The Productivity Commission released today recommendations from its five inquiries in the Meeting the Productivity Challenge report. There are several recommendations addressing investment in cheaper, cleaner energy and the net zero transformation.
The Carbon Market Institute (CMI) welcomed the Commission’s recognition of the critical role of market-based policy mechanisms to achieve net zero at least cost.
“CMI has long advocated that market-based mechanisms with broad economic coverage are the most efficient use of carbon markets to drive decarbonisation,” said Carbon Market Institute’s Director of Corporate Transition, Kurt Winter.
“This is especially important against the backdrop of the ambitious emissions reduction target range of 62-70% by 2035 that the government has announced earlier in the year. Australia will be held to its commitment at next year’s COP for which Minister Bowen will assume the Co-Presidency.”
Recommendations for reducing the cost of meeting emissions targets include the introduction of a policy to drive electricity sector decarbonisation. The Commission also recommended that the Safeguard Mechanism should cover more industrial facilities and carbon leakage provisions should be improved.
“Recognising the potential to strengthen our existing market-based mechanisms is a welcome perspective in the national climate policy debate. This will facilitate policy certainty for business investment while accelerating the pace of change towards Australia’s higher ambition 2035 target,” said Winter.
CMI also welcomed the Commission’s recommendation for the Australia Government to introduce a new market-based policy to drive electricity sector decarbonisation as a complement to the Electricity Services Entry Mechanism (ESEM) recommended by the National Electricity Market review.
“Additional market-based policy in the electricity sector beyond 2030 would support an efficient transition away from fossil fuel-based generation,” Winter added.
The Australian Government has committed to undertaking a review of the Safeguard Mechanism in the second half of 2026 and earlier CMI has release modelling to inform an evidence-based approach to the broadening and deepening of the scheme.
The modelling shows that a range of reforms and policies are needed to unlock greater abatement, for example a combination of changes to the Safeguard Mechanism and support for the ACCU scheme. Single small changes to the Safeguard Mechanism may not be enough to reach Australia’s emissions reductions target by 2035.
CMI made recommendations on applying frameworks to achieve emissions targets at least cost and improve transparency by continuing to ensure Australian Carbon Credit Units (ACCUs) are high integrity and seeking to integrate ACCUs in every national emissions-reduction policy in the long term so that organisations in hard-to-abate sectors face consistent incentives.
In line with the recommendations of the Productivity Commission, CMI renewed its call for the introduction of a Carbon Border Adjustment Mechanism (CBAM) for certain sectors rather than a baseline decline rate adjustment which allows carbon leakage to be addressed directly and equitably across sectors without compromising decarbonisation drivers.
CMI’s submission to the Productivity Commission Interim Report consultation.
CMI’s summary report of Safeguard Mechanism modelling.
Productivity Commission Report.
