Carbon Markets

Hunt out, Frydenberg in – Where to for the Coalition’s climate policy review?

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In short:

  • Josh Frydenberg will head an expanded Energy and Environment Portfolio in place of outgoing minister Greg Hunt
  • In our view, the change will better align climate change with key energy policy pillars and principles, including support for new investment and increased productivity, both of which can result in decreased emissions.
  • In line with recent reports, potential remains for the 2017 climate policy review process to be brought forward, with an issues paper expected in H2 2016.

Victorian MP, Josh Frydenberg, will become the new federal Minister for Environment and Energy, moving into the expanded portfolio in place of Greg Hunt, who will take over from Christopher Pyne as the new Minister for Industry, Innovation & Science. Frydenberg is the MP for the safe Liberal seat of Kooyong, which he won with a 2.6% swing in his favour on July 2. Nationals Senator Matt Canavan (QLD) will replace Frydenberg as Minister for Resources and Northern Australia, with Energy remaining with Frydenberg under the expanded Environment Portfolio.

Policy implications

The combining of the Energy and Environment portfolios was advocated by key Australian industry groups, bringing the major climate and energy policy pillars under one federal banner, including:

  • The Renewable Energy Target (RET)
  • Emissions Reduction Fund (ERF)
  • Safeguard Mechanism; and
  • National Energy Productivity Plan (NEPP);
  • Vehicle efficiency program; and
  • agencies such as the Australian Renewable Energy Agency (ARENA), Clean Energy Finance Corporation (CEFC), the Clean Energy Regulator and Climate Change Authority.

This is likely to bring a more integrated context to the policy debate as the government begins the review of its climate policy framework, and comes under pressure to act on high wholesale electricity prices, high gas prices and increased competition from low-cost renewable energy.

The change within the ministry is viewed as a positive development for climate policy, with outgoing Minister Greg Hunt having held the portfolio since 2010 (shadow since 2007). Mr Hunt was recently reported to be jockeying for a change of portfolio, with a fresh face now viewed as an opportunity to re-set engagement between industry, green groups and the government.

The incoming Minister, Josh Frydenberg is viewed as a future leader of the conservative arm of the Liberal Party, having worked as an advisor to former Foreign Affairs Minister Alexander Downer and as a policy adviser to Prime Minister John Howard. Frydenberg became Minister for Resources in September 2015 and is a supporter of nuclear energy along with thermal coal and LNG gas exports. Frydenberg supported government policy to downscale the RET, repeal the Carbon Price Mechanism and enact the ERF-Safeguard Mechanism policy.

Potential for a “fast tracked” climate policy review?

As we discussed in our latest Market Update, any fast-tracked policy review is unlikely to occur unless it is triggered by a larger political event, such as via negotiation with crossbench MPs/senators (i.e. in the course of striking a minority government deal) or via a cabinet reshuffle. With the latter having now taken place, this may provide Prime Minister Turnbull (PM) with a window to reset the government’s climate policy agenda and/or bring forward the planned policy review, should he wish to. Such a move would be in step with recent reports which have suggested that the government may seek to reposition the safeguard mechanism within the Coalition’s climate policy framework sooner rather than later.[1]

The role of the crediting, purchasing and safeguard mechanism elements of the policy will be reviewed from 30 June 2017, reporting by 15 November 2017, covering:

  • the operation of the safeguard mechanism in concert with the crediting and purchasing elements of the Emission Reduction Fund
  • the effectiveness of the baseline setting approach for new investments already underway
  • the transition to the best practice framework for new investments
  • any conditions and criteria for existing facilities to adjust baselines
  • the role of the crediting, purchasing and safeguard mechanism elements of the Emission Reduction Fund in conjunction with the broader suite of emission reduction policies to meet the 2030 target; and
  • an examination of how different sectors, including the electricity sector, are to be treated.

While the strength of the government’s policy review remains unclear, the design of the review process has been widely interpreted as a platform for the Prime Minister to negotiate a more workable climate policy, underpinned by the government’s commitment to the Paris climate conference and the goal of limiting global warning to 2 degrees or less.

This remains subject to the wiliness of the Coalition party room to accept policy reform, and the Prime Minister’s own ability to influence the policy debate, particularly in light of his smaller working majority in the House of Representatives and the greater internal influence of the National Party. Nonetheless, with greenhouse gas emissions rising, funding for the ERF expiring and support for carbon farmers falling away, expectations remain high that the PM will seek to more appropriately match the Coalition’s key policy pillars to meet Australia’s 2030 emissions target.

While the formal policy review process will be held in June 2017, public consultation is expected to commence in the second half of CY 2016 with the release of an Issues Paper and Terms of Reference. This will occur after the release of the Climate Change Authority’s Special Review into the recommended policies for Australia to meet the outcomes of the Paris climate change agreement. The delayed CCA report is expected to recommend a return to mandatory carbon pricing, via an emissions intensity or cap and trade based schemes.[2]

The road ahead…Emissions reductions & increased productivity?

While key policy details continue to remain up in the air, in our view, the change within the Environment and Energy portfolio is likely to provide an opportunity for the government to re-set its emissions reduction policy, and its external rhetoric, while promoting key energy policy principles such as support for new investment and increased productivity – both of which can result in decreased emissions. We expect these policy principles to shape the upcoming policy review, with emissions intensity expected to play a key role in allocating accountability for emissions in excess of Australia’s international emissions reduction target trajectory.

Kind Regards
The RepuTex Team
Australian Emissions Markets

[1] Article link

[2] Article link


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