ADDRESS BY SENATOR SIMON BIRMINGHAM
SHADOW PARLIAMENTARY SECRETARY FOR THE ENVIRONMENT
CRAWFORD SCHOOL DIALOGUE, AUSTRALIAN NATIONAL UNIVERSITY
MONDAY, 5 SEPTEMBER 2011
"The Real World of Climate Action"
In three short months the global roadshow that is the catchily named 17th Conference of the Parties under the United Nations Framework Convention on Climate Change will meet in Durban.
It is nearly two years since the 15th COP met at the now infamous Copenhagen Conference. The global outlook for climate change mitigation changed dramatically in December 2009, with ramifications for not just Australia, but in the domestic policies of countries right around the world.
Some acknowledge this change; others appear to live in a state of denial. But few, if any, expect or predict an outcome from Durban that will replace the Kyoto Protocol, which expires next year, with a new, framework that delivers legally binding commitments of measurable, reportable and verifiable emissions reductions globally.
As we approach the Durban Conference it is critical that we do so with our eyes wide open to what is happening in the real world of global climate change policies. The last Liberal Prime Minister, John Howard, was correct to say when discussing climate change policies and the potential for an emissions trading scheme in Australia during his final year in office that:
"Nothing we do alone will materially affect our climate… (and) without a global framework that includes all major emitters we lack a genuine global solution."
The current government seems to have forgotten this 'inconvenient truth'. It wasn't by accident that 'climate change' started life more widely known as 'global warming'. It is a global issue upon which nothing less than comprehensive global action, particularly by the big players, will make any meaningful difference.
As we craft Australia's policy responses to climate change it is even more essential that we act with a complete appreciation of what is happening globally.
We should do our bit as we seek to encourage others, especially those who are larger emitters than us, to do their bit.
But the actions we take in doing our share of the lifting – and the extent of lifting we do – must be crafted with an absolute and complete comprehension of how such actions relate to what is happening in the world around us; and how mitigation policies in Australia will be influenced by action, or inaction, amongst other major economies and larger emitters.
Today I want to give particular focus to the global outlook, how it should impact on our domestic policies in Australia, especially the Gillard Government's plans for a carbon tax and emissions trading scheme (ETS). In doing so I will contend:
· that Australia is no laggard;
· that a meaningful global framework seems a distant mirage;
· that Australia is not about to be left behind; and
· that Australia's policies should focus on mitigation that is in our national interest.
Firstly, it is important to say very clearly that Australia is no laggard.
As a nation we have a proud record of making responsible commitments for climate change action and of meeting them. We should celebrate this, not be cowed into believing, as Labor or the Greens would have it, that we are an irresponsible global citizen.
We are around the world's 16th largest emitter, accounting for around 1.3 per cent of global emissions, comparable to our place as the 13th largest economy in the world.
We made a commitment under the Kyoto Protocol to limit our emissions to 108 per cent of 1990 levels. Despite the unfortunate political debate that ensued in Australia about ratifying the Kyoto Protocol, we should hold our heads high that, according to the Department of Climate Change, we will come in well under target, with just a three per cent increase in emissions.
Contrast that to other comparable developed nations and you see Australia should feel pleased with our efforts:
· Canada promised a six per cent reduction but is likely to deliver a 27 per cent increase;
· Japan also promised a six per cent reduction but is likely to deliver an eight per cent increase;
· New Zealand promised to hold to the baseline but faces a 26 per cent increase; and
· The European Union looks set to fall six per cent or so short of their promised eight per cent reduction.
Australia has delivered. We have done so without a carbon tax or ETS, but instead by becoming more efficient. Australia's emissions intensity – that is, our levels of emissions compared against our level of real Gross Domestic Product – has seen a dramatic 44 per cent decline since 1990.
Businesses have sought greater efficiency based on commercial grounds, as the commercial incentive to minimise costly inputs like electricity and transport fuels are already strong.
Australia's previous and current policy frameworks to drive change are also strong. In particular, the impact of our Renewable Energy Target (RET) in driving change should not be underestimated.
The RET was established by the Howard Government, setting an initial five per cent mandatory target for renewables generation, which was increased to 20 per cent by the Rudd Government, with bipartisan support, and further strengthened by the Gillard Government, again with bipartisan support.
The World Bank have recognised the RET as the main mechanism in use at a national level in Australia to achieve emissions reductions. This fact doesn't change under Labor's carbon tax, with Treasury modelling indicating that, even with the carbon tax regime in place, renewable generation will only reach 20 per cent of total generation in 2020 – that is, it will only meet the existing target of the RET.
Perhaps because it enjoys bipartisan support, the RET is in many ways the forgotten child of the climate change debate in Australia. We should have a far stronger appreciation that we already have a market mechanism in place, which is driving change in the sector of our economy responsible for the most emissions and is pushing us towards a target equally as strong as the EU's renewable energy target.
Australia certainly is not a laggard. We have met our commitments to date and we already have strong policies in place for the future.
If only the picture in the rest of the world were as bright, because accomplishment of a meaningful global framework is a distant mirage.
The old saying goes that if you really want to know what's going on, you should follow the money trail. So firstly, in terms of assessing what the global outlook on climate change action looks like, what have the existing carbon markets done?
The World Bank report 'State and Trends of the Carbon Market 2011' found that the total value of the global carbon market stalled in 2010. The value of the primary Clean Development Mechanism market fell by double digits for the third year in a row, ending lower than it was in 2005, the first year of the Kyoto Protocol period.
Overall, the share of the global carbon market primarily driven by the European Union's Emissions Trading Scheme rose to 97 per cent in 2010, dwarfing all other segments.
The description of there even being a 'global' carbon market is looking more and more like a misnomer. There is effectively only a European market, and even it has its problems, with the theft in January this year of €45 million of EU allowances leading to the closure of national carbon registries. In March of last year Hungary was caught out selling Certified Emissions Reductions that had already been surrendered under the EU ETS – a novel form of recycling.
The same World Bank Report, under the heading "The Carbon Market in Crisis?" summed up the woes of the various mechanisms that comprise the global carbon market as such:
"The Clean Development Mechanism continues to suffer from registration and issuance delays due to complex procedures and capacity constraints. The Joint Implementation mechanism continues to be challenged by inefficient domestic bureaucracy and varying political support. There have been sovereign suspensions under the Kyoto Protocol and alleged misappropriation of Assigned Amount Unit sale revenues. The EU-ETS has suffered from alleged VAT fraud, money laundering and theft leading to registry suspensions and a dramatic loss of confidence and liquidity on the spot markets."
Given these events it is perhaps unsurprising that when the World Bank's Carbon Finance Unit surveyed market participants regarding the likelihood of an international agreement being reached for the post-Kyoto period (that is, post 2012 … next year) they found that:
"Survey respondents were not optimistic that a binding international agreement could be achieved in the short term."
Asked how confident they were of there being "a new legally-binding multilateral framework, similar to the current Kyoto Protocol, with legally-binding commitments to reduce emissions" close to 90 per cent of respondents were pessimistic or slightly pessimistic of any such framework being reached before 2015.
More than 65% of global carbon market participants remained pessimistic or slightly pessimistic about there being a legally-binding replacement to Kyoto agreed before 2020.
Yet the Australian Government of Prime Minister Gillard takes such an agreement to be a fait accompli in all of its modelling. According to the published information the government has only modelled two policy scenarios, each assuming the world promptly agrees to a stabilisation target for global concentrations of greenhouse gases and acts in unison to achieve such a target. All evidence suggests the opposite is more likely to be the case.
After the disappointment and debacle that was Copenhagen, the world saw a hastily put together 'Accord' agreed upon, which has seen a limited number of countries register a broad range of non-committal targets and actions of varying forms … a veritable mixed bag of absolute reductions against business-as-usual trajectories versus changes to intensity limits … with many varying base years, some with quantified emissions reductions and others without.
While there is little consistency and barely any comparability between the pledge made under the Copenhagen Accord the most important question should be 'do they or could they actually achieve the aims of controlling or averting human induced climate change'?
The 2010 United Nations Environment Programme Emissions Gap Report estimates that:
"developed and developing country pledges are 60 per cent of what is needed by 2020 to keep the world onto a trajectory that will keep global temperature rises to less than 2ºC in comparison to pre-industrial levels."
The International Energy Agency concurs, stating that the 2ºC goal will only be achievable with "a dramatic scaling up of effort".
Even when the promises are voluntary, non-binding, non-measurable, non-reportable and non-verifiable, as is the case under the Copenhagen Accord, the world is a long way off making commitments that justify the Gillard Government's decision to model the impact of their carbon tax based on these two scenarios. Given the evidence available, these scenarios can most generously be described as optimistic and more optimistic about the chances of a global agreement.
Even the option of continuing the Kyoto Protocol beyond 2012 appears unlikely, with countries such as Japan having spoken out against its extension because of the limited number of countries obligated to reduce emissions.
The World Bank puts it simply when they say "international negotiations are stalled on the critical issue of binding commitments."
Yet in Australia the Gillard Government argues we are at risk of being left behind the rest of the world. Australia is not about to be left behind.
Just to reassure ourselves that the Productivity Commission wasn't misleading Australians when they said that "no country currently imposes an economy-wide tax on greenhouse emissions or has in place an economy-wide ETS", let's take a quick trip around the world to see what the actions or promises of other countries are …
Canada, who represents around two per cent of global CO2e emissions, has tied itself emphatically to the emissions reductions commitments and actions of the United States. Emissions trading is off the table at the federal level, in favour of sectoral action such as new fuel standards and new regulations on coal-fired electricity generation.
Japan, representing around 4.3 per cent of global emissions, introduced legislation to the Diet in March 2010 that included consideration of an ETS component. Discussion on this component was deferred in late 2010 following strong opposition from industry and significant concerns about the cost to their economy. This deferral occurred before Japan faced the shock of this year's earthquake, tsunami and associated nuclear safety issues, which have created even more policy uncertainty in this space.
The United States, accounting for around 20 per cent of global emissions, has not only seen Congress reject various moves towards national cap and trade schemes on four occasions in seven years, but this year has seen Congress move to suspend Environmental Protection Agency powers to regulate emissions under the Clean Air Act.
There appears to be far more chance of the US bringing their budget deficit under control than there is of them adopting a federal carbon tax or ETS … and nobody is underestimating the challenge of bringing that deficit under control.
Labor loves to cite regional schemes in the United State or North America as examples of action comparable to what they propose in Australia. However, action at this level is also coming apart at the seams. The ETS planned within the so-called Western Climate Initiative is now in doubt among proposed participants like Arizona, Utah, New Mexico, Washington and Montana. Only a handful of states or provinces may participate in its planned 2012 start-up.
China, already the world's gold medal winner for total emissions, with a contribution approaching 23 per cent, in its latest five year plan sets an emissions intensity reduction target against GDP of 17 per cent. This is consistent with their targets announced at Copenhagen which, according to analysis undertaken for the Brookings Institution and Harvard University will see China's actual emissions rise by 496 per cent by 2020, based on 1990 levels.
This growth is driven by the continued surge in new, additional coal-fired generated electricity generation by China. They may be making big investments in renewable energy and they may be closing down some old coal-fired power stations, but the International Energy Agency projects China will still build new coal-fired generation capacity of 600GW by 2035.
What do these actions in China mean for emissions? Professor Garnaut projects Chinese emissions will rise, over the ten years to 2020, by a further 6 billions tonnes per annum. This contrasts with Australia's proposed decrease in emissions of about 50 million tonnes per annum.
India, who account for a little under five per cent of global emissions, submitted a voluntary target under the Copenhagen Accord of reducing emissions intensity against GDP by between 20 and 25 per cent by 2020, based on 2005 levels. The same Brookings / Harvard research suggests this amounts to an emissions rise of 350 per cent based on 1990 levels, while separate analyses have concluded that this pledge is actually above India's existing business as usual emissions projections.
Russia, who appear to often be overlooked in Australian debates despite accounting for around five to six per cent of emissions, have made an 'offer' under the Copenhagen Accord to cut emissions by 2020 by between 15 and 25 per cent against 1990 levels. Sounds good, until you read reports by the Institute for 21st Century Energy that in 2005 Russia's emissions were about 45 per cent below their 1990 levels and this generous 'offer' will actually see a rise on 2005 levels of 26 to 43 per cent by 2020.
Lastly, there's the oft cited European Union (EU), who account for around 14 per cent of global emissions and are preparing to move into the third phase of their ETS. The different phases of their ETS are instructive as to why claiming it as an example of what Labor proposes for Australia is misleading.
The early phases were the epitome of the old adage about starting low and going slow. Even in the second phase, now nearing its end, only around three per cent of permits were auctioned, with few industries targeted. As the Minerals Council of Australia has reported, over the first five years of operation the EU ETS raised about $500 million per annum. The tax proposed for Australia will raise closer to $9 billion. That's an impost 18 times more on an economy one-thirteenth the size.
Even in the planned third phase, the EU has kept a far sharper eye on minimising carbon leakage and the concomitant loss of jobs and industry than the Gillard Government has done. Industrial sectors deemed at significant risk of relocating production outside of the EU because of their carbon price will receive 100 per cent of permits for free, based on an efficiency benchmark. That's something Australian industry can only dream of.
Not only was the Productivity Commission correct in their assertion that no other country in the world has an economy wide carbon tax or ETS in place, they were equally right in asserting that Australia's actions on climate mitigation are already in the mid-range of global actions.
With such a sorry story to tell about the likelihood of global agreement and the extent of global action, some are minded to ask why Australia should do anything?
However, as I said earlier, the Coalition believes we should do our bit as we seek to encourage other nations, especially those who are larger emitters than us, to do their bit.
But, Australia's domestic policies should focus squarely on mitigation that is in our national interest.
Emissions trading or cap and trade schemes may look like the perfect answer in the vacuum of an economist's model, where assumptions neatly ensure the rest of the world is taking complementary action and carbon leakage is not a matter of concern. However, as I've just outlined, that's not the world we're living in.
Compare the basis on which Australia's Government has modelled its carbon tax regime with how New Zealand is reviewing their more limited ETS. New Zealand has identified three broad scenarios of the potential outcomes of international discussions, against which they are making their policy decisions:
1. A continuation of the current multilateral framework with legally binding limits on emissions;
2. A non-binding multilateral accord; and
3. No multilateral framework at all in the short term.
It begs the question, whose government is being more realistic in its global outlook – New Zealand's or Australia's?
Labor's carbon tax regime will impact on Australian competitiveness and cost of living. It will come at a time when Australian industry is facing intense pressure, which will only be further intensified under the carbon tax. Having a cost impost of this nature that nobody else has will unquestionably impact on our competitiveness.
It also comes at a time when many Australians feel uneasy about their cost of living pressures, especially the price rises in essential services like electricity, gas, water and housing.
While Labor promises that its so-called compensation arrangements, which already leave millions of households worse off, will keep up with the growth in the carbon price, they have failed to explain exactly how this will be done without a major budget blowout caused by the growth in international permits. The government's modelling indicates around $3.5 billion will be spent on purchasing overseas permits in 2020 alone. These costs will still be passed on to consumers, but as the money goes overseas rather than into government coffers, how exactly will Labor fund compensation?
Where there is growth in global climate action, it is generally in non-punitive, incentive or voluntary based actions. Activities like clean energy certificate programs or voluntary domestic offset trading programs have gained increasing traction. Along with renewable energy targets, these actions are more commonplace than carbon taxes or emissions trading schemes.
The Coalition's direct action policy is a more practical market-based approach to emissions reductions than Labor's scheme is. As Tony Abbott said recently, "a tender process for emissions abatement is as real a market as a water buy-back scheme". A water market in which, I would add, this Labor government has already spent billions of dollars on buybacks of water entitlements across the Murray-Darling.
Labor, as they did just last Friday, keep trying to equate the cost of abatement with a price on emissions. The two are different. Labor's policy, once it becomes an ETS, drives prices for permits as high as they are needed to go for businesses to maintain emissions before there is a change in behaviour. The Coalition's policy seeks out the lowest prices available to achieve reliable abatement where it is available.
The Coalition will establish a capped and fully funded pool of funds, known as the Emissions Reduction Fund. Through a market tender the Coalition will support, at the lowest cost of available abatement activities, the most efficient means of achieving that abatement. Every dollar goes directly to activities that reduce emissions; not one dollar goes to supporting business as usual. It is direct and efficient, unlike the multi-billion dollar churn of funds through Labor's plan.
Our policy will ensure Australia remains a responsible international player, who lives up to her commitments. It will guarantee that funding remains available for new technologies and innovation that, alongside measures like the RET, maintains Australia a key player in developing new abatement techniques or lower emissions technologies. And it ensures that abatement actually happens in Australia, rather than sending billions offshore. But it does so in a way that protects the fundamentals of the Australian economy, ensuring our climate change mitigation policies and actions are tailored to our national interest.
Our policy recognises that we're in a world in which approaches to climate change mitigation are neither uniform nor certain … a world in which Australia should not shirk our global responsibilities, but should undertake them in a manner that best suits our national interest. It is a world in which we don't delude ourselves through rose tinted glasses about what else is happening around the world, but adapt to it and act accordingly. Such adaptation to circumstances is what any sensible government should do. Put simply, unlike Labor's approach, our policy is crafted for the real world of climate action.