Carbon Pulse Dialogues are discussions about carbon markets and climate policy by a selection of leading experts.
Australia has finally released its 2030 emissions target, but is it a fair contribution to fighting climate change? Will it require the government to design new policies, and could a carbon market emerge to help meet the target?
The government on Tuesday pledged to cut carbon emissions 26-28% below 2005 levels by 2030. A responsible and achievable target that can be met using current policies, said Environment Minister Greg Hunt.
Is that true? We asked some leading experts.
John Connor, CEO, The Climate Institute – @jconnoroz
Lloyd Vas, Managing Director, Carbon Market Advisory
Peter Castellas, CEO, Carbon Market Institute – @CarbonMarketIns
Elisa de Wit, Partner & Head of Climate Change, Norton Rose Fulbright Australia
Bret Harper, Associate Director of Research, RepuTex – @RepuTexCarbon
John Connor: By the basic key tests of climate science, economic competitiveness and community attitudes, the government’s proposed pollution reduction target of 26 per cent below 2005 levels by 2030 gets a “F” for fail.
But given that this is only an initial target and with mounting pressure from all sides including the growing majority of Australians, an unprecedented alliance of groups from business, union, research, environment, investor and social groups, and others of the 190 plus nations involved in the climate negotiations, there may still be a chance for the government to get this right.
This target fails climate tests because it would use up our share of a global carbon budget for avoiding 2 degrees warming by 2029. If others took this approach warming of 3 to 4 degrees would follow.
This target fails the competitiveness test because we would be the most pollution intensive economy in the developed world in 2030 still with the highest per capita pollution.
And this target fails the community test. A poll late last month showed two thirds of Australians wanted the Abbott government to take climate change more seriously.
So it should be remembered that this is an initial commitment. The big test will come when the final targets will need to be submitted after the Paris negotiations – in an election year.
We look forward to a much needed improvement in grades from both government and opposition.
Lloyd Vas: Australia has announced its INDC to reduce emissions by 26% to 28% below 2005 levels by 2030. Just how does this target compare with those of other comparable developed nations? Using the 2005 base year, the average emissions reduction target of developed nations is about 36% by 2030, leaving Australia towards the back of the pack.
In early discussions on setting the post-2020 target, it was suggested Australia would aim for a target broadly in line with the commitments put forward by the US and Canada. The US target is for a 26% to 28% reduction below 2005 levels by 2025. With its shorter time horizon, the US pledge equates to a more ambitious reduction of 40% by 2030. Canada, whose resource driven economy is similar in structure to that of Australia, has submitted a 30% reduction below 2005 levels by 2030. It is worth noting that the level of ambition put forth in Canada’s INDC is generally viewed by market commentators as being towards the lower end of the spectrum.
Irrespective of its level of ambition, Australia’s INDC is a target that requires a credible policy response. Over the past two years, Australia has reduced its renewable energy target and removed its price on carbon. Going forward, Australia’s national emissions are expected to rise as major LNG projects become operational. Australia’s current climate change policy, Direct Action, only allows for domestic abatement. With the historic cost of domestic abatement in the double digits, cheaper abatement options are required to meet this new target in a cost effective manner. Modelling on the cost to meet Australia’s INDC shows that GDP is reduced by 0.2% to 0.3% if international units are allowed, whereas the 2030 GDP cost would double to 0.4% to 0.6% if Australia continues to accept only domestic abatement.
Peter Castellas: While the government’s target may not seem to be aligned with the ambitions of key trading partners, the task to develop and implement effective domestic policies to meet even this moderate target should not be underestimated.
Focus will now rapidly shift to the policy suite the government intends to develop to meet the target. With the political toxicity of climate change policy in Australia over the past decade, the debate surrounding how we will achieve our target is sure to be intense.
We now need the focus to be on an effective, comprehensive domestic policy response and central to that is a market mechanism that effectively prices carbon.
The government have made it clear this week that a carbon tax or emissions trading will be not be part of their response.
For the Government, the key will be how the rules of the ‘safeguard mechanism’ (which allocates absolute historical emissions baselines for facilities, not companies, with direct emissions of 100 ktCO2e per year or more) can be implemented to include baselines which decline over time in line with increasing emissions reductions goals. The next few months will be a critical period for the development of the safeguard mechanism’s key design and operational features as the final rules will be hotly debated. Designed effectively, the safeguard mechanism could translate to being a baseline and credit mechanism that meets emissions reduction goals and become the primary long-term approach to manage emissions growth.
For the opposition Labor party, the question will be how their plans for an emissions trading scheme will effectively cap emissions and keep open opportunities to link and trade with other international markets.
If Australia is to be competitive and harness economic growth opportunities in a low-carbon world, we need to align our targets with key trading partners and implement the most efficient cost effective market mechanisms as part of our policy suite. The domestic policy response must provide an incentive for the discovery and deployment of least-cost abatement opportunities. Effectively pricing carbon through market-based approaches can achieve the twin goals of economic growth and emissions reduction while ensuring Australia has an effective and stable long-term policy.
Elisa de Wit: It is fair to say that Australia’s announcement of a 26-28% target for 2030 based on 2005 levels probably didn’t take too many carbon market participants by surprise.
One unknown, however, is exactly how we will reach the target. The primary tools identified are the Emissions Reduction Fund and the safeguard mechanism. Interestingly, a significant contribution to the abatement task (over 300 million tonnes) includes reference to both of these components for post-2020. This is interesting because the current $2.55 billion budget allocation to the ERF had always been portrayed as only contributing to meeting our 2020 target.
The implication appears to be that either future budget allocations will be made to the fund post-2020 or the government will seek to stretch out the existing allocation so that it extends beyond 2020. Indeed, the environment minister appeared to support the latter approach when he stated in an interview with the ABC that “we’ve allocated approximately $200 million a year for the ERF or $2.4 billion over the 12 years from 2018 to 2030”. This is a somewhat surprising statement given that in the first auction held in April over a quarter of the fund was spent and a reasonable percentage of this amount will fund abatement activity prior to 2018.
Another unknown is how the safeguard mechanism will function. Existing consultation documents would tend to indicate that the baselines will be relatively lenient and there will be a number of flexible compliance tools, such as multi-year compliance periods. At present, it is difficult to see that the mechanism will provide a real driver for emissions reductions or to that end, an alternative demand source for Australian Carbon Credit Units (ACCUs).
And as for the potential use of international units to meet our future targets, some commentators have already suggested that “other sources of abatement” is actually code for “international carbon units”.
Bret Harper: We view the government’s 26-28 per cent emissions reduction target on 2005 levels by 2030 as weak in that the government has simply extended Australia’s existing emissions reduction trajectory under the Kyoto Protocol rather than improving the national ambition in the context of broader global action.
Annual emissions would need to fall to 450 million tonnes (Mt) by 2030 to meet the minimum 26% target. Australian emissions are currently lower than 2005 levels due to reduced deforestation, lower electricity demand and the increased take up of renewable energy. Australia’s new 2030 target is therefore equivalent to a cut of about 20 per cent against current levels, which represents a decrease of just less than 8 Mt per annum for the next 15 years.
Such a modest target is seemingly achievable through the government’s $2.55bn Emissions Reduction Fund (ERF) if current emissions could be maintained. In theory this could be realised by the government’s safeguard mechanism, which is supposed to prevent increased emissions above historic levels. However, as currently proposed, the scheme will establish baselines too high to have any meaningful impact on the dramatic emissions growth over the next 5 years.
Resultantly, we project companies covered by this mechanism are likely to grow their emissions by around 20 per cent over the next decade without exceeding baselines established by the government’s safeguard scheme. The safeguard mechanism, as currently proposed, will therefore fail to safeguard against emissions growth – let alone work with the ERF to reduce emissions.
The government therefore continues to have a significant policy gap to fill in terms of how it will accomplish this target. Their laissez-faire reliance on “technology improvements and other sources of abatement” to achieve the target leaves the door wide open to any future emissions improvements, but suggests there really is no plan.
Compiled by Stian Reklev – stian@carbon-pulse.com
