Cool Kyoto country generates internal heat

Australia's ruling Coalition government and their leader, Prime Minister John Howard, won a fourth straight election victory on October 9. The conventional wisdom holds this is bad news for climate change and for Australia's participation in the Kyoto Protocol. But the electoral campaign, as well as changing attitudes from businesses and farmers, have meant that the issue of climate change has remained very much at the forefront of the national political agenda. Don't be surprised if emissions trading takes root on what is seemingly infertile soil. The Ecosystem Marketplace digs a bit deeper. On October 9, 2004 Australian voters cast their ballots in a national election that was crucial to the country's ratification of the Kyoto Protocol. In the end, the ruling Coalition, lead by current Prime Minister, John Howard -considered by many the anti-Kyoto candidate- won a fourth term. Initial reactions will be that that, from the perspective of Australia ratifying Kyoto, this is bad news. But despite this outcome, there are indications that Australia may move rather quickly on issues of climate change, even moving towards a national -or at least quasi-national- greenhouse gas emissions trading scheme within the next two years. Already one of the largest and most influential states, New South Wales (NSW), has an emerging carbon market, and several other states are looking into setting up similar markets. During the election campaign, the political positions broke down along very distinct party lines: On one side of the electoral debate stood the incumbents, the conservative Coalition. They fell squarely behind the US and, some say, behind large energy and coal businesses, in repudiating the Kyoto Protocol, arguing it "wasn't in the country's national interest." On the other side stood the Australian Labor Party (ALP) which held that Australia was squandering an important opportunity by not signing up to the Kyoto Protocol, particularly now that its entry into force is imminent (it will enter into force if Russia ratifies the convention, which is expected by the end of 2004). Now that Howard has been re-elected, it is a fair bet to say that Australia will not ratify the Kyoto Protocol any time soon, despite the fact that during the Kyoto negotiations the country was given a comparatively lenient target; while other countries are forced to reduce emissions as compared to their 1990 levels, Australia was allowed to emit an extra eight per cent over and above the 1990 levels by 2008-2012. Interestingly, although the Howard government has steadfastly refused to ratify the protocol, it has nonetheless committed to meeting the country's Kyoto targets. To do this, the Coalition government relied on voluntary codes of conduct, audits and 'dialogue'. The exception to this light regulatory hand was the Mandatory Renewable Energy Target, which commits the country to a nominal 2% increase in the proportion of renewable energy between 2002 and 2012. Some argue that even this is a very low hurdle, since in real terms, a sharp rise in energy production means it now works out to far less than that. For the last decade, despite growing scientific consensus on the human-induced impacts on climate, despite the increased droughts, fires and flooding rains in this driest of inhabited lands, governments made up of both major parties have made some effort in the renewable energy and energy efficiency sector, but have otherwise indicated that high greenhouse gas pollution is the price of progress. But in the last two years the pace for climate policy change has been picking up. Led by Greg Bourne, the then regional president of BP Australasia, a group of influential businesses, including Shell, BHP, Origin Energy and Westpac Bank launched a late 2002 assault on the conservative party's "No Kyoto" policy. They attempted to do this through the influential Business Council of Australia (BCA), a group that brings together the country's largest businesses. And their goal was to push for a progressive stance on climate change, including the ratification of the Kyoto Protocol, as well as a national system for greenhouse gas emissions trading. In the end, they spent six months trying to wrest control of the agenda from the dominant Kyoto skeptics that, according to climate campaigner Anna Reynolds of Australia's Worldwide Fund For Nature (WWF), included companies such as mining giant Rio Tinto, mining and chemical giant Orica, and aluminum giant Alcoa. Stewart Murrihy, a spokesperson for Orica, denied that his company had taken a position in the policy debate surrounding climate change that took place within the BCA. "Orica," he says, "as a company, has in the past exceeded and is currently exceeding the 'Kyoto targets' and, with substantial effort and expenditure, we expect this trend to continue. Thus, we don't see greenhouse gases [GHG] as a specific issue requiring 'activism' by us because we have taken on board the need to address GHG emissions. Notwithstanding this, we support a focus on technology as a solution to GHG. In general terms, we would favor a carrot (support for technology) rather than a stick (punitive regulations) approach." Neither Rio Tinto nor Alcoa would respond to questions on the matter. Whatever happened internally, the brawl resulted in a climate neutral policy for the BCA. Katie Lahey, the head of the BCA, said that the organisation's members were "unable to reach a common position on the Kyoto Protocol", because of "a lack of definitive information about the protocol's impacts and opportunities for business, as well as divergent views among the membership." Meanwhile, the Australian government before the election was having its own problems with climate change policy. One part of government, the Australian Greenhouse Office had for some time been busily working on a carbon emissions trading model, when it narrowly survived a proposed budget slash. At the same time, a Climate Forward Action Plan was prepared, but never released. The Federal Government had also convened an Energy Taskforce round table that considered all of Australia's energy policy, including issues related to climate change. Sources within government tell the Ecosystem Marketplace the inclusion of a national carbon emissions trading scheme was put to the Prime Minister by a number of influential Ministers including Treasurer Peter Costello (who is seen as the most likely successor to Prime Minister Howard), Industry Minister Ian McFarlane, as well as the then Environment Minister, Dr David Kemp. Costello's office would neither confirm nor deny any such discussion. The same sources also say that, at around the same time, Dr Kemp put up a proposal to dramatically increase the Mandatory Renewable Energy Target. This proposal, and the proposal to prepare a national greenhouse gas emissions trading scheme were rejected. Instead, the Energy Taskforce released in July a document entitled Securing Australia's Energy Future. This was well received by the more resource- and energy-intensive sectors of the economy, but was sternly condemned by conservation groups, as well as the renewable energy and green business sectors. The document focused on coal as the long-term energy future of Australia, and encouraged geo-sequestration of carbon dioxide underground as a key strategy. Increases in renewable energy targets were rejected. In the end, although he made a valiant attempt to defend the statement, Dr Kemp ultimately resigned from Parliament shortly after the document's release, ostensibly "for family reasons". The Energy Statement itself sets no longer term national goals for reducing carbon emissions, preferring instead to focus new funding (up to AUS$500 million) to leverage private sector support for low emissions technology. For every two dollars spent by the private sector, the new program gives a dollar. This is the sort of fund that, according to Mark O'Neill, head of the Australian Coal Association, is "essential" to develop the technology. The statement also requires the top 250 emitters to report results of energy audits. Overall, it could be described as gentle encouragement for emissions reductions rather than offering any sort of systemic push for change; lots of carrots and very few sticks. In the run-up to the elections, the Opposition, the centre-right Australian Labor Party (ALP), made much of the policy difference between them and the ruling Coalition Government on climate change issues. In reality, however, the ALP faced a significant dilemma: On the one hand they promised to sign Kyoto, introduce a national greenhouse gas trading scheme, apply federal environment laws to greenhouse gas emissions, and increase the mandatory renewable energy target. On the other, they are highly supportive of the emission-intensive coal industry. Given the election results, they have three years to work through this paradox. Currently, the two major parties in Australia seem to believe that "clean coal" and geo-sequestration are the tickets out of the emission and non-renewable fuel dilemma in Australia. This, despite the fact that geo-sequestration (in this case injecting carbon dioxide into geological formations) can be highly expensive, is largely theoretical, and may not deliver positive results for up to 15 years. Although there are obvious difficulties, geosequestration and "clean coal" continue to be the solution of choice clung to by the coal industry, many businesses, and most of the influential politicians and government officials. Still, the recently re-elected Coalition Government faces a growing problem; not from left field, but rather from the fields of Australia's farmers. The junior partner in the conservative Australian Government is the National Party, whose power base lies in the large Australian farming sector and is exemplified by the National Farmers Federation (NFF). The NFF contribution to the climate change debate has, until recently, lined up with the climate change skeptics: disbelief in the science and strong resistance to significant Kyoto-friendly policy changes. But earlier this year, the NFF suddenly shifted their stance on climate change when they issued a feeler in February calling for more research into the matter. They followed this with a high profile statement, given by NFF President Peter Corish on August 4, 2004, acknowledging that Australian farmers have suffered through far too many droughts recently to continue holding out against the mounting evidence of a shifting climate. "Possibly the biggest risk facing Australian farmers in the coming century," said Corish, "is that of climate change." He added: "Climate change predictions for South-Eastern Australia forecast more frequent extreme drought events, higher temperatures, lower rainfall and possibly increased evaporation as a result. The implications of such changes for agricultural production, particularly cropping, are obvious and we must take action to manage the business risks that are posed by these changes." And, while significant political power bases like the NFF are slowly coming around to the realization that climate change is real, climate campaigners such as WWF's Reynolds have been gathering academics, scientists, and businesses in an attempt to exert pressure on federal government policy. She says that the 2002/3 machinations within the Business Council of Australia over the Kyoto policy "shocked" the participants who expected the policy to go beyond the neutral stance. "That very personal intervention" she explains "has meant that the greener businesses are now much more organised". But they aren't necessarily pushing policy through the BCA. And, she adds, the stance has gotten stronger. "Initially," she says, "the business push was led by people interested in carbon sinks and trading." Now, she notes, it is people interested in pushing for deep cuts that are taking the lead. Reynolds believes that now that there is "a stronger recognition that impacts are upon us", she believes it is the next logical step. Adding to the pro-Kyoto push, the former head of BP, Greg Bourne, one of the climate change policy leaders, retired and is now CEO of WWF Australia. Taking his place as the pro-Kyoto advocates within business are some of the large insurers. Their views are nicely summed up by Dr Ian Wood, Senior Research Analyst with AMP Capital. "In industry," he says, "competitiveness and advantage depends on projects having relatively cheap forms of energy. Our coal industry's competitive advantage may change depending on their response" to the global changes. He adds: "The financial community such as AMP Capital are starting to realize that climate change is an emerging risk issue for institutional investors because, if it affects the companies they invest in, it affects the returns." And, he concludes, the climate change problem isn't only about risks, it is also about seizing opportunities. While high emission companies pose risks for institutional investors, those companies who are prepared can take part in emissions trading schemes, and otherwise deal with new climate-related regulations more effectively. In the end, he says, a fully international greenhouse gas trading scheme is probably inevitable. Further prodding Australia's climate change envelope, in July this year WWF's Reynolds convened a Climate Action Group (CAG) made up of eminent people, including the chief risk officer of Australia's largest insurer, the Insurance Australia Group, and CSIRO's former chief atmospheric scientist, Graeme Pearman, among others. They are in favour of slashing Australia's greenhouse emissions by 60% by 2050, and have called for emissions trading by 2007. The Climate Action Group even entered the pre-election fray, issuing a joint letter signed by 41 business, academic and community leaders, including insurers, investors and renewable energy and energy efficiency companies. In that letter, they wrote: "Australians look to Federal and State Governments to work together to create an action plan that meets community expectations of the Government's role to develop a safe, secure, economically sound and competitive future that is underpinned by a healthy environment. Australia needs a long-term strategy to reduce greenhouse gas emissions by at least 60 per cent by the middle of this century. And it isn't just insurers and other businesses that are pushing the Australian government to do more. Many of the Australian States and Territories have decided to take matters into their own hands. Looking at the potential of carbon markets, an intra-state working group has been set up to put together a multi-jurisdictional model for a greenhouse gas emissions trading scheme among several of the Australian states. There is even talk of an Australian multi-state emissions trading scheme exchanging credits with the EU Emissions Trading Scheme (ETS) that is set to be launched in January of 2005. The details surrounding such a scheme are still very sketchy. A spokesperson for Queensland Energy Minister, John Mickel, would only go as far as stating, "At this stage, the type of model is still under discussion. However, issues such as consistency with the Kyoto Protocol and overseas countries would need to be considered." Once the model is agreed, they face the tough issue of targets, time frames and allocating permits. And, even if all of these are solved, without the ratification of Kyoto, there is no guarantee that the scheme would be able to trade with other countries. Meanwhile, in NSW – the first and still the only state with a greenhouse gas trading scheme (targeting electricity retailers)- a proposal for a new coal fired power station in the Hunter Valley was rejected on climate change grounds; a first for Australia. In other words, while the re-election of John Howard almost certainly means that Australia will not ratify the Kyoto Protocol anytime soon, there is movement on the issue of climate change down under. Indeed, the smart money is probably betting on some form of greenhouse gas trading at the state level sometime soon. For the time being, however, the anti-Kyoto faction still holds power, but they are fighting a losing battle, and they are going to have to fight increasingly harder as the issue -quite literally- heats up. Susan Brown is an Australian writer specialising in environment, governance and other policy issues. She can be reached via www.melaleucamedia.com.