Australia is likely to make a policy U-turn in 2017 to allow for the use of international carbon units to help it meet a potentially more ambitious 2030 emissions reduction target following Saturday’s agreement on a new global climate change deal, Environment Minister Greg Hunt said Monday.

There has been increasing speculation in Canberra in recent months that the coalition government would use its planned 2017 climate policy review to open the door for international carbon units, both in the government’s efforts to meet its the country’s obligations and for domestic efforts that will be regulated by the Safeguard Mechanism from July next year.

Hunt’s comments on Monday gave the clearest signal yet that the government is about to reverse its policy on emissions trading after Malcolm Turnbull replaced ousted Prime Minister Tony Abbott, an opponent of carbon markets.

“In 2017 we’ll look at the progress of our domestic policies but I’m extremely confident with them. What’s under consideration is whether or not we will then add international units and the new [Paris] agreement allows precisely for that. And my expectation is that we will have international units allowed in 2017,” Hunt told ABC News Breakfast.

“That will put us in a position so as when we approach 2020, we will be able to assess how we’re going, and if further action is needed the international units will provide that additional safety valve,” said Hunt.

Foreign Minister Julie Bishop last week raised expectations that Australia would change course on allowing emissions allowances when she announced the country’s support of a New Zealand declaration on carbon markets, which was eventually released on Saturday night in Paris with the backing of 17 nations.

The Paris Agreement included provisions that nations review their nationally determined emissions pledges every five years, and Hunt admitted Monday that the international community would expect Australia in 2020 to ramp up its target of cutting GHG emissions 26-28% below 2005 levels by 2030.

“And we argued for a new 2020 round of pledging and a 2025 round. So our international architecture is aligned with the domestic policy,” Hunt told a second ABC breakfast show.

TOUGHENING UP

The expectation that there will be pressure on Australia from other countries to up its target is in line with what observers both in Australia and abroad – who have generally characterised the 26-28% goal as weak – have said since Abbott announced it earlier this year.

“Australia’s current pledge of 26-28% below 2005 levels by 2030 is – like most countries – not consistent with the agreed goal of limiting global warming to 2 degrees C above pre-industrial levels. It will thus likely need to be deepened towards the 45-65% range recommended by the Climate Change Authority,” Kobad Bhavnagri, Bloomberg New Energy Finance’s head of Australia, said by email on Sunday.

“Deeper cuts in emissions imply that Australia will also need to hasten the deployment of renewable energy, make more concrete steps to reduce usage of fossil-fuels, especially coal, and develop more robust, scalable and non-government funded carbon policy if the emissions reductions are to be achieved domestically,” he added.

“This could involve a 2030 Renewable Energy Target, specific policy aimed at retiring coal-fired generators and increased regulations on, or pricing of, carbon emissions.”

CHEAP?

Allowing the use of international units would create an option for the government to meet a tougher target at lower cost and without major domestic reforms.

Australia recently confirmed that the Waste Industry Protocol deal with landfill owners had resulted in the acquisition of 22 million CERs that it would use towards meeting its 2020 target – Kyoto credits that market participants estimate cost less than AU$0.50each.

The potential cost of emissions units under the new international market mechanism that was agreed in Paris remains uncertain, as most of the rules guiding the new market have yet to be written.

Meanwhile, the issue of whether Kyoto units, of which Australia holds around 150 million, can be carried over into the post-2020 period is also unresolved and will likely be a hot topic at UN climate change talks over the next few years.

As a result, even if Australia changes its policy in 2017 and sets itself up to be a playerin an international carbon market in the 2020s, it is unlikely to buy any Kyoto credits until the rules are clearer.

However, the country is also not showing any signs of offering to cancel its remaining Kyoto units, despite calls from groups such as The Climate Institute, which on Sunday said Australia should follow the lead of five EU nations, which in Paris announced that they would void over 600 million of their surplus credits.

In the short-term, any immediate demand for Kyoto units from Australian buyers would likely come from the 140 big emitters covered by the Safeguard Mechanism, although analysts say they are unlikely to need many, if any, due to the generous emissionslimits under the scheme.

By Stian Reklev – stian@carbon-pulse.com

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