Winning the Climate Battle – the Impact of Climate Policy

What do these key climate targets mean?

Across the globe and in Australia, climate change is having a visible and significant impact on Australians and our quality of life. The Intergovernmental Panel on Climate Change in their 2022 study found that global warming, reaching 1.5 degrees in the near-term, would result in unavoidable increases in multiple climate hazards and present multiple risks to ecosystems and humans.¹

With this in mind, the Albanese Government’s Climate Change Act 2022 (Cth) (Climate Act) and the Climate Change (Consequential Amendments) Act 2022 (Cth) (Consequential Amendments Act) have been passed by both houses of parliament² and received royal assent on 13 September 2022.³ The Climate Act codifies two main climate targets and enshrines them into law – first, a greenhouse gas emissions (GHG) reductions target of 43% below 2005 levels by 2030 to be implemented both as a point target and as an emissions budget covering the period 2021 – 2030; and secondly, a reduction to net zero by 2050.⁴ The Consequential Amendments Act flows through these climate targets to existing key legislation including various acts dealing with renewable/clean energy and carbon credits.⁵ This landmark legislation facilitates a whole-of-government approach to achieve these targets (which represent an update to Australia’s obligations under the Paris Agreement) and heralds in a new era of climate certainty.

Federal Government agencies will need to consider these key climate targets in their objectives and functions and when making investment decisions.⁶

In a previous article, seen here, the authors (Thomas and Kenneth) addressed why ESG is important and the impact of ESG and sustainability on M&A deals. Given the significance of environmental factors (the ‘E’ in ESG), this is a key step for the Australian Government, which will incorporate climate targets into national decision-making. These emissions targets will sharpen the focus of policy makers on how their proposed changes help Australia to achieve its targets.

How does the Climate Act reflect Australia’s international obligations?

The Climate Act acts as framework legislation which will drive climate-related developments and measures and encourage investment in decarbonisation technologies. It locks in Australia’s commitments under the international Paris Agreement into domestic law. The goal of the Paris Agreement which came into force in 2016⁷ is to limit global warming to well below 2 degrees Celsius (preferably to 1.5 degrees Celsius), compared to pre-industrial levels. Under article 4 of the Paris Agreement,⁸ Australia is required to submit its nationally determined contribution (NDC) that it intends to achieve. That NDC is recorded in a public registry maintained by the secretariat of the United Nations Framework Convention on Climate Change.⁹ The Australian Government made its most recent submission on 16 June 2022,¹⁰ together with Australia’s NDC.¹¹

Source: https://unfccc.int/NDCREG (accessed on 9 August 2022)

Importantly, the targets set in the Climate Act act only as a floor (not a ceiling) and do not limit the executive power of the Commonwealth to prepare and communicate a new NDC or adjust Australia’s NDC.¹² In fact, the GHG reduction provisions require any new NDC to progress beyond Australia’s then current NDC,¹³ or if Australia’s NDC is adjusted, then it must represent an enhancement of Australia’s level of ambition.¹⁴

What are the key points of the Climate Act?

Apart from the headline GHG emissions reductions targets, other key points include:

• Stronger accountability – the Minister for Climate Change and Energy (Climate Minister) (currently Chris Bowen) will provide an annual progress update to parliament¹⁵ which must be completed within 6 months after the end of each financial year. This annual climate change statement must cover:
  • the progress made during the year towards achieving Australia’s GHG emissions reduction targets;
  • international developments during the year that are relevant to addressing climate change;
  • climate change policy;
  • the effectiveness of the Commonwealth’s climate change policies in contributing to the achievement of Australia’s GHG emissions reduction targets;
  • the impact of the Commonwealth’s climate change policies on rural and regional Australia, including social, employment and economic benefits; and
  • risks to Australia from climate change impacts.¹⁶
• Climate advisory – the Climate Change Authority is empowered to advise the Climate Minister on the preparation of the annual climate change statement and on Australia’s future GHG emissions reduction targets to be included in a new or adjusted NDC.¹⁷ This may involve public consultation.¹⁸

With the aim to facilitate the transition to net zero, the Climate Act informs and is supplemented by the Consequential Amendments Act, which incorporates the emissions reduction targets and Paris Agreement considerations into the goals and/or operations of key Government agencies working on climate change policies and programs.

Industry shouts their approval!

There has been strong industry support for the Climate Act, including from the Business Council of Australia¹⁹ and the Australia Chamber of Commerce and Industry.²⁰ A joint media release from various business, investor and conservation groups (including the Australian Institute of Company Directors, the Governance Institute of Australia, the Responsible Investment Association Australasia, the Australian Council of Superannuation Investors and the Australian Energy Council)²¹ described the Climate Act as a key step towards climate certainty to encourage investment in the transition to a low-carbon economy. The much needed certainty provided by clear legislated targets empowers businesses to drive the transition to net zero by investing in key new technologies and industries.

This approach adopted by the Government aligns with evolving global policy (where the world economy is rapidly decarbonising) and will provide a strong inducement for Australian organisations and businesses to progress their own decarbonisation plans.

Climate change and directors duties

Directors who fail to consider whether climate change is a material risk for their company and its operations will not be performing their duties and exercising their powers to the level of care and diligence required by the Corporations Act 2001 (Cth).²² Also, directors who do not minimise the impact their company’s business has on accelerating climate change could expose their company to reputational and funding risks. As a starting point, directors should ensure they adequately comprehend the scientific and economic issues, obtain expert advice where required, and critically analyse the impact and significance of these risks and how their company will strategically respond.

What happens next in climate policy?

Given the very real impact of climate change, this legislation is a critical first step for Australia towards taking immediate action with a focused policy strategy to avoid the most catastrophic effects of climate change. On the global stage, the US Senate has passed legislation aiming to reduce US emissions to about 40% below 2005 levels by 2030 and was reported by the New York Times as being the most significant federal investment in history to counter climate change.²³ Arguably with the US and now Australia leading by example, this denotes a turning point in the era of clean energy investments and has the potential to kick-start international efforts to deal with global warming and tackle climate change.

The Australian Government is also separately planning to implement various policies and programs, including Australia’s first electric vehicle strategy to drive the emissions reductions needed to achieve the climate targets²⁴ and the Rewiring the Nation program.²⁵

This article was written by Thomas Kim, Partner and Kenneth Lee, Senior Associate. Thomas and Kenneth specialise in corporate law with a focus on the impact of ESG and sustainability on M&A deals. They have a particular interest in how climate change is shaping the future as businesses adapt to the impacts of climate change and the transition to a net zero emissions world.

¹Intergovernmental Panel on Climate Change, ‘IPCC Press Release’ (28 February 2022) <https://www.ipcc.ch/site/assets/uploads/2022/02/PR_WGII_AR6_english.pdf>.
²The Hon Chris Bowen MP, ‘Joint media release: Australia legislates emissions reduction targets’ (8 September 2022) <https://minister.dcceew.gov.au/bowen/media-releases/australia-legislates-emissions-reduction-targets>; Prime Minister of Australia, ‘Albanese Government Passes Climate Change Bill in the House of Representatives’ (4 August 2022) <https://www.pm.gov.au/media/albanese-government-passes-climate-change-bill-house-representatives>.
³Parliament of Australia, ‘Climate Change Bill 2022’ (13 September 2022) <https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6885>.
⁴Climate Change Act 2022 (Cth) s10(1).
⁵Climate Change (Consequential Amendments) Act 2022 (Cth) sch 1.
⁶Climate Change (Consequential Amendments) Act 2022 (Cth) sch 1 (eg see proposed amendments to Clean Energy Regulator Act 2011, Infrastructure Australia Act 2008 and Science and Industry Research Act 1949).
⁷United Nations Climate Change, ‘The Paris Agreement’ (accessed on 5 August 2022) <https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement>.
⁸United Nations Climate Change, ‘Paris Agreement – English’ (accessed on 5 August 2022) <https://unfccc.int/sites/default/files/english_paris_agreement.pdf>.
⁹United Nations Climate Change, ‘NDC Registry’ (accessed on 9 August 2022) <https://unfccc.int/NDCREG>.
¹⁰United Nations Climate Change ‘NDC 2022 update letter to UNFCCC’ (16 June 2022) <https://unfccc.int/sites/default/files/NDC/2022-06/NDC%202022%20Update%20Letter%20to%20UNFCCC.pdf>.
¹¹United Nations Climate Change ‘Australia’s National Determined Contributions’ (16 June 2022) <https://unfccc.int/sites/default/files/NDC/2022-06/Australias%20NDC%20June%202022%20Update%20%283%29.pdf>.
¹²Climate Change Act 2022 (Cth) s10(4).
¹³Climate Change Act 2022 (Cth) s10(5).
¹⁴Climate Change Act 2022 (Cth) s10(6).
¹⁵Climate Change Act 2022 (Cth) s12(1).
¹⁶Climate Change Act 2022 (Cth) s12(1).
¹⁷Climate Change Act 2022 (Cth) s13.
¹⁸Climate Change Act 2022 (Cth) s14(3).
¹⁹Business Council of Australia, ‘Certainty will let businesses drive the transition’ (27 July 2022) <https://www.bca.com.au/certainty_will_let_businesses_drive_the_transition>.
²⁰Australian Chamber of Commerce and Industry, ‘Emissions legislation must pass to guarantee energy certainty’ (27 July 2022) <https://www.australianchamber.com.au/news/emissions-legislation-must-pass-to-guarantee-energy-certainty/>.
²¹Australian Energy Council, ‘Joint Media Release – Business, investor and conservation groups come together to support Climate Bill as key step towards policy certainty and investment’ (1 August 2022) <https://www.energycouncil.com.au/media/c2umv21m/220801-joint-media-release-climate-change-bill-2022.pdf>.
²²Australian Institute of Company Directors, ‘Climate Change & Directors’ Duties – Legal Opinion’ (2016) <https://www.aicd.com.au/board-of-directors/duties/fiduciary/climate-change-and-directors-duties-legal-opinion.html>.
²³New York Times, ‘Senate Passes Climate, Health and Tax Bill, with all Republicans opposed’ (7 August 2022) <https://www.nytimes.com/2022/08/07/us/politics/climate-tax-bill-passes-senate.html?utm_campaign=Daily%20Briefing&utm_content=20220808&utm_medium=email&utm_source=Revue%20newsletter>.
²⁴Explanatory Memorandum – Climate Change Bill 2022 p3.
²⁵ALP, ‘Rewiring the Nation’ (accessed on 29 September 2022) <https://alp.org.au/policies/rewiring_the_nation>.