The Paris Agreement is the Mother of all Market Signals for Australia

bradkerin Media Release

Implementation of Australia’s climate policy will need to take place within the global context set by the Paris Agreement. The global emissions trajectory is down and the fast evolving carbon markets are driven by commitments made under the historic Paris Agreement signed last December. 

The Climate Change Authority’s (CCA) report Towards a Climate Policy Toolkit released yesterday comprehensively shows that carbon markets should play a central role in enhancing Australia’s climate policy “toolkit”.

The Carbon Market Institute has long advocated for the embedding of market mechanisms into Australia’s climate policy suite to achieve our domestic and international emissions reduction commitments.

“The use of market mechanisms to achieve Nationally Determined Contributions (NDCs) under the Paris Agreement is going to be a permanent and increasingly important feature of the global emissions reduction landscape” says Peter Castellas, Chief Executive Officer of the Carbon Market Institute.

Of the NDCs tabled by governments in Paris, over 90 countries included either an explicit intention to use, or left open the option of using, carbon markets.

“The developments in climate policy and carbon markets by countries in our region will impact our emissions intensive export markets; the price and supply of tradeable carbon units; and if our domestic market mechanism is well designed, it could open up some significant opportunities for trade in carbon – for both import and potentially export markets”, says Castellas.

Market-based approaches are integral to achieving Australia’s current and future targets with the cost-effectiveness and stability desired by business.

“The CCA report shows the benefits of engaging in international carbon markets as they develop under the Paris Agreement framework. Carbon markets are at integral to both an enhanced safeguard mechanism and electricity-sector emissions intensity trading scheme”, says Castellas.

“The inclusion of market-based approaches in our emissions reduction policies can unlock the sophisticated, innovative and well-developed expertise within Australian businesses and enhance Australia’s economic advantage in the transition to a low carbon economy”, says Castellas.

“A well designed safeguard mechanism that has baselines that decline over time in relation to our international target will send a price signal that will bring forward investment in carbon abatement and emissions reduction”, says Castellas.

“The CCA report highlights the role of carbon markets in achieving our emissions reduction goals and scaling up efforts over time, which works best when integrated with a suite of complementary emissions reduction policies”, he says.
“Australia’s existing domestic offsets scheme, is well designed and well governed. As demand grows from a safeguard mechanism for domestic units we have the capacity, particularly in the land-sector, to scale up supply and generate robust emissions reductions”, says Castellas.

“As the baselines under the safeguard mechanism inevitably tighten, the demand will grow for domestic offsets, but under a global demand scenario, an export market for domestically generated Australian Carbon Credit Units may also emerge”, says Castellas.

“If countries increasingly ‘ring fence’ their domestic supply to meet their own emissions targets, and the cheap international units created under the Clean Development Mechanism are soaked up by demand, Australia may become a source of global supply. If so we could leverage our capability, for example in land sector abatement, and create an export market for emission units”, says Castellas.

“In a post-2020 environment there is a real opportunity to export our domestic capability, carbon market expertise and potentially carbon credits to the world”, says Castellas.

“As the CCA report highlighted, the supply and demand characteristics of international credits and indeed the forward price beyond 2020 remains uncertain”, says Castellas.

“By playing an active role with the UNFCCC and our international partners, Australia can participate in the design of robust carbon markets in the post-2020 period and optimise our position. We also have a chance to align our aid, trade and diplomatic objectives to deepen support for emissions reduction among developing countries in our region as markets evolve and are linked”, says Castellas.

The Carbon Market Institute believes the CCA report makes a valuable contribution to informing the discussion on climate policy in Australia. CMI is coordinating our members’ views to provide input ahead of the setting of the Terms of Reference for the 2017 Climate Policy Review.

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For more information please contact Brad Kerin on mobile 0411 701 054 or by email at brad.kerin@carbonmarketinstitute.org.