New leadership on Climate Change

Kyoto Protocol

Ratification and the Bali Convention
The Prime Minister-elect has announced that Australia will proceed immediately to ratify the Kyoto Protocol (Protocol) with the intention of participating in the upcoming 3 to 14 December 2007 Bali Convention regarding climate change commitments post the Kyoto commitment phase that ends in 2012. Mr Rudd has accepted an invitation from Indonesian President Yudhoyono to attend the Bali Conference. Mr Rudd was briefed by the head of the Department of Prime Minister and Cabinet on Sunday, including in relation to the Bali Conference.

There are administrative government hurdles to quick formal ratification of the Kyoto Protocol as an international treaty. However, it is not expected that these hurdles will restrict ratification in time to allow full participation at the Bali Conference. The following background on the Protocol may help in understanding the effects of ratification for Australia:

The effect of ratification
The following background on the Protocol may help in understanding the effects of ratification for Australia:

• The Kyoto Protocol places binding limits on emissions of six greenhouse gases (GHGs) (CO₂, N₂O, CH₄, SF₆, perfluorocarbons and hydrofluorocarbons).
• These limits apply to the so-called ‘Annex I’ countries which ratify the Protocol. Of those, only the United States and Australia have yet to ratify the Protocol.
• Commitments specific to each Annex I country are set out in Annex B to the Protocol. Australia’s commitment will be to limit its GHG emissions in the period from 1 January 2008 to 31 December 2012 (First Commitment Period) to 108 per cent of 1990 emissions.
• The Protocol allows Annex I countries to include, in their calculation of net changes in overall emissions, removals of GHGs by ‘sinks’, but limited to:
  - afforestation (namely: the planting of forests where none existed previously)
  - reforestation (namely: the replanting of forests), and
  - avoided deforestation (namely: the removal of forests)
   since 1990. Under the Protocol, a ‘sink’ does not currently include carbon capture and storage.  
• Despite its non-ratification to date by the United States and Australia, the Protocol has entered into force. It did so on 16 February 2005.
• The Protocol establishes:
  - an international emissions trading regime, and
  - in addition, two types of ‘project-based’ emissions trading schemes.
  These are called the ‘flexibility’ mechanisms. They are available to parties which ratify the Protocol. They will become available to Australia as a consequence of ratification.
• The international emissions trading regime under the Protocol is one in which participating countries can buy and sell GHG emissions ‘allowances’ given up to a ‘capped’ level. The trading must be supplemental to domestic actions aimed at reducing emissions to the levels specified in the Protocol.
• The two types of ‘project-based’ emissions trading schemes are as follows. The first scheme concerns Annex I countries only and is known as joint implementation (JI). The second scheme includes both Annex I and non-Annex I countries and is known as the clean development mechanism (CDM).
• JI is a mechanism whereby ‘any Annex I country may transfer to, or acquire from, any other Annex I country emission reduction units resulting from projects aimed at reducing greenhouse gas emissions’ (ERUs). These projects may reduce emissions at their source, by way for instance of energy efficient technology, or they may enhance the absorption of GHGs, for example, through the planting of forests. The principal aim of JI is to effect technology transfer into the Annex I countries which are the so-called ‘economies in transition’ (generally located in eastern Europe).
• The CDM is a mechanism whereby an Annex I country may use certified emission reductions gained from project activities which benefit a non-Annex I country (CERs) to contribute to part of the Annex I country’s emission reduction commitment.
• Principles, modalities, rules and guidelines for verification, reporting and accountability under the Protocol’s ‘flexibility mechanisms’ are well developed. The market for CERs under the CDM is particularly mature and increasingly valuable. Australia will gain direct access to this market as a consequence of ratification.
• Compliance with the Protocol’s emissions limitations is enforced through an ‘enforcement branch’. If the branch determines that a party has exceeded its assigned amount for the first commitment period, the following consequences (among others) will apply: the party will suffer a proportionate reduction in its allowance for the next commitment period; the party’s eligibility to participate in emissions trading is suspended.

One significant possible outcome of ratification of the Kyoto Protocol is the inclusion of a ‘greenhouse trigger’ in the Environment Protection and Biodiversity Conservation Act 1999 (Cth) addressed to projects which, in construction or operation (or both), will emit greenhouse gases and requiring those projects to undergo the impact assessment before being approved under that Act. 

Domestic emissions trading

The Prime Minister-elect has also confirmed that Labor will proceed to introduce an Australian emissions trading scheme (ETS) by 2010. The details of Labor’s ETS are not known. Presumably, it will aim to reduce Australia’s GHG emissions to 60 per cent of 2000 levels by 2050, the target announced in Labor’s Action Agenda for Climate Change on 30 May 2007. Otherwise, the extent (if any) to which Labor’s scheme will depart from the detailed policy positions contained in the Coalition’s Australia’s Climate Change Policy released on 17 July 2007 is not known and is unlikely to become clear until the release of the draft report of the Garnaut Review scheduled for 30 June 2008. There are reports that an interim version of the Garnaut Review may be available before the end of the year.

A Garnaut Review discussion paper, Land use – Forestry and Agriculture, has been released with submissions due by 4 January 2008.

The following Garnaut Review public forums are planned:

It is uncertain to what extent Labor will follow the Coalition’s previously released Discussion Paper on Abatement incentives Prior to the Commencement of the Australian Emissions Trading Scheme. Submissions are due in response to that discussion paper by 1 December 2007.

Also presently unclear is whether, and (if so) to what extent, the National Greenhouse and Energy Reporting Act 2007 (Cth) will be retained. Presumably, it will be substantially retained. Prior to the election Labor's water spokesman Anthony Albanese praised the Coalition’s Energy Efficiency Opportunities scheme when promising to establish a national Water Efficiency Opportunities program for large industrial water users; the National Greenhouse and Energy Reporting Act 2007 (Cth) is closely modelled on the Energy Efficiency Opportunities scheme. 

There is similarly uncertainty as to the future of the lapsed Tax Laws Amendment (2007 Measures No. 6) Bill 2007 (Cth), which would permit tax deductions for the costs involved in the establishment of trees for carbon sinks.

Other domestic initiatives

Clean Coal Initiative
Labor can be expected to implement its clean coal initiative: Labor's Clean Coal Initiative (the Initiative). Under the Initiative, Labor will establish a $500 million fund for development of clean coal technologies. $275 million of the fund will be spent as follows:

• $50 million for a national carbon mapping and infrastructure plan, including $20 million and $5 million (respectively) to map and test carbon storage sites in Queensland and Western Australia.
• $75 million for a national research program, including $25 million to support CSIRO research.
• $50 million for a pilot coal gasification plant in Queensland.
• $50 million to demonstrate carbon capture and storage in NSW, comprising $20 million to identify and test possible storage sites in NSW and funding for a large-scale post combustion capture unit on an existing power station in either the Hunter or Central West that would capture more than 50,000 tonnes of CO2 a year.
• $50 million to install by 2011 a large-scale post-combustion capture plant in Victoria's Latrobe Valley.

The Initiative also states that Labor will work with states and industry to establish ‘a robust regulatory framework’ for carbon capture and storage.

Renewable energy
Labor can also be expected to implement its announced policies on renewable energy: Labor's 20 Per Cent Target For a Renewable Energy Future. Labor has promised to ensure that at least 20 per cent of Australia's electricity supply (approximately 60,000 GWh) is generated from renewable sources by 2020. This will be a significant increase on the current target of 9.5 per cent (approximately 15,000 GWh). The aim is to combine existing and proposed state and territory renewable energy schemes and the national Mandatory Renewable Energy Target (MRET) scheme into a single national scheme.

Labor considers that renewable energy targets do not have a long-term future given the planned implementation of an ETS. It proposes a phase-out of renewable energy targets from 2020 to 2030 as domestic emissions trading matures and carbon prices become sufficient to ensure that mandatory renewable energy targets are no longer required.
 
Labor has also committed to providing (among other things) $50 million for geothermal drilling to assess the potential for hot, dry rock technologies.

Clean energy funds
Labor can also be expected to implement its announced policies on ‘clean’ energy: Federal Labor's Clean Energy Plan To Help Tackle Climate Change. Labor has promised to provide: $500 million for a Renewable Energy Fund, $150 million for an Energy Innovation Fund, and $240 million for a Clean Business Fund.

Spending under the Energy Innovation Fund will include: $50 million for an Australian Solar Institute based on an existing CSIRO centre in Newcastle, $50 million towards solar PV research and development, and $50 million towards ‘general clean energy research’.

Spending under the Clean Business Fund will include: $90 million for a Green Building Fund to subsidise 50 per cent of the cost of retrofitting commercial office buildings, with a maximum of $200,000 provided for each building. It will also include $75 million for grants of up to $500,000 to help small- and medium-sized manufacturers retool their production processes, reduce their environmental footprint and cut carbon emissions. Another $75 million will go to a program to support development and commercialisation of ‘clean, green technologies’. 

The existing Low Emissions Technology Demonstration Fund scheme and the Greenhouse Gas Abatement Program will be abolished.

Water Efficiency Program
As mentioned, prior to the election Labor's water spokesman promised to establish a national Water Efficiency Opportunities program for large industrial water users. This is reflected in Labor's National Plan To Tackle The Water Crisis. 

It is Labor’s aim to recycle at least 30 per cent of Australia's wastewater by 2015 and to establish a network linking businesses that have wastewater streams to potential users. Labor's $1 billion National Urban Water and Desalination Plan will provide a 10 per cent water tax credit—capped at $100 million per project—for up-front capital costs on approved desalination, water recycling and major stormwater capture projects. The private sector and local and state governments will have until the end of June 2009 to submit proposals to Infrastructure Australia, a statutory authority to be established by Labor and charged with the task of auditing infrastructure and driving infrastructure reform. Infrastructure Australia will conduct an independent, cost-benefit assessment of the proposals. Projects will need to be carbon neutral and ‘will be required to have regard to the development of a national emissions trading system’ to be eligible for the tax credit.

Labor is also committed to a $250 million National Water Security Plan for towns and cities that will provide matching funds to repair leaking water mains and provide funding ‘for practical projects to save water’.

Labor's policy also commits it to accelerating work on a ‘nation-wide, performance-based system for reducing water and energy use in new homes’.
 
Labor has also committed to combining the Murray Darling Basin Commission and the Murray Darling Basin Authority into one body, and to combining many other federal bodies with water responsibilities into one water agency. Labor is committed to restoring 500 billion litres to the Murray Darling Basin ‘as a matter of urgency’ and 1500 billion litres within the next decade. Labor has promised to accelerate development of a water register and work with state governments and water users to speed the development of national water trading rules and systems.

The water policy also includes a raft of specific project funding commitments: $408 million towards south east Queensland's Western Corridor Recycling project, $20 million for the Shell Geelong water recycling project in Victoria, up to $160 million towards a desalination plant in South Australia's Upper Spencer Gulf, and up to $4 million so that Delta Electricity in the NSW town of Lithgow can use recycled water instead of potable water.

Labor has set an aspirational target that by 2020 all Australian homes where suitable will have water saving devices such as rainwater tanks and greywater reuse systems and has committed to provide rebates of up to $500 to help 500,000 homes install new piping for greywater use or rainwater tanks.

National Solar Schools and Solar Homes Plan
Labor can also be expected to implement its announced policies on ‘solar schools’ and ‘solar homes’: Solar Schools – Solar Homes (Official Election Policy Document). Under the policy, any Australian school can apply for grants of up to $20,000 to install two kilowatt solar panels and grants of up to $30,000 for other water and energy efficiency measures. The policy also commits Labor to:

• a scheme to provide low-interest loans of as much as $10,000 to up to 200,000 existing homes for green renovations based on environmental audits
• providing $25 million over the next four years to expand the Solar Cities program, with Perth receiving $13.9 million of that and the Melbourne suburb of Coburg gaining $4.9 million
• rebates of up to $8000 to install solar power panels in up to 3000 homes a year, and
• rebates of up to $1000 each to help 225,000 homes install solar and heat-pump hot water systems.

Labor will also work through the COAG to develop a consistent national approach to ‘feed-in’ tariffs for solar PV.

Low Emissions Plan for Renters
Labor can also be expected to implement its announced Low Emissions Plan for Renters policy. Under this policy, a total of $150 million will be provided toward rebates for up to $500 each to help landlords install energy efficient insulation in 300,000 rental homes.

Investment in Green Precincts
Labor can also be expected to implement its announced Investment in Green Precincts policy. Under this policy, $15 million will be invested in at least 10 high profile practical projects to encourage water and energy saving measures such as solar and rainwater. $1 million has already been pledged towards the Windy Hill Green Precinct Project.

Coastal Care
Labor can also be expected to implement its announced policy on coastal care: Federal Labor’s Caring for Our Coasts. This policy is designed to address issues facing coastal communities, including climate change, rapid population growth and catchment degradation. The Prime Minister’s Science, Engineering and Innovation Council recently suggested that over 700,000 coastal addresses are potentially at risk from long term sea level rise and large storm surges.

This policy commits Labor to:

• establish a $100 million five year Community Coast Care Program to better protect the coastal environment
• provide $25 million over five years to help prepare coastal communities for the impact of climate change
• embark in a national consultation with coastal councils, coastal National Resources Management groups, capital city mayors, academics, community groups and state and territory governments to develop a blueprint for coastal cities and towns to meet current and future climate challenges
• update and improve the Australian Disaster Mitigation Package to take into account severe weather and storms due to climate change
• seek Wold Heritage listing for Ningaloo Reef in Western Australia
• hand over Point Nepean and Malabar Headlands to the Victorian and New South Wales Governments for protection as national park and public open space, and
• invest up to $3 million to assist every Surf Life Saving Club in Australia to install a rainwater tank as part of Labor’s National Water Security Plan for Towns and Cities.

The Great Barrier Reef
Labor can also be expected to implement its announced policy for the Great Barrier Reef, which specifically refers to climate change issues: Federal Labor’s Reef Rescue Plan. This plan involves a $200 million five-year plan to address climate change and water quality issues, including the following elements (the costs are over the five years of the plan):

• a Water Quality Grants Scheme, at a cost of $146 million
• a Reef Partnerships Program, at a cost of $12 million
• a Land and Sea Country Indigenous Partnerships Program, at a cost of $10 million
• a Reef Water Quality Research and Development Program, at a cost of $10 million
• a Water Quality Monitoring and Reporting Program, at a cost of $22 million, and
• the publication of an annual Great Barrier Reef Water Quality Report Card.

This article was written by John Taberner, Partner, Michael Voros, Solicitor and Jason Johnston, Solicitor in the Projects group.

For more information please contact

Name : John Taberner
Title : Partner
Office : Sydney
Phone : +61 2 9225 5427
Fax : +61 2 9322 4000
Email : john.taberner@freehills.com