Carbon Border Adjustment Mechanism gaining traction in Europe

Edge2020_Carbon Border Adjustment Mechanism

The European Parliament is introducing new climate legislation including a Carbon Border Adjustment Mechanism, in a bid to reduce greenhouse gas emissions.

The new package aims to reduce emission by at least 55% by 2030 and will include a series of measures which will have big impacts to many large industry customers who now will have millions of tonnes of carbon at risk.

The proposal will include phasing out of the free European Emission Trading Scheme (ETS) allowances after 2026, including maritime shipping within the ETS and a Carbon Border Adjustment Mechanism. The latter of these the CBAM or Carbon Border Adjustment Mechanism will impose a tariff on goods whose production is carbon intensive and shows the greatest risk of carbon leakage, in Australia the most vocal opponents of this scheme are unsurprisingly the cement, aluminium and steel industries.

As a quick digress the term carbon leakage is referring to the idea that you move the most carbon intensive parts of your production abroad, into countries with less stringent climate policies, and then import them back into Australia.

The idea of the CBAM is this will place a price on the carbon which has been emitted during this production phase. The price being derived from the price of carbon which was paid for the product to be developed and produced within Australia.

Those keen eyed amongst us will remember the Safeguard Legislation, which will come into effect on the 1st July 2023, cited a review would be undertaken to examine the feasibility of a CBAM within Australia, including a consideration for early commencement for those high-exposure sectors such as steel and cement.

Now with the EU making the leap and the likely follow on from the UK, Japan and Canada, amongst others, including the US via its own Polluter Import Fees Australia, we will surely have to comply to ensure both our own goods are being protected as well as meeting the requirements of the global expectations.

However, what is the cost of compliance. Whilst the legislation is quite straight forward the compliance cost will increase. Cradle to gate / grave accounting is complex and with auditors being stretched between, NGERs, Safeguard and now this, finding a resource to complete the calculations and data collection will be one thing, but looking to have these accounts audited will be another. With the CER having only 75 registered auditors on their books will the cost of this be wider than the government are imagining?

News from Rewiring The Nation

Australian Power Lines

Over the last week Chris Bowen has been selling from everyone to industry to landowners on the government’s $20 billion “Rewiring the Nation” project. He has stated that “securing social license to build the transmission lines is the single most pressing issue for the Australian energy transition.

The proposal involves the development and construction of 10,000km of lines before 2030 and the key to achieving this will be community and stakeholder relationships, which are now being built into the regulatory investment test (RIT-T) process. To facilitate this the NSW and VIC government are offering $200,000 per km for the land crossed by these new infrastructure projects.

Ian Learmonth, the head of the Clean Energy Finance Corporation, said that Australia will need an estimated 29GW of large-scale renewables to meet our ambitious goals, which breaks down to around 3.6GW a year.

This compares to last year’s large-scale wind and solar where Australia only installed 2.3GW. The 29GW required to be installed is challenged by the slow progress in developing essential new transmission lines and therefore Australia’s targets are at risk.

Daniel Westerman, the Chief Executive of AEMO, has stated that “From our control room we can see that increasing amounts of solar and wind generation are being curtailed because there’s not enough transmission capacity to transport it.”

Despite this, the share of renewables in the grid is hitting new highs, averaging 37% in Q1, and peaking at 66% for a half-hour dispatch period. As a result, greenhouse gas emissions from the grid were at their lowest recorded ever in Q123.

Additionally, there is concern from AEMO that there is 14GW of coal powered generation capacity retiring by 2030, which exceeds the 8GW of renewables announced so far. The effect of this could be starkest in the short term. With Eraring (2,880MW) due to come off in late 2025, there are concerns of a significant short term firming capacity gap for first few summers in NSW.

However, with a new Capacity scheme expected to be announced in the next few months, and the next ESOO due in October expected to show the shortfall for NSW, the possibility of extension is one being seriously discussed.

With the VIC – NSW West Interconnector final drafts expected soon and Humelink approval expected early next year, the move to new transmission is starting. However, questions remain as to whether it is too late for the government to meet its targets.

2023 Federal budget: slight update SA and VIC named for cap scheme

Melbourne, Victoria

Further to Edge’s update on the 2023 federal budget shared last week, more information has become evident from Hon Chris Bowen’s MP office around the actual schemes to be introduced and their allocation of the budget.

There is no doubt Australia, as in much of the world, they are pinning their hopes on a Hydrogen Economy. The governments ‘modernised’ energy economy is being underpinned by a technology which yet is not to scale and is unproven, can anyone say carbon capture and storage (CCS)! Now I do not believe Hydrogen is another CCS boondoggle, but the amount being invested, and the legislation changes to allow it to occur are akin to those of its previous silver bullet government neighbour.

The budget has allocated half of the $4bn green energy package, $2bn, to the Hydrogen Fund. The idea is the investment will assist in the commerciality of these projects and allow for 1GW of capacity to be on the system by 2030. The allocation of this will come in the form of “production credits” and as was later confirmed these will be allocated via a ‘competitive process’ however details of this are scarce. The funding is likely to have come in part to keep up with our European and US counterparts who have signaled similar investment in the industry through their own budgets (the US giving a $3/KG (USD) tax rebate if it relates to H2 production.

This will be supported by the new REGO or Renewable Energy Guarantee of Origin scheme which was first floated in the papers released at the end of last year.  $38million has been allocated to the project which will be used to certify the energy and emissions from these projects.

The details around the controversial capacity scheme continues to be scarce. With ‘commercial sensitivities’ being touted as a reason for non-disclosure. However, we do expect these to be run state by state and through auctions, so we hope for more detail to be shared on this in the future, especially given SA and VIC have already been named to lead the charge on this later this year. The choice of these states is unsurprising given the high renewable penetration on those grids.

We have also seen a little more information come out around the function of the “Net Zero Authority” who received $83m on Tuesday. It is anticipated that they will be working with local state and territory governments as well as lobbyists and stakeholders to create a roadmap to net zero in those regions, focus will naturally sit in heavy mining regions such as Queensland, the Hunter Valley and Latrobe Valley. From the 1st July the executive agency will be established and they will be tasked with supporting those in heavy industry to transition into a low carbon economy, assist with policies around this and assist with investment in the regions. No small feat to say the transition is already well underway.

Federal Budget 2023 – A shock to the Gas Industry

Australian Parliament House

Under a tightly embargoed budget speculators and hedgers alike could be forgiven for worrying the 2023 Federal budget hid an unknown shock, on top of a Liddell closure, Bayswater trip and extended outages. Last week’s market uncertainty was definitely not dampened by the little information coming out of Hon Dr Jim Chalmers MP’ office.

However, there was good news to be had, in contrast to the October 2022 budget which forecast a deficit of $36.9bn for this financial year the Hon Dr Jim Chalmers MP was almost giddy to announce a surplus of $4bn, it is the first in 15 years, yet is everything that glimmers actually gold?

Little was made of the fact 20 per cent of the surplus came from increased commodity prices, a nod was made to the Ukraine crisis but little to the other drivers and opportunist behaviour which has been within our market for the past 12 months. There was certainly no mention of the huge windfalls the treasury gained from the commodity industry.

The Gas and Coal caps were mentioned but there has been no discussion of the Coal Cap either being extended or removed in December 2024 when it expires. In contrast, the Gas cap has been confirmed to remain until 2025 and as such the potential for a market move in the summer months is still possible.

Overall, the budget was light on Energy for large business, the most focus was on infrastructure for Electric Cars and cost of living relief for residential and small businesses. The creation of a National Net Zero Authority was predicted under the Chubb review and therefore no shocks were seen.

There was a slight nod to a new Hydrogen head start program, giving $2bn to the scheme and more investment in green industry, which was unsurprising. A curious section was on a Capacity Investment Scheme “unlocking over $10 billion of investment in firmed-up renewable energy projects up and down the east coast” as a throw away comment and I am sure a few more details will emerge over the next few days – this one did pique my curiosity.

Undoubtably in the commodity space the biggest losers this evening were the Gas companies, between the extension of the Gas cap at $12/GJ into 2025, increased taxes due to the extraordinary market conditions would follow, but a second stab at the inflated pie has come in the form of the Petroleum Rent Resource Tax. I think its mention was all of 3 seconds of the budget, yet this piece of legislation will increase the government coffers to the tune of $2.4bn over the forward estimates. On top of the Safeguard mechanism changes and power the greens had in ensuring many new gas projects do not get off the ground easily if at all, this is yet another cost to the industry. Yet in comparison to those enforced overseas, and especially in the UK, this was light touch, and it will be interesting to see if it is strengthened at all by the Greens, whom Labor will need to pass this through the house.

Overall, not a great deal of shock waves this evening, a budget which I am sure will be picked apart and a barrage of “inflationary pressures” will be dissected, yet overall, no real change to the status quo. Looking down the barrel of economic growth slowing to one and a half per cent in the next financial year, coupled with increasing wages it’s not the time to be throwing about cash, however hitting industry for half baked wins for those at the other end of the scale may not be enough to make any new friends and certainly could lose this government more.

Davos – No snow, no consensus, no relevance?

Swiss alps

Now as a keen skier and a lover of the European Alps – Davos will always hold a place in my heart.

But at the end of last month it transformed, as it does annually, into the equivalent of the old debutant season, and the sheer act of walking around in this otherwise normal ski resort means you are part of the global elite.

The annual World Economic Forum (WEF) is certainly an exclusive club, the 1% attend and have the right to come and lobby those in power and hope to not only affect change within their spheres but globally. That was its aim back in 1971 when it was first formed – the idea that power brokers from public and private sectors could come together to meet a mission statement “…improve the state of the world.”

Therefore, it is unsurprising that once again climate change was a hot topic.

Never one to miss an opportunity Greenpeace have released data which shows that to reach this exclusive club, 1 out of every 10 attendees came by private jet, doubling the local airports flights and increasing CO2 emissions by the equivalent of 350,000 cars. But moving past the glaring irony of that statistic this year was particularly poignant.

With a significant warm winter in Europe the usually picturesque snow capped mountains were bare and the temperature was over 2 degrees warmer than usual. Therefore, when participants were told their focus would be on addressing and curbing climate change, maybe their stark surroundings helped focus the mind a little.

CEOs were quick to point to initiatives which are helping them and their companies reach net zero, with more than 11,000 businesses signed up to the pledge to reach the milestone by 2050 (September 2022 UN Figures), you would think this is a good news story. Yet with the war in the Ukraine still looming large and the ensuing inflationary pressures, privately bankers were discussing how to curb the environmental pressures without adversely affecting investment decision making. This made even more poignant by the sentencing of the “Barclays 7” at the end of January, who lifted the lid on the banks $19billion investment in fossil fuels, in direct contradiction of the IEAs decree there could be no new investment.

The UN Secretary General (Antonio Guterres) has certainly increased his rhetoric since the IPCC has declared that even with an increase in pledges, the world will miss its 1.5-degree goal, and without significant intervention will reach 2.8%.

He has implored businesses to “put forward credible and transparent transition plans on how to achieve net zero … which must be grounded in real emissions cuts” before the end of 2023. He also stated with no uncertainty that “The transition to net zero must be grounded in real emissions cuts – and not rely on carbon credits and shadow markets.” Which is the strongest rhetoric on this we have seen.

A WEF report (along with the Boston Consulting Group) which was shared stated that those prepared to take the risk and be an early mover will have the opportunity to make “fortunes”. Touting Orsted (previously Dong), Tesla and Beyond Meat as examples.

But with Germany touting their “clean credentials” due to their absolute requirement to decouple from its reliance on Russian Coal and Gas and increasing its renewable capacity to a likely 80% of its grid, the power of the oil and gas giants at the elite table may be waning.

Previous years has seen them be accused of hijacking the debate and maybe they are realising their influence is less at the table with CEOs with stakeholders to answer to and more on the policy stage.

Their agenda is well protected by the appointment of HE Dr Sultan Al Jaber as the lead to the COP28 summit in the UAE this year. I may be incorrect, I mean it’s not like he is motivated by ensuring returns from his oil business – the 12th largest globally, or from making sure those in that line of business aren’t hampered too much, maybe he will provide a balanced and fair approach to his presidency of the COP28 conference – NOT!

Overall do I think Davos moved the needle – no – did it achieve its ambition for “bold collective action” on “ongoing crises” absolutely not, did it create “cooperation in a fragmented world” I do not believe so.

Therefore, the question must be asked if the relevancy of the not-for-profit is really anything more than a status symbol that you meet the criteria and are rich or powerful enough to come in. Surely we can and should do better, or we should move away from the antiquated “boys club” and leave the alps to those on skis.

 

 

Renewables, battle of the billionaires

Singapore lit up at night

Previously, Edge has discussed the electricity markets’ move away from coal and gas to renewable energy and firming technologies. Last week it was announced that the Australia-Asia PowerLink Project (AAPP) better known as Sun Cable had gone into voluntary administration. AAPP was planned to be the world’s biggest solar and battery storage project.

Sun Cable was backed by some of the largest renewable energy developers in Australia, namely Mike Cannon-Brookes from Grok Ventures and Squadron Energy’s Andrew Forrest.

It appears from the outside the decision to wind up the company was due to a lack of alignment of the companies’ objectives by the shareholders but is there more to the story.

Sun Cable was to provide renewable energy generated in Australia and transport it via a 4,200km underseas cable to Singapore. Powering the project would be a huge solar farm near Elliott in the Northern Territory. The 20GW Elliott solar farm would be firmed with a 42GWh battery.

The first part of the Sun Cable project was planned to start construction next year, resulting in 800MW of renewable energy flowing into Darwin by 2027. Currently Darwin has a maximum demand of around 250MW so either the generation project will need to be resized or the solar farm will need to be constrained until it is able to export. With several solar projects already built in the Northern Territory but not approved for connection, the NT market may become very constrained as a result of the single line transmission between Katherine and Darwin.

Late in 2022, Sun Cable announced it had signed a Memorandum of Understanding (MoU) with the Indonesian government to unlock more than $150B in “green industry” growth in the region. The MoU has a broad plan to build key industries to improve Indonesia’s GDP. These industries include mining, energy, transport, food, agriculture and IT infrastructure, all an interest to mining and IT entrepreneurs.

With Indonesia already approving a sub sea survey permit it is likely the sub sea power cable could reach Indonesian shores and provide cheap renewable electricity to the region to assist in its growth.

Following the announcement of Sun Cable going into administration the federal government remains positive on the future prospect of Sun Cable. Are two billionaires too much for a business like this? Will one of them retain control of the company?

Feedback from Minister Bowen suggests following discussions with senior individuals at SunCable, there are no plans to stop moving forward with the project. Minister Bowen said

“It’s a change of approach and corporate structure, but of course in that regard that is entirely a matter for them”

Following a restructuring process, it looks like AAPP will still go ahead but most likely led by only on billionaire.

The Safeguard Mechanism – the big stick came out

Carbon emissions safeguard mechanism

The Safeguard Mechanism is the legislation which came in in 2016, it was designed to reduce the emissions of the industrial sectors within Australia with targets, or baselines, capping the amount of emissions each facility can emit. The flaw was that the large industries could continue to re-set these baselines to ensure that as production increased, so did the baseline, and as such the emissions would also be increased without penalty. In the Financial year 2020 – 2021, these 215 large emitters made up 28% of Australia’s Carbon Footprint.

During the election campaign the Albanese government stood on a pledge to tighten the legislation around these 215 facilities to ensure that they were contributing to the now legislated target of a 43% reduction in emissions by 2030 (v’s 2005) and net zero by 2050.

Well yesterday, 10th January 2023, the government after extensive round tables, consultation papers and responses released their “draft” position paper. I use the word draft in quotes as the timeframe for change to this draft is less than likely. Responses are due by the end of February and it going in front of ministers in April to be enshrined with a 1st July 2023 start date. I think we can safely say the government have set their cap on their desired outcome.

So, what has been decreed. Well in brief, bar the reduction in baselines, 4.9% annually until 2030 and a review following that, and a cap and trade scheme to allow under baseline emitters to benefit from a new (non-financial!) ACCU called a Safeguard Mechanism Credit (SMC), the big changes and costs, will come to those emitters who will be eventually pushed onto non-site specific variables and forced to use “industry benchmarks”. They can apply for exemptions until 2030 but even these will be under tightened scrutiny and cherry picking your years of production will no longer be allowed. This will be a blow to some who rely on their baselines to reduce costs in those high production and high emitting years. These emitters will also no longer be able to sit on high reported, calculated or fixed baselines and will loose their site-specific variables by the end of this decade in an already reducing baseline decline rate.

To cap this cost, the government are proposing a ceiling for the ACCU market. They propose this to be set at $75/tCO2-e initially and increasing by CPI +2% annually after the first financial year, FY24. With spot ACCUs currently trading around $34.50 (source https://accus.com.au/) this is quite a ceiling indeed.

The proposal is also tightening the benefits which can be gained by the Emission Reduction Fund Projects, with no new projects to be sanctioned and no renewal of current projects. Even those in existence will only have a two-year grandfathered period before the abatement cannot be utilised within the accounts.

Interestingly though the parts I found most intriguing were the future papers we can expect. The Chubb review was, I can now assume, purposely vague on international credits and I believe this is due to the implication from the safeguard paper that we can expect a further review, likely to come out this year, which will look at the usage of “high quality international offsets” within the ANREU. These could then be rolled into many types of legislation for Carbon Neutral claims as per Climate Active current accreditation, including Safeguard legislation.

The other interesting area is around carbon leakage with an investigation to be undertaken if Australia should follow the EU and implement a Carbon Border Adjustment Mechanism (CBAM). It would basically create a plug to stop carbon leakage between countries. i.e. if you moved production to a country which was less ambitious in its carbon policies you would still have to pay the “leakage” of that carbon, or to import that substance, if it was not manufactured within a country with similar carbon ambitions, you pay the carbon cost to use it in Australia.

Overall, there is a lot to un-pick in this paper but following extensive consultations I think (bar the ACCU ceiling price) little will shock industry. It is a “hybrid” approach to get the government on track without losing industry along the way. There will be some winners, especially those on industry set baselines, initially able to bank SMCs, but overall the government have balanced a carbon abatement requirement without hampering industry too much. There will always be nay sayers who want more, say this isn’t enough and want to move quicker, but we cannot forget the economic climate we are in at the moment and the turmoil yet to unfold. I say hear ye hear ye to the DCCEEW, this one balances the tightrope of industry and climate ambitions well.

Kate Turner is Edge2020’s senior manager markets, analytics and sustainability. Through a passion that renewable energy solutions are key to any climate change solution, Kate supports our clients to manage their portfolios and any associated risk within traditional markets as well as complex renewable energy portfolios. Kate is hands on in procurement development and implementation for our clients and leads our market regulatory and advisory sustainability services. If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Chubb report

Chubb report carbon offset

The long-awaited Chubb report was published on Monday 9th January 2023. Its purpose to “ensure Australian Carbon Credit Units (ACCUs) and the carbon crediting framework maintain a strong and credible reputation supported by participants, purchasers and the broader community.1”

The government has agreed (in principle) to enact all the proposed recommendations.

But let’s start at the beginning. The Chubb review came about following claims that the scheme was not robust, being managed badly and not fit for standards, especially on the international stage.

Following the King report in 2020 this view was exacerbated by the Clean Energy Regulator (CER) taking on an even larger role in this opaque market, holding the keys to the design of ACCU methodologies, registration and regulation of those projects, a data source for the “independent” ERAC (the Emissions Reduction Assurance Committee – the independent committee overseeing the ACCU market) and buying ACCUs on behalf of the Australian Government. Some may say it was a keys to the castle type deal.

Therefore, transparency and independence were unsurprisingly the key focus for the Chubb review. Both from the regulatory and data access standpoints, obviously maintaining privacy where required. With upcoming changes in the Safeguard Mechanism expected to come into force in the new financial year and increasing interest in ACCUs from the Hydrogen industry (to ensure certification meets international standards such as CertifHy) the robustness of the scheme must be unimpeachable.

I think the most interesting part of the review is the u-turn from the previous Morrison government’s stance, which mandated in 2021 that their own Climate Active standard would have required members to increase their “carbon neutrality” through a minimum of 20% or 30% ACCUs dependant on size. This reversal, to no such mandate, is showing the business community at least that an international certification is enough for this government. Not the strong climate stance that is being pitched from the floors of Canberra.

As with many of these papers I am finding little accountability and more future safeguarding. Especially around human-induced regen (noting that ends this year), carbon capture and storage and landfill waste gas, with no individual projects reviewed, the current standard of certification cannot be confirmed, yet it is likely to be significantly tightened if the advised transparency is enforced.

Overall, I can’t help feeling this was not more than a necessary boondoggle, yes some interest groups have had some wins, but it was necessary to achieve its end – it is going to undo a significant number of the controversial King review and Morrison Government changes.

Reversal however will come at a price, there will likely be a significant amount of funding put in place to reduce the both “real and perceived,” burden on both the CER and especially the Emissions Reduction Assurance Committee (ERAC). The latter of whom will be dis-banded and renamed the Carbon Abatement Integrity Committee (CAIC), moved out from the CER with full data access restored and with a remit which, if enacted within 6 months, could see them as an Independent Statutory Authority, a level the ERAC currently hold but are handcuffed from enacting upon.

Personally, I think any changes which bring transparency to this market, its accreditations and oversight can only be positive. There is still the government tender for an ACCU exchange to be developed which would further assist this transparency, but I also fear it has stopped short of really making the Carbon Market in Australia un-penetrable.

With Climate Active still supporting accreditations from Certified Emissions Reductions (CERs), Verified Carbon Units (VCUs) amongst others and an increasing number of lesser regulated Carbon Neutral certificated (iRECs etc) being used for Carbon Neutral Claims, I think this review could have used its opportunity to ensure the Australian Carbon Neutrality Certification would be seen as a world leader. Instead, I fear it is trying not to shake an already leaking boat, with pressure for ACCUs likely to increase with Safeguard changes and the HIR methodology ending in 2023, as well as the new “REGO” scheme being touted as “voluntary surrender only” with no regard for the impact to the LGCs market. Another knee jerk could have put too much price pressure on a market which is not only opaque but likely to come under significant demand, and that is before the increased scrutiny once data is widely available.

No, the Chubb review has done its job, it has unwound a lot of the misgivings people had. It should increase transparency, a feat which has been loudly called for in this market since its inception 11 years ago and not ruffled too many feathers in the process. I guess I just hoped for more.

References: 1: https://www.dcceew.gov.au/climate-change/emissions-reduction/independent-review-accus

Kate Turner is Edge2020’s senior manager markets, analytics and sustainability. Through a passion that renewable energy solutions are key to any climate change solution, Kate supports our clients to manage their portfolios and any associated risk within traditional markets as well as complex renewable energy portfolios. Kate is hands on in procurement development and implementation for our clients and leads our market regulatory and advisory sustainability services. If your business is interested in wholesale or retail renewable PPAs we’d love to help you. Contact us on: 1800 334 336 or email: info@edge2020.com.au

Does another new environmental scheme create more uncertainty?

Australia's renewable energy schemes

In December the Department of Climate Change, Energy, the Environment and Water released two papers. One on Renewable Electricity certification and one on the Guarantee of Origin Scheme.

These are mainly aimed at the hydrogen industry but the first could have a significant impact on the electricity sector if the proposals are implemented as per the position paper.

The Renewable Electricity Certification paper asks for feedback on the need for a new mechanism for electricity to be certified, currently to be used only for voluntary surrender purposes. It proposes it will act alongside LGC creation (Large-scale generation certificates) with the developer able to decide if they produce an LGC or a REGO (Renewable Energy Guarantee of Origin certificate) on any given period, in any given day.

The REGO can be used for all uses, bar RET liability i.e., voluntary surrender.

The main difference of the REGO to the LGC elements being proposed in the paper are:

  • It proposes to allow the use of below-baseline generation to create a REGO.
  • It will also allow STCs systems to create a REGO once the maximum deeming periods from date of installation has been met. If the minimum threshold isn’t met they can aggregate multiple small scale systems to create a certificate.
  • Further it suggests almost a double counting whereby a battery could purchase REGOs to “store” green electricity then re-sell as green electricity with a new REGO.
  • For exporting renewable energy i.e. Sun Cable whereby the REGO can be created even though the electricity is exported overseas, this is not allowed under the RET scheme for LGCs. How we can claim that against a domestic usage is yet to be seen!
  • There is a proposal any vintage can be surrendered at any time for this year’s claim
  • It is also worth noting a REGO would require a time stamp under the proposals – meaning hourly matching could be undertaken. However, a note for is you are in an aggregated system for the REGO the last hour to make the 1MWh REGO would be the one counted.

It is proposed this will allow claims post the sunsetting of the RET in 2030 but does not go as far as to state it will replace the RET – however this must be implied that it is the intention of the scheme.

If this is to go ahead there are a few concerns:

  • Will it crash the price of the LGCs?
    • Could the market be flooded with “equal value” REGO certificates and bar RET liability the LGC market move?
  • Alternatively – What happens to the LGC market if everyone signs up to REGOs – would it mean LGCs could potentially go up in price as people are only creating REGOs and the LGC RET liability can’t be met
  • Will it increase volatility with an arbitrage being available between the two schemes?
  • Does this really level the playing field for Hydrogen in the way they think it will? I am not sure we meet all criteria in the market leading hydrogen certification markets with this proposal
Consultations close 3rd Feb but this is one to watch. It may be being pushed through a side door but it could blow open the LGC market as we near the end of the RET scheme. Have your say here: https://consult.dcceew.gov.au/aus-guarantee-of-origin-scheme-consultation   

 

COP27

In comparison to the COP26 (Conference of the Parties 26) which occurred with great media attention and pageantry, partly due to the delay due to Covid-19 and partly due to the significance of the promises being made by countries. COP27 kicked off yesterday, 6th November, the 12-day event has received little to none of the media fanfare that was seen in the conference last year.

Our staunchly anti-target ex-Prime-Minister Scott Morrison even attended COP26 (sponsored by Santos!) but to show the stark comparison, our new Prime-Minister Anthony Albanese, who is a big supporter of Climate Targets and moving towards renewables, has opted not to attend the COP27 in Egypt, instead sending Chris Bowen and Jenny McAllister (our Minister and Assistant Minister for Energy) in his place. As we were not announcing any new targets and therefore the importance to attend wasn’t as strong.

Yet we aren’t the only ones shying away, Joe Biden is going to forego his annual nap at the COP conference and is instead sending four Cabinet Officials – sighting the mid-term election as reasoning (as if we don’t all expect a massive flop in those and the GOP to take back the house!). Rishi Sunak, the newest UK Prime-Minister, was not going to attend, yet after significant pressure did a dramatic U-Turn at the end of last week and will be there in Egypt this week. It is no surprise that Vladimir Putin won’t be in attendance, yet the biggest surprise came from China, with Xi Jinping also pulling out and sending a negotiator to participate, the equivalent of sending a toy poodle as they will block everything and agree to nothing.

Yet this conference should certainly have more clout. It is thirty (30) years since the UN Framework on Climate Change was adopted and the first meeting in Berlin took place, and seven years since the massive commitments made in the Paris Agreement.

But does the lack of attention and attendance show that the support is waning? Maybe not long term, but with many countries in dire economic circumstances, Germany and others in Europe throwing out their climate targets around Coal generation, in favour of keeping the lights on, and prices as low as possible in an ever climbing and squeezed market and massive debt and austerity to come from an overspend during COVID, required to ensure their economies didn’t collapse. Standing up and agreeing to tighter emissions targets and the cost implications of this would not play well at the polls, and although a politician may have great ambition for Climate Change they have more ambition for Political safety and longevity.

Last year, at the COP26, world leaders agreed to “revisit and strengthen” their national climate targets annually, if possible, with what seemed like a consensus to produce significant commitments to target Climate Change. They agreed to look at and strengthen their targets every 12 months (previously five years as per the original Paris Agreement) and this was done to try and hold global warming below 1.5 degrees Celsius.

Yet heading into this COP27 only 21 countries have submitted updated climate commitments for their country, with 172 making no change. Of the 21, only Australia has made significant and credible commitments, yet many (everyone!) would argue this was to catch up to the rest of the world and is nowhere near what would be defined as ground-breaking.

Let’s be clear, regardless of politics, regardless of debt and war without significant change, within a decade we will go above the 1.5 degrees Celsius target and above 2.4 degrees by the end of the century. A recession can be reversed, it is awful and hard, but it can be, a war can be stopped, but once this warming has occurred there is no way back, and it will be those on the edges who suffer first and most. An incremental change is not good enough anymore and playing ostrich to ensure your political survival for four more years will not help future generations and ensure the world is thriving.

Yet with world leaders being beyond non-committal, the UN sending out strong statements but with no action and little education on what this means, we are not changing anywhere near fast enough and at some point the cost of it will be on our front door.

I would urge you to follow the public debates and live streams https://unfccc.int/cop27#events or look at the U.Ns campaign to see what “individual Actions” you can do to help reduce everyone’s carbon footprint here https://www.un.org/en/actnow/

I assure you this is not just a big emitters problem, changes by us all could help, and to be clear I do not mean by gluing yourself to a Van Gogh or Vermeer or covering Ferrari showrooms in orange paint.  Gorilla activism is not the answer, their actions are disruptive and not effective in changing the minds of those outside of their own cause. But, all of us taking our positions to the checkout each week will force a change, in the way only free markets can be affected, and that can only benefit everyone now and in the future. I assure you our politicians will not do it for us and this COP27 is just the latest proof of this, unless it is a silver bullet they will not act, therefore we must.