The Climate Institute
Global Climate Leadership Review 2012
This Spotlight Report provides The Climate Institute’s overview of Australian climate policy in a global context. It aims to elaborate on the implications of global climate diplomacy and domestic actions for Australia.
The Global Climate Leadership Review 2012 and interactive Low-Carbon Competitiveness Index can be accessed at www.climateinstitute.org.au The lead author for this report has been Erwin Jackson, Deputy CEO of The Climate Institute, with contributions from other staff and using research from Vivid Economics, EcoPerspectives and Bloomberg New Energy Finance.
The Climate Institute
ISBN 978-1-921611-23-0
Spotlight Report
Global Climate Leadership Review 2012
Contents
Foreword 01 Aim+Approach 02 Key Findings 05 Summary 07 Context 15 Findings 29 Case Studies 39 Conclusion 61 Notes 62
Foreword
Foreword The Climate Institute is pleased to present its first major piece of research for 2012. This is the first of what will be an annual review giving insights into leadership in carbon competitiveness and climate co-operation between nations. Although partly obscured by a wall of white noise of short-term political and economic instability, 2011 ended with major domestic and international achievements. These achievements, such as Australia’s Clean Energy Future package and the UN’s Durban Platform, represent real progress amongst growing global carbon markets and clean energy investments. As this report demonstrates, Australia is not only beginning a phase of catch up in terms of its economic carbon competitiveness but is also having to arrest a trend of decline since the mid 1990s. A decline remarkable because it is shared by no other country in the G20 club of developed and developing economies. 2011 also showed a continuation of the changing climate as well as rising global emissions. In Australia, seasonal conditions appear to have combined with renewable energy policies and other factors in the energy market to see our emissions stabilise or drop slightly. But much remains to be done to put this into long-term decline let alone halt the rise in mining and transport related pollution.
Obsession with the fixed price element of the clean energy future package has missed the strategic significance of the legislation that not only prices but limits carbon. It’s not just a tax, it is a tap. A tap that will, from 2015, automatically start turning off the pollution impact of some of our key economic sectors at a legislated minimum of 12 million tonnes per year. In late 2010 BHP chief executive Marius Kloppers belled the cat when he noted that “to remain competitive in a future carbon-constrained world, Australia will need to turn into a lower carbon economy”. As this report notes, in the emerging reality of this future carbon-constrained world, Australia risks losing the lucky country tag. It will take leadership from within business, politics and the community to turn the advantages of today into the good fortune and prosperity of tomorrow. I am delighted by the support of key partner GE and PacificHydro for this report as two such businesses showing leadership in realising commercial opportunities but also in supporting public research and information. The support of Bloomberg New Energy Finance, OgilvyEarth and the Low-Carbon Competitiveness Index analysts Vivid Economics, should also be acknowledged. We look forward to another lively year of debate but also some real delivery and leadership in 2012.
John Connor CEO 01
Aim + Approach
Aim
Approach
Australia does not act on climate change in isolation. The Climate Institute’s Global Climate Leadership Review 2012 positions Australian climate policy in a global context. It aims to elaborate on the implications of global climate diplomacy and domestic actions for Australia.
The Climate Institute engaged recognised leaders in climate change economics and policy to undertake the analysis underpinning the Global Climate Leadership Review 2012. Key work was carried out by Vivid Economics, who updated the Low-Carbon Competitive Index. Salim Mazouz Managing Director, EcoPerspectives and Research Associate, Centre for Climate Economics and Policy, Australian National University joined with Erwin Jackson, The Climate Institute’s Deputy CEO to write a paper on regional emissions trading coalitions. In addition, other Australian and international academics, policy experts, financial analysts and business leaders where engaged in workshops and provided input into The Climate Institute’s thinking.
The overarching theme of this flagship project is leadership. The Global Climate Leadership Review identifies which nations are currently leading the low carbon economy, who is leading the international negotiations and provides an annual case study of where Australia can show leadership. The Global Climate Leadership Review marks the beginning of an ambitious research program for the year. Focusing our efforts in the areas of international accountability, economic transformation and societal leadership will translate to us publishing other flagship research reports into the climate of the nation’s public attitudes, the economic risks and costs of inaction or part-action, as well as analysing the risks of Australia’s high carbon economy and the adequacy of the response of institutional investors and asset owners.
The Climate Institute draws on its staff’s international experience and networks to provide insights on global trends. The Institute is on the ground in international negotiations each year to develop and provide deeper analysis. Interviewing a pivotal player in the UNFCCC climate negotiations, lead negotiator for the European Union Connie Hedegaard, offers a valuable insiders perspective into what can often seem an elusive and precarious process. As always, we have continued to seek out innovative new communications platforms consistent with our ongoing drive to communicate the complex issues of climate change as simply and effectively as possible. Pitch Interactive, a US-based firm specialising in data visualisation, was commissioned to create a unique online interface whereby individuals could delve deeper into the findings of the Low-Carbon Competitiveness Index.
02
The right to produce emissions will become a scarce and valuable resource just like...
minerals
fertile soil
water
financial capital
& skilled workers
Photographer: Michael Hall www.michaelhall.net
Key Findings
Overview
1
+ France, Japan, the United Kingdom, South Korea and Germany are currently best prepared to be competitive in the low-carbon economy.
+ 2011 saw significant progress in international negotiations with the first ever agreement to finalise a new legal framework that covers commitments from all major emitters by 2015. In 2012, whether Australia helps or hinders global efforts will hinge on whether it accepts a new and credible Kyoto Protocol target at the end of the year.
+ Australia’s AU$23 starting carbon price is not excessive compared to other carbon prices in economies like Norway, UK and Switzerland. Free permits for Australian emission intensive trade exposed industries mean they face an initial price of AU$1 or AU$8.
05
G20
+ Australia is the only country in the G20 which has become less prepared for the low-carbon economy since 1995.
+A ustralia, ranked 16th of 19 G20 nations, is amongst those countries facing the biggest challenge in remaining competitive in a low-carbon future, and is currently less prepared than countries such as Argentina, South Africa, Saudi Arabia, Russia and the USA.
Australia
06
Summary
Readiness for a low-carbon world Like 2011 before it, 2012 is shaping up to be another year of economic volatility, political instability and environmental challenges for Australia. It is easy to be distracted by short-term issues but against this backdrop, climate change mega-trends are continuing.
Despite the uncertain economic conditions, 2011 saw another record year for clean energy investment, with investment topping US$260 billion. Investment in clean energy generation is now competing with global investment in fossil fuels, rising to 42 per cent of total energy investment in 2010.
Evidence of climate change driven by our economic dependence on polluting technologies continues to grow. Scientists are attempting to more clearly identify the natural boundaries that humanity needs to respect in order to avoid the risk of tragic and expensive environmental change at both continental and global levels. Initial indications are that many of these boundaries appear to have already been crossed and others are increasingly under threat.
Over 100 nations now have policies supporting the development of renewable energy. Carbon taxes and direct prices are already legislated in countries covering around 567 million people and a further 900 million will be covered when schemes commence in China and South Korea in 2015. While the European Union (EU) carbon market deals with oversupply issues and broader economic woes, Australia’s starting carbon price of AU$23 is by no means the world’s highest price.
Leading policy makers, businesses and economists accept that economic development to date has come at the expense of natural capital and the critical economic and life support services our ecosystems and climate provide. They are now actively pursuing smarter, cleaner and healthier models of economic development. It is no coincidence that immediately following the global financial crisis, around 16 per cent of total economic stimulus packages around the world were allocated to climate change measures, representing upwards of US$520 billion - towards clean energy development and low-carbon growth.
07
For all the relative strength of the Australian economy, we are not immune to global trends. We are reminded of this every day by news reports about the impact of the mining boom and global economic conditions on our exchange rates and our economy. Australia is faced with a dual challenge: how on the one hand we can ensure our economy is flexible enough to deal with those global trends that may negatively impact us, but on the other hand, how we ensure we are positioned to capitalise on the opportunities the 21st century global economy presents.
The economic blessings of the past – such cheap and polluting energy – have become the economic curses of the future.
Unfortunately, the Global Climate Leadership Review 2012 highlights just how ill-prepared Australia is to meet many of these economic challenges. What we have seen as the economic blessings of the past such as cheap, heavy polluting energy, will shortly become the economic curses of the future. In 2009, The Climate Institute commissioned London-based economics firm Vivid Economics to measure the low-carbon competitiveness of the G20 countries. This year, The Climate Institute in partnership with GE commissioned an update of the “Low-Carbon Competitiveness Index” (LCCI), using the most recent data available and also backcasting to incorporate data from 1995 to examine how those rankings have changed over time. It provides a snapshot of each country’s current level of readiness for a low-carbon world, assessing the structure of each economy, the extent of early preparation, and broader indicators of future prosperity such as natural and human capital. (It is important to note that the LCCI does not incorporate the recent Clean Energy Future initiatives into its analysis as these measures have largely not yet come into force.)
The key findings from the LCCI include: • France, Japan, the United Kingdom, South Korea and Germany are currently best prepared to be competitive in the low-carbon economy. • Australia is amongst those countries facing the biggest challenge in remaining competitive in a low-carbon future, ranked 16th, lower than Argentina, South Africa, Saudi Arabia, Russia and the USA. • Australia is the only country in the G20 which has become less prepared for the low-carbon economy since 1995. • 2011 saw significant progress in international negotiations with the first ever agreement to finalise a new legal framework that covers commitments from all major emitters by 2015. In 2012, whether Australia helps or hinders global efforts will hinge on whether it accepts a new and credible Kyoto Protocol target at the end of the year. • The countries which are best prepared for the low-carbon economy are those who have recognised the inextricable link between economic, resource security and climate change policies and are taking action accordingly. Australia’s Clean Energy Future package is a step towards joining these nations.
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Summary
Reversing Australia’s Regression Economic transformation is always difficult; it will require strong national leadership to guide Australia through what can be an unsettling period of change. However the change is inevitable. Australia can’t turn its back on the global shift from dirty to clean energy, from non-renewable to renewable, and from inefficient to efficient. It can’t do this anymore than it could resist the information technology age or the rise of China – and it is not in our national interest to do so. The Clean Energy Future package will begin to change our direction. For the first time Australia will have an absolute and ongoing limit placed on the carbon pollution we release into the air. The pollution price, the Renewable Energy Target, the Carbon Farming Initiative and new policies announced last year – like the Clean Energy Finance Corporation and the proposed national Energy Savings Initiative – can drive investment, innovation and can minimise the threats and maximise the benefits to our citizens in a world limiting pollution. Political and investment decisions still to be made will determine the success of this package. It will take leadership from government, business and the community to reverse Australia’s declining carbon competitiveness.
Australia must also act diplomatically to secure its national interest in keeping global warming below 2ºC above pre-industrial times. One high-value approach is for Australia to build regional carbon trading coalitions to provide economic incentives for advanced and developing countries to commit to more ambitious action. At a multilateral level Australia faces a choice between maintaining a relatively unambitious approach to climate negotiations or pursuing more ambitious global action. 2011 saw significant progress in international negotiations with the first ever agreement to finalise a new legal framework that covers commitments from all major emitters by 2015. Australia will be an important player in these negotiations and will need to choose between retreating to the recalcitrant position it held up until 2007 before it ratified the Kyoto Protocol, or work with other leading nations such as those in the European Union and the small island states who are advancing ambitious cooperative agreements. In 2012, this will hinge on whether Australia accepts a new Kyoto Protocol target at the end of the year. By marrying our climate diplomacy and carbon policies we can engage strategically with the international community in building a resilient and prosperous zero-carbon global economy. Australia is at no risk of leading the world, but in 2012, when the Clean Energy Future legislation comes into effect, we will for the first time start moving in the same direction as those that are, and can reap the benefits accordingly.
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Figure 1.0 Change in the Low-Carbon Competitive Index: 1995 - 2008
nlike its predecessor, the 2012 LCCI has also been U calculated for 1995 and 2000 to give an overall assessment of how countries are improving through time. Australia is the only country which has a current score lower than that it was in 1995. Some of the biggest improvements since 1995 are seen in China, South Korea and Mexico. Indonesia’s significant improvement is due to variables in the future prosperity category, such as spending on education, which do not directly relate to carbon emissions.
Change in the LCCI: 1995 - 2008
0.10 0.08 0.06 0.04
0.02 0.00 -0.02
U K do n So es ia ut h Af ric a Au st ra lia In
ly an ad a
Ita
C
SA Ja pa n
U
an y Tu rk ey Fr an ce B Sa r ud azil iA ra bi a Ru ss ia Ar ge nt in a
re a
m
G
er
na
Ko
o ic
hi C
M ex
In di
a
-0.04
Source: Vivid Economics
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Fly Around
Israel: Integrated Infrastructure for Electric Cars Israel was one of the leaders in terms of support for new clean technology innovation. Last year it saw the launch of a new system for electric vehicles, which can reduce both transport emissions and reliance on oil. A network of battery recharging points and battery-switching stations were rolled out and this year Israelis will begin driving the new Renault Fluence ZEs (Zero Emissions).
11
Japan: Solar Boom Solar power is growing rapidly in Japan, as the country tries to reduce its reliance on nuclear and coal-fired power in the wake of the Fukushima disaster. Sales of solar cells in Japan rose 30 per cent in 2011, topping 1,000MW for the first time. A further 50 per cent rise is forecast for 2012. The Government has subsidised the installation of solar panels with a feed-in tariff, under which panel owners sold ¥ 96 billion (AU$1.1 billion) worth of electricity to power utilities last year. In July the scheme is expanding to cover wind, biomass, geothermal and small hydro plants, driving further growth in Japan’s renewable sector.
Latin America: Booming New Market for Clean Energy Brazil is one of the fastest growing destinations for renewable energy investments globally. Due to its renewable energy support policies investment in 2011 increased by 15 per cent to US$8.2 billion. In Chile, hydroelectricity is already responsible for one third of the country’s electricity needs; the Government aims to lift that proportion to 45 or 50 per cent in the next two decades. Chile also intends to boost support for other forms of renewable energy, implement energy savings of 12 per cent by 2020 and is currently working on the design of an emissions trading scheme.
SWISS PEOPLE SHOT to come
USA: Smart Grids 2.0
Canada: Driving CCS Advances
Switzerland: Doubling Carbon Tax
Smart grids in the United States are growing fast and getting smarter. Federal stimulus funding and state legislation have driven the deployment of more than 30 million smart meters across the country. By 2016 at least half of USA energy consumers will have a smart meter, enabling them to make informed choices about their energy use by providing real-time data on their electricity consumption. Meanwhile the next wave of development will see more emphasis on dynamic pricing and demand management, energy storage, security, communications and smart appliances.
Canada’s patchy record on climate notwithstanding, the country is leading the world in support for carbon capture and storage (CCS) technology. The province of Alberta has put up CAD 2 billion (AU$1.89 billion) to advance CCS projects that should sequester five million tonnes of CO2 annually by 2015. The Boundary Dam project, one of the world’s first two commercial CCS projects on a coal-fired power plant, is already under construction. Other projects are close to starting construction. Canada also leads in the area of regulatory developments for CCS. In late 2011, it issued draft federal regulations that will, for the first time, set CO2 emission limits on coal plants.
In December, Switzerland chose to increase its carbon tax on coal, gas and heating oil from CHF 36/tonne (AU$37) CO2-e to CHF 60/tonne (AU$62) from 2013, with provision for further increases up to CHF 120/tonne (AU$124). Two-thirds of revenue raised is redistributed via insurance rebates for people and companies, with the remainder spent on insulation measures. This will contribute to Switzerland’s target of 20 per cent domestic greenhouse gas emissions reductions by 2020. Swiss law also provides for this target to be raised to 40 per cent in light of international developments.
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Section 1.0 Global Trends + Context
Global Trends + Context
The global climate Climate change mega-trends are continuing. While this is occurring against the backdrop of global economic volatility and political instability, critical developments in climate change, clean energy and economic policy advance inexorably forward. The climate system continues to confront us with the risks that our current economic dependence on pollution presents. The global temperatures in 2011 were yet again above the longer term average. According to the World Meteorological Organization, 2011 will rank as the equal 10th warmest year on record.1 The 13 hottest years have all occurred in the last 15 and globally, 2010 and 2011 were the warmest La Niña years on record. For Australia, the 2010–2011 La Niña was one of the strongest, with the two years bringing the heaviest rainfall on record, flooding extraordinarily large parts of the country’s north and east.2
The clean energy boom Despite uncertain economic conditions clean energy investment continued to grow. Last year saw another record year in global clean energy investment, which topped US$260 billion.3 Of this total over half - US$137 billion - was in solar energy, followed by wind power at US$75 billion. For the first time since 2008, the United Staes was the global leader in terms of total investment in clean energy - US$56 billion. China maintained its strong position, with investment rising to US$47 billion. India’s investment grew the fastest with a 2011 increase of 52 per cent and a total of US$10 billion in total. 15
Data provided to The Climate Institute by leading financial analyst Bloomberg New Energy Finance shows clearly that investment in clean energy generation4 now competes with global investment in fossil fuels (Figure 2.0). In 2004, only 17 per cent of investment of new power generation capacity was based on clean energy. In 2010, it was 42 per cent. Bloomberg New Energy Finance chief executive Michael Liebreich has concluded, “Another five years of [clean energy] investment growth at the same compound rates, and the world will have broken the back of emissions growth.”5
Climate policy advances Climate policy advanced with the introduction of Australia’s and California’s emissions trading schemes and China’s commitments to carbon pricing and pilot emissions trading systems. In March 2011, the UK Chancellor announced the introduction of a carbon price floor on top of their participation in the EU emissions trading scheme.This is intended to ensure a minimum carbon price on fossil fuel electricity of £16 tonne (around AU$23/tonne) in 2013, rising to £30 (around AU$44/tonne) by 2020. Over 100 nations now have policies with carbon prices or supporting renewable energy. Carbon taxes and direct prices are already legislated in the economies of the EU, North America and New Zealand and cover around 567 million people. As Australian Climate Commissioner Dr Roger Beale pointed out recently, 900 million people will be covered when schemes in countries such as China and South Korea start in 2015.6
Sub Head
Sub Head
02
Global Trends + Context
+
+ It is increasingly apparent that the way in which we use natural resources could place higher living standards and even conventionally measured economic growth at risk.
+ Despite uncertain economic conditions, clean energy investment continued to grow.
+ Investment in clean energy generation now competes with global investment in fossil fuels. 17
Another five years of clean energy investment growth at the same compound rates, and the world will have broken the back of emissions growth.
Figure 2.0 Clean energy and fossil fuel power generation investment: 2004-2011
Total Fossil Fuel Investment ($bn) Total Investment In Renewable Asset Finance + Small Distributed Capacity ($bn)
250
US$ Billion
200
150
100 Note: Investment for new-build fossil fuel calculated from EIA & IEA data, clean energy taken from Bloomberg New Energy Finance totals.
50
0 2004
2005
2006
2007
2008
2009
2010
2011
Source: Bloomberg New Energy Finance. Investment for new build – fossil fuel calculated from US Energy Information Administration and International Energy Agency data, clean energy taken from Bloomberg New Energy Finance totals
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Global Trends + Context
A broader view emerges The current unprecedented level of global action on climate change is not happening in isolation. Action to control local air pollution, increase energy security, drive climate change solutions, build new local industries and foster low-carbon competitive advantage have resulted in a raft of policies designed to reduce pollution and drive clean energy investment. A number of global challenges have become intertwined – the global financial and economic crisis, global climate change and poverty alleviation. It is increasingly recognised that addressing these challenges in isolation or one at the expense of another is unsustainable.7, 8, 9 Policy makers, businesses and academics are also increasingly examining smarter, cleaner and healthier models of economic development. Most recent economic development and growth strategies have encouraged rapid accumulation of physical, financial and human capital. This has come at the expense of natural capital and the critical economic and life support services it provides.10 Scientists are now attempting to more clearly identify the natural boundaries that humanity needs to respect in order to avoid the risk of deleterious environmental change at continental to global scales.11 Many of these boundaries appear to have been crossed and others are increasingly under threat. (Figure 3.0)
19
As the OECD has concluded, “It is increasingly apparent that the way in which we use natural resources could place higher living standards and even conventionally measured [economic] growth at risk.”12 They continue, “business as usual” would indeed be unwise and ultimately unsustainable, involving risks that could impose human costs and constraints on economic growth and development”.13 It was no coincidence that immediately following the global financial crisis nations as diverse as South Korea, China and the United States chose to direct significant proportions of their stimulus packages – worth around US$521 billion - towards clean energy development and “green” growth (Figure 4.0).14 HSBC estimates that around 16 per cent of economic stimulus packages globally was allocated to climate change measures including renewable energy, building energy efficiency, low emission vehicles and infrastructure like rail. Leading developed and developing economies are not focusing on economic priorities at the expense of climate action; instead they see the shift to clean energy development as crucial for their economic recovery and global competitive advantage.
Business as usual would indeed be unwise and ultimately unsustainable, involving risks that could impose human costs and constraints on economic growth and development.
Challenges remain That said, 2011 was not without challenges. The long-term trends in climate change policy and investment were impacted by short-term events and political setbacks.
Regardless of the current low price in the EU, Australia’s projected starting carbon price is not excessive compared with those expected in other advanced economies (Figure 5.0) in 2012-15.
The tragedy in Japan as a result of the extreme earthquake and resulting tsunami raised questions around that country’s commitment to it’s Kyoto Protocol target and more broadly the role of nuclear power in the world’s energy mix. Despite this Japan remains committed to meeting is 2008-2012 Kyoto target and the nation is now in the process of implementing national feed in tariffs to support renewable energy and reduce their current reliance on nuclear energy. One study suggests that when implemented in July 2012, the feed-in-tariff could over the next 15 years stimulate investment in solar, wind, hydro and geothermal equivalent to around a third of Japan’s current electricity capacity.15
It is also worth noting that Australian emission intensive industries that compete internationally face a carbon price of only around AU$1 to AU$8 tonne due to industry assistance and free permits of 66 to 94.5 per cent. In summary, 2011 saw the climate change mega-trends continue but punctuated by economic and political volatility. It takes leadership to look past short-term challenges and prepare for longer-term realities. This is the context for The Climate Institute’s Global Climate Leadership 2012 Review.
And although the overall value of the carbon market increased by 10 per cent due to increased trading, prices hit historical lows. This is largely due to the EU’s economic situation reducing the demand for emission permits. European governments are beginning to seriously consider options to lift carbon prices to support the market and provide greater incentives for clean energy investments. Analysts suggest these measures could see carbon prices in the EU rise to between €11.50 (~AU$11) to €23.00 (~AU$28) next year16 and more by 2020.
20
Figure 3.0 Examples of proposed planetary boundaries. Climate change and biodiversity boundaries have already been exceeded, suggesting that without prompt action Earth’s systems are being pushed into areas that threaten the stability of systems that have fostered human development over the last 10,000 years. Indicators for ocean acidification – which threatens the food supplies of billions of people – and freshwater and land use have not yet crossed proposed boundaries but are deteriorating. Due to prompt international action the loss of stratospheric ozone is returning to safer levels.
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Earth Systems
Proposed Boundary
Climate Change
Current Levels
Pre-Industrial Level
392
280
1
1.5
0
10
>100
0.1-1
276
283
290
2.75
2.90
3.44
4,000
2,600
415
15
11.7
Low
350
Parameter: Atmospheric concentrations of carbon dioxide (ppmv)
Climate Change Parameter: Change in radiative forcing (watts per metre squared)
Rate of Biodiversity Loss Parameter: Extinction rate (number of species per million species per year)
Stratospheric Ozone Depletion Parameter: Concentration of ozone (Dobson unit)
Ocean Acidification Due to the Buildup of Atmospheric Carbon Dioxide Parameter: Concentration of ozone (Dobson unit)
Global Freshwater Use Parameter: Consumption of freshwater by humans (km3 per year)
Change in Land Use Parameter: Percentage of global land cover converted to cropland
Below Level
Over Safe Level
22
a
Figure 4.0 Percent of climate change related spending in initial economic stimulus packages in individual countries.
79% South Korea
Saudi Arabia
South Korea
23
34%
18%
15%
13%
12%
11%
China
France
UK
Germany
Australia
South Africa
China Saudi Arabia
China
Japan
South Korea
Saudi Arabia
Indonesia
10%
10%
Japan
9%
South Korea
8%
6%
China
Saudi Arabia
Japan
Mexico
USA
Canada
Saudi Arabia
6% South Korea
Japan
Spain
2%
1% China
Saudi Arabia
Indonesia
Italy
Indonesia
Indonesia
24
Figure 5.0 Approximate carbon prices around the world in 2012-15. This includes both carbon taxes and projected prices under emissions trading schemes.17 Cross country comparison of carbon prices is challenging as countries apply them to different fuels, industries and pollution sources in different ways. These estimated pollution taxes should therefore been seen only as indicative and are not directly comparable.
Note: This does not capture the full extent of policy action as it only covers direct carbon pricing. This is also not exhaustive. Carbon prices under development in Chile, China, Japan, South Korea and Mexico are excluded.
$130
Sweden $30 - $60
Levied primarily on oil, coal, natural gas and petrol. Energy-intensive industries pay a reduced rate of around $30/tonne. Sweden is part of EU ETS.
Switzerland Covers coal, oil and natural gas. Petrol and diesel covered under a separate carbon levy. Companies are exempt if they participate in the Swiss emissions trading scheme.
$24 - $30
UK The current Climate Change Levy will become a carbon price floor in the UK in 2013. Charged on fossil fuels that produce electricity. UK is part of EU ETS.
$53
Norway Taxation on gasoline, natural gas, oils, coal. Rate ranges by fuel and processing industry and fisheries are exempt. Norway is part of EU ETS.
$24 - $37
Ireland Covers oil, coal and gas. Ireland is part of EU ETS.
25
$24
Finland $19
Levied on electricity and gas consumption and a limited number of industries receive rebates for the tax. Finland is part of EU ETS.
The Netherlands Applies to fossil fuels including natural gas, electricity, coal, petrol and diesel. The Netherlands is part of EU ETS.
$23 - $25
Australia Covers approximately two-thirds of Australia’s emissions. Emission Intensive Trade Exposed industries receive an initial free allocation of permits and have initial carbon price liabilities of $1 to $8/tonne.
$16
Denmark $13 - $21
Applied to fuels used in energy production. An industry might be exempt from the tax or entitled to a reduced rate if they agree to undertake certain pollution reduction actions. Denmark is part of EU ETS.
California Scheme will cover around 85 per cent of the State’s emissions. Initially, large industrial facilities receive about 90 per cent of average emissions for free.
$15
South Africa Covers electricity, petroleum production, industrial processes and coal mine fugitive emissions from 2014. Will apply to 20-40 per cent of a company’s emissions and the tax rate will rise 10/year until 2020.
$10 - $28
EU Scheme covers 40 per cent of its total greenhouse gas emissions. Production from sectors a significant risk of carbon leakage receive free allowances.
$6 - $9
New Zealand Scheme currently covers forestry, transport, electricity, industrial processes and waste. Industry allocations based largely on the Australian pollution pricing scheme.
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Section 2.0 Who's Leading The Low-Carbon Economy?
Carbon Competitiveness Amongst Nations
Taken by themselves, conventional measures of economic performance and competitiveness don’t fully capture the realities of a world where carbon pollution needs to be limited. Historic investment in the extraction and use of fossil fuels has taken carbon that was stored geologically and returned it to the atmosphere. Deforestation has caused the release of more pollution while destroying natural stores and sinks of carbon. Together, these forces have overloaded the natural carbon cycle. Carbon levels in the atmosphere are now higher than at any time in at least the last 800,000 years.19 To stabilise concentrations of carbon and other greenhouse pollution in the atmosphere, an absolute limit on their release is necessary. To illustrate, the majority of nations accept that global warming of 2ºC or greater risks dangerous and severe climate change impacts. To have a good chance (not a guarantee) of avoiding these impacts requires limiting cumulative carbon dioxide emissions over the period between 2000 and 2050 to 1,000 billion tonnes.20 Within the first six years of this century around 25 per cent of this limit had already been used.21 The challenge for economies is to operate within these physical limits and deliver economic prosperity while at the same time reducing greenhouse gas emissions.
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The right to produce emissions will become a scarce and valuable resource – just like minerals, fertile soil, water, financial capital and skilled workers. Countries that can get the most out of their limited resources will do well. This is why it is important to a nation’s future prosperity that its economy generates maximum value for each tonne of carbon emissions produced. Countries differ in the rate at which they are making economic changes required to achieve these objectives. Countries also differ in the current exposure of their economy to carbon constraints and their potential to maximise future prosperity in a world turning to clean energy. In 2009, The Climate Institute commissioned Vivid Economics to measure the low-carbon competitiveness of G20 countries.22 This year The Climate Institute in partnership with GE delivers an updated Low-Carbon Competitiveness Index (LCCI) using the most up-to-date data available. This year’s index reassesses the position of the G20 countries and backcasts the data to 1995 to examine how those rankings change over time.23
“ Presently, Australia has a high-carbon economy; to remain competitive in a future carbon-constrained world, Australia will need turn into a lower carbon economy.� Marius Kloppers, CEO, BHP Billiton, September 2010.18
02 Photographer: Michael Hall www.michaelhall.net
Carbon Competitiveness Indicators
01. Sectoral Composition The Climate Institute/GE Low-Carbon Competitiveness Index is a snapshot of each country’s current level of readiness for a low-carbon world.24 A total of nineteen variables are included in the LCCI. Variables are included in the index if they are found to have a sufficiently strong statistical relationship to carbon productivity, and their weighting in the index is proportionate to the size of their impact. Some are included as proxies for broader measures, for example, the efficiency of oil refining is used as an indicator of broader energy efficiency in the industrial sector. The indicators are assigned to one of three categories that were chosen to represent different, although clearly interconnected, elements which will determine low-carbon competitiveness: the structure of the economy or ‘sectoral composition’, early preparation and future prosperity. Just because a country does well on the LCCI today does not mean it will do well in the future. For example, Japan scores relatively well today in part because of policies of the past. To maintain its position and not risk falling behind other nations, new policies to drive low-carbon competitiveness are likely to be required.
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This category captures how the composition of the economy is currently structured towards less emissions intensive activities. Countries whose economies are more heavily weighted towards sectors which will experience lower demand due to climate action – e.g. the export of emissions intensive products like coal or high levels of energy consumption in the transport sector - will be relatively worse off. (Figure 7.0)
Variable Definition
Is Higher Better?
Transport sector energy consumption per capita
‘000 tonnes of oil equivalent (toe) per capita
No
Deforestation rate
Percentage of total forest cover
No
Share of high Percentage of total exports technology exports
yes
Size of road Cars per 1000 people transport sector
No
Balance of emissions embodied in trade
Percentage of total emissions from production
No
Air freight
Million tonne-kilometres
No
Clean energy production
Percentage of total energy use
yes
02. Early Preparation
03. Future Prosperity
These indicators reflect the steps that countries have already taken to move towards a low-carbon economy. Early adopters of energy efficiency or low-carbon technologies will experience higher rates of learning, greater cost reductions and so will be better placed to generate material prosperity in the future. Also, the costs of shifting to a low-carbon economy will be higher if the transition is delayed and occurs more quickly or dramatically. For these reasons, countries which take early action on climate change will have higher standards of living in a low-carbon future. (Figure 8.0)
A country’s ability to provide prosperity to its citizens in a low-carbon world is not just a function of technology and the sectoral composition of the economy. For example, beyond the general performance of the economy, prosperity will also be a function of variables like investment in education which support innovation. Measures of natural capital will also be important to capture the change in a country’s stocks of resources, such as agricultural land, minerals and forests. If countries deplete their stock of natural capital, their capacity to produce goods and services (such as timber or clean water) from the natural environment in the future is reduced. (Figure 9.0)
Variable Definition
Is Higher Better?
Efficiency of oil refining
Net energy input into oil refineries per unit of output (‘000 toe)
New sustainable energy investment
$US equivalent listed on the local stock exchange
yes
Electricity distribution losses
Percentage of total electricity generated
No
Annual growth in Change in emissions (%) greenhouse gas emissions
No
No
yes Price of diesel fuel $US/litre Carbon intensity CO2 per kWh No of electricity
Variable Definition
Is Higher Better?
Human capital
Education expenditure as % of GNI
yes
Physical capital
Rate of fixed capital formation as % of GNI
yes
Natural capital
Depreciation as % of GNI
No
Population growth Percentage change
No
GDP per capita 2000 $US per person yes Cost of business Percentage of GNI No start-up procedures per capita
References for individual variables can be found in the associated Vivid Economics report on The Climate Institute’s website.
32
Key Conclusions
LCCI Snapshot Overall • France, Japan, the UK, South Korea and Germany top the LCCI (Figure 4.0). They are followed by Canada25, China, the USA, Italy and Brazil. • Since the release of the first index in 200926, France has retained its position at the top of the index, while Japan and the UK have overtaken South Korea to take second and third places. • Australia, ranked 16th in the first and revised reports, and is the worst performing advanced economy among the G20. The score for Australia does not include the impact of the Clean Energy Future package, as the measures contained therein have largely not yet come into force. Sectoral Composition: • France, South Korea and China have the best scores on sectoral composition. France has the highest level of clean energy production, the least emissions-intensive exports and relatively low levels of car ownership, while South Korea has the highest share of high technology exports. China has low emissions per capita from the transport sector, the highest rate of reforestation, and the second highest share of high technology exports. • Australia is amongst those countries facing the biggest challenge from its sectoral composition in remaining competitive in a low-carbon future. Australia has the lowest level of overall clean energy production, the second highest number of cars per capita, and relatively high deforestation and emissions per capita from the transport sector. Early Preparation: • The USA has the highest score for early preparation, followed by France and Germany. The USA has the highest levels of investment in sustainable energy on its stock market as well as levels of industrial energy efficiency that are above average and electricity distribution losses which are below average. • Australia ranks slightly below average in this category due to a higher carbon intensity of electricity generation, while performing mid-table on the other measures. Future Prosperity: • J apan, Germany and the USA have the highest scores in this category. Japan has low population growth, low depletion of natural capital and the highest level of GDP per capita, but relatively low spending on education. • Australia ranks in the middle for this category with higher than average spending on education, levels of GDP per capita and ease of starting up a business, but lower than average investment in physical capital and a relatively high rate of natural capital depreciation. Through time the score has deteriorated due to declining investment in education and higher population growth.
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Figure 6.0 France, Japan, the UK, South Korea and Germany top the 2012 Low-Carbon Competitive Index.
1
Overall LCCI
2008 2000 1995 2005
Source: Vivid Economics
34
Figure 7.0 Sectoral composition variables reflect the fact that economies which have a more emissions intensive structure will face a greater challenge in remaining competitive in a carbon constrained world.
Sectoral Composition
2008 2000 1995 2005
Figure 8.0 Early preparation variables include indicators reflecting the steps that countries have already taken to move towards a low-carbon economy. Countries which take early action will have higher standards of living in a low-carbon future.
Early Preparation
2008 2000 1995 2005
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Figure 9.0 Future prosperity indicators contribute towards prosperity today and will also be important in a carbon-constrained future. A country can achieve a higher score in the future prosperity category of The Climate Institute/GE Low-Carbon Competitiveness Index if, for example, it has high educational expenditures and investment in physical capital and has low depletion of energy, forest and mineral resources and high existing GDP per capita.
Future Prosperity
2008 2000 1995 2005
Source: Vivid Economics Notes: 2012 index is based on the latest available data (2008) An interactive version of the LCCI can be accessed at www.climateinstitute.org.au
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Low-Carbon Leaders Figure 10.0
1995
2000
France
1
1
Japan
2
2
UK
3
3
Canada
4
4
Germany
5
5
South Korea
6
6
Italy
7
7
USA
8
8
China
9
9
Brazil
10
10
Argentina
11
11
Australia
12
12
Turkey
13
13
South Africa
14
14
Russia
15
15
Mexico
16
16
India
17
17
Saudia Arabia
18
18
Indonesia
19
19
01 37
2005
2008
1
1
France
2
2
Japan
3
3
UK
4
4
South Korea
5
5
Germany
6
6
Canada
7
7
China
8
8
USA
9
9
Italy
10
10
Brazil
11
11
Turkey
12
12
Mexico
13
13
Argentina
14
14
Russia
15
15
South Africa
16
16
Australia
17
17
India
18
18
Indonesia
19
19
Saudia Arabia
02 38
High-Speed Low-Carbon France Well Positioned For The Low-Carbon Economy
The International Monetary Fund estimates that the French economy will continue to grow and unemployment continue to fall over the next few years. While estimates vary, according to some researchers France spent more on low-carbon and other environment and stimulus measures than any other EU country – up to around 20 per cent of the €26 billion (AU$31 billion) package.27 France is also facilitating employment in low pollution and environmental sectors through policies such as skills strategies that address systemic weaknesses in the labour market. Overall and despite the economic crisis in the EU, employment in French clean energy and low pollution technology industries is robust and growing. For example, the French Government estimates suggest clean energy sector employment growth of 28 per cent between 2006 and 2008. The number of direct jobs in these industries is estimated to approach 260,000 and is concentrated mainly in the residential energy efficiency industry (110,000 jobs).28 The Boston Consulting Group estimates that by 2020 current policies will generate almost €460 billion (AU$561 billion) of investment and create 600,000 new jobs.29 France’s performance on the LCCI is explained by its relatively low power sector emissions as well as low levels of emissions embedded in trade (leading exports are machinery, the vehicle and aeronautical industries, electronics and pharmaceuticals). The nation also has a sophisticated electricity grid, relatively low levels of car ownership and relatively high fuel prices.
39
These scores can be in part explained by its low-carbon emission energy supply. Nuclear energy accounts for 78 per cent of generation, renewable sources generate around 10 per cent and fossil fuels around 12 per cent. However, this is not the only explanation. For example, France’s total greenhouse gas emissions have been in decline since 1998 and the nation is currently well below its current Kyoto Protocol target.30 This reduction in emissions is driven by cross sectoral emission reductions in the industrial, fugitive and agricultural sectors and more recently from declining emissions in transport and electricity (due in part to increased renewable energy penetration). Also, due to France’s relatively low emissions in its electricity sector to limit pollution, the country must focus on other sectors to achieve targets. The following page outlines France’s current climate change policies.
Above France has made massive investments in high-speed rail technology and infrastructure. The French high-speed rail network - Train Ă Grande Vitesse (TGV) - ranks second in terms of length of the system, after Japan, at 1,900 kilometres. The network now extends to Switzerland, Italy, Germany, Belgium, the Netherlands and the United Kingdom. Patronage has consequently increased greatly, with TGV patronage rising from 6 million in 1982 to 128 million in 2008. The technology has been exported to countries such as South Korea. High-speed rail lines in Europe and Japan released 30-70 grams of carbon dioxide per passenger-kilometer, versus 150 grams for cars and 170 grams for aircraft.
02
High-Speed Low-Carbon
France
Transport
Electricity Supply
France is expected to spend US$37 billion by 2020 on public transport and build an additional 1,900 kilometres of high speed rail by 2020. At 131g CO2/km, France currently has some of the lowest levels of greenhouse gas emissions for new cars. They have introduced standards to limit new car emissions to 95 gCO2/km by 2020, compared to Australia’s current proposal of 155 gCO2/km by 2024. There is also a system of financial bonuses to encourage the purchase of low-polluting vehicles and discourage the purchase of those that are not. For example, if a car emits less than 60 gCO2/ km the purchaser receives €5,000 (AU$6,200). Conversely, a penalty applies to new vehicles over 160 gCO2/km. Buyers of vehicles emitting over 250 gCO2/km pay €2,600 (AU$3,200) and an additional annual tax of €160 (AU$200).
France has a mandatory renewable energy target of 23 per cent of final consumption in 2020 as well as feed-in tariffs for specific renewable energy technologies. In 2009, France’s renewable energy accounted for 8 per cent of total final consumption. They also continue to make ongoing multi-billion Euro public investments in nuclear energy and smart electricity grids.
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Energy Efficiency
Carbon Pricing
A government-mandated energy efficiency target and trading scheme applies to all energy suppliers ensuring they seek out opportunities for energy savings in the building, industry, agriculture and transport sectors. France has targets in place for achieving a minimum of 9 per cent total energy savings over the period 2008-16, and for decreasing energy intensity by 2 per cent per year by 2015*. Strong targets will also help to reduce energy demand in buildings by 38 per cent by 2020, at which point all new buildings will have to be zero-carbon. To encourage this transition there are zero-interest loans and tax credits for energy efficiency action in buildings.
France is a participant in the EU Emission Trading Scheme (EU ETS), where its emission cap for covered sectors is 133 million tonnes between 2008 and 2012. The EU ETS covers power stations, oil refineries, iron and steel plants and various other industrial facilities like factories making cement. As the first country to introduce a binding, long-term emissions reduction goal, France will reduce its emissions by a factor of four by 2050 (a reduction of 75 per cent). According to the OECD, French environmental taxation generates revenue equivalent to around 1.8 per cent of GDP. They report that France has an effective carbon price of â‚Ź155 (AU$190) per tonne of CO2 for transport fuel alone.31
*And by 2.5 per cent per year by 2030.
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Long-Term Prosperity South Korea A Strategic Low Pollution Leader
South Korea does not top the LCCI, but it, along with China, Mexico and Indonesia is one of the countries that has been improving the fastest. South Korea is also Australia’s 4th largest trading partner and a major export destination for iron ore, coal, crude petroleum and aluminium.32 The South Korean Government sees low-carbon growth as being key to its future economic prosperity. The Government has committed to moving away from a “growth-at-any-cost” model of economic growth to one where long-term prosperity and environmental sustainability are the key economic priorities. This is driven by both short-term and longer-term priorities. For example, the country imports around 97 per cent of its energy needs and spent over US$140 billion on energy imports in 2008.33 Rapid industrialisation has put increasing pressure on natural resources and energy use has been growing rapidly. The Government’s commitment can be illustrated by its response to the deepening recession in 2009. South Korea’s economic stimulus package was US$38 billion, of which 80 per cent was allocated to more efficient use of water, waste, energy-efficient buildings, renewable energy, low-carbon vehicles and the rail network.34 In July 2009, the Government announced a Five-Year Plan for Green Growth with total funding of US$ 83.6 billion - around 2 per cent of GDP. The country is on track to meet these targets.35
The South Korean Government has also committed internationally to reduce emissions by 30 per cent from projected levels by 2020. Australia’s 5 per cent target is around a 23 per cent reduction on projected levels. South Korea’s target is roughly equivalent to Australia’s 15 per cent target as a reduction from projected levels. In addition to its renewable energy targets and energy efficiency regulations and policies, South Korea is developing a national emissions trading scheme. The details that have been released to date include: • Start date: The emissions trading scheme is to start date on 1 January 2015. • Coverage: The scheme would cover industries and emissions roughly comparable to Australia’s emissions trading scheme - around 60 per cent of South Korea’s total emissions. • Free allocation: Between 95-100 per cent of permits to be allocated for free in phase one (2015-2017) and phase two (2018-2020). The starting point of 95 per cent is roughly the same as Australia’s initial allocation for steel, aluminum and other very emissions intensive industries which is 94.5 per cent. Free allocations can be increased to 100 per cent if international climate talks are not successful. • Carbon price: To be determined. Penalty for non-compliance is three times the market price per tonne of CO2. This is capped at 100,000 won/tonne (AU$83/tonne). On current projections Australia’s price cap would be around AU$25-30/ tonne in 2015. • International trading: Bill includes provisions to link with international market, but how much and which credits are undecided.
43
Above South Korea aims to increase the amount of renewable energy it produces eight-fold – from 2 per cent in 2009 (2.7 Gigawatts) to 10 per cent (22 Gigawatts) in 2020. Australia’s Renewable Energy Target would see a doubling of the contribution of clean electricity supply. As part of this the Government plans to invest KRW 9.2 trillion (Au $7.6 billion) in off shore wind development
02
Section 3.0 Who's Leading In Climate Cooperation?
Copenhagen To Durban
Climate negotiations don’t reduce carbon pollution and drive clean energy investment by themselves; this is the role of domestic policy frameworks and public/private investments. Nevertheless, international agreements are critical in forming a foundation of trust between nations, which is essential for ambitious and coordinated global action. International agreements also set parameters for domestic policy, such as rules for carbon trading. Progress in international negotiations can therefore drive robust domestic action. Domestic action and international agreements are also mutually reinforcing. Successful domestic action can build countries’ confidence that any future international commitments can be achieved, while international agreements can build confidence that potential trade competitors will also take domestic action – in turn supporting greater domestic ambition. Global cooperative agreements have triggered substantial policy progress. Key examples include the introduction of the EU emissions trading scheme and other clean energy policies like renewable energy targets around the world. Increasingly however, the actions of some nations are also being shaped by energy security and pollution concerns as well as a perception that they need to get ahead in a clean energy race. This competitive drive is triggering multi-billion dollar investments in clean energy and embedding low-carbon policies in the national economic strategies of some countries. Key examples of this are China’s 12th Five Year Plan and South Korea’s Framework Act on Low-Carbon Green Growth.
47
International climate change negotiations are inherently complex as they incorporate environmental, economic, security, trade and energy issues. Progress can be difficult, yet over the past two decades, much has been achieved. The Copenhagen meeting in 2009, with its over-inflated expectations and perceptions of failure, eroded public confidence in the UN process. However, a critical assessment of Copenhagen shows it was a more important moment.36 Domestic policy implementation had reached unprecedented levels at that time and have since continued to grow. The Copenhagen Accord was incorporated into formal UN agreements at the 2011 Cancun meeting. These contributed to the foundation of a potentially effective global climate change framework.37 The outcomes of the Durban climate change meeting at the end of 2011 represented real progress.38
Most importantly, it delivered important progress in three key areas: 01. A greement to negotiate a single, legally binding agreement by 2015 that will cover all major carbon pollution emitters including, most importantly, China, India and the USA; 02. E stablishment of the Green Climate Fund, building on the commitment made in Cancun to raise US$100 billion a year to help the world’s poorest nations invest in clean energy and manage the unavoidable impacts of climate change; 03. C ommitment from all countries to increase the level of ambition of national efforts to reduce pollution, building on the formal recognition that existing commitments are not enough to keep global warming below 2ºC or 1.5ºC above pre-industrial levels. Durban also saw further implementation of the Cancun Agreements in the areas of pollution reductions for both developed and developing countries, transparency and adaptation, and resolved the long standing question over the future of the Kyoto Protocol. However, one area where no agreement was reached was on a framework for new common accounting rules to define and measure the progress countries are making towards their targets. This will be crucial to any new robust and effective international agreement. The decision to adopt a new legally binding agreement in 2015 is important for both political and practical reasons. Politically, it removes a key barrier to USA adoption of a binding international target, which is unlikely to occur without China, India and all other major emitters also being covered under a single, binding agreement.
Practically, it paves the way for a more comprehensive, efficient and environmentally effective international framework. With so many countries now deeply invested in the transition to clean energy, it is perhaps no coincidence that a global agreement to put the brakes on climate change is finally within reach. An overarching legal framework is a logical next step to instill confidence in these rapidly deepening markets and to co-ordinate massive investments with a common set of transparent rules. The EU was a crucial driver of success in Durban. The EU was able to leverage the fact that it has acted in advance of all other major economies and that it was prepared to take on a new Kyoto target to build support for a single international agreement binding all major economies. The EU worked with the increasingly organised voices of countries most vulnerable to the impacts of climate change, such as the Alliance of Small Island States (AOSIS) and the Least Developed Countries (LDCs). Along with acceptance by China, Brazil and South Africa of internationally accountable emission commitments, this was the catalyst for the Durban outcome. In the final hours of the meeting it was the group led by the EU that exerted maximum pressure on India and other emerging economies to support a roadmap to a legally binding agreement. Australia did not join the efforts of this group in Durban. The diplomatic implications of this move are yet to be realised. For Australia, does it signal a shift back towards a stronger alignment with the USA? What will it mean for Australia’s attempts to position itself among progressive nations such as in the Cartagena Dialogue?39 Will Australia play a more visible and active role with the “ambition coalition” of the EU, AOSIS and the LDCs? 48
The Negotiator Connie Hedegaard European Commissioner For Climate Action
What were the EU’s priorities heading into Durban and to what extent were they achieved? In Durban, we have achieved what few had thought possible. We put pressure on the big emitters. We proved wrong those who thought the EU would cave in to China and India. Our entire strategy worked: the first commitment period under the Kyoto Protocol expires in 2012. The EU made clear from the beginning that we would only engage in a second Kyoto period if Durban produced a clear roadmap towards a deal which is legally binding for all nations, developed just as well as developing. And Durban delivered this roadmap. This is a major achievement and step forward: it is the first time that all countries agreed to be brought under one common and truly global, legal regime to curb emissions.
How would you describe the significance of the outcomes from Durban and their relevance to domestic policies around the world? I think it is no exaggeration to say that Durban marked a breakthrough: we broke with the past, and the outcome reflects the reality of today’s mutually interdependent world. It only makes sense that all countries need to take on commitments that have equal legal weight. Developing countries, led by China, already emit more greenhouse gas than the developed world and by 2020 it is estimated they will be responsible for around two-thirds of global emissions. In the meantime, more ambitious near-term action is essential on the domestic level. All the scientific evidence indicates that global emissions need to peak before 2020 – which is before the future legal regime kicks in. You are therefore right to point to domestic policies, they are essential to reach this deadline nature has set. In the EU we certainly won’t be sitting back and waiting for the new big deal. We will be trying to do more: more renewables and energy efficiency, smarter ways of taxing and more emissions cuts. And this will at the same time boost our growth and jobs. As to Australia, your own Clean Energy Future plan provides a smart combination of investments and reforms to build a low-carbon economy, and join in the global market for low-carbon energy and energy-efficient technologies. I think that no major trading nation can afford to miss out: just keep in mind that this market is set to double, or even triple to 2.2 trillion dollars, between 2010 and the end of this decade!
49
02
Connie Hedegaard
Many commentators have pointed to the EU’s alliance with Alliance of Small Island States (AOSIS) and the Least Developed Countries (LDC) as the key to unlocking a more ambitious outcome in Durban. Do you agree with this assessment and what role do you see for this grouping in the future? The small island states and least developed countries are obviously aware of the pressing danger climate change brings with it: they are already confronted by it on a daily basis. In the EU, we observe what is happening in these regions, since we have longlasting alliances with many of these countries. And we base our policy making to a high degree on science. We have shared objectives and common goals. If you take all this together, you should not be surprised about our good cooperation with the LDCs and AOSIS. This alliance is quite natural since we already work together on trade and development issues. And of course we will continue to jointly urge others to join us in taking concrete obligations upon ourselves to manage the climate change challenge. But let me also state that this is not an exclusive alliance. Since climate change is a global challenge, we must all combine efforts in fighting it. The EU therefore continues with its bilateral meetings in between the COPs, to search for common ground with other countries and regions. Looking ahead towards the negotiations to finalise a new agreement by 2015, what insights can you give to what will be needed to deliver an ambitious legally binding agreement (e.g. key challenges and opportunities, potential role of domestic policy settings)? We have three COPs on the way to 2015, every single one being a very good opportunity to move forward on the key issues of a future treaty: climate finance, adaptation, the transfer of technology, forestry and transparency are just a few, but certainly very important aspects of what this new legally binding agreement will have to contain in a consolidated manner.
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However, there are other occasions, besides the COPs themselves. I am thinking of RIO+20 which will take place in Brazil in June this year. The world’s leaders must use the Rio+20 summit in June to bring sustainable development to the heart of the global economic agenda. This is where it belongs rather than in the environment silo isolated from the key economic decisions. Only then can we bring the actions to the scale we need with the speed we need. Nothing should be more urgent right now. Not for politicians. And certainly not for business. Time is our most scarce resource. In 2010, global greenhouse gas emissions reached the highest level ever. All eyes are on the COPs, but there is so much we can and must do to fight climate change. Our actions have to take place at a domestic as well as a global level, at dedicated climate talks, but also in other related fora and bilateral discussions. What are the EU’s broader strategic goals (domestic, economic, diplomatic) related to climate change and how do these influence the position the bloc takes at the UNFCCC negotiations? The EU is already moving in the right direction, domestically and abroad. We have binding targets for emissions reductions and renewables, a price on carbon, and energy efficiency measures. And we are looking at smarter ways of taxation away from labour and towards consumption. In line with our ambitious action at home, we will continue to push for ambition in the negotiations and try to seek common ground to step-by-step move the world in the necessary direction. We always did that – and we will continue doing that.
Anyone can see that we cannot deal with the challenges of the 21st century with a growth model from the 19th and 20th century.
Is low-carbon growth an important priority for the EU’s strategy to escape from current economic challenges? Some people say that it’s too expensive to do something about climate change and that at the moment we can’t afford to make the necessary adaptation and mitigation in Western societies but business as usual isn’t free either! So we have to make a choice. We all want a world where the economy grows while environmental and social impacts diminish and the climate is protected. Of course, as the world recovers from the financial crisis, our focus is on growth and jobs. But which kind of growth and which kind of jobs? Restructuring is unavoidable, so why not choose a path that makes long-term sense; a path that replaces overuse with sustainability? Anyone can see that we cannot deal with the challenges of the 21st century with a growth model from the 19th and 20th century. In the EU we have proven that it is possible to decouple emissions from economic growth: while our economy grew 40 per cent since 1990 and our manufacturing by more than a third, emissions are down 17 per cent. This proves that moving towards a low-carbon society will in fact stimulate technological innovation, spur economic growth and create jobs – while at the same time, we will reduce our dependence on energy imports and cut emissions so that we meet our climate and energy targets and long-term goals. In Europe alone more than 300,000 new jobs were created in the renewables sector in just five years; and it is estimated that meeting the EU’s 2020 climate and energy goals would result in another 1.5 million new jobs.
Are they any other insights from the last year of the UNFCCC negotiations that you would like to share? What stuck with me was the very interesting dynamic in the negotiation rooms. Everybody seemed to come to Durban with the future of the Kyoto Protocol on their mind. But Europe wanted more ambition. And then we started to speak about our idea of a roadmap and of binding all countries, no matter whether they are developed or developing, with the same legal instrument. And the idea spread very quickly – after little time everybody started to pick it up. You might think that agendas for international meetings are all set, and that this will probably be it and little spectacular overall because you think you know what to expect. But in Durban we saw that one good idea, like bringing all countries to the same level of legal quality, and breaking with out-dated concepts of two baskets, one for developed and one for developing, that this one idea can provide food for thought and change mindsets. We had one good idea and it changed the outline of the UN climate negotiations completely, down to the last country. This was, to me, the most interesting development of the latest COP in Durban.
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Section 4.0 How Does Australia Measure Up?
How Does Australia Measure Up?
Acting in the national interest Climate change presents Australia with significant challenges. As a nation Australia is the advanced economy most vulnerable to the impacts of climate change.40 How the world addresses climate change matters to us. Failure to implement effective and decisive action would have a disproportionate impact on our lives, our economy and our natural systems. An acceptance of this led the Government to accept the recommendation of the Garnaut Climate Change Review that action on climate change consistent with stabilising atmospheric greenhouse gas emissions below 450 ppm-e is in our national interest. To achieve this, Australia must act domestically and internationally. Australia is currently not well-prepared to remain competitive in a world moving to pollution limits. As the LCCI and other analysis demonstrates41, our nation’s high emissions power sector, economic dependence on emission-intensive exports, inefficient use of energy and extraction of natural capital will become greater economic liabilities as the world moves to limit pollution. The Clean Energy Future package is a break from decades of delay and inaction and provides a platform for ongoing economic growth (Figure 9.0). It also gives the Government a credible climate policy to stand on internationally.
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To fully capture the economic, social and environmental benefits of the Clean Energy Future package, a number of additional steps are required in 2012: 1. A commitment to implement a national ESI: The national Energy Savings Initiative the Government is currently considering42 is an important complement to Australia’s emissions trading scheme. An ESI can address significant market failures that prevent profitable investment in energy efficiency in the residential, commercial and industrial sectors. By unlocking such investment, a national ESI can: • r educe the overall cost of achieving Australia’s emissions reduction targets. Energy efficiency can achieve around one quarter of the 25 per cent target at net negative cost.43 Without the savings achieved through energy efficiency, Australia’s abatement task becomes more expensive; • significantly lower energy costs for households and businesses, increasing productivity and competitiveness in covered sectors. The Prime Minister’s Task Group on Energy Efficiency estimated that an ESI would reduce household energy bills by up to nearly 300 per year by 2020.44 By lowering the costs of adjustment, such a scheme can strengthen institutional support for Australia’s response to climate change, and build the case for more ambitious emissions reduction targets in the future; and •m anage the risks associated with climate change policy uncertainty by reducing the country’s reliance on international carbon markets and exposure to international increases in carbon and energy prices.
2. Effective implementation of the Clean Energy Finance Corporation (CEFC): There is a clear role for government policies in supporting research, development, demonstration and commercialisation of low emission technologies. Even in the presence of a carbon price many barriers exist to investment in new low-carbon technologies including transmission connection hurdles and the reality that finance costs are higher for technologies that are not well understood.45 • B arriers to large investments in high risk first of kind projects need to be removed, and incentives provided for projects that will build national clean energy infrastructure (e.g. smart grids, CCS pipelines). Early commercial deployment of new technologies will encourage learning by doing, reduce the risks associated with potential technology failure, build industry capacity and increase flexibility in meeting long-term targets.
• While complementing existing measures and not crowding out private sector investment, the CEFC should catalyse the flow of funds from financial and other private institutions to low emission technologies. There are a range of mechanisms available to the CEFC to overcome investment risks and ensure adequate returns on low emission technology investments.
3. E nsure greater disclosure of climate risks: A large proportion of Australian and global emissions are produced by the business sector and a large proportion of that by listed companies. The investment decisions of companies and their shareholders, particularly superannuation funds, will therefore determine the success or failure of initiatives to tackle climate change. Most institutional investors and businesses are already aware of the material risk that climate change poses to their future performance, but have failed to disclose this information to the market.
• The disclosure of climate change risks by institutional investors and businesses, in recognition that in order to manage a risk you first of all need to monitor it and measure it is required. This would include clarification of fiduciary duty in terms of environmental, social and governance investment considerations as well as greater and mandatory disclosure of climate change-related risks faced by institutional investors, in particular superannuation funds, to their members and stakeholders.
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Multilateral leadership Australia must also act multilaterally, bilaterally and in other diplomatic forums to secure its national interests. One potentially high-value approach is for Australia to build regional carbon trading coalitions (see case study below). At a multilateral level Australia faces a choice between maintaining a relatively unambitious approach to climate negotiations or pursuing more ambitious global action. In advance of Copenhagen, Australian diplomats worked assiduously to attempt to increase the ambition of other nations.46 However, in Durban, Australia’s strategy was contradictory. The Government’s domestic political interests were to secure an outcome in Durban that demonstrated international progress. Durban certainly secured this but Australia was not visible as a nation pushing for stronger ambition. Leadership was instead exhibited by the EU, AOSIS and the LDCs. This in part can be put down to a failed strategic assessment of how far the leadership coalition in Durban was prepared to push for a stronger outcome. It also reflects Australia’s tradition of pragmatism in the negotiations. Australia did not lead, but neither did it actively block ambitious proposals. In some of the technical policy discussions, Australia also proposed and helped advance positive solutions.47 The question moving forward – as nations negotiate the new legal agreement to cover all major emitters – is whether the Government can reestablish a diplomatic posture which helps strengthen global ambition. 57
Central to this is this year’s decision on Australia’s new Kyoto target:48 •F ailure to submit a new Kyoto target would undermine broad support for a new agreement that covers all major emitters and significantly reduce the Government’s ability to advocate for stronger global outcomes. •A ustralia should agree to a new Kyoto target that honors existing international commitments and moves beyond the current unconditional 5 per cent target by 2020. The target should also allow the flexibility to achieve the high end of the bipartisan supported 2020 target range: up to 25 per cent below 2000 levels. •T he Government should also make a clear undertaking internationally that depending on progress towards an ambitious and binding agreement in 2015 the Government will move to the high end of its target range. In effect this allows the Government to continue to use the highest end of its target range as leverage internationally.
“ Climate change will impose economic costs on our society. These costs can be reduced and managed if the world takes action to reduce carbon pollution. But the longer action is delayed, the more it will cost and the worse the impacts will be.� The Australian Government, 2011
Figure 9.0 Emissions intensity of global and Australian GDP to 2050. With the Clean Energy Future package the carbon productivity broadly keeps pace with global trends. Without the package, Australia increasingly falls behind.
Medium Global Action Australia (no carbon price)
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2035
2040
2045
Emissions Intensity Of GDP (kg CO2-e/$GDP
Emissions Intensity Of Gross World Product (kg CO2-e/$US
Australia (Medium Global Action)
2050
Source: Treasury, 2011.
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Australian Leadership Building Regional Emissions Trading Coalitions
The launch of Australia’s emissions trading scheme provides an important policy lever to increase global ambition on climate change. Australia is currently exploring the linkage of its domestic emission trading scheme to those of the EU and New Zealand. International carbon markets are a priority for the Government in 2012. However, developed countries tend to have high emissions reduction costs ($/tonne) at the margin relative to many developing countries. Trading across developed countries therefore provides only limited potential for economic benefits from trade compared to engaging with developing countries. Australia, California and New Zealand already have existing schemes. Schemes are under active development in South Korea, China, Mexico,49 Chile50 and Japan. Building on the multilateral framework a regional emissions trading coalition has the potential to accelerate progress towards the action required to avoid dangerous levels of climate change. To illustrate, Australia and New Zealand have passed national emissions trading legislation to limit and price pollution. Indonesia has also committed to reduce its emissions by 26 per cent below business as usual levels by 2020 (and by more with international financial support). While Indonesia is implementing policies to meet this target,51 there is currently no incentive for it to exceed this target. Conversely, if Australia and New Zealand can achieve pollution limits at lower cost they can (and should) increase their levels of ambition.
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These countries could offer to further increase their level of ambition and finance clean energy development if Indonesia exceeds its target. By working with Indonesia to develop a credible system where it can sell credits to them if it exceeds its targets this can encourage developing countries to commit to and exceed targets in order to take advantage of export opportunities. The caveat here is that any such coalitions would need to be designed carefully to manage potential fragmentation in the multilateral system. Initially, any linking should only be with sectors where measurement, reporting and verification of emission reductions are robust. This would include the energy sector but currently exclude avoided deforestation in developing countries.
02
Conclusion
Insights
Looking Ahead
Australia is not immune to global trends. We are reminded of this every day by news reports about the impact of the mining boom and global economic conditions on our economy.
The Clean Energy Future package has the potential to change this. For the first time Australia will have an absolute and ongoing limit placed on the carbon pollution we release into the air. This allows us to confidently stand among other nations and do our fair share under the emerging new legal regime that covers all major emitters.
Looking back at 2011 we saw the global climate change mega-trends continuing. The climate continues to change and the scientific evidence that we are crossing the limits of natural systems to provide use with a sustainable future accumulates. A growing recognition by the majority of the world’s governments that climate change represents a real threat to our economic and social wellbeing and, in the case of some nations, their very existence, is increasing diplomatic pressure on major emitters to pursue pollution limits. This is being complemented by the domestic actions that nations are taking, giving them the confidence needed to commit internationally to take more ambitious action. Driven by economic self-interest and government policies around the world, at the end of last year the trillionth-dollar was invested in clean energy globally since 2004.52 As The Climate Institute/GE Low-Carbon Competitiveness Index of 2012 highlights, Australia has been ill-prepared to deal with the trends emerging around us. The economic blessings of the past – such cheap and polluting energy – have become the economic curses of the future.
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The pollution price, the Renewable Energy Target, the Carbon Farming Initiative and new policies announced last year – like the Clean Energy Finance Corporation and the proposed national Energy Savings Initiative – can drive investment and innovation and can minimise the threats and maximise the benefits to our citizens in a world limiting pollution. By marrying our climate diplomacy and carbon policies we can engage strategically with regional partners in trade coalitions to accelerate further credible global action. Change is always resisted but change is inevitable. Australia can’t turn its back on the global shift from dirty to clean, from non-renewable to renewable, and from inefficient to efficient. It can’t do this anymore than it can turn its back on shifts in information technology, the rise of China and other trends in the global economy. Australia is at no risk of leading the world on climate change action but in 2012 we can, for the first time, start moving in the same direction as those that are.
End
Notes 1 World Meteorological Organisation, Provisional Statement on the Status of the Global Climate, 2011: world’s 10th warmest year, warmest year with La Niña on record, second-lowest Arctic sea ice extent, Geneva/Durban, 29 November 2011.
14 Global Research HSBC, Delivering the green stimulus. Spending is due to reach USD248bn in 2010, focusing on rail, grid, energy efficiency and renewable energy, HSBC, London, March 2010.
2 B ureau of Meteorology, Annual Climate Summary for 2011, Government of Australia, Melbourne, February 2012.
15 Climate Change Policy Division, Study of Potential for the Introduction of Renewable Energy (FY 2010) Summary focused on Tohoku and Kanto regions, Ministry of the Environment, Tokyo, Japan, April 2011.
3 B loomberg New Energy Finance, Solar Surge Drives Record Clean Energy Investment in 2011, Total new investment in clean energy increased 5% to $260bn in 2011, despite the sluggish global economy and a painful squeeze on manufacturers, Bloomberg New Energy Finance, London, 12 January 2012. 4 Note that this excludes carbon capture and storage investments. 5 C lean energy attracts its trillionth dollar, Bloomberg New Energy Finance, London and New York, 6 December 2011. 6 R oger Beale, Climate Commissioner, Decentralise climate response, 8 November, 2011: http://climatecommission.gov.au/ media-releases/decentralise-climate-response/ REF 7 OECD, Towards Green Growth, OECD, Paris, 2011. 8 U NEP, Towards a green economy, Pathways to Sustainable Development and Poverty Eradication, A Synthesis for Policy Makers, UNEP, Nairobi, 2011. 9 U nited Nations Secretary-General’s High-level Panel on Global Sustainability, Resilient People,Resilient Planet: A future worth choosing, United Nations, New York, 2012. 10 A. McMichael, Insights from past millennia into climatic impacts on human health and survival, Proceedings of the National Academy of Sciences of the USA, doi:10.1073/pnas.1120177109, February 6, 2012. 11 J. Rockström, W. Steffen, K. Noone, et al., A safe operating space for humanity, Nature 461, 472-475, doi:10.1038/461472a, 24 September 2009. 12 OECD, Towards Green Growth, OECD, Paris, 2011. 13 Angel Gurría, OECD Secretary-General in OECD, Towards Green Growth, OECD, Paris, 2011.
16 Set-aside could double EUA prices by 2014, Point Carbon, 16 February 2012. 17 Updated from The Climate Institute, Durban, Australia and the Future of Global Climate Action: A Fresh Look at the Progress of International Climate Change Negotiations, Policy Brief, The Climate Institute, Sydney, November 2011. Prices are AUD2012. Emission trading prices are best available market estimates as of early March 2012. 18 Marius Kloppers, CEO, BHP Billiton, Speech to the Australian British Chamber of Commerce, September 15 2010. 19 CSIRO and Bureau of Meteorology, State of the Climate 2012 [web document] (2012), http://www.csiro.au/Outcomes/Climate/Understanding/ State-of-the-Climate-2012.aspx, accessed 14 March 2012. 20 M. Meinshausen, N. Meinshausen, W. Hare, et al., Greenhouse-gas emission targets for limiting global warming to 2°C, Nature 458, 1158-1162, doi:10.1038/nature08017, 30 April 2009. 21 Recently a group of investors, politicians and academics that warned that the financial stability of markets could be threatened due to the current valuation of energy and mining companies based on fossil fuel assets that cannot be used. 22 Vivid Economics, G20 low carbon competitiveness, report prepared for The Climate Institute and E3G, London, 2009. 23 Vivid Economics, G20 low carbon competitiveness index: 2012 update, report prepared for The Climate Institute, Vivid Economics, London, December 2011.
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End
Notes 24 This is based on econometric analysis of the structure of the country’s economy and variables that would indicate how it would perform in a low carbon future. Variables are included in the index if they are found to have a sufficiently strong positive statistical relationship to carbon productivity, and the weighting of the different categories in the index is proportionate to the size of their impact. For each variable that has been included, a score of 1 means the country has the highest score for that variable in the world, while a score of zero means it has the lowest score. A higher score on the index, therefore, means that a country is getting closer to global best carbon productivity practice. 25 Note that Canada’s encouragement of investments in the highly emission intensive tar sands industry and recalcitrant position within the climate change negotiations has brought international criticism. The LCCI does not capture a nation’s international positioning. Major exports of oil from tar sands to the EU and the USA and/or continued high growth in emissions would, all else being equal, lead to reduction on Canada’s position in the future. Canada’s score since 1995 has been largely static with the impact of the tar sands industry being countered balanced by other factors such as significant, low emission power generation, an efficient industrial sector, reductions in the size of the transport sector and increasing transport fuel costs. 26 The report released in 2009 was based upon 2005 data, while this 2012 report is based upon 2008 data. 27 European Centre for the Development of Vocational Training, Skills for green jobs, European Synthesis Report, European Union, Luxembourg, 2010. 28 The Environment and Energy Control Agency, Green Economy: 90,000 New Green Jobs in France, The trades related to the energy and the development of renewable energy are resistant to the crisis, Government of France, Paris, 2009.
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29 Invest in France Agency, France’s “Green New Deal”, Government of France, Paris, 2009. 30 European Environment Agency, GHG trends and projections in France, European Environment Agency, European Commission, Brussels, 2011. 31 OECD, France’s Environmental Policies: Internalising Global And Local Externalities, Economics Department Working Papers No. 859, OECD, Paris, 2011. 32 Department of Foreign Affairs and Trade, Republic of South Korea, Fact Sheet. Government of Australia, Canberra, 2011. 33 United Nations Environment Programme, Overview of the Republic of Korea’s National Strategy for Green Growth, Prepared by the United Nations Environment Programme as part of its Green Economy Initiative, UNEP, Nairobi, Kenya, April 2010. 34 United Nations Environment Programme, Overview of the Republic of Korea’s National Strategy for Green Growth, Prepared by the United Nations Environment Programme as part of its Green Economy Initiative, UNEP, Nairobi, Kenya, April 2010. 35 Bloomberg New Energy Finance, South Korea’s $84bn green revolution - strategy behind it and progress so far, Clean Energy - Analyst Reaction, Bloomberg New Energy Finance, India, March 2011. 36 E. Jackson, W. McGoldrick, Global climate policy postCopenhagen: Progress and Prospects, The Climate Institute, Sydney, 2010. 37 The Climate Institute, The Cancun Agreement: A Preliminary Assessment, Policy Brief, The Climate Institute, Sydney, 2010. 38 The Climate Institute, The Durban Climate Summit: Implications For Australia, The Climate Institute, Sydney, 2011.
39 The Cartagena Dialogue is a grouping of progressive nations from both the advanced and developing economies, including many vulnerable countries, but not the USA, China, India, Brazil or South Africa. This innovation has become a fertile forum for positions that have helped the talks progress and was critical to the success of the Cancun meeting in 2010. In Durban, the group was less cohesive due to Australia’s and New Zealand’s equivocal positions on whether they were prepared to take on new Kyoto targets. 40 K. Hennessy, B. Fitzharris, B.C. Bates, et al., Australia and New Zealand, in Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, M.L. Parry, O.F. Canziani, J.P. Palutikof, et al. Eds., Cambridge University Press, Cambridge, UK, 507-540, 2007. 41 See for example Treasury, Strong growth low pollution: modelling a carbon price, Government of Australia, Canberra, 2011. 42 Australian Government, National Energy Savings Initiative (Issues Paper), Government of Australia, Canberra. 2012. 43 ClimateWorks, Low Carbon Growth Plan for Australia: Impact of the Carbon Price Package, Melbourne, August 2011 44 Department of Climate Change and Energy Efficiency, Report of the Prime Minister’s Task Group on Energy Efficiency, Australian Government, Canberra, 2010. 45 T. Wood, T. Edis, D. Mullerworth, et al. No easy choices: which way to Australia’s energy future? Grattan Institute, February 2012.
47 See for example Governments of Australia and Norway, Submission under the Cancun Agreements, Enhanced action on Mitigation, AWG-LCA, LWG-KP, September 2011. 48 The Climate Institute, Australia and the Future of the Kyoto Protocol, Policy Brief, Sydney, March 2012. 49 Mexico’s Senate pasted climate change legislation in late 2012 and this is currently being considered by the Mexican Congress lower house. This legislation includes the ability to “establish an Emissions Market system” with the objective to “achieve emission reductions at the lowest cost possible, in a measurable, reportable, and verifiable way.” It established a commission to “issue the regulatory provisions to determine the criteria and operational mechanisms of the Emissions Market”. 50 Chile is part of the World Bank’s Partnership for Market Readiness initiative and has undertaken research through the International Energy Agency into the feasibility of implementing an emissions trading scheme. It is currently undertaking baseline initiatives needed for market development such as measurement, reporting and verification design. 51 Syamsidar Thamrin, Indonesia’s National Mitigation Actions: Paving the Way towards NAMAs, Prepared for the CCXG/ Global Forum on Environment Seminar on MRV and Carbon Markets, 28-29 March 2011, Paris. 52 Clean energy attracts its trillionth dollar, Bloomberg New Energy Finance, London and New York, 6 December 2011.
46 The Climate Institute, Summary of Freedom of Information Request from The Climate Institute to the Department of Climate Change and Energy Efficiency: Documents regarding the influence of foreign emission reduction targets on Australian emission reduction targets, The Climate Institute, Sydney, 2010.
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This project was conducted with key partner GE, PacificHydro, Bloomberg New Energy Finance and OgilvyEarth. The support of the British High Commission and Vivid Economics is also acknowledged.
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