The Australian government recently regrouped around a renewable option in an attempt to revise the cap-and-trade program.

On August 13, 2009, Australia’s Senate voted 42 to 30 to reject a historic climate change bill that would have created in Australia a new carbon trading system similar to the programs currently used in the European Union and now under consideration in the United States. A week later, on August 20, 2009, Australian lawmakers regrouped around a more modest renewable energy bill that requires 20 percent of the country’s electricity to be generated by renewable sources by 2020. Australia’s first attempt to enact a carbon cap-and-trade system may foreshadow some of the issues that will soon be discussed as the U.S. Senate prepares to consider its own energy and climate change legislation this fall.

Australia and the United States have many similarities with regards to climate change and energy policy. Both countries depend on coal for a large share of their energy needs. As a result, both Australia and the United States have high per capita greenhouse gas emissions. Both countries rejected the Kyoto Protocol, largely because of concern over the costs associated with capping carbon emissions. However, both countries also now face significant political pressure, from within and abroad, to adopt some form of binding emissions targets before Australia, the United States and approximately 200 other countries meet in Copenhagen in December 2009 to debate what type of system should replace the Kyoto Protocol.

Climate Change Legislation on Thin Ice

The Australian climate change proposal aimed to reduce the country’s greenhouse gas emissions to between 5 and 25 percent below 2000 levels over the next 10 years. The deepest cuts were expressly conditioned on an international agreement at the upcoming Copenhagen meeting that included equally aggressive reduction goals. Although this proposal was supported by Australia’s governing center-left Labor party, Labor has no majority in the Australian Senate. The conservative Liberal/National party coalition opposed the bill because of its concern that the bill would damage the Australian economy without providing any environmental benefits. Meanwhile, the liberal Green party, which is committed to climate change legislation, declined to support Labor proposal because it concluded that it was not aggressive enough. Unable to secure seven additional votes, including at least few from outside its party, the Labor climate change proposal failed.

In the United States, the Democrats control both houses of Congress, yet on June 26, 2009, the U.S. House of Representatives only narrowly passed the Democrat-sponsored American Clean Energy and Security Act (ACESA). The ACESA passed by a vote of 219 to 212, but only after substantial amendments were added to address the concerns of many influential constituents, including many businesses located in agriculture and coal dependant states. Notably, eight Republicans voted in favor of the bill, but it was opposed by 44 democrats, including many so-called “blue dog” conservatives and many representatives from regions that rely heavily on coal and energy-intensive manufacturing for jobs.

In the U.S. Senate, where the political landscape is fundamentally different, and 10 votes more than a simple majority are effectively required for most bills to be passed, prospects for the ACESA are far from certain. Notwithstanding the last-minute amendments made in the House, many businesses, environmentalists and other interested parties continue to argue that the ACESA either goes too far or fails to do enough. Like the Australian Senate, the U.S. Senate may discover that a compromise is impossible, and any attempt to craft a centrist proposal that is capable of holding together 60 diverse and independent senators is ultimately unfeasible.

A Renewable Stepping Stone

As in the United States, Australia’s climate change legislation included a new mandatory, national renewable energy target. In a compromise announced on August 17, 2009, the Labor government agreed to proceed immediately with the renewable energy portion of the climate change bill as amendments to the cap-and-trade portion of the proposal continue to be considered. A slightly amended version of the renewable portion of Australia’s climate change legislation was passed by the Australian Senate on August 20, 2009. The revised bill provides assistance to certain energy intensive industries, including partial exemptions aluminum producers and coal mines. The Labor government plans to reintroduce a revised version of the cap-and-trade portion of the bill later in 2009, prior to the Copenhagen meeting. Some observers predict that an even larger number of industrial emitters, possibly including alumina smelters, newsprint manufacturers and silicon producers, may receive incentives under the broader climate change legislation being negotiated, for political reasons.

If the ACESA follows a path in the U.S. Senate similar to Australia’s climate change proposal, the near-term result could be new national renewable energy standard with no federal carbon cap-and-trade system. Title I of the ACESA is devoted to “Clean Energy” and includes a combined energy efficiency and renewable electricity standard that can operate independently from the cap-and-trade portion of the bill. Alternatively, Senator Jeff Bingaman (D-NM), chairman of the Senate Committee on Energy and Natural Resources, has reported the American Clean Energy Leadership Act of 2009, a similar proposal that also would create, among other things, a new federal renewable energy standard. One of these proposals, or a combination of both, could be enacted even if a more ambitious, comprehensive energy and climate change bill including a cap-and-trade program fails to become law.