Who will do the heavy lifting to meet Australia’s Paris commitments?

bradkerin Market Intelligence

by Peter Castellas, Chief Executive Officer of the Carbon Market Institute.

 

Australia’s abatement task keeps getting bigger. Something’s got to change.

Australia’s emissions projections in 2017 were 554 million tonnes. The emissions projections show that, at 2030, total emissions in the Australian economy will be 570 million tonnes. That is 4.5 per cent below 2005 levels, but an increase on 2017 and a long way off the 26-28 per cent reduction required. Emissions in 2030 are projected to grow by 3.5 per cent above 2020 levels!

On current government estimates, emissions need to fall by 868-934 Mt CO2-e in cumulative emissions reductions between 2021 and 2030. And that is without factoring in that our Paris commitments are currently a floor (not flaw!) and will need to be ratcheted upwards – Every nation including Australia has committed to continually increasing ambition in line with the pathway needed to limit temperature increases. I have no doubt, global pressure and scrutiny will come soon to Australia (amongst others), to increase their emissions reduction commitments.

So where are the emissions reductions going to come from? What policy levers are going to be pulled? And ultimately how will carbon be priced? These are pretty critical questions particularly for companies trying to model climate scenarios, calibrate their climate risk strategies and hedge for possible future carbon liabilities.

There are eight major sectors that make up our emissions profile that reductions need to come from: electricity, direct combustion, transport, fugitives, industrial processes, agriculture, waste, and land use change & forestry.

A lot of focus in Australia is on the electricity sector, and rightly so. The design of the National Energy Guarantee will be critical to determine the key policy question, of how much of the abatement task out to 2030 and beyond will be taken up by this sector. Whatever the decision it will then clarify the abatement burden on the other sectors – the other two thirds of the economy.

The Safeguard Mechanism is one of those policy levers that can be pulled. At present there are 155 responsible emitters that are covered by the safeguard, that encompasses 203 facilities that emit over 100,000 tonnes. Consultation is now underway on how Safeguard baselines will be made ‘fairer”. However, I think it is a serious omission if any proposed Safeguard changes don’t encompass arrangements for ratcheting down baselines over time and aligning them with our national emissions reduction targets.

With such a toxic and combative history of climate politics in Australia, it is somewhat understandable that governments (and alternative governments), are shy about using terms like carbon pricing, emissions trading and international linkage of markets. But business needs clear, long term policy signals for the private sector to play its important part in investing in emissions reductions. The longer we kick difficult, bold policy decisions down the road, the less competitive our businesses and economy will be – and the greater the burden, cost and climate risk will be a few years down the road.

With the government consultations and policy design work underway it is time to bring these policy decisions into alignment to clarify where our emissions reductions are going to come from. Emissions reduction may come at a cost, but the cost of uncertainty and inaction will be greater.

At CMI we want to continue to be constructive business voice to this complex challenge and elevate the dialogue above partisan politics. Join us as a member and/or attend our national summit and be part of the conversation.