricing carbon at $23 per tonne of CO2 emissions in 2012-13 which will result in a one-off rise in the CPI of around 0.7% according the Government modelling
• promoting innovation and investment in renewable energy
• improving energy efficiency
• creating opportunities in the land sector to cut pollution
• reducing electricity emissions to 60 % below current levels by 2050
• CO2-e reduction targets of at least 5 % below 2000-e levels by 2020 and 80 % below by 2050
• no international linking during the fixed carbon price period and only quality restrictions from 2015-16
• electricity expected to increase by up to 10%
• gas expected to increase by 9%
• expected to have an average impact of $9.90 per week on households
• average household compensation expected to be $10.10 per week.

Impact on the Meetings Industry

With the draft legislation for the carbon price package only just being released, it is difficult to definitively speculate the impact on the meetings industry.  On the face of it, Treasury modelling has indicated that there is expected to be a price impact of 0.7% across the economy as a whole.  However, this depends on a range of assumptions around how the businesses directly impacted by the carbon price will react.  Is there enough incentive in the carbon price package for these top polluters to invest in carbon abatement solutions or will they simply pass the carbon price on with the knowledge that most end consumers are being compensated in any case?

Businesses which organise meetings or conferences are generally small to medium businesses which will not be directly impacted by the carbon price.  However, as with all other businesses, they will be in the supply chain of the large polluters and as such will be indirectly impacted by the carbon price to the extent that the large polluters pass the extra impost on.

What Will Be Impacted?

The million dollar question is whether the carbon price impact on the meetings industry will be any different to the 0.7% that has been predicted by the Government.  To understand this, it is important to understand the key components of expenditure in a typical event.  There are direct and indirect items of expenditure which impact on conferences and meetings.  Direct expenses are those paid for by the conference organiser and passed on with a profit margin through registration fees.  Indirect expenses are those paid for by the attendees of the event.  Typically these would include:

Similarly, another critical factor in the profitability of an event is the ability of the organisers to attract suitable sponsors to help subsidise some of the costs. 

In understanding the impact, it is important to assess both the direct and indirect costs.  The key driver for the success of an event is the number of attendees and many attendees are likely to base their purchase decision on the sum of these costs.

Of these direct and indirect expenditure items, we are aware that international flights will not be impacted by the carbon price.  However, international travellers that have a domestic flight leg included in their itinerary will have some level of impact.

Can We Estimate the Cost Flow Impact?

It is still early days to understand how the carbon price will flow through the economy with the draft legislation only just being released, but with less than 12 months until the carbon price is implemented, we can expect the top polluters to release information progressively about how they will react.  Already we have seen various commentators releasing information about their estimate of the impact of the carbon price on their businesses.  Those in the meetings industry space include:

• Qantas: the average price of a domestic flight will rise by $3.50.
• Virgin Australia:the average price of a domestic flight will rise by $3.00.
• Bond University Professor Adjunct Damien Lockie has said that accommodation room rates will rise as a result of increases in electricity.
• The NSW Taxi Council has indicated that the carbon price will add 50 cents to a 7 kilometre journey.

It is also interesting to note the level of utilities in the cost structure of some of the key components is according to IBISWorld’s industry reports:

Hotels and Resorts:

Exhibition and Conference Centres:

Domestic Airlines in Australia:

It is difficult to conclude much from this other than the cost of utilities in the costs structures of these industries is between 2% and 5%.  Based on the carbon price package, we would expect utilities to be one the most highly impacted items in the cost structures.  However, the indirect impact on other costs is difficult to determine.

While there is some good information available, it is difficult to come to a specific conclusion on the impact of the carbon price on the meetings industry based on this before the top polluters release information on how they will reflect the carbon price in their future business models.

What Does Science Say?

Assessing the impact of the carbon price scientifically involves calculating the carbon intensity per dollar factors based on the typical carbon footprint of an event.  According to carbon management specialists, Pangolin Associates, a typical breakdown of the emissions for an event based on their experience in assessing the greenhouse emissions for events is:

Based on this and using the Balancing Act Report, Michael du Plessis from Greenice a specialist carbon accounting and research business in conjunction with Chris Wilson of Pangolin Associates, indicates that the carbon intensity by industry sector is:

This means that the carbon intensity of each conference registration is 1.0715 kilograms of emissions per dollar of expenditure related to the delivery of the services.  This is expected to be at the higher end because the intensities cover all supply chain impacts and not all commodities will be included in the proposed carbon price.

Note that Balancing Act is a CSIRO technical report by Barney Foran (ex CSIRO Sustainable Ecosystems), Manfred Lenzen and Christopher Dey (Sydney University). The report was released in 2005.  Balancing Act looks across 135 industry sectors of the Australian economy and quantifies the impacts and contributions across ten social, environmental, and financial indicators.

The actual tonnes of emissions for a particular event will depend on the margin.  Assuming a conference registration fee of $1,000, then the following scenarios could apply:

Tips for Action

The Carbon Price is inevitable now. It is time to prepare and turn potential risks into opportunities.  Without specific information from the top polluters about how much of the carbon price they will pass on to their customers, it is difficult to assess exactly what the impact will be at this stage.  Based on science, the estimated impact on the direct expenses for meetings may be between $14 and $22 based on a $1,000 registration fee and depending on the margin included in the registration.  Indirect costs borne by conference delegates are also likely to increase.

The key question is whether potential conference delegates are willing to pay the increased costs through higher prices or not.  Do potential attendees look at the value of the conference or the price in making a decision?  For some a small extra impost will not be noticeable if they value the content of the event.  For others that are more price sensitive, they may decide to not attend.  Instead they may start turning to other ways of receiving a message including webinars although this undervalues the networking and interaction aspect of a conference.

Another potential impact could be that conference attendees may baulk at attending “green” conferences where the organisers have decided to measure their greenhouse gas emissions for the event and then offset them.  Attendees may see that they are already paying for a carbon price so why pay a premium to voluntarily offset emissions.  This same mindset could apply to the voluntary offsets which are currently offered by Qantas and Virgin Australia.  However, others may be quite willing to pay a premium where they see someone is taking positive action on climate change.

There are definitely risks ahead with the introduction of the carbon price, but those conference organisers that plan ahead early will be in the best position to turn these risks into opportunities.  The planning process should cover these areas:

1. Understand how your customers will be affected
2. Understand how your suppliers will be affected
3. Look for opportunities to save costs
4. Be prepared to adjust your pricing as the costs flow through
5. Look out for opportunities to take advantage of Government support
6. Review long term contracts to see whether the Carbon Price can be passed on