CO2 Group, one of only two listed carbon offset companies on the Australian Stock Exchange, last week reported record revenue and record earnings for the first six months of its financial year.
The poor sentiment surrounding the future of the carbon price in Australia is having an impact on its share price, but CEO Andrew Grant says it should have little impact on the outlook for its business. A repeal of the carbon price may even have an upside.
Grant talked to RenewEconomy last week about the company’s latest results, the outlook, and the politics of carbon. Here is an edited transcript.
Renew Economy: What’s the outlook for CO2 Group, because going by your share price fluctuations, you are right in the firing line of government policy?
Andrew Grant: We’ve profited for eight years without there being a national carbon trading scheme, and (our interim results) show another six months of us operating without a carbon trading scheme, and we’ve got record revenue, record earnings, record cash and record strength in our balance sheet. So, there’s your outlook.
Do I like the policy debate around the national emissions scheme? No. Do I understand it? No. I look out there and I see eight telephone books of legislation, and I see… the muck that is portrayed as an equal or alternative …but I don’t know what it means. But given that we have operated without a scheme I am not phased by (that prospect) and we are possibly better off at a company level. So we will plan for either scenario.
RE: Why better off?
AG: You can’t import under the direct action plan. And there are not that many proven technologies (for abatement) that have got scale in Australia like us.
RE: So you’d be better off with Direct Action?
AG: Conceivably. Though it is probably more expensive than a combination of domestic action and import. Most of the work that we have contracted has been around project approvals and other state-based drivers, a whole range of companies have obligations under different acts, and if they prevail the options available to them are far and few between
RE: Surely a carbon market is going to provide more growth opportunities for you?
AG: Theoretically, yes. But in practice, corporate Australia is sitting on its hands waiting to see what happens next, and there is an incredible amount of short termism. Contrast that with renewable energy: you know what the target is; you can get agreements to underwrite investments. Imagine trying to get a renewable energy project up if it was a just two-year market. We are diversified with income from different streams – and they are paying dividends. We have gone to New Zealand, we are looking at opportunities elsewhere and we will not sit idle.
RE: Do you think an international market is still on the cards for Australia, linked with the likes of New Zealand, South Korea, and California?
AG: I’d love to see it. But what forms it takes is anyone’s guess. New Zealand wants to link to Australia, Australia wants to link to Korea, and to Europe. We would have better export opportunities, we could import and export, and use our skills. But it’s difficult to know what will transpire. Australia has the most polarised debate of any country in the world. We go one step forward and two steps back.
RE: Why is that?
AG: It has become a leverage thing, to get point of difference. It’s a victim of the politics of the day. Abbott uses it as a pincer beautifully. The public thinks the economy will shut down on July 1.
RE: Will it?
AG: No. When you have got 99 per cent free permits, your cost per tonne of carbon emitter is about a dollar.
RE: Your share price goes up and down as though it is driven by policy announcements.
AG: Absolutely. On revenue and profit line, we have grown every year. But our share price seems to trade on sentiment at macro level
RE: That must be frustrating.
AG: Warren Buffett once said that the market is initially a voting machine and ultimately a weighing machine. Hopefully we will get out of voting stage and more into weighing stage
RE: When will that happen?
AG: If I knew that, I would be a wise person.
RE: What are your big opportunities in the next year or two?
AG: We are in a great position because we have long-term contracts, best brand in the market, deep expertise, excellent balance sheet strength. We have never lost a client, we have diversified, and that is paying off. We are continuing to grow. It’s a matter of not relying on one activity.
New Zealand is going well, there are significant growth opportunities there, there are opportunities in south-east Asia, and we have got a good balance sheet for acquisition, and we are looking for opportunities offshore; our trading division is growing, our advisory business is growing. We will be able to monetise the assets on our balance sheet.
RE: And your carbon trading division?
AG: We are really happy with it. It’s got a nice synergy with the other work we do. It’s a nice value-add in the relationship.
RE: Does that not rely on a carbon market?
AG: Most of it comes through RECS, VEECs and other environmental market credits.