Introduction

A year ago when I spoke here we stood at the threshold of what Australia’s Climate Commission has called the critical decade.

The critical decade is a window of just ten years in which the world still has the opportunity to act decisively on climate change at reasonable cost.

To arrest the three-centuries-old trend of emitting ever more carbon into our atmosphere.

To avoid the worst impacts of climate change.

I spoke of the national interests that should drive Australia’s approach.

First, a strong economy. An economy in which prosperity is decoupled from pollution. Where we make the fundamental reforms we need to grow in a new era, as other countries will around us.

Second, intergenerational equity. We have a responsibility to make the right decisions and right investments now, so we do not leave a world of disadvantage to those who follow us.

Third, maintaining a habitable Australian continent – because the cost of the world not acting is too great for this great land of ours.

And now that we have legislated our Clean Energy Future package, I will add a fourth: the development of a strong international carbon trading market.

One year on into this critical decade, I want to point to the progress we are making here in Australia and the progress being made globally.

And I want to outline the approach Australia will take to next week’s United Nations climate change negotiations in Durban and to our international climate change engagement more generally.

A Clean Energy Future for Australia

This year we have made real progress in Australia.

Two weeks ago the Australian Parliament passed the Government’s Clean Energy legislation.

After 37 Parliamentary Committee inquiries, 25 years of scientific warnings, and legislation presented four times to the Parliament, finally, as the Prime Minister said, "carbon pricing is the law of our land."

The Clean Energy Act will rank with the biggest structural reforms of our economy.

Floating the dollar, cutting tariffs and introducing sophisticated industry policy in the 1980s and 1990s made Australia competitive in the global economy.

Pricing carbon is the economic reform of the 21st century that decouples Australia’s prosperity from pollution. It is the foundation of our future prosperity.

It is an economic reform that is essential to maintaining the international competitiveness of the Australian economy.

We must not be trapped with a carbon-intensive industrial structure in the coming low carbon century. It would be akin to having an economy based on the horse and buggy in the era of the motor car.

Pricing carbon through market-based schemes reduces pollution at the lowest cost to the economy.

This is recognised across the economics profession and by respected institutions, such as the OECD, the International Monetary Fund and the Productivity Commission – most recently in a new OECD report released overnight which nominates pricing carbon as one of the important policy steps needed to build low-carbon, climate-resilient economies.

Pricing carbon and economic growth go hand in hand. The low-carbon goods and services sector is already estimated to be worth nearly $5 trillion and employs 28 million people worldwide.

In the UK, which has had a carbon price since 2002, and has been part of the European Union emissions trading scheme since 2005, the low-carbon sector employs an estimated one million people.

Pricing carbon will also provide the means for Australia to do its fair share in global efforts to reduce emissions.

As the world's 15th biggest emitter, and one of the world's highest emitters per capita, Australia must take serious action to address climate change if we expect other nations to do so as well.

Australia has committed unconditionally to reduce its emissions by five per cent from 2000 levels by 2020. We have committed to a range of increased emissions reductions targets by 2020 if there is strong action by other major emitters.

The Clean Energy Act also establishes a long-term target to reduce emissions by 80 per cent by 2050.

Meeting the targets – even our unconditional and bipartisan five per cent target – will be hard work.

A five per cent target may sound small. But due to the growth of our population and economy, meeting this target will actually require a 23 per cent decrease from the emissions Australia would otherwise have produced in 2020.

It requires us to put 160 million tonnes less carbon dioxide into the atmosphere in 2020 – roughly equivalent to the emissions of 45 million cars, or 80 per cent of emissions from Australia’s electricity generation in 2009.

Australia's legislated plan is recognised as a credible and serious response by a major economy and a major emitter.

As UK Prime Minister David Cameron wrote to the Prime Minister in August, the Clean Energy Act:

"... sends a strong and clear signal that Australia is determined to make its contribution to addressing this challenge ... It will add momentum to those, in both the developed and developing world, who are serious about dealing with this urgent threat."

In a recent letter to the Prime Minister, United States Congressmen Henry Waxman and Edward Markey hailed the Clean Energy Act as a clear message to the world that we must address the profound challenges posed by climate change.

Australia's legislation adds impetus to global efforts and puts us in a better position to promote strong action by other countries.

Harnessing the market

The Clean Energy Act is able to cut Australia’s emissions without compromising our economic growth because it harnesses carbon markets, at home and internationally.

Here in Australia, carbon pollution is no longer free. From 1 July 2012 the carbon price will send a clear signal across the whole economy, creating incentives for polluters to reduce emissions.

From 1 July 2015, Australia will link its emissions trading scheme to international carbon markets. Australian companies will be allowed to use recognised international carbon units to meet their obligations.

This will unlock further efficiencies - pollution will be reduced at the lowest cost wherever it can be achieved around the globe.

Using international permits will nearly halve the cost of meeting Australia’s emissions reduction commitments in 2020. The converse – turning your back on the power of markets and refuting international permits – would result in a carbon price of at least $62 dollars per tonne in 2020.

Markets are the way to cut our emissions at least cost. That is why Australia will access them domestically and internationally.

The broader, deeper, and more liquid carbon markets are, the more effectively they work, for the benefit of all countries.

Even in the face of current global economic uncertainty billions of dollars have been mobilised to tackle climate change. The global carbon market is today worth around US$140 billion per year.

Now that Australia's carbon price is law, a key national interest is the continued development of the international carbon market.

One source of credits that companies in Australia will access is the United Nations Clean Development Mechanism, or CDM. This mechanism encourages developing countries to put forward projects that will cut emissions and advance their development.

It provides cost-effective abatement for businesses in developed countries like Australia which buy the units.

And it delivers clean technology and investment to developing countries, giving them an economic stake in climate change action.

In just six years this mechanism has registered over 3,500 projects across more than 80 countries, locking in nearly 800 million tonnes of abatement

These figures are a clear rebuff to those who claim there is no international carbon market.

Building on the CDM, Australia is also helping develop new market mechanisms.

One of these – known as a REDD+ mechanism – would generate carbon credits by reducing the deforestation and forest degradation in developing countries that is currently responsible for around 18 per cent of global emissions. This is potentially a win for forest communities, a win for businesses seeking low cost abatement, and a win for the climate.

Australia also plans to broaden our access to international credits by linking our carbon market to other emission trading schemes.

The biggest international market now is that of the European Union. We have already begun discussions with our European counterparts at both the Ministerial and technical level on linking our schemes – and the discussions are positive. This issue has been discussed directly at the highest levels, between the Prime Minister and the President of the European Commission Jose Manuel Barroso.

We are doing the same with New Zealand.

China will one day assume the mantle of the world's largest carbon market. Just yesterday China, our largest trading partner, confirmed that from 2013 it will pilot seven emissions trading schemes in a number of major municipalities and provinces covering some 200 million people.

It could move to a national emissions trading scheme from as early as 2015.

Earlier this year I agreed with my Chinese counterpart that Australia and China would share experiences with market mechanisms. Officials have already moved ahead with positive discussions on cooperation.

Working alongside others

Given the global nature of climate change, moving forward collectively with other nations is important.

Just as we have made real progress in Australia the world too has made real progress over the past year.

Consider this: Australia's efforts put us among 90 countries that over the past 12 months have pledged under the United Nations framework to limit their emissions. These 90 countries account for 90 per cent of global GDP and over 80 per cent of global emissions.

Among these 90 are the United States and China who together account for 37 per cent of global emissions.

The United States has pledged to reduce emissions by 17 per cent on 2005 levels by 2020.

China has pledged a 40 to 45 per cent reduction in carbon intensity on 2005 levels by 2020, equating to a 10 to 16 per cent reduction from business as usual emissions.

To deliver on their pledges, major emitters are taking real action domestically, reflecting the same economic, social and environmental imperatives that drive Australia’s action.

Thirty-two countries already have emissions trading schemes in place, including the European Union and New Zealand.

I have already explained how China could move to a national emissions trading scheme from 2015. It has also just introduced a nation-wide sales tax on oil and natural gas.

In the United States, despite a major economic downturn, there is both national and state-based action.

During his visit to Australia last week, President Obama confirmed the US commitment to its target, and outlined some of the substantial actions the US is taking. Importantly, President Obama also said that the US would be looking for further ways to reduce emissions in coming years.

The United States is progressively introducing regulations covering over 70 per cent of emissions from stationary sources such as power plants and refineries through permits and standards on industry. These regulations cover greenhouse gas emissions which are at least seven times larger than those covered under Australia’s carbon pricing scheme.

President Obama has also announced a new Clean Energy Standard, which will double the share of clean energy sources in the electricity supply mix to 80 per cent by 2035.

At the state-level, California, the 8th largest economy in the world in its own right, will start an emissions trading scheme next year. The scheme is comparable in coverage to Australia’s carbon pricing scheme, and prices are forecast to average US$36 per tonne between 2013 and 2020.

South Africa recently committed to setting a national carbon budget within two years, and released a discussion paper on a broad carbon tax.

Closer to home, Indonesia has a national action plan to reduce emissions by 26 per cent against business as usual by 2020, or 41 per cent with international support.

So it is ridiculous to assert – as some continue to – that Australia is acting alone.

We are seeing real domestic action in countries around the world along with extensive bilateral and regional cooperation, and the growth of markets.

In fact, while many look only to international negotiation of a globally binding agreement to assess progress in response to climate change, it is increasingly important to recognise that parallel action is taking place from the "ground up".

Together with work in the United Nations negotiations, these developments are building the elements of an effective global response to climate change. But there is still some way to go.

A new, comprehensive climate change regime

As you know, the 17th Conference of the Parties to the UN Framework Convention on Climate Change will start next week in Durban in South Africa.

At last year's conference in Cancun countries agreed the goal of holding global warming to below two degrees Celsius above pre-industrial levels, the guardrail beyond which climate change risks becoming much more dangerous.

The pledges made by 90 countries are not yet enough to reach our two degree or lower goal, but they are a good foundation.

Australia wants to build on this foundation a new, truly comprehensive climate change regime: one based on the principle of wide global coverage and environmental effectiveness.

In Durban one of the questions we will face is whether developed countries should take on a second legally binding commitment period under the Kyoto Protocol, as the first period will conclude at the end of 2012.

The Kyoto Protocol has been an important step in addressing climate change.

Many of its elements will be part of the future regime – including the access to international carbon markets which it established.

But the Kyoto Protocol alone cannot deliver what the world needs.

The world order now is very different to what it was in the 1990s when the Kyoto Protocol was drafted, when parties agreed that only developed countries should commit to legally binding emissions reductions.

The Kyoto Protocol was a milestone in dealing with global emissions, and it is the Government’s intention to continue to implement the commitments that have been made. But the global community now needs to move to ensure an effective response to the environmental challenge, and that all nations do their fair share to cut global emissions.

The key reason to move on is that the Kyoto Protocol's coverage is now too small. It covers just 27 per cent of global emissions.

A second commitment period will potentially see this drop to below 17 per cent in 2013 as Japan, Canada and Russia have signalled they will not be part of a second commitment period. Like Australia and many others, these countries have also expressed the view that a wider agreement is needed.

Coverage could drop further to around 13 per cent of emissions by 2020 as developing countries continue to grow and the share of emissions from current developed countries declines as a percentage of the global total.

The Kyoto Protocol does not cover the emissions of China or the United States. No system that leaves out the world’s two largest emitters, themselves responsible for 37 per cent of global emissions, can be effective or ultimately sustainable.

This is not to suggest that other countries are not taking action. I have already outlined the breadth of action taking place. But the Australian Government’s position is that all major emitters – whether developed or developing – need to back their actions with binding international commitments.

We are not confined in how this may be achieved – in fact, we would be prepared to accept a second commitment period for Kyoto if it were matched by parallel commitments by other major emitters.

This has been Australia's position for more than three years, and it will continue to be our position in Durban.

Australia will go to Durban on track to meet our Kyoto Protocol target for the first commitment period, and with legislation that will ensure we meet our international commitments to 2020 and 2050.

There should be no doubt that we stand by our commitments and do what we say.

But in this critical decade, we seek a genuinely global agreement that applies rules to the broadest range of countries, including all major emitters, to help ensure the world can stay within the two degree guardrail.

A stepping stone in Durban

All major multilateral agreements take time – so will this one if we are to get it right.

It has taken Australia many years to legislate a climate change plan. So it is unsurprising that a comprehensive global climate change agreement will also take time.

Durban will be one stepping-stone along the path, a place where we can make further useful progress towards this goal.

It is Australia's position that a comprehensive agreement be in place by 2015. We will continue to work towards this, bearing in mind the challenges of achieving this outcome.

Any new regime should take account of the best science, with the fifth Intergovernmental Panel on Climate Change report due in 2014 and a review of progress towards the two degree or lower goal within the UN negotiations due to complete its work in 2015.

We need to ensure that any new regime is durable, even though its realisation will take time.

In the meantime, we should put in place more of the building blocks for a new comprehensive climate change regime. These building blocks will complement the substantial action that is occurring around the globe.

We should seek agreement on transparency rules, so we know countries are implementing their pledges and so the efforts of different countries can be compared.

We should also enhance international carbon markets because these allow the world to reduce pollution at least cost.

Establishing the market mechanism to reduce emissions from the world’s forests is another important building block.

So are the mechanisms that will help developing countries adapt to climate change, tap into the technology they need to grow cleanly, and access the funding they need, for example through a Green Climate Fund, which Australia firmly supports standing up in Durban.

From Australia's point of view, now that we have legislated for a carbon price, one of our most important goals on the international climate change stage is to ensure our businesses have access to carbon markets.

International carbon markets are growing irrespective of the developments in the UN negotiations. Emissions trading schemes are being developed around the world independent of multilateral requirements.

In fact, at the UN meetings it’s often outside of the formal negotiations that the real action happens.

Therefore in Durban I will also be discussing with my counterparts, and with business leaders, next steps in building the global carbon market, including through linking emission trading schemes.

Conclusion

The last 12 months has seen a major advance in the global effort to address climate change.

The Government's Clean Energy Future plan enables Australia to do its fair share.

And it does so with a clear-eyed view of Australia's national interests, including a strong economy that continues to enhance our prosperity.

As Australia engages internationally at Durban and beyond a key priority is to continue to develop the carbon markets that will enable countries everywhere to meet their pollution reduction targets at least cost.

And we will continue the work towards agreement for a genuinely comprehensive international climate change framework.

Thank you.