Leveraging opportunities for low-carbon innovation
Any policy prevarication and lack of coherency in a supportive innovation framework would undermine Australia’s potential to succeed in the global carbon market.
Many organisations are overwhelmed by having to make seemingly large adaptations in the transition to the carbon economy. While I’m convinced it needn’t be so scary, there are a host of issues that need to be addressed and explored in the short term to enable an appropriate transition.
Certainly, there will be some teething problems whilst we calibrate what the carbon market will look like in Australia and in the context of an emerging framework. However, with the right design, the end result should be of net economic benefit to the Australian economy overall. This has been attested to in the Garnaut review.
The European Union’s Emissions Trading Scheme (EU-ETS) prompted European companies to step out early to establish their place in the market and adopt a new way of considering environmental governance.
Importantly, the Marrakech Accords set the international rules which strongly influence domestic market structures. For instance EU Countries can’t meet their reduction targets purely by means of buying international carbon credits. So we can look to their experiences to learn about achieving compliance through multiple avenues.
Domestically, scepticism as to whether a large-scale mandatory carbon trading scheme will happen has deterred investment. The current party-political differences and uncertainty in the context of the global economic downturn are further eroding confidence and clarity, and endangers meaningful action on this policy issue for years to come. This is obviously the agenda of some interests, but does not assist in delivering the certainty that industry needs.
It is difficult to quantify the influence of the absence of clear policy and regulatory leadership and separate this from all the other risks in the market but it is certainly a key factor, and evidence points to organisations postponing relevant investment.
It’s difficult at the moment to see where a compromise might come from in the Senate.
One thing is clear. Despite uncertainty about our domestic market and policy, the main market for clean-tech products and services will be international.
Carbon is a truly global market. If Australian companies can succeed with their services and technologies then this will bring a range of national and international benefits. Any policy prevarication and lack of coherency in a supportive innovation framework in Australia would undermine that potential.
To make the most of this international opportunity Australia will need to implement policy measures that engender innovation. It is hard to say just how much innovation any blend of policy measures might yield, and where and how this innovation will occur.
However, there is a need to develop a domestic market and suite of policies which support innovation and development throughout the innovation chain from Australian industry can benefit from the international markets.
The global financial crisis has had real repercussions on the carbon market and associated necessary capital investment. Some investors are now rethinking their plans, but the fundamentals for growth in this market are still there. The market has done what it should do; namely have a price that reacts to changes in supply and demand. Demand has substantially declined through reduced actual and expected economic growth, thus leading to relative carbon cost reductions per t/CO2e.
A number of Governments around the world have identified that green jobs and technology and infrastructure development are policy areas of interest. They can drive sustainable short- and long-term benefits, and are positioning to invest accordingly. Keynsian intervention is somewhat required for the intervention, including recalibration of regulatory incentives, that is necessary to avoid dangerous anthropogenic climate change, and the current crisis could provide the justification for otherwise reluctant governments to support spending in this area.
A significant impact can be seen in the area of early- and growth-phase business and technology development. Venture capital firms are now leaning on their companies to treat their cash reserves frugally, while new investments in research, development and commercialisation are deterred by the current focus on immediate and short-term cash requirements and risk aversion. New government thinking in this area will be required to circumvent a dearth of necessarily risky early- and mid-stage research and development.
The carbon economy is not just about carbon trading, there are other support mechanisms and security issues which must play an integral role. As well as support for direct technology and business research, development and risk growth finance in his area, substantial medium- and long-term end-market price support mechanisms for renewable energy and low-carbon solutions are needed. To an extent this approach is being pursued.
Even before the extent of the crisis was understood, it was to be expected that carbon pollution reduction targets would reflect political reality. It has also been this way overseas.
Nevertheless, a 5% reduction (really 4% in real terms), on 1990 levels is somewhat underwhelming.
The Garnaut Report and the Inter-government Panel on Climate Change both recommended higher targets within the same timeframe. However, if the government can lend other resources to the task, in an absolute fashion, that could prove just as useful.
In Copenhagen later this year at the UNFCCC Conference of the Parties, Australia needs to bring a suite of measures to the table to put forward before the international community.
A comprehensive approach will include; quantified emissions reduction and limitation obligations, as well as technology transfer commitments including international collaboration on carbon capture and storage, arresting deforestation, and new partnerships between industry and government.
Resources that Australia may offer will include multilateral technology and project risk capital commitments and the provision of substantial technical resources, including those currently being offered bilaterally on forestry and land-use monitoring.
We need to further consider multilateral investment demands under these auspices, in particular the technology transfer agenda, and the work of the World Bank through the design and approach of the climate investment fund facilities.
The importance of the Clean Development Mechanism under the Kyoto protocol should not be overlooked, which stimulates and leverages private investment in essential infrastructure in host nations, and which Australian companies could have significant interest in – both for provision of services and technology, but also for acquisition of compliance instruments. Recent trades by Australian companies in international Certified Emissions Reductions attests to the usefulness and pertinence.
Emerging markets (developing countries) are very interested in our technical and non-technical resources.
What the Australian climate change suite of measures looks like as a package will be determined by whether Australia deems that a 5% or 30% emissions reduction target is politically, economically, and technically appropriate from both a national and international perspective. The nature and extent of future action are slowly emerging from statements relating to policy aspirations from both major OECD and emerging market nations.
The need for change is obvious and Australia is up to the task, although it is not an easy one. However, the innovation required to meet the task and enhance competitiveness is not just contingent on an end market being in place. Government intervention and support is required at different points in the innovation cycle in order to direct a different long-term modus operandi that will foster investor confidence and enable Australian companies to benefit from the substantial international market being engendered by the international policy and market adjustments.
Andrew Jones is a carbon markets and renewable energy markets specialist. Andrew has spent his career providing strategic advice and innovative solutions to a range of consulting clients, and developing low-carbon project solution structures and projects from a consulting engineering and commercial venturing perspective. He is experienced in commercial low-carbon venture structuring, partnering, and management of prefeasibility and feasibility studies for different low-carbon energy technologies and applications.
Nick Mallory
May 9, 2009 at 11:56 am
On the other hand…
Is a vastly expensive effort to cut the carbon emissions of Australia's 20 million people worth the effort when the 1.3 billion people of China and 1 billion of India are going to pump out just as much as they can?
Everybody pays lip service to the need to tackle global warming right up to the point where it begins to personally cost them money, then, remarkably the rhetoric stops. When I see Sydney's millionaires selling their waterfront properties for a pittance then I'll believe that people are taking this seriously.
As it is, the global warming panic is just an opportunity for lefty busy bodies to nationalise people's private behaviour, governments to raise yet more taxes by painting their naked rent seeking 'green' and smart young people with an eye for the main chance to get paid a lot of money as advisors in markets which don't actually add any value to anything.
Happyjoe50
June 28, 2009 at 11:13 am
Australia ‘s opportunity to greatly reduce pollution – NOW!
Oil from Rubbish and sewerage are yet to appear on any news medium in Australia. See youtube http://www.youtube.com/watch?v=CWf9nYbm3ac&feature=related
This could totally remove Australia's sewerage pollution and rubbish pollution – and remove the nations dependency on Oil. As a side benefit it will reduce Carbon emmissions.