Xenophon, Direct Action and the spring offensive

The support of the South Australian independent appears key for the government as it tries to turn a potential two Senate votes into four during the upcoming parliamentary session.

RepuTex Market Insider

With the spring session of Parliament set to resume on August 26, the Coalition’s Direct Action Plan is set to once more return to the Senate, with the government entering a critical stretch as it seeks to reclaim lost ground over the first half of 2014.

Following a turbulent end to the winter sitting of parliament, the government’s ability to work with the new Senate remains a key watch over the upcoming session, with initial attempts to bluster the crossbench into action backfiring, while Clive Palmer ultimately took the points on the carbon tax repeal in what should have been an important win for the government.

With a long list of contentious bills to be brought to the Senate, including the mining tax repeal, Medicare co-payment, fuel tax indexation, and tertiary fee deregulation – along with the Emissions Reduction Fund – the Coalition is widely expected to adopt a more conciliatory approach with the crossbench in order to progress its legislative agenda.

However, with the government’s climate policy still lacking support, have Direct Action’s papers already been stamped, or does the ERF still have a role to play in filling Australia’s climate policy void?

Two votes down, four to go?

Despite concerns over the effectiveness of the ERF to meet Australia’s 5 per cent target on its own, signs are emerging that the crossbench may be open to dialogue with the government on its Direct Action policy.

Independent senator Nick Xenophon recently met with Environment Minister Greg Hunt to discuss changes to the CFI Amendment Bill, with the government reportedly open to Xenophon’s proposal to allow the limited use of international permits within the ERF make-good mechanism.

The proposal would allow proponents to source international offsets should they be unable to meet their obligation to deliver promised abatement, enabling firms to limit under-delivery costs, while increasing the incentive for business to bid into the market.

Detail aside, Xenophon’s dialogue with the government (which has also sought longer contract periods, changes to the objectives of the Act to establish its intention to meet the 5 per cent target, and assurances on emissions safeguards) suggests that there may be some scope for meaningful compromise between the government and the crossbench, particularly given the potential for the ERF to support a languishing Carbon Farming Initiative – a scheme which has historically enjoyed bipartisan support.

While there is much water to flow under the bridge, Xenophon’s support would be significant for the government, with the independent able to provide the Coalition with a critical advocate on the crossbench as it seeks to gain additional support – a role Xenophon appears willing to play. Speaking to The Australian Financial Review, Xenophon recently noted his potential to take leadership of the issue by stating that "…once I’ve reached my position I need to convince my colleagues on the merits of the proposed amendments and the effectiveness of the design".

In the short term, Xenophon’s support may deliver the Coalition with an additional vote on the ERF from like-minded Victorian Senator John Madigan, while in the medium-term, Xenophon’s ability to draw attention to Australia’s policy vacuum – and the potential for an improved ERF to fill the void – may place pressure on other members of the crossbench (and potentially the Opposition-Greens) to come to the party.

PUP roadblock ... or truce?

Even with senators Xenophon and Madigan on side, the government will require Palmer United Party support to progress its ERF legislation, with party leader Clive Palmer stating that his backing for Direct Action is conditional on the government’s long-term support for the PUP’s ‘dormant’ emissions trading scheme – which is unlikely to be forthcoming.

While another parliamentary stalemate will place pressure on the government, a deadlock may not necessarily be ideal for Clive Palmer, with PUP exposed to criticism over the delayed start to its proposed ETS (which is unlikely to commence prior to 2020) and subsequent concern that Australia will not meet its 5 per cent emissions reduction target.

With the Victorian state election approaching in November, followed by elections in Queensland and NSW in early 2015, PUP’s short term climate position remains a weakness in its populist policy platform. As it seeks to fight a downturn in the state polls, and an upturn for the Greens, a short-term compromise on the ERF may rid PUP of a political soft spot, while providing it with some clear air to push for an ETS as a long term policy solution.

Watch this space

With a long parliamentary session ahead, comprising six sitting weeks over the next 10, the spring session provides the government with a considerable window to progress its legislative agenda should it be sincere in its willingness to deal with the crossbench – a path that the Coalition must ultimately take.

As unlikely as a compromise on the full Direct Action policy (ERF and baselines) may be, neither the Coalition or PUP have the points on the board for continued scrutiny of their climate policies to play out in their favour – suggesting that the sooner the short term policy void is resolved, the better for all. This may ultimately lead to good news for the ERF – and for CFI proponents.

But first, the mining tax repeal…

RepuTex’s Market Insider publication is a monthly review of the key events and activity shaping the Australian emissions markets. It was originally published by RepuTex under its Australian emissions markets research service. For more information please click here.