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Asia-Pacific comes together over climate change

Asia-Pacific comes together over climate change

More than 1000 delegates from 82 countries met in Singapore recently for Asia's key climate change conference, Carbon Forum Asia. Deacons' Elisa de Wit, Felicity Rourke and Rebecca Hoare outline…

More than 1000 delegates from 82 countries met in Singapore recently for Asia's key climate change conference, Carbon Forum Asia. Deacons' Elisa de Wit, Felicity Rourke and Rebecca Hoare outline some of the issues covered.

Members of Deacons' climate change team recently visited Singapore for the primary Asian event on the carbon market calendar - Carbon Forum Asia. Deacons was also present at Carbon Market Expo Australasia which took place on the Gold Coast, at the same time as Carbon Forum Asia.

Carbon Forum Asia involved more than 1000 participants from 82 countries. Participants came together to discuss the current status of the carbon market within Asia, the likely impact on the Asian carbon market from developments elsewhere (such as the US, Australia and New Zealand) and the likely outlook for the carbon market post-2012, given the uncertainty of the outcome of the negotiations due to take place at the United Nations Climate Change Conference in Copenhagen beginning 7 December.

"One of the biggest take home messages in relation to CDMs is the importance of having contacts and partners on the ground in host countries such as China and Indonesia"

Delegates were particularly interested in the status of the Australian carbon pollution reduction scheme (CPRS) legislation. Many of the key players active in the European or Asian carbon markets are in the process of planning trips "down under" within the next couple of months or early in the new year.

The main question we were constantly asked was "Will the CPRS legislation be passed?". Being perhaps overly optimistic, we indicated that we thought it was more likely than not that it would be passed, primarily because of the implications if it was rejected. Those implications are the possibility of a double dissolution and the Government being able to call an election early in the New Year.

However, in our view, the big unknown was whether the Government would be prepared to make sufficient (or any) amendments to the proposed legislation, to take on board the Coalition's recent wish list so that sufficient members of the Coalition felt able to vote in support of the legislation when it reached the Senate.

The key matters on the Coalition's wish list, which was released on 18 October, are: a greater level of financial assistance to the trade-exposed emissions-intensive industries; a greater financial package for the coal-fired electricity sector; exclusion from the scheme of fugitive methane emissions from coal mines; and, the exclusion altogether of the agricultural sector from the scheme, with the sector being given the opportunity to create offsets.

Recent statements from both sides of the political fence have indicated that negotiations will be conducted "in good faith", but the proof will be in the pudding. The legislation is scheduled to be voted on by the House of Representatives shortly, prior to it being debated in the Senate during the week commencing 16 November.

The Government is determined to try to have the legislation passed before Copenhagen, to maximise the role Australia can play in the international negotiations.

There were two other main areas of interest at the forum: the US situation and reducing emissions from deforestation and degradation (REDD).

In relation to the US position, there were interesting insights into the likely timing of the passage of the US climate change legislation. The Waxley-Markey House Bill passed the House of Representatives in June, however the Kerry-Boxer Bill (which is the Senate version of the Waxman-Markey Bill) has only just been released and will now be subject to negotiation and debate in the Senate.

Despite a desire on the part of many for the Senate bill to be passed before Copenhagen, the consensus at the forum seemed to be that this was highly unlikely - particularly given that the US Senate is yet to conclude its debate on health policy. Also, as in Australia, there is concern about adopting binding emissions reduction targets in the absence of broader international agreement in this regard.

Some key issues yet to be played out in the American debate include: the role of nuclear power in meeting emissions reduction targets, and the

cost of constructing new nuclear plants which will most likely be needed to deliver emissions reductions; the availability of domestic and international offsets which will be needed to satisfy compliance obligations; the impact of an emissions trading scheme on the coal industry; and, more broadly, the political ramifications of rising energy costs.

The significance of the US legislation for the Asian carbon market is the intention to allow certified emission reductions (CERs) generated from clean development mechanism (CDM) projects to be utilised towards compliance under the US trading scheme.

Predictions are that up to 2 billion tonnes of offsets per year will be required. This is in stark contrast to the Australian scheme, where the demand (as predicted by recent Deutsche Bank research) will be 52 million tonnes per year if Australia adopts a 5 per cent reduction target by 2020, increasing to 102 million tonnes per year for a 25 per cent target.

However, unlike the proposals under the US scheme where there will be a cap on the overall number of international units (ie CERs) that can be surrendered under the scheme, the CPRS does not propose to have to cap (at least initially) - either as to quantity or quality. This fact caused much interest among participants at the forum, given the position of the US, which proposes to limit the use of offshore units because of concern about the transfer of wealth which will occur as a result of US investment in international offset projects.

The other topic of great interest was REDD and, in particular, the approach likely to be taken under the Australian and US emissions trading schemes to recognise credits created under any REDD mechanism. The consensus among forum attendees seemed to be that this is one area in which agreement may be reached at Copenhagen, and, given that deforestation represents about 18 per cent of the world's current emissions profile, there are significant gains to be made if a comprehensive global approach can be agreed.

These issues were also discussed at the Gold Coast's Carbon Expo, which was attended by 700 delegates. The Minister Assisting the Minister for Climate Change, the Hon. Greg Combet, spoke about the state of negotiations with the Coalition on the CPRS and supported statements that those negotiations were being carried out in good faith.

Unfortunately, due to the sensitive nature of the negotiations, he was not able to provide too much insight into the current status of talks.

Several workshops were dedicated to CDMs and the trading of CERs on both the primary and secondary markets. Panellists were drawn from a range of market participants who were able to share many of their insights from working within the EU Emission Trading Scheme. The theme that was echoed throughout all of these workshops was that there are opportunities to be had, but that Australian business is looking for a more certain policy framework before doing more than dipping their toes in.

There was also a focus on China. Discussion centred around the level of international investment in CDMs, the level of investment by the Chinese Government in renewable energy projects, the sheer level of greenhouse gas emissions and how to do business in China generally.

One of the biggest take-home messages in relation to CDMs is the importance of having contacts and partners on the ground in host countries such as China and Indonesia. There was a discussion about the risks and benefits of participating in the primary market (ie no guarantee of CERs versus that fact that the CERs are significantly cheaper than on the secondary market).

Other hot issues discussed were Copenhagen (and what can realistically be achieved there), carbon capture and storage and, as with the Carbon Forum Asia, REDD. Both conferences were informative, with lively debate and discussion, and certainly demonstrated that there are exciting (if a little uncertain) times ahead for all of us involved in the climate change industry.

Elisa de Wit, Felicity Rourke and Rebecca Hoare are partners at Deacons. De Wit is also the head of the firm's national climate change practice.

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