With climate change back on the political agenda, law firms are dusting off compliance reports for clients. Justin Whealing asks what round two of an emissions trading scheme may look like, and where the lawyers fit in.

It wasn't so long ago that John Howard pledged in July 2007 to introduce an emissions trading scheme if re-elected, but then so much has happened in the three and a bit years since.

During that same election campaign, Kevin Rudd actually trumped Howard by releasing a timetable for a carbon pollution reduction scheme (CPRS) and described climate change as "the greatest moral, environmental and economic challenge of our time".

Following the disappointment of the Copenhagen Conference, Rudd then rolled over and deferred the ETS until 2013 at the earliest, and he was then rolled himself by Julia Gillard, who announced a Citizens Assembly of 150 Australians would decide whether Australia should have an ETS. She then reneged on that after pressure from the Greens and decided to form a Climate Change Committee consisting of parliamentarians and four outsiders, including Ross Garnaut, who helped design the ETS for the Rudd government.

So just what happened?

"It is fair to say that amongst corporates there was a fair bit of carbon fatigue, and once the CPRS bill failed and there was no immediate prospect of a CPRS, they just didn't want to think about it for awhile," says Louis Chiam, a Melbourne based energy and resources, infrastructure and climate change partner with Mallesons Stephen Jaques.

Chiam's clients weren't the only ones suffering carbon fatigue.

Just last week, a Herald/Nielsen poll showed that 46 per cent of respondents supported a price on carbon, while 44 per cent were opposed. It was a marked drop from previous poles which showed support to be somewhere between 55 and 60 per cent.

But despite this, the early indications regarding the second term Labor government is that it will look to introduce market-related climate change action in the near future.

That means law firms will once more be needed by clients to ensure they comply with regulatory and compliance matters.

"With the return of the Labor government, and with climate change clearly an election issue, we are seeing an increasing level of interest amongst our clients regarding emissions trading and climate change," Chiam noted.

Baker & McKenzie established the first climate change practice group in the 1990's.

Before the ETS was shelved, the firm was advising clients on their liability under the CPRS, how to manage the liability and risk, buy permits, trade permits and engage in clean development mechanism (CDM) projects.

Martijn Wilder, the head of the firm's global environmental markets and climate change practice, is succinct on why there is a need for a price on carbon; because it will reduce emissions.

"This is important for business and investment certainty so we can see investment go forward and the electricity market being able to manage these costs, and to facilitate transitions and grow investment in the technologies required to drive change."

Wilder's colleague at Bakers and fellow Sydney partner Paul Curnow says that it is inevitable that Australia will have a CPRS, but until it does so, it is "unsettling for clients that there is no agreement'.

Despite this, he says there is general agreement about the type of measures companies need to take in preparation for a price on carbon, and that work in this area continues.

Still, change is in the air politically, especially via the new Climate Change and Energy Efficiency Minister Greg Combet. He has introduced a raft of measures aimed at limiting carbon emissions and promoting alternative sources of energy in the first few months of a minority Labor government.

On 27 October Combet announced that he had established a "Domestic offsets Integrity Committee" to be headed by the co-head of Minter Ellison's environment practice, Duncan McGregor. The Committee will look at specific methods for measuring carbon credits, to assist in Combet meeting his commitment to introduce the Government's Carbon Farming Initiative (CFI) legislation in the first half of 2011.

Such new policy initiatives support existing schemes, such as the Renewable Energy Target (RET) scheme, which was announced by the Rudd government in August 2009. This scheme aims to deliver 20 per cent of Australia's electricity from renewable sources by 2020.

ETS might not apply to all

With Combet taking an activist approach to his portfolio, climate change lawyers are sharpening compliance cudgels to prod their clients into action once more.

DLA PhillipsFox partner Charmian Barton recently wrote an article that argued that most companies affected by the planned CPRS understood it and wanted the certainty a carbon price would provide, but that in revisiting the scheme, "further stakeholder consultation and consensus is required".

"One particular strategy could be to have a staggered introduction with it applying to a few industries, similar to Europe, as a way to build consensus around it," she wrote.

Barton says that corporate clients she talks to view climate change as "a significant issue that won't go away", and that companies affected by any ETS or tax on carbon accept the rationale behind such a scheme, but want a greater role in its implementation.

Allens Arthur Robinson partner Grant Anderson believes Australia is lagging behind many other countries in terms of setting formal targets to reduce carbon emissions.

A partner at Allens since 1997, Anderson has advised various state governments on regulatory matters and assisted with the privatisation of previously state owned energy bodies.

More recently, he advised the Australian Energy Market Commission on aspects of its redrafting of the new National Electricity Rules and the Victorian government in setting renewable energy and efficiency targets.

He describes the ETS that was proposed by the Rudd government as a "complex and unwieldy scheme", and believes any future model would need to take into account different market conditions across industries to be embraced by corporate Australia.

"We do depend heavily on coal, and will do into the foreseeable future, but the longer we take to put in place mechanisms to reduce our dependence on coal, the harder it will be," he says.

Similar to Barton, he would like to see an ETS that would not be a one size fits all approach.

"I am a little doubtful as to whether we see a broad based CPRS," he says. "I think politically that might be very difficult. We might see a more limited scheme, for example, one that applies to the electricity industry, because electricity industry participants are very familiar with trading in derivatives and futures and son on.

"I suspect we will see a patchwork of policies. You might have an ETS limited to one or two sectors."

In an increasingly competitive environment legal market, with clients expecting lawyers not just be conduits of information, but to assist with the complex drafting of policy or regulatory submissions, it will be the lawyers, as Martijn Wilder says, who "bring innovative ideas to the development of law and policy" that will retain and pick-up clients in line with Australia's climate change response.