What the EU-Australia link means for global climate change policy Opinion Article

Nov 21, 2012 - 9:30pm

This article first appeared in Carbon Finance on 21 November 2012.

By Erwin Jackson, Deputy CEO of The Climate Institute 

Those working towards an international climate change agreement gave a big sigh of relief when the Australian government finally announced its commitment to take on a new target under the Kyoto Protocol. The climate negotiations are a complex set of moving parts. Movement in one area loosens the cogs and creates movement elsewhere. Australia is just one country, but it has influence on others in the talks.Kyoto participation also helps guarantee Australian business straightforward access to

UN emission credits to meet their obligations under domestic carbon laws – this was a key determinant of Australia’s posture on Kyoto.

Australia’s decision to take on a new Kyoto target was the latest in a line of moves to boost its environmental credibility: new carbon laws came into force in July and, just over a month later, the government announced it would join Australia’s carbon
programme to that of the EU.

There have been some domestic developments we did not view so favourably. For instance, we have argued for a longer term price floor within the Australian carbon market, rather than the initially-planned three year one, because of the predictability a carbon price provides investors and because it helps avoid locking in highly emissions-intensive technologies. It is one of the reasons the UK and California have a price floor and why China is considering floors in its emerging pilot schemes.

The Australian government abandoned the floor, however, and that was disappointing. Without a minimum carbon price or strong limits on the import of international offset credits from developing countries, Australian carbon prices would have fallen to single digits in 2015, when the market transitions to a floating price.

But linking with the EU Emissions Trading System and simultaneously limiting the use of carbon credits from developing countries should help to ensure Australia’s carbon laws don’t become a toothless tiger. We can be confident as we move forward that Australian prices will be substantially higher than past forecasts of a A$5 (US$5.19) carbon price by 2020 in the absence of a floor. This fundamentally changes the way firms will look at investments over the next few years.

While in the short-term the link does little to boost much needed ambition on emission reduction efforts, the real opportunity in the Australia-EU carbon market linkage lays in building a regional emissions trading coalition that draws in developing countries and helps boost global ambition.

The growing appetite for emission trading mechanisms in Asia is illustrated by the development of South Korean and Chinese markets and also potentially those in Vietnam and Thailand. This is a real opportunity for Australia and the EU to act strategically in Asia to boost domestic and international efforts to reduce emissions.

Using the combined diplomatic weight and strong relationships in the region, Australia and the EU should be seeking to collaborate on how to connect emerging emission trading schemes and the targets developing countries are setting.

They can and should be seeking arrangements that would allow them to buy credits from countries such as Indonesia if they cut emissions more than the targets to which they have committed internationally. These could include explicit provisions in offsetting rules that encourage sectoral or national crediting mechanisms from developing countries.

Such arrangements could provide better incentives for developed countries to pledge and exceed their emission targets. Such arrangements would also allow a greater range of emissions reduction initiatives from developing countries to be eligible for sale to developed countries, thus enhancing developing countries’ ability to use efficient mitigation policy tools such as reducing fossil fuel subsides or implementing broad-based policy approaches.

Carbon markets are the centre of Australia’s climate diplomacy. The decision to ready itself for a new Kyoto commitment and the efforts to encourage linkage with other nations are illustrations of this. Combined with the EU, this can be aligned with broader objectives to boost greater global ambition. Engagement with our regional neighbours to provide incentives to boost their ambitions by offering trade opportunities and setting the rules to encourage these incentives would be an important step forward.  

Erwin Jackson

Erwin is Deputy CEO of The Climate Institute. With nearly 20 years practical experience in climate change policy and research, Erwin has developed and led many national and international programs aimed at reducing greenhouse pollution. This work has been undertaken in Australia, Europe, North and South America, the Pacific and Antarctica. He has represented non-governmental groups and advised government and business in national, regional and international fora, including being a non-governmental expert reviewer of the reports of the UN’s Intergovernmental Panel on Climate Change. Erwin has written, researched and produced many publications on climate change and energy policy including a number of review papers in scientific journals such as the Medical Journal of Australia.
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