Climate Change Policy: The Copenhagen Accord, Cancun and Beyond Michael Hitchens, Chief Executive Officer, November 2010

Agenda How did we get here? International negotiations Domestic policy Where to next? A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 2

How did we get here? Domestic policy parallels international events A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 3 INTERNATIONALDOMESTIC UNFCCC 1992 (in force 1994)Ratification of UNFCCC 1992 Berlin Mandate 1995Carbon tax proposals  Greenhouse Challenge 1995 Kyoto Protocol 1997 (in force 2005) National Greenhouse Strategy 1998, includes MRET (starts 2001) EU ETS Stern Review 2007 AGO ETS ;NSW GGAS 2003; States NETT 2004; QLD GEC 2005; Bali Roadmap PMs TGET; Ratify Kyoto Protocol; Garnaut Review; CPRS White Paper 2008 Pre-Copenhagen 2009RET; CPRS to start 2011 Post-Copenhagen 2010Multi-Party Committee on Climate Change

International negotiations  Australia’s Kyoto Protocol progress  Average of +8% on 1990 over 5 years  Perhaps 50 million tonnes to sell (but no buyers?)  Copenhagen Accord  Developed versus developing country paradigm  Pledges add to 17% reduction, at best  2 o C thought to require 25% by 2020  ‘Binding’ agreement before 2012 unlikely  USA – China the key A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 4

Australia’s position “… reduce Australia’s emissions by 25 per cent on 2000 levels by 2020 if the world agrees to an ambitious global deal capable of stabilising levels of greenhouse gases in the atmosphere at 450 ppm CO2-e or lower…and… to unconditionally reduce Australia’s emissions by 5 per cent on 2000 levels by 2020, and to reduce emissions by up to 15 per cent by 2020 if there is a global agreement which falls short of securing atmospheric stabilisation at 450 ppm CO2-e, and under which major developing economies commit to substantially restrain emissions and advanced economies take on commitments comparable to Australia’s.” A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 5

Australia’s position A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 6

Busting the myth: -5% is more than our fair share under the Copenhagen Accord (WRI) A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 7

Myth busting part 2: Emissions/capita (WRI) A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 8

Myth busting part 3: Emission/$GDP (WRI) A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 9

Myth busting part 4: Copenhagen Accord shadow emission prices (McKibbin) A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 10

Domestic policy AIGN supports a price on emissions  Emissions trading has pluses with permit allocation; least-cost international trading; long- term price discovery (but medium term price instability)  Emission tax may offer less uncertainty on price The policy problem is the transition to a comprehensive global price A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 11

AIGN principles Managing uncertainty  National – there is a real problem with multiple Federal and State measures  Stable policy settings and institutions  Long-term price discovery Trade exposure Compensation Investment in RD&D Investment in adaptation A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 12

CPRS Delay until 2013  Until after the Kyoto period AND  Clarity on major economies’ action (USA, China, India) What ‘certainty’ did CPRS provide?  Legislative framework But subject to sovereign risk change (witness RET)  Carbon price But this was to be set by international markets Copenhagen limited any ‘certainty’ on that score  Was this the best EITE deal? For most TE it was a bad deal A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 13

Are proxy carbon prices now the main game? RET and feed-in tariffs (FIT) White certificates scheme Emission regulation A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 14

Contributions to electricity prices A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 15 Real $/MWh 2012 Base Price 2009 New Network Investment Enhanced RET 2010 Carbon priceWhite certificates scheme Wholesale price Transmission/distrib ution Retail costs and margin ? TOTAL PRICE ? % change34%6%? Real $/MWh 2020 Base Price 2012 New Network Investment Enhanced RET 2010 Carbon priceWhite certificates scheme Wholesale price Transmission/distri bution Retail costs and margin ? TOTAL PRICE ? % change20%9%28%?

Where to next? International  Cancun  South Africa 2011  USA – China the key Domestic  Multi-Party Committee on carbon price  State action (NSW FIT; Victoria EPA) A U S T R A L I A N I N D U S T R Y G R E E N H O U S E N E T W O R K 16