Climate change and the sustainability of our cities

Dr Martin Parkinson 
Secretary, Department of Climate Change and Energy Efficiency

Property Council of Australia 
26 May 2010

Introduction

Thank you for the opportunity to be here today.

Last time I spoke to you was at a Business Lunch six months ago—from where I sit a lot has changed in that time!

Looking back, we approached December with a real prospect of bipartisan political support for the Carbon Pollution Reduction Scheme—the CPRS. Agreement had been reached in November with the Opposition on a package which included increased assistance measures for industry, generators and a commitment to exclude agriculture. Tumultuous events followed, leading to the CPRS Bill being defeated in the Senate. It was the stuff of high drama.

Then to Copenhagen. Media and vocal commentators portrayed Copenhagen as a disaster; a win for the nay-sayers; how developing countries refused to give any ground in the negotiations; and how instead of signing a deal in Copenhagen, we ended up going backwards.

I too left Copenhagen deflated—sensing too little to show for all our hard work over the previous two years—in both the domestic and international spheres.

But on sober reflection, while Copenhagen showed we have not progressed as far or as fast as we may have hoped internationally, significant gains have been made, a point I recently discussed in detail^[1].

Today I will describe where Australia and the globe sit with regard to mitigating climate change, and then turn to the role of our cities and the Property Council in contributing to both emissions reduction and adaptation to the impacts of climate change.

Let us look at the international scene first.

Copenhagen and the inevitability of global action

While Copenhagen may not have resulted in a legally binding agreement, the Copenhagen Accord represents a significant advance on the Kyoto Protocol framework. I want to particularly focus on two outcomes.

• First, both developed and developing countries have agreed to take responsibility for action to hold global temperature increase to below two degrees Celsius.
• Second, developed countries and developing countries have committed to specify what they will do to meet this objective in the same instrument. Let me emphasise this: for the first time, developing countries have agreed to also implement action to limit their emissions, and the US has joined them in committing to action.

These are both truly historic achievements delivered as part of the Copenhagen Accord.

Source: Climate Analysis Indicators Tool (CAIT) Version 6.0. 
(Washington, DC: World Resources Institute, 2009). 
Total GHG emissions in 2005 (excludes land use change).

And the Accord is not just words—significant actions are already underway. At last count, 125 countries have associated themselves with the Accord and 75 countries have committed to limit or reduce their emissions by 2020, including the US, China, Brazil, South Africa and India. In total, countries responsible for 80 per cent of global emissions and 90 per cent of the global economy have committed to undertake action to limit emissions.

Don't get me wrong. In no way am I underestimating the size of the challenge that lies ahead. But the Copenhagen Accord provides a practical pathway to a future agreement worth having; one which can avert dangerous climate change.

And, let me make another point. Global action to reduce emissions is inevitable. There are real uncertainties about the exact form of that action in individual countries and about the precise timing. But efforts to transition to a low carbon future are already underway; and these efforts will only accelerate over the coming years and decades.

Source: Climate Analysis Indicators Tool (CAIT) Version 7.0. 
(Washington, DC: World Resources Institute, 2010). Total GHG 
emissions in 2005 (excludes LULUCF)

The major risk for Australia is not that of moving before others, but rather it is the risk of being left behind.

And that brings us neatly back home to Australia where climate change has been and remains a subject of intense and passionate debate.

Emissions mitigation and the role of a carbon price

While we haven’t achieved as much domestically as I would have hoped, we have seen some important advances. For the first time, we have an explicit bipartisan consensus on our greenhouse targets with both the major parties remaining committed to a unilateral reduction of 5 per cent in emissions from 2000 levels by 2020, and the potential to increase this to 25 per cent if there is strong international action.

Percentages show emissions in 2020 relative to 2000 levels. 
The abatement challenge represents the gap between Australia's 
targets and baseline emissions (Mt COx-e)

These are ambitious targets. Our business as usual emissions are forecast to grow by 21 per cent after including the policies currently implemented such as the Renewable Energy Target (which lowers our BAU by 5 percentage points) and other energy efficiency measures. This implies an emission abatement task of around 140 Mt CO2 for a minus 5 target; 200Mt for a minus 15 target; and 250 Mt for a minus 25 per cent target.

By way of comparison, 140 Mt is roughly two thirds of Australia’s emissions from electricity generation and roughly twice our road transport emissions.

As you are aware, the Government recently announced its intention to delay the CPRS until after the end of the current Kyoto commitment period in 2012. This decision reflected the domestic reality of a Parliament that had already rejected the CPRS legislation twice and does not seem disposed to change its mind.

So the obvious question is: can we achieve the bipartisan target range without a price on carbon? The answer is simple—No, we cannot.

Any suggestion to the contrary simply reveals a lack of understanding of the dynamics behind Australia’s emission profile.

Putting an economy-wide price on carbon is a fundamental requirement to meet our climate challenge. Without an overarching carbon price, there will be resort to a complex patchwork of regulatory and other measures across the Commonwealth and the States, all interacting in unpredictable ways and creating large and unnecessary compliance costs for business. In such a world, it is difficult for businesses to predict changes in policy and investors to identify likely impacts on different firms, and allocate capital accordingly. As a result, we will have knowingly taken action to damage our productivity and lower our future living standards.

Let me be clear on what I am saying. We face a choice between economically efficient, low cost, market based action or a recourse to high cost policies that we know have been inadequate in the past. The gap here is not partisan politics; it's economics.

 

If we are to achieve our emission targets – emission targets which have bipartisan support – a carbon price must begin to be implemented by around the conclusion of the present Kyoto commitment period. No long term solution is possible without the creation of market incentives to protect the integrity of our climate system and reduce the risks of dangerous climate change.

But as the Government has maintained, and as Professor Garnaut has said^[2], a carbon price on its own – while essential – is not enough. The carbon price must be supported by policies to encourage renewable energy and low emission technologies, to improve energy efficiency, to integrate climate considerations into transport and urban planning. In summary, measures to complement a carbon price will be necessary to address areas of market failure that shield decision makers from the carbon price signal.

So in the interim – in the period to 2013 when the Government will revisit the CPRS – there is much that the Government can still do. During this period the biggest payoff will come from focussing emissions reduction policy in two broad categories: first, policies that are transitional to the CPRS; and second, policies that are complementary to the CPRS.

Transitional and complementary policies

One example of a policy that is transitional to the CPRS is the expanded Renewable Energy Target. The RET will accelerate deployment of renewable energy technologies through a guaranteed market for renewable energy. The Government is expanding the RET by over four times to ensure that at least 20 per cent of Australia’s electricity is generated from renewable energy sources by 2020. This is broadly equivalent to the amount of electricity currently used by all Australian households.

By driving billions of dollars of renewable energy investment in the period to 2020, the RET will influence the longer term composition and emissions profile of Australia’s primary stationary energy sector. It will position Australia for a future world where deep reductions in emissions are necessary.

And in this year’s Budget, the Government established the $652m Renewable Energy Future Fund (REFF) to, among other things, boost investment in large and small scale renewable energy projects. This constitutes part of the expanded $5.1 billion Clean Energy Initiative (CEI) which complements the RET by supporting the research, development and demonstration of low-emission clean energy technologies.

The second area where the Government can usefully develop complementary policy prior to the CPRS being revisited is in the area of energy efficiency. The Government had already made a start in this area with energy efficiency being a priority area in the stimulus packages, and with the new REFF also having the objective of enhancing the take-up of energy efficiency to help businesses and households reduce their energy consumption.

But there is so much more we can do. The International Energy Agency estimates that energy efficiency could deliver around half of the global emissions reductions needed by to 2030 to stabilise global carbon dioxide levels at 450ppm.

Australia is yet to tap into this potential. We lag behind our key competitors in comparable countries on energy efficiency and we need to improve if we are to stay competitive. Europe has set an objective of cutting its energy demand by 20 per cent by 2020 by improving energy efficiency (alongside a 20 per cent reduction in greenhouse gases and a 20 per cent renewable energy target); China plans on cutting its energy use per unit of GDP by 40-45 per cent over 2005 levels by 2020.

Flowing from the November agreement, the Prime Minister established a Task Group on Energy Efficiency to recommend step-change improvements in Australia’s energy efficiency and to place Australia at the forefront of OECD countries in overall energy efficiency improvement. As chair of the Task Group, I can assure you that this is an ambitious challenge. The Task Group is scheduled to report to the Prime Minister in mid year. Providing recommendations that would see Australia in the front rank of performance on energy efficiency in the OECD, will involve enhanced action in many areas and sectors of the Australian economy, including of course buildings.

The Property Council and its members have been strong and valued advocates for further energy efficiency actions in the buildings sector. We’ve appreciated both the ideas and the analysis put forward. We’ve heard from the industry that they are seeking new approaches and a new vision for the sector – and that the industry is ready and willing to step up to the plate to help make such a vision a reality. It’s also clear that we need to find new and innovative ways to upgrade our existing buildings, as well as continue to improve the performance of new buildings, if a step change is to occur in a reasonable timeframe. We are working hard on that agenda in the Task Group and look forward to providing the Government with options to take it forward.

Governments will not be able to achieve this change alone, so it will be vital that the Property Council, with its membership including every major property investor in this country, continue to work closely with Government to drive energy efficiency improvements in the sector and continue to contribute strongly to the agenda.

It is clear that our cities and the Property Council, with its membership including every major property investor in this country, can and need to contribute strongly to this agenda.

Role of cities and buildings in emissions mitigation

Commercial and residential buildings are responsible for around 23 per cent of Australia’s greenhouse gas emissions. Commercial buildings account for around 10 per cent.

On a business as usual scenario, emissions from the commercial sector are projected to continue to increase by 2.1 per cent per annum, reaching 140 Mt by 2050, equating to a 154 per cent increase in emissions from 2005 levels.

There is much that we can do to curb this growth. The IPCC has estimated that there is potential to avoid about 30 per cent of the projected greenhouse gas emissions in the building sector by 2020.

The Property Council agrees: in last year’s submission to the Government it stated that a strategic approach to building energy efficiency could halve electricity use in commercial buildings by 2030, and reduce it by 70 per cent by 2050^[3].

In the medium term, a price signal for carbon will affect the design of long lived assets and force changes in the way we approach urban planning and building design. But this is not enough. Study after study show this sector is bedevilled by various forms of market failure which mute the effectiveness of a carbon price in driving energy efficiency improvements. Most recently, the Regulatory Impact Statement on commercial buildings highlighted the need for complementary measures in this sector.

I expect that Parliament will consider the Building Energy Efficiency Disclosure Bill in the next few weeks. The May 2010 recommendations of the Senate Standing Committee on Environment, Communications and the Arts on this Bill will form part of the Government’s consideration.

Members of the Property Council have an important role to play in driving in contributing to Australia’s effort to improve energy efficiency. Delaying producing energy efficient buildings means losing opportunities that benefit the economy and reduce the cost of the overall mitigation task. Creating a new energy efficient asset is typically a fraction of the cost of retrofitting it later or retiring an asset before its useful life is over. Property development decisions are long lived and we must show foresight to consider how mitigation objectives can be incorporated in core business.

Leadership by the Property Council in driving effective energy efficiency measures will position the sector well for the inevitable future introduction of a carbon price.

Cities and buildings – the need for adaptation

I’d like to turn now to the sleeping giant in the room – adaptation.

The fact is that, as Minister Wong has said on many occasions, this generation has missed the opportunity to avoid climate change – what we have now is a narrow window of opportunity to minimise its impact. Change is already occurring and greater change is already dialled into the climate system. In other words, even if we avert dangerous climate change, we will still have to adapt to the change already in the climate system.

This will be a significant challenge. Coastal settlements and infrastructure are especially vulnerable.

Last November Minister Wong released the first national coastal risk assessment^[4]. The assessment included a spatial overlay of residential buildings on newly developed national elevation models for the whole of the Australian coastline. With a sea level rise of just over 1 metre the assessment found that, on conservative estimates, up to 247,000 existing residential buildings would be at risk of inundation. The value of these buildings is estimated at $63 billion – ignoring land value losses.

In February 2010, Minister Wong released the Australian Government’s position paper on adaptation^[5]. The paper notes that risks are serious and pervasive; that decisions we make today will affect our future vulnerability; that uncertainty is a reason for flexibility and creativity, not for delay; that it will take time to adapt; and that businesses and the community must play their part.

The paper clarifies the role of the Australian Government in building capacity and driving reform. It highlighted the need for the Government to maintain a strong, flexible economy able to manage emerging risks with a strong social safety net. It highlighted the importance of good science and information flows to help individuals, business, and local and state governments understand potential impacts and risks and to devise appropriate policy and other responses. And it highlighted the need for Commonwealth leadership, for example, in the siting and design practices or standards for major infrastructure and buildings – including in the Government’s $20 billion Building Australia Fund.

The position paper also identifies initial national priorities for adaptation action, including coastal management, infrastructure, and prevention and preparedness with regard to natural disasters.

To support the definition of priority needs the Department hosted a Roundtable meeting earlier this year with leaders from the built environment and planning sectors. It was a constructive day and I’m very pleased that we had the input of Peter Verwer, CEO of the Property Council, in that forum.

The property sector will have a central role to play in ensuring that Australia’s growth is sustainable and does not lead to a society at increased risk from climate change – particularly given a projected population of 36 million people by 2050; the equivalent of around ten new Gold Coast cities in the next forty years.

Conclusion

I would like to conclude by reiterating global efforts to transition to a low carbon future are already underway; these efforts will only accelerate over the coming years and decades. That Australia must be part of these efforts has bipartisan support.

The property sector and built environment have a critical role to play in these efforts. There are significant energy efficiency abatement opportunities which have yet to be exploited; and effective long-term planning can enable sustainable growth in our population and cities to occur without creating a large burden of risk for future generations.

We need to find the foresight to tackle this agenda. Whether it is mitigation or adaptation, inaction is not a rational or reasonable national response.

Thank you.