Climate Change Authority gives pragmatic climate energy plan

by Tony Wood

Published by the Australian Financial Review, Wednesday 7 September

The Climate Change Authority has recommended actions that Australia should take to meet its commitments made at the international climate change conference in Paris last December.

The authority’s report, released last week, has disappointed environmental advocates and provoked an internal split, with two board members issuing a dissenting report on Monday. Yet the majority report presents a pragmatic and workable way forward that deserves serious consideration.

The Gillard government established the authority in 2011 to provide rigorous, independent advice on setting climate change targets and policies to achieve them. The Abbott government had wanted to kill the authority but in mid-2014 agreed to establish the Special Review in order to secure Clive Palmer’s support for abolition of the “carbon tax”. While the government still plans to abolish the authority it would need legislation to do so, and that means securing support in the Senate yet again.

At the Paris conference Australia promised to reduce emissions by 26 to 28 per cent below 2005 levels by 2030 and to review its targets every five years. The authority concluded that the best way to meet these commitments is via a suite of policies that build on existing government policy. These initiatives would “send a signal to business, investors and the broader community that action to reduce emissions is entering a new phase of stability”. This policy toolkit also holds the prospect of cautious industry endorsement and bipartisan support to underpin that stability.

The government’s current Direct Action policy includes an Emissions Reduction Fund to contract directly for emissions reductions, a Safeguard Mechanism that sets emissions baselines beyond which the largest emitting facilities cannot go and the Renewable Energy Target (RET).

To reduce emissions in the electricity sector the authority recommends strengthening the Safeguard Mechanism to form an emissions intensity scheme, a type of market mechanism. It also proposes extending the coverage of the Safeguard Mechanism to smaller facilities, progressively tightening the baselines in line with the overall target and retaining the RET. It is hard to see how the government’s 2030 target can be achieved without a big increase in ERF funding, tightening baselines, or both.

Grattan Institute’s recent report, Climate Phoenix: a sustainable Australian climate policy, argues that while an economy-wide carbon price remains the ideal climate policy, pragmatism and urgency demand a practical, next-best approach. The authority has largely adopted this approach.

Maintaining direction

Its policy toolkit builds on government policies while maintaining direction towards the long-term target. It recommends the government modify its Safeguard Mechanism so that it no longer merely prevents emissions from going up, but drives them down towards the agreed target. It can also be strengthened to meet future targets that are likely to emerge from the international review process.

The issuing of both a majority and dissenting report illustrates a larger tension within Australian climate change policy. One approach works within political constraints to build a sound vehicle for a long-term journey; another sees such pragmatism as a sellout to political interference and falling hopelessly short of the mark. The dissenting report accuses the authority of straying from its own terms of reference by failing to assess the adequacy of the government’s 2030 target and from its own earlier recommendation that Australia’s target should be much deeper – 45 to 65 per cent of 2005 levels by 2030.

Yet the authority concluded that in order to ensure investor confidence, a cost-effective, stable policy needs to begin with what we have, then be scaled up to meet existing and likely future targets. The former is compelling; the latter may prove challenging.

The government is committed to reviewing its climate change policies in 2017, when it will have the daunting task of setting out how its policies will meet these objectives. It must also respond to the authority’s report within six months. It may reject the recommendations.

When the authority’s report was released, new Minister for Environment and Energy Josh Frydenberg responded that the government has no plans to tighten limits on emissions by the biggest polluters. It would be a shame if he dismissed these ideas too quickly, since the authority has given him a path to implement meaningful climate change policy through steps that are consistent with the Coalition’s political constraints.

In August Frydenberg successfully led the COAG Energy Council to embrace a resetting of the national energy reform agenda. Blending credible, stable and predictable climate change policy with that agenda will be a harder test for an ambitious and resourceful politician. Failure is not an option.

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