Many said this year’s federal election in Australia could herald the end of the country’s bitter climate wars – particularly with the rise of the so-called Teal Independents, a group of traditionally conservative candidates who campaigned on climate action. While Anthony Albanese’s Labor party narrowly secured a majority in May, the Teals stripped six seats from the incumbent Liberal-National Coalition and the Greens increased their share too, meaning the pressure is on for Australia to take serious climate action.
Four months in, Albanese and his cabinet have started delivering. One of their first moves was an announcement to increase Australia’s 2030 emissions reduction target under the Paris Agreement from the previous 26–28% cut below 2005 levels to 43% – a target which is now enshrined in a new Climate Change Bill passed in September.
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The government has also begun a review of the Safeguard Mechanism – the country’s main policy to control emissions from industry by imposing emissions intensity baselines on individual facilities – and of the integrity of Australian Carbon Credit Units (ACCUs), domestic offset credits primarily purchased by a government fund. Albanese has announced his intent to consult on fuel efficiency standards for vehicles and hosted a jobs summit focused on the low-carbon transition.
“This government came in on a very strong climate mandate,” says Richie Merzian, director of the climate and energy programme at think tank the Australia Institute. “The last three years were bookended by climate impacts. … It made climate change real for a number of Australians who had otherwise put it [aside] as a future problem.”
Other factors driving climate action include changed economics favouring renewables over coal, businesses voluntarily adopting net-zero targets and international pressure on Australia to stop being a climate laggard, Merzian adds.
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The election of the Teal Independents has been a real game changer, he says. “You had these candidates who weren’t hindered by the party process and the baggage that comes with it… and could just speak to what people wanted in the cities, which is strong climate action,” Merzian says.
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By GlobalData“Even though Labor won outright, there is a supermajority in Parliament – six lower house candidates and one upper house candidate, all strong on climate policies – that is holding the government to account, that is why it had to move quickly.”
The first two bills tabled by Australia’s new government revised the country’s 2030 climate target, or nationally determined contribution (NDC) under the Paris Agreement, and introduced tax breaks for purchases of electric vehicles (EVs). “It is a modest bill,” says Merzian of the latter, “but it makes EVs more attractive to import and for companies to purchase for their employers.”
In addition to revisiting the 2030 target, the Climate Change Bill also enshrines a 2050 net-zero target in legislation and expands the role of the independent Climate Change Authority, which will advise the government on both future emission reduction targets and on its annual climate change statements to Parliament. The latter cover Australia’s progress on climate action in the preceding 12 months, analysing international developments and the effectiveness of domestic policies.
“It is very impressive how much they have done so quickly,” says Martijn Wilder, Sydney-based founder and CEO of climate change advisory company Pollination and climate policy veteran. “In some ways, they are building on what the previous government had promised to do … but it has also completely changed the political landscape.”
He adds: “They have made it clear that our Paris Agreement goal is 43%, which is more than under the previous government, they have enshrined it in legislation – and the important thing is they have made it very clear that that 43% is a floor.
“Albanese has been keen to right the wrongs of the past ten years,” says Wilder.
Some of the independents were pushing for a 50% emission reduction target for 2030, as well as a ban on new fossil fuel projects; the Greens wanted a 75% cut by 2030 and net zero by 2035.
Private sector groups also pushed for more ambitious targets, with the Business Council of Australia and the Australian Industry Group both pushing for a cut of up to 50%, and yet the final target chosen was 43% because modelling of Labor’s preferred policies indicated that this was achievable.
Safeguarding emissions reductions
“It has been mostly a strong performance,” says John Connor, CEO of private sector advocacy group the Carbon Market Institute (CMI), of the Albanese government’s first four months. He cites the tabling of reforms to the Safeguard Mechanism as a key achievement. The consultation on these reforms closed on 21 September – exactly four months after the election.
At present, the Safeguard Mechanism establishes an annual emissions baseline for individual industrial facilities, to ensure that ACCUs procured via the publicly-funded Emissions Reduction Fund (ERF) deliver genuine emissions reductions. Those facilities that emit more than their baseline can acquire ACCUs generated by domestic offset projects to cover the excess.
Under the government’s proposals, the annual baselines would gradually decline in line with Australia's long-term climate action goal of net-zero emissions in 2050. The proposals also introduce a new credit for those facilities that are beating their baseline and additional financial support for emissions-intensive, trade-exposed industry. The baselines would decline by 3.5–6% annually, with reduction rates after 2030 being set in five-year blocks, aligned with updates to the country’s NDC. The changes are intended to take effect with the new financial year from 1 July 2023.
“It is not as if we are doing this from a standing start, we do have the benefit of experience,” says Brendan Bateman, a partner at law firm Clayton Utz. A carbon pricing proposal mechanism was repealed following the Coalition’s victory in the 2013 elections, yet the ERF kept the domestic offset programme going and emitters are well versed in measuring and reporting their emissions. “I think that is why the government is confident it will be able to implement this.”
“It is a very important three months to the end of 2022,” says CMI’s Connor. The aim is to have the Safeguard Mechanism reformed by March 2023. Connor also expects the final package to incorporate elements from the review into the integrity of ACCUs, which is being led by Professor Ian Chubb and is expected to report its findings by the end of the year.
Norton Rose Fulbright partner Elisa de Wit says she anticipates changes to the ERF and the legislation underpinning it as a result of the so-called Chubb review. Back in 2014, changes that were intended to streamline the project-based system instead loosened its rigour. For example, changes to the assessment of a project’s 'additionality' – does it deliver truly additional emissions reductions? – shifted from a highly-scrutinised ‘positive’ list of project types to a three-part test: is the project new; is it not required under state, territory or Commonwealth law; and would it be unlikely to happen under any state, territory or Commonwealth programme in the absence of the ERF programme.
“I wouldn’t be surprised to see legislative reform off the back of the Chubb review,” says de Wit. “Additionality is [currently] supposed to be assessed as part of [project] methodology development, but given the criticisms that are being made now about some of the methodologies, you do wonder whether that process is as rigorous as it needs to be.”
De Wit also expects Chubb to recommend changes to how the ERF is governed; at present, an independent statutory body known as the Clean Energy Regulator oversees the design of the rules and their implementation, assesses project compliance and issues ACCUs. The review’s terms of reference specify it is looking at whether the allocation and operation of different roles and responsibilities is appropriate. A public consultation on the ERF closed on 27 September.
“It is generally accepted in the industry that it is not appropriate for the regulator to wear every single hat,” de Wit says.
Energy price pressures on Australian climate action
Australia has not been immune to the soaring gas prices affecting the rest of the world as a result of Russia’s war in Ukraine, despite the Pacific island country being awash with natural gas. Eastern Australia in particular has been affected, with supply being exported to capitalise on rocketing prices, while Western Australia has been shielded somewhat by a long-standing policy that producers must reserve 15% of their gas for the domestic market.
“The developments that are happening in energy markets are extremely worrying,” says Tennant Reed, director of climate change and energy at the Australian Industry Group. “The government has been confronted by a serious price escalation very early in their term… [and it] looks like it will be a continuing story of extremely high energy prices for most energy users because world gas markets are going to be short of gas for years to come and coal markets are very elevated in part because of the shortage of gas.”
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“The futures prices for both electricity and gas for next year, in eastern Australia, look horrifyingly high,” Reed adds. Options to manage and respond to these pressures “are not very satisfying” and will not provide immediate relief. This includes accelerating the energy transition. It will take time and capital to increase the rate of change – as well as deal with supply chain issues, regulatory changes and addressing community concerns regarding land use for critical infrastructure such as upgraded transmission lines, Reed says.
“Even though it requires action now, it is not going to deliver broadly visible results within the next two years,” he cautions.
Other options include a cap on gas exports and/or a cap on gas and electricity prices domestically, both of which are also problematic, he says. A decision on export limits is due by 1 November, but any decision will need to balance the importance of Australia’s reputation as a reliable international fuel supplier with what the government thinks is an acceptable price for energy domestically, Reed explains.
“There is a real challenge for them in trying to balance the cost of living with the [energy] reform they have committed to, managing the transition from the current coal-fired generator predominance to renewable energies,” says Bateman. The current crunch is exacerbated by ageing coal-fired power plants going offline for maintenance, he adds.
Australia’s energy transition requires an integration of energy, climate action and social policies. Bateman flags the government’s goal to have 10,000 'green apprentices', but in exactly what jobs remains unclear. The government intends to work with energy-rich regions to optimise the transition and establish new industries.
“Most governments have found that incredibly challenging,” Bateman adds. “This will be no exception, particularly given the criticality of these regions in providing energy supplies and also exports – coal continues to be a huge export dollar earner.”
Albanese sees huge potential for Australia to become a leading exporter of hydrogen, which could help offset any fall in coal exports. In a speech at the Sydney Energy Forum in July, the prime minister flagged A$3bn ($1.94bn) of funding for new technologies including batteries and hydrogen electrolysers.
"We see enormous potential in hydrogen, and Australia has all the ingredients needed to become both a major hydrogen producer and a global exporter,” he said. “We currently have over 70 hydrogen projects in the pipeline with over 91% of production planned to be green hydrogen. And we also have plans to establish hydrogen refuelling infrastructure to support the next generation of heavy vehicles.”
Underpinning this is an expectation that renewables will account for 82% of the National Electricity Market by the end of the decade, Albanese said.
