Last Updated: October 2018

Introduction

Climate change policy in Australia has been the subject of ongoing uncertainty at the federal level, in conjunction with multiple changes of government and prime minister, since the nation ratified the Kyoto Protocol in December 2007. In April 2016, Australia signed the Paris Agreement, committing to reduce its emissions to 26–28 per cent on 2005 levels by 2030 and to review this commitment every five years. Australia is also working towards its goal under the second commitment period of the Kyoto Protocol – limiting average annual emissions to 99.5 per cent of 1990 emissions by 2020. There is currently no bipartisan support within the federal parliament for either Australia’s Nationally Determined Contributions under the Paris Agreement or its domestic implementation of these international obligations. The state of flux makes it vital for companies wishing to do business in Australia to regularly review current climate change policy and regulation.

This evolving and changing political climate makes it vital to regularly review current climate change policy and regulation.

Carbon reporting

The National Greenhouse and Energy Reporting (NGER) scheme commenced in 2008, requiring the reporting of greenhouse gas (GHG) emissions and energy consumption and production. Controlling corporations that have operational control of facilities – either themselves or through subsidiaries – and that exceed prescribed thresholds for emissions or energy consumption and production are required to annually report those details to the Clean Energy Regulator (CER). This also applies to corporate groups that exceed group thresholds.

Carbon pricing mechanism

In 2011, building on the data collected through the NGER scheme, the then Labor Federal Government introduced a carbon pricing mechanism (CPM), which commenced in July 2012. However, in 2013 a Liberal/National Coalition Federal Government was elected, and by July 2014 the CPM was repealed. 

The CPM established an emissions trading scheme that imposed liability on large emitters, defined as those with facilities where covered emissions of GHGs exceeded a threshold of 25 kt CO2-e in any financial year.

The entity with operational control of the facility was required to report its emissions under the NGER scheme, and surrender permits equal to the amount of reported emissions or pay a shortfall charge.

The CPM had broad coverage, capturing GHG emissions and removals from stationary energy, industrial processes and non-legacy waste, as well as fugitive emissions (other than from decommissioned coal mines). With bipartisan support, emissions from agriculture were dealt with separately under the Carbon Farming Initiative (CFI). The CFI has since been substantially expanded, as discussed below.

The CPM commenced at a fixed price with the intention of increasing annually before converting to a cap-and-trade system in 2015. However, as noted above, it was repealed before the flexible price period started.

The policy of the Australian Labor Party, currently in opposition, is to introduce a form of emissions trading scheme if it is elected at the next federal election.

Direct Action Plan

In 2013, the Coalition Federal Government was elected on the policy that it would repeal the CPM and implement its Direct Action Plan (DAP) in its place. The DAP was introduced in 2014 following the repeal of the CPM.

The DAP is made up of three key components: the Emissions Reductions Fund (ERF), the Safeguard Mechanism and the Renewable Energy Target (RET).

Emissions Reductions Fund

The ERF is the centrepiece of the DAP and acts as an expansion of the existing CFI. Through a reverse auction process, the Government contracts to purchase Australian Carbon Credit Units (ACCUs) from registered proponents for emissions abatement achieved using approved CFI methodologies. The Government has allocated $2.55 billion to the ERF.

Under the ERF, the CFI now applies to industry as well as agriculture. New CFI methodologies have been approved for coal mines, transport, commercial and industrial energy efficiency, landfill gas and alternative waste treatment.

Safeguard Mechanism

The Safeguard Mechanism, operating from 1 July 2016 through amendments to the NGER legislation, requires responsible entities to keep emissions at or below business-as-usual scenarios, complementing the ERF.

Facilities with direct, scope 1 emissions that exceed the 100,000 tonnes of carbon dioxide equivalence (t CO2-e) threshold are covered by the Safeguard Mechanism.

The CER will make determinations to set baselines for these facilities using the Safeguard Rule. Responsible emitters are accountable for adhering to their set baseline and reporting on their emissions to the CER.

The baseline set for a particular facility will depend on the individual circumstances of that facility – for example, whether there is NGER data for the facility, whether it is a new facility, and whether the facility will undergo expansion. Where there is NGER data, baselines are set at historical emissions highpoints.

There are various options for complying with set baselines, such as surrendering ACCUs, applying to have the baseline varied, or spreading an exceedance over multiple years. The CER has broad enforcement powers including enforceable undertakings and injunctions, infringement notices, and civil penalties including a maximum penalty of $1.8 million.

Renewable Energy Target

In contrast to the CPM and DAP, there is bipartisan support for Australia’s RET scheme, which sets a 2020 target for the amount of Australia’s electricity to come from renewable energy sources. The scheme has been substantially reformed since it commenced in 2001 with a 2 per cent target. In 2009, the target was increased to 20 per cent (41 000 GWh).

The scheme separated into small-scale and large-scale RET schemes. The large-scale RET is the key component of the Government’s DAP to meet Australia’s 2020 emissions pledge. However, following a review of the RET in 2014, the target for 2020 was decreased from 41,000 GWhpa to 33,000 GWhpa in 2015.

Other climate change initiatives

Given the instability of the Federal Government’s response to climate change, some Australian states and territories have commenced their own emissions reduction and energy efficiency programs. While some of these were wound back or abolished as a consequence of the CPM, some states have reinvigorated them since its repeal.

For example, the Australian Capital Territory has its own legislation for GHG emissions reductions and a renewable energy target. It is working towards a principal target of zero net emissions by 2060. Victoria, South Australia and Queensland are also reviewing their climate change policies.

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