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Opening address to the Insurance Council of Australia's Canberra Conference.

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Opening Address by the

Federal Minister for the Environment and Heritage, Senator the Hon Robert Hill

to the

Insurance Council of Australia's Canberra Conference

August 10, 2000

[ Media Releases and Speeches ]

Last weekend Australia's latest contribution to the global warming debate went past largely unnoticed and un-credited by the media and those green groups who feel it is their role to constantly criticise Australia's environmental record.

The Commonwealth announced grants totalling $600,000 for 57 Antarctic research projects involving universities and government research agencies throughout Australia. A primary focus of this latest research effort will be air, ice and rock studies contributing to a better understanding of climate change. Australia's research in Antarctica provides vital baseline information on the Earth's climate, covering a very large slice of the globe and going back thousands, even millions of years. It is one of the ironies of science and nature that we must send researchers out to one of the coldest places on the earth to find further clues to the impact of global warming.

Australian researchers are playing a key role in developing our understanding of the Earth's climate system and the impact that human activity is having on it. Australia, in fact, is regarded internationally as a global leader in climate change science - something else we are rarely given credit for here in Australia.

Our work feeds into a massive global scientific effort to determine the causes, extent and consequences of global warming. Next year we expect to see further results of this on-going work when the Intergovernmental Panel on Climate Change releases its third major report on the state of knowledge about the global climate. The Third Assessment Report involves a comprehensive analysis of the latest data by more than 600 internationally recognised expert authors. It draws on the scientific knowledge and research efforts of more than 3,000 scientists. Importantly, the process is an open and transparent one with scope for government and scientific review.

It appears that the Panel will advise that the science of global warming is becoming more certain rather than less certain. In fact it is expected that the Panel will move beyond its previously stated view that "the balance of evidence suggests a discernible human influence on the global climate."

If, as expected, the Panel reaches the consensus conclusion that there is now no doubt that human activity as opposed to natural occurrences is creating an enhanced greenhouse effect, it will have major implications for future international negotiations. It goes without saying that this in turn will have major consequences for Australia, a country whose economy relies heavily on fossil fuels.

The Panel is also likely to provide further confirmation that as a consequence of global warming, there will be increasing vulnerability to extreme weather events such as tropical cyclones and high intensity rainfall. Sea level rise and storm surges in high-risk areas may increase flood damage to settlements and infrastructure. This is possibly not what the insurance industry was hoping to hear, but it is certainly another example of how climate change will affect all industries in one way or another.

The Third Assessment Report will provide us with further evidence that as a global community we should be taking precautionary steps to minimise our impact on the planet's climate system.

To the non-scientist, such as myself, the science underpinning the debate can at times be both complex and confusing - the acronyms alone could provide enough alphabet soup to feed a small third world nation.

But as one of the greatest scientific minds of the 20th century Albert Einstein once noted, "The whole of science is nothing more than a refinement of everyday thinking. "

And so it is with climate change. The precautionary principle which dictates that we act now to reduce our impact is really nothing more than the sort of commonsense approach that Australians take to a range of everyday issues.

I could use the example of the insurance industry. We all have insurance of one form or another - life, medical, car, household, business, and so on. At the end of the day we all hope that insurance is something we'll never have to use, but we have it there anyway as a precaution.

If the evidence suggests that home burglaries are on the rise, we are more likely to take out or update our household insurance. If the evidence suggests we are entering a period in our life where our dependence on medical services is likely to increase, such as starting a family for example, we are more likely to take out private health insurance.

It's no different with environmental issues. The evidence is mounting that our actions are having a discernible and detrimental impact on the earth's climate system. Common sense demands that we take precautionary steps to minimise that impact. Early and effective actions are our best form of insurance to reduce the risk of the sort of consequences I referred to earlier; severe weather fluctuations, rising sea levels, reduced agricultural production because of reductions in the amount of arable land and so on.

Developed nations accepted this viewpoint when in Kyoto in 1997 they agreed to achieve by 2010 a global target of reducing greenhouse emissions by 5 per cent on 1990 levels. Australia accepted its fair share of the burden when we agreed to significantly curtail the growth in our emissions from an expected 43 per cent down to just 8 per cent - an effort roughly equivalent to that accepted by other nations.

Our government has gone about implementing a range of programs to help meet that target. Australia is recognised by bodies such as the International Energy Agency as a world leader in establishing the domestic actions required to meet Kyoto obligations.

We have committed almost $1billion to domestic actions to reduce emissions, promote the commercialisation of renewable energy technologies, to increase the uptake of renewable energy by power suppliers, and to improve energy efficiency in Australia. On a per capita basis, Australia is most probably spending more money on greenhouse reduction efforts than any other developed nation - another remarkable achievement which never seems to gain any credit from either the media or the green groups.

Australian industry, with a few vocal exceptions, has also accepted the science of global warming and the need to act now. As recently as last week, corporate leader BHP publicly recognised what it referred to as " the genuine public concern about the possible climatic impact of increasing human-induced greenhouse emissions. "

Through programs such as the Commonwealth's Greenhouse Challenge, Australian industry has already voluntarily committed to actions which will deliver savings of 20 million tonnes off projected emissions growth. These companies are acting prudently and responsibly, not just in their contribution to a better environment but also by positioning their companies to take full advantage of least-cost abatement measures.

I would note that the Kyoto doubters amongst Australian industry are becoming increasingly isolated. This is also the global trend. In the United States, even major producers of fossil fuels are recognising the extent of the challenge we face and are signing up to action programs such as those coordinated by the prestigious Pew Centre on Global Climate Change.

The change in mood of the international business community is best expressed by the corporate giant Du Pont - a Pew Centre signatory. Du Pont CEO Chad Holliday said earlier this year that, "As a company, Du Pont believes that action is warranted, not further debate. We also

believe that the best approach is for business to lead, not wait for public outcry or government mandates. From our experience of the past 10 years, we know that integrating environmental considerations into our business strategies enhances our ability to achieve sustainable growth."

When a company such as Du Pont, which operates in 70 countries worldwide with annual revenues of almost US$27billion, becomes an advocate for industry action, I would think that most Australian shareholders would question why any Australian-based company is not following suit.

There is always the danger, of course, that Australian industry, with its traditional reliance on fossil fuels, could be left behind by the international community. In Kyoto, Australia argued that because of the structure of our economy, which derives comparative cost-competitiveness from our abundance of fossil fuel resources, we would be unfairly hit by uniform international emission reduction targets. The validity of this argument was recognised in our eventual target.

This should not be interpreted, however, as a signal that we can continue to rely on driving economic growth through the increased emission of greenhouse gases. The Kyoto outcome

has given Australia the breathing space required to make the structural changes in our economy.

The international trend, in fact, appears to be significantly moving toward a "decoupling" of economic growth from a related growth in emissions. In other words, developed nations are growing their economies without a corresponding increase in greenhouse emissions.

Last week, for example, evidence was presented to an international forum on emissions trading that this decoupling of economic growth from emissions growth is occurring in the US. The forum was told that the US achieved economic growth of around 4% per annum in 1998 and 1999. Over that same period, its growth in emissions was just over 1% per annum. By way of comparison, Australia in 1998 achieved about the same level of economic growth and yet our emissions increased by 5%. The recent US experience that you don't have to sacrifice economic growth to gain savings in greenhouse gas emissions could become another factor which ultimately paves the way for US ratification of the Kyoto Protocol.

The ability of developed nations to decouple their economic growth from emissions growth will have major implications when the international negotiations begin to determine the first round of post-Kyoto Protocol reduction commitments. Nations which have achieved this decoupling will be well placed to meet these further commitments. Nations which continue in the ways of the past will inevitably face an even tougher, more costly task. It seems sensible that Australia should take precautionary action now to ensure it does not fall into this latter category.

In the lead-up to Kyoto, much of the modelling work done by bodies such as ABARE focussed on the costs to the Australian economy of the imposition of uniform international reduction targets. These costs were expressed in terms of jobs lost, major capital investment projects forgone, loss of international competitiveness and the like. But Australia left Kyoto with a fair target which actually allows for a small increase of emissions from 1990 levels. The flexibility mechanisms which were incorporated in the Kyoto Protocol and the inclusion of carbon sinks also gave Australia access to a range of least-cost abatement options.

Perhaps the hangover from the pre-Kyoto atmosphere has led some to remain focussed on the costs of meeting our commitments at the expense of contemplating the costs of us doing nothing. It has been interesting to note that with improvements in modelling capacity, ABARE's work since Kyoto has actually indicated that the cost of compliance may not be as great as originally expected. For example, a 1999 ABARE study estimated the cost of a carbon permit for Australia at US$30. ABARE's latest study, released earlier this year, has revised that figure down to approximately US$16.

But as I said, it's not just the cost of action which must be considered but the cost of inaction. ABARE's 1999 report, for example, estimated the cost of acting to reduce greenhouse emissions could cause a decrease of 0.6 per cent of GDP in the year 2010. By comparison, the Intergovernmental Panel on Climate Change has estimated that the combined impact of climate change on Australia and New Zealand could be up to almost 4% off GDP. While I acknowledge there is significant uncertainty associated with this latter figure, it is still a useful reminder that we will pay a price if we do nothing.

As I mentioned earlier, your industry could be significantly affected by climate change. During the 1990s insurance companies in the United States paid out around US$100 billion

in losses from weather-related natural disasters - 4 times the amount paid out during the 1980s. Hurricane Andrew in 1993 left several insurance companies insolvent. And Australia is not isolated from such extreme weather events. The devastating 1999 hail storm in Sydney has resulted in estimated insurance claims of around $1.7 billion.

These extreme climatic events have led to dramatic increases in claims, higher premiums and reduced availability of insurance coverage in disaster prone areas. It is not surprising, therefore, to note that one of the more keenly interested group of observers at the Kyoto negotiations in 1997 was a group of insurance executives speaking on behalf of more than 70 insurers from around the world. Again, not surprisingly, they were there to urge global action to reduce the threat of climate change.

Australia has heeded their call to act in a precautionary manner. As I mentioned earlier, our government has shown leadership in developing and funding a range domestic actions to achieve our goal. Australian industry, in general, has begun to play its role but more will be expected of it in the future if we are to make the changes needed to meet our objective.

We are also seeking to engage local communities in the challenge through projects such as the $31million Household Photovoltaic Rebate Program, which provides homeowners with a subsidy for the installation of a household photovoltaic power system. This program has generated such an enormous response from the public that we have quickly exhausted this year's funding. Local governments are also playing a role through the International Cities for Climate Protection program which encourages councils to identify their emissions and then work toward reducing them. Australia has the highest participation rate in this program of any nation in the world.

One area which does require a significant lift, however, is the performance of State and Territory Governments. The State and Territory Governments supported the Commonwealth's negotiating position in the lead-up to Kyoto and they applauded the outcome we achieved. It was clearly understood that to meet that target would require effective action from all levels of government.

This led State and Territory governments in 1998 to endorse the National Greenhouse Strategy in which they agreed to deliver major cuts in Australia's projected emissions growth. Actions by the States were expected to deliver savings in emissions of the order of 2-to-3 per cent.

Unfortunately their performance to date so far has been so abysmal that the Australian Greenhouse Office advises me that on current information available they will be lucky to achieve half of that target.

I should note that the exception to this situation has been the ACT Government which has established a credible action plan and committed funding to support it. However, no other jurisdiction has finalised a clear action plan to achieve specified carbon savings, supported by a detailed budget for the work.

Under the National Greenhouse Strategy, States and Territories were to develop implementation plans by June 1999. The plans were supposed to identify new actions to be taken to reduce emissions, not simply restate measures already being taken. They were also supposed to quantify the expected emission reductions and detail funding commitments to achieve those reductions. This process was supposed to move the States and Territories

beyond vaguely worded intentions to a detailed action plan against which their performance could be openly and transparently judged.

Only the Commonwealth and New South Wales met the June 1999 deadline. We have since received finalised plans from the ACT, Queensland, South Australia and Tasmania, with Western Australia, Victoria and the Northern Territory still outstanding. The Australian Greenhouse Office advises that the quality of information in the plans received to date varies greatly and does not readily allow emissions savings to be estimated. For example a number of the Queensland, South Australia and Tasmanian plans for priority emission reduction measures identify further planning and development of options rather than delivery of action. They also lack information about expected outcomes. In other words, they are really action plans which commit the relevant government to develop further action plans.

The AGO is also concerned that detailed information on financial commitment to the implementation of State and Territory measures has not been provided. In contrast, the Commonwealth, as I mentioned earlier, has committed almost $1 billion to greenhouse related programs.

The Commonwealth will nevertheless continue to work with the States and Territories to try to ensure that they deliver on the commitments they signed on to in 1998. But a greater level of commitment and leadership must be shown at a State level if we are to succeed in achieving an effective national outcome. As the old saying goes, a wishbone has never taken the place of a backbone. In terms of the Commonwealth's expectations, this means States and Territories delivering additional emissions savings above and beyond business as usual in areas of their responsibility such as transport, waste, and land management.

The Commonwealth recently released the guidelines for the $400 million Greenhouse Gas Abatement Program, or G-GAP as it has become known. This program aims to support projects which will deliver the maximum abatement of greenhouse emission per dollar invested. Where appropriate, the funds will be allocated on a competitive tendering basis to achieve this outcome. The Commonwealth does not intend, however, to allow these funds to be used by the State and Territory governments to simply cost-shift. In other words, this funding is not available to the States and Territories to pay for the actions they have already promised as part of the National Greenhouse Strategy process. The funding will only be open to new actions that go above and beyond the NGS commitments and the Commonwealth will be looking for a significant demonstration of action by State and Territories before supporting them with G-GAP funding.

State and Territory governments should not under-estimate the Commonwealth's determination to achieve our Kyoto commitment. If we are expecting industry, local government and the community to shoulder their share of the burden, then it is only fair that State and Territory governments are also made to come to the party.

As I mentioned earlier, the evidence is mounting that human activity is having an impact on our planet's climate system, providing further confirmation that the precautionary steps we are taking as a nation to limit that impact are warranted. Even more than that, the evidence is warning us that further action will be required in the future. Change is never easy but the cost of doing nothing is neither an attractive or viable alternative.

I'd like to conclude by acknowledging that the insurance industry, demonstrating an

understanding of this principle, is already planning ahead and exploring such innovative concepts as the use of a weather futures market to hedge against extreme events. The involvement of the Insurance Council of Australia in the Greenhouse Challenge program is another signal that your industry recognises that it has much to gain from taking early effective action to help minimise climate change. I therefore look forward to working with you as we jointly continue our efforts to meet this global challenge.