Australia: Is the world on the pathway to achieving under 2°C temperature increase?

Introduction

The latest report by the Intergovernmental Panel on Climate Change (IPCC) calls into question whether it will be possible for the world to limit temperature increase by the end of the century to under 2°C, which was the target agreed by the international community in 2010 at the United Nations Framework Convention on Climate Change (UNFCCC) talks in Cancun.

It follows a recent assessment by the International Energy Agency (IEA)¹ which concluded that the policies that have been implemented, or are being pursued, are likely to result in a long-term temperature increase of between 3.6-5.3°C.

The findings of both reports highlight that immediate, aggressive and sustained action is required if the 2°C goal is to be met and suggest that a more comprehensive and coordinated range of market, policy and regulatory levers will be needed in the short term.

This legal update reviews the recent report released by the IPCC and considers what action is currently being taken elsewhere in the world to address emissions reductions, in particular, in the largest emitters – the USA and China.

The IPCC's Fifth Assessment Report

The IPCC is the official climate science assessment body of the United Nations. It was established in 1988 under the United Nations Environment Programme and the World Meteorological Organisation to provide the world with a scientific view of the current state of scientific knowledge regarding climate change, and serve as an interface between science and policy making. The previous IPCC report, AR4, released in 2007 provided the evidence base for many national climate change strategies, policies and legislation.

In 2008, the IPCC began its fifth assessment cycle to deliver a report to "assess on a comprehensive, objective, open and transparent basis the scientific technical and socio-economic information relevant to understanding the scientific basis of risk of human-induced climate change".

The Summary for Policymakers²released by the IPCC on 30 September 2013 is a distillation of the findings of that assessment cycle. It marks the first part of the four part Fifth Assessment Report (AR5) to be released between September 2013 and October 2014, which is comprised of the:

• Working Group I (WG1) report on the physical science basis of how and why the climate is changing (expected to be finalised in January 2014)³;
• Working Group II report on the impacts, adaptation and vulnerability relating to climate change (expected to be finalised in March 2014);
• Working Group III report on assessing the mitigation of climate change (expected to be finalised in April 2014); and
• Synthesis Report (expected to be finalised in October 2014).

Key findings of WG1

The findings of WG1 add further confirmation to the conclusions of the 2007 IPCC Report, including that:

• warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia
• each of the last three decades has been successively warmer at the Earth's surface than any preceding decade
• human influence on the climate system is clear – "It is extremely likely (>95%) that human influence has been the dominant cause of the observed warming since the mid 20th century"
• the rise in global temperatures is causing changes in all geographic regions, with Arctic sea ice disappearing, the oceans warming and becoming more acidic, sea levels rising and glaciers retreating;
• extreme weather events are becoming more frequent and severe
• immediate and aggressive mitigation measures are required to restrict temperature rise to keep warming within safe bounds (i.e. to a minimum of 2oC), and
• limiting climate change will require substantial and sustained reductions of greenhouse gas emissions.

One of the most important aspects of WG1 is its projections of future scenarios based on what is known to have occurred, with what may occur in future, using computer modelling and the laws of physics, chemistry and biology. These projections are referred to in WG1 as 'Representative Concentration Pathways' (RCPs) and cover four different scenarios as follows:

1. RCP 2.6 is based on a projected sharp decline in emissions, with near zero emissions in fifty years time (RCP 2.6).
2. RCP 4.5 relies on a reduction in current carbon dioxide emissions by 2050, and atmospheric concentration levels stabilising by 2100 at roughly double those of the pre-industrial period (RCP 4.5).
3. RCP 6 is similar in trend to RCP 4.5, with an adjustment for CO2-e levels taking longer to stabilise, resulting in a concentration level 25% higher than RCP 4.5 (RCP 6).
4. RCP 8.5 is the 'business-as-usual' pathway which assumes no emissions reductions and results in CO2-e levels in 2100 which are five times higher than those in the pre-industrial era (RCP 8.5).

The range of outcomes for key effects of climate change, between the RCPs, is stark, as highlighted below:

• By 2100, atmospheric temperature increases are likely to be in the ranges of 0.3-1.7 ºc under RCP 2.6 rising to 2.6-4.8 ºc under RCP 8.5.
• The temperature increase of surface waters in tropical and sub-tropical regions is anticipated to be between 0.5ºC (RCP 2.6) and 2.5ºC (RCP 8.5).
• Arctic sea ice in summer is very likely (90-100% probability) to continue shrinking. Reductions range between 43% (RCP 2.6) to 94% (RCP 8.5).
• Reductions for Arctic sea ice in winter range from between 8% (RCP 2.6) to 34% (RCP 8.5).
• Under RCP 8.5, a nearly ice-free Arctic Ocean is likely (66% to 100% probability) in summer, before 2050.
• Global sea levels are likely to rise by between 0.24-0.54m in the RCP 2.6 scenario, and 0.45-0.81m in the RCP 8.5 scenario.

In terms of physical impacts, these include:

• more unusually hot and fewer unusually cold days across the globe
• longer and more frequent heatwaves
• dryer areas getting dryer and wetter areas getting wetter, with heavy rainfall events very likely to become stronger and more frequent, and
• the monsoon area getting bigger, monsoon rainfall getting stronger and monsoon period getting longer.

Implications of WG1

In Australia in the short term, it is likely that the Climate Change Authority (CCA) will factor in the findings of WG1 into its analysis and recommendations on Australia's emission reduction targets as part of its Caps and Targets Review. The CCA's draft report is due to be released for consultation this month, with the final report required by legislation to be published by the end of February 2014.

Although the new Coalition Government has committed to abolishing the CCA, the Minister for the Environment, the Honourable Greg Hunt MP, has indicated that it will be allowed to continue operating under its statutory mandate until legislation which established the CCA is repealed by Parliament.

In the international arena, WG1 will be a key reference tool at the upcoming UNFCCC Conference of the Parties (COP) meeting which will take place next month in Warsaw, Poland.

In the longer term, the full AR5 reports will provide the scientific basis to inform the new international climate change agreement which it is anticipated will be finalised at the 2015 COP in Paris, with a view to it commencing operation in 2020.

At both the domestic and international levels, a central issue which WG1 raises is whether the current action being taken by the international community to reduce greenhouse gas emissions, and the targets set by different countries, need to be significantly increased prior to 2020.

In this context, it is worth noting the conclusion reached by the IEA that in order to start the emissions reductions needed to achieve the 2°C target an estimated US$1.5 trillion will be needed in low carbon energy investments prior to 2020. However, if the world continues on a 'business as usual' trajectory this will result in an additional investment input of US$5 trillion being needed after 2020 to get back on track to the 2°C target.

The IEA has proposed what it calls its "4-for-2°C scenario". This proposes the implementation of four policy measures that it says can help keep the door open to the 2°C target through to 2020 at no net economic cost. The four policies are:

• adopting specific energy efficiency measures (49% of the emissions savings)
• limiting the construction and use of the least-efficient coal-fire power plants (21% of savings)
• minimising methane emissions from upstream oil and gas production (18% of savings), and
• accelerating the partial phase-out of subsidies to fossil-fuel consumption.

Status of domestic and international action on climate change

The recent findings of the IPCC and IEA prompt an assessment of where things stand in terms of Australian and international action on climate change.

In Australia, the Coalition Government has committed to our existing unconditional emissions reduction target of 5% by 2020 based on 2000 levels,⁴ but has not yet given a commitment to any longer term target. In order to reach the 2020 target, the new Government has initiated work to develop its Direct Action Plan, which it aims to start by 1 July 2014. The terms of reference for the Emissions Reduction Fund, which forms the primary plank of the Direct Action Plan, were released on 16 October 2013 and can be found here. The Government has also committed to commence a review in 2015 of possible policy measures to reduce emissions beyond 2020.

In parallel with this, the Government has committed to repeal the Carbon Pricing Mechanism (CPM), which based on current legislation, is scheduled to transition to a full market based emissions trading scheme from 1 July 2015⁵. A successful repeal would also see the end of much of the associated Clean Energy Legislative package introduced in 2011 and a number of institutions established as part of that package, including the Clean Energy Finance Corporation and the CCA. See our legal update on the draft repeal legislation.

In other parts of the globe, countries have adopted a range of different targets for emissions reductions by 2020. For example, in terms of 2020 targets:

• the EU and its Member States have a 20%-30% reduction target based on 1990 levels, with the 30% level conditional upon comparable commitments by developed countries and adequate contributions from developing countries
• Japan has a 25% reduction target based on 1990 levels, conditional on there being a fair and effective international framework with participation by major economies and ambitious targets
• the United States of America has a target "in the range of 17%" based on 2005 levels
• the Russian Federation has a target range of 15-25% based on 1990 levels, subject to conditions relating to appropriate accounting of the potential of Russia's forestry sector and undertakings by all major emitters, and
• China has committed to endeavour to lower its carbon dioxide emissions per unit of GDP by 40-45% by 2020 compared to 2005 levels, increase the share of non-fossil fuels in primary energy consumption to around 15% by 2020, and increase forest coverage by 40 million hectares and forest stock volume by 1.3 billion cubic metres by 2020 from 2005 levels.

Different jurisdictions are pursuing various policy measures in an effort to meet their respective 2020 emission reduction targets. In many cases, these include a mixture of market, regulatory and government incentive based mechanisms. They include, for example, the use of emissions trading schemes, carbon and environmental taxes, renewable energy schemes, energy efficiency programs, vehicle emission standards and forestry policies.

Contrary to some recent reports, emissions trading schemes remain an important part of this policy mix and currently operate in a number of countries or regions.

The oldest scheme is the European Union Emissions Trading Scheme (EUETS), which commenced in 2005. Since then, other schemes have emerged in countries such as Switzerland, New Zealand, South Korea and Kazakhstan and regional based schemes have started in parts of the United States (e.g. California), Canada (e.g Quebec) and Japan (e.g. Tokyo and Saitam)]. New schemes are under development or are being explored in China, Brazil, Taiwan, Dubai and Russia.⁶

The following map produced by the World Bank provides a snapshot of current emissions trading scheme activity.

Source: Mapping Carbon Pricing Initiatives – Developments and Prospects 2013 – World Bank, Washington DC May 2013

In this context, it is interesting to briefly consider a few of the actions being taken by two of the world's biggest greenhouse gas emitters: China and the United States. Together, these countries account for over 40% of the world's emissions.

China

China frames its social and economic development policies in Five Year Plans. The current 12th Five Year Plan for the period 2011-2015 had a strong focus on the need to develop a low carbon economy.

In March 2013, China was awarded US$8 million under the World Bank's Partnership for Market Readiness (PMR) to fund research and begin the design of a national emissions trading system. In the meantime, China is pursuing the development of 7 pilot schemes in Beijing, Shanghai, Guangdong, Shenzhen, Tianjin, Hubei and Chongqing. These schemes are at different stages of implementation and a helpful overview has been produced by the International Emissions and Trading Association, which can be found here: http://www.ieta.org/reports.

The most advanced scheme so far is the Shenzhen one, with the Shenzhen Emission Rights Exchange (Shenzhen Exchange) being initiated on 18 June 2013. The Shenzhen Exchange does not operate as a traditional "cap and trade" scheme as no caps are set on emissions numbers. Instead, the scheme operates to cut emissions intensity with a target of 21% by 2015. The scheme has imposed mandatory caps on 635 companies and 197 government buildings, which collectively contributed to approximated 38% of the total carbon emissions in Shenzhen in 2010. The threshold for coverage has been set at 5,000 tonnes of CO2-e per annum. To date, the Shenzhen carbon price has traded between US$4.57 to US$11.50.⁷

In addition, the National Development and Reform Commission (NDRC) has released interim measures to support carbon emissions offset projects. Chinese Certified Emission Reductions (CCERs) will be generated from certified offsets projects and will be able to be used for compliance purposes in the 7 pilot trading schemes, subject to specified limits. The methodologies for these projects are likely to be taken from Clean Development Mechanism (CDM) methodologies and both domestic and foreign entities (provided they are registered in China) will be able to participate in project development and implementation.

The Chinese government also proposes to introduce a carbon tax and on 23 May 2013 a draft environment tax law was circulated to China's most carbon intensive industries and representative associations for comment. The current expectation is that the tax will be implemented in 2015 and take effect during China's next 5 year plan (ie from 2016-2020). The draft environment tax law suggested that the tax would be no more than ¥10 per tonne⁸.

It remains to be seen how coverage will work if both a national emissions trading scheme and a carbon tax are intended to operate simultaneously.

USA

On 25 June 2013, President Obama released a comprehensive Climate Action Plan (CAP) that set out bold new domestic and international actions for the United States which aim to mitigate "carbon pollution", adapt to climate change impacts and enhance its international leadership on climate and clean energy.

The CAP was announced in the context of President Obama having shelved any plans to progress with a national emissions trading scheme given the current composition of the United States Congress, and the work of the US Environmental Protection Agency (US EPA) since 2009 to develop regulatory standards to address carbon pollution in the areas of transport, stationary sources and emissions reporting.⁹

The actions identified in the CAP to reduce carbon pollution included:

• Imposing emissions standards on new and existing power plants (which may include gas-fired as well as coal-fired power plants)Doubling renewable power (a further 10 GW) by 2020, increasing hydropower at existing dams, deploying 3 GW of renewable generation at military bases by 2025, 100 MW at federally subsidized housing by 2020
• Accelerating the site, approvals and investments required to facilitate modernisation of the electricity transmission grid
• Providing clean energy innovation investments, including $8B in loan guarantees for advanced fossil fuel
• Reducing emissions of hydrofluorocarbons
• Imposing tougher fuel economy standards for post 2018 heavy duty vehicles, providing greater investment in advanced bio-fuels and battery technology, particularly for the military and commercial sectors, and, increasing alternative fuel use in the US government vehicle fleet
• Doubling energy productivity by 2030 relative to 2010 levels,

Further details of the CAP can be found in our legal update here.

One of the first steps to implement the CAP took place on 20 September 2013, when the US EPA re-proposed New Source Performance Standards (Standards) for carbon dioxide (CO2) emissions from new fossil fuel-fired electric generating utilities (EGUs). The Standards are as follows:

• Boiler EGUs, including coal-fired and integrated gasification combined cycle units, would need to capture and store a portion of carbon emissions (approximately 30 to 50 percent) to meet an output-based carbon standard of 1,100 pounds of CO2 per gross megawatt-hour (lb CO2/MWh).
• Natural-gas fired turbines greater than 250 Megawatts (Mw) would need to meet a standard of 1,000 lb CO2/MWh, which would become the most stringent standard in the country.
• Smaller natural gas-fired turbines between 73 Mw and 250 Mw would need to meet a standard of 1,100 lb CO2/MWh.

Of note, the Standards are only intended to apply to new sources—modified and reconstructed EGUs would not be subject to the Standards. However, in the longer term it is intended that state plans will set standards for existing power plants. It is possible that future guidelines, which are due out in June 2014, may include the retrofitting of existing EGUs with carbon capture and storage.

Further details on the Standards can be found in our legal update here and an overview of action that has been and is proposed to be taken under the CAP can be found in the US Biennial Report, which was released on 26 September 2013 and can be found here

USA – China: climate change initiative

It is also worth noting that the USA and China have commenced collaboration on co-ordinating their respective responses to tackling climate change.

On 13 April 2013, the USA and China announced the establishment of a Climate Change Working Group, led by Todd Stern, US Special Envoy for Climate Change and Xie Zhenhua, Vice Chairman of the NDRC. The first report of this Working Group, released on 10 July 2013, identified five key initiatives:

• Reduce emissions from heavy duty vehicles (through fuel efficiency standards, and providing technical support for new emission control technologies)
• Smart grids
• Carbon capture and storage
• Collecting and managing greenhouse gas emissions data
• Energy efficiency in buildings and industry

Implementation plans for these initiatives are expected to be completed this month.

Moving forward

Last week, our London office hosted Angel Gurria, the Secretary-General of the OECD, for a lecture which launched the OECD's latest Environment Policy Paper on " Climate and Carbon: Aligning Prices and Policies". In the foreward to this paper, Mr Gurria states:

Like other reports, the key takeaway from this paper is that explicit carbon pricing policies, such as carbon taxes and emissions trading schemes, are generally more cost-effective than most alternative policy options.

Notwithstanding this, the above analysis of action being taken in the USA and China shows that a range of mechanisms are being utilised to drive down emissions across a number of sectors.

In the event that Australia moves away from carbon pricing as its main tool to secure long term emissions reductions, and unless the Coalition's proposed Direct Action Plan can deliver enough of the "heavy lifting" required, it is possible that other measures, such as direct regulation or imposition of standards, may be required to assist Australia to meet its international targets, particularly any that are agreed for the post 2020 period.

It is also conceivable that some State based programs that were shelved or abandoned after introduction of the CPM could be reintroduced, although this may be unlikely without a change to the current Liberal dominated mix of State governments.

Norton Rose Fulbright is based in 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia. If you would like further information about the action or initiatives being pursued to address the reduction of greenhouse gas emissions in other parts of the world, please contact a member of our Australian Climate Change team and we can put you in touch with personnel from our relevant office.

Footnotes

¹International Energy Agency, "Redrawing the Energy-Climate Map", World Energy Outlook Special Report, 10 June 2013.

²IPCC WGI AR5, Working Group I Contribution to the IPCC Fifth Assessment Report, Climate Change 2013: The Physical Science Basis, Summary for Policymakers (27 September 2013).

³The final draft of the WG1 report was released online in unedited form on 30 September 2013 but the final edited version is expected to be published online in January 2014.

⁴Note that the 2020 emissions target agreed to by Australia following the Copenhagen COP in 2009 includes the commitment that "Australia will reduce its greenhouse gas emissions by 25% on 2000 levels by 2020 if the world agrees to an ambitious global deal capable of stabilising levels of greenhouse gases in the atmosphere at 450 ppm CO2-eq or lower. Australia will unconditionally reduce our emissions by 5% below 2000 levels by 2020, and by up to 15% by 2020 if there is a global agreement which falls short of securing atmospheric stabilisation at 450ppm CO2-eq and under which major developing economies commit to substantially restrain emissions and advanced economies take on commitments comparable to Australia's." - see link

⁵The previous Labor Government had prepared legislation to bring forward the commencement of the emissions trading scheme to 1 July 2014 but this was not considered by Parliament prior to the election on 7 September 2013.

⁶Parliamentary Library Background Note on emissions trading schemes around the world, 6 June 2013

⁷As at 4 September 2013, Point Carbon

⁸¥10 equalled around US$1.63 as at 14 October 2013

⁹The US EPA's actions to develop standards in these three areas arose from the US Supreme Court's finding in Massachusetts v EPA 549 U.S 497 (2007) that carbon dioxide and other greenhouse gases are covered by the Clean Air Act's broad definition of air pollutants and the US EPA's subsequent issuing of endangerment and contribution findings in December 2009.

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