Climate change and the changing nature of global competitiveness

Yesterday, I was fortunate to speak in a panel discussion hosted by South Pole at the 5th Australasian Emissions Reduction Summit. The panel talked about China’s emissions trading scheme (ETS) and what it means for China and Australia in terms of competitiveness and corporate action. Our discussion highlighted some of the ways in which our global economy is being reshaped to meet the Paris Agreement ambition on climate change.

Our panel also included Jiang Kechun, Senior Researcher at the Energy Research Institute at China’s National Development and Reform Commission, John Davis, Director, Finance Industry at South Pole and moderator, Tom Schröder, Director of Marketing and Communications at South Pole.

China’s ambition on climate change

Jiang Kechun’s presentation brought to life the scale and pace of policy and technology developments that are occurring in China. Driven equally by domestic concerns about China’s environment and pollution and the need to ensure China’s future global competitiveness, it is apparent that China perceives action on climate change as fundamental to its continued economic prosperity and geopolitical influence. China’s nationally determined contribution (NDC) articulated under the Paris Agreement committed China to reduce the CO2 emissions intensity of the economy by 60–65% in 2030 relative to 2005, and to stop the rise in absolute CO2 emissions around 2030.

China’s ETS will initially cover around 3 GtCO2 per year or around about 8% of global CO2 emissions. At full coverage it would encompass around 5 GtCO2 per year, more than two and half times greater than the EU scheme which is currently the world’s first and largest ETS. By 2020, it is anticipated to cover eight sectors, including steel and aluminium. Jiang also elaborated on China’s intention to introduce a national carbon tax which would work in tandem with the ETS to drive the decarbonisation of China’s economy. China’s bold rural electrification program also positions China to fundamentally reorient its electricity and transport sectors towards clean technologies.

Implications for Australian businesses

As I highlighted in my remarks yesterday,

Australian businesses are increasingly aware that the risks and opportunities associated with climate change are multifaceted and extend beyond the potential costs associated with national climate change policies towards considerations of global market forces.

Through the Paris Agreement, the international community implicitly recognised that climate change risks now pose a systemic risk to the global economy, requiring enhanced transparency and management. By trading the ‘top down’ command and control approach of the Kyoto Protocol for principles of universal participation, the Paris Agreement will accelerate the implementation of climate change laws and policies in every country.  Given the interconnected nature of our global economy, national and corporate action has become a matter of competitive advantage. Businesses which operate with foresight will be well placed to adapt.

As one of China’s key trade and investment partners, Australia’s economy is particularly sensitive to changes in China’s economic conditions.  Irrespective of Australia’s own public policy settings, the developments we are seeing in China have the potential to further propel Australia’s own energy market transformation, as Australian businesses seek to remain globally competitive.

The transformation of Australia’s energy market sits at the heart of Australia’s climate mitigation challenge. In AGL’s view two fundamental imperatives will drive the sector’s transformation: decarbonisation and the centricity of customers’ unique preferences and expectations.

In light of our responsibility to our customers, investors and the broader community in which we operate, AGL has committed to playing a leading role in developing a pathway to a modern, decarbonised energy sector. As our Greenhouse Gas Policy elaborates, we have made a commitment to a range of measures, including the closure of all of our existing coal-fired power stations and continued investment in new renewable and near-zero emissions technologies.

AGL also continues to take a market leading approach to our disclosure of climate risk. In August 2016, AGL released its Carbon Constrained Future report, which provides economic analysis of AGL’s operations within a carbon constrained future. This year we also intend to report in accordance with the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD Recommendations). We consider that reporting against the TCFD Recommendations will assist our stakeholders to better understand the ways in which we are managing this issue to ensure a sustainable business into the future.

The importance of appropriate national policy settings

Nevertheless, the Australian energy sector cannot realise a low-carbon transition in isolation of government and public policy. Fundamentally, public policy settings should establish investment certainty in a carbon constrained future.

As we recently observed in the policy debate concerning the National Energy Guarantee,

Australia remains in serious need of a long-term carbon policy that drives investment in low-emissions sources and can steer the electricity sector smoothly through the process of replacing aging thermal plant with less emissions-intensive generation.

AGL also continues to advocate for the development of a functioning economy-wide carbon market to enable Australian businesses to optimise the cost of abatement while not slowing the necessary structural change in Australia’s economy.

 

 

 

 

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