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Has Australia’s carbon pricing moment finally arrived?

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Hello from London, where we’re welcoming many of you to the Moral Money Summit Europe, which kicks off today, featuring conversations with top-drawer experts and business figures on the push for more sustainable business and finance.

Before we dive into today’s edition — featuring stories on Australia’s carbon pricing struggles, and on the sustainability implications of a landslide election in the Philippines — we want to flag an important story from the FT’s Neil Hume on the world’s surging demand for cobalt. Last year this hit 175,000 tonnes, up 22 per cent from 2020, according to a new report from the Cobalt Institute.

By far the biggest driver of this growth is the electric car industry, which now consumes more cobalt for its lithium-ion batteries than the mobile phone and laptop sectors combined. And three quarters of the world’s cobalt supply comes from the Democratic Republic of Congo, one of the world’s poorest and most troubled nations.

This video that I produced during my book research in Congo’s cobalt belt will give you a sense of the ethical questions surrounding the industry there. With cobalt demand set to nearly double in the next five years, electric carmakers will either need to deepen an already uncomfortable reliance on supplies from a country with dire levels of corruption and living standards — or look to dramatically expanded production from nations that each currently muster a tiny fraction of Congo’s output.

The huge challenge of building sustainable supply chains for the clean tech sector is just one of the crucial topics we’re discussing with a stellar line-up of guests at the summit today and tomorrow. If you’re not able to join us in person, Moral Money subscribers can livestream the event without charge — just click here to register for what promises to be an enlightening couple of days. (Simon Mundy)

Labor leader Anthony Albanese speaking speaks during the West Australian Leadership Matters event
Labor leader Anthony Albanese plans to introduce what he calls a ‘safeguard mechanism’, which would impose an emissions cap on big carbon emitters © Getty Images

Ahead of this Saturday’s Australian general election, polls suggest the centre-left Labor party is on track to win after almost a decade in opposition. That could have major implications for the country’s climate policy.

Labor leader Anthony Albanese plans to introduce what he calls a “safeguard mechanism”, which would impose an emissions cap on big carbon emitters, and force them to buy carbon credits if they exceed it. Those that undershoot their cap, meanwhile, will earn credits, which they can sell. Every year, the cap will be ratcheted down.

In climate economics, this is known as a “baseline-and-credit scheme”, a softer version of a cap-and-trade scheme, which usually imposes hard caps and charges for every tonne of carbon emitted — not just those over a certain level.

For a country where the very notion of carbon pricing has become political poison, and where industry has become accustomed to having no limit on its emissions, this is a noteworthy development.

Go back 10 years, though, and it seems less impressive. In 2012, then Labor prime minister Julia Gillard legislated one of the world’s most stringent carbon pricing regimes, known as the “carbon pricing mechanism”.

That scheme was modelled on the European Union Emissions Trading System, with one crucial difference. The price of carbon permits was fixed at A$23 per tonne, and was set to gradually increase for the first few years, before being allowed to float freely once the market was sufficiently developed.

The fixed price was intended to give a clear signal that would push industry to cut emissions. But in practice it proved a fatal flaw. In early 2011 the EU carbon price, which was always decided by the market, had been tracking at around €15 — nearly on par with Australia’s fixed carbon price. But a confluence of miscalculations created an oversupply of credits, and the EU carbon price fell well below €10 and stayed there for several years. Suddenly Australian companies were paying far more than their European counterparts.

This turned business against the scheme, and allowed conservative opposition leader Tony Abbott to attack the policy as a “carbon tax” that was disadvantaging Australian industry and pushing up power prices for ordinary Australians.

In the two years the carbon pricing mechanism was in place, Australia’s emissions fell markedly. Nevertheless, Abbott’s populist attack struck a chord with voters. He won the 2013 election, repealed the policy, and from then on carbon pricing was a dirty word in Australian politics. His Liberal-National coalition has been in power ever since.

Labor’s current proposal, which is much weaker than Gillard’s policy, has the support of business this time. Indeed it was big business that first suggested it. Even big emitters like the gas industry think it is a reasonable idea — partly because their shareholders are already pushing them to reduce their emissions.

“At the big picture level, it’s not going to feel very different from the commitments we’ve already made,” Woodside Energy chief executive Meg O’Neill told me this week.

Current conservative prime minister Scott Morrison has tried to characterise Labor’s plan as a “sneaky carbon tax”. But that line of attack doesn’t seem to have worked, and the policy has remained relatively uncontroversial. Does this show that Australia is ready for carbon pricing — or that the policy is so weak it won’t make much difference? We should get a clearer idea after the election, if the pollsters’ forecast of a Labor win proves accurate. (James Fernyhough)

Sustainable Views

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Yesterday’s edition looked at the potential inclusion of natural gas in the UK’s new green taxonomy, and how pension funds are struggling to get on track for their net zero targets. You can sign up in a few seconds here.

Philippines’ next president raises red (and green) flags

Ferdinand ‘Bongbong’ Marcos Jr celebrates as he greets the crowd outside his headquarters in Mandaluyong, Philippines
Ferdinand ‘Bongbong’ Marcos Jr celebrates as he greets the crowd outside his headquarters in Mandaluyong © AP

Ferdinand “Bongbong” Marcos Jr is set to become the next president of the Philippines in late June, after winning a landslide in elections last week.

His campaign heavily relied on the imagery of windmills as a symbol of his success as a governor in Ilocos Norte, a province in northern Philippines, between 1998 and 2007. But local media outlets, including Rappler, have cast doubt on whether he deserves credit for the province’s green power boom. And some ESG advocates in the island country have expressed concerns about the Marcos family’s return to power.

The incoming president’s father, Ferdinand Marcos Sr, was a dictatorial leader of the country for two decades until a revolution toppled him in 1986. The first family fled to exile in Hawaii and left then-first lady and Bongbong’s mother Imelda’s 3,000 pairs of shoes behind in the Malacañang presidential palace — a collection that remains a symbol of kleptocracy to this day.

Investors must be aware that the new administration comes with more red than green flags, said Gerry Arances, executive director of research institute Center for Energy, Ecology, and Development and convener of Power for People Coalition, a nationwide network of energy transition advocates, NGOs and consumer groups.

“Marcos [Jr] has consistently ticked climate action and sustainability in his list of issues to hail throughout the campaign, to attract the public’s good opinion,” Arances said. But this doesn’t necessarily spell good news for green development in the Philippines, he warned, pointing to “the utter lack of details” on Marcos’s plans.

Arances said that the main focus of Marcos’s clean energy agenda is likely to be a revival of nuclear energy (the Bataan Nuclear Plant was built during his father’s rule, but never put into operation due to safety concerns following the Chernobyl disaster), or a shift from coal to natural gas, rather than wind and solar.

Meanwhile, the human rights violations under Marcos Sr are casting a shadow over investors’ perceptions of the president-elect. “While it is too early to tell what will happen in the wake of [Marcos’s] victory, there is concern among foreign investors and analysts given the legacy of the dictatorship,” said Kiran Aziz, head of responsible investment at Norway’s largest pension fund KLP.

With more than 100mn citizens, the Philippines’s sustainable development agenda is important to watch in its own right — and also as a bellwether for how developing economies are tackling the clean energy challenge. As one of the most climate-vulnerable countries in the world, facing typhoons of growing severity, the outcome of that wider struggle will have powerful implications for Marcos’s nation. (Tamami Shimizuishi, Nikkei)

Smart read

  • The EU has made impressive progress in making its economy less carbon intensive. But it needs to start taking more responsibility for environmental impacts beyond its borders, linked to its trade and other external activities, warns Heather Grabbe of the Open Society European Policy Institute in this provocative column. “Emissions reductions on one continent do not help if it continues importing products made with dirty energy elsewhere in the world,” she warns.

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