Sustainability Plan 2016-2020 Consultation

Investments Forum Information Pack

Investment portfolio governance & management Council Finance Committee Investment Management Committee University management Finance Committee: • Approves investment philosophy, policy and objectives Investment Management Committee: • sets, monitors and evaluates investment strategy and performance • determines parameters on asset allocation, growth, risk tolerances and risk management strategy

Investment fund manager since 2002: • Over $50bn funds under management • Clients include TAC, WorkCover, State super funds, VMIA, EPA, MFB, hospitals • Investment approach combines in-house investment management and external fund managers • Domestic and international listed equities, managed via VFMC pooled investment trusts

Strategy and asset allocation advisor

Investments administrator

Investment portfolio overview as at 30 June 2016 Investment Portfolio A$1.92 billion1

Investment portfolio asset allocation and growth (A$ millions)

2,000

1,920 Cash

Trusts sub-portfolio A$674.2 million1 ~35%

Reserves sub-portfolio A$1,246.1 million1 ~65%   

University’s accumulated reserves Unrestricted in use Critical for long term financial sustainability



     

1 As

of 30 June 2016

Represents philanthropic funds received as endowments 950+ individual trusts Governed by deed of gift Restricted in use Fiduciary duty to preserve trust capital Unitised fund structure Income distribution policy

1,689

Fixed Interest Australian Equities

1,550

International Equities

1,500

1,336 1,105 1,129

Property

1,186

1,174

Private Equity

1,091

Liquid Strategies

1,000

Illiquid Strategies

500

0

2008

2009

2010

2011

2012

2013

2014

2015 Jun-16

Since inception the portfolio has returned an average of approximately 9.5% p.a.¹ Returns compare favourably with benchmark funds including: Future Fund, leading superannuation funds, US university endowments, sovereign wealth funds

Understanding the University’s relationships with the fossil fuel sector

• Need for a holistic understanding of the University’s relationships • How closely do we engage with the sector in The University’s core areas of activity? • Stakeholder Mapping Report commissioned • Carbon Underground 200 (CU200) • Top 100 public oil and gas companies and the Top 100 public coal companies globally Our engagement with the sector covers: • Research and non-research engagements • Scholarships and graduate employment • Alumni, governance, advancement and broader industry engagement

The University’s Investments  The investment portfolio structure is such that the University does not hold any equities directly in the University’s name, rather the University holds units in VFMC pooled investment trusts.  The University’s indirect investment via it’s pro rata allocation of VFMC pooled investment trusts to the Carbon Underground 200 (CU 200) companies represents 4.08% of the University's total portfolio. This includes a pro rata allocation in excess of $100k in the following: AGL, Alcoa, Anglo American, Apache, BASF, BHP Billiton, Chevron, CNOOC, ExxonMobil, Inpex, Mitsubishi, NTPC, Oil Search, Polish Oil & Gas, Rio Tinto, Royal Dutch Shell, Santos, Sasol, SM Energy, Statoil, Tata Power, Total, Tullow Oil, Westfarmers, Whitehaven Coal and Woodside Petroleum.  Sitting around 3-5% for the last 3 years 1 As

of 30 June 2016

Snapshot of Engagement

• • • • • • •

Total value of all fossil fuel sector engagements: $37m Total value of research contributions is $15m Total value of non-research: $22m Graduate & Alumni employment – 540 Internships & Work placements – 27 Connections to sector on governance and advisory bodies – 27 Other non-financial engagements - engaging with industry to share thought leadership, intellectual capital and inform practice

Sustainability Plan 2016-2020 How can you provide feedback?

E-mail: [email protected] Social Media: Tag @unimelb #UoMSustPlan Working Group Hackathons: [email protected] •

.

More information?

sustainablecampus.unimelb.edu.au/sustainability-plan

The University of Melbourne Sustainability Charter The Earth is a finite environment, with its physical systems tightly interconnected with all life on the planet. Humanity is now in the historic position of changing the global balance of both the physical and biological environments, with unintended consequences. Achieving a sustainable Earth requires global values and actions that are ecologically sound, socially just and economically viable. As a distinguished research and teaching institution, The University of Melbourne has a social responsibility to lead and engage in public debate and action. Through knowledge, imagination and action the University will help shape a sustainable planet and will be an international exemplar of an ecologically sustainable community. The University's obligations in relation to sustainability are to: • demonstrate leadership, globally, nationally and locally; • generate interdisciplinary knowledge to underpin community action; • enable active global citizenship for all students and staff; • recognise the past and future contribution of Australian Indigenous peoples to custodianship of the environment; • promote equity in the use of global resources; and • ensure transparency and accountability in all institutional activities. As committed to in Growing Esteem, this Charter frames the values and principles to be embedded throughout the University’s operations, and identifies the commitments required to achieve a sustainable future. COMMITMENTS Research underpins the University’s contribution to creating a sustainable world. The University will: • conduct research that contributes significantly to knowledge and action across the interdisciplinary dimensions of sustainability; • support researchers across different fields to work collectively on environmental problems; and • use sustainability principles to guide decisions about research funding, conduct and communication. The teaching and learning programs of the University inspire and support students to be leaders for a sustainable future. The University will: • offer an education that enables graduates from all disciplines to contribute to change for sustainability; • provide specialist interdisciplinary education in the environment and sustainability; and • develop people who have the skills to create, define and succeed in the future careers and industries of sustainable societies. The University’s staff and students actively engage with all sectors to drive progress towards sustainability. The University will: • be a leading voice in raising public awareness and advancing and influencing policy discussion and debate; • work strategically with partners to create innovative solutions to sustainability challenges; and • engage in ongoing dialogue and collaboration with the community on the University’s environmental impact and performance. Sustainable practices are embedded in all of the University’s operations, modelling innovative ways to maximise social and environmental value. The University will: • develop and maintain its campuses as living laboratories of sustainable communities; • lead technological, financial and social innovation through applied sustainability projects; • instil sustainability principles in procurement decisions, across product life cycles and supply chains; and • implement investment strategies consistent with the University’s commitment to sustainability and its financial and legal responsibilities. The University integrates sustainability principles into its decision-making and the management of the organisation. The University will: • build and maintain the planning, decision-making and governance framework required to enact the commitments of this Charter; and • involve the University community in decision-making and ensure transparent reporting on progress towards delivering these commitments. In achieving the commitments of this Charter we will fulfill the aspiration of the University’s motto: postera crescam

laude – we shall grow in the esteem of future generations.

University of Melbourne Stakeholder mapping summary report

Draft 1 for Comment Cover Intro outlining any particulars 5 August 2016

Suite 212,

838 Collins Street, Docklands VIC 3008 Australia

T +61 3 9049 9500 F +61 3 9049 9555 E [email protected]

accsr.com.au

Contents

1.

Summary of findings ................................................................................................ 3

2.

Key findings ............................................................................................................. 4

3.

Research contracts, grants and other collaborations .............................................. 4

4.

Graduate employment and Alumni .......................................................................... 6

5.

Governance ............................................................................................................. 6

6.

Advancement and philanthropy ............................................................................... 7

7.

Non-financial industry engagement ......................................................................... 7

8.

Data limitations ........................................................................................................ 7

2 University of Melbourne | Stakeholder mapping project report - Summary

1. Summary of findings The University of Melbourne wants to know how closely it engages with the fossil fuel sector on its core areas of activity. These core areas are research and non-research engagements, scholarships, graduate employment and alumni, governance, advancement and broader industry engagement. This information provides a whole of University picture of sector engagement. It also informs future strategies for working with industry and managing stakeholder expectations about investment in the sector. This report aims to: 1. Map the University’s relationships with the fossil fuel industry, based on the Carbon Underground Top 200 (CU200) 2. Show the number and type of engagements with the sector 3. Provide an evidence base for strategic recommendations regarding ongoing fossil fuel industry engagement. The aim of this stakeholder mapping exercise was to capture a contemporary picture of the University’s engagement activities with the fossil fuel sector. Activities were confined to those that commenced from 20112015. The analysis was based on: 1. Conversations with University staff in key faculties and departments 2. Data on sector engagements, including number, type and dollar value (where possible) 3. Publicly available information (particularly the University’s online marketing and websites). The University has engaged with 19 members of the CU200. However, most engagement is with just six companies. Figure 1 maps the key activities with these companies. It shows that Graduate employment and Alumni is the area where all these critical relationships converge. Figure 1: Overview of UoM’s engagement with leading CU200 companies

3 University of Melbourne | Stakeholder mapping project report - Summary

2. Key findings Key findings of this report include:  

  

The University has close relationships with Australian fossil fuel companies. It has particularly strong relationships with two of Australia’s leading diversified resources companies engaging in all key activity areas. Millions of dollars for research, scholarships and awards are concentrated within these relationships The University has more relationships with the top 10 oil and gas companies than the top 10 coal companies1 The University’s graduates and Alumni feature strongly in Australian resource companies The activities where the University has the most engagement with fossil fuel companies are in governance and advisory body representation, scholarships and graduate employment and alumni.

Limitations:  

There is no central data system with consolidated information about the University’s fossil fuel company engagements This report does not capture potential funding which is far more significant than any historical donations.

3.Research contracts, grants and other collaborations Facts and statistics  Total value of research over the last five years: $14,960,988 (2 companies account for approximately 90%)  Number of research contracts and grants: 37  Average estimated research grant/contract value: $404,351  Most valuable research project: $6m over three years  Most valuable non-research project: $22m over 5 years  Highest overall funding from one organisation - $26.4m  Total value of all engagements: $37,472,126  Total value of non-research: $22,511,137  Total value of all scholarships: $263,000 per year  Most valuable scholarship: The Australian Indigenous Education Foundation tertiary scholarship for an indigenous undergraduate student Research is one of the University’s core activities. Research collaborations include grants, contracts and funding, while non-research refers to in-kind support and contributions to non-research programs and activities. The total estimated value of all research and non-research engagements commenced in 2011-2015 with CU200 companies is $37,472,125.

1 The CU200 is divided into two listings - the Top 100 oil and gas companies and the Top 100 coal companies, based on the value of their fossil fuel reserves.

4 University of Melbourne | Stakeholder mapping project report - Summary

Figure 2: Proportion of total engagements commenced in 2011-2015 by schools and faculties

Proportion of total engagements by schools and faculties

8%

Faculty of Business and Economics

10% 10%

15% Melbourne School of Design Melbourne School of Engineering Faculty of Science Other

58%

*Other includes Medicine Dentistry Health Sciences, Melbourne Graduate School Education, Murrup Barak and the Melbourne Law School

Figure 3: Estimated breakdown of engagements commenced in 2011-2015

Estimated financial value of total engagements by schools and faculties Faculty of Science

$22.7m

Melbourne School of Engineering

$12.3m

Melbourne School of Design

$1.5m

$973k

Other

Faculty of Business and Economics

$76K $-

$5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000

Funding provided *Other includes Medicine Dentistry Health Sciences, Melbourne Graduate School Education, Murrup Barak and the Melbourne Law School

5 University of Melbourne | Stakeholder mapping project report - Summary

n=40

4.Graduate employment and Alumni Snapshot   

CU200 companies employ an estimated 540 Melbourne University alumni Total number of work placements and internships: 27 Top work placement provider: 12 placements

5.Governance Governance body representation

The University has strong industry representation on its governance and advisory groups. This representation is important because it ensures that courses are designed to meet industry needs and graduates are job ready and equipped with the skills to meet real world challenges. Key insights about the sector’s presence on University governance bodies are that:  

There are 27 connections to industry on governance and advisory bodies The Believe campaign and the MEI Advisory Board have the heaviest representation.

Table 1: Fossil fuel company representation on main governance bodies

Governance or advisory body

Role

University Council

The Council appoints and monitors the performance of the Vice Chancellor and oversees the University’s strategic direction and management.

MEI Advisory Board

Provide industry advice on research

Peter Cook Centre for CCS Research Science Advisory committee

Provides overarching advice on storage and capture research and deployment programs and monitors the Centre’s research progress.

Peter Cook Centre for CCS Research stakeholder committee

Body made up of representatives from industry, Victorian Government Department of State Development, Business & Innovation, CO2CRC and UoM

6 University of Melbourne | Stakeholder mapping project report - Summary

6.Advancement and philanthropy Income from donations and bequests represented 2.4 per cent of the University’s total revenue in 20152. This increased from 2.1% in 20143. This amounts to $51.6 million in 2015 and $46.3 million in 20144. Donations and bequests from CU200 companies do not represent a material proportion of this however; this does not take into account potential future contributions which may be more significant.

7.Non-financial industry engagement The University engages with industry outside the key activity areas of research, scholarships, employment, governance and philanthropy. It also plays a vital role in engaging with industry to share its thought leadership, intellectual capital and inform practice. The value of these non-financial engagements is not easily quantified. These activities enable the University to realise its aspirations to be a sustainability thought leader that shapes public policy and industry practice.

8.Data limitations The priority for this project was to understand the number and nature of engagements, rather than the dollar value. Capturing the breadth of engagements gives an indicative picture of the University’s relationships with fossil fuel companies in various domains of activity. There is no central data system with consolidated information about the University’s fossil fuel company engagements. As such, there may be inconsistencies in the data provided from different areas of the University. The data is based on internal data from faculties, graduate schools and departments, Chancellery and University Services, as well as publicly available information found online. Data was sourced predominantly from the Science, Engineering, Business & Economics, and Architecture, Building & Planning faculties. All the data in this report is therefore indicative only and is not exhaustive or complete.

2

2015 Annual Report Volume 2, p. 6.

3

Ibid., p.118.

4

Ibid., p.139. 7 University of Melbourne | Stakeholder mapping project report - Summary

Investment Working Group Perspectives on Fossil Fuel Investment August 2016 This paper has been prepared by the Investments Working Group (IWG) and is being provided as input to the Sustainability Plan consultation. The IWG formed in early 2016 to understand the university’s relationships with the fossil fuel industry and provide recommendations for future strategies in accordance with the commitments of the Sustainability Charter. Perspectives are offered as examples of possible courses of action which the University may consider taking in relation to its financial investments. They provide some points of reference surrounding possible actions and are by no means exhaustive or mutually exclusive. Introduction The University of Melbourne is founded on the belief that investment in education and research is our most valuable asset. The University’s researchers have been prominent in highlighting the issue of climate change, and its potential implications for future generations. The moral case for the University to back its own research with strong ethical and sincere “climate” leadership is evident in the wording of the Sustainability Charter 1, including the commitment to: “Implement investment strategies consistent with the University’s commitment to sustainability and its financial and legal responsibilities” A useful benchmark for establishing “climate” leadership is provided by recent Paris determinations, as endorsed by our Federal Government, for global action amounting to Greenhouse Gas (GHG) reductions of 3-4% on 2010 levels each year until 2050 2 (see separate discussion paper). “Climate” leadership requires the University to set and meet bold operational targets, to invest in research 3, teaching and engagement on how best achieve those targets at minimal cost and enhance partnerships with external organisations with like-minded objectives. As with the question of how the University commits to reducing its own GHG footprint, the question of how the University manages investments in GHG-intensive industries is germane. The Investment Working Group acknowledges that the current operational activities of the University are contributing to carbon emissions. To what extent should the University’s climate leadership ambitions be focussed on investment in activities that could lead to more plausible pathways to global emissions reductions? 1

http://sustainablecampus.unimelb.edu.au/__data/assets/pdf_file/0011/1833266/UoM_Sustainability-Charter_Feb_18.pdf Or, equivalently, for a 6-8% of the annual emission level, as described in discussion paper Direct investment in relevant research is conducted mainly through the auspices of the Melbourne Energy Institute, and Melbourne Sustainable Society Institute and the Australian German College of Climate and Energy Transitions.

2 3

A. Divestment Full Divestment from Fossil Fuel stocks - Carbon Underground 200 approach The Carbon Underground 200 is comprised of the top 100 publicly-listed coal companies and top 100 publicly-listed oil and gas companies in the world, ranked by the CO2 emissions potential of their listed reserves. These companies represent 98% of proven and probable listed reserves, and about 24.5% of the world’s total proven and probable reserves. Divesting from these companies would reduce the overall emissions profile of the University’s portfolio. The significance of targeted divestment from the Carbon Underground 200 is both a financial and political statement emphasising the urgent need for a transition away from fossil fuels. The Carbon Underground 200 divestment approach is to immediately cease purchasing any new shares in companies in the Carbon Underground 200 and to completely divest existing shares in those companies within five years. This approach focuses on the role of fossil fuel use in driving climate change while also achieving some of the same immediate effects of a carbon intensity reduction strategy. A wider community movement sees commitment to divestment as a way of removing the social licence of the fossil fuel industry to obstruct the development of necessary climate policy. This approach also seeks to draw attention to, and potentially deflate, the carbon bubble forming around fossil fuel assets which will be stranded in any reasonable climate change mitigation scenario. Divestment from stocks based on portfolio emissions intensity The carbon footprint of a portfolio can be reduced without singling out fossil fuel extraction companies. The dominant alternative approaches begin with measurements of the carbon intensity of companies (CO2 equivalents emissions per dollar revenue). The University can then set targets for the total emissions intensity of the portfolio; sector-based targets for emissions intensity; and/or targets regarding the percentage of ‘top performers’ across the whole universe or in any individual sector, including fossil fuels. This latter approach is called ‘carbon-tilting’, and is aimed at limiting investments to the top performers in terms of carbon intensity in a given pool. B. Engagement – pathways to decarbonisation Human GHG emissions are derived by the burning of fossil fuels, as well as through land-use and waste treatments. Fossil fuels are supplied as part of an international trade system for electrical power generation, heating, transport and for various industrial uses including production of plastic and fertilisers. The structure of our economy, and the way of our life, is deeply wedded to our demand for fossil fuels. As a consequence, almost every part of the way we conduct University life contributes to GHG emissions.

The way the University directs investments can signal its recognition for the need to address climate impacts of GHG emissions. Key questions that should focus the use of the investment lever include: (i) to what extent should the strategy be used as carrot to encourage emissions reductions in line with our own and/or globally agreed objectives, or should it be used as stick to exclude associations with organisations that contribute substantially to the problem? (ii) to what extent should the strategy be focussed on supply-side activity (fossil fuel production) versus demand-side activity (fossil fuel consumption including transport, and land use)? The strategy should be mindful that the University’s own activities result in significant GHG emissions (towards 200,000 tonnes per annum of stationary and transport emissions). That is, the University contributes to the problem. Any signalling needs not only be ethical and sincere, but also to acknowledge the benefits the University has obtained through its past and ongoing use of carbon-intensive energy. The investment strategy should canvas the best way to encourage carbon-intensive industries to work towards ensuring globally agreed emissions targets, in line with the strong research contribution made by University researchers, and engage with the University’s commitment to focus on the grand challenge of delivering an affordable, secure and environmentally sustainable energy system. C. Nuanced Approaches Partial Divestment The theory underpinning divestment from the Carbon Underground 200 also supports divestment from subsets of that list, albeit with proportionally less effect the fewer companies are captured. These subsets include divisions by resource (coal, oil, and gas) or type of company (purely fossil fuels or more diversified resource companies). Divestment commitments can also be made on the basis of the proportion of a company’s revenue drawn from fossil fuel use, theoretically capturing certain investments in logistics, infrastructure, finance and other industries. This can have a similar impact to divestment from the Carbon Underground 200 but carries a unique risk; if too weak a target proportion is set, too few companies will be captured, including some mixed-play fossil fuel companies; if too stringent, companies with substantial but diversifiable revenue streams in fossil fuels will be captured. Develop and implement Terms of Investment in fossil fuels The University as a climate conscious investor could develop a framework which sets out specific terms for its engagement and continued investment in a fossil fuel and or carbon intensive company. The framework developed may use or build on the work already done

by others such as the Oxford Martin Safe Carbon Investment Initiative http://www.oxfordmartin.ox.ac.uk/publications/view/2073 which is based around 3 core questions: •

1) Science: Has the company accepted the science that climate stabilisation (at any temperature increase) requires net zero carbon dioxide emissions?

•

2) Strategy: Does the company have a strategy to limit future committed cumulative carbon dioxide emissions during the transition to net zero?

•

3) Milestones and Metrics: Has the company provided milestones and metrics to allow investors to monitor their progress in implementing their transition plan?

If the answer to all three of these headline questions is ‘yes’, and supported by a convincing narrative strategy, then investors have a clear case for remaining engaged with that company and providing capital to support their transition. Climate positive investment strategies Out of crisis comes opportunity. As the world has commenced the journey to decarbonise, the development of climate positive technologies (such as renewable energy) has increased exponentially to the point that proven technologies now represent potential lucrative investment opportunities to investors. The University may consider mandating that a part of its portfolio standard asset allocation be invested in climate positive investment opportunities as a specific action towards addressing climate change and assisting achieve of a 1.5 degree world.

Investment Working Group Membership: Rachel Webster (Chair) Sion Lutley Dan Baird Clare Walker

Mike Sandiford Anisa Rogers Elaine Hynes Bob Welsh

 

What  does  the  Paris  Agreement  mean  for  The  University  of   Melbourne’s  investment  strategy?   A   discussion   paper   prepared   by   Kate   Dooley   (PhD   student)   and   A/Prof   Malte   Meinshausen   (Director,   Australian-­‐ German  Climate  and  Energy  College)  

International  Context   1

2

With  more  than  95%  of  the  global  emissions  covered  by  countries  that  put  forward  targets,  the  Paris  Agreement ,   adopted   in   Dec   2015,   is   a   turning   point   in   the   global   efforts   to   limit   climate   change   and   reduce   anthropogenic   greenhouse   gas   emissions.   The   Paris   Agreement   changed   the   international   framework   that   will   drive   national   policy-­‐making,  local  initiatives,  and  the  business  and  investment  landscape.     Specifically,  the  Paris  Agreement  sets  out  multiple  targets  of  relevance:     • a  keeping  global  warming  well  below  2°C  (Art.  2.1)   • pursue  efforts  to  limit  temperatures  to  below  1.5°C  (Art.  2.1).     • Peaking  global  emissions  as  soon  as  possible  (Art.  4.1)  and     • Achieving  net-­‐zero  greenhouse  gas  emissions  in  the  second  half  of  this  century  (Art.  4.1).     The  cumulative  amount  of  carbon  dioxide  (carbon  budget)  that  can  be  emitted  in  order  to  meet  these  targets  is   finite  and  rather  limited.  On  current  emission  trajectories,  these  carbon  budgets  that  are  compatible  with  having  a   likely  chance  of  staying  below  2°C  or  a  medium  chance  of  staying  below  1.5°C  will  be  exhausted  in  the  2030s  or  by   3 2025,   respectively .     The   Paris   Agreement   anticipates   that   overshooting   of   the   carbon   budget,   as   Art.   4.1   effectively  implies  that  carbon  has  to  be  taken  out  of  the  air  again.     This   small   remaining   carbon   budget   means   that   current   emission   reduction   efforts   have   to   be   radically   increased,   and  all  countries  will  have  to  ratchet  up  their  targets  significantly.  Alternatively,  any  carbon  emissions  in  excess  of   the   permissible   carbon   budgets   will   have   to   be   taken   out   of   the   atmosphere   again   (e.g.   via   biomass   and   carbon   4 sequestration  and  storage  (CCS)  or  by  likely  costly  air  capture  technologies) .     Fossil   fuels   and   industrial   emissions   constitute   about   85%   of   current   global   anthropogenic   carbon   dioxide   5

emissions ,   with   15%   from   land   use.   Many   mitigation   scenarios   assume   CCS   technology   to   abate   any   reminder   fossil-­‐related   emissions   after   a   strong   decline.   In   cost-­‐optimal   2°C   scenarios,   the   IPCC   projects   that   the   global   electricity  sector  (mainly  coal  and  gas)  will  cause  net-­‐zero  emissions   by   2050,   around   20-­‐30   years   earlier   than   the   economy   as   a   whole   (as   e.g.   net   positive   transport   emissions   are   projected   to   continue   6

longer) .     Figure   1.   The   US   Dow   Jones   Coal   Index.   Large   declines   in   shareholder   prices   7 over  the  past  5  years .  

                                                                                                                        1

 See  Figure  6  in  UNFCCC  Synthesis  Report,  May  2016,  available  here:  http://unfccc.int/focus/indc_portal/items/9240.php    The  Paris  Agreement  is  available  here:  http://unfccc.int/paris_agreement/items/9485.php   3  See  Figures  11  and  13  in  UNFCCC  Synthesis  Report,  May  2016,  ibid.     4  See  e.g.  IPCC  Working  Group  III,  2014  on  a  comprehensive  overview,  available  here:  http://www.ipcc.ch/report/ar5/wg3/   5  The  remainder  15%,  or  11%  of  the  global  GHG  emissions,  arises  from  the  land-­‐use  sector.  See  Fig  SPM.1  in  IPCC  WGII,  page  7,  ibid.     6  See  e.g.  Fig.  SPM.7  in  IPCC  WGIII,  ibid.     7  For  a  10-­‐year  view,  in  which  the  coal  index  shrank  83.5%,  see  here:   https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1469602772835&chddm =985582&chls=IntervalBasedLine&q=INDEXDJX:DJUSCL&ntsp=0&ei=WluYV-­‐n0L8mF0gSK2ILAAg   2

Kate  Dooley  and  Malte  Meinshausen   Australian-­‐German  Climate  and  Energy  College  

The   transition   from   fossil   fuels   towards   renewables   is   starting   to   happen.   Investments   in   renewable   energies   8 9 today  ($286  billion  globally  in  2015 )  account  for  nearly  half  of  all  new  power  generation  capacity .  This  leads  to   financial  risk,  with  the  shareholder  value  of  coal  companies  plummeting  in  many  regions.  For  example,  the  Dow   Jones   U.S.   Coal   Index   dropped   from   334   in   2010   to   less   than   a   tenth   of   its   value   by   the   end   of   2015   (see   Figure   1).   While  the  pressures  on  coal  are  different  in  different  regions,  the  long-­‐term  risk  towards  any  coal  assets  is  globally   shared:  the  world  has  committed  to  limit  climate  change.  Due  to  being  the  most  carbon  intensive  energy  carrier   and   ever   increasing   competitiveness   of   renewables   (which   render   the   option   of   coal   plus   CCS   as   being   economically  difficult),  coal  is  set  to  loose  its  dominant  position  in  the  world  energy  mix.    

Implications  for  Australia   For  Australia,  this  new  international  landscape  presents  a  number  of  challenges  (and  opportunities).  These  can  be   characterised   as   meeting   international   commitments,   distribution   of   these   commitments   across   the   different   economic  sectors,  and  the  associated  financial  risk  for  investment  strategies.     As   part   of   its   efforts   towards   delivering   the   Paris   Agreement,   Australia   has   committed   to   reduce   emissions   10 below   2005   levels   by   26-­‐28%   by   2030 .   According   to   the   Climate   Change   Authority,   appointed   to   provide   independent  expert  advice  on  climate  change  to  the  Australian  Government,   Australia’s  2030  target  falls  short  of   its  fair  share  of  the  international  effort  to  limit  warming  to  well  below  2°C.  Australia’s  2030  target  is  substantially   11 12 weaker   than   that   recommended   by   the   Authority   (40-­‐60%   reductions   by   2030 ).   The   Authority’s   recommendations  are  based  on  looking  at  Australia’s  fair  share  of  the  international  effort  –  determined  by  what   the  scientific  evidence  is  telling  us  we  need  to  do  collectively,  and  what  other  comparable  countries  are  doing.   Australia’s   targets   will   need   to   come   into   line   with   its   international   commitments   in   the   near   future,   with   13 ratcheting  up  of  targets  built  into  both  domestic  and  international  policy .  Stepping  up  action  on  climate  change   to  be  in  line  with  the  Paris  Agreement  would  require  Australia  to  meet  the  upper  end  of  its  2020  target,  and  to   ratchet   up   its   2030   target   to   be   in   line   with   international   action   on   climate.   As   Figure   2   shows,   this   implies   a   steep   emissions   reductions   trajectory   for   Australia,   although   the   annual   reduction   rate   will   be   dependent   on   emission   levels  in  2020  (with  earlier  reductions  being  more  cost  effective),  and  changes  to  the  2030  target.    

                                                                                                                        8

 See  Fig.  35  in  REN21,  Renewables  2016  –  Global  Status  Report,  available  here:  http://www.ren21.net/wp-­‐ content/uploads/2016/06/GSR_2016_Full_Report_REN21.pdf     9  IEA  World  Energy  Outlook  Special  Report  “Energy  and  Climate  Change”,  2015,  available  at   https://www.iea.org/publications/freepublications/publication/weo-­‐2015-­‐special-­‐report-­‐energy-­‐climate-­‐change.html   10  See:  http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/4008133/upload_binary/4008133.pdf.  Also  Australia’s  INDC,  Available:   http://www4.unfccc.int/submissions/INDC/Published%20Documents/Australia/1/Australias%20Intended%20Nationally%20Determined%20Co ntribution%20to%20a%20new%20Climate%20Change%20Agreement%20-­‐%20August%202015.pdf   11  Statement  by  the  Chair  of  the  CCA,  14  August  2015.  Available:   http://www.climatechangeauthority.gov.au/sites/prod.climatechangeauthority.gov.au/files/files/CFI/CCA-­‐statement-­‐on-­‐Australias-­‐2030-­‐ target.pdf   12  Against  a  2000  baseline  –  this  recommendation  would  be  equivalent  to  a  45-­‐63%  reduction  if  based  on  a  2005  baseline,  comparable  to  the   Governments  2030  target,  and  the  CCA  recommended  a  2025  target  of  36%  when  using  a  2005  baseline.   13  The  Government  will  review  its  climate  policies  in  detail  in  2017-­‐2018  (see:   http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/4008133/upload_binary/4008133.pdf),  which  is  in  line  with  the  timeframe  for   the  first  international  review  to  take  stock  of  collective  progress  towards  the  long-­‐term  goal  in  the  Paris  Agreement,  scheduled  for  the  end  of   2018.  

Kate  Dooley  and  Malte  Meinshausen   Australian-­‐German  Climate  and  Energy  College  

  Figure  2.  Absolute  (top)  and  per-­‐capita  greenhouse  gas  emissions  (bottom)  for  Australia  and  other  countries  historically  (1990-­‐ 14 2014)   and   according   to   their   submitted   INDC   pledges   (dashed   lines) .   Note   that   the   aggregate   effect   of   all   pledged   INDC   15 emission   levels   by   2025   and   2030   is   considered   insufficient   to   meet   the   Paris   Agreement’s   goals   and   hence   a   ratcheting-­‐up   mechanism  is  expected  to  lead  to  a  continuous  improvement  of  the  pledged  INDC  mitigation  efforts.    

Abatement  across  all  economic  sectors  is  not  equal,  in  terms  of  costs  and  feasibility.  The  most  recent   government  data  shows  that  Australia’s  emissions  were  stable  in  2015,  with  increases  from  the  electricity,   transport  and  industrial  processes  sectors  being  offset  by  a  decline  in  emissions  from  fugitive  emissions  and   16 agriculture .  As  Figure  3  shows,  historically,  much  of  Australia’s  abatement  has  come  from  the  land-­‐use  (LULUCF)   sector.  Yet  current  initiatives  would  suggest  that  the  electricity  sector  is  set  to  rapidly  decarbonise.  In  2015   17 renewable  energy  dominated  new  major  electricity  generation  projects.  In  2016  the  Victorian  government   18 announced  ambitious  2020  and  2025  targets  for  renewable  energy  generation .  A  2015  letter  from  the  Australian   Climate  Roundtable  noted  that  unconstrained  climate  change  would  have  serious  economic,  environmental  and  

                                                                                                                       

 Source:  climatecollege.unimelb.edu.au/indc-­‐factsheets      See  UNFCCC  Synthesis  Report,  available  at  http://unfccc.int/focus/indc_portal/items/9240.php    Quarterly  Update  of  Australia’s  National  Greenhouse  Gas  Inventory:  December  2015.  Available:   https://www.environment.gov.au/system/files/resources/7c0b18b4-­‐f230-­‐444a-­‐8ccd-­‐162c8545daa6/files/nggi-­‐quarterly-­‐update-­‐dec-­‐2015.pdf   14 15 16

17

 The  Electricity  Generation  Major  Projects  Re3port,  November  2015.  Available:  http://www.industry.gov.au/Office-­‐of-­‐the-­‐Chief-­‐ Economist/Publications/Documents/megp/2015-­‐Electricity-­‐Generation-­‐Major-­‐Projects.pdf  

National Inventory Total (including Land Use, Land Use Change and Forestry) a

530.1

535.7

includes deforestation, afforestation/reforestation, forest management, crop and grazing land management

1.1% Kate  Dooley  and  Malte  Meinshausen   Australian-­‐German  Climate  and  Energy  College  

19 Thesocial annual emissions byustralia,   sector from year to December 2005 to 2015 presented in eFigure 5. This impacts   on  A and  athe long   with   other  countries   we   will  nare eed   to  reduce   missions   to  zfigure ero  or  below .  A   illustrates relative contribution to Aemissions of the sectors in Table 2. Theto   quarterly and annual review  the from   the  Climate   Change   uthority  of on  each cost-­‐effective   policy   measures   meet  Australia’s   targets,  including   20 changes in emissions each of these sectors are presented section 2 of this report. an  analysis   of  the  for electricity   sector,   is  expected   by  the  inend   of  August   2016 ,  which  will  shed  more  light  on  the  

abatement  opportunity  across  different  economic  sectors.   Figure 5: Emissions by sector, Australia, annual, year to December 2005 to 2015 700 LULUCF 600 Waste

Emissions (Mt CO2-e)

500

Agriculture

400

Industrial processes and product use

300

Fugitive emissions

200

Transport

100

Stationary energy excluding electricity Electricity

0

Year to December

 

Source: Department of the Environment.21

Fig  3.  Annual  emissions  by  sector,  Australia,  year  to  December  2005-­‐2015  

For this Quarterly Update, revisions to data and methods have been applied, consistent with methods used in the The   confluence   of   international   and   domestic   policy   changes   can   be   expected   to   impact   on   the   Australian   coal   National Inventory Report to be submitted under the Australian Government’s reporting commitments under the industry  in  several  ways.   United Nations Framework Convention on Climate Change and the Kyoto Protocol (see 4. Technical Notes). For  one,  seaborne  international  demand  for  thermal  coal  will  likely  continue  a  downward  trend.  This  is  partly  due   to  increased  competition  from  gas,  an  economic  downturn  in  China,  but  also  due  to  the  systemic  long-­‐term  shift   away  from  coal  for  air  pollution  and  climate  reasons.     Quarterly Update of Australia’s National Greenhouse Gas Inventory: December 2015 / 7

The   second   challenge   will   be   the   increasing   pressure   in   the   domestic   market   on   coal,   partly   due   to   increasing   renewable  energy  resources,  energy  efficiency  and  the  public  demand  for  climate  mitigation  action.     Taken   together,   the   Paris   Agreement,   the   urgency   of   mitigation   action   to   achieve   those   goals   and   the   changing   international   climate   and   energy   landscape   present   a   number   of   risks   for   an   investment   portfolio,   such   as   the   one   22 of  the  University  of  Melbourne.  Climate  projections  for  Australia ,  with  increases  in  heatwaves,  rainfall  extremes   and   bushfires   already   happening   and   predicted   to   worsen,   will   impact   Australia’s   natural   resource   sector,   underscoring  the  urgency  of  Australia  meeting  its  international  commitments  on  climate  change.    

                                                                                                                                                                                                                                                                                                                                                                                              18

 In  June  2016,  the  Victorian  Premier  announced  that  25%  of  electricity  generation  in  the  state  will  come  from  renewables  by  2020,  ramping  up   to  40%  by  2025:  http://www.premier.vic.gov.au/renewable-­‐energy-­‐targets-­‐to-­‐create-­‐thousands-­‐of-­‐jobs/   19  Australian  Climate  Roundtable:  Joint  Principles  for  Climate  Policy.  Available:  http://www.australianclimateroundtable.org/wp-­‐ content/uploads/2015/06/Climate-­‐roundtable-­‐joint-­‐principles-­‐June-­‐29-­‐2015-­‐final-­‐embargoed.pdf   20  Timing  of  release  for  third  report  of  Special  Review:  http://climatechangeauthority.gov.au/node/293   21  Source:  Department  of  the  Environment.  In:  Quarterly  Update  of  Australia’s  National  Greenhouse  Gas  Inventory:  December  2015.  Available:   https://www.environment.gov.au/system/files/resources/7c0b18b4-­‐f230-­‐444a-­‐8ccd-­‐162c8545daa6/files/nggi-­‐quarterly-­‐update-­‐dec-­‐2015.pdf   22  CSIRO  and  Bureau  for  Meteorology,  Climate  Change  Projections  for  Australia.  Available:  http://www.csiro.au/en/News/News-­‐ releases/2015/New-­‐climate-­‐change-­‐projections-­‐for-­‐Australia