The Australian carbon market, like all carbon markets, is a political construct. Regulatory risks therefore represent the largest source of uncertainty to both short- and long-term market development.
The next federal election will be held on or before 17 May, and will take place amid the Trump 2.0 era, which has seen an unwinding of climate initiatives in the US, and bearish sentiment for international progress on climate change.
Locally, it remains to be seen if the return of Trump will embolden the right, or whether fear of a ‘Trump planet’ will push voters to the political centre.
While we would likely see Australia’s climate ambition slow under a Coalition government – with a less ambitious 2035 target likely to be adopted – a supportive crossbench lessens the likelihood of more disruptive risks to the Safeguard Mechanism.
Key Safeguard Mechanism rules, however, remain subject to ministerial intervention, with the potential for key changes to amount to ‘death by a thousand cuts’ under a conservative Coalition government. Inversely, this would expose key export industries to the risk of increased costs associated with new international carbon border (and deforestation) tariffs.
Regulatory risks to the Safeguard Mechanism are therefore highly nuanced.
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