They say a week is a long time in politics. But it seems even a day is a long time in climate change policy. Australian citizens voted in a federal election on Saturday 7 September 2013 and as a result have a new federal government with new views on the reality of climate change, and new policies on climate change management.
‘Climate change is the great moral challenge of our generation’. Kevin Rudd, former Prime Minister of Australia, 31 March 2007
Climate change policy has prompted numerous leadership spills in both major political parties and, ultimately, a change of government. Amid all of this political brawling, public support for action on climate change has diminished. It would seem that Australians have become disengaged. Is this because they see such ineptitude in our political leaders, with constant battles both within and between our major political parties, or is it that they have lost interest? Maybe, in these challenging economic times, they simply have more immediate issues of concern.
The good news is that both major political parties share similar targets for reducing carbon emissions. Both parties pledge to cut carbon emissions by 5% (below year 2000 levels) by 2020. They also agree on the mandatory renewal energy target (MRET) which aims to ensure that at least 20% of Australia’s electricity comes from renewables by 2020. But the parties have totally different policies on how to achieve it.
What is Australia’s new climate change management policy?
The former Labor government initially proposed to introduce an emission trading scheme (ETS) but instead compromised on a carbon tax - a fixed carbon price gradually increasing over three years before transitioning to an ETS. More recently, faced with increasing public concern that Australia’s carbon price (presently set at about A$24 per tonne) far exceeds that of other countries, the Labor government announced that the carbon tax would be scrapped as of July 2014 in favour of an early move to an ETS. The proposal was that the ETS would be linked to the European system and hence bring the price down to about A$6 per tonne. Having lost government, this policy will not be implemented.
The alternative approach presented by the Liberal National Party conservative coalition, now to be executed, is a ‘direct action’ plan in which A$3.2B has been budgeted for soil carbon programs, tree planting and other measures. Under this plan, farmers and industry will be paid to take action to reduce their emissions.
‘We will abolish the carbon tax… The election will be a referendum on the carbon tax’. Tony Abbott, Prime Minister of Australia, 3 September 2013
The direct action plan is concerning in that several studies, including one commissioned by the independent think tank The Climate Institute, have found that it is unlikely to deliver the 5% reduction by 2020 within the expenditure budgeted.
What does ‘direct action’ mean for Australian industry?
Assuming changes to legislation to implement ‘direct action’ pass both houses of Parliament, the plan may deliver some certainty for Australian businesses and investors in clean energy technologies. The lack of certainty over recent years has significantly restrained clean energy investment at all stages from research to deployment of mature technologies. One measure of this is the Australian CleanTech Index1 which monitors the performance of 70 clean technology stocks on the Australian Stock Exchange. The index lost 32.8% over the three years to August 2013 while the broader S&P/ASX200 gained 15.3% over the same period.
Click here to view chart.
The uncertainty surrounding government policy creates risk. More established technologies are favored in a risky environment and, in this regard, the wind turbine industry has benefited most. Both sides of politics are committed to the 20% renewable energy target, and wind energy, together with gas (as a transitional fuel), are the surest way to achieve it.
Reflecting this, developers of wind turbines have sought patent protection for their technologies in Australia, at least until very recently. The accompanying chart shows the number of patent applications filed in Australia for wind turbine technologies2 (including direct national applications and PCT national phase) over the past 10 years. Applications increased steadily from about 2007 to 2011 but then dropped suddenly in 2012. This drop can only partly be explained by unpublished applications3 because these would only be a very small portion of the total.
The drop in patent applications in 2012 causes us to wonder whether even international wind turbine businesses have recently become nervous about the Australian renewable energy sector. Why protect R&D in a particular jurisdiction if there is no market for a product which embodies it?
Whether or not one agrees with the ‘direct action’ approach, the change of government, and change of policy, should provide some certainty for the renewable energy sector in Australia. We look forward to seeing how this unfolds over the next year or so.