Australia’s trading wars

Guest post by Erwin Jackson, deputy chief executive of The Climate Institute

Earlier this year, I suggested that the real test for the Australian government’s commitment to climate change was whether or not it had the courage to call an unusual “double dissolution” election to end a deadlock on its emissions-trading scheme.

It now appears that the government has failed this test, with the prime minister delaying the introduction of a carbon price in Australia until at least 2013. The government justifies this decision by saying that, without the support of the Senate, it is unable to pass the legislation and that slow progress internationally has forced a rethink.

Neither of these justifications stacks up. As discussed in my earlier article, a double dissolution election could be used to overcome Senate obstruction. And, as highlighted in a paper by The Climate Institute, global low-carbon investment and climate policy accelerated in the lead up to – and the period following – Copenhagen. Since October 2009, 154 new policy announcements and measures have been made globally, the highest ever in a such a short period. And since Copenhagen, more than 100 advanced, emerging and developing countries have submitted national pledges to tackle climate pollution.

Instead of turning the corner on climate pollution in the next term of government and meeting credible 2020 reduction targets, current policies from both of Australia’s major parties will struggle to get pollution to fall before 2020.

While the government has reaffirmed its commitment to reducing emissions by 5% to 25% below 2000 levels by 2020, this pledge remains hollow in the absence of policies that will deliver this level of abatement. Even when accounting for the impact of the government’s Renewable Energy Target, current policy settings will see Australia’s emissions increase to around 20% above 1990 levels by 2020.

With no policy to limit climate pollution, serious questions are being raised about the ability of the government to live up to the international commitments it made in Denmark. The government is suggesting it will enhance energy efficiency and renewable-energy polices to meet its targets. These are unlikely to be sufficient.

To illustrate, if all energy-efficiency options that are reasonably socially cost-effective were implemented in the residential, commercial and industrial sectors, national emissions would be still around 5% to 8% above 1990 levels in 2020. And implementing these would require up to an estimated US$30 billion dollars (205 billion yuan) of public or private sector investment to 2020 and be on top of existing policies and measures such as the Renewable Energy Target.

The government’s agreement is also fundamentally at odds with its international objective of building confidence in the Copenhagen Accord. If Australia does not have confidence in the pledges made under the accord, why should anyone else?

Finally, the government’s position ignores the fact that the emission-trading system was specifically designed to deal with international uncertainty. Several of the key elements of the scheme were designed to allow flexibility in response to international developments. For example: the targets and emission caps are calibrate to the level of commitments made by other countries; (excessive) assistance is given to trade-exposed industries to avoid carbon leakage; independent reviews are carried out by the Productivity Commission and others of this industry assistance in light of international action; and there are linkages to international markets.

And so Australia’s international climate credibility is teetering on the edges of ruin. Real domestic policies from both major parties that meet the nation’s international commitments, limit and price climate pollution and support investments in clean energy and climate solutions are needed to pull us back from the brink.