Carbon Price & Clean Energy Future Finally a Formality

Carbon Price & Clean Energy Future Finally a Formality

A decade after it was first seriously
discussed in Australian politics, and on its fourth attempt to make its way
through a hostile parliament, Australian is now poised to finally implement a
carbon pricing regime. There is no doubt that this signals the start of one of
the greatest transformations of the Australian economy, ranking alongside the
floating of the currency, the introduction of the GST and other major policy
initiatives. But will this transformation be sudden and dramatic, or will it be
a slow burn? Climate Spectator asked leading business people, advisors,
politicians and lobbyists for their take.

Giles Parkinson in Climate Spectator (12
October 211):

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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