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Markets, integrity and achieving real results for our environment

Keynote speech by CEO James Schultz
2022 Australasian Emissions Reduction Summit, Darling Harbour, Sydney

 

Good morning and welcome. Before I begin, I’d like to acknowledge the traditional owners of the land on which we are gathered today – the Gadigal people of the Eora Nation – and acknowledge their elders, past and present.

I doubt that there are many here today who do not have the findings of the recent State of the Environment report and last year’s IPCC ‘a code red for humanity’ – plaguing their thoughts.

Collectively, we have abused and exhausted our natural environment and its non-human inhabitants, which has brought us to the crossroads we now face. Where we are desperately struggling to keep global heating below 1.5 degrees – even 2 degrees – above pre-industrial levels, and where Australia has the worst mammal extinction rate of any country in the world.

Think about this – wildlife emblems of our country – koalas – icons of the animal kingdom alongside pandas, elephants and tigers – have been placed on the threatened species list. If we continue, at the present rate, to lose and damage our natural world – which make no mistake, we deeply rely upon for our own species’ existence – it will result in something beyond words.

We have now arrived at a crossroads: continue down this unforgiving path or harness all the knowledge, research, skills, know-how and thinking at our disposal to take the action we must to slow down and reverse this trend.

We right now have an opportunity to save nature – and it would be the greatest travesty of all to have recognised it and squandered it.

Of course, it’s not as though we haven’t known for decades that this moment was coming.

Australian governments have long tried to pass legislation to avert this moment. Over the years, our governments have delivered untold pieces of conservation legislation.

Since 1881, right here in New South Wales successive governments have passed at least 28 pieces of legislation to stop land clearing – one of the single greatest contributors to habitat destruction, species eradication and emissions production in our society.

Whilst some of these laws have widely missed the mark much of this legislation has been very good, fit for purpose and yet – still – in the last few years, land clearing is as high as it has ever been in this state, and it is a similarly story in Queensland.

History, and the moment we have found ourselves in today, has shown us that legislation alone does not work.

This is a lesson we have learned but one I fear we are in danger of once again forgetting. And that is a mistake we can’t afford to make.

We will not suddenly achieve what those that have come before us have not and legislate our way of the problem. This is because legislating to stop something is failing to solve the real problem which is a failure to properly value the environment and the services it provides in the first place.

There have certainly been success stories, like our national parks and world heritage areas.

But there are vast swathes of land between these ecosystem islands – which are privately owned and managed – where habitat and species exist and require some form of protection and preservation if we are to reduce extinction and truly address the impacts of climate change.

In 2021, the federal government budget for the environment was $486 million. In stark contrast, the value of the agricultural industry in Australia is $70 billion per annum.

These are two very different numbers. If we are to solve the loss of nature we need to be thinking of ways to lift the value of ecosystem services on par with the value of other parts of the economy like agriculture. If we do not – well we know where that path leads us as we have been on it for a long time.

Yet this is a potentially unbridgeable gulf. Governments around the world cant afford to fund this gap – they simply do not have the resources. This means governments can’t afford to manage the environment for us.

So we need another solution – and I suggest to you the solution remains the obvious. The thing we are all here to discuss – markets.

The solution can only be to properly incentivise these private landholders to provide the services we need to protect and preserve environmentally significant lands – habitat, vegetation and wildlife – and to increase our natural carbon sinks.

Just as we are rewarded for the services we perform for our employers, landholders must be rewarded for the services they will provide to preserve and protect the environment.

But there is one more overlooked, but incredibly vital stakeholder and service provider in this picture. It is our environment itself.

It has provided services to us for millenia and we have never rewarded it – we have rarely apportioned a value to the environmental services it provides to us. We have used and used and rarely given anything that truly assists it back.

That has to change. And it can.

Let’s pause for a moment and think about what I am describing here.

Our environment grows trees, forms mineral deposits and provides water and land. For eons, we have mined those minerals, felled those trees to manufacture wood and paper, cleared vegetation to convert the land to pasture, cities and waste dumps, extracted the water for drinking, cleaning and industrial purposes – exploited our environment for food and fibre.

That is – we have been in an exchange relationship with our environment.

The problem is that we have largely done this for free – meaning we have taken for granted and assumed that these resources are there for our taking, without the need to compensate the environment for these invaluable services it is providing.

The voluntary exchange of goods and services is as we all know the very definition of a market. An effective efficient market however is typically one that is driven by the gains to all the participants from such a voluntary exchange.

Yet it is clear that the environment has long been the involuntary loser in the market exchange with us. We have gained, the environment has lost.

The problem we are finding is that there is absolute truth in the conventional wisdom that nothing is for free.

Our taking with impunity has seen the “lungs” of our planet – the great rainforests of the Amazon, Indonesia and Africa, depleted to a perilous point where they are nearing ecosystem collapse.

This incessant need to clear the majority of the forest areas on our planet has contributed to global heating, ably assisted by the resources we have removed and converted to fuel that, along with other industrial activities, belches greenhouse gas pollution into our earth’s atmosphere. Together these activities are seeing our oceans warm, our reefs bleach and die in horrifying numbers.

This is ecosystem collapse at work.

And in a perverse way, it is payment. For too long in this exchange, the environment has been losing, and now we are losing with it.

We need to rapidly wake up and level the playing field in this market. We need to rapidly change things so that we can begin to compensate the environment. We need to rapidly tip the scales from this win-lose unfair market relationship with our environment to a win-win exchange.

And we do that through building well structured, well regulated, high integrity markets.

Always integrity is the key, particularly when you are dealing with markets that are driving change.

This is why we are effectively seeing a two-fold review of the functioning of the Australian carbon market – through the ERF and the safeguard mechanism.

And that is why the federal government is also taking submissions on the way in which an Australian biodiversity scheme, or market, should operate.

In the scheme of things however these are new markets. They are still evolving, we are still learning and there is a much yet to do if we are to get the settings right to deliver the impact we need.

We need to take the opportunity in front of us to continue to build the legal and regulatory system that underpins high functioning, high integrity biodiversity and carbon markets that indisputably deliver for all participants, including the environment.

Passing legislation that locks up land and prevents landholders clearing trees is always subject to political pressure liable to be repealed at the whim of the government in power. It on its own does not work. It costs the landholder and relies on wielding a big stick rather than providing an incentive.

Yet a market, where a landholder, farmer or company can ultilise their land in a different way to produce different outcomes that can be measured and attributed a specific value that can be traded on a market is a powerful thing – far less open to political manipulation and very effective in driving changes in behaviour.

Measurement and third party verification of the quality of the unit of outcome, such as carbon abated in a carbon project, is absolutely critical for integrity of the unit traded on the carbon market – just as for example, the verification and categorisation of the marbling in wagyu beef is critical to the high end beef market.

And just as the quest for the highest quality wagyu drives producer behavior in the way they farm their cattle – so that they can get the best price from restaurants to satisfy the desires of beef eaters – a carbon market is based upon a similar set of relationships. When running effectively with high integrity, it also has the power to change different types of behaviour.

As more businesses want carbon credits for ESG purposes, the price will rise and we are on our way to discovering value – not cost! Value.

This works then with the right regulation to encourage big polluters to improve their operations to further reduce the amount of pollution they produce. Polluter behaviour has changed.

Meanwhile, as landholders that have taken the plunge start to reap the rewards – or incentives – of changing some of their operations to carbon farming, they expand and more landholders decide to start carbon projects. So landholder behaviour has changed.

And thus a value has been placed on the vegetation that has been preserved. That is, preservation of the environment now has a value. This is an additional benefit on top of the abatement. In essence, the environment is now being compensated for its services – by being preserved and by having carbon removed from the atmosphere.

Similar outcomes would be produced with biodiversity markets that incentivise landholders to specifically preserve habitat

And if we extend this system to its most utopian of outcomes – as more and more carbon and nature projects are run on private land, there is the possibility that they can link up over time, creating wildlife corridors and preserving entire landscapes.

There is enormous scope for expanding this approach into the regional context – to include our neighbours like Indonesia and the Pacific into a regional market.

Of course no market works in isolation, and these would also be working alongside and with markets in a host of other sectors.

But until we are prepared to put a value on the ecosystems services of carbon and biodiversity commensurate with the value of other parts of the economy such as food production and mining – the environment will always lose. Whether it’s this week or ten years from today, so long as our environment has less value, we are on the wrong trajectory.

Right now we remain at a formative stage but must get it right.

And to do this, as I said at the beginning, it is absolutely imperative and critical to success that we build-in measurement and third party verification. Integrity must be our foundation.

We have to have a system that provides evidence that we are making gains for the environment. Otherwise we have a house of cards that can blow away in the first wind, an ice house that will melt as the temperature heats up. Otherwise we really have nothing.

Climate change is back on the national agenda and that is certainly very encouraging. But we have been caught up in enormously destructive discourse of late – and the danger in this is that it threatens to undermine all the positive achievements that have been made. We need to engage in constructive dialogue.

We must resist getting sidetracked. Right now is our best and possibly only chance to solve the value disparity for nature and mobilise the resources we actually need but we will blow that chance if we become to focused on questions such as as whether fossil fuel companies should buy carbon credits.

Because – guess what – carbon credits aren’t going to save fossil fuel businesses from going out of business. Fossil fuel businesses will all either transition to an economy driven by renewable energy or they won’t – but carbon credits are simply not going to keep them in business if they don’t.

Carbon credits however can be one the of the biggest contributors to solving the climate and extinction crisis we face in nature and that is the opportunity we must seize.

We have been here before. Twenty years ago we could have put a price on carbon that would have effectively been a direct challenge to the global drive to cut down our forests – to continue to pollute, abuse and exhaust our environment, our natural world. We didn’t and we have watched another twenty years of business as usual with no check on deforestation and nature loss.

We are in a moment – let’s not squander it.

 

Delivered at the Australian Emission Conference, Darling Harbour, Sydney.

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