CarbonSignal

Lord May of Oxford unleashed some harsh words against the Greens at a Lowy Institute lunch on Wednesday.  He said they “mixed their genuine concerns with an overriding desire to feel good about themselves so that they actually obstructed useful legislation because it’s not perfect”.  He went on to say that “there is a real challenge for the social sciences to try and understand how people can behave so stupidly”.

The audio from the lunch can be downloaded from the Lowy Institute website.

The Greens are now urging the Government to  negotiate on their proposal of a carbon levy.  Bob Brown said “Kevin Rudd should have another look at the simplicity of this alternative which was recommended to him by Professor Ross Garnaut”.

Back in 2007, Lord May delivered an excellent and entertaining lecture for the 2007 Lowy Lecture on Australia in the World, in which he focused on our ecological footprint, population growth, climate change and the problems and paradoxes these issues present.

A recent report from PwC and the Institute of Chartered Accountants identifies ‘20 issues on the business implications of a carbon cost’.

This paper is an excellent way for executives to get a quick update on the current status of carbon policy in Australia, and an understanding of the issues that will affect their business.   The 20 issues successfully link the risks and opportunties associated with carbon policy to a set of fundamental questions that executives should ask themselves.  The report includes emissions data from the first year of NGER, and other references such as the Deutsche Bank report on DCF valuations under a CPRS -5% scenario.

Developing a response to each issue is not easy and will require the attention of senior executives and external specialists.  Companies that have developed a response on each of the 20 issues will be well prepared to minimise the downside and capitalise on the upside of future carbon pricing.

The Coalition has unveiled their climate change policy - an alternative to the Government’s proposed Carbon Pollution Reduction Scheme.

The Coaltion’s policy is essentially a series of projects and incentive programs.  Businesses can either maintain the status quo or voluntarily chase the incentives.

First off, if voluntary programs were enough then we would have solved this problem long ago.

We will now proceed to denounce a few key parts of the Coalition’s policy:

• They want to plant 20 million trees.  That’s a tree plantation of about 10km x 20km.  This is temporary sequestration, and it’s not an ongoing program - just a one-off offset, and an insignificant one at that.
• Soil sequestration has great potential, but again it is temporary sequestration, and is not recognised under Kyoto because it is too hard to quantify and verify.
• A $2.5bn incentive fund. To put this in perspective, consider that Johnson & Johnson has an annual R&D budget of over $8.5bn, and that’s just to make better baby powder and shampoo.  The Coaltion’s $2.5bn incentive fund is a drop in the ocean.

The key problem is that the Coalition’s plan does nothing to stimulate a fundamental shift in our economy.  Our trade partners, including China and India, are already making such a shift.  They are building up real competitive advantages in preparation for a low-emission global economy.  The Coalition’s plan would result in an Australian economy that is perpetually disadvantaged, always a few steps behind.

The Government’s CPRS, while certainly not perfect, is far superior.  Businesses have been waiting for a price signal.  How much is an avoided tonne of carbon dioxide really worth?  Under the Coalition policy, the supply of emissions would be un-capped, and the Government would fix the price of permits.  Under the CPRS, the cap-and-trade mechanism would allow true and efficient price discovery to occur.

Suppressing the true price signal now will result in a harder adjustment later.

Even if the Coaltion’s plan does manage to achieve a 5% reduction through a series of one-off projects and voluntary reductions (unlikely), it does not establish a framework for ongoing emissions abatement.  The really tough abatement targets will come after 2020, when the trajectory inevitably tilts down towards a 60% reduction by 2050.

Tony Abbott prouldy declares the Coaltion plan is “business as usual” for big emitters.  ‘Complacency - that’s the way of the future.  She’ll be right, mate.  Oh, and if you want to be seen to be doing something, you can apply for a slice of this $2.5bn that we will be handing out every year.’

Glen

Hi all,

From now on you might see some short posts like this one from HAC staff members and some of our close friends.  They might be observations, quirky questions or quick information-shares.  Essentially, it’s a way for us to express ourselves personally - to not just take the ’endorsed company line’ but to provide some insight as to who we are as individuals and what makes us tick!

So, what is my observation de-jour?  Well, I just updated my personal budget for the year ahead, and came to the stark realisation that I was planning to spend almost TWICE AS MUCH on my morning caffeine fix than on electricity and gas combined for the year.  Yet on some level I have been personally caught up in the hype about the impact of the  impending introduction of emissions trading and a price on carbon.  It’s only when you look at all of your expenses - which for most of us will include at least a few expenditures best described as ‘very discretionary’ -  that you get some perspective on things.  No matter how high the price of carbon gets, the worst it can do is deprive me of half my cafe-bought morning Jumbo Lattes.  Not a bad trade-off to save the planet?

Which got me to thinking about the corporate equivalents to my caffeine fix; while there might not be as many corporate Learjets out there in 2010, is there still spending on discretionary items that would far outweigh the impact of emissions trading?  While most businesses describe themselves as lean-and-mean, we know from experience that there are massive untapped opportunities to improve energy efficiency and general productivity, if companies will just take the time to look.  So, my parting thought?  I hope that companies will have a long hard look at their expenditures before opposing an emissions trading scheme or Carbon Pollution Reduction Scheme (CPRS) in 2010, on the basis of cost-impacts to their business, while they’re still guzzling lattes…

Cheers, Glen!

While climate change policy attention has been focused on the fate of the mandatory carbon market via the Carbon Pollution Reduction Scheme (CPRS), the past fortnight has seen some significant developments in the voluntary market.

The National Carbon Offset Standard (NCOS), which will replace the well-known Greenhouse Friendly offset credit and carbon neutral accreditation schemes, was released on 24 November 2009. The NCOS will come into effect on 1 July 2010, at which time Greenhouse Friendly program will cease.

The existing Australian voluntary carbon market, which comprises project developers, retailers and brokers (for a full list see http://www.carbonoffsetguide.com.au/) is almost entirely comprised of entities creating, buying and selling offset credits in sectors that will be ‘covered’, or that can ‘opt-in’ under the proposed CPRS (for example, capturing methane from landfills (waste sector) and renewable energy (energy sector) are in covered sectors and reforestation (forestry sector can opt-in). With the exception of forestry activities, this means they will no longer be able to create offset credits.

The NCOS clarifies what activities will be eligible to create offsets in the voluntary market. While the Voluntary Carbon Markets Association (VCMA) points out that the NCOS is silent on the treatment of Greenpower as a voluntary carbon offset, the Standard provides confirmation that the following units will be recognised:

• “Carbon pollution permits, known as Australian Emissions Units, including those from forestry projects opting into the CPRS (and any other offsets allowed under the CPRS);
• Kyoto units recognised and accepted under the CPRS;
• Credits issued under the internationally recognised [Clean Development Mechanism] Gold Standard and Voluntary Carbon Standard (where these meet specific standards); and
• Credits issued by domestic offset projects that reduce emissions from sources currently not counted towards Australia’s Kyoto Protocol target.” (Source: Department of Climate Change 2009)

The recognition of CDM Gold Standard and Voluntary Carbon Standard is a good move, and enables Australia to leverage off the enormous work that global NGOs and other institutions have put in over recent years into developing credible, robust voluntary offset standards.

It will be interesting to see what non-Kyoto/ non-CPRS activities will have sufficient information to have methodologies accredited under NCOS. With the right research support from Governments, the voluntary market may be able to make projects that deliver multiple environmental objectives, such as de-stocking Western Australian rangelands, and improving soil management, financially viable.

Today Australia announced the opening of the National Authority for the Kyoto flexibility mechanisms - the Clean Development Mechanism (CDM) and Joint Implementation (JI).

Until now, Australian companies that have acquired overseas emissions units in anticipation of the CPRS have been forced to warehouse their portfolio offshore in the registries of other nations.  The proposed CPRS laws allow companies to use international credits to meet their permit obligations, and some companies have already started purchasing emission units to reduce their uncertainty over carbon costs.  Treasury modelling shows that emission units created offshore will play a major role in the CPRS.

The market price of carbon credits generated under the CDM dropped substantially due to the global financial crisis, but found support in February and has recovered since then, currently trading around 11-12 Euro.  China hosts around 70% of CDM projects.

The Australian National Registry of emissions units is now operational.  Any entity can apply to open an account.  The Registry will be used to track all emissions units, and will be used by ACCRA (the Australian Climate Change Regulatory Authority - the proposed regulating body under CPRS) to track compliance with CPRS obligations.

Under the Kyoto Protocol, each country requires a Designated National Authority (DNA) and a Designated Focal Point (DFP) to approve and monitor participation in CDM and JI projects.  These bodies are now operational.

Units generated under the CDM are called Certified Emissions Reductions (CERs).   Investors can choose to invest in either primary or secondary CERs.  Primary CERs have a delivery risk, and are therefore lower in cost, while secondary CERs are already generated and issued by the CDM Executive Board and are therefore risk free, but also more expensive.

Australian companies can now submit applications for approval to participate in CDM and JI.  The time required to develop a project and receive permits is typically several years.  Organisations interested in developing a healthy portfolio of emission units in time for the CPRS should begin investigating their options as early as possible.