Post election carbon update
While the dust settles from the ballot box result on Sept 7, Australian businesses will need to stay tuned to developments in the carbon space over the next 12 months. There will be both risks and opportunities emerging from the large policy shift from Labor’s Clean Energy Futures package to the Coalition’s Direct Action Plan (DAP).
Australian businesses will go through an extended period of uncertainty about the price of energy and what their direct legal obligations will be. It is disappointing that the lack of a bipartisan policy by the major parties on Climate Change will stifle investment in clean technology at a point when it has started to take off. Progression towards an emissions trading scheme, the least cost abatement option for the economy, has been derailed.
The Coalition has vowed to introduce carbon tax repeal legislation within 100 days of coming to power but this will undoubtedly be blocked by the Senate which will still be controlled by Labor, independents and Greens until July 2014.
If a repeal bill is presented and knocked back twice, the Coalition would have grounds for a double dissolution of parliament and new election. Whether this occurs or not, the composition of the post July 2014 Senate raises questions as to whether the Direct Action Plan, in its current form will ever be allowed to pass. A satisfactory resolvement of the climate change issue could take many years unless the political parties can find a way to work together.
Meanwhile, “liable entities”, those whose activities exceed 25kilotonnes of CO2 will continue to have to buy ACCUs at the legislated price and forfeit one unit for every tonne of CO2 emitted in the previous financial year. Audits will continue and its business-as-usual in carbon reporting.
What is clear is that the renewable energy sector will get far less support under the DAP. The Clean Energy Finance Corporation has already ceased make loans. What will happen to the in-principle-agreements to co-finance ground breaking projects such as the 20 hectare desal greenhouse being built at Port Augusta? Sundrop Farms aim to use solar-thermal technology to desalinate seawater to provide irrigation in an arid area producing 15,000 tonnes of tomatoes. I expect there will be many lost opportunities to progress Australia on a more sustainable path simply due to lack of finance.
Economic stimulus for renewable energy will be insufficient under the Coalition. We may have seen the last of mega projects such as the 102MW solar farm being built by AGL and First Solar at Nyngan and 53MW farm at Broken Hill covering a combined area greater than four Sydney Harbours…..at least for a while.
As well as that, new funding applications under the Jobs and Competitiveness Program will be a thing of the past. As at June 30, 2013 there were 488 projects at manufacturing firms around the country achieving an average reduction in carbon intensity of 40%. Of the $789 million in investments made, the government provided only $264m from the carbon tax revenue but it was enough to get the projects over the line, thus helping to decarbonize the economy.
The interesting area is farming, forestry and land sectors as both sides of politics see it as an opportunity. The Carbon Farming Initiative (CFI) is part of Labor’s Clean Energy Futures package, recently expanded to include more abatement opportunities. It’s a carbon offset scheme that provides an economic incentive to farmers and land owners by allowing them to generate credits that can be sold to other businesses wanting to offset their carbon emissions. It started in December 2011 and has so far issued 1.88 million credits, equivalent to taking more than half a million cars off the road. 70 projects have been registered across Australia since the first CFI methodology was released in June 2012. There are now 20 approved methodologies and I see this area expanding as more methodologies for carbon abatement are developed and accepted.
CFI is likely to be renamed by the Coalition and become part of the Direct Action Plan with the abatement certificates paid out of the ERF, the Emission Reduction Fund. The ERF aims to reward emission reduction activities and impose a penalty on under performing corporations whose emissions exceed their baseline.
The ERF is capped at $300m for the first year, $500m for the 2nd year and $750m for the 3rd year.
Both parties are committed to the Renewable Energy Target, otherwise known as the RET, of 41 terawatt hours of electricity coming from renewable sources by 2020. The Coalition view the RET as doing the “heavy lifting” on the task of transitioning the electricity generation sector over away from coal and over to renewables. A report by Monash University and SKM concluded that the Direct Action Plan will lead to an increase in emissions of 8 – 10% above 2000 levels, not 5% below which is Australia’s Kyoto target. This and other reports indicate that between $4 and $15billion extra would need to be spent for the DAP to work and that will be at a higher cost to the economy as its carbon credits can’t be bought at the lower international price, currently about $8/tonne.
If the DAP doesn’t deliver then the Coalition may look at increasing the RET. When the dust eventually settles, we’ll see things more clearly…..but until then stay tuned for more updates.