Australia: Review of Climate Change Policies: any bright ideas?

Last Updated: 31 March 2017
Article by Brendan Bateman

The Discussion Paper signals that the Government is open to ideas on how Australia's policy settings could help it meet emissions targets.

The Commonwealth Department of Environment and Energy released its Discussion Paper for the Government's review of current climate change policies on 24 March 2017. While it raises broad questions about what opportunities and challenges exist in the various sectors of the Australian economy, it offers no guidance as to how Australia is meant to achieve its 2030 emissions reduction target. You have until 5 May 2017 to make a submission and share your ideas on how the target can be reached.

Why is the Government reviewing its climate change policies now?

When the Government set its 2030 emissions reduction target of 26-28% below 2005 levels in 2015, it committed to undertake a review of its current climate change policies in 2017. The Paris Climate Change Agreement at COP21 was then agreed in December 2015, which Australia ratified in November 2016. Australia has since submitted its Indicative Nationally Determined Contribution (INDC) under the Paris Agreement confirming its current 2030 target.

Due to commence in 2020, the Paris Agreement gives parties an opportunity to review their INDCs in 2020, but obliges them to review them every five years. It further requires a "global stocktake" of all INDCs in 2018 to assess how likely it is that submitted INDCs' will achieve the goal of keeping the increase in average global temperature below 2 degrees C based on pre-industrial levels. This means that while the first mandatory review is not required until 2025, there may be pressure on Australia to review its current target well before then.

What is clear is that the current Australian target represents a minimum, and is challenging enough without whatever higher target might be required to achieve our share of the international objective under the Paris Agreement of net zero emissions by 2100.

It is in this context that the Review is being undertaken.

What climate change policies should be like

Unlike a Green Paper which identifies potential policy options, the Discussion Paper does not suggest policy to achieve the current 26-28% target. Rather, it provides a snapshot of various sectors in the Australian economy, their respective contribution to Australia's emissions profile and how current policies (such as the Emissions Reduction Fund, the Safeguard Mechanism and the Renewable Energy Target) are relevant to those sectors. It then asks similar broad questions about the opportunities and challenges of reducing emissions in each sector.

The Discussion Paper does posit that a "flexible and scalable approach to policy is important" – that is, the policies that are adopted should be capable of meeting not just Australia's current emissions reduction target but any increased target. Australia's primary policies currently comprise:

  • The Emissions Reduction Fund (ERF), which is entirely government funded, and the majority of which has already been expended to contract abatement of approximately 178 million tonnes of CO2e. The majority of the abatement is not contracted to be delivered until after 2020 and it remains to be seen if all of this abatement will in fact be delivered.
  • The Safeguard Mechanism, which is intended to ensure that overall emissions do not increase thereby undermining the objective of the ERF, by setting baselines for large emitting facilities. The Discussion Paper however acknowledges that the current baseline set for Australia's largest source of emissions, the electricity sector, is not expected to be breached any time before 2030.
  • The Renewable Energy Target which has only recently been reset at 23% of energy supply by 2020. There is likely to be little appetite at least at a Federal level to revisit the RET.

Scalable policy options which would enable Australia to achieve increasing emissions abatement to meet current (and likely more stringent) international targets are therefore limited based on the current suite of policies. The only current policy which has the potential to deliver significant additional emissions abatement is the transitioning of the Safeguard Mechanism from a prop to the ERF to a fully-fledged baseline and credit scheme. This would require the existing baselines for covered facilities to be ratcheted down, with the option of extending baselines to facilities below the current threshold (100,000t CO2e).

How the Finkel Review plays into this

Further, while the Paper acknowledges the current imperative of energy security, it maintains a position that the Government's approach to energy policy is technologically neutral. How this sits with the recent announcement of pumped hydro under Snowy Hydro 2.0 remains to be seen, but as Australia's aging coal fired generation fleet is closed, we need a policy environment that encourages long-term investment in the energy generation sector. The energy sector has its own ideas; the Government has already refused to consider a proposal by Australia's largest generators for an emissions intensity trading scheme to provide a pathway for low emissions energy generation. Clearly the outcome of the current Finkel Review is the elephant in the room, and will play a major role in shaping Australia's future climate change policies.

Without radical change, current policy options will not come close to achieving Australia's current emissions reduction target, let alone put the country onto the pathway to a net zero emissions economy. Long-term and scalable/flexible policies are essential to provide the greatest opportunity for a smooth transition which minimises adverse impacts on the Australian economy.

RELATED KNOWLEDGE

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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