Grattan sets out new climate change policy for Australia

A Grattan Institute report suggests Australia could build investor confidence and unite political ideals on climate policy by establishing a carbon market. The political debate on policy is viewed by some experts as the cause of delayed industry investments in low carbon and renewable technologies, setting the nation behind on meeting future emission targets. The Grattan researchers list three stages towards a new policy platform that both parties might support, and that would drive down emissions; firstly, tighten baselines to be in line with Australia’s 2020 target to cut emissions below 2005 levels, next allow companies with emissions below the baselines to earn permits that could then be sold to companies exceeding those levels, then reduce the baselines to zero and replace them with government auctioned permits, lower the 100 kt CO2 p.a. threshold and expand the policy to cover businesses in more sectors. Australia would then have a policy capable of adapting to new future targets that may emerge.


 

Labor, by contrast, remains committed to emissions trading and to providing 50 per cent of electricity from renewables. It has yet to commit to a post-2020 target. In the short term, reverting to a cap and trade scheme, while it is the best policy, is another flip-flop, and probably politically toxic at present. Having been fatally wounded in 2013, Labor won't want to revisit the "great big tax" territory in a hurry.

Whoever wins the 2016 election can expect pressure to ramp up: from the changing climate, from businesses seeking predictability for investment and from the international community. New and tougher targets are likely to emerge.

A way forward

Grattan Institute's new report, Climate Phoenix: a sustainable Australian climate policy, offers a way forward. It provides a road map from current policies to where we need to be: meeting emissions targets with efficient, stable policies that have bipartisan support.

The road map sets out three steps the government of whichever political stripe should take. First, it should tighten the emissions limits (baselines) of the safeguard mechanism to force leading companies to reduce their emissions in line with Australia's agreed targets. This makes substantial reductions possible and – importantly – visibly links those reductions to the targets.

Second, it should provide incentives for low-cost emissions reduction by auctioning tradeable permits that would allow companies to emit above the baselines but within the target trajectory. This would maintain the overall direction of climate policy while targeting the cheapest possible emissions reductions.

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Third, the government should expand the safeguard mechanism to cover more facilities and reduce the baselines to zero, when all emissions will have to be covered with permits sold at auction. This step creates an efficient structure capable of adapting to meet whatever future targets emerge.

The road map has been designed to adapt developments in climate science, technology and political pressures, and the timing of each step will depend on these developments. Both sides of politics can adopt it while maintaining their policy principles. A Coalition government should stick to its existing policy framework, strengthening it over time.

A Labor government should adopt the Coalition's policy framework, building on it in a stable and predictable way as it moves to its preferred policy option of emissions trading. Bipartisanship and the long-term stability it offers is vital. Only a policy road map with broad bipartisan support can give the confidence essential for long-term investment in low-emission technologies.

The phoenix of myth represents hope reborn. It has been too easy to dwell on the short-term political game in recent years, rather than the hard work of building a sustainable, low-emissions economy. Our road map shows how our leaders can revive a practical, bipartisan climate change policy that can take us where we need to go.

Tony Wood is director of the energy program at the Grattan Institute.