Carbon price voted in: What's next?

12 Oct 2011Archived News Energetics in the News

PUBLISHED: Climate Spectator by Giles Parkinson. A decade after it was first seriously discussed in Australian politics, and on its fourth attempt to make its way through a hostile parliament, Australian is now poised to finally implement a carbon pricing regime.

The passage of 19 bills through the House of Representative on Wednesday, propelled and finally approved by two country independents and a single Greens member, means that the passing into law of Clean Energy Future package is now a mere formality, as the government and the Greens have the numbers in the Senate.

There is no doubt that this signals the start of one of the greatest transformations of the Australian economy, ranking alongside the floating of the currency, the introduction of the GST and other major policy initiatives. But will this transformation be sudden and dramatic, or will it be a slow burn? Climate Spectator asked leading business people, advisors, politicians and lobbyists for their take. This is what they said:

Nathan Fabian, CEO at Investor Group on Climate Change: It's a significant step. Investors are starting to get the regulatory certainty they've wanted for years. For the first time, emissions intensity and carbon liability will become part of the regular financial conversation between investors and companies. Expectations for reporting timeliness and assurance from companies will increase, as will expectations that companies find emission reduction opportunities.

The financial impact of the scheme is small for most companies in the early years, so there will be little change in investment allocations right away. Few if any stocks will be re-rated because of the carbon price, but investors will carbon footprint their portfolios and carbon liability will become a portfolio exposure to manage along with exposure to different asset classes or sectors.

On low-carbon investments, a round of research projects and due-dilligence will kick off, but commencement of the scheme and complementary policies will be what gets investment funds flowing.

John Valastro, head of environment, Qantas: With the passage of the carbon price legislation the priority must now be joint government and industry action to advance technologies that reduce emissions and can help companies meet their environmental obligations. Top of the list for Qantas is the development of sustainable aviation fuels – an area where Australia has all the ingredients to be a global leader. The recent MOU signed between the Australian and US governments was a good start, but questions of taxation, funding and infrastructure need to be addressed soon if progress is to be made. Putting Australia at the forefront of this emerging industry would, over the long term, help shift our aviation-dependent economy to a lower carbon footprint, create green jobs and drive investment. Other important issues for Qantas include improvements to airspace management and access to credible and competitive carbon markets (both within and outside Australia).

Grant King, managing director of Origin Energy: As a long-time supporter of an emissions trading scheme, we welcome the passage today of the bills necessary to make it happen. The trading scheme at the heart of the Clean Energy package benefits from years of work by Australia’s experts in designing a market based approach to reducing emissions, and is very solid in itself.

Surrounding the trading scheme are a number of related policy choices. With large amounts of money available to some parts of the energy industry through the Clean Finance Corporation and other new sources, a lot of the success of the package in the long term will depend on setting up tight governance and clear principles for spending that money. In the electricity market, the biggest driver of change over the next ten years will be whether or not the government reaches a deal for closure of a coal-fired power plant. The Review processes established in the Package are very important and we look forward to more detail on these as they are established, especially in so far as they relate to compensation for EITEs.

Steve Sargent, President and CEO of GE Australia & NZ: The vote a significant milestone for Australia and an important step for our country to transition to a low carbon economy. This transition is already underway around the world – as we’ve seen with an ETS already in place in 32 countries. The passage of the Clean Energy Future legislation will provide businesses with certainty and in turn, unlock investment, stimulate innovation, and grow cleaner industries.

What we hope to see now is a greater focus on energy efficiency and improvement in carbon-intensive business processes. A report we commissioned earlier this year by the Economist Intelligence Unit found that 70 percent of Australian businesses already have a carbon reduction strategy in place – this will move higher up on the agenda for more and more businesses.

Within our own business, GE has priced carbon into our operations since 2005. Our approach has been to mitigate the risks while maximising the upside. We launched a business strategy called ecomagination in 2005 which has seen GE reduce our own carbon emissions by 22 per cent, achieve cost savings of $130 million and revenue growth of lower carbon products & services by $85 billion to 2010. Putting a price on carbon is a good start, but a well-designed mix of policies with a few broad, complementary measures such as the Renewable Energy Target, will further secure Australia’s economic prosperity and encourage technology innovation in a carbon constrained future.

Martijn Wilder, head of climate change practice, Baker & McKenzie: Past experience has shown us that until legislation is actually law, majority of companies will not start to engage. But once it gets passed Senate, you will see an acceleration of a lot of activities. At the moment there is a lot of discussion about what can be done, investing in the carbon farming initiative, investment in renewables. Some of the very sophisticated players are moving quite quickly to secure their offsets and suppliers. But the majority of corporates will probably not engage on this before July next year. Those who understand the opportunities will be moving much more quickly, focusing on what it means, what are the penalties for non compliance, how they look at purchasing offsets.

Anthony Hobley, global head of climate change at Norton Rose: The passing of today’s bill is not the end of the story. It still needs to pass a vote in the Upper House. Many might say we have been here before with the CPRS. But this time it is different. The Greens control the balance of power in the Senate and this time they have been part of the process which negotiated the final carbon package.

If all goes according to plan, the legislation could be law by early December. Then the fun begins. Many in the business community are perhaps not as prepared as they should be - and that is quite understandable. There has for some time been sentiment in the business community that "I will believe it when I see it". As a result there is not a detailed understanding of the latest carbon pricing package and many businesses will need to come up to speed quickly. Today's vote should be a wake up call to those businesses who think Australia will not put a price on carbon.

Jon Jutsen, founder, Energetics: We expect more investment in efficiency programs because the psychological effect of the legislation should prompt many companies to act on carbon mitigation now. This is likely to be the beginning of ongoing reductions in carbon emissions across the Australian economy. The combined impact of the carbon price with the escalation in electricity network (and environmental) charges is significant.

Energetics conducted a study of the payback period from electricity savings projects over the period from 2008 to 2012/3, and this has shown that projects with a payback of 8 years in 2008, could have a payback of 2 years by next year based on electricity price escalation, the carbon price, the improvement in the exchange rate for imported equipment since 2008, and the potential to gain a 25% grant from the carbon package. Work on biogas-to-energy projects in the food processing industry should accelerate with the double impact of the carbon legislation, making electricity from the grid more expensive, as well as increasing charges for organic waste disposal.

Neil Hereford, head of Carbon Solutions Group, Commonwealth Bank of Australia: We have been talking to a number of our institutional and corporate customers about the impacts of a carbon price and the range of carbon financial products and services the Bank has developed in anticipation of entering a low carbon environment. Our clients see the implications of carbon emissions just like any other operational or financial risk, and we will continue to work closely with them in the management of the cash-flow and price impacts associated with the carbon price mechanism.

The Bank is working with a number of its customers in relation to hedging and financing opportunities associated with carbon farming projects. Through early engagement, we can give our clients the full spectrum of services that will not only help them manage risks, but importantly take advantage of the opportunities in a new low carbon economy and reinforce the Commonwealth Bank’s position as the leading provider of total capital solutions.

Emma Herd, director, emissions and environment, Westpac: The passing of the Clean Energy Futures package through the House of Representatives is an important step towards delivering the investment certainty that business has been looking for. Market expectations are that the legislation will now pass through the Senate and come into effect on 1 July 2012. We are seeing significant interest from companies looking to understand what their liability is, how they can effectively manage it, and ultimately how they will reduce it over time. This includes potential trading strategies as well as opportunities for involvement in renewable energy projects, the Carbon Farming Initiative projects, fuel switching, energy efficiency, process improvements or clean technology application for example.

We would expect this trend to continue following the passage of the legislation as business moves to understand their obligations, identify opportunities for competitive differentiation and move to implement an operational response. Westpac is focused on delivering practical products and solutions for business and the community to help facilitate this transition.

Tim Jordan, analyst, Deutsche Bank: The carbon price will slowly transform the Australian economy over coming decades. The finance sector will help with the renewal of Australia's infrastructure capital stock and help businesses take advantage of opportunities in the global carbon market. But as with all major structural reforms, it will take time for the carbon price to become properly embedded in the economy. I suspect that the carbon price will only be confidently factored into investment decisions when the new institutions have proved themselves and the political risk has abated.

Rob Murray-Leach, CEO of the Energy Efficiency Council: This is a historic day for Australia – the carbon price package will unleash a wave of investment and make our economy fighting-fit for the 21st Century. Improving the energy efficiency of homes and businesses will save Australians over $5 billion a year.

Global prices for coal, gas and oil are rising due to economic growth in Asia, which means that companies need to become more efficient to stay competitive. Australian businesses currently waste huge amounts of energy, and that puts our economy at risk. A carbon price has a relatively small impact on energy prices, and actually helps businesses by providing the certainty they need to invest in changes that are long overdue.

The carbon price won’t damage the economy – it will make Australian businesses more efficient and boost their global competitiveness. ...[It] will unleash billions of dollars of investment to improve businesses’ efficiency. ...Forget what some companies have been telling the papers – behind the scenes they’re gearing up to become lean and efficient. Companies might lobby for special deals, but many of them are getting on with the job of responding to the carbon price.

Geoff Ward, managing director of Geodynamics: [The CEF] legislation provides vital long-term support for the transformation of the Australian energy market. It is a major initiative that clearly addresses energy security and foreshadows a necessary transition, likely to take place over several decades. The legislation gives Australia the policy backbone it needs to build renewable energy alternatives while continuing to provide affordable electricity on reliable, high quality networks.

As well as the clear pricing signals this legislation offers industry, the establishment of the Australian Renewable Energy Agency (ARENA) and Clean Energy Finance Corporation (CEFC) is crucial to ensure that as a nation we invest in new technology now. This will allow us to deliver globally competitive clean energy on the commercial scale that will be needed to power our economy in the decades ahead.

Nick Armstrong, CEO of COzero: “Today’s vote is a significant step towards pricing carbon through an Emissions Trading Scheme. Australian business today has been given every reason to be more competitive in the global market place, where the true price of carbon is increasingly becoming a procurement consideration. The Australian Government has succeeded in putting carbon on the business agenda. The next urgent step is to relieve business from yet another tax by establishing the true cost of carbon through an open market Emissions Trading Scheme.

Matthew Wright, executive director of Beyond Zero Emissions and 2010 Young Environmentalist of the Year: The passing of the government's Clean Energy Future bills reflects the politics of climate change, not the science. ...It is small first step towards transitioning Australia from a 19th Century fossil fuel economy to a 21st Century renewable-powered cleantech economy. ...But the heavy lifting needs to be done by policies that have been shown to work globally in getting significant amounts of renewable energy deployed.

The Australian government must establish a feed-in tariff for large-scale renewables – which has delivered 80 per cent of non-hydro renewables globally. Without a feed-in tarriff, the main result of the Clean Energy Future bills will be a large increase in new gas power plants. Besides locking in an unacceptable level of emissions for the next 50 years, it will tie Australian electricity prices to volatile and increasing global gas prices as the huge LNG developments come on line over the next few years.

A national FiT will help Australia catch up with the rapid pace of renewable energy deployment in the world's powerhouse economies like Germany and China. It will result in meaningful cuts in our emissions, and lock in lower energy costs for Australian consumers. Now that the carbon price has passed, political leaders must get onto the real job of a strong large-scale renewable energy feed-in tariff.

Lisa Wade, executive director, Change Management Investment: This is a great step forward. The removal of uncertainty will enable investment in industries which transition us to a more globally efficient economy.

Greg Combet, federal Minister for Climate Change and Energy Efficiency: The passage of the clean energy future legislation by the House of Representatives after more than a decade of debate over tackling climate change and putting a price on carbon is a historic development. The government’s immediate focus is on securing passage of the legislation through the Senate which we expect to achieve before the end of the year.

Then we will get on with the job of finalising administrative and regulatory arrangements for the carbon price mechanism to commence from 1 July 2011 next year, including establishing the new Clean Energy Regulator and Climate Change Authority. The government will consult closely with business and other stakeholders in the lead up to the start of the carbon price mechanism.

A key focus for the government will also be on the international process under the UNFCCC with the coming conference in Durban and on bilateral discussions to facilitate access to international carbon markets. This reform will drive the transformation of the Australian economy to a low-carbon future. Coupled with the government’s Renewable Energy Target it will stimulate new waves of investment in cleaner sources of energy like gas, wind and solar power and provide a powerful incentive for innovation in low pollution technologies.

Christine Milne, Deputy Leader of the Australian Greens: These bills are only a start and much remains to be done, both here in Australia and in global negotiations, but the package has been designed specifically so it can be strengthened over time, with annual opportunities to lift our ambition, increase our targets and invest more in clean, renewable energy than in dirty old energy.

Once the bills pass the Senate next month, the next step is the global climate meeting in Durban in December, where Australia’s decision to put a price on pollution and invest in renewable energy will make a big impact. Global climate negotiations need a shot of optimism, and what we have achieved here in Australia can deliver that and help build momentum towards an ambitious, science-based climate treaty in the years ahead.

Michael Hitchens, CEO of Australian Industry Greenhouse Network: The passing of the Clean Energy Bills through Parliament, means that the over 100,000 manufacturing, mining and energy transformation business that bear most of the costs of the $23/t tax will have two key tasks ahead of them for the next 12 months.

First, they will continue to argue for the changes to the legislation that are required to deliver on the Government’s promises of least-cost and reduced uncertainty. To deliver least-cost, the legislation needs to lower the $23/t starting price to the expected international price of around $15/t; increase the default scheme caps by 50 million units over the first 5 years; make all trade exposed industry eligible for unit allocation; and put in place a plan to phase out the over 200 other programs that the Productivity Commission has identified as high cost.

To deal with the uncertainty created by the legislation, and hence encourage investment in emission reduction, amendments will be needed to ensure that the 7 reviews by the Productivity Commission and the Climate Change Authority over the next 5 years do not undermine the jobs and competitiveness program or the energy security program. Second, liable companies will be investing millions of dollars in new or upgraded systems to meet all the administrative requirements of the regulations, many of which may not be known much before 1 July 2012.

John Connor, CEO, Climate Institute: For the first time in Australian history, our largest businesses will soon have to operate under a limit on the amount of carbon pollution they produce. This vote creates the potential for a win-win of a cleaner, less wasteful, more competitive economy and greater credibility to help boost the efforts of Australia and other countries taking action.”

The domestic task now is to ensure Government and private sector investments connect with climate solutions in clean energy, like solar, wind and geothermal power, and other opportunities like carbon farming and energy efficiency. The existing Renewable Energy Target and policies that come with these laws, like the $10 billion Clean Energy Fund and Carbon Farming Initiative, can develop the technologies, skills and jobs crucial to reducing our economy’s dependence on carbon pollution.”

Two top priorities now are to follow through on the Government’s commitment to develop a national energy savings scheme and to ensure long term investors, like superannuation funds and the Future Fund, better factor in systemic climate risks and low carbon economic opportunities. Internationally, we can now credibly join other nations in addressing the risks and costs of accelerating climate change to which Australia is so exposed.”

Source: Climate Spectator.

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