A change in government rhetoric could pave the way for a ‘soft start’ carbon market in Australia even without any changes to current policies, analysts said Wednesday.

The biggest impediment for development of an Australian emissions market is not current government policy, but regulatory uncertainty created by the government’s unwillingness to communicate where it intends to go with its Direct Action policy and the safeguard mechanism, analysts Reputex said in a new report.

“We believe that the government may be able to restore certainty to the market by simply changing its rhetoric and more clearly communicating its existing policy to the market,” it said.

“In doing so, we believe the government has an opportunity to position its Direct Action Plan – particularly the Safeguard Mechanism – as a ‘soft start’, fiscally responsible scheme, whereby the flexibility provided to companies (as currently designed) may be utilised to prepare high emitting companies for future compliance obligations.”

The safeguard mechanism limits CO2 growth for companies that emit more than 100,000 tonnes of CO2e annually, and buying offsets is one available make-good provision for those who miss their targets. In that way, the mechanism could provide the foundation for a baseline-and-credit scheme.

But critics say the limits have been set too high to have any impact at all, although there is scope to tighten the cap in the future. The government has repeatedly said that the mechanism will play a pivotal role to ensure Australia meets its 2030 emissions target, but has yet to detail how.

According to Reputex, Australia does not even need a ‘high ambition’ policy to get a market going, referring to emissions trading schemes in Europe and the United States that also started out with soft targets.

“Critically, in these markets, the timeline for the scale up of compliance obligations was clearly communicated from the beginning of the scheme, providing market participants with certainty over the long-term direction of the market, even though the detail and design of subsequent ‘market phases’ was set at a later point,” it said.

“Such an approach may suit the Australian market, whereby the Coalition may be able to maintain its current policy, yet simply provide greater transparency on the long-term direction of its Safeguard Mechanism. This may be done by communicating ‘market phases’ that more accurately match the design of its existing policy.”

Government purchases of offsets through the Emissions Reductions Fund account for the vast majority of carbon market activity in Australia, although a lack of fresh funding to the ERF in this year’s budget has caused industry groups to warn against a potential slump in coming years.

If the ruling Coalition wins this year’s general election, a climate policy review is due in late 2017, which Environment Minister Greg Hunt has said is likely to lead to Australia accepting the import of international carbon units.

Meanwhile, the opposition Labor party is finalising the design of an emissions trading scheme, possibly with international links, that it has said it will implement if it wins office.

By Stian Reklev – stian@carbon-pulse.com

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