Implications of the Coalitions climate policy Media Brief

Sep 13, 2013 - 11:30am

The new Coalition Government has said that it will seek to:

  • Remove a price and limit on Australia’s carbon pollution through the repeal of the Clean Energy Futures legislation. This would make Australia the first country to remove a carbon market.
  • Abolish the Climate Change Authority, which provides independent, non-partisan advice on Australia’s emission reduction goals and the effectiveness of policies to meet them.
  • Review, yet again, the Renewable Energy Target, which increases the share of electricity generated from renewable sources, and has driven $19 billion in clean energy investment since 2001.
  • Abolish the independent Clean Energy Finance Corporation and its $10 billion investment fund, which helps new low emission technologies enter the market.
  • Cut funding from the $500 million Australian Renewable Energy Agency, which supports the development of emerging low emission technologies like large scale solar power.
  • Cut funding from the Carbon Capture and Storage flagships program and the National Low Emissions Coal Initiative, which support carbon capture and storage (CCS), an essential technology for the world to achieve the required cuts in pollution.
  • Replace these with an Emissions Reduction Fund with a strictly limited annual budget to pay companies and landholders to cut their carbon pollution. The Coalition has committed $1.55 billion to this fund to 2016-17 (other small policies bring this to just over $2 billion).
  • Provide $9 million to the National Climate Change Adaptation Facility to continue coordinating research into adaptation to the impacts of climate change.

The net impact of removal of the carbon laws and other carbon polices (-$6.3 billion) and implementation of the Coalition’s climate policies (-$2.0 billion) is a cost of $8.3 billion to the federal budget.

Why does this matter?

Australia’s climate is already changing rapidly. Extremes of heat and rainfall have risen in frequency and intensity over the last several decades, bushfire weather is worsening, southern Australia is becoming drier, and sea levels continue to rise.  

Keeping global temperature rise below 2°C is vital to Australia’s national interest: analysis for Treasury found that a 3-4°C increase in global temperatures would see Australia suffer dangerous water shortages, incursions of pests and diseases, plummeting agricultural production, increasingly costly damage to infrastructure and regional instability. The increase to date of almost one degree is resulting in costly and risky intensification of extreme weather events and bushfire weather conditions.

The Coalition supports Australia’s commitment to cutting emissions by 5-25 per cent (on 2000 levels) by 2020. This commitment was repeated this in the final days of the campaign. The Coalition also supports the global but also national interest goal of keeping global temperature rise to less than 2°C above pre-industrial levels.

Achieving these goals requires a well-equipped toolbox. Each of the threatened institutions and laws can play a credible and complementary role in Australia’s response to climate change. The Coalition’s alternative policy remains unclear, and no independent analysis has shown that it can achieve substantial, absolute reductions in national emissions.

1)    Carbon pricing/emissions trading scheme: pricing and limiting carbon pollution

The current legislation, which prices and will set declining limits on the amount of carbon pollution that can be put into the air, is the main vehicle for enabling achievement of Australia’s bipartisan emission reduction targets.

A carbon price or penalty is necessary to provide a strong incentive for businesses to reduce their carbon pollution. When pollution is free, businesses will underinvest in clean energy and low emission options. The costs of carbon pollution are spread across society rather than accruing to the firm generating the pollution. Pricing carbon enforces the principle of ‘polluter pays’.

Setting a legally binding limit on the amount of carbon to be emitted allows the market to set the price. These limits also ensure that Australia can achieve its targets: any pollution above the limit must be offset. Addressing emission intensity – the amount of carbon pollution produced per unit of activity – is insufficient. Australia’s overall emission intensity has declined over recent decades but this hasn’t stopped a relentless increase in overall carbon pollution from industrial sources.

No independent assessment to-date has shown the Coalition’s policy as it stands is capable of achieving Australia’s targets. A generous assessments suggests the Coalition’s policy will see Australia’s emissions increase by around 9 per cent on 2000 levels by 2020 and produce around 40 per cent less domestic emission reductions than the current legislated framework.

Figure 1. Australia’s national emissions under current commitments and the Coalition’s policy framework. Source: The Climate Institute based on SKM MMA and Monash University.

 

2)    The Climate Change Authority: source of impartial expert advice on Australia’s action

The Climate Change Authority (CCA) is an independent body that operates similarly to the Productivity Commission, but with a focus on climate change policy and with an independent, balanced board. In contrast to a federal department, the role of a statutory body such as the CCA is established through legislation and is independent of ministerial control.

The CCA undertakes reviews and research to provide evidence-based, non-partisan advice on matters including Australia’s emissions caps, targets and carbon budgets, the operation of the Renewable Energy Target, and the Carbon Farming Initiative.

Carbon and climate policy have suffered from politicisation, flip flopping, confusion and uncertainty over the last few years. Australians have paid the price through inefficient policies, continually chopped and changed  policies, higher risk costs associated with investments, and inadequate action on our emissions.

The independent voice of the CCA is an opportunity to base future policy on a sound body of evidence rather than a political agenda.

Abolition of the CCA would mean that we lose an independent source of expertise, and future policy decisions are much more likely to be influenced by interest groups and short-term political imperatives. This increases the risk of poor policy outcomes, costing us all.

3)    The Renewable Energy Target: cleaning up our electricity supply

The Renewable Energy Target (RET) has been the main driver behind the growth in Australia’s renewable energy.

The RET supports clean energy investment through a market mechanism: renewable electricity earns certificates, which can be traded by electricity companies to meet a mandated proportion of their power supply renewable sources. The target for 2020 is 41,000 gigawatt hours, or at least 20 per cent of Australia’s electricity supply.

Significant progress has been made in tackling the high carbon pollution of Australia’s electricity sector:
  • $19 billion has been invested in renewable electricity generation since 2001;
  • Emissions from electricity have fallen 13 per cent since July 2008.
The carbon price complements the RET by making low emissions energy more competitive. Removal of the carbon price could jeopardise the 2020 targets as electricity companies may choose to pay a penalty rather than invest in renewable energy.

In addition, some business interests have called to the RET to be wound back. Uncertainty about the future of the policy has seen investment in the industry stall and this will continue until a stable policy environment emerges.

The last RET review, completed in late 2012, recommended a four-year interval between reviews, to provide certainty. The Coalition’s plan to review the RET yet again in 2014 is not helpful for the development of Australia’s clean energy industry.

4)    ARENA and CEFC: enabling a pipeline of low emission technologies

Even with the RET and the carbon price, electricity is forecast to remain the largest source of Australian carbon emissions (190 million tonnes in 2012) to the end of the decade. Other forms of energy - petrol, diesel, gas – also contribute a large share of our emissions. A range of clean energy and energy efficiency technologies is necessary in order to clean up the energy sector at the lowest cost.

While some of these technologies become commercially viable under the RET and the carbon price, others are in earlier stages of development.

The $3 billion Australian Renewable Energy Agency (ARENA) provides research and funding for emerging renewable energy technologies. More advanced technologies face market barriers to deployment.

The Clean Energy Finance Corporation (CEFC) provides $10 billion over five years in financing to “de-risk” investments in clean energy and energy efficiency and low emissions technologies. Returns on investment are expected to cover the costs of operation, so that the CEFC is self-sustaining. To date, the CEFC has invested $500 million for projects worth a total of $2 billion.

Both agencies help create a viable pathway for new low emission energy solutions to develop and enter the market.

5)    Carbon Capture and Storage : supporting a critical technology

Widespread deployment of carbon capture and storage (CCS) is likely to be necessary to achieve climate goals in the long-term. More research is needed to bring down the costs of the technology.

The CCS Flagships program contributes funding to projects such as Victoria’s Carbon Net, which could eventually capture carbon from the LaTrobe Valley’s high polluting generators and store it geologically. The Low Emissions Coal Initiative includes a national plan for carbon transport and storage infrastructure.

This research has global public interest benefits but, as it is pre-commercial, private actors will not replace state support. Cutting funding to these programs will stymie these efforts and threatens to waste the developments already gained.

6)    The Coalition’s proposed replacement policies: taxpayers pay polluters for inadequate results

The Coalition’s main vehicle for emission reductions will be an Emissions Reduction Fund (ERF), which will buy emission reductions from companies that submit tenders through a reverse auction. The ERF has a budget capped at $1.55 billion over the period to the end of FY 2016-17.

The Coalition also proposes to set up a baseline-and-credit mechanism for large emitting companies. This will establish emission intensity baselines for individual firms. Baselines will be based on past performance. Emissions above the baseline will be penalised. The way baselines will be established and the size of the penalty for exceeding baselines are yet to be determined.

Nowhere in the world to date have mechanisms of this kind achieved substantial, absolute emissions reduction.

Analysts have raised the following concerns with the Coalition’s policy:
  • Its budget is insufficient to reduce Australia’s emissions in line with the bipartisan target range, let alone drive greater emission reductions over the longer term
  • Applying a penalty only to emissions above a baseline subsidises current emitting activities and does not create a broad-based incentive for firms and individuals to invest in low emission technologies and activities. This gives high-polluting activities an unfair competitive advantage.
  • It undermines Australia’s national interest. A policy that cannot demonstrably meet Australia’s own commitments does not put Australia in a strong position to argue internationally for the levels of ambition needed to limit global warming to safe levels.  
Multiple analyses of the ERF have noted that it is likely to fail to achieve even the minimum 5 per cent emissions reductions target (see Figure 1) or require substantially more funding, with estimates ranging from $4 billion to $35 billion by 2020. Costs and emissions would balloon further: reaching $88 billion, and a 45 per cent increase in emissions, by 2050.

For the Coalition to achieve its minimum targets without extra finance it would need to rely heavily on additional regulatory interventions, such as emission performance standards for existing power stations, low emission requirements on new LNG plants and stringent fuel economy requirements for vehicles.

7)    The National Climate Change Adaptation Research Facility: the knowledge bank for climate readiness

Since its start in 2007, the National Climate Change Adaptation Research Facility (NCAARF) has become an important driver and coordinator for research into the impacts and costs of climate change and the ways in which Australia can best adapt. More recently NCCARF stepped up its focus on sharing these research findings with the private sector, levels of government and the general public.

The Coalition’s support of $9 million over three years will maintain this important knowledge bank in the short term, but ongoing support is needed over the long haul.  A serious due diligence approach to the looming risks would be to require a framework of action and disclosure about the costs and risks of two and four degree warming scenarios.  Neither major party ruled this in or out at the election.   

For more information    
John Connor | CEO, The Climate Institute | 02 8239 6299
Kristina Stefanova | Communications Director, The Climate Institute | 02 8239 6299
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