Friday, March 31, 2006

Climate Change & Governance: More from Wednesday

More notes from the Climate Change and Governance Conference, this time from the policy sessions in the middle of Wednesday. This was a parallel session, so I only got to see half of it - but fortunately it was the half not available on the web. Video of what I missed can be found here (the slide labelled "Australian Action on Climate Change").

Joop Oude Lohuis (Netherlands Environmental Assessment Agency) spoke on "the logic of European action on climate change" - basically, a brief overview of EU and Dutch policy. The EU has used Kyoto's Joint Implementation mechanism to form a "bubble" and redistribute their overall target of an 8% cut in emissions among themselves - with the result of enormous variation in targets. of the original EU states, Germany and the UK accepted responsibility for deep emissions cuts - around 20% and 15% respectively - while Spain, Portugal and other poorer EU states emissions are allowed to grow. The new members, being mostly former communist states in Eastern Europe, have accepted very deep cuts (Poland 34%, Czech Republic 15%), but as their economies collapsed after the fall of the Soviet Union, they should be able to make them, and it means more carbon credits for them to sell. Currently, the EU will miss its target by 2%, but should make it if planned measures are actually implemented. Their key policies are a vigorous emissions trading scheme linked to the international market (the ETS), renewables and energy efficiency targets, and a large switch from coal to gas (or in some cases, nuclear) for electricity generation.

The ETS policy is fascinating - basically they picked out 11400 significant sources of emissions, capped them, issued certificates, and told the companies to sort it out amongst themselves. So far the price of carbon has hit around 25 Euros, but price changes seem to have been driven mostly by changes in government policy (as for example when Italy decided to reduce its overall cap - that drove the price up quite significantly). The market seems to have stabilised now, and they're looking at expanding it to allow other countries to join. As a side-comment, this sort of solution has been proposed for New Zealand (and its currently being considered as a replacement for the carbon tax), but there are worries about whether the local market is large enough. Linking in to a larger market, whether the ETS or one created with Australia, would be a good way of solving the problem if we want to go down that route.

65% of the Netherlands' population and a larger proportion of their GDP lies below sea level and is highly vulnerable to climate change, so they have a strong incentive for action. One thing they're doing is ensuring that new infrastructure projects - new power stations, roads etc - are located so as not to be so vulnerable. Its apparently a message New Zealand businesses and the New Zealand government are yet to pick up on.

Kirsty Hamilton (climate and business consultant, UK) gave a fascinating talk on "climate policy and business investment". Her key starting points (and this will sound repetitive) is that the debate on the science is over, that a large segment of the international business community has accepted that climate change is real and that they need to structure their investments to cope, and that what is needed is a fundamental transformation of the energy sector. A key statistic was that the energy sector will be needing US$17 trillion of new investment over the next 30 years - and the challenge is making sure its the right sort of investment. This requires government to set policy to push the market, and to provide consistency so that the business sector can make those investments. Policy has to be "loud, long, and legal" - clearly designed to set incentives and impact returns, stable in the long-term, and backed by force of law and a strong regulatory framework. In other words, exactly what we haven't got in New Zealand.

Climate change is increasingly forming part of (sensible) business' strategic planning, and they are looking for strong signals from governments so they will know what to do. And whether a business is prepared for climate change is increasingly factoring into the decision-making of large institutional investors. A group of them have formed the Carbon Disclosure Project to effectively audit the businesses they invest in on this question - and next year they'll be scrutinising the NZ SX50. It will be quite interesting to see what answers they get...

Elayne Grace (IAG) talked about "lessons from the insurance sector". The insurance sector is paying attention to climate change, because it will cost them money. They are in the business of pooling risk, and climate change will increase that risk. This leaves them with the options of either raising premiums, reducing cover, or reducing the risk. The first two may put them out of business (or at least significantly affect their profits), and so they're interested in the latter. It's quite refreshing to see outright selfishness working for good for once...

The statistics are sobering: the cost of global disasters is increasing dramatically, both in terms of insured losses and total economic losses, and while some of this is simply due to people being richer and having more stuff to lose, and more people living closer to the coast, there is a climate change signal there as well. Worse, the largest cause of disaster-related damage is weather. 8 of the top 10 disasters in terms of insured losses between 1970 and 2005 were weather related (the other two being the 1994 Northridge earthquake and 9/11) - and five of them happened in 2004-5. The 2005 Atlantic hurricane season, which broke all sorts of records for nastyness, really made insurance companies sit up and pay attention - and they don't like where things are headed. Locally, IAG has noted that Queensland now seems to be in danger from tropical cyclones, and is worried about the potential costs. This gives them a serious reason to push for action. She summed up by quoting from the UN Millennium Ecosystem Assessment: two-thirds of our environment is being degraded or used unsustainably, and we are treating the Earth like "a business in liquidation", in that it doesn't appear on anyone's balance sheet. And unless we stop doing it, it is going to cost us all in the long run.

Next: transport, biofuels, and New Zealand's response.