Climate Change Authority recommends 2020 Climate Policy Toolkit

Introduction

Last month, the Climate Change Authority (Authority)¹ released its report ‘Prospering in a Low Emissions World: an updated climate policy toolkit for Australia’ (2020 Report, available here). Our earlier update on the consultation paper released by the Authority in relation to this review can be found here.

In the 2020 Report, the Authority has made 35 recommendations, which are directed primarily to the Federal Government (Government), on how Australia can choose the right policy settings to ensure we meet our international climate change commitments under the 2015 Paris Agreement, and in doing so, take advantage of emerging economic opportunities as the global economy decarbonises.

The Authority’s work is of critical importance for two reasons:

1. Australia’s existing emissions reduction policies will not be sufficient to ensure that we meet our current greenhouse gas (GHG) emissions reduction target under the Paris Agreement to reduce Australia’s emissions by 26 to 28 per cent on 2005 levels by 2030²; and
2. Australia, along with all other signatories to the Paris Agreement, is expected to adopt a more ambitious 2030 GHG emissions reduction target at the next Conference of the Parties to the Paris Agreement.

The 2020 Report also comes at a time when Australians are more aware than ever of the impacts of climate change. Dr Wendy Craik, Chair of the Authority said, “Australians are already experiencing the effects of a variable and changing climate. 2019 was Australia’s warmest and driest year on record – a key factor driving this summer’s catastrophic bushfire season, which caused widespread loss and devastation to Australian communities, wildlife and natural ecosystems. At the same time Australians have endured a record severe and prolonged drought”.³

From an economic perspective and in light of the significant global developments which have occurred since its 2016 report on Australia’s climate goals and policies⁴, the Authority points out that “Australia will need to respond to changing global circumstances, or risk getting left behind”.⁵  In particular, it is telling that the private sector’s response to climate change has moved ahead of climate policy in Australia, with businesses actively considering, managing and disclosing climate risks both in Australia and overseas, including by adopting shadow carbon prices in their financial projections.⁶

Accordingly, a strong theme throughout the 2020 Report is the need to support research and development (R&D) across all industry sectors and also to provide access to finance. We have included more detail on the Authority’s R&D and finance recommendations below.

The Authority’s recommendations

The Authority’s recommendations build on the Government’s current suite of climate change policies and are intended to inform the Government’s forthcoming long-term climate strategy and Technology Investment Roadmap. As such, they must be sufficiently flexible and scalable to deliver emissions reductions beyond those required for the Government’s current 2030 target.

Climate policy recommendations⁷

The Authority has made a number of overarching recommendations in relation to Australia’s response to climate change, including the following key recommendations which would see a step-change in relation to the Government’s approach to date:

1. National climate strategy – develop a long-term climate change strategy that secures Australia’s contribution to the achievement of the temperature goals of the Paris Agreement and ensures we make the most of the opportunities arising from the transition to a low-emissions global economy;
2. International climate strategy – develop an international climate strategy to:

a. support a strong global response to climate change that minimises physical impacts on Australia and increases international demand for Australia’s emerging low-emissions export industries; and

b. maximise the opportunities for Australia from international trade in emissions reductions; and

3. International climate commitments – aim to meet Australia’s 2030 Paris Agreement target using emissions reductions achieved between 2021 and 2030 (i.e. rather than using “carryover credits” from the Kyoto Protocol commitment period).⁸

These broad recommendations signal that the Authority considers it is time for the Government to take a more hands-on approach to addressing climate change in all areas, including by escalating our national climate policy response; adopting a more proactive stance at the international level; and, ensuring that Australia is ready to participate in international carbon markets under Article 6 of the Paris Agreement and CORSIA (see our previous update on international carbon markets here).

Sector-by-sector recommendations

The Authority has made specific recommendations targeted at reducing GHG emissions in the transport, industrial, electricity, energy efficiency, agriculture and land, and waste sectors. We have summarised the key recommendations in the table below:

R&D¹⁶ and finance¹⁷

Additionally, the Authority has made recommendations to drive R&D and finance and investment, ahead of the development of Technology Investment Roadmap and release of the Australian Sustainable Finance Initiative’s final report.

Investment in R&D will be important to ensure that Australia can lower the cost of responding to climate change across all sectors.

According to the Authority, in order to achieve this it will be necessary for the Government to:

• partner with industry and researchers to identify areas where R&D support is needed;
• continue to fund the Australian Renewable Energy Agency and CEFC and consider expanding their remit into other sectors;
• build on Australia’s Mission Innovation commitment; and
• support the development of negative emissions technologies, including R&D and methodology development for inclusion in the ERF.

In addition, as a matter of practicality, funding support for innovation in emissions reduction technologies should be targeted towards harder-to-abate and emissions-intensive, trade-exposed industries, and industries with well-defined goals, targets and pathways.

Beyond the R&D phase, a significant amount of additional public and private investment will be required to meet emissions reduction goals set out in the Paris Agreement and Australia is well placed to become a major investor in emissions reductions opportunities due to its sophisticated funds management industry.

Going forward, the Authority has made it clear that it is necessary to develop and implement plans for addressing gaps and deficiencies in the data required to enable industry, investors and business to understand and manage climate-related financial risk and has recommended the establishment of a joint taskforce of the Council of Financial Regulators to:

• develop standard reporting criteria and standardised national climate scenarios;
• examine the phasing-in and mandatory reporting of climate-related risks and climate-related disclosures;
• provide regulatory guidance to clarify the duties of institutional investors.

In addition, according to the Authority, the Government should consider recommendations put forward by the industry-led Australian Sustainable Finance Initiative when the final report is published.

At the international level, the Authority has recommended that the Government participate in international development of global green economy rules and standards.

How can we assist you?

If you wish to discuss any aspect of the Authority’s recommendations, or Australia’s existing climate change policies, please contact a member of our team.