User Centred System Design Practices and Processes for eGovernment

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					The Garnaut Review: What Trade-Exposed Emissions-Intensive Industries really
                       think about climate change

Doctor Sumit Lodhia *
Doctor Nigel Martin **
Doctor John Rice ***


* Office Location
Room 2023, Hanna Neumann Building 021
** Office Location
Room 1043, PAP Moran Building 26B


Correspondence Address
School of Accounting and Business Information Systems
College of Business and Economics
Hanna Neumann Building 021
The Australian National University
ACT 0200 Australia

Telephone             +61 2 612 59793
Fax                   +61 2 612 55005
Emails                nigel.martin@anu.edu.au


*** Office Location
Floor 10 Room 26, 233 North Terrace

Mailing Address
The Business School
The University of Adelaide
SA 5005 Australia

Telephone             +61 8 830 37024
Fax                   +61 8 830 34368
Emails                john.rice@adelaide.edu.au




                                                                          1
Abstract


Following the Australian Government‟s Garnaut Climate Change Review (CCR), the

implementation of a joint business and climate change agenda is weighing heavily on

the minds of those executives whose companies fit within the Trade-Exposed

Emissions-Intensive Industry (TEEII) sectors. The implementation of a future

Australian Emissions Trading Scheme (AETS) is one of major concerns that confront

corporations as the government moves towards its proposed low carbon economy. In

this study, we investigate the core issues, concerns and objections surrounding the

dynamic environment in which critically affected Australian businesses will need to

operate. Our theoretical perspective is informed by accounting standard setting where

it is envisaged that the introduction of the proposed regulation is not merely a technical

process, but rather a political process (Solomons, 1970; Horngren, 1973; Watts and

Zimmerman, 1978, 1979) This study uses a composite data source text mining and

analysis technique to reveal that future emissions trading systems, the impact of costs

on business and trade performance, world greenhouse gas production levels in

emissions-intensive industries, investment in low emissions technologies, and multiple

government policy reforms and instruments form the foundations of serious corporate

level concerns over the proposed introduction of the emissions reductions regime. The

paper highlights that the TEEII submissions to the Garnaut Review are reflective of the

accounting standard setting process whereby there is extensive lobbying for issues that

are of self interest to companies. Suggestions for a cooperative approach to addressing

climate change that would involve local and global businesses and governments are

put forward.




                                                                                        2
Keywords: Climate change, emissions, government, trade, regulation.




                                                                      3
Introduction

On 3 December 2007, the newly elected Rudd Labor Government ratified the Kyoto

Protocol on greenhouse gas emissions reductions (Commonwealth of Australia,

2007b). This signing was significant as it constituted the first official act of the new

Australian federal government, and sent a clear message to the international

community that the country was serious about meeting its Kyoto obligations, while

also committing to the creation of a post-2012 agreement on the United Nations

Framework Convention on Climate Change (UNFCCC).

Globally, an appreciation of the impact of carbon emissions on our climate has

emerged as a key environmental and economic challenge. Indicators like the award of

the Nobel Peace Prize to the International Panel on Climate Change (IPCC) illustrate

the emergence of a collective consciousness relating to these issues, and increasingly

banks and insurance companies (among others) are investigating the carbon intensity

of their operations in gauging the future sustainability of their business models and

physical locations (IPCC, 2007).

The commitment to Kyoto places the government in a challenging policy

implementation position where it must oversee the reductions in emissions by 60 per

cent on 2000 levels by the year 2050, while changing the balance of energy

consumption to a minimum of 20% renewable energy use by the year 2020. These

targets represent a quantum shift in current energy supply and consumption

behaviours when it is acknowledged that over 80% of Australia‟s electricity

generation is coal-based, around 12% is hydrocarbon gas-based while, hydro-

electricity (the only major renewable source of energy employed in Australia)

accounts for only 6% of national electricity supply (ESAA, 2008). Additionally, the



                                                                                      4
protocol‟s ratification brings a number of business and economic issues into focus. As

a key plank in the climate change abatement strategy an Australian Emissions Trading

Scheme (AETS) must be fully established by 2010. There is also a clear expectation

that comprehensive international negotiations will render an effective and equitable

post-2012 UNFCCC agreement where all economies will contribute to shared goals in

the areas of economic development, environmental sustainability, and global

emissions reductions.

If these climate change abatement measures are to be successful, the commitment of

the Australian business community and industry will be a fundamentally important

determinant of the ongoing success of the reforms. As a key plank in the strategy for

emissions reductions, the federal government initiated a broad ranging climate change

review into the likely impacts of carbon pollution, potential policy responses, and the

related outcomes on local and international economic and business activities – the

Garnaut Climate Change Review (CCR) (Commonwealth of Australia, 2007a). In

particular, the Garnaut CCR considered the Trade-Exposed Emissions-Intensive

Industry (TEEII) sectors to represent a distinct and highly contentious problem space

in addressing the emissions reduction challenge (Commonwealth of Australia,

2008b). By definition, TEEIIs are those industries where “product prices are typically

set by world markets, and that produce significant volumes of emissions during their

production processes”. Therefore, these industries are not only facing the dynamics

of international trade and competitiveness, but are also confronted by significant

political and public forces seeking a shift to a low emissions economy. It is the

TEEIIs‟ critical pressure points and issues of concern related to a future AETS that

are the subject of this exploratory study.




                                                                                     5
The emissions and carbon trading themes identified by the Garnaut CCR (discussion

and issues     papers)   was   used to     investigate   TEEII companies‟ concerns

(Commonwealth of Australia, 2008a). The proven Leximancer textual data mining and

concept analytics software suite was used to analyse the companies‟ written

submissions to the Garnaut CCR (Commonwealth of Australia, 2008c), with the

findings of the experiments discussed in this article. The balance of the paper will

present the relevant background and foundation literature, consider the underlying

motivations for the study, and detail the experimental procedures. The central sections

of the article are the presentation and discussion of the experimental results, and the

conclusions.


Theoretical background

The Garnaut Review is a precursor to the development of an AETS which could be

perceived as prospective regulation that has the potential to impact a range of

industries. More critically, it is the TEEII sectors that are most affected by such

developments. In order to assess the issues, concerns and objections of such industries,

prior literature into corporate responses to regulatory developments should be

reviewed. Such insights could have relevance in providing an understanding of current

corporate responses to the proposed AETS.

Stigler (1971), in his seminal work on the theory of economic regulation, argues that

rules or regulations are primarily beneficial to sectional interests rather than general

interests. Stigler also highlights that the establishment of regulation is a political

process whereby the self interests of the powerful bodies dominate. In a further study,

Fels (1982) analyses Stigler’s insights and applies it to the Australian situation,

contending that while regulation could be influenced by political interests, this may not




                                                                                      6
always be the case. Quite often, regulation protects the wider community with

numerous positive examples of Australian regulation such as tariffs and trade practices

cited to support this assertion.

While views such as those enunciated by Stigler may not apply with respect to all

forms of regulation, as identified in Fels (1982), the theory of economic regulation

indicates that the processes involved in determining prospective regulation are not

merely technical but also exhibit a strong political dimension, coupled with extensive

lobbying by interested parties and stakeholders.

These insights inform the literature on the practices related to the setting of accounting

standards, while also reflecting a general consensus that political processes directly

impact and shape these practices. Horngren (1973) provides a clear summation of this

position:

      “My hypothesis is that setting of accounting standards is as much a product of political action as of
      flawless logic or empirical findings. Why? Because the setting of standards is a social decision.
      Standards place restrictions on behaviour; therefore, they must be accepted by the affected parties.
      Acceptance may be forced, or voluntary, or some of both. In a democratic society, getting
      acceptance is an exceedingly complicated process that requires skilful marketing in a political
      arena.”


Horngren‟s views have been supported by earlier literature which includes Solomons

(1970) politicisation of accounting, and Watts and Zimmerman‟s (1978, 1979) seminal

work on the theories of accounting standard setting. Examples of other more recent

research are also used to support these arguments. These include studies based in

Australia, extensions of earlier investigations on the political influences that impact the

setting of accounting standards and a study into the introduction of mandatory

environmental reporting in Australia.

A study by Walker and Robinson (1994) highlighted the competing forces and

conflicting agendas (professional and governmental) at work during the development

of a statement for cash flow accounting in Australia. In a further study, Georgiou


                                                                                                              7
(2004) extended the foundation literature on accounting standards-setting as a political

process by investigating methods, timing and perceived effectiveness of corporate

lobbying in the European business environment. Moreover, Ryan et al (2007) assert

that political processes have led to the adoption of international financial reporting

standards in the Australian public sector, noting that these political processes extend

well beyond private sector lobbying.

Frost and English (2002) state that the enactment of Section 299(1)(f) of the

Corporations Act in July 1998 made it mandatory for Australian companies to report

on their environmental performance. The authors reveal that this provision was

controversial and was referred to a Parliamentary Joint Statutory committee of

Corporations and Securities with the intention of repealing it. Extensive lobbying,

especially from the business community followed, with several criticisms being raised

on mandating environmental reporting in Australia. The Parliamentary committee

equated criticism to opposition and recommended that this provision be repealed. It

should be noted that a less stringent requirement now exists in section 299(1)(f) of the

Corporations law, indicating that lobbying can have an effect on “watering” down

prospective legislation.


The accounting regulation perspective presented here has direct relevance for

understanding the response of TEEII sectors to the Garnaut Review. The literature

presented here suggests that political processes play a major part in the development of

the proposed regulations, including the AETS. Therefore, submissions to the Garnaut

Review from TEEII sector companies should provide indications as to whether their

motives are based on corporate self-interest or the greater public good. Certainly these

insights could also explain future lobbying behaviours by these industries on the




                                                                                      8
introduction of the AETS, which as suggested by Georgiou (2004), might involve a

number of different methods such as media commentary and sponsored research.

More importantly, should the analyses of the company submissions indicate self-

interest on the part of the effected TEEII sectors, a number of important implications

would emerge for the Australian government‟s AETS implementation such as

regulation harmonisation with other countries and/or jurisdictions and regulatory

certainty for low emissions technology investments. This research therefore poses the

following question “What Trade-Exposed Emissions Intensive Industries really think

about climate change?”


Method


Research technique

The research technique used in this study is a text mining and concept analysis using

the Leximancer software package. The selection of Leximancer was based on the

utility of its proven algorithms that use Bayesian co-occurrence and accumulation

metrics. The algorithms allow the researcher to classify the document concepts and

themes, characterise and sort the written and spoken messages, identify the

relationships between the concepts and document themes, and process the asymmetric

information contained in text strings (ie, verbal or written statements that do not

necessarily relate to the concept or issue under analysis, sometimes known as „by-the-

way‟ comments or statements). (Salton, 1989; Chalmers and Chitson, 1992; Dumais et

al, 1998; Smith and Humphreys, 2006; Martin and Rice, 2007). In the context of this

study, the identification and processing of asymmetric attachments is valuable given

their prevalence in natural language sets commonly expressed in verbal statements and




                                                                                    9
personally written documents. (Nelson et al, 2003; Smith and Humphreys, 2006;

Martin and Rice, 2007).

Leximancer software suite

Leximancer uses a sequenced seven step analytical process to: (i) select and load

content files (ie, .doc, .htm, .html, .xml, .txt, and .pdf files); (ii) remove stop words

with limited semantic meaning (such as „and‟), and insert text markers; (iii)

automatically extract the key concepts from the analysed text; (iv) edit the discovered

concepts prior to reprocessing, including removing and adding concepts of limited

interest (eg, names), merging similar or identical concepts (eg, product and products);

(v) establish the text block processing and system learning parameters (ie, number of

concepts (words) integral to each concept theme, number of sentences in the text

block, and the visualisation of concepts relationships); (vi) undertake the automatic

location and coding of concepts within the text block (ie, this is the electronic or

automated equivalent of the labour-intensive „manual coding process‟ in data content

analysis, and provides for consistent and repeatable coding of the processed text

block) (Krippendorff, 2004); and, (vii) construct concept maps and statistics profiles.

The Leximancer software provides three primary information artefacts (Leximancer

Version 2.25 Manual, 2005). First, the software extracts and outputs a frequency

distribution of discovered concepts. Second, the software measures the associative

behaviours between the concepts (ie, co-occurrence), with the central concepts being

those that most frequently co-occur within the text block (also identified on the map

as larger concept markers). Third, the software measures conceptual similarity and

specific attraction (ie, clustering). Those concepts appearing in comparable or

semantically similar (but not identical) contexts will cluster together in the concepts

map. The software also outputs the „coded text strings‟ that are related to each



                                                                                      10
identified concept in the text block. Importantly, analysts or researchers must ensure

that the selection and presentation of the mined data or text strings is consistent with

the intended context of the analysis.


Experimental procedures

The study‟s experimental data collection and processing, software set points, and

physical research processes are outlined in the following sections.

Data collection and processing

The text blocks were collected on 20 November 2008 from the Garnaut CCR web

pages that were established for the information and feedback submissions of

stakeholders on the proposed scope of the review (Commonwealth of Australia,

2008c). The 27 Written Submissions (WS), excluding any in-confidence materials not

released by the review, covered several critical TEEII sectors and were compiled into

a single (.doc) text file for analysis (137,087 words) (see Table 1).

                                        <Table 1>

The software set points are in accordance with analysis procedures established in

Martin and Rice (2007). An editorial process enabled the common concepts to be

merged (eg, law/laws, technology/technologies), additional important low occurring

concept terms or words, such as assurance or auditing, to be included in the analyses,

and the selection of the linear mapping mode to create stable concept maps.

Three stage research process

The automatic generation of the concept statistics and maps was augmented using a

three stage research process. In the first stage of the process, the number of concept

points and the concept theme size point was maximized (ie, 100%). This allowed all

the concepts (displayed as integral words) and the primary concept themes for the text


                                                                                     11
block to be readily identified (ie, what are the major issues or concepts raised in the

aggregate submissions). In the second stage of processing, the concept theme size was

reduced to a maximum size point of 50%. This allowed the researchers to make two

critical observations. First, the reduction in concept theme size enabled the secondary

concept themes of the text block to be identified (ie, the component concept themes

that are represented in the text block). Leximancer does this by rescaling the primary

concept themes, while allowing the other concepts themes and relationships contained

within the text block to emerge. Second, the theme size reduction enabled the concepts

(integral words) contained within the secondary conceptual themes to be identified

without experiencing visual cluttering of the concepts. Leximancer‟s concept co-

occurrence mapping feature was also deployed to record the strongest relationships

between the concepts using the text (strings) logging function (ie, related concepts are

displayed in a table with semantically connected text string logs in adjacent columns)

(Smith and Humphreys, 2006). Importantly, the text string logs enable confirmatory

comparisons and correlations of the mined text with the visual concept clusters. In the

third stage, the number of concept points was minimized (ie, integral words removed

from the map), and the concept theme size was steadily reduced from the 50% size

point in increments of 5% until no further concept themes emerged (ie, conceptual

saturation). This exposed all of the concepts contained in the text block that were

discovered in stage one of the analysis, including the overlapping of contextually

similar concepts. The contextually similar concepts that overlap in clusters are

summarized in a document concept map.


Experiment results

Stage 1 - Concept processing summary




                                                                                    12
Leximancer discovered 59 concepts in the text block with an absolute concept count

range of 1,808 (Low ‘EU-ETS’ 11 – High ‘emissions’ 1,819) across the complete text

block (ie, an automatic resolution rate of 2,324 words per concept) (Note, EU-ETS

stands for the European Union – Emissions Trading System). A list of the 25 most

frequently occurring concepts discovered during the experiments is contained in the

Appendix (Table A1). Unsurprisingly, maximization of the concept points and theme

sizes identified the primary text block concept as „emissions‟. The primary „emissions‟

concept appeared once in every 75 written words. Additionally, the statistics summary

and concept map revealed that the (4) most central, or frequently co-occurring,

concepts in the written submissions were „emissions, cost, carbon, and industry‟.

Stage 2 - Concept themes reduction and associations

The reduction in concept themes to the 50% size point identified 6 secondary concept

themes containing 57 concepts in the written submissions (see concept listings in the

Appendix Table A.2). The striking observation from this part of the analysis is that the

‘emissions’ theme intersects with the other five identified theme, thereby placing

emissions concerns at the centre of the TEEII companies submissions (see Figure 1)

(Note, the „data‟ concept theme was observed as being very weak and had limited

linkage to the very strong „emissions‟ and „production‟ themes). Arguably, no other

issue could be construed as having greater importance than emissions trading and

carbon pollution pricing in the climate change reform agenda.

                                      <Figure 1>

The analysis of close proximity concept themes with co-occurring concepts (words)

depicted potential issues of concern and company feedback in relation to the AETS

and the government‟s climate change and economic policies (see examples in Table 2).




                                                                                    13
                                      <Table 2>

The two examples show that companies have concerns about the installation of the

future AETS, including the pricing and allocation of carbon pollution permits and the

impact on companies involved in international trade; and the requirement to invest in

energy efficient technologies, including the range of government policies that may (or

may not) support business and local capital investments. These potential concerns

require confirmation and refinement through the next stage of text string correlation

and finer-grained concept analysis as described in the next section.

Stage 3 - Concept theme size minimization and mined text strings

The concept theme sizes were reduced to the 5% size point when conceptual saturation

was achieved. Importantly, the saturated clusters mirrored the concepts determined at

the 50% size point (ie, no new submissions concepts emerged). An example of a

concept cluster from the submissions analysis is depicted in Figure 2. Five major

saturated concept clusters were identified across the text block (see Table 3), with

Miles and Huberman (1997) coding schemas used to identify each cluster (ie, Number-

Theme Name Identifier)

                                      <Figure 2>

                                      <Table 3>

The companies issues of concern, reflected in the saturated clusters, were compared

and matched with samples of the mined text strings (from text logs of closely

associated concepts) obtained in stage 2 of the analysis, and are presented in the

discussion of results.




                                                                                  14
Concept cluster analysis

While the detailed results of the experiments are discussed in the following sections,

the study shows that the major TEEII company concerns and feedback relate to the

central theme of greenhouse gas emissions and the various government policy

instruments (ie, the proposed AETS), international trade, capital investment, and

technology development issues that attach to their business operations. The

experiments found that all of the concept clusters have a proximate and apposite

linkage to the „emissions‟ concept. The analyses presents a collective view that the

companies‟ perspectives are largely focused on the capital investment and business

performance impacts that may result from the Garnaut CCR implementation measures.

This outcome also suggests that the TEEII sectors will likely face a dynamic and

uncertain operating environment in the future, including options for capital investment

leakage and changes to „more green‟ materials processing and production methods.

Concept Clusters

The text strings attached to the first concept cluster (1-SCH) exposed specific concerns

among TEEII companies that significant problems may arise from the installation of

any future AETS. Several text strings showed strong concerns that the trading scheme

would introduce a range of additional operating costs and business risks into the

competitive environment. As an example, submission 19 (text s1_3612) from Rio

Tinto raised the spectre of increasing cost burdens and exposure to higher operating

costs from flow-on effects in the broader local economy:

     The ETS will have an increasing financial impact on RTA's Australian operations. Although the
     emissions intensity of production is expected to reduce over time, further abatement comes at an
     increasingly higher cost. This financial exposure arises primarily from: (1) Increases in the price of
     electricity; (2) Direct process and fuel emissions; and (3) A potential increase in other operating
     costs as a result of the flow on effects of the ETS to the wider Australian economy.




                                                                                                              15
In a similar submission, CSR Limited (submission 26, text s1_5111) opined that the

AETS must enfold a strong measure of business certainty, including the forward cost

of carbon pollution permits:

      The scheme (AETS) needs to be comprehensive and embed the mechanisms for ongoing permit
      allocation, rather than the concept of enforceable promises, dependent on an unknown future. If
      trade exposed industry is to sign up to the scheme then it needs to understand the full proposal now
      and not leave important issues up to later discretion, manipulation or reinterpretation. Permit
      allocation mechanisms should be based on fair and accurate estimation mechanisms, and where
      long term contracts exist, assessments should be made on an assessment of the actual cost impacts.


The rapidly growing interest in international ETS policies, programs and concepts,

such as those operating in the European Union (ie, the world‟s largest ETS that allows

companies to hold emissions permits (allowances or credits) with carbon credits

purchasable from lower emitters of carbon pollution) (European Communities, 2007;

Voss, 2007), and their impact on business performance was evident in several

submissions. In submission 12 (text s1_1619), international oil and gas company

Caltex highlighted the extreme volatilities that can reside in carbon trading markets,

such as the EU-ETS, and the associated political pressures and negative customer

impacts that can emerge under such schemes:

     Under the European Union Emission Trading Scheme in 2006, carbon prices varied over a five
     week period from the equivalent of 12 cents per litre (cpl) down to 4 cpl and back to 8 cpl. This may
     be an extreme example of volatility, but such rapid fluctuations in price when passed on to
     motorists could give rise to political issues and questioning about the fairness of the carbon taxes
     implicit in the price - questions that would be difficult to answer under emission trading. With an
     emission trading scheme starting in 2010, Australia will be entering uncharted waters and the
     carbon market is likely to be uncertain and volatile.

Clearly, Australian TEEII companies are extremely concerned about the impact that

any future AETS may have on their operating costs, customer sales and relationships,

and resultant financial performance in domestic and international markets. These

issues represent clear risks and dangerous uncertainties to businesses that operate

across national borders.

In the second cluster (2-EMS), text strings were concentrated on the costs associated

with the abatement of greenhouse gas emissions and the impact on international and



                                                                                                             16
global trade. In a typical example, submission 4 (text s1_466) from international oil

and gas producer Woodside Energy, sought the inclusion of carbon market

mechanisms that take account of trade patterns and effects (intended and unintended):

      Australia's contribution to these significant (greenhouse emissions) reductions through our LNG
      exports needs to be taken into account when establishing an Emissions Trading Scheme (ETS) to
      avoid carbon leakage and reinforce a framework for international cooperation. Such a scheme
      therefore needs to include a mechanism for recognizing the disadvantage to the international
      competitiveness of Australian LNG exports as well as the contribution LNG makes to the reduction
      in global greenhouse emissions. This may include mechanisms for addressing impacts to TEEIIs for
      example taxation reform, international trade arrangements or permit allocation relief.

This experimental result is consistent with the major interests of TEEII companies,

recognising the majority of their goods and products are subject to international

pricing regimes, and the high emissions intensity of their manufacturing and

processing operations. In a further example, submission 10 (text s1_1370) from

cement and building product company Boral Limited asserted the importance of

equitable carbon pricing treatments for imported products and the need to support local

industries and limit capital investment leakages:

      An important principle underlying any transition to an ETS ahead of Australia's key trading partners
      is to maintain Australia's international competitiveness and prevent carbon leakage abroad. This
      necessitates some interim arrangements for TEEIIs. There must be suitable mechanisms in place to
      ensure imported materials bear the same 'cost of carbon' as locally manufactured materials so that
      Australia's industry is not forced offshore together with its emissions.

The results from this part of the analysis show a substantial and growing tension

between the international business and global environmental issues confronting

companies in the TEEII sectors. While the final design of the AETS is yet to be

revealed there is little doubt that TEEII companies will be looking to the federal

government to provide innovative and equitable market mechanisms that strike a

balance between the economic and carbon pollution abatement imperatives. As we

noted earlier, it is expected that the harmonisation of these domestic arrangements

within the WTO and post-Kyoto regimes will present a longer term challenge for the

Australian government and industries.




                                                                                                             17
The mined texts attached to cluster three (3-PRD) reflect specific concerns and issues

related to the metalliferous and energy production industries. The cluster highlights the

immense problems faced by the iron, steel, aluminium and coal industries in relation to

their large emissions intensities and exposure to world pricing regimes. During the

data mining and assimilation process, it was noted that iron and steel producers, such

as BlueScope Steel (submission 2, text s1_182), sought economic refuge as TEEII

companies:

      BlueScope Steel would not, therefore, be able to pass on a carbon cost to its customers. Absent a
      technology breakthrough, the imposition of a carbon cost in Australia ahead of major competitors
      would simply result in steel production becoming uneconomic in Australia, with Australian
      consumers instead sourcing steel from non carbon constrained producers ('carbon leakage'). Given
      this competitive environment, and the carbon intensive nature of steelmaking, we are strongly of the
      view that under any reasonable definition, BlueScope Steel should qualify as a 'trade-exposed,
      emissions- intensive' (TEEI) company.


Without TEEII qualification, these companies doubt that they will remain

economically viable, let alone internationally competitive, in world markets. These

problems may be further exacerbated in the case of international diversified resources

companies that are exposed to several emissions intensive sectors. For instance,

submission 27 (text s1_5320) from Rio Tinto echoes their concerns on several

business fronts:

      Specific issues pertain to trade-exposed, emission-intensive industries. In particular, Rio Tinto
      believes it is crucial the domestic ETS does not have an adverse impact on the export
      competitiveness of the aluminium, alumina, pig iron, and coal industries or growth in those
      industries as long as Australia's major trading partners do not have equivalent mitigation schemes in
      place. Free allocation to key sectors would help preserve competitiveness Also, iron ore is a
      globally traded commodity and, although the sector is relatively less energy intensive than other
      mining and metal industries, it has huge growth prospects which are vital to regional and national
      development. Australia's international standing in the global seaborne-traded market for iron ore
      will be challenged by its competitors with Brazilian, Indian, Russian and South African operations
      unless a concession is established that is not tied to high levels of emissions intensity. As it appears
      that it may be many years before Australia's developing country trading partners have equivalent
      schemes in place, Rio Tinto believes there needs to be detailed consultation with industry when
      designing any allocation method aimed at maintaining the competitiveness of trade exposed
      emissions intensive industries.


Other more concentrated analyses of the alumina and aluminium industries have

described aluminium smelting operations as „solid electricity‟ (The Carbon Trust,

2004), with few opportunities to pass on the incremental carbon pollution costs to



                                                                                                                 18
major customers. At present, the EU-ETS does not include the participation of the

aluminium industry, subject to future trade and competition issues being properly

resolved. This includes the potential for carbon leakage to less regulated countries,

resulting in the loss of domestic capital investment, industry closures and substantial

job losses (The World Bank, 2008). In relation to the Australian aluminium industry,

Rio Tinto (submission 19, text s1_3483) was steadfast in its view that full

administrative allocation of pollution permits for the aluminium industry was a

precondition for instituting an AETS:

     Its main competitors are located in developing countries that, currently, have no plans to place a
     price on their emissions. Relatively small interim carbon prices applied in Australia would seriously
     compromise the competitive position of the Australian aluminium industry. Rio Tinto seeks 100 per
     cent administrative allocation of permits for emissions intensive, trade exposed industries for best in
     class performance of both direct and indirect emissions.


The fourth cluster (4-TEC) texts focus on the capital investments required by TEEII

companies in order to reduce greenhouse gas pollution and comply with ongoing

sustainable business practices. The views expressed by the TEEII companies reflect

broader national and more focused company perspectives on low emissions technology

investment. For example, in submission 3 (text s1_446), Chevron Corporation made an

unequivocal statement that Australia‟s national energy infrastructure requires

significant and long-term capital investment for transition to a low carbon economy:

     The move to lower emissions technologies requires significant adjustments to Australia's energy
     infrastructure requiring significant capital investment, much of which have effective operating lives
     measured in decades. As a result depreciation rates can have a significant impact on project
     economics. Accelerated depreciation for capital investment in low emissions technology would
     reduce the effective cost of implementing these technologies.


In a response directed more at the future AETS, oil and gas company BP Australia

(submission 11, text s1_1501), stressed the importance of using appropriate market

mechanisms to stimulate and grow lower-emitting technologies:

     An emissions allocation system should seek to mitigate economic transition costs to entities that
     will be relatively more adversely affected by GHG emissions limits or that have already made
     investments in higher cost, low- GHG technologies, while simultaneously encouraging the
     transition from older, higher-emitting technologies to newer, lower-emitting technologies.




                                                                                                               19
Similarly, oil and gas producer Santos (submission 20, text s1_4486) used their

Moomba carbon storage demonstration technology project to promote the need for a

well-structured AETS, national low emissions technology strategy, and consistent

capital investment signals for industry:

      The commercialisation path for Moomba Carbon Storage envisages that, Phase 1 & 2 will be
      supported by enhanced oil recovery and technology grants, Phase 3 will need to be entirely
      underpinned by a carbon price, which in turn will come out of a well- designed carbon emissions
      trading scheme. To secure investment in these technology breakthrough projects, proponents
      require a strong investment signal (e.g. credible ETS) and regulatory certainty. A national low
      emission technology strategy should define Australia's objectives and priorities for low emission
      technology demonstrations. The 2007 Report of the TGET2 suggests that “there is a case for
      government involvement in sharing the high risks involved in demonstrating low-emission
      technologies, particularly in the early stages of a trading scheme”. Such support is justified on the
      basis that market demonstration of technologies shows potential purchasers and users that the
      technology works in real-world application under Australian conditions and promotes market
      potential.


The cluster results tend to suggest that corporations from the TEEII sectors are acutely

aware of the long term importance of low emissions technologies and the associated

business investments. The feedback from companies also highlights the close

relationship between the intended AETS and investments in low carbon pollution

technologies and facilities. Industry appears to have a clear and unambiguous

expectation that any carbon trading system will actively promote low emissions

investments through regulatory certainty and transitional cost management

instruments.

The text strings attached to the last cluster (5-POL) are a collection of representations

that promote the value of an integrated climate change policy framework that supports

business growth and investment. In their submission 27 (text s1_5206), diversified

resources giant Rio Tinto strongly urged the federal government to adopt a holistic

climate change policy framework that included a range of policy instruments:

      Rio Tinto believes that a comprehensive climate policy is essential for Australia including: (i) a
      price on carbon to establish a market approach to targeted emissions reductions; (ii) a fully funded
      and accelerated national low emissions technology strategy consistent with the importance of the
      climate imperative; (iii) international cooperation in development and implementation of policy and
      low emissions technologies; (iv) increasing understanding of climate science and actively adapting
      to climate impacts; and (v) transitional policies that are realistic yet enable Australia to do its fair




                                                                                                                 20
     share, maintain competitiveness and avoid double adjustment (ie adjustment that in the short term
     exceeds what is appropriate in the long term).


Similarly, in providing feedback on low emissions technology investments, Santos

(submission 20, text s1_4443) argued the merits of pursuing measures that are fully

integrated into a complete policy framework spanning climate change sciences,

international trade, energy security, and critical domestic resources and economics:

     An aspirational emissions reduction target and a range of technology push and demand pull
     measures are essential. Importantly, a national low emission technology strategy should focus on
     technologies in which Australia has a comparative advantage to ultimately drive economic growth
     and social well- being. These measures should sit within a broader framework that is driven by
     climate science and incorporates international cooperation, a national risk assessment, a national
     energy security policy, forestry, water and land policies, adaptation requirements and ongoing
     monitoring and review.


Additionally, building materials company CSR Limited (submission 26, text s1_5030)

cautioned the government on placing too greater reliance on the AETS, echoing other

companies‟ calls for the scheme to form part of a larger and more comprehensive

policy framework:

     An ETS is but one policy measure required to deal with global warming and should not be seen as
     the sole policy panacea. A cap and trade scheme importantly introduces a carbon equivalent price.
     Such a model sets up a broad framework which should deliver the lowest cost and easiest to
     implement measures first. An ETS should be introduced as part of a comprehensive policy on
     energy and carbon equivalence. While markets are a preferred mechanism, being efficient and low
     cost, they may not deliver full optimal outcomes for the environment (eg, full externalities may not
     be factored in).


Discussion

The experiments show that companies in the TEEII sectors have major concerns over

the introduction of an AETS. This result was not unexpected given the movement to

innovative carbon trading schemes by various world and regional governments (eg,

EU-ETS) (Cass, 2005; Christiansen and Wettestad, 2003; European Communities,

2007; Voss, 2007; Wettestad, 2005). Importantly, the experiment outcomes are

reflective of our foundation theory perspectives, and show that political processes are

in train to influence the development and implementation of the proposed AETS

(Solomons, 1970; Stigler, 1971; Horngren, 1973; Watts and Zimmerman, 1978, 1979;



                                                                                                            21
Fels, 1982; Georgiou, 2004; Frost and English, 2002, Ryan et al, 2007). As we have

noted earlier, the written submissions and executive statements from TEEII sector

companies appear to be related to their survival and ongoing viability as corporations,

rather than addressing the broader international problem of reducing carbon emissions

and pollution.

The TEEII sector is a key player in the federal government‟s response to a low carbon

economy and it is essential that they engage extensively with the government in

relation to the development of the proposed AETS. Instead of lobbying with regard to

their own self interest, they need to be part of the solution to climate change. They

must realize that business as usual is not acceptable and radical changes to

organizational activity are needed to ensure the survival of mankind on this planet.

Human society has undergone massive transformation at the different phases of

societal development and the response to climate change should no be seen as

different. Our analysis of TEEII submissions suggests that at present, this is not the

case and to some degree, their initial reluctance and scepticism is warranted.

We have observed that, consistent with Georgiou (2004), the company submissions

represented early political lobbying and urging by TEEII companies. However, the

next stage of consultation with government requires a cooperative effort rather than

the other approaches to lobbying as suggested by Georgiou (2004) .Unlike accounting

standard setting where political processes could lead to compromised positions,

environmental issues and especially carbon emissions are too critical to be subjected

to political posturing. The study by Frost and English (2002) suggests that extensive

lobbying can lead to compromises even in relation to environmental reporting

legislation and therefore, both the literature and our study indicate that self interest




                                                                                     22
rather than cooperation is a paramount motive for those subjected to stringent

environmental requirements.

The self-interest motives of TEEII sector companies should be of growing concern to

the Australian federal government. Plainly, these corporate positions represent a clear

and present danger to the fight against unsustainable climate change and life altering

global warming. The government is in a precarious and vexed position. On one hand,

there is an emerging risk that TEEII companies will attempt to dominate and

potentially capture the regulatory development of the AETS, while on the other hand,

carbon leakage threatens to shift capital investments and infrastructure growth into

lower cost and high pollution regions should the needs of TEEII companies be

neglected.

One approach developed under the EU-ETS is to provide other incentives, such as the

issue of free carbon pollution permits. However, the European experience suggests that

such incentives can adversely impact the smooth functioning of the carbon market

with unintended and undesirable consequences (Hopwood, 2009, MacKenzie, 2009).

Some companies were given more free permits than they needed, described as a case

of “rather than polluters having to pay, ….polluters have been paid” (Hopwood, 2009,

p. 435). Moreover, the accounting for free permits was problematic, with companies

passing the „opportunity cost‟ of freely given permit in the price charged to customers

(Hopwood, 2009). The overall effect of such actions was that there was a drastic

reduction in the carbon price that generates low cost pollution (Mackenzie, 2009).




Much like Australia, governments all over the world need to balance the economic,

social and economic consequences of emissions trading and the push towards a low




                                                                                     23
carbon global economy. Importantly, a consistent and coordinated international policy

framework is needed, where emissions‟ trading is among a range of different policy

instruments crafted to address the challenges of climate change. For instance, the

government and trade exposed industries could work together with the international

community to research and invest in renewable technologies which can enable massive

reductions in carbon emissions, enabling not just Australia but other nations to meet

their emissions reduction targets in future. The reactions and responses of

internationally active companies to these policy initiatives is the great unknown in the

push towards a low carbon economy.

The current economic conditions in the form of the global financial crisis (Demirgüç-

Kunt and Servén, 2009) should not be perceived as a deterrent to the global efforts to

combat climate change. In effect, it should be noted that if the global community can

come together to address financial issues, then working together to address the most

significant threat to human survival on this planet is critical. However, recent

developments have led to the financial crisis being attributed as the primary cause for

the delay in the proposed introduction of the AETS. The start date for this scheme has

been delayed by a year and in addition to a reduction in the planned carbon price per

ton, TEEII will receive further generous incentives. In spite of these concessions, the

government has stated that while its emissions reduction target by 2020 is 5% below

2000 levels, it would increase its aspirational goals from 15 to 25% if the international

community reciprocates.

It appears that frail global economic conditions have given the TEEII sector

ammunition for their opposition to the AETS and placed them in a better negotiating

position. Hence, contemporary developments indicate that the economic climate could

also to contribute to political processes that seek to benefit sectional rather than


                                                                                     24
general interests (Stigler, 1971). It would be interesting to assess the responses of the

TEEII sector if the government‟s aspirational goal is realized internationally and

further cuts in emissions are required.

Conclusions

This study sought to address the following question “What Trade-Exposed Emissions

Intensive industries really think about climate change?” Our findings suggest that their

concerns are related to the design of the future AETS, costs of abatement and

international competitiveness, implications for metalliferous and energy production

industries, investments in low emissions technology, and government policies.

Conspicuously absent from their submissions are discussions into the impact of

climate change on the viability of future economic activity and the consequence of this

on our living standards. Costs, capital investments, competitiveness and policy impacts

on TEEII appear to be more important than the most critical problem mankind faces in

this century.

Our study has found that in a similar vein to accounting standard setting, political

processes are prevalent in TEEII responses to the Garnaut review. Capture of the

government‟s climate change actions by the TEII sector will indeed be detrimental to

climate change policy and therefore, this study provides a cautionary message to the

government and its citizens.

It is suggested that the self interest corporate motives need to be replaced by

cooperative efforts that acknowledge the seriousness of global warming but at the

same time, consider measured approaches in transitioning to a low carbon economy.

Addressing critical issues should not be perceived as a problem but rather an

opportunity to raise the living standards of society, a goal that corporations have

always shared with government. The support of the global community through


                                                                                     25
governmental and corporate involvement is essential for this to eventuate.           An

international agreement on climate change would compel even TEEII to move beyond

their current business case considerations and embrace radical changes to

organizational activity that reduce their carbon emissions.

In addition to the policy implications discussed above, this study also makes

contributions to our understanding of theory and research methodologies. This study

has used theoretical insights from accounting regulation to explain corporate responses

to a proposed climate change policy instrument in the form of an AETS. Hence, this

reinforces the potential and utility of a multi-disciplinary approach for explaining a

practical business or regulatory issue that may be of interest to a range of stakeholders

in Australia. The use of the Leximancer software suite for data mining and analysis

represents a significant and ongoing opportunity for other disciplines, particularly

where the analysis of large volumes of data may prove difficult or problematic in a

manual or labour-intensive context.


Acknowledgements

This research infrastructure and systems used in this study was developed and

implemented under the Australian National University (ANU) College of Business and

Economics Internal Research Grant CG-45-CIGS07. We would also like to thank

Professor Neil Fargher and Dr Colleen Hayes for their feedback during the review and

development of the paper.


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                                                                                   29
Figures




Figure 1. Conceptual map for TEEII company submissions (Map settings: # of points:

100%; Concept theme size: 50%)




                                                                               30
                              trade                    data
                   industry

                                                                countries
          international

                                                                global
            sector



                                                                 significant
           price


                                                                      greenhouse
             cost


           carbon


              abatement                                   gas
                                include
                                           emissions




Figure 2. Saturated conceptual cluster from the TEEII company submissions analysis

(2-EMS)




                                                                                   31
Tables

Table 1. TEEII Company Submissions

Sub.   Company Name                  Industry Sector                 Garnaut CCR Theme
 1     BHP Billiton                  Diversified Resources           General Issues
 2     Bluescope Steel               Steel Manufacture               General Issues
 3     Chevron Corporation           Oil and Gas                     General Issues
 4     Woodside Energy               Oil and Gas                     General Issues
 5     Alcoa of Australia            Alumina and Aluminium           ETS
 6     AMCOR                         Pulp and Paper                  ETS
 7     Anglo Coal Australia          Resources                       ETS
 8     Asciano                       Transport and Logistics         ETS
 9     Bluescope Steel               Steel Manufacture               ETS
 10    Boral Limited                 Cement, Building Products       ETS
 11    BP Australia                  Oil and Gas                     ETS
 12    Caltex Australia              Oil and Gas                     ETS
 13    Chevron Corporation           Oil and Gas                     ETS
 14    CSR Limited                   Sugar, Building Products        ETS
 15    ExxonMobil Australia          Oil and Gas                     ETS
 16    Hydro Aluminium Kurri Kurri   Alumina and Aluminium           ETS
 17    OneSteel                      Steel Manufacture               ETS
 18    Qantas Group                  Transport and Logistics         ETS
 19    Rio Tinto                     Diversified Resources           ETS
 20    Santos Limited                Oil and Gas                     ETS
 21    Shell Company of Australia    Oil and Gas                     ETS
 22    Sims Group                    Metals Manufacture, Recycling   ETS
 23    Visy Industries               Pulp, Paper and Plastics        ETS
 24    Woodside Energy               Oil and Gas                     ETS
 25    Worsley Alumina               Alumina and Aluminium           ETS
 26    CSR Limited                   Sugar, Building Products        Financial Risk Services
 27    Rio Tinto                     Diversified Resources           Financial Risk Services




                                                                                               32
Table 2. Examples of TEEII submissions theme reductions and concepts

 Example   Overlapping    Concept (Integral Words)                             Potential Issues of Concern and Company Feedback
  Serial   Themes         (co-occurring words in italics)
    1        should       [should] [allocation] [permits] [paper] [scheme]        Price and allocation of permits under a carbon emissions
                          [trading] [system] [risk] [market] [price] [cost]        trading system or scheme
                          [EU-ETS]                                                Cost of carbon and greenhouse gas emissions abatement
             emissions    [emissions] [AETS] [trade] [international]              Impacts on industry sectors involved in global and
                          [industry] [sector] [carbon] [abatement] [market]        international trade
                          [price] [cost] [EU-ETS] [countries] [global]            Establishing a carbon trading market similar to that of the
                          [significant] [greenhouse] [gas] [include]               EU-ETS
    2        technology   [technology] [energy] [efficiency] [power]              Development of technology for fuel, power, electricity and
                          [facilities] [years] [development] [fuel] [work]         energy efficiency
                          [greenhouse] [gas] [include] [electricity] [large]      Large capital investment in technology that reduces
                          [capital] [investment] [reduce] [low]                    greenhouse gases and energy use
             policy       [policy] [important] [government] [climate]             Important government tax, climate and economic policy
                          [economic] [tax] [submission] [large] [capital]          that supports capital investment in energy efficiency
                          [investment] [reduce] [low]                              technology
                                                                                  Government policy that may reduce capital investment




                                                                                                                                                 33
Table 3. Saturated concept clusters

Serial   Concept Cluster                        Issue of Concern / Objection
1-SCH    [emissions] [trading] [scheme]         A future emissions trading scheme (AETS) or
         [permits] [market] [allocation]        system, including the allocation of pollution
         [AETS] [should] [system] [risk]        permits, carbon pricing risks, and systemic costs.
         [price] [paper] [risks] [EU-ETS]
         [cost] [carbon]
2-EMS    [greenhouse] [gas] [emissions]         Greenhouse gas emissions, the significant cost of
         [carbon] [cost] [abatement]            abatement, and the impacts on industry sectors
         [international] [trade] [industry]     involved in international and global trade.
         [sector] [price] [countries]
         [global] [significant] [include]
         [data]
3-PRD    [world] [production] [iron] [steel]    World production of iron, steel, aluminium and
         [coal] [aluminium] [process]           coal products, and the generation of significant
         [company] [products] [electricity]     greenhouse gas emissions and consumption of
         [greenhouse] [countries] [global]      electricity by countries and companies in the
         [gas] [emissions] [significant]        process.
         [data]
4-TEC    [technology] [development]             Large capital investment required for technology
         [facilities] [energy] [power] [fuel]   development and facilities in the areas of fuel,
         [electricity] [efficiency] [reduce]    power and energy efficiency and the lowering of
         [greenhouse] [gas] [years] [work]      greenhouse gas emissions.
         [low] [large] [capital] [investment]
5-POL    [government] [policy] [climate]        Government climate, economic and tax policy that
         [economic] [tax] [important]           supports prudent capital investment.
         [capital] [investment] [low] [large]
         [reduce] [submission]




                                                                                                     34
Appendix

All appendix tables as follows.




                                  35
Table A.1 Twenty-five most frequently occurring concepts

                                            Abs.                 Rel.
 Concept
                                           Count                Count
 emissions                                  1819                100.0%
 cost                                        646                 35.5%
 carbon                                      540                 29.6%
 industry                                    529                 29.0%
 should                                      477                 26.2%
 price                                       449                 24.6%
 AETS/ETS                                    442                 24.2%
 permits                                     409                 22.4%
 energy                                      343                 18.8%
 gas                                         339                 18.6%
 technology                                  338                 18.5%
 greenhouse                                  327                 17.9%
 market                                      322                 17.7%
 scheme                                      307                 16.8%
 international                               273                 15.0%
 policy                                      268                 14.7%
 trading                                     248                 13.6%
 climate                                     242                 13.3%
 development                                 237                 13.0%
 significant                                 219                 12.0%
 global                                      211                 11.5%
 trade                                       210                 11.5%
 low                                         206                 11.3%
 production                                  205                 11.2%
 years                                       202                 11.1%




Table A.2        TEEII Company Submissions Concepts

 Concept Themes                 Concept (Integral Words)
 should                         [should] [allocation] [permits] [paper] [scheme] [trading] [system] [risk] [market] [price] [cost]
                                [EU-ETS]
 emissions                      [emissions] [AETS] [trade] [international] [industry] [sector] [carbon] [abatement] [market]
                                [price] [cost] [EU-ETS] [countries] [global] [significant] [greenhouse] [gas] [include]
 production                     [production] [iron] [steel] [coal] [products] [world] [aluminium] [process] [company] [countries]
                                [global] [significant] [greenhouse] [gas] [electricity]
 technology                     [technology] [energy] [efficiency] [power] [facilities] [years] [development] [fuel] [work]
                                [greenhouse] [gas] [include] [electricity] [large] [capital] [investment] [reduce] [low]
 policy                         [policy] [important] [government] [climate] [economic] [tax] [submission] [large] [capital]
                                [investment] [reduce] [low]
 data                           [data]

Note: Map settings: # of points: 100%; Concept theme size: 50%. Co-occurring words in italics.




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