Introduction
Climate change policy in Australia has been the subject of ongoing uncertainty at the federal level over the past decade, in conjunction with multiple changes of government and prime ministers, since the nation ratified the Kyoto Protocol in December 2007.
During the first commitment period of the Kyoto Protocol, Australia was allowed to increase its emissions by 8% based on 1990 levels. Australia ratified the Doha Amendment and assumed a commitment to reduce emissions 5 percent below 2000 levels before 2020.
In April 2016, Australia ratified the Paris Agreement. Australia's commitment under its Nationally Determined Contribution made under that Agreement is to reduce its emissions by 26–28 per cent on 2005 levels by 2030. Australia has not committed to update its NDC and, as part of current international negotiations, reserves the right to use "carry over credits" from the Kyoto Protocol (i.e., overachievement of its targets) to meet its 2030 emissions reduction commitment.
Despite almost all States and Territories having adopted various emissions reductions initiatives and targets, including net-zero 2050 emissions targets, there is currently no bipartisan support within the federal parliament for either Australia’s 2030 target or domestic policies to implement international commitments. This uncertain regulatory landscape makes it vital for companies wishing to do business in Australia 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 However, in 2013 a Liberal/National Coalition Federal Government was elected, and by July 2014 the CPM was repealed.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 transform the Safeguard Mechanism (see below) into a baseline and credit 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 the 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) as supplemented by the Climate Solutions Fund (CSF), 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 Climate Solutions Fund topped up the fund's initial allocation of $2.55 billion, with an additional $2 billion funding in February 2019, bringing the total allocation to $4.55 billion since 2013.
Under the ERF, the CFI was expanded to apply 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. The Government is currently looking to expand the methodologies further, including to Carbon Capture Storage and hydrogen projects.
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. This encompasses around 200 facilities that make up a quarter of Australia's total emissions. The CER makes 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 through NGERs to the CER.
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.
The Federal Government is considering the establishment of a voluntary crediting scheme, that will operate outside of the ACCU market, for large emitters under the Safeguard Mechanism, that will issue credits for the deployment of low emissions technologies that reduce emissions below set baselines.
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 is separated into two parts - the Small-scale Renewable Energy Scheme (SRES) and Large-scale Renewable Energy Target (LRET) as legislated under the Renewable Energy (Electricity) Act 2000 (Cth). The SRES provides benefits to households and small businesses, while the LRET devises financial incentives for the establishment or expansion of renewable energy power stations. The LRET was the key component of the Government’s DAP to meet Australia’s 2020 emissions target. 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.
The revised LRET was met in 2019, and the Federal Government has no plans to increase the target which will be maintained until 2030.
The Australian States and Territories have also implemented renewable targets and support schemes. Most notably, the Australian Capital Territory has a policy target of 100% renewable energy by 2020, through the use of a reverse auction program for large solar plants and investment into solar energies. South Australia is expected to operate from 100% renewable energy within 10 years, while Tasmania's target involves meeting 200% of Tasmania's energy needs with renewable energy by 2040. At a federal level, the Government invested $13.2 billion in clean energy technology in 2018 and is working towards a long term plan for investment into clean hydrogen and other priority technologies to provide security for a future electricity grid dominated by renewables.
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 and is working towards a principal target of net zero emissions by 2045. Tasmania and South Australia have also enacted their own legislation which targets cutting emission levels by 50-60%. New South Wales, Queensland, Western Australia and the Northern Territory are close to follow, with an aim of achieving net zero emissions by 2050.