Nov 21, 2013 - 10:58am
- Australia’s carbon laws do not just put a price on emissions; they also include a declining cap, or limit, on emissions from the largest emitters. This cap covers around 60 per cent of national emissions. If emissions are above the cap, business need to cancel or “offset” this increase by investing in additional emission reductions in Australia or internationally.
- With the current laws in place, by default, Australia will reduce emissions by around 15 per cent on 2000 levels by 2020 (Figure 1). This is because, if the Government cannot get its proposed emission regulations through the Parliament, a default limit is triggered in the legislation that will automatically reduce emissions by at least 12 million tonnes a year.
- In 2020 this equates to reducing emissions by around 100 million tonnes from today’s levels. This roughly equates to equivalent of shutting down the power sector for six months.
- Based on previous analysis of the emission increases that occur under the current Direct Action Plan, in 2020 the difference in emissions between the default settings under the current laws the government’s policy would be around 120 million tonnes in 2020 or the equivalent of over a year’s emissions from the transport sector.
- Overall, with the default cap in place Australia would deliver roughly 790 million tonnes of cumulative emission reductions over the period 2013-2020. This is around 1.3 times Australia’s current total emissions. Previous analysis generously indicates the Direct Action Plan would deliver around 125 million tonnes of emission reductions over the same period.
- Overall, the default emission reductions achieved by the current carbon laws are at the lower end of commitments recommended by the independent Climate Change Authority – a 15 to 25 per cent reductions on 2000 levels by 2020.
- Note, this stronger target does not mean higher costs for business and consumers. With access to international action, Australia would likely be a carbon price taker on global markets. Our demand, even with more ambitious targets, would likely have a marginal impact on global prices in the European Union and elsewhere. This, to a significant extent, decouples Australia’s emission reduction ambitions from the prices faced by business and households. If Australia sought to achieve all the reductions domestically this would increase costs substantially.
Figure 1: The default impact of Australia’s carbon laws. The Climate Institute’s updated calculations of the impact of the default carbon limit in national legislation compared to Australia’s internationally committed emission targets. SKM MMA/Monash University’s 2020 emissions estimate under the Direct Action Plan is also indicated.
Australia current carbon laws are not just a price on emissions. From 2015, a declining emission limit, or cap, on the emissions of the nation’s largest emitters applies. This cap is the principle mechanism by which Australia is to achieve the target of up to 25 per cent emission reductions we have committed to under the Kyoto Protocol and other international agreements.
Assuming the legislation is still in place, the setting of the emission limits will occur in May 2014 after the Government has received the final report from the independent Climate Change Authority that will make recommendations on cap levels.
The Climate Change Authority has issued is draft report which concluded that:
- The conditions the government set to move beyond the minimum 5 per cent target have been satisfied.
- Two possible and more credible emission targets are 15 or 25 per cent reductions by 2020 and up to a 50 per cent reduction by 2030.
In the event that the caps do not pass through both Houses of Parliament, a default cap is triggered. This default cap was put in place to ensure that political disagreements in Canberra did not see Australia renege on international commitments.
If the repeal of the carbon laws has not succeeded by May 2014, focus on the default cap will increase. At this time, under current legislation the Government is required to develop regulations to cap emissions from July 2015. This will force attention on the Government’s emission reduction goals.
Using the latest date published last week by the Clean Energy Regulator and modelling published in October by the Climate Change Authority, The Climate Institute as calculated the default impact of Australia’s carbon laws.
Level of default cap: The default cap is defined by Australia’s FY 2012–13 emissions covered by the emission trading scheme. Based on the Clean Energy Regulator’s preliminary estimates of 2012-13 emission numbers and adjusting these to capture updated Global Warming Potentials, an estimate of 296 million tonnes is used. This is slightly lower than the Climate Change Authority estimate of 303 million tonnes.
This default cap is not a straight line decline and characterized by a 38 million tonne reduction in covered sector emissions on FY 2012–13 levels in FY 2015–16 and a 12 million tonne annual reduction thereafter. 2013-14 emissions:
For years 2013-14 there is no emission cap. Estimates of emissions in these years are taken from the Climate Change Authority’s mid-range sector level emission forecasts. Covered sector emissions:
The majority of emissions from the stationary energy, fugitive, industrial and waste sectors are covered by the emission cap. However, an important uncertainty is calculating the impact of the policy is that some emissions from these sectors are not covered by this emissions limit. For example, synthetic greenhouse gases and transport fuels used for stationary energy are covered by a carbon price rather than the cap itself. Emissions from legacy waste, decommissioned mines and facilities below the liability threshold of 25,000 tonnes are not covered at all. Consultancy Pitt&Sherry estimate uncovered emissions in these sectors in 2012 at around 50 million tonnes and that they have been relatively stable in recent years. In the base case, we assume that this stability continues to 2020.Uncovered sectors:
A critical assumption is the impact of policies on sectors not covered by the emissions trading scheme and cap. For the purposes of this paper, in the base case the latest mid-range emission forecasts by the Climate Change Authority where used in these calculations (transport, agriculture, and forestry and land-use change) minus the projected impact of the Carbon Farming Initiative. This includes the impact on transport emissions from subsectors subject to equivalent carbon prices and the impact of other emission reduction policies.
High end and low end projections are also performed using a 20 million to 60 million tonne contribution to nation emissions from covered sector emissions not covered by the cap and high and low global carbon price scenarios of the Climate Change Authority (Figure 2). This gives a range of emission reductions of 11-19 per cent on 2000 levels by 2020.
Figure 2: The default impact of Australia’s carbon laws – mid, low and high range estimates.
Australia’s emission bonus:
These calculations do not include Australia increasing its emission reduction ambitions by using its left over emission credits from our first Kyoto target period (2008-2012). The use of these units allows Australia to increase ambition at little cost by around 90 million tonnes over the period to 2020. For more information
Kristina Stefanova | Communications Director, The Climate Institute | 02 8239 6299