INTERVIEW WITH MR. PETER BALSARINI, EXECUTIVE DIRECTOR OF CARBON CONSCIOUS LIMITED (CCF)
“CCF - Quarterly Shareholder Update”
THURSDAY, 21 AUGUST 2008 11:30 AM
BRR Carbon Conscious, code CCF, is a new addition to the ASX. Listing with a
10 successful IPO in May 2008. Today, we are joined by Executive Director, Peter Balsarini who is going to give listeners some background of the company and the importance of carbon farming generally. Welcome to Boardroom Radio, Peter.
CCF Good morning Joe. How are you?
BRR Good, thank you. Now perhaps we can start at the general level and work our way down into the detail a little. We’ve been hearing plenty about carbon sequestration, carbon neutral, the Kyoto Protocol, and of course the Green Paper. People seem to understand the underlying goal is emission reduction,
20 but there is a lot of confusion and misuse of the terminology. Could you perhaps outline in layman’s term the Federal Government’s Carbon Pollution Reduction Scheme and perhaps focus on how it fits into carbon consciousness business model.
CCF Yes, certainly Joe. I think it’s come a long way since the labour government
25 have taken part of obviously some of the Kyoto Protocol which was a big step for the Australian government over the Australian population. And what the government has now done with the release of the Green Paper and the Garnaut Report is they’ve designed a scheme or they’ve announced a scheme around effectively a tax on pollution. So large companies who put
30 carbon into the atmosphere will be required to buy a permit for every ton that they put into the atmosphere. Now, obviously, there will be a monitoring and verification process on an annual basis that they go through. The reason that that’s important is that that permit will have a market price and the higher that market price, that would draw out technology for companies to make a saving
35 on the carbon that they put into the atmosphere. So there very much is an incentive for companies to start being innovative about way they operate such that they pollute less. The government have obviously got targets under the Kyoto Protocol and they’ve been talking about the 2050 target which is 60% of the 2000 level. The way that this will actually work is the government will
40 release permits but those permits will by necessity reduce every year such that we can get to that 2050 target. You would contemplate that that will continually raise the price of these carbon permits. So it’s a market that’s been created by the government. It’s been announced by the government, a White Paper that’s coming out in December will provide further confirmation
45 of how that works and is expected to start in July 2010. It’s set to be perhaps the greatest economic shakeup this country has ever seen because of the way that it operates. From our perspective, from Carbon Conscious’ perspective, it’s been relatively positive because the Green Paper firmed up that as a forestry company, we can provide offset into that system. So we will be allowed to grow trees, those trees will sequester carbon and that amount of sequestration will provide permits what we can then sell to people who have a liability. So it provides a huge opportunity for our business to operate in that system.
BRR So I guess in simple terms, the government’s Green Paper was very much a validation of Carbon Conscious’ business model?
CCF Yeah. That’s right Joe. I mean, effectively we went to a listing three months ago. We were very confident about the way that the scheme is going to be
10 designed. The Green Paper did very much verify that. There was a little bit of a surprise in that for us, we thought potentially we would be under another method where we would be outside the system and providing accredited permits into the system, but the way the system works from a forestry perspective, we can what’s called voluntarily opt into the system which means
15 as I said before there will be a net sequester of carbon to be able to issue those permits or trade those permits with other parties.
BRR So does Carbon Conscious aim to operate in both the voluntary and the compulsory carbon markets?
20 CCF Certainly the compulsory regulated market, as it is called, which is the scheme that the government has designed is the co-focus of the business. Companies are obligated to buy carbon permits. So obviously that is a key focus for us. In terms of the voluntary market, it’s a little bit wide. There is a very strong voluntary market in Europe and surprisingly, perhaps to some,
25 even though there is a regulated scheme in Europe, the voluntary market has continued to go from strength to strength. And effectively a voluntary market revolves around businesses and individuals who have some sort of social responsibility mandate and they buy credits on an as-needed basis. So there is a potential there for voluntary market. I guess we are a little concerned
30 about some of the things going on in the voluntary and recently the ACCC released a paper which went to some of those issues and we would need to be very mindful about our entering to the voluntary market, but it is an opportunity for the business for sure.
35 BRR Okay. Peter, let’s go back and look at the IPO. You successfully raised cash in what is certainly a very tough market. Could you tell us some of the investors that have thrown their weight behind the company?
CCF Yeah sure. I guess it was a very tough market. It was an interesting market for us though being one of the first sort of IPOs that had some significant
40 green credentials. We have a lot of interest from the retail public. I don’t know that this is on record but we had something like 14,000 downloads of our prospectus off the website which I guess shows a huge appetite for people to understand this industry and for people to get across that we ended up with a broad register. We had about 500 investors which is a significant number.
45 Obviously we did need some strong support and we worked with some brokers from such firms as Smith Barney, Bell Potter, (inaudible) (05:20) to name a few. On our register, we included some names such as Credit Suisse and Trojan Equities who are professional investors. So our investor base is a combination of high net worth individuals, some smaller institutions, and obviously those real top hunters that I mentioned at the start.
BRR Now back in July, the company launched an application with the Federal
5 Government’s Greenhouse Friendly Program to accredit Carbon Consciousness Program. First, could you give our listeners some background on those schemes?
CCF The Greenhouse Friendly Scheme was a scheme setup by the Department of Climate Change sort of I think two years ago and what it does is it provides a
10 system where it accredits different carbon projects obviously under a voluntary nature because there was a no scheme, there is a no regular scheme a couple of years ago. The scheme particularly from a forestry perspective is very strong because it complies with the Kyoto Protocol. The announcement of the Green Paper was that the forestry would have to apply
15 to the rules of Kyoto Protocol. So we see it as an ideal accreditation for our business. It involves a fairly rigorous process of working through systems and procedures and our program for the government or for that body to give that tick off. We’ve been working extensively with URS Forestry, a forestry group here in Australia but more specifically in Perth who provided a lot of input into
20 our systems and procedures. I guess it’s been an interesting process for us. Our background is that of an agricultural business. We have some fairly strong systems and procedures around that business. So it was a good complementary fit to our business. The accreditation processes as it stands at the moment, we have our application in. We are expecting verification
25 some time in late September, October as to the success of that.
BRR Shifting over and looking from the supply side perspective, how is the company placed to develop it’s carbon sinks in the face of what certainly looks to be soaring demands for the carbon biosequestration market?
30 CCF It’s a good question Joe because certainly the amount of emissions out there versus the amount of opportunity for carbon biosequestration, there’s a big mismatch. The biggest issue with sequestrations of sea-land access, you need a significant number of trees to sequester carbon. I guess where we come from as I mentioned before, the agricultural background, we have some
35 significant connections with farming relationships throughout the Western Australian wheatbelt and other wheatbelt areas of Australia and our model is about integrating planting of Mallee Eucalypt trees, native trees, back into that wheatbelt area. Generally in an area of sort of 10% to 15% on any given farm and that’s in two types of configurations: One is what we call a belt
40 configuration but conceptually you could think of sort of 10 meters of trees, 100 meters of cropping, another 10 meters worth of tress, and another 100 meters worth of cropping. And I guess that provides some significant environmental benefits for the farm most significantly reduction in salinity and also in top soil degradation. And we also do what’s called “block plantings” on
45 any given farm. Potentially up to 10% of that farm may have some uneconomical type of land, deep sandy soils, these types of things, and we look to block plant those areas. So in terms of the supply side, that’s where we will need land access. I guess the other big constraint will be the ability to grow seedlings. You are talking about doing seedlings in the order of 1,000 to 1,500 stems per hectare and that can ramp up into the millions of seedlings required per annum fairly quickly. We recently finalized our agreement with Australia’s largest wholesale nursery, Benara Nurseries who have capacity to provide us with approximately 37 million seedlings over the next four years.
5 And I guess we would need to look at other opportunities and work with other nurseries that we have relationships with to grow that capacity over time.
BRR So why Mallee trees, what made them so suitable for your business model?
CCF Our business model as I mentioned before coming out is agricultural
10 background particularly in the wheat area. You’ve got to find a tree that’s most suitable to the area that you grow, that you want to plant. Mallee trees are obviously a native tree. Prior to clearing for the purpose of wheat farming, they were scattered across the country. And I guess they survive and they thrive in that type of environment. Our model is within the low rainfall model,
15 so it’s in areas that are 250-450 mil of rain per annum. In relatively low rainfall, these trees will survive drought, they will survive bush fire, their lignotuber actually sits under the ground so you can potentially knock these things off at the socks as they say and not regrow. So it really is a hardy that’s ideally suited to the environment in which we are plating. And I guess
20 that’s why they’re such a strong item for our business.
BRR There were some recent amendments to the tax regime. In fact, recently approved, making it more tax effective to establish carbon sink forest, what sort of impact you anticipate this will have to your business?
25 CCF The tax legislation, it’s been a good thing for the business obviously. Effectively what the government did was the previous liberal government put some legislation to the House which revolved around providing upfront tax deduction to people who are planting trees for the purpose of carbon sinks. Now that’s an interesting outcome because that means that even (inaudible)
30 (10:56) such as Woodside or BHP or these types of companies, even though they are not in the agricultural area, they can get a tax deduction for planting trees which is obviously not the case in the normal circumstance. The legislation didn’t pass before the change of government. The labour government have been supportive of that legislation. So both sides of the
35 House have been strong in their support. In late June, this legislation passed which provides an upfront deduction for the first five years basically between 2008 and 2012, the money that you spend on planting or carbon sink will be tax deductible. Obviously that’s an economic stimulus for companies to undertake this investment and I guess help in terms of making that decision
40 to go forward.
BRR There was an interesting comment in your quarterly about corporate social responsibility, and the emerging trend of companies to use it to differentiate their products from their competitors. You care to comment on what sort of
45 opportunities this creates for your company?
CCF Corporate social responsibility I mentioned before the voluntary market, I guess there is a real push now and people will see in their day-to-day lives there is a real push now for companies to actually provide some great credential to their products. If they walk in the street they’ll see clean air signs for car companies who talk about offsetting emissions and these types of things. I guess from our point of view as a listed company and a relatively new listed company, we see it as a significant opportunity to provide some leverage around brand recognition in particular and I guess we are working
5 with a number of companies in that area where things like of instant sponsors we may take the opportunity to sponsor those and rather than use cash consideration, we would look to offset their liabilities with tree plantations. I guess as part of our company’s ethos for us to get our name around and also to expand our business model. It’s a new business model and they are not
10 necessarily well understood because it is new, so part of that process is to get it known and also to help educate the investor public. And we see that this corporate social responsibility angle may help us in achieving that.
BRR And I think from your quarterly sponsoring WA Trade Fair, rendering that
15 event carbon neutral is that part of the agenda?
CCF Well, carbon neutral is a word we like to use. carbon conscious is a word we like to use because carbon neutral has its own issues, but we are looking at sponsoring a field day. One of the obvious things we need to do is maintain those relationships in the agricultural area, so we are actually sponsoring the
20 Dowerin field days which are coming up in August of this year, 27th of August this year. And I guess that’s an example of the sorts of opportunities that can come about through this sort of leveraging.
BRR Now as we mentioned, the capital markets are fairly tight at the moment, how
25 are you placed to continue expanding with the funds that you’ve raised from your IPO?
CCF We’ve got about approximately $6.3 million in the bank, we raised 7.25, so we still got a healthy amount of the cash that we raised. We are looking for third party meet us to effectively finance the majority of our projects and I
30 guess what that will mean is that there will be an ability to hang on to that cash for farewell. Having said that, there will be opportunities to expand the business both in the East Coast and into other areas such as the voluntary area. And potentially that may provide some opportunity to go back to the market and raise more money. But the way we are sitting at the moment, we
35 are relatively comfortable and I guess any further raising would be done on the basis of performance and mobility to grow the business even further.
BRR And Peter finally, looking ahead, what are some of the milestones that our listeners can keep an eye out for in terms of Carbon Conscious moving
CCF There are a number of things as we’ve discussed. It’s a very dynamic area. In terms of where we are as a business, obviously we mentioned the accreditation process where we expect to have verification of that backfilling soon. That will be a key milestone for the business. We are working hard at
45 looking at finalizing our first deal. With a larger meter, we are relatively confident that’s going to be a strong deal and will send a strong signal to the market. And I guess potential investors who are looking at the company should monitor that fairly closely. I guess more perhaps a broader or macro level. The government legislation, the government is putting the white paper out. A strong pricing signal or a strong signal from the government about the targets; quite to a strong pricing signal. The stronger the pricing signal obviously the more beneficial that will be to the company. So they’re probably the three key things Joe but investor should monitor.
BRR Peter, thanks for those comments and thanks for your time today.
CCF Thanks Joe.
BRR Now, remember if you have any questions for Peter about today’s broadcast
10 or about anything else relating to Carbon Conscious, please send through an email, email@example.com or use the Contact Us button on the home page. Thanks very much for listening.
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