Climate policy review will look at possible changes to safeguard mechanism, which could convert to baseline and credit scheme

This article is more than 3 years old

This article is more than 3 years old

The Turnbull government has left open the option of reinstating a form of carbon trading in the electricity sector, allowing its looming review of the Direct Action climate policy to consider policy mechanisms to reduce emissions on a “sector-by-sector basis”.



The government has also put the emissions reduction fund and its safeguard mechanism on the table for the review, which will be conducted internally within the federal Department of Environment and Energy, and report at the end of 2017.

Many experts argue the existing framework of Direct Action could be converted to a baseline and credit scheme with a few tweaks. A baseline and credit scheme is a form of carbon trading.

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The terms of reference for the review will be outlined on Monday by the minister for environment and energy, Josh Frydenberg. A preliminary report of the Finkel review into energy security and Australia’s climate commitments will also be handed to the prime minister and the premiers at a Coag meeting early this month.

The Direct Action review is a key test of the Turnbull government’s bona fides on climate change, as the current policy has been widely criticised as inadequate to the task of allowing Australia to meet its international emissions reduction targets under the Paris climate change agreement.

Business, energy and environment groups have also repeatedly called on the government to stow the toxic climate politics and provide policy certainty in order to allow the long-term investments necessary in low emissions and renewable energy sources to ensure the national electricity market, and emissions-intensive sectors of the economy, can manage an orderly transition to a carbon-constrained future.

But if the government attempts to use the review to create a more ambitious climate policy, or to reopen the carbon pricing debate, that will almost certainly trigger significant internal divisions within Coalition ranks, with conservatives and Nationals already engaged in preliminary positioning on the issue.

A recent decision by the government to ratify the Paris climate agreement triggered a contained breakout on the Coalition backbench, with some arguing the election of Donald Trump to the presidency of the United States meant global climate action was, as they termed it, “cactus”.

The Direct Action review, while carefully worded, is potentially wide ranging in scope, allowing consideration of the potential role of international carbon credits in meeting Australia’s emissions reduction targets – a practice Tony Abbott comprehensively ruled out as prime minister.

The review also allows consideration of a post-2030 emissions reduction goal for Australia.

Opening up the sector-by-sector conversation would potentially allow the government to contemplate an emissions intensity trading system for the electricity sector, which some stakeholders think the Finkel review may recommend to the government.

The South Australian government has been championing an emissions intensity trading scheme through the energy ministers council to drive an orderly transition in the electricity sector from coal to lower-emissions power sources.

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An emissions intensity scheme for electricity would favour gas as a transitional fuel, and Frydenberg has been laying the groundwork for months on policies that would allow more gas exploration.

The Direct Action review requires an assessment of the impact of climate policies on “jobs, investment, trade competitiveness, households and regional Australia.”

It also implicitly references a brawl the Turnbull government has been indulging with state governments over their state-based renewable energy targets, by requiring an examination of the “integration of climate change and energy policy, including the impact of state-based policies on achieving an effective national approach”.

State governments argue they have stepped into the breach with ambitious RETs because the commonwealth made such a hash of renewables policy during the period of the Abbott government, putting a question mark over the federal RET which triggered an investment drought in the sector.

The states also point out that their RETs are doing a lot of the heavy policy lifting to help Australia meet its Paris targets.

The review also requires an examination of international developments in climate change policy, which is code for an assessment of what is happening on global climate action in the event the US pulls out of the Paris climate agreement.

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The Turnbull government has already indicated that it intends to stay the course with the Paris agreement, and it has argued it would take the US four years to withdraw from the deal under the terms of ratification.

Frydenberg said in a statement the government would consult with business and the community throughout the 12-month Direct Action review process.

“Australia’s approach to climate policy is to meet our international emissions reduction commitments while at the same time maintaining energy security and affordability,” the minister said.

“The government is committed to adopting a non-ideological approach to emissions reduction to ensure we secure the lowest cost of abatement.”