Government rhetoric – not policy – is key regulatory impediment

  • Ahead of the federal election, climate policy remains an Achilles heel for the Coalition, with Australia’s growing national emissions profile, and the prospect of a 9-12 month demand gap over 2017-18 , increasing pressure on the government to articulate a new climate policy approach.
  • While we believe a new policy statement is required to address long-term uncertainty, calls for major policy detail to be released ahead of the federal election are unlikely to be heeded, with the government reluctant to jump the gun prior to its 2017 review, which has broad support within the Coalition party room.
  • Despite the uncertain policy environment, we currently view ‘government rhetoric’ – not policy design – as the key impediment to local market confidence.
  • Even should current policy remain the same, we believe that the government may be able to restore certainty to the market by simply changing its rhetoric and more clearly communicating its existing policy to the market.
  • In doing so, we believe the government has an opportunity to position its Direct Action Plan – particularly the Safeguard Mechanism – as a “soft start”, fiscally responsible scheme, whereby the flexibility provided to companies (as currently designed) may be utilised to prepare high emitting companies for future compliance obligations.
  • Such an approach would be comparable to markets such as the Europe, the eastern United States, California and China, where ‘Phase I’ policy was intentionally set with low compliance obligations to provide companies with time to “learn by doing” ahead of the future scale-up of policy.
  • As noted in earlier updates, we do not believe that the Australian market currently requires a ‘high ambition’ or high cost policy. Given Australia is able to increase its emissions and still meet its Kyoto commitment, we believe that a “soft start” scheme is far more befitting the current political and economic climate.
  • On the face of it, the government’s Safeguard Mechanism – as currently designed – shares similarities with “soft start” ETS policy in markets such as the EU ETS, the RGGI and California’s Cap-and-Trade Program.
  • Critically, in these markets, the timeline for the scale up of compliance obligations was clearly communicated from the beginning of the scheme, providing market participants with certainty over the long-term direction of the market, even though the detail and design of subsequent ‘market phases’ was set at a later point.
  • Such an approach may suit the Australian market, whereby the Coalition may be able to maintain its current policy, yet simply provide greater transparency on the long-term direction of its Safeguard Mechanism. This may be done by communicating ‘market phases’ that more accurately match the design of its existing policy, as outlined within this Market Update.
  • Moreover, this may buy time for the government to defer the detail of its policy, such as rules, trading, ambition, etc, to a later consultation process (such as the policy review), while enabling it to immediately restore confidence in the market, without any change to its policy.
Restricted Access

This is a subscriber report. Please login to access this content.

Not a subscriber?

To learn more about our research services for the Australian energy and emissions markets, click the button below, or email our subscriptions team.

Sign up for regular insights

LATEST UPDATES

  • UPDATE: Short- and long-term ACCU spot price impacts of COVID-19

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    International carbon prices have tumbled amid fears that a COVID-19 induced economic downturn will curb […]

    Analyst Alerts, Research Insights | March 26th, 2020
  • ALERT: COVID-19 service continuity and client support information

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Dear Subscriber, As the COVID-19 situation evolves, we will continue to provide our regular research […]

    Research Insights, Service Alerts | March 24th, 2020
  • ALERT: Inclusion of AEMO “Step Change” scenario in Australian Electricity Outlook (AEO) service

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    Dear Subscriber, Following the release of AEMO’s draft 2020 Integrated System Plan, the Alternative Case […]

    Research Insights, Service Alerts | March 13th, 2020
  • WEBINAR: The Australian Carbon Price and Net-Zero Emissions – Where to next?

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    As pressure builds for Australia to develop a more ambitious long-term emissions target ahead of […]

    Research Insights, Webinars | February 25th, 2020
  • OUTLOOK: Long-term carbon price, supply and demand outlook (Q3 FY19-20)

    Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone

    The Safeguard Mechanism covers greenhouse gas emissions from Australia’s largest emitting facilities, extending to 450 […]

    Outlook, Research Insights | February 11th, 2020
  • Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedInEmail this to someone