In its quarterly newsletter, Ernst & Young this month discussed the emerging issues that carbon risk poses to the energy sector.

“Pressures from public opinion and the introduction of climate change policy and regulations could affect the competitiveness of oil and gas resources,” it said.

“Conversely, incentives and subsidies for renewable sources present a potential opportunity for companies looking to diversify their investments and asset portfolios.”

Australia has implemented a number of mandatory and voluntary schemes that encourage the reduction of greenhouse gas emissions. But the article said there is still “significant uncertainty” as to if, when and how the cost of carbon could be regulated in the future.

Ernst & Young said policy instruments such as voluntary schemes, fiscal incentives, carbon taxes, emission trading schemes, direct regulations and renewable energy targets could all play a part in dealing with the growing issue.

It said regardless of the complexity of carbon risk, companies still need to assess the business risks of regulation.

“Despite this uncertainty, companies should seek to understand the potential risks that climate change and the introduction of climate change policy poses to their business, as well as identifying opportunities for investing in renewable of lower-carbon fuel sources,” the article said.

Companies that have already undertaken some form of risk assessment are the ones that will be better positioned to react to changes in climate change policy, it said.