Parliamentary Secretary for Climate Change and Energy Efficiency
Mark Dreyfus QC MP
1 August 2011
The Australian and New Zealand Climate Change and Business Conference in Wellington
Introduction
It gives me great pleasure to be here in Wellington at today's Climate Change and Business Conference and to have the opportunity to outline Australia's new policy directions to address climate change through reducing carbon emissions.
In particular it is good to be addressing an audience which includes New Zealand businesspeople who have now been working for some time with a carbon price as part of their economic landscape. We can see the level of engagement from Andrew Ferrier's keynote address.
Today I will speak to you about the Clean Energy Future Plan that our Prime Minister announced on 10 July 2011.
First, I will set out why the Australian government has decided that the most efficient and effective path to a lower emissions economy is to price carbon through markets. Then I will describe the four key elements of the package, and touch on approaches to international linking and possible linkages with New Zealand.
Why price carbon through markets?
How Australia best responds to the climate problem has been a long, complicated and difficult debate.
In the last four years of the debate, both sides of politics have dedicated much energy and thought to identifying the best path forward for Australia's response to climate change. The Howard government produced a comprehensive study in 2007 - the Shergold Report - that recommended a "cap and trade" market-based carbon pricing system. The analyses of the 2008 Garnaut climate change review and its 2011 update reached the same conclusion as the Shergold Report: that the most efficient and effective way to reduce carbon emissions was through a carbon price orchestrated through private markets.
The reason for this is simple. A broad-based carbon price directly creates incentives for businesses throughout the economy to reduce emissions, and for all consumers to use energy more wisely.
Both Australia and New Zealand have in fact undertaken significant freeing up of markets over the past three decades and benefited from significantly higher economic growth as a result.
No Government acting in the national interest can ignore such experience and advice.
I know that there was considerable debate in New Zealand when it introduced a carbon price into its economy. We are encouraged, though, by the demonstrable success of New Zealand's ETS to date as outlined by Prime Minister Key during his visit to Australia in June. His account of increased investment in renewable energy and lower than expected cost impacts from New Zealand's introduction of an ETS strengthens our resolve to see our own legislation through our Parliament by the end of this year.
The Clean Energy Future plan
The package our Prime Minister launched on 10 July provides a coherent and comprehensive plan that will: cut pollution, drive investment in new clean energy sources, support Australian families, and create the transformational change required if Australia is to meet the environmental and economic challenges of the coming century.
Securing a clean energy future for Australia will involve four elements:
- introducing a carbon price
- promoting innovation and investment in renewable energy
- encouraging energy efficiency, and
- creating opportunities in the land sector to cut pollution.
A carbon price
A carbon price will ensure that pollution is reduced at the lowest cost to the economy. For the first time, it places a price tag on pollution. It creates the incentive to cut pollution and the pressure to innovate and invest in new cleaner sources of energy. It will be countries that do this that will successfully compete in the clean energy economy of the 21st century:
- finding new energy and carbon efficient ways of doing business;
- investing in new low carbon products and processes, and
- competing and getting ahead through embracing change and driving innovation.
Australia’s carbon price will start at a fixed price of $23 a tonne in 2012-13, and then transition to a flexible market price under a cap and trade scheme in 2015-16.
Almost 60 per cent of Australia’s emissions will be directly covered by the carbon pricing mechanism, and around two thirds will be covered by a carbon price applied through various means. The 50 largest polluters will be responsible for around 75 per cent of the pollution covered by the carbon pricing mechanism. The carbon price mechanism will apply to stationary energy, industrial processes, non-legacy waste and fugitive emissions. An effective carbon price will be applied to some emissions from transport via the fuel excise system. A carbon price will not apply to agricultural emissions or emissions from light on-road vehicles.
Carbon trading
During the flexible price stage, an overall limit (or pollution cap) will be placed on annual greenhouse gas emissions from all covered sources of pollution. The price of carbon permits will then be determined by the market.
For the first three years of the flexible price stage, safety valves (price ceilings and price floors) will be built into the system to avoid price spikes or plunges. This will reduce risk for businesses as they gain experience operating in a carbon-constrained environment. This is particularly important in the early years when price uncertainty could be at its highest.
The price ceiling will be set at $20 above the expected international price in 2015-16 and will rise in real terms at 5 per cent each year.
The price floor will be set at $15 in the first flexible price year and will rise in real terms at 4 per cent per year to $16.00 in 2016-17 and $17.05 in 2017-18.
Banking and limited borrowing of carbon permits will be allowed in the flexible price stage to enhance the efficiency of the market.
International linkage
Australia’s carbon price will be linked to carbon markets around the world from the start of the flexible price period. This will allow reductions in carbon pollution to be pursued globally at the lowest cost. International linking of carbon markets will allow businesses that release carbon in one country to be matched up with businesses in other countries that are able to reduce their carbon pollution at lower costs. International linking encourages action to reduce carbon pollution around the world, and plays an important role in helping developing countries transition to low carbon development.
From the beginning of the flexible price period on 1 July 2015, Australian businesses will be able to buy specified credible international permits from international carbon markets or emissions trading schemes in other countries. Safeguards will be in place to ensure international permits do not undermine the environmental integrity of Australia’s pollution reduction efforts. In particular certain types of Kyoto Units will not be accepted from 1 July 2015, namely Kyoto units derived from:
- nuclear energy projects;
- certain industrial gas destruction projects; and
- certain large-scale hydro-electric projects.
A newly created Climate Change Authority will also have a key role in advising Government on the integrity of international units, making recommendations on which international emissions units should be allowed and on any which should be disallowed.
The Australian government has sought to balance the goal of integrating Australia’s ETS into emerging global carbon markets and accessing global cost-effective emissions reductions with the need to encourage ambitious emissions abatement within Australia. Businesses will therefore, until 2020, have to meet at least half of their annual obligations each year by buying Australian carbon permits or Carbon Farming Initiative credits.
The Government has specifically identified linking with credible schemes including the New Zealand and EU emissions trading schemes as being in the national interest and noted that qualitative restrictions imposed by those schemes will be taken into account in determining what units may be accepted under the Australian scheme.
During your Prime Ministers recent visit to Australia, Prime Ministers Gillard and Key agreed to establish a senior officials group to examine the potential for linkages between Australia’s and New Zealand’s emissions trading schemes.
Australian and NZ officials have already been exchanging preliminary information on carbon pricing approaches and will work together to identify how such linking could be achieved. In doing so, they will have regard to the criteria which the Australian Government has announced in relation to considering whether to link to other countries emissions trading schemes. These criteria are:
- an internationally acceptable (or, where applicable, a mutually acceptable) level of mitigation commitment;
- adequate and comparable monitoring, reporting, verification, compliance and enforcement mechanisms; and
- compatibility in design and market rules.
Australia’s and New Zealand’s ETSs already share some features as a result of dialogue between the two countries climate change officials (for example approaches to allocation of permits to trade-exposed industries are closely aligned) but there will still be key differences notably New Zealand’s inclusion of agriculture in its scheme. New Zealand may also make changes to its ETS in response to its 2011 ETS reviews recommendations. Nonetheless, ETSs do not have to be identical to link.
Innovation and investment in renewable energy
As well as pricing carbon through markets, the Australian government plans to maintain a series of complementary measures aimed at augmenting and supporting the effects of the carbon price. A second element of the governments clean energy future plan is supporting the emergence of renewables.
Australia has abundant sources of renewable energy and under the Renewable Energy Target, the government remains committed to achieving 20 per cent of Australia’s electricity supply coming from renewable sources by 2020. Together with the carbon price, the Target is estimated to drive an unprecedented $20 billion investment by 2020.
To further promote a clean energy future and help drive the necessary investment in renewables, a new $10 billion Clean Energy Finance Corporation will be established to drive innovation through commercial investment in clean energy through loans, loan guarantees and equity investments. And a new Australian Renewable Energy Agency will administer $3.2 billion in Government support for research and development, demonstration and commercialisation of renewable energy. As John Key, on his recent visit to Australia, in fact said, the New Zealand Emission Trading Scheme has worked. It is sending a strong price signal for renewable energy. This was confirmed by Nick Smiths speech this morning.
Energy efficiency
The third element of a clean energy future will be creating a more carbon and energy efficient economy. Increased energy efficiency has multiple benefits: lowering carbon pollution, improving energy security, and helping households and businesses cope with rising energy prices.
The Government will now look at the costs and benefits of a national energy saving initiative (or white certificate scheme) that would replace existing State schemes. In addition, over the next few years, up to $40 million in grant funding will be available to peak bodies, like Chambers of Commerce and other organisations, to help them develop and deliver tailored information to small and medium businesses on how to start saving money on electricity bills.
Creating opportunities in the land sector to cut pollution
The fourth element of securing a clean energy future will create economic opportunities for farmers and land managers who reduce pollution or store carbon in the landscape. I know that New Zealand, with more than half of its emissions coming from the agriculture and forestry sectors, will have a particular interest in Australia’s land sector greenhouse gas management approaches.
The move to a clean energy future provides a once in a lifetime opportunity to restore carbon in the landscape, make our agriculture industries more sustainable and protect our natural resources.
Australia’s land sector will be amongst the most strongly affected by the impacts of climate change. Increasing temperatures will put agricultural and environment systems under increasing pressure. At the same time, global demand for food and fibre is growing as population and incomes rise in developing countries.
The Australian Governments land sector package delivers an integrated and comprehensive set of measures that will help regional Australia to respond to these challenges. It will
- provide an alternate source of income to farmers and landowners
- reward farmers and landowners for their efforts in assist in climate change mitigation and adaptation
- fund landholders directly to implement innovative management practices to reduce emissions and boost carbon stores
- maintain and increase the resilience of Australia’s environment to climate change
The central component of the package is the Carbon Farming Initiative, which will be linked to the carbon price mechanism. The Carbon Farming Initiative will enable farmers and other land managers to earn carbon credits for actions to reduce pollution or increase carbon storage
Credits that are internationally recognised can be sold to companies with responsibilities under the carbon price mechanism or exchanged for Kyoto units.
Credits for non-Kyoto abatement will be able to be sold to companies looking to voluntarily offset their carbon emissions.
The Clean Energy Future package also includes funding to improve regional planning for climate change. It includes support to help Indigenous Australians benefit from carbon farming. And it includes nearly $1b in funding to provide incentives for land holders to establish new biodiverse carbon stores, protect and manage existing biodiverse eco-systems, including stopping the spread of invasive species across the landscape.
Conclusion
The Australian governments clean energy future package is a comprehensive, coherent, evidence-based approach to reducing the risks of climate change.
No country has expended more effort than Australia in debating and analysing how we respond to the climate problem. There have been plenty of words. The clean energy future package sets out the deeds.
That is why the Australian Government will introduce into our Parliament next month legislation to support its Clean Energy Future package. Following passage by both Houses by the end of the year Australia will have a carbon price from 1 July 2012.
Moving to a clean energy future means seizing the opportunity to be at the forefront of global economic changes, which will see greater and greater uptake of clean energy technology and practices.
New Zealand has already decided to move decisively in this direction. Australia is now in a position to do so as well.
