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Practice Profile: Adaptability key for climate change lawyers as carbon debate heats up

Practice Profile: Adaptability key for climate change lawyers as carbon debate heats up

As the political standoff over Australia's proposed carbon price mechanism continues, climate change lawyers must work flexibly amid an atmosphere of uncertainty. Briana Everett reports

As the political standoff over Australia's proposed carbon price mechanism continues, climate change lawyers must work flexibly amid an atmosphere of uncertainty. Briana Everett reports

The carbon debate is heating up, and will have significant impact on climate change lawyers
There have been a number of developments within the climate change arena since the Honourable Malcolm Turnbull MP lost his Liberal leadership and former Prime Minister Kevin Rudd was controversially ousted, having just dumped the proposed emissions trading scheme (ETS).

In 2011, the political ball game has changed significantly, with Opposition Leader Tony Abbott taking the reins from Turnbull and Prime Minister Julia Gillard stealing the top job from Rudd - who this month candidly admitted his decision to abandon the ETS was wrong.

After the Gillard Government announced in February this year its plans to introduce a two-stage carbon price mechanism, the issue of climate change and what steps Australia will ultimately take for the environment was put firmly back on the political agenda.

On 24 February Prime Minister Gillard revealed plans for an initial fixed carbon price, which will eventually transition to a 'cap and trade' ETS to be linked to international carbon markets.

Although the proposed carbon price mechanism has been agreed to by the Government and Greens members of the Multi-Party Climate Change Committee (MPCCC), the finer details of the carbon pricing framework, expected to begin as early as 1 July 2012, have not yet been finalised.

According to the MPCCC, it was agreed that the proposal be released to enable consideration by the community and to demonstrate the progress that has been made.

At this early stage, the fixed price of carbon emission permits in the initial phase - which is to last between three and five years - had not been set and the level of abatement Australia is looking to achieve has not been confirmed.

WHAT THE EXPERTS SAY

"Our view is that the regulatory framework is very fluid so we need to be ready for any eventuality"

Louis Chaim, Partner, Mallesons Stephen Jaques

"There's a challenge in terms of drafting clauses that fairly and reasonably allocate whatever the carbon liability might be"

Grant Anderson, Partner, Allens Arthur Robinson

"There is a lot of angst in certain sectors of the business community about the period of fixed permits"

Clayton Utz, Partner, Brendan Bateman

Without knowing the main elements of the Government's proposed framework, companies are unable to fully prepare for and understand the impact the scheme will ultimately have on their business.

"There is a lot of angst in certain sectors of the business community about the period of fixed permits," says Clayton Utz partner, Brendan Bateman. "The fixed price period, in some respects, puts up one of the most difficult questions that have to be answered, which is the level of abatement that we're looking to achieve in this country.

"Both the Gillard Government and the Federal Opposition have an unconditional 5 per cent abatement target by 2020, but they obviously differ in how they're going to achieve it. One wants to use taxpayers' money and the other one wants to initially start off with a [fixed price] and move to an emissions trading scheme."

Yet to garner full support from the independents or key business groups, Gillard's proposed 'carbon tax' has faced significant criticism from the Opposition, with Abbott labelling Gillard's move as a "fundamental breach of faith with the Australian people".

"There's a better way to tackle climate change than a massive new electricity and petrol tax. We have a plan to reduce greenhouse gas emissions by direct action, without driving up electricity and petrol prices," Abbott said in February.

With Abbott declaring that any price on carbon will be abandoned if the Opposition wins the next election, and as the stability of the Prime Minister's leadership remains in doubt following claims Rudd is vying to win back the top spot, uncertainty and anxiety continues to cultivate amongst business groups and industry members as Australia's position on climate change remains unconfirmed.

For lawyers working in the climate change space, this latest political brawl is merely another diversion in Australia's move towards the inevitable - some version of an emissions trading scheme - requiring them to once again attempt to anticipate what the architecture of Australia's scheme will look like, if it eventuates.

Adaptability is key

Although Australian industry is faced with a lack of certainty when it comes to the Government's next move, climate change lawyers are not madly scrambling to decipher proposed legislation and have not been inundated with work - yet.

Instead, it's more of a "wait and see" atmosphere as lawyers prepare for the impact of the latest scheme, which is closely aligned to the carbon pollution reduction scheme (CPRS) they dealt with previously.

"Whether it actually comes to fruition may be a bit problematic, but if it does, I think it will affect us in much the same way ... We'll have clients who will want advice on how the legislation works and what the initial obligations are," explains Allens Arthur Robinson partner Grant Anderson.

"Clients are already talking to us about the carbon pricing mechanism and what it is, in a preliminary way."

While he believes the effect of the new scheme will be much the same, Anderson adds that if the legislation is actually passed, it will lead to "quite a big kick" in work, involving the drafting of clauses with respect to carbon liability allocation.

"There will be a large increase in work to begin with and then, as you'd expect, over time that work will gradually tail off and it will become business as usual."

But while the Government's proposed carbon price mechanism will have a similar effect on workloads for climate change lawyers as the previously proposed CPRS, lawyers must stay flexible and think long-term in their day-to-day work.

"Our working assumption is that we need to be prepared were [the scheme] to come into force," says Mallesons Stephen Jaques partner, Louis Chiam.

"Certainly, our view is that the regulatory framework is very fluid so we need to be ready for any eventuality."

The challenge for lawyers amid all this ambiguity with respect to the carbon price mechanism is structuring long-term contracts that accommodate this uncertainty and any future developments.

"There's a challenge in terms of drafting clauses that fairly and reasonably allocate whatever the carbon liability might be," explains Anderson.

"Even though we don't have a carbon pricing mechanism at the moment, the anticipation is that in the next five years or so, something will happen. So if you're entering into long-term gas or coal contracts, clients want to have clauses that cover the allocation of carbon, whatever happens, whether it's an emissions trading scheme, a carbon tax or direct regulation. Either way we have got to be flexible in our drafting."

According to Bateman, while many industry members talk of the uncertainty associated with the carbon price and its impediment on investment, large deals are still be carried out given the level of sophistication of clients and their understanding of how carbon price mechanisms work.

"You need to form a view, indeed a long-term view, of what the carbon price is likely to be," he says. "It's not stopping business from taking place, although you might find a reticence to engage in it from the small to medium end of business."

Also offering potential for more work is the Government's recently announced carbon farming initiative, which is a carbon offsets scheme aimed at providing new opportunities for farmers, forest growers and landholders and helping the environment by reducing carbon pollution.

With the legislation underpinning the initiative introduced to parliament on 24 March 2011, it is yet to have any direct impact on businesses. However, like the newly proposed carbon price mechanism, climate change lawyers are already receiving inquiries from clients.

"There appears to be no certainty that it will be passed," says Anderson. "But we've certainly had inquiries from clients and discussions with them about what it might entail for them - the opportunities that it might present."

Beyond the ETS

Keeping climate change lawyers busy while they await the outcome of the Government's proposed carbon price mechanism, is work related to energy efficiency initiatives, particularly in the commercial building sector.

"I think energy efficiency is bound to increase workload," says Anderson. "The Government has received a report on various energy efficiency proposals. Again, if they are followed through we will have a substantial increase in work."

Even if those initiatives don't eventuate, Anderson says there is plenty of ongoing work under the Energy Efficiency Opportunities Act, which aims to improve the identification and evaluation of energy efficiency opportunities by large energy-using businesses, and as a result, to encourage implementation of cost effective energy efficiency opportunities, as well as the National Greenhouse and Energy Report Act, which provides for the reporting of information related to greenhouse gas emissions, greenhouse gas projects, energy production and energy consumption.

"We're giving advice to existing clients to meet their obligations, interpreting that [legislation] for clients."

The demand for green buildings, according to Chiam, has grown stronger and stronger since the property market bounced back after the global financial crisis, providing a significant amount of work for his team, along with issues such as coastal retreat with respect to planning and approval processes.

"We have a number of clients who are looking at projects driven by regulatory structure, whether it's renewable energy or opportunities in agriculture and the carbon farming initiative," he says. "A lot of our clients are watching that space very closely."

>> Click here to read about issues affecting the legal profession in our in depth Practice Profile series

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Practice Profile: Adaptability key for climate change lawyers as carbon debate heats up
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