The debate about Australia’s low-carbon future has been reignited

Bianca Sylvester, General Manger, Carbon Market Institute

As the leading business association dealing with climate change in Australia, the Carbon Market Institute has been at the centre of policy discussions to ensure a business voice is represented in the design and implementation of effective and stable climate policy. This article describes how the inevitability of reformed energy and climate policy in Australia, and new low-carbon developments in the Region, have reignited the debate about the country’s low-emissions future.

Following the recent withdrawal of the United States from the Paris Agreement, the Australian Government has reiterated its commitment to its national emissions target of a 26-28% reduction on 2005 levels by 2030, which it says will require additional abatement of about 1 billion tCO2e by 2030.  The Government has also just released the Final Report of its ‘Independent Review into the Future Security of the National Electricity Market’. The future of the electricity market will significantly impact how Australia achieves its emissions reductions targets, since coal fuels nearly 65% of electricity generation, well above the global average of coal fired generation of 41%. The Report, together with the ongoing National Climate Policy Review and ambitious low-carbon developments in Australia’s regional trading partners, therefore, has reignited debate about the country’s low-emissions future. Clarity is now needed on the mechanics of future energy and climate policies and how they will interact with each other and with international climate policy measures to achieve the national emissions reduction target.

Review of National Energy and Climate Policies

The recent Final Energy Security Report projects that electricity prices are highest in a business-as-usual scenario and recommends a comprehensive policy package to transition the Australian electricity sector toward a low emissions future. The Report highlights the need for a single, nationally agreed plan to manage the transition to a lower emissions economy that includes:

  • Strong progressive targets for decarbonisation, including a continuous emissions reduction trajectory to deliver investment certainty and absolute emissions reductions in line with Australia’s international commitments under the Paris Agreement
  • A credible and enduring emissions reduction mechanism that delivers emissions reductions at lowest cost; and
  • A Clean Energy Target (CET) as the recommended ‘’credible and enduring emissions reduction mechanism’’. Under the proposed CET, the point of obligation would be on electricity retailers whom would be required to demonstrate that a pre-determined share of their electricity comes from low emissions sources – either through purchasing low carbon sources of energy, or purchasing tradeable certificates to offset a certain quantity of emissions from fossil fuels.

There is an opportunity to link the proposed CET to the domestic and/or international carbon market, even though this is not captured in the Final Energy Security Report. The policy settings could allow for this type of fungibility to create flexible and low cost compliance options, while also stimulating significant private sector investment in domestic and/or international abatement.

The release of the Final Energy Security Report complements a National Review of domestic climate policies. The outcomes will inform how Australia’s existing climate policies can evolve to meet its international commitments under the Paris Agreement. These policies include: support for domestic abatement activities under the Emissions Reduction Fund; the Safeguard Mechanism which places emissions baselines on heavy emitting facilities; and the Renewable Energy Target.

Views of business in Australia

In response to the now inevitable reform of energy and climate policy, many businesses in Australia are echoing the views of businesses globally, and publicly advocating the importance of carbon pricing through policy mechanisms. In addition, it shares the view that:

  • Australia’s national emissions reduction target should be in line with the global response to climate change and efforts to keep temperature rises this century to 1.5 degrees to 2 degrees Celsius. It is recognized that Australia’s current emissions reduction target is a floor, and its ambition will need to be ramped up as part of the Global Stocktake process under the Paris Agreement.
  • Domestic policy settings will have to tighten in the near future to meet current and future targets, and that this will include a carbon price signal. Carbon pricing is well understood and utilised across Australian business. In a survey of major Australian businesses conducted by the Carbon Market Institute in 2016, 73% of the 208 respondents are factoring a carbon price in investment decisions.
  • Australia’s policy suite should be clear, comprehensive and enduring to create a stable and predictable policy landscape for business and stimulate the necessary private sector investment in clean energy and technology, emissions avoidance and carbon abatement. For example, with respect to the proposed CET, clarity is now needed on the mechanics of how the CET will work; its projected contribution to emissions reductions and how it will interact with other domestic and/or international climate policy measures.
  • Australian policy should evolve in parallel with developments in international markets, particularly among major trading partners who are implementing policies to achieve deep emissions reduction cuts. Australian business is particularly aware of the impact of China’s planned national carbon market and how it might impact trade exposed industries, transform business models and create new opportunities and markets to capture.
  • To meet emissions reduction targets at lowest cost to the economy, business should have the option to link and trade with international markets. The nature of Australia’s emissions profile - and its economic reliance on emissions-intensive industries -translates to some significant challenges when looking to achieve substantial emissions reductions.

The tri-fector of reformed energy and climate policy, and new low-carbon developments in the Region, are being labelled by many as a once-in-a-generation opportunity to drive Australia’s transition to a low-carbon economy. The debate in Australia has been reignited as the currently policy settings are being reviewed and reformed policies are being designed.