Strategic Greenhouse Issues for Australia
5 May 2000
Speech by BCA Executive Director, David Buckingham, to the WBCSD–BCA Forum
Ladies and Gentlemen, it is a pleasure to have the opportunity to address you today at this, the third annual WBCSD–BCA Forum.
As Campbell Anderson noted last night, in 1998 the Business Council of Australia and the World Business Council for Sustainable Development formed an alliance to address one of the most critical public policy issues of our time – sustainable development. The principal initiative has been the annual WBCSD-BCA Forum, and speaking for Council’s part, it has been a very successful partnership.
In the short time I have available this morning I would like to outline where the BCA thinking has reached on some important aspects of climate change. I would also like to give you some background to the Dialogue process we have been leading with the AICD and the Australian Greenhouse Office. Many of you have been involved in this process and this afternoon we will have the opportunity to discuss the summary discussion paper which draws together the key elements of the dialogue to date.
First of all the Dialogue.
From any perspective, the potential impacts of climate change are of a scale and significance that would impact on every aspect of our global community. The challenge for all of us is not only to understand the science. At the same time it is critical that we understand the full range and impact of potential effects of climate change, as well as the range and impact of the strategic measures we may wish to deploy.
This is a huge task. There are enormous risks and degrees of uncertainty involved and it is one that requires leadership and input from all groups in society. The scale and magnitude of the task requires that business, government, community, environment groups and others all play a part in finding ways forward. Put simply, we are all impacted by the problem and we must all be part of the solution.
From Australia’s perspective there are many risks, the adjustment task we face is daunting and the potential costs are enormous. One of the most disturbing aspects therefore is the general lack of awareness in the Australian community about the magnitude of the issues at stake. We are also acutely aware that we have not had a national debate on appropriate greenhouse policy.
Much of the reason for the lack of awareness can perhaps be explained by the lack of certainty surrounding most aspects of climate change.
Against what is still a very uncertain policy background, there is a wide range of strongly held and differing views regarding the strategic options for, and implications of, Australian actions. These range from commitment to taking action now and support for the Protocol, through to the opposition to binding targets and timetables.
From a business perspective the views being expressed generally reflect the anticipated risk to, and affect on, the company or sector in question. These are legitimate views and concerns – mirrored throughout society - which we must be addressed through a sound and realistic policy framework.
Dialogue on Greenhouse
The need to stimulate debate, to engage our collective thinking around the range and scale of potential impacts and possible strategic responses was the key driver behind the Dialogue Process.
It was our conviction of the importance of an open dialogue and understanding that led to the BCA joining with the Australian Greenhouse Office and the Australian Institute of Company Directors, to facilitate the recent Dialogue on greenhouse.
The aims were simply:
- to provide a forum for strategic thinking on greenhouse issues among stakeholders;
- to encourage constructive public dialogue on the issues, options and implications of action for Australia; and
- to raise awareness and understanding of these as a nation.
The Dialogue involved two scenario style roundtables attended by 40 leaders from business, community and government with a high level of knowledge and understanding of the greenhouse issues and the economic, environmental, social and political implications. Many of these people are here at this Forum, and we thank you again for your participation.
One of the aims of this Forum is to broaden that dialogue process, and allow a broader grouping of people to publicly engage with and debate the issues. The Business Council of Australia believes Australia needs a much more open and inclusive consideration of the options and their implications before further radical and potentially very costly options for greenhouse are embraced.
The dialogue process has provided an opportunity for the BCA to further develop its thinking. I would now like to outline a set of principles which, although not all Australian companies may agree, the Business Council of Australia believes should underpin future development of greenhouse policy in Australia and Australia’s participation in international negotiations.
Let me start with the science first, because in Australia, this has been an intense area of debate. The Council accepts that, although there are uncertainties in the science of climate change there is sufficient reason to be concerned that increasing levels of anthropogenic greenhouse gases lead to interference with the world’s climate system.
We also recognise and accept that the international community has embarked on a course of action to constrain anthropogenic greenhouse gas emissions.
Accordingly, as a Council we believe it is important that Australia plays its part in a worldwide effort to reduce greenhouse gas emissions. Our contribution to the international objective must be a fair and equitable one, relative to our circumstances, size and position, and should reflect whole-of-government national approaches.
Second, climate change is a global problem. The Council therefore believes that participation of developing countries in the Kyoto Protocol is essential to effectively address the problem and to not distort world trade. We cannot underestimate the need to bring developing countries into the process a soon as possible and certainly within this decade. One of the real issues here is the role that technology and the clean development mechanism might play. In this respect we and other developed countries have it within our power to influence the character of the investments in developing countries and in this way to facilitate their contribution to the global, and, the Australian goal.
Third, and very importantly, future greenhouse policy should provide legal recognition for early action initiatives of corporations to reduce greenhouse gas emissions. Companies need to know that reducing their emissions now won’t put them at a competitive disadvantage down the line.
Fourth, the BCA recognises that there are a variety of policies and measures, the judicious selection of which could lower the costs of meeting our international obligations. We believe:
- An understanding of the relative costs and potential interactions of options is essential to guide the selection of an optimal, least cost policy path for Australia. And
- Cost-effectiveness and industry competitiveness should be taken into account in deciding what measures to implement and when.
All stakeholders must be involved in the selection and careful evaluation of the policy options. The Australian community must have an understanding of what is at stake with various options proposed.
Moreover, we believe that measures that are ‘no regrets’ should be adopted as soon as practicable.
Measures with some cost but which can be proven to be cost effective in positioning Australia to meet its potential international obligations should also be pursued through government investment and through encouraging private sector investment.
As well, adequate priority should be placed on policies to manage demand side consumer behaviour. A now familiar resistance to change by the public suggests that we cannot expect major changes in lifestyles and consumption patterns in the short time leading up to the first commitment period. But small changes in direction and appropriate market signals could lead to significant changes in the longer term. We must pursue demand side management policies with the same priority as industry specific policies. All aspects of the community, including business, have important roles to play. It is far too simplistic to invoke community sentiment as a reason to act.
We must ensure that community sentiment is well informed and accepts the true costs and implications of the actions it purportedly seeks of Government, industry and others.
Further, despite any uncertainty regarding the potential environmental consequences of climate change, greater emphasis needs to be placed on the development of adaptation strategies. This aspect has in large degree been ignored to date by Australian policy makers.
Fifth, I turn to market based mechanisms. The Council recognises that market based mechanisms will usually provide a more efficient and least costly means of meeting Australia’s international commitments. We believe that Australia should therefore continue to improve its knowledge base on market mechanisms and refine potential institutional arrangements.
However, decisions on the timing and implementation of any mandatory requirements for domestic emissions trading need to be directly linked with developments in international negotiations and the entry into force and ratification of the Protocol.
I note here however that internationally a number of schemes are under consideration, and I believe the time is rapidly approaching when Australian business may want to look at the potential benefits of pursing its own voluntary emissions trading regime.
The Business Council is aware of a number of member companies who are interested in together exploring voluntary emissions trading, in an exercise of ‘learning by doing’. This might well be a constructive next step by industry itself.
Sixthly, there is Australia’s role in international negotiations. To maximise a positive environmental and economic outcome for Australia, the Council recognises that the Government will need to take a leading role in international climate change negotiations on critical elements of the Protocol (sinks, flexibility mechanisms, a cost effective compliance regime and finding a pathway for future developing country involvement). As was highlighted at the Dialogue on Greenhouse, the Council recognises that there is interdependence between leadership in the international debate and domestic leadership in actions that needs to be carefully managed in a continuing effort to ensure the competitiveness of Australian industry.
Seventh, and at a minimum, the Council believes that a path towards commitments by developing countries and a means to ensure that the international price of permits/credits won’t become a significant driver for ‘emission leakage’ (offsetting apparent reductions) should be agreed prior to Australian considering ratification of the Protocol. In this context, it is important that Australia’s consideration of ratification should:
- not proceed before satisfactory resolution of the outstanding Protocol issues on flexibility mechanisms, compliance, sinks and participation of developing countries; and
- take account of the ratification decisions of other Annex 1 Parties, particularly the US.
Finally, the prospective requirement for national compliance with the Kyoto Protocol and the need to limit global greenhouse gas emissions is a complex issue with important implications for the competitiveness of Australia as a nation, and for particular sectors and regions of the Australian economy. The BCA believes:
- It is incumbent on both Government and industry to understand the net economic and regional development impact of the Protocol on trade exposed and import competing sectors. The effect of pass through of extra costs to domestic consumers also needs to be considered.
- There should be acknowledgment in domestic policy development that ‘clean’ Australian products, processes and technologies are part of the global solution to greenhouse.
- Decisions on policies that will influence investment decisions should take account of the need for global emission constraint and not add to the current incentive for investment decisions to result in emissions relocating to non-Annex 1 countries.
- In developing future greenhouse policy the cumulative impact of individual policies and measures should be assessed to ensure that they do not render Australian industry uncompetitive.
- Sectors of the economy will be differentially affected by greenhouse policies. We need to:
- understand the long timelines often associated with technological developments and planning and capital investment cycles for some industries; and
- balance our environmental and economic goals in ways that minimize the costs and impacts, and treat those who will be adversely affected in ways that are equitable.
Australians now generally accept that our economic success depends directly on the competitiveness and productivity of our nation’s individual enterprises. Our standard of social well being and our quality of life also depend on our economic performance as a nation.
It is important, in the view of the BCA, that a long-term policy trajectory of a global response to climate change be established, and that Australia make an appropriate contribution to that response.
Sectors of the economy have different constraints on what they can do and some, such as the energy intensive sector, are particularly at risk to the cost of emission reduction strategies. To meet a growing global consumer demand for commodities, whilst minimizing emissions in a world characterized by different carbon pricing, requires imaginative and flexible sectoral policies to deal with competitive disadvantage and carbon leakage.
Australia’s response to the greenhouse issue must therefore be evaluated in a strategic framework that articulates, not only a commitment to environmental best practice, but also to the economic well being of Australian citizens which is linked with the success of our industries and enterprises. The quality of Australian life is fundamentally linked to competitiveness and, in Australia’s case, it is heavily dependent on the reliable availability of competitively priced energy.
Let me conclude by stating as I did to the recent Senate inquiry, that the Business Council of Australia remains ready to play a constructive role in greenhouse policy development. More specifically, we stand ready to help devise and advance pragmatic and effective solutions which provide the framework for economic success, the promotion of the national interest and, which at the same time, lays a basis for real progress in dealing with the risks posed by climate change. Getting it right is now the challenge before us.