In brief

The government has this week (11 August 2015) announced Australia will commit to reduce carbon emissions by 26 to 28 per cent by 2030 based on 2005 levels.

The government will take these proposals to the “COP21” UN Climate Change Conference in Paris to be held between 30 November and 11 December this year.

The conference aims to realise a binding and universal agreement on action to manage climate change.

Who needs to know

Australia’s response to climate change will affect all businesses in Australia, especially those with operations which emit significant amounts of CO2 or whose products generate CO2.

Domestic Comparison

The ALP committed at its National Conference in July to base post-2020 emission reduction targets on up-to-date advice from expert bodies such as the Climate Change Authority. The Climate Change Authority has recommended Australia adopt a target of 40-60 per cent below 2000 levels by 2030.

The ALP has also committed to having renewable energy supplying 50 per cent of Australia’s power generation by 2030, and to an emissions trading scheme. The details of the proposed trading scheme have not been announced.

International Comparison

Across the world 52 other countries have already announced post-2020 emissions targets. These include:

Click here to view table.

Proposed mechanism

The mechanism proposed by the Coalition government to achieve its carbon emission reduction target still appears to be the Direct Action Plan. The key element of the Direct Action Plan is the Emission Reduction Fund which funds carbon reduction programs (See: Architecture of ‘Direct Action’ becomes clearer). The Emissions Reduction Fund is complemented by a Safeguard Mechanism. The Safeguard Mechanism is a set of rules and regulations which aim to ensure emissions reductions paid for through the Emissions Reduction Fund are not offset by significant increases in emissions elsewhere in the economy.

Details about the Safeguard Mechanism have not yet been released. The Department for the Environment says it will release the rules and regulations giving effect to the Safeguard Mechanism by 1 October 2015.

US Clean Power Plan

The government’s announcement comes just over a week after US President Barrack Obama announced the Clean Power Plan. Under this plan the US’s Environmental Protection Agency will use its existing regulatory powers under the US Clean Air Act to set CO2-per-MWh efficiency targets for power production in each State as a whole. This is different from regulating the efficiency of individual power plants. The plan will allow State regulators flexibility in how to achieve the targets, including through emissions trading schemes.

The Clean Power Plan is likely to face legal challenge – as well as political opposition as the November 2016 presidential election approaches.

International carbon trade

If tradeable carbon units feature in the Safeguard Mechanism, or under an emissions trading scheme of an ALP government, Australia may be able to trade carbon units internationally.

Trade could occur with individual US states which have implemented trading schemes or with other foreign jurisdictions where trading schemes are in place, such as the EU and New Zealand.