Australia's reluctance to ratify the Kyoto Protocol is hurting business

Whether or not the Australian Government ratifies the Kyoto Protocol has far-reaching consequences for Australia’s environment, industries, trade development and growth.

Our involvement or absence could significantly impact on the flow of trade and investment to Australia.

The Federal Government will not ratify the protocol until the economic impact of doing so is fully assessed.

Yet business is becoming increasingly concerned about the potential adverse implications of not ratifying and being isolated from the rest of the global economy and international processes.

The European Union and media have been reminding Prime Minister John Howard of this prospect during his visit there this week.

The Kyoto Protocol refers to an international agreement or treaty developed under the United Nations Framework Convention on Climate Control to reduce greenhouse emissions to agreed targets.

It establishes commitments to limits on the emissions that developed countries produce and sets out ways to achieve them such as trading carbon credits.

The practical details were refined and concessions on limiting greenhouse emissions were made to several countries, notably Russia, Japan and Australia last year.

Developed countries have committed to reduce greenhouse gas emissions by about 5 per cent of 1990 levels by 2010. Australia is permitted to increase its emissions by 8 per cent by 2010-12 and won other concessions such as allowances for land clearing and carbon sinks.

The developing countries, including China and India, were not allocated limits on emissions in the protocol despite predictions that their emissions will exceed those from the developed economies by 2008.

The Bush Administration has stated that the US will not ratify the protocol over concerns about the impact on its economy and will pursue its own greenhouse gas emission reduction program through energy efficiencies and technology advances.

In the past few weeks, the European Union and Japan became the latest to sign up, while Russia and Canada are expected to ratify within the next few months.

Soon the international community will have an operational protocol without the US and Australia.

Australia produces less than 2 per cent of global emissions and the impacts on the world’s climate will be determined mainly by the emissions from Europe, the US, Japan, China and India.

Despite a relatively generous allowance under Kyoto, our emission levels are currently running at 16 per cent above 1990 and increasing.

In February, the Australian Government formed a "climate action partnership" with the US. This will allow the two countries to share technology although the consequences to Australian business are as yet unclear.

While our politicians posture on the world stage, business is becoming understandably worried.

On the one hand, not signing it would leave Australia "free" to manage its own emission targets and controls. This would assist those high-energy using industries such as the aluminium and coal industries as the capping of their greenhouse gas emissions would not be regulated.

However, the Kyoto Protocol has a second element apart from the emission targets set for countries.

It sets out market-based mechanisms to be implemented between countries and between businesses. These mechanisms set out the way businesses will be involved in the Kyoto process.

The Kyoto Protocol only recognises emission reductions in participating countries and does not allow businesses in Kyoto countries to count reductions made or carbon sinks used in a non-Kyoto country.

So Australian companies operating internationally and regulated in another country could be prevented from using greenhouse gas savings in Australia to balance the requirements of the first country.

Under Kyoto, emission trading can occur between countries or between countries and private businesses or between businesses.

Most trading will probably occur among private businesses. If Australia does not ratify, Australian businesses may be squeezed out of this international market to their disadvantage. Landholders could also lose their ability to trade sinks such as trees with overseas organisations.

There are clear-cut advantages for Australian companies to be able to trade greenhouse gas reductions to achieve internal Australian Kyoto targets.

Such a scheme would best be based on the Kyoto system so that it is internationally compatible.

Some countries, particularly the Europeans, may attempt to impose trade sanctions on non-ratifying countries. This may be contrary to World Trade Organisation rules, but a stigma could accompany such action particularly due to the susceptibility of European government policy to the demands of environmental advocates.

Under Kyoto, emission trading will start in 2008. This gives ample time for our Government to analyse not just the economic penalties of ratifying but also the penalties on the international activities of Australian business if we don’t ratify.

Australia is now a leader in renewable energy production, solar energy and energy efficiency and has much to offer the world.

Our environmental and renewable energy industries will clearly suffer if excluded from the international scene in terms of trade and investment opportunities.

The US has the economic and political clout to operate outside the international agreement but any hope that they will look after Australian business and not compete vigorously against us in any remaining markets is likely to be forlorn.

To address these issues, the Commonwealth Government must undertake a full economic assessment of the impact of not signing the Kyoto Protocol if we are to have a clear understanding of what this means to Australian business and the broader community.