Climate Change Policy: The Copenhagen Accord, Cancun and Beyond

Michael Hitchens, Chief Executive Officer, November 2010

Agenda

How did we get here? International negotiations Domestic policy Where to next?

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How did we get here?

Domestic policy parallels international events

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INTERNATIONAL DOMESTIC

UNFCCC 1992 (in force 1994) Ratification of UNFCCC 1992

Berlin Mandate 1995 Carbon tax proposals Greenhouse Challenge 1995

Kyoto Protocol 1997 (in force 2005)

National Greenhouse Strategy 1998, includes MRET (starts 2001)

EU ETS 2003-05Stern Review 2007

AGO ETS1999-2001;NSW GGAS 2003; States NETT 2004; QLD GEC 2005;

Bali Roadmap 2007-09 PMs TGET; Ratify Kyoto Protocol; Garnaut Review; CPRS White Paper 2008

Pre-Copenhagen 2009 RET; CPRS to start 2011

Post-Copenhagen 2010 Multi-Party Committee on Climate Change

International negotiations

Australia’s Kyoto Protocol progressAverage of +8% on 1990 over 5 yearsPerhaps 50 million tonnes to sell (but no buyers?)

Copenhagen AccordDeveloped versus developing country paradigmPledges add to 17% reduction, at best2oC thought to require 25% by 2020

‘Binding’ agreement before 2012 unlikelyUSA – China the key

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Australia’s position

“… reduce Australia’s emissions by 25 per cent on 2000 levels by 2020 if the world agrees to an ambitious global deal capable of stabilising levels of greenhouse gases in the atmosphere at 450 ppm CO2-e or lower…and… to unconditionally reduce Australia’s emissions by 5 per cent on 2000 levels by 2020, and to reduce emissions by up to 15 per cent by 2020 if there is a global agreement which falls short of securing atmospheric stabilisation at 450 ppm CO2-e, and under which major developing economies commit to substantially restrain emissions and advanced economies take on commitments comparable to Australia’s.”

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Australia’s position

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Busting the myth: -5% is more than our fair share under the Copenhagen Accord (WRI)

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Myth busting part 2: Emissions/capita (WRI)

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Myth busting part 3: Emission/$GDP (WRI)

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Myth busting part 4: Copenhagen Accord shadow emission prices (McKibbin)

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Domestic policy

AIGN supports a price on emissions Emissions trading has pluses with permit

allocation; least-cost international trading; long-term price discovery (but medium term price instability)

Emission tax may offer less uncertainty on price The policy problem is the transition to a

comprehensive global price

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AIGN principles

Managing uncertainty National – there is a real problem with multiple

Federal and State measures Stable policy settings and institutions Long-term price discovery

Trade exposure Compensation Investment in RD&D Investment in adaptationA U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 12

CPRS

Delay until 2013 Until after the Kyoto period AND Clarity on major economies’ action (USA, China, India)

What ‘certainty’ did CPRS provide? Legislative framework

But subject to sovereign risk change (witness RET) Carbon price

But this was to be set by international markets Copenhagen limited any ‘certainty’ on that score

Was this the best EITE deal? For most TE it was a bad deal

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Are proxy carbon prices now the main game?

RET and feed-in tariffs (FIT) White certificates scheme Emission regulation

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Contributions to electricity prices

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Real $/MWh 2012

Base Price2009

New Network Investment

Enhanced RET 2010

Carbon price White certificates

scheme

Wholesale price 35.00 0.00

Transmission/distribution

30.00 30.00

Retail costs and margin

22.00 7.10 ?

TOTAL PRICE 87.00 117.00 124.10 124.10 ?

% change 34% 6% ?

Real $/MWh 2020

Base Price2012

New Network Investment

Enhanced RET 2010

Carbon price White certificates

scheme

Wholesale price 35.00 5.00 45.00

Transmission/distribution

60.00 20.00

Retail costs and margin

29.10 13.40 ?

TOTAL PRICE 124.10 149.00 162.40 207.40 ?

% change 20% 9% 28% ?

Where to next?

International Cancun South Africa 2011 USA – China the key

Domestic Multi-Party Committee on carbon price State action (NSW FIT; Victoria EPA)

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