The Australian Government’s Climate Change Authority (CCA) is currently calling for feedback on climate policy options

The Australian Government’s Climate Change Authority (CCA) is currently calling for feedback on climate policy options following the November 2015 release of a review and draft report entitled ‘Special Review Second Draft Report-Australia’s climate policy options’. These documents were produced as a result of the Minister for the Environment requesting a special review into Australia’s climate change action.

The first stage of the review focused on Australia’s emissions reduction target after 2020. The second stage of the review focuses on policy options to meet its target. The draft report provides a framework for evaluating policies as a basis for consultation with business, community organisations and other stakeholders.

This framework is important as it provides a transparent structured approach which businesses, community organisations and other stakeholders can use to evaluate a range of policy options. The CCA is now welcoming feedback on the draft report until February 19. The CCA aims to use received information to help shape recommendations to made in their final report due in June this year.

In addition to providing a framework for evaluating policies, the CCA draft report addresses the purpose of the review, policy assessment principles, policy options and international competitiveness concerns. The CCA investigates international competitiveness from Australia’s point of view and highlights the concern that Australian companies may be placed at a competitive disadvantage relative to business counterparts in countries that do not have comparable obligations. However, the CCA does not address the actions that other Governments and multinational businesses (some of which may be competitors of Australian companies) are currently implementing to manage and reduce their greenhouse gas (GHG) emissions.

The draft report outlines the CCA’s policy evaluation process, which is comprised of three key principles:

1) Cost Effectiveness – policies should assist Australia to meet its emissions reduction targets at the lowest cost, taking into account:

• Direct costs of emissions reduction
• Implementation and compliance costs
• Indirect costs that arise as the effects of the policy through the economy
• The need to scale up emissions reduction efforts long term, with the least fiscal cost to the community

2) Environmental Effectiveness – policies should achieve measureable reductions in emissions on a national and global scale

3) Equity – policies need to address equitable risks and impacts across households, businesses and communities

The CCA report discusses the cost effectiveness of policies in terms of keeping the total cost as low as possible in the long term. In order to keep a feasible economic outlay, two options are discussed. Firstly, policy flexibility will be necessary in terms of emission limits over 5-10 years, to accommodate economic fluctuations and provide a more predictable investment environment. Secondly, policies will need to identify the lowest cost (in dollars per tonne of avoided emissions) emissions reduction opportunities and encourage their implementation.

Policies will only be truly effective if they facilitate new and additional emissions reductions

The CCA draft report considers an environmentally effective policy to be one that closes the gap between ‘business as usual’ emissions and emissions reductions necessary to achieve global goal of limiting warming to less than 2°C. Policies will only be truly effective if they facilitate new and additional emissions reductions. In addition, effective policy needs to take carbon leakage into account. Carbon leakage occurs where a policy triggers the closure of a facility closes in Australia and a new smelter is constructed in a country that is not taking actions to limit emissions.

According to the CCA report, Australia is able to meet its targets as a result of domestic emissions reductions and purchasing international emissions permits and credits. The first step in ensuring policy equity is to establish how the costs, benefits and risks of different policy options are distributed across the community. Judgements can then be made as to whether the costs, benefits and risks are equitable or not and how these factors should be mitigated. The report also points out that while equity discussions tend to focus on who bears what costs, the processes that lead to policy decisions should also be equitable and demonstrate procedural justice.

In reading the draft report, I couldn’t help thinking that the omission of any reference to what is already occurring in the international business community in reference to climate change action and more specifically greenhouse gas (GHG) emissions reduction is a glaring error. I have written several articles about this in the past and will summarise the main points here. Firstly, a growing number of leading multinational companies are already implementing actions such as:

• Internal carbon pricing
• Procuring significant amounts of their energy needs from renewable sources
• Adopting science based emissions reduction targets
• Investing in renewable energy sources and low carbon assets

In previous articles I have outlined why the current Australian Government Policy, flagship Emissions Reduction Fund (ERF) and ARENA funding don’t really help Australian companies to compete with their international counterparts. Following suit, the CCA draft report does not discuss how Australian companies that obtain funding from either of these competitive processes can use them to maintain the competitive advantages they may have.

In a nutshell, the main issue with the ERF and ARENA funding is that successful bid or not, local companies are not assisted to price carbon or adopt science based emissions reduction targets. In addition, procuring significant amounts of energy from renewable sources and investing in renewable sources / low carbon assets, pricing carbon and science-based reduction targets are already part of procurement decisions made by international companies – some of which may be competitors of Australian companies.

Therefore, it seems obvious that if Australian companies have a product that is similar to that of an international competitor, it is possible that the Australian company’s product will not be the one of choice. For this reason, if the Australian Federal Government is serious about confronting the reality of international competitiveness in the new low-carbon global economy we now part of, it cannot ignore the market forces that are already at play.

If you are an Australian exporter or know someone who is, I would encourage you to read the ‘Special Review Second Draft Report-Australia’s climate policy options’. As you are reading it you should consider whether it adequately addresses the reality of international competitiveness that you face on a daily basis. If you feel that it doesn’t, you have until February 19 2016 to provide your feedback.

See the draft report by the Australian Government’s Climate Change Authority here