What is Happening in the Australian Carbon Markets???
S: Today we are talking with Tim Hanlin, Founder of Australian Climate Exchange, a carbon trading platform based in Australia which has hosted a market for trading in Verified Emission Reduction (VERs) from both domestic and international projects since it listed its first products in July 2007
TH: Thanks. Nice to be here at such an interesting time in the Australian and International carbon markets
S: Many of the readers of this blog will not be familiar with the Australian Governments Commitment to the Kyoto Protocol and what it aims to do. Could you give us a short explanation and a good reference to more info.
TH: The current Australian Government was swept into power at the end of 2007 on the back of a commitment to reverse the previous administrations opposition to Kyoto and its first official act was to ratify the treaty. Since then it has maintained an aggressive timetable of introducing what it calls its Carbon Pollution Reduction Scheme or CPRS which is a fancy title for what is an ETS. The CPRS is due to start in the 2010/11 financial year and will cover up to 75% of Australia’s Emissions and all 6 Kyoto Greenhouse (only Agriculture is excluded from the scheme but is likely to be included by 2015). This width of coverage and the fact that 75% of the permits in the scheme will be auctioned as opposed to given to obligated parties for free are the headline differences (and strengths) of the CPRS over the European Union’s ETS.
Another interesting aspect of the CPRS that has emerged from the Government’s White Paper on the scheme design is that Certified Emission Reduction (CERs) from clean development projects in developing countries can be used by Australian companies as a substitute for having to surrender permits (AEUs) to cover their emissions in a financial year and that there is no limit to how much of their inventory can be covered by CERs instead of AEUs. Further, The CPRS will allow the use of post 2012 Vintage CERs as long as the project was instigated before 2012. This has meant that many Cleantech project proponents are now looking to the Australian market to sell their CER production because there is the ability to sign up to longer term off-take contracts than any other market.
For details on the CPRS the link to the White Paper is http://www.climatechange.gov.au/whitepaper/index.html and for those that don’t want to wade through the 600plus pages you could request a recording of our two hour webinar summary from http://www.climateexchange.com.au/Content/fContact.aspx
S: There seems to be a lot of indecision in the press. Does the Australian public understand the implications in the cost of goods and services?
TH: The press doesn’t understand it which means the Australian public have no chance to truly understand it. There is a basic understanding that the cost of energy and therefore goods and services will rise but the government has pledged to compensate households for this impact out of the proceeds of the auctioning of permits. Further, transport fuel will be fully rebated for the cost of the carbon permits, which will limit the impact on consumers.
One of the big issues with the CPRS as a tool for reducing Australia’s emissions at least cost is that much of the cheapest abatement (energy efficiency) is not going to be exposed to a carbon price signal because of the government’s decision to compensate households and rebate transport fuels. Ultimately and somewhat ironically this will mean that the cost of abatement will be higher economy wide which will mean that the cost implication for goods and services will greater in subsequent year of the scheme.
S: There must be a huge groundswell of public attention to climate change after the horrible bush fires a few weeks ago. My Mum and Older Brother were on the farm 6km from Wandong and saw it all. They were saved as they wind blew the fire the other way. My brother told me it was the most terrifying thing he had ever seen. I dont mean to use this event to push a cause, but are the public in Australian thinking this way? I know I am…but I am quite biased…poor people had no chance against this type of thing…
TH: Steve I have been fascinated by the fact that it took so long for the media to make the connection between the severity of the weather conditions that caused the firestorms and climate change. Even then it has only been a passing reference and a recognition that our building codes and fire risk management procedures are no longer adequate to cope with the type of fires that we will see increasingly more of. Just yesterday emergency services officials were describing the weather conditions in Victoria as extreme as those of what is now being called “Black Saturday” and yet no one is commenting in the media that we have had, in a period of less than three weeks weather conditions that are more extreme than have been experienced by fire fighters in living memory and the link to Climate Change. In contrast I remember being infuriated by some media commentators linking the Boxing Day Tsunamis to Climate Change.
The point I am trying to make here Steve is that it seems to me that the issue of Climate Change is being pushed onto the back burner so to speak by the Global Financial Crisis. It is almost as if the media (in Australia at least) has decided that we can’t afford to tackle Climate Change at this time and it is best to play it down or at least keep it in the background.
S: Sorry to be dramatic but it is something close to my heart. It was interesting to see the commercial fall out from the fires with SP AUSNET being sued. When we meet last year in Singapore I mentioned that I felt the only way to make carbon a viable commodity is to have a cost for it either through risk premium of insurance or advertising value for sustainable behavior. Is the Australian Governments strategy going to allow for the development of a “value” or “cost” for the emitters?
TH: An ETS is a fairly narrow tool that must be deployed as part of a wider strategy for both mitigation and adaptation. We have not seen any indication, apart from the increased renewable energy target announcement, that the government have other complimentary measures that together make up a coherent strategy. Their focus has been on making the CPRS politically palatable and therefore most of the proceeds of the permit auctions are being used to compensate heavy emitters or consumers rather than encouraging research, development and commercialisation of Cleantech and adaptation measures. There will be a “cost” to emitters but that economic signal is being muddied by distortions in the scheme design.
There is no doubt in my mind that the insurance industry is the most switched on in terms of its strategic understanding of the future cost of our continued growth in emissions and in my view governments globally must come up with strategies that links the future impact cost of a tonne of CO2 emitted today with a charge for emitting it (a la Stern’s Social Cost of Carbon and Marginal Abatement Cost comparison).I think in the current political and economic constructs this may be a long way off from being achievable.
S: I note that the Minister, Hon Penny Wong, has a role relating to climate change, not carbon. Do you think they are bundling the carbon emissions, water, land usage, productivity and other sustainability issues into one portfolio? I recently read Prof Jared Diamonds Book, Collapse, about the collapse of civilizations. he makes some pointed comments about Australian society. Do you think there is sufficient societal momentum to create a viable industry which helps us mitigate climate change?
TH: That’s two questions in one Steve. Firstly on the portfolio issue, the Minister’s portfolio of Climate Change and Water as a separate portfolio to Environment underscores the current Australian Government’s recognition that:
a) These issues are inextricably linked in the Australian context and
b) They are the two biggest issues facing Australia in this and future generations
Reducing Australia’s emissions and negotiating our share of the load is an integral part of managing Australia’s response to climate change so once again while decarbonising our economy is important it is only a part of the wider climate change issue. On the second question, I haven’t read Prof Diamond’s book, but my view on Australia’s appetite for dealing with this issue I would make this point – Despite the fact that it is an overused cliché, Australia is a society that fundamentally believes in a fair go and I believe there is an appetite to do our fair share, however there is still a very poor understanding of the issues and we are a long way from a shared vision of what we should be expected to contribute in a coordinated global effort.
I tend to use taxi drivers as my litmus test of Aussie society because they mix with the widest group of people on a daily basis ( as both receivers and disseminators of the shared vision) and after 3 years of running ACX I still get into cabs and if the driver asks me what I do for a living and I tell him or her that I run Australia’s carbon trading platform the response is almost always along the lines of “so tell me this carbon emissions thing is it for real”, but if you start talking about the Global Financial Crisis they will give you an expert commentary that is equal to what you would get on CNBC.
S Tim it seems that we are the middle of a period of significant change with a risk of business as usual. This is a discussion we will need to revisit in six months. Thanks for you time spent with us today and keep up the good work with the exchange.