Once more with feeling: Australia and Kyoto 2

The recent furore around international offsets in Australia’s emissions trading scheme may be no more than smoke and noise if Australia does not play its cards right at the next UN meeting in Doha in December. There is a risk that Australian companies will struggle to access Kyoto’s carbon markets, the only major source of international offsets, if Australia does not take on a second emission reduction target under the Protocol. This would substantially increase the pollution price in Australia.

At the 2011 Durban Climate Summit, agreement to a second commitment period under Kyoto proved pivotal to a mandate to negotiate a new binding agreement covering all major emitters in 2015. The first commitment period expires at the end of this year. As a result, this December, Australia will have to decide whether we take on a new Kyoto target and reinforce the Durban outcomes. The nation’s participation in Kyoto will again be in the international spotlight.

Why does this matter to business?

The economics of the domestic emission trading scheme are heavily influenced by the ability of companies to use international carbon credits to meet their liabilities. Without access to international markets such as the Kyoto Protocol’s Clean Development Mechanism (CDM), domestic prices under the scheme would rise significantly. Treasury indicates that achieving Australia’s minimum emission target requires carbon prices of around $60/tonne in 2020 if we don’t have access to international carbon markets.

Some countries like Japan argue that they can access the CDM regardless of whether they take on new responsibilities under the Protocol. This is far from guaranteed as there is legal ambiguity and emerging opposition on this point.

The spirit of the rules implies that eligibility for access to the CDM would need to be determined anew for any new commitment period. If this is the case, countries will not be eligible until their new Kyoto target is calculated and recorded under international law. This is not possible without a new binding commitment.

The implementation of new Kyoto targets for the EU, Norway, Switzerland, the Ukraine, and other former Soviet countries like Kazakhstan will also require amendments to the Kyoto Protocol. This will give countries the opportunity to define new eligibility criteria for participation in international emission trading.

Proposed criteria include limiting access to the CDM to those countries that have a new binding target in any second commitment period under the Protocol. For example, on June 5, 2012, the Alliance of Small Island States (AOSIS) submitted amendments to the Kyoto Protocol that would limit access to international trading mechanisms only to those countries with new Kyoto targets.

It is in Australia’s national interest to accept a new Kyoto Protocol target to support an ambitious international agreement that covers all major emitters. As a nation very vulnerable to the impacts of climate change, coordinated global action matters a great deal to us.

Failure to support current multilateral agreements by refusing to inscribe our current emission targets under the Kyoto Protocol in December would once again damage Australia’s recently rehabilitated international standing and weaken progress towards an ambitious agreement covering all major emitters in 2015.

In the absence of international trading, Australia’s contribution to global climate change efforts would inevitably be diminished. Holding back a new Kyoto commitment, or using delay as a negotiating tactic, would not benefit Australian businesses.

Taking on a target would remove ambiguity around whether Australian firms can import (and export) credits from investments in clean energy and low-pollution technology. Moreover, it would help create momentum towards coordinated global action to avoid dangerous climate change.

Erwin Jackson is Deputy CEO of The Climate Institute