The global context of the repeal

Australia has just moved towards the back of the pack on emissions policy. But just how serious a blow to global climate efforts is this repeal?

The Interpreter

With the repeal today of Australia's two-year-old carbon pricing scheme, the Abbott Government has formalised Australia's transition from climate laggard to climate wrecker. But just how serious a blow to global climate efforts is this repeal?

To answer this question we can compare Australia without the carbon price to pre-repeal Australia. Under the now axed legislation, the scheme would have converted automatically from the current fixed-price phase (functioning effectively as a rising carbon tax, reaching $25.40 per tonne in FY2014-15), into a floating price phase (an emissions trading scheme [ETS] with fixed annual emissions caps and a floating price) as of 1 July 2015. At that time, the scheme would have linked with the EU's ETS, allowing Australian emitters to meet their scheme obligations by importing EU allowances. 

The differences between that scheme and having no carbon price are minimal. Below I consider emissions targets, likely emissions reductions, the price of carbon, and fossil fuel exports, and finally make some comments about the symbolic effect of the repeal.

1. Emissions targets

Both the Labor Party and the current government have committed to reducing Australia's emissions to 5 per cent below 2000 levels by 2020 (emissions were around 580 million tonnes of carbon dioxide equivalent [MTCO2-e] in 2000; they are currently around 600 million tonnes). This 5 per cent target has always been extremely weak relative to any plausible conception of Australia's fair share of the global emissions reduction task. It remains so under the current government.

2. Likely emissions reductions

Yet the carbon pricing scheme at least gave Australia a credible means of meeting the 5 per cent target, whereas the Abbott Government has no such credible policy for doing so. The Government's proposed 'Emissions Reduction Fund' may not pass the current Senate at all and, even if it does, is highly unlikely to achieve the 5 per cent target.

But, on a global scale, even this difference is of a relatively small magnitude. Assuming the 5 per cent target would have been achieved with the carbon pricing scheme in place (and with complementary measures in emissions-intensive sectors not covered by the scheme), by 2020 the Climate Change Authority estimates that Australia's annual emissions would be 131 MTCO2-e lower than they would otherwise have been. This represents a very small (less than 1 per cent) contribution to the global abatement considered necessary to meet internationally agreed climate objectives by 2020. Note, however, that the scheme allowed for up to 50 per cent of each liable entity's abatement obligations to be met using imported credits, meaning that in reality Australia's emissions would have probably been a little more than current levels (see Chart 1) and we would have paid for the balance of reductions to occur elsewhere, mostly in Europe. 

3. The price of carbon

Consider the difference in carbon price between the new reality ($0) and what would have prevailed under business as usual. Upon commencement of the floating price phrase and the link to Europe, Australia's modest carbon price would have become set by the prevailing European price (currently at farcically low levels of A$7-9 per tonne) and likely remaining there for most of the decade, pending major structural reform of the EU scheme. To put this in perspective, Ross Garnaut, the key architect of Australia's scheme, said that at carbon prices of less than $10 per tonne the scheme would not be worth the transaction costs. 

What the world gained from Australia's infant scheme was two years of evidence that a modest, broad-based carbon tax (of $23-24/tonne) had a perfectly manageable economic impact, thereby helping to achieve incremental emissions reductions throughout the economy (in the electricity sector, for example) while raising much needed government revenue. It also falsified the economic scaremongering of Tony Abbott and many in industry and the media.

But, with the transition of the scheme to an EU-linked floating price, its potential to drive low-carbon growth and structural change -- to usher in a genuine 'clean energy future' -- would have largely been sacrificed. Beyond the useful results to date, therefore, the world has not lost much in the way of exemplary policy.

The scheme's repeal is a significant setback for those countries and analysts who champion an interlinked system of national emissions trading schemes. However, since I do not share this vision, I see no great loss.

4. Fossil fuel exports

The coal and gas Australia exports to the world, when burned overseas, results in far higher greenhouse gas emissions than occur within Australia's borders. The previous government facilitated and championed the large-scale expansion of Australia's already massive coal and gas exports. When my colleagues and I ran the numbers in a 2012 report, planned fossil fuel export developments would have added another billion tonnes of CO2-e per year by 2030 to the 800 million tonnes per year already caused by Australia's fossil fuel exports, seriously jeopardising the world's ability to manage climate risks safely. The Abbott Government has continued this reckless fossil fuel expansionism, with even greater fervour. Repealing the carbon price will do nothing to alter this bipartisan continuity in Australian climate policy.

5. Symbolism

Symbolically, the scheme's repeal deals a small but largely insignificant blow to global climate efforts. The large global community of policymakers who are serious about tackling climate change has already written off Abbott's Australia (along with Canada) as a climate wrecker. The carbon price repeal simply cements that perception. In the face of numerous recent climate policy developments in China, the US and India, Australia's antics will have little impact.

In sum, it is a small backward shuffle from a country that is already at the back of the pack. 

I have argued before that,  through renewable energy innovation and a phase down of its coal exports, Australia has immense capacity to lead the world toward the zero-carbon trajectory that is manifestly in its national interest. Today, we moved further away from fulfilling that promise.

This article originally appeared on the Lowy Interpreter. Reproduced with permission.

Related Articles