Christmas and New Year have come and gone and the events of the Bali meeting of the UN’s Climate Convention and Kyoto Protocol seem distant mountains on the horizon. Already the media debate around climate change policy in Australia has refocused on domestic policy such as the development of the local emissions trading system. However, it would be a mistake to think that global diplomacy around the agreed Bali Roadmap will not play heavily on the minds of domestic decision makers over the next two years.
The old saying goes that UN meetings are either “successful” or “very successful”. After last minute personal interventions from the UN Secretary General and the Indonesian President, a “successful” Bali Roadmap was adopted that sets out the parameters for negotiations leading up to Copenhagen in 2009 for a post-2012 agreement.
The Bali Mandate contains two important paths. The first path enhances the UN Climate Change Convention by setting a course for “long-term cooperative action”. For the first time, developing countries have committed to preparation of mitigation actions, supported by technology and financing. As the South African delegate stated, “Developing countries are saying voluntarily that we are willing to commit ourselves to measurable, reportable and verifiable mitigation actions. It has never happened before. A year ago, it was totally unthinkable.”
However, the US played a role in weakening the requirements for developed countries to measurable actions including “quantifiable emission limitation and reduction objectives”. That is, not necessarily even greenhouse pollution reduction targets. This path also included processes to identify ways to reduce emissions from deforestation and to improve action on adapting to the unavoidable impacts of climate change already underway.
In the end, despite a recognition that to delay a reduction in emissions would risk more severe climate change, the final text for this path failed to refer to the 2020 and 2050 science backed targets that had been at the centre of negotiations over the two weeks of Bali.
By mid-afternoon on the last day of the conference, hopes that the Bali Mandate would have an explicit focus on 2020 and 2050 targets appeared dashed. The discussions on the second path then came into play: nutting out future emission reduction commitments for developed countries that have ratified the Kyoto Protocol.
Text tabled by the chair said that “global emissions of greenhouse gases need to peak in the next 10-15 years and be reduced to very low levels, well below half of levels in 2000, by the middle of the twenty-first century in order to stabilise their concentrations in the atmosphere at the lowest levels assessed by the IPCC … Achieving the lowest levels assessed by the IPCC to date and its corresponding potential damage limitation would require [industrialised] Parties as a group to reduce emissions in a range of 25-40 per cent below 1990 levels by 2020.”
Without the political cover of the USA, Japan made what could only be called a non-statement, and early opposition from Canada and Russia evaporated in the face of overwhelming support for the text. Australia also ended two weeks of speculation on its position by “strongly supporting” this non-binding, but important, signpost for science backed targets for developed nations.
Throughout the Bali conference, business was very clear that it was looking to governments to come to an agreement by 2009 that created policy certainty. The International Chamber of Commerce wanted “clear, predictable and stable frameworks for long-term planning and investment . for implementing and accelerating technology cooperation for projects related to energy access, supply and energy efficiency.”
Business was a well represented and diverse group in Bali. The usual suspects were in attendance – energy producers and carbon intensive industries. But representing the increasingly multifaceted and sophisticated policy response to climate change, bankers, investors, carbon traders, foresters, law firms and myriad other businesses mingled in the corridors. All of these industries face the overriding dilemma: How can multi-billion dollar investments be made without knowing what carbon liabilities may be in the future?
Beneath this concern, the position of business varied from industry to industry and from country to country. Broadly, there are tensions between established industries and businesses in new emerging markets such as renewable energy and carbon trading. The latter are generally more cautious while new industries are more ambitious. For example, renewable energy associations who now represent some of the world’s biggest companies like GE, BP and Shell are bullish. In 2006, renewable energy accounted for 20 per cent of global investment in power generation. On the back of this, clean energy companies believe they can quickly deliver the technologies to make significant reductions in emissions. But they need the enabling policy frameworks to underpin investments.
On the surface, many elements in the Bali Roadmap will work towards this policy frameworks goal including the development of clear emission reduction obligations for developed and developing countries, incentives to create technology financing, the examination of buildings, and strengthening the global carbon market. However, a rather large elephant is sitting in the room and it has the Stars and Stripes tattooed on its shoulder.
While this is not the only factor, the posture of future US administrations will have a large bearing on whether Copenhagen delivers a stable, long-term investment framework for business. As the world’s second largest emitter, and the largest economy, the domestic emission reduction obligation the US accepts post-2012 will have significant impacts on the shape of global investments in emission reductions. While other large emitters such as the EU and China are reducing emissions regardless of the US position, the ultimate level of their domestic policy ambition will be tied to what the US commits to in 2009.
Uncertainty around the position of the US will remain until the outcome of the US Presidential election in November. Both leading Democratic candidates have reasonably strong climate change policies and support 80 per cent reductions in emissions from the USA by 2050. John McCain, on the Republican side, could also be expected to take a more progressive approach to climate policy than the current Administration and he has signalled 65 per cent reductions in the US by 2050. Other Republican candidates have said little on climate change and their positions may be very similar to the current Administration. The stance of the Congress and Senate on international talks remains unclear.
Global investments in clean energy will, for the short-term, be based on existing markets but considerable uncertainty remains around ambitions for long-term emission reduction obligations. This has major implications for investments in greenhouse and capital intensive investments. As we have seen in both Australia and the US this uncertainty is already deferring new investment in power generation.
Avoiding dangerous climate change will require decisive global action. In a paper published on the first day of the Bali meeting, researchers from the Australian Commonwealth Scientific and Research Organisation (CSIRO), The Climate Institute, Monash University and McLennan Magasanik Associates concluded that it is clear from the climate science that Australia is likely to be more adversely impacted by climate change than most other developed nations. This implies that Australia has a stronger interest than most in arguing for deeper and more rapid cuts in global emissions.
Based on macro-economic modelling from the Centre of Policy Studies at Monash University, the study found that the negative impacts of a 50 per cent reduction in world emissions, and associated Australian action, are likely to be modest and manageable. The modelling suggests that achieving a 40-100 per cent reduction in Australia’s net emissions by 2050 (including through the purchase of international emissions credits) is consistent with strong economic growth. Gross Domestic Product increased more than three fold over the 45 years to 2050 across all scenarios modelled and grew from less than $1 trillion today to over $3 trillion (current 2005 dollars) in 2050 in all scenarios.
A particular challenge for Australia will be how it defines and undertakes a new diplomatic strategy towards the US to ensure the current Administration does not hinder progress on the road to Copenhagen. Relationships with any new US leadership and US domestic policy makers will also need to be built and strengthened to encourage a strong agreement in 2009.
A clear and decisive commitment by the Federal Government to emission reductions at home would also help build the confidence and willingness of others to take comparable actions, and provide greater credibility and leverage in mobilising international action to reduce emissions.
It is particularly important for the Rudd Government to build trust and confidence among developing countries and key trading partners like China and India.
An associated benefit is that Australia may find it easier to pursue other climate change policy objectives, such as the treatment of emissions intensive traded goods. Rapid early reductions would help manage the economic risks to Australia from uncertainty in the pace of global action. It is much more difficult and costly to accelerate emissions reductions than to decelerate them in response to changing international circumstances. In particular, incremental tightening of long-term emission targets risks the premature retirement of emissions intensive capital assets, such as traditional coal-fired power stations.
One of the world’s leading experts on the global carbon cycle, Dr Michael Raupacha of the CSIRO, recently stated that “a global greenhouse gas mitigation strategy is essential for Australia’s long-term national interest.” Recent drought has highlighted the nation’s vulnerability to climate change and securing an effective global agreement in Copenhagen has already emerged as a key diplomatic challenge for the new Federal Government. Setting the bar high domestically by implementing a strong emission reduction target is an important step on this path, no less than securing strong commitments from a new US Administration.
Erwin Jackson is the Director of Policy and Research at The Climate Institute