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Carbon pollution reduction scheme Are you ready?
It is important in challenging times like this to remember to maintain a long term view, and avoid ad-hoc reactions. It doesn't matter whether the recession will last 1 year or 5 years, the consequences of climate change will be unstoppable. It doesn't matter if consumer confidence is down, sustainable practices are still expected to be followed through. And it doesn't matter if the Government is delaying their roll-out of the Carbon Emission Reduction Scheme, it will be rolled out eventually, and businesses that are not prepared for this will pay the price.
For many hotel owners and operators in the market, the first impact of the Carbon Pollution Reduction Scheme will be felt when they are forced to audit their performance in deciding whether they need to report their Greenhouse Gas Emission this October or not. The thresholds for reporting are detailed in the diagram below.
Greenhouse and Energy Reporting Threshold
**: According to Village Green, 500TJ of energy a year equals to an annual electricity bill of about $5 million.
Source: National Greenhouse and Energy Reporting Guidelines - Department of Climate Change, STI, Bonville Environment Foundation, Village Green
Of note is the diversity in many business portfolios in which hotels make up only a portion of the portfolio. This means that while a hotel chain may never exceed the reporting threshold, having one property of the chain belonging to a bigger portfolio can force that property to do their reporting anyway.
The NGER outlines clearly the determining factors for corporate groups and facilities to assess their level of responsibility in reporting. With regards to hotels and their owners, the reporting responsibility falls on the entity with operating control. However, regardless of where the reporting responsibility falls, hotels will still most likely have to do their energy consumption audit, because they are on the ground with the operating data. Being compulsory, these reporting responsibilities make sustainable practices in hotels a part of the bottom line performance indicators. The fact that the reporting threshold goes down significantly in the next two years forces business to ensure they have a long term approach to reducing their greenhouse gas emission instead of opting for "easy fixes" to stay under the threshold for this financial year.
The second potential impact of the Carbon Pollution Reduction Scheme is the flow-on effect of higher costs through the whole supply chain. Higher utility prices are uncontrollable by the hotels. Assuming a 4-star hotel with 120 rooms pays about $160,000 per annum for electricity, $12,000 for fuel and gas, together with $40,000 for water; under the Carbon Pollution Reduction scheme, this energy bill is expected to jump to $185,600 for electricity, $13,080 for gas, and $43,000 for water***. This is a conservatively estimated extra of almost $30,000 in utility bills.
The third impact of the climate change movement is the market expectation of corporate groups to comply with genuine and well-researched sustainable practices. Guests to a hotel may not see the recycled material used in building the hotel shell, but they will notice the energy and water control in the room. Shareholders of the owner of that hotel, on the other hand, will be keen to know the savings in using these re-cycled materials and how that ticks the box for their social responsibilities. Competitors in the same market will want to use their sustainability practices to gain some short-term advantages, especially in difficult conditions. The point here is that hotel operators and hotel owners are under pressure from different stakeholders to be on board with the sustainable practices for the long term.
Combining these factors: reporting responsibility, expense control, and long-term corporate social responsibilities, there emerges a potential revised form of management contract in which the commitment of both the owner and the hotel operator to sustainability are defined and agreed on, as part of the brand standard, or owner's stakeholder's requirement. Sound far-fetched? Consider these scenarios:
What this means is that both hotel operators and hotel owners need to become well-informed of these transformations and complications in their ever-changing market. Green management contracts may sound far-fetched now, but the same thing was also said about climate change preventions just three years ago.
***: Calculations are based on the suggested utility price increase upon the implementation of the Carbon Pollution Reduction Scheme, as predicted in the Green Paper of said document.
Cushman & Wakefield is the largest fully-integrated real estate services firm in the world. Founded in 1917, it has 227 offices in 59 countries around the globe and 15,000+ talented professionals. Cushman & Wakefield is involved in every stage of the real estate process, from strategy to execution.
Cushman & Wakefield Hospitality provides a wide range of consulting services for hotels, resorts, serviced apartments and mixed-use developments. We specialise in operations analysis, market research, demand analysis and have developed a detailed understanding of the dynamics of the accommodation industry. This allows us to complete comprehensive market demand forecasts, which form the base for market and business assessments, financial projections and valuation services. We also advise on the development of new hotels, working with developers, architects and other development team members to conceptualise the optimal product for a particular site. Through the integration of consulting and valuation services with design management and project direction services, we can provide our clients with a full suite of services from site analysis and project conception, through market analysis and financial evaluation, to construction administration and project delivery. Our services include Market Studies, Valuation Services, Property Development, Revenue Management, Sales & Marketing, Asset Management, Design Advisory, Technology Solutions, Operator Search, Transaction Services as well as Shared Ownership Solutions.
Vivian Nguyen is a hotel consultant at Cushman & Wakefield Hospitality, specialising in sustainability and green hotel development. She has organised a range of workshops and information sessions to discuss sustainability in the hotel industry, and is in the process of developing an environment audit service specifically designed for the hotel industry.
Vivian has a Bachelor of Commercial from the Blue Mountains Hotel School, where she graduated with Dux of School title, as well as a Master degree in International Hotel Management from University of Queensland, in which she focused on sustainability and green hotel issues. She was later admitted to University of Queensland's Dean's Honour Roll for her excellent academic results in this Master degree.
If you need any further information on how to best prepare for the changes brought about by the Carbon Pollution Reduction Scheme, and the shift in the market in terms of sustainability practices, or how to measure your property's energy, water, or waste management, you can contact Vivian at:
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