CONNOR, Mr John, Chief Executive Officer, Climate Institute

[11:30]

CHAIR: Welcome. I will try and stay away from Terminator remarks!

Mr Connor : You will not be the first or the last!

CHAIR: Although I note you are the 'governator' with the Australian Youth Climate Coalition!

Mr Connor : Indeed.

CHAIR: So, you have led with the chin. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now invite you to make a brief opening statement before we open to a wider discussion with the committee.

Mr Connor : Thank you for the invitation to be here today. The Climate Institute has been around since 2005. We are an independent research organisation primarily funded by philanthropy. Since 2007, when I joined the institute, we have been at every convention of the parties in the climate negotiations and so have tracked that fairly closely, in particular my deputy, Erwin Jackson, through the lows of the Copenhagen disappointment and the eventual tracking to the Paris Agreement. We have made numerous submissions in that regard and into national policy and engaged with the Prime Minister's task force in the development of the intended NDC of the government.

We also do other work which is relevant to flag. There was a great discussion around physical impacts, and we have done quite a bit of work on adaptation and impacts and how ready we are to look at that on an infrastructure level and looking at a range of impacts. We recently did something that has had a very global response in terms of impacts to coffee. On an even more serious note, there has been a lot of work in the investment space and on financial stability. We have done some tracking there on the policy and climate impact risks in terms of financial stability. I am very pleased to see how that is now being taken very seriously. The G20 Financial Stability Board has a major inquiry underway as we speak. We also do work with strategic partnerships, working with a range of organisations and, most notably and recently, the Australian Climate Roundtable with the Business Council of Australia, AiG, ACTU and ACOSS, and I believe you had the Investor Group on Climate Change earlier today; they are our member as well.

The Paris Agreement is very important from a range of points. The warming goals, which were stronger than expected, are an outcome of the talks—not just two degrees, but well below two degrees and pursuing efforts to avoid 1½ degrees—and were important goals. The concept of net zero emissions that is enshrined in the articles is very important and, I think, a conceptual breakthrough for people—that we actually need to build net zero, or below, emissions economies. Of course, this was a universal agreement to which all countries made commitments—it was not just a bloc of developed countries; it was everyone making some form of commitment—and could be tested against collective performance. Lastly, very importantly, was that it had a ratchet mechanism that stepped up ambition over time, with countries required to reconsider and improve their ambition over time.

I have just a couple of other brief points. The actual momentum behind the agreement, as you have probably heard already, has been remarkable. Very few other agreements have been in prospect of ratification as quickly as this one. And with India's ratification now slated for next week, it would take just one other economy like Australia's, if we ratified, to bring this into force. If Canada and Australia ratified, we would bring it into force this year, and it is likely to be brought into force, in any event, with Europe's likely ratification.

We have had a look at the national interest assessment. I think it makes a number of important points and I certainly welcome the fact that Minister Bishop and Minister Frydenberg have both noted that this ratification is in Australia's national interest.

I can take questions on most of that, but perhaps I will make a few other quick points. We have done some analysis—and I apologise; I have only got seven copies to hand out. We commissioned what was perhaps the first analysis of the difference between 1½ degrees and two degrees impacts for Australia, and commissioned an international outfit called Climate Analytics, based in Berlin, to do so. To give you a sense of the importance of those two thresholds, that is work that is also being done by global scientists to be reported under the IPCC next year. On page 2 of that report there are some indications in terms of coral reefs, heat extremes, water availability and sea level rise. The shorthand way of summarising those, I guess, is that it appears from this research that the extremes we are experiencing now will be a kind of new normal under 1½ degrees, and under two degrees warming we are in uncharted territory. There was a question about the reef earlier. As an example, coral reefs are predicted to be completely and severely degraded under two degrees, with severe impacts but some potential for some reefs under 1½ degrees.

There is a transition to clean energy underway globally. I think one of the important supporting elements behind Paris is that the actual technology is becoming more and more affordable and accessible, and Australia has significant opportunities in that regard. As the University of New South Wales's Matthew England was talking about before, we are world leaders. We have also got Queensland businesses—for example, Redflow and Tritium—at the leading edge of the technologies which will be winners in the 21st century. Our work, though, with companies, with the unions and with the Council of Social Service highlights the importance of having a good plan for the transition. We do need to maintain competitiveness. We are a high-carbon economy and we have communities dependent on some of those industries, so it is very important that we have a proper transition, a planned transition, in that regard.

But there is a physics that goes with the targets which have been agreed at Paris. It is just so much the heat trapping gases that are there. Part of the work that that research did was also in applying carbon budgets, which is an important concept. It is the cumulative amount of emissions in the atmosphere that actually matters, so we need to have a carbon budget approach to policy. The analysis that we have done in terms of looking at a global budget and applying an Australian budget does mean that we need to get net zero emissions before 2050 and have much stronger targets than the current government targets for 2030. That is not just Australia, though; other countries need to do so. There was a question about where we are heading. The current policies of governments would have us at four degrees warming. The intended determined commitments would have us towards three degrees. There is a collective effort that needs to be done above and beyond some of those commitments, and the Paris Agreement provides a framework, we believe, to ratchet that ambition up. I will take some questions.

CHAIR: Thank you. Are there any questions from the committee?

Mr CREWTHER: First, though, you are a brave man wearing a Bulldogs badge in the heart of Sydney, but as a fellow Victorian I will salute you on that! You have written some articles on climate finance. Can you explain a bit more about that concept and how you think that can contribute towards the end goals under the Paris Agreement?

Mr Connor : This is about the climate financing and the commitments that have been made to contribute, particularly for the poor and vulnerable countries, to have financing to assist them not only in their adaptation to the climate impacts but also to clean up their development pathways. That is an important investment in regional stability, not only in terms of healthy economies but obviously in terms of political stability and physical stability in those regions. The commitments under the Paris Agreement were a vital part of the balancing forces which brought all players to this universal agreement to build on the $100 billion by 2020, and we are firmly of the view that it should not be seen as just public money. It is actually public and private money that we need to look to apply. The Investor Group on Climate Change are willing to do that and invest in these NDCs, but it is a very important part of a country's commitments, particularly a developed country like Australia, as well.

Ms MADELEINE KING: Thanks for coming, Mr Connor. Best of luck to the Bulldogs. We are with you.

Mr Connor : I have backed them since 1975, for the record.

CHAIR: That still does not make it right!

Mr Connor : We will see on Saturday.

Ms MADELEINE KING: Anyway, back to the matter at hand. You mentioned in your opening remarks Australia adopting a carbon budget approach. Earlier today, one of the witnesses—I think it was Tim Stephens from the University of Sydney—took us through a bit of the UK approach, with the Climate Change Act. I am wondering if you are familiar with their carbon budget approach. What are your thoughts on it? Would you recommend that it is something that we look to, as Australians, to make sure we meet our commitments under the Paris Agreement?

Mr Connor : I will defer on precise stuff to my deputy who tracks that a little bit more closely, but I think the concept of carbon budget is important. We do have it in the current Climate Change Authority's previous work. They mentioned it in terms of the policies and targets in their most recent report, but they do have a carbon budget figure which is not too dissimilar to the one that we have recommended, which is now about nine billion tonnes out to 2050. Remember that we have about half a billion tonnes currently in our emissions. We think it certainly should be integrated into policy in a much stronger way. It is important to have a look at the cumulative budget. The process which the UK do have, which is very worthwhile, is that there is a recommendation and there is a process of the government accepting or not. I do believe that the government needs to make those decisions at the end of the day. But having some clear transparency and accountability around the carbon budget concepts is important and we certainly would want to continue that with the role of the Climate Change Authority, which we support as an independent arbiter.

Ms MADELEINE KING: I note that it is quite firm in its legislative remit, if you like, that a climate change committee in the UK parliament—is that what it is called?

Mr Connor : Yes.

Ms MADELEINE KING: It will be interesting to see its work.

Mr Connor : Yes, and I think it was a disappointment. When the Clean Energy Future act was repealed, there were various responsibilities under that legislation for the Climate Change Authority that went. Unusually, they were not actually in the Climate Change Authority's own legislation. So there were some roles there, in terms of the process of recommendations for targets, which were broadly modelled on that UK process, which went by the side. We would certainly be keen to see that at least reinstated to have a body which includes representatives from across the community, not all of whom we would always agree with. I think it is important there is arms-length advice to parliament and government.

Ms MADELEINE KING: Certainly. Thank you.

CHAIR: Mr Connor, are you familiar with the NIA that the government has produced?

Mr Connor : Indeed.

CHAIR: Does your organisation have a view on it?

Mr Connor : Yes. I think it identified a number of the key reasons why it is in Australia's national interest, including noting that this is part of a global effort. So I think there are a number of important elements which we do agree with, in terms of our best efforts and our interests being served by being a constructive contributor. I do note: I think Australia was a constructive contributor in the Paris agreements. But we certainly caveat: we do not think that the current targets are adequate for the task and for the goals. So we do think that needs to be improved, as we note on page 3 of the brief which I have circulated. For example, the government does talk about per capita reductions. The reductions are significant. I do not want to belittle those for the current targets, but they would still leave us at the back of the G20's pack in 2030—for example, on per capita levels with Saudi Arabia and Russia—and those indicators matter in terms of global citizenship. But if the race is one to net zero emissions then that actually matters for our own competitiveness as well. They are a couple of comments I would make on that assessment.

CHAIR: Do you have a view on the Climate Change Authority's third and final report, Towards a climate policy toolkit, in which they have recommended a range of approaches for government?

Mr Connor : Yes. We have been big supporters of the limit and price on carbon pollution and the flexible instrument with broader coverage. But we do recognise, now that we have had the debate that we have had over the last 10 years, that there is a need for policy—which may not be optimal for economists, but investors need policy which gives them confidence—and that we should actually build from where we are. Our comment in regard to the Climate Change Authority was that we do support a toolkit approach. We have done analysis about what, in our view, needs to happen for key sectors like the electricity sector. We are concerned by the recommendations of that report. There is a risk of replacing a kind of economic purism of just emissions trading with a just emissions intensity approach for the electricity sector. Our view is we are going to need some bulwarks for those sorts of market mechanisms and some clear direction for when coal fired power needs to be replaced, and that view is for the reasons I was saying earlier, as well as for workers and communities in that regard. So our toolkit would have a few extra tools in there, and our criticism of that authority's report was that it did not actually join the dots to the fundamentals in terms of the carbon budget we were discussing earlier and the need, as it had previously recognised, for stronger targets as well.

CHAIR: What is the difference between your organisation, the Climate Institute, and the Climate Council?

Mr Connor : We have been around since 2005, focused on independent research. The council arose from the Climate Commission. Their remit is more around the public narrative and communication. We are very much national policy and research focused, so there are obviously overlaps between various organisations, but we are focused on national policy, and on the financial, investor and business community in particular.

Mr JOSH WILSON: Thank you, Mr Connor. You obviously have an interest or you understand the importance of Australia supporting providing climate adaptation and mitigation assistance funding to developing countries, particularly in our region. Do you have a view or a sense of how the provision of that funding fits within ODA funding as a whole and the potential that, while we might get new contributions in that space, if they are made in the context of declining ODA contributions as a whole you get cost-shifting and the effectiveness of that is not as great as it might otherwise be?

Mr Connor : There are questions of additionality, but I think the debate about whether it is in or outside that ODA budget has moved on somewhat. I have certainly been a strong supporter of the investment that ODA is, that it should be increased and, particularly, that there should be greater commitments into climate finance and adaptation. We are not dogmatic about whether that is deemed to be part of ODA or not. It is actually about what the contributions are, and we seem to be doing our fair share towards the global goal in that regard.

Ms TEMPLEMAN: Mr Connor, you have talked about investment, and some of the conversations we have had today have been about what the policy settings need to be to give security from an investment perspective. Are you more focused on the investment into renewables or is your interest more broadly in overall risk for investors?

Mr Connor : It is the broader, but obviously we are trying to get the investment into the solutions. What we have tried to do is actually bring a risk management framework to this, and I think how it has been politicised is a tragedy. We have to be real about these things, but if one does apply a risk management framework to this approach, like we did to occupational health and safety, for example, then we would take a totally different perspective on this debate. Since 2007, when we first set up the Asset Owners Disclosure Project, which has an emphasis, particularly, on superannuation funds which have a long-term responsibility, our approach has been to actually ask those funds how they are managing that responsibility. That is, the average retirement nest egg they manage for is for 20 years. We know in 20 years we can have an idea of what the climate impacts are, so we have been putting a spotlight on the practices of investors looking at how they are managing risks across all of their asset classes and if they are investing in some areas with their high-carbon investments to actually cause greater problems in other areas of their portfolio within identifiable times spans and, in that way, trying to encourage a debate and a discussion amongst them.

I think it has been one of the really heartening things over the last couple of years—the way in which that has really come to a central discussion. You have well-known hippies like the Governor of the Bank of England, Michael Bloomberg and the G20 Financial Stability Board all saying, 'These are very significant risks to financial stability.' In fact, Mark Carney, the Governor of the Bank of England, talks about managing not only the physical risks or the liability risks, which are actually emerging quite significantly, and you have the stock exchange in the US now probing ExxonMobil, for example, but also what he describes as the 'jump to distress'—the fact that many companies are already experiencing climate costs on their books right now. There might be national global policies, potentially even under the Paris process, to strengthen those, and they might strand assets, so they may have to do that in a short time frame. There are risks there that some talk about overshadowing the subprime crisis. These are very real aspects which the investment community is now taking far more seriously.

Ms TEMPLEMAN: In terms of stranded assets, can you take that out of the jargon and put it into more layperson terms?

Mr Connor : Again, it comes back to this really important point: I think the concept of net zero emissions has come from, really, the fringe of discussions to being very mainstream in the last 12 months, literally. Coming fast behind that is this concept of the carbon budget. It is actually a physical matter of how many of these heat-trapping gases we can put in this atmosphere. You can work out those sorts of numbers. There are various assumptions you might make around that. So you can make those assumptions and then you can look to what the reserves are on the books of coal companies, petrol companies and gas companies and what that would mean if they were all exploited. Quite clearly, if they are all exploited then we go well beyond the Paris warming goals. If that is the case, where we do not have technologies like carbon capture and storage deployed, we either blow those warming budgets and have the costs of climate change or we have to strand those assets.

As to pricing in those risks and potential policy changes, some companies and investors are putting in potential carbon prices in terms of their decision-making. That is an important thing. There are some estimates. A recent study said that we cannot actually build any more mines and the like and there are certainly others that have said that there is only about 20 per cent of the current reserves that can be used. I hope

CHAIR: Thank you, Mr Connor. I am not too sure the Governor of the Bank of England is a well-known hippie, either. Thank you for your attendance today. If you have been asked to provide any additional information, will you please forward it to the secretary in the next seven days. You will be sent a copy of the transcript of your evidence and will have the opportunity to request corrections to any transcription errors. Thank you for your time.

Committee adjourned at 11:56