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:
- 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
- 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:
- 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;
- 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
- 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).
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:
|Chapter / Sector
- Emissions from the transport sector are the second largest source of Australia’s emissions and have sustained a clear upward trend over the past decade.
- Australia is one of only a few advanced economies that have not implemented a mandatory fuel efficiency or GHG emissions standard for light vehicles. The introduction of a light vehicle CO2 emissions standard has been demonstrated to have benefits for consumer and society.
- Barriers to the uptake of electric vehicles are gradually being reduced, but road vehicle electrification is still its early stages and could benefit from policy support.
- Shifting freight transport from road to rail could also reduce emissions where viable.
- The Government reconsider the case for the implementation of a GHG emissions standard for light vehicles and undertake a cost benefit analysis of an emissions standard for heavy vehicles.
- The Government's forthcoming electric vehicle strategy should address potential barriers to the uptake of electric vehicles.
- Further work is needed to identify and pursue opportunities to shift more of Australia's domestic freight onto less emissions-intensive forms of transport.
|2. Industry 10
- Industrial emissions have been increasing since the 1990s, being dominated by the mining, oil and gas sector. There has been a rapid growth in industrial emissions from the expansion in liquefied natural gas production for export in recent years.
- Current policy settings will be insufficient to drive emissions reductions in industrial sectors which will be required to achieve the goals of the Paris Agreement beyond 2030. The primary policy for managing industry emissions is the Australian Government’s Safeguard Mechanism, which is not designed to reduce emissions or cap them in absolute terms.
- Mining and manufacturing enterprises which are not subject to the Safeguard Mechanism require further policies which are complimentary to the Emissions Reduction Fund (ERF) to be introduced for emissions from those sectors to reduce.
- The Safeguard Mechanism should be adapted by deploying declining baselines with clear trajectories to reduce direct combustion, industrial process and fugitive emissions, and ensure mining, oil and gas sectors contribute towards the Paris Agreement targets. Facilities should be permitted to trade under- and over-achievement once baselines have commenced declining and are binding. Where there is a demonstrated risk of carbon leakage to other countries as a result of the enhanced Safeguard Mechanism, targeted, transitional and transparent competitiveness assistance should be offered to emissions intensive trade exposed industries captured by the Mechanism.
- For smaller businesses, investigate how to encourage them to reduce emissions including assistance to participate in the ERF.
- Emissions from the electricity sector are the largest source of emissions in Australia, at 34 per cent of the total.
- The sector is experiencing transformation through the increase in low and zero emissions electricity generation and through increased electrification in other sectors like transport and industry.
- Market forces along with existing government policies mean that the electricity sector is projected to see emissions reductions of 34 per cent in 2030 compared with 2005.
- However, progress in the electricity sector alone will not be enough to meet Australia’s targets, and so there remains a strong role for additional policies to support cleaner electricity.
- National Electricity Market (NEM) jurisdictions should:
- emphasise renewable projects that align with priorities identified by the Australian Energy Market Operator (AEMO);
- consider supporting projects located outside of their respective jurisdictions; and
- include electricity system security as a criterion in project selection processes.
- The Council of Australian Governments (COAG) Energy Council should fast-track reforms to facilitate the integration of low and zero emissions generation and related technologies into the market;
- Investment programs should align with AEMO priorities and be supported by rigorous cost-benefit analysis.
- Measures should be implemented to provide greater certainty on the timing of, and planning for, the retirement of ageing coal generators.
|4. Agriculture and land12
- Eighty-two per cent of contracted abatement under the ERF is from the agriculture and land sector. However, given the desire for agriculture to move to carbon neutral by 2030, and the importance of natural capital to buffer agricultural land from climate impacts, it will be important for state governments to properly monitor and enforce compliance with their land clearing regulations going forwards.
- There is significant potential for the land sector to contribute to achieving Australia’s long-term emission reduction goals through holistic management approaches, including by reforesting and regenerating the land.
- The ERF has provided opportunities for some agricultural producers and land managers to generate ACCUs for emissions reductions. However, a range of barriers have prevented others from participating.
- For our agricultural products to retain market access, we need to ensure international standards and ‘carbon footprint’ labelling schemes take account of Australia’s circumstances. In particular, the European Union is developing several frameworks to identify and preference sustainable production that may affect Australian producers.
- Research, development and financial support are needed to help transition agriculture to a low-emissions future.
- An enhanced plantation forestry and wood products industry should also be part of the economic transition and could contribute up to 18 million tonnes of abatement (CO2-e) in 2030.
- Climate change represents a significant risk to the outlook for the agriculture sector and is expected to cause productivity declines. Therefore, development of appropriate adaptation measures, supported by information and government policies, is needed.
- Land use and agriculture activities should continue to be covered by the ERF crediting mechanism, with credits continuing to be used as offsets for facilities covered by the Safeguard Mechanism and available for use in voluntary markets. The ERF purchasing mechanism should continue until an enhanced Safeguard Mechanism provides a source of demand for credits.
- A review of green product standards and definitions being developed in export markets should be undertaken, along with engaging with trade partners to ensure they do not unduly restrict market access for Australian agriculture.
- Additional funds should be allocated for research on low-emissions agriculture and carbon farming, including possible new agricultural industries. This would include basic research, applied research (including on new ERF methods) and the development of tools to report on the emissions profile of agricultural activities.
- A Land and Environment Investment Fund (that is, something similar to the Clean Energy Finance Corporation (CEFC) for the land) should be established to invest in actions to support low-emissions and climate-smart agriculture and associated environmental services.13
- The waste sector makes up about two per cent of Australia’s total emissions, with the majority coming from the decomposition of organic matter at landfills.
- Strengthened and harmonised regulations relating to landfill gas capture should be put in place by 2021 to maintain the current rate of landfill gas abatement and to encourage additional landfill gas capture. Regulations should offer flexibility for landfill gas operators to meet set emissions levels rather than adopt a particular technology.
- The Government has adopted a national goal of halving food waste by 2030 by implementing the National Food Waste Strategy.
- There is an opportunity for Australia to be a world leader in circular economy practices, e.g. for materials that enable a net zero emissions future such as lithium and manganese.
- For materials that are unsuitable for recycling, there is also an opportunity for the Government to clarify the role of waste-to-energy in Australia’s transition to a circular economy, and to help identify and opportunities and barriers to generating energy
- The current state and territory regulatory approaches to reducing landfill gas emissions, diverting organic waste from landfill, and fully implementing the National Food Waste Strategy should be strengthened and harmonised.
- All levels of government should consider opportunities to strengthen the level of ambition under National Food Waste Strategy.
- Implementation of the National Waste Policy Action Plan should consider industry development, waste hierarchy, R&D needs, training requirements and barriers to adoption, and emphasise creation of industries in regions undergoing transition.
|6. All sectors: Energy efficiency15
- There are substantial economic and emissions reduction benefits to be gained from improving energy efficiency in all sectors of the economy.
- Australia’s performance compared with other developed nations is poor on energy efficiency, being ranked as 18th of the top 25 energy using countries.
- Barriers to uptake of energy efficiency in Australia include:
- market failures, including imperfect information, split incentives and externalities;
- behavioural, cultural and organisational barriers;
- oopportunity costs of investment in energy efficiency; and
- policy uncertainty.
- The Government should work with COAG to:
- reinvigorate the National Energy Productivity Plan;
- accelerate implementation of the Independent Review of the Greenhouse and Energy Minimum Standards Act;
- accelerate energy efficiency improvements for buildings in the National Construction Code; and
- develop a detailed action plan for improving the energy efficiency performance of existing buildings.
- Targeted programs to improve energy efficiency should be delivered to priority groups, such as low-income households and small to medium businesses.
- Efficiency improvements in government owned and leased buildings should be undertaken.
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.