Two new studies have dispelled a couple of the myths that still hold some currency in the climate change debate. They conclude that Australia’s major trade partners already have a significant price on carbon and that major Australian companies see more opportunities than risks in having one themselves.

A new report by Vivid Economics on behalf of the Climate Institute has sought to estimate the value of the ‘shadow’ price on carbon in Australia and a basket of its major trading partners.

The shadow price was arrived at by calculating the impact of direct prices such as an emissions trading scheme, and indirect prices from renewable energy targets, feed-in tariffs and other subsidies and regulations affecting the energy sector — and the result emerges as yet another repudiation of the fanciful idea that Australia is at risk of leading the world. In fact, it trails by some distance.

Australia, based on its renewable energy target and some state-based trading schemes and feed-in tariffs, is judged to have a shadow carbon price of just $US1.70 a tonne.

The UK, because it is involved in the EU ETS, comes out with the highest shadow price at $US29.30, and is cited as a proxy for the rest of Europe, although some individual countries with higher FiTs would probably deliver a higher price.

China is next at $US14.30, courtesy of its mandated shutdown of inefficient and high emitting coal fired power stations, renewable energy targets and other subsidies. Interestingly, this is a similar shadow price to that cited by Dr Hu Tao, an economist with the Chinese Ministry of Environment, during presentations in Australia last week.

China appears to have a shadow price that is nearly three times higher than the US, where it is estimated that various state-based renewable energy targets and federal subsidies and tax incentives translate to a shadow price of $US5.10. In the north-eastern states, where a regional carbon market is in place, the shadow price is put at $US9.50, although the recent collapse in that market’s carbon price may reduce that number by around a quarter.

Japan has a shadow price of $US3.10 and South Korea just $0.70. It should be noted, however, that these calculations were done last year, just before the Copenhagen summit. Subsequent events such as the collapse of the regional carbon price in the US would have a negative impact on that price, while others, such as further regulation in China and the massive spending recently announced by South Korea, and the move to trading schemes in Japan, would likely increase the shadow price in those countries.

And the implications of all this? KPMG’s partner in charge of sustainability, climate change & water, Jennifer Westacott, said the lack of a robust carbon price is hampering Australian businesses’ ability to compete and attract investment.

“The question is no longer ‘Should we have a price on carbon?’, but ‘How comprehensive should it be?’ and ‘How do we transition key sectors based on technological readiness, competitiveness and the pace of global negotiations?’.”

And it is also significant in the context of emerging concerns about trade barriers and the threats of border tariffs based on the presence of, or a lack of, a carbon price — real or implied.

Some European countries, such as France, have openly called for such a tariff. India has imposed a carbon tax on coal, both domestic and imported, while other countries have appealed to the World Trade Organisation — Japan about Canada’s decision to exclude international companies from its domestic clean energy rollout, while the US has been asked by unions to lodge a protest against China, arguing it is investing too much money in clean energy and thereby threatening US jobs.

Australia should not feel it is immune to such threats. The world of trade barriers and assumed subsidies could get messy indeed. For instance, is massive compensation to trade-exposed industries an unfair subsidy or not? Industries and green groups would have opposing arguments, but it is not a cut-and-dry legal case.

The second report was the local version of the Carbon Disclosure Report, a survey coordinated by the Investor Group of Climate Change in an effort to coax full disclosure on carbon exposure, responsibilities and action plans from listed companies.

Two of the more interesting findings were that companies saw more opportunity than risk from the current and anticipated regulatory regimes, and the outperformance of the best rated companies on carbon disclosure over the rest of the market. Most of that outperformance (14.9 per cent over six years) came after the onset of the GFC, probably something to do with risk management.

The most disturbing aspect of the survey was the apparent insouciance, or just ignorance, of the issue from most of the second tier of the ASX200. While 72 per cent of the ASX100 responded, just 22 per cent of the second tier – albeit with an average market capitalisation of nearly $1 billion — bothered to do so.

Frank Pegan, the CEO of Catholic Super, which manages $3.7 billion and is co-sponsor of the report, was not impressed and said companies that did not respond risked not just their reputations but also their valuations.

“If they want investor money, they need to do the survey,” he said, adding that the market was likely to witness unprecedented shifts in cash flows and valuations, and investors wanted more information. He said many companies had provided “lame excuses” for not responding.

Pegan’s view may not yet be of the mainstream, but it is almost certainly a sign of the future. He  lamented that the climate changed debate in Australia had been ruined by corporate and political self interest.

John Tomac, the director of sustainability and climate change at PricewaterhouseCoopers said it appeared that very few of the second tier of the ASX 200 believed there was any regulatory risk. He said it makes you wonder if they understood much about the climate change debate at all.

Perhaps many of these companies have been lulled into a false sense of security by their industry organisations, such as the Australian Chamber of Commerce and Industry, and the Australian Industry Group. The AIG’s Heather Ridout, in celebrating her appointment to a consultative roundtable on climate change policy issued a statement saying: “In the absence of global action on climate change, any steps taken in Australia seriously risk undermining our industrial competitiveness.”

As Professor Ross Garnaut reminded us last week in no uncertain terms, there is no binding treaty but there is no absence of action. And as many Australian companies competing for international tenders, who now have to account for their carbon emissions and how they propose to reduce them, can testify.

The CDP report notes that, while most companies have identified opportunities and potential abatement target, the lack of local policy meant that less than half had actually set an abatement target.

News Corp won an award for having the highest disclosure rating of any ASX200 company, which some may find ironic given the controversy over its editorial coverage on the issue. Its Australian rival Fairfax, regarded as more sympathetic, editorially, to the climate change debate, was one of the few ASX 100 companies that did not bother to respond to the survey.

*This article originally appeared on Climate Spectator

Peter Fray

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