Implications for Australia of growing global support for action on climate change

21 Dec 2014Archived News Sally Cook Climate Change Matters

The alliance recently formed between the United States and China is unprecedented in global climate change negotiations.  Including the European Union, post 2020 targets representing 55% of the current global emissions profile have been announced ahead of the March 2015 deadline. As the Australian government has recently announced a taskforce to consider emissions reduction targets beyond 2020, we examine the implications for Australian business of both the positions of major global emitters and the development of new targets in Australia. 

How does Australia compare on climate change action?

The recently released Climate Change Performance Index rates Australia as second to last out of 61 countries, only ahead of Saudi Arabia. The index considers elements such as emissions levels, the recent trend in emissions, renewable energy, efficiency, and policy.

The table below summarises the performance ratings of peer countries in the G20 (green – good, yellow – moderate, orange – poor, red – very poor)orange – poor, red – very poor) 1,2

Australia is viewed as a laggard. Recent actions including the repeal of the carbon tax, energy efficiency opportunities program and sustained uncertainty surrounding around the renewable energy target has resulted in our low performance rating.

How does this result impact Australian business operating globally? 
 

Impacts for businesses operating domestically and globally
 

Australia is an exporter of fossil fuels at a time when the rest of the world is striving towards lower consumption of fossil fuels, and implementing policies to improve domestic energy security.  China and India’s strong commitments to reduce their thermal coal imports are likely to reduce the price of this already depressed commodity. At an average production cost of AU$92/tonne  and current prices of around AU$82/tonne3  it’s likely that many in the industry will find their operations unsustainable in the medium term.

Any aggressive emissions abatement target commitments by Japan, the largest importer of Australian thermal coal, would be likely to put further downward pressure on prices.

Given Australia’s current policy settings, the following is likely:
• Australia’s emissions profile is likely to continue to grow
• Our existing target of a 5% reduction by 2020 may not be met, making any targets committed to post 2020 more difficult to achieve.  Further action from concerned members of the Australian population is likely, particularly in emissions intensive and consumer focussed industries (as seen from recent divestment campaigns)
• Australia would continue to suffer reputational and political damage internationally
• Australia will have missed the economic opportunities of the low carbon economy.
 

Actions for business

Globally, business can expect continued momentum in investment funds to flow in support of a transition to low carbon energy sources and increasing efforts to assess and develop strategies to address risks within each country and region.

A key risk for businesses exposed to global markets is that Australia’s slow response to climate change action will leave businesses exposed, particularly in fossil fuel and consumer influenced industries and lagging in the adoption of low carbon technologies.

• To minimise risks businesses are encouraged to continue to factor a carbon price into investment and other long term decision making.
• Consider the risks of climate change to the business in a global context (economic, environmental, reputational) and how these can be managed.
• Recognise that management of climate change is bigger than the environment team. Other areas of the business are likely to also be interested, impacted and will need to be engaged to drive change.

In 2015, business can engage in the policy consultation for the safeguarding mechanism as part of the Emissions Reduction Fund. The safeguarding mechanism is intended to penalise large emitting facilities that exceed an historic average as determined through their NGER reports. Public consultation on the design of the safeguarding mechanism is expected to occur in early 2015. Businesses can advocate for fair and equitable baselines which appropriately incentivise reductions in emissions.

Above all, business should consider climate change as part of their ongoing risk management strategy.

 

Footnotes:

[1] The Climate Change Performance Index, http://germanwatch.org/en/ccpi

[2] Note: table does not reference nations ranked 1.2.and 3, as the authors determined that no country was addressing climate change sufficiently well to warrant such a high ranking.

[3] Russell, Clyde: "Australian coal industry in final stage of grief", Sydney Morning Herald, http://www.smh.com.au/business/carbon-economy/australian-coal-industry-in-final-stage-of-grief-20130814-2rwfd.html#ixzz3MXR4iH5U, 14 August, 2014.

[4] Index Mundi,  http://www.indexmundi.com/commodities/?commodity=coal-australian&months=60, October 2014.


 

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