What Australia’s Election uncertainty means for climate policy

bradkerin Market Intelligence

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

As the CEO of Australia’s leading industry association for companies operating in the low carbon economy, I have been fielding a wide range of questions from members, media, other industry bodies and interested international observers on what the uncertain election results means for national climate policy. As the votes are still being counted, and we wait for a definitive result, I have taken the opportunity to provide some personal observations on the most frequently asked questions that have come across my desk in the last few days.

1. Can a hung parliament deliver good climate policy outcomes?

If history is any guide, the short answer is yes. In 2010 Julia Gillard formed a government with a ‘notional majority’ of 76 (supported by 3 Independents and a Greens Member of Parliament). A crucial influence on the Gillard Government’s actions was the agreement which the ALP reached with the Greens which had the balance of power in the Senate. This arrangement produced the Multi Party Committee on Climate Change that delivered the Clean Energy package including the Carbon Pricing Mechanism, the CEFC, and the Climate Change Authority. The likely scenario of a hung Parliament means that the importance that the lower House independents place on climate change will determine whether the current policies are re-negotiated. Whoever forms government, it is critical that the economic imperative for action on climate change be a non-negotiable in discussions with the new cross bench senators and lower house members.

2. Are we more or less likely to have bipartisanship in the next Parliament?

Both major parties took to the election a climate policy that forms the basis of a long term approach to meeting international commitments made under the Paris agreement. Based on commitments made in Paris, both major party policies would need to be implemented to incorporate progressively stronger market signals and a steeper trajectory of cuts. Ensuring the policy suite is effective in meeting international targets will be the basis of the Coalition 2017 review and the ALP’s design of a post 2020 ETS. In the campaign, the major parties did not focus attention on fighting over climate policy. Both major parties have a stake in the ground and political capital sunk in delivering on emission reduction commitments domestically and internationally. So with the key issues of difference lying in other policy areas, there is a strong prospect that climate policy will not be an area of contention in the short term leading to a more bipartisan (or multipartisan) approach.

3. If the coalition forms government will policy be settings be tightened or loosened?

The key coalition climate policy includes the Emissions Reduction Fund and the Safeguard Mechanism, which began operation on 1st July. With the uncertainty we are unlikely to see any more additional funding to the ERF announced in the short term. The Safeguard has begun with, arguably, very generous baselines that will see very few companies exceed emissions baselines. We are unlikely to see any backsliding as the safeguard mechanism provides a pretty soft start to the kind of market based mechanism that it could evolve into if baselines were set to drive emissions of covered entities below business as usual and correlate with international targets. It is important to note that adjusting or tightening of the baselines of the safeguard mechanism does not require a parliamentary vote. The wild card to this status quo would be if conservative forces within the ruling coalition try to unwind their own existing policy framework and commitments. This is unlikely as the policy was set by the cabinet presided over by Tony Abbott. Conversely, there may be accelerated strengthening of the safeguard mechanism should the Independents be united that this was a high priority to secure their vote. This may the case with Greens lower representative Adam Bandt but is not likely to be a major priority for other independents to warrant a major short term shift.

4. What would the Labor Party do on climate policy if it formed government?

The Labor party took to the election a comprehensive platform of policies to tackle the impacts of climate change. If the Labor party were to form a minority government they would have to seek support in both houses for a two stage Emissions Trading Scheme, a separate ETS for the electricity sector and ambitious renewable energy and 2030 emissions reduction targets. The Greens are likely to support this policy suite, with modifications. Labor’s shadow minister for Environment Mark Butler has signalled his intention for a more bipartisan approach to climate policy post-election, and so the opportunity does present itself under this scenario for Labor to either modify their approach and use the Safeguard mechanism as a basis to morph into a scheme that can effectively cap emissions or they can legislate to repeal the safeguard mechanism and introduce new legislation for the ETS. Although business would be concerned over another change to climate policy, there is an overall desire to see an enduring market mechanism that providers a clear market signal, sustains a market demand for domestic offsets and is not administratively complex.

5. How influential will Nick Xenophon be?

South Australian Senator Nick Xenophon and his team (NXT) will have significant influence in the next parliament – both the upper and lower house. Working closely with all sides of government, we are aware that Nick Xenophon has proven to be constructive in ensuring the parliament legislates good climate policy. He was instrumental in elevating the need to have some climate policy, following the repeal of the Carbon Tax in 2014, and negotiated amendments to the Carbon Farming Initiative Act that established the ERF and committed the government to putting the Safeguard Mechanism into legislation. Although he has campaigned strongly on other issues, he has a strong commitment to ensuring a market based approach to reducing emissions is adopted. In the Senate, Nick Xenophon has assumed a de-facto leadership position amongst the cross bench and with three colleagues now elected he will be a much greater positive force.

6. What impact will Pauline Hanson have?

Pauline Hanson’s One Nation Party, is a very conservative party that has secured at least one key senate position and possibly up to four senators. Her party’s position on climate change is summed up on the One Nation website by this comment: “Paying a carbon tax or an Emissions Trading Scheme (ETS) is not going to wave a magic wand and stop nature changing the climate change.” http://www.onenation.com.au/policies/affordable-energy. She advocates removal of all climate change legislation, walking away from UN commitments, abolishing the RET, holding a Royal Commission into the corruption of climate scientists and teaching of climate science in secondary schools based on the method of “scepticism until proven”. The views of One Nation will galvanise sceptics, who will rejoice at the airplay of their views, but I contend that it will force the major parties to clearly differentiate themselves from her views. This will aid in the alignment of major party views at the opposite, progressive end of the climate spectrum. The Greens have been consistent and strong in their position and we will need the coalition leadership and Labor leadership to be aligned in staring down vociferous opponents to strong action on climate change.

7. What will happen with the planned 2017 Policy review?

The government has determined to undertake a major review of climate policy in 2017. Business need certainty on climate policy to be able to invest, innovate, employ and navigate the transition to a low carbon economy. If the government is re-elected, they should move forward on the Climate Policy Review sooner rather than later. Key elements of the policy review will be to provide more certainty on how the Safeguard Mechanism baselines will decline; how the domestic offset market will be maintained and enhanced; how trading in carbon will occur domestically and internationally; and what the complementary measures are that the government will implement to ensure we meet our obligations under the Paris Agreement. Through the review, business associations, like the Carbon Market Institute need to actively engage to make it clear to all sides of politics, and directly to individuals opposing strong action, that uncertainty on climate policy will have negative economic impacts and inhibit investment in the inevitable low carbon transition. Delaying any policy review will increase uncertainty and it should be brought forward.

8. Is ratification of the Paris Agreement by Australia in doubt?

In Australia, ratifying the Paris agreement means tabling the document in Parliament and submitting it for scrutiny by the Joint Standing Committee on Treaties. Following the completion of the domestic process, each country then submits the instrument of ratification, acceptance or approval to the UN Secretary-General in New York. Australia has bipartisan support for the Paris agreement, so no impediments are likely to be encountered in the ratification process. However, we would want to see clear public statements from the leadership of the coalition, Labor, the Greens and the NXT party to confirm emission reduction commitments made under the Paris Agreement and a definitive intention to support ratification.