Climate change is an opportunity for Australian businesses, as the world moves towards a greener future.
THE Climate Change Conference 2009 was the largest gathering of heads of state and government in the history of the United Nations. More than 100 world leaders attended the meeting, which involved about 50,000 people and 35,000 registrations, representing 192 countries responsible for more than 89 per cent of global greenhouse gas emissions.
There were more than 1,000 side events, 3,500 members of the media and 114 Australian delegates. There was also significant representation from the private sector, particularly from the industry, finance and insurance fields.
It was perhaps inevitable given the scale of the event, the significance of the issues at hand and the divergence of countries’ respective positions, that the conference would struggle to live up to the hype and expectations whipped up by the world’s media. The complexity and the range of issues associated with addressing climate change meant it was apparent at an early stage that a legally binding global agreement on emission reduction targets was unlikely.
Reflecting on my experiences at the conference, I feel that it is important not to overlook some very significant and positive outcomes the conference has delivered.
Firstly, the scale of the event and widespread attendance, as well as the geopolitical divisions and issues that played out behind the scenes, reflect the significance of climate change for the international community. It has become a matter of utmost importance for governments, communities, business and industry the world over.
Secondly, the enthusiastic participation by the private business and industry sector reflects the pragmatic importance this sector places on the achievement of international agreement on climate change policy and associated regulation.
I believe it is important to realise that any impasse to progress is at the political and geopolitical level, rather than at the business level. Key industry leaders from around the world see clean energy as being good for the community and therefore good for business and they are already investing in clean technology, research and development.
Globally, economies including China, Japan, many European countries and the US are making multi-billion dollar investments in clean energy. According to the UN, clean energy overtook fossil fuels in attracting investment for power generation for the first time in 2008.
The biggest growth for renewable investment is happening in China, India and other developing countries, which are rapidly catching up to the developed world in switching out of traditional fossil fuel to improve energy security and address climate change.
China, the world’s largest emitter of greenhouse gases, is scrapping a huge number of small, inefficient coal generation plants to undertake massive investment in its use of clean energy, spending about $9 billion a month. It more than doubled its installed wind turbine capacity in 2008 and is now the world’s fastest-growing wind energy market, accounting for around a third of all new capacity added last year.
In the US, the Recovery and Reinvestment Act included $80 billion for clean energy and energy efficiency technology. The rationale for this was summed up by President Barack Obama’s comments during the State of the Union address in January.
President Obama emphasised the importance of encouraging and incentivising innovation, arguing that national leadership in the clean energy sector is vital, as countries leading the clean and green energy revolution will lead the global economy in the future.
Perhaps most significantly, the Copenhagen Accord reflects a political consensus by developed and developing countries on the need for a long-term, global response to climate change, as well as recognising the scientific view that an increase in global temperature below 2 degrees is required to stave off the worst effects of climate change.
It also represents the first agreement to provide the finance necessary to support mitigation and adaptive action in developing countries and agreement to measurement, reporting and verification by developed and developing countries. In this respect, Copenhagen may not have achieved the expectations of many, but it has provided a clear starting point for efforts to develop a global commitment to address climate change.
Events since Copenhagen show that the international community regards the accord as a significant and meaningful document. As at February 22 2010, 69 parties had submitted national pledges to cut and limit emissions by 2020, representing nearly 80 per cent of global emissions and accounting for more than 85 per cent of the global economy.
These parties range from countries like Australia, with current targets under the Kyoto Protocol, to some of the poorest and most vulnerable and include all major emitters such as the US and the ‘BASIC’ group of countries, China, Brazil, South Africa and India.
Heads of government will meet in Bonn in June this year, and the next UN climate change conference will be held in Mexico in December. Both of these events serve as opportunities to further expand and strengthen the Copenhagen Accord, which has not addressed many of the key issues that still need to be determined.
These issues include details surrounding the provision of finance to support emissions reduction in developing countries, clean development mechanism reform, clean energy and emissions reduction technology transfer (including carbon capture and storage), institutional arrangements for monitoring, governance and the inclusion of industries such as shipping and aviation.
There is much work still to be done to reach a successful outcome at the conference in Mexico, but I believe that last year’s Copenhagen conference and the accord have provided tangible building blocks for a global agreement to address climate change.
On the domestic front, what does this mean for Australian businesses?
On January 27, Australia formally submitted its existing target range for reducing emissions by 2020 to the Copenhagen Accord.
Given the uncertainty surrounding the Commonwealth’s proposed Carbon Pollution Reduction Scheme legislation, it is too early to predict the nature of Australia’s intermediate policy response to achieve the initial 5 per cent commitment.
However, Australian businesses should be aware that, under government conditions for binding international agreement on emissions reductions, further global agreement to meet the Copenhagen Accord objectives is likely to flow through as an increase in Australia’s national target.
Australian businesses can and should start to prepare and position themselves now, despite the considerable short- to medium-term uncertainties that exist around domestic and international climate change policy, as a carbon price may have a significant impact on business viability and competitiveness.
It is important for businesses large and small, to understand their emissions profiles, the likely impacts of a range of carbon prices on ongoing and future operations and commercial arrangements, and the availability and cost of technology to reduce emissions. There are several important issues businesses can and in some cases should, be considering in order to prepare themselves.
• Assessing your potential liabilities under existing mandatory schemes, such as the Commonwealth Government’s National Greenhouse and Energy Reporting Scheme (NGERS) and Energy Efficiency Opportunities Scheme. There are also a number of other important schemes in state and territory jurisdictions.
• Considering whether your business may be eligible for any form of transitional assistance under the proposed CPRS and related measures, such as the Electricity Sector Adjustment Scheme, EITE Scheme and Climate Change Action Fund programs.
• Conducting a review of key contracts, particularly medium- and long-term contracts. Important issues to consider include the effect of any change in law provisions, impacts on pricing and any scope for a pass-through of carbon costs and whether the contracts adequately deal with the detail of some proposed CPRS mechanics or data collection for reporting under NGERS. It may also be worthwhile for your business to consider developing a suite of pro-forma carbon clauses for use in certain types of contracts.
• Reviewing any planned new projects and acquisitions, taking into account climate change risks in economic, physical and legal models for the project. Also consider other (non-legal) impacts of climate change on your business, such as physical and reputational impacts.
• Looking for any opportunities created by the introduction of the proposed CPRS or other climate change schemes and policies. There may be opportunities for some businesses to move into low emissions technologies or create some kinds of offsets or other benefit for sale into mandatory or voluntary carbon markets.
The Copenhagen Accord represents a vital first step toward addressing climate change for the international community and that process will undoubtedly present Australian businesses with a wide range of challenges and opportunities. A thorough understanding of those issues now will help your business most effectively manage the transition to a carbon-constrained international economy.
n Minter Ellison special counsel Cheryl Edwardes attended the United Nations Climate Change Conference 2009 held in Copenhagen in December. particularly the public negotiation sessions and seminars, as well as events with key industry and business leaders and government delegates. The views expressed in the above article are that of the author and not necessarily that of Minter Ellison.
