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22 December 2014: Statement by the Chair, Mr Bernie Fraser

The Climate Change Authority has today released two reports covering its reviews of the Carbon Farming Initiative (CFI) and the Renewable Energy Target (RET). These reviews are required in the relevant Acts of Parliament establishing the two schemes.

The Authority is a statutory body established under a separate Act to provide independent and transparent advice to the government on a range of climate change policy issues, including appropriate emissions reductions targets for Australia, and the various policy instruments available for pursuing those targets. The two schemes under review were created as parts of a broad set of measures to combat the risks of climate change and the Authority has reviewed them in terms of their roles in this broader policy framework, as well as in terms of their individual goals and performances.

Carbon Farming Initiative and Emissions Reduction Fund (ERF)

The CFI was introduced in 2011 to complement the carbon pricing mechanism - in effect, to seek out opportunities to reduce greenhouse gas emissions in sectors such as agriculture, waste management, land use and forestry, which for various reasons, were not covered by the carbon pricing mechanism. Participants in the scheme received credits for approved reductions in emissions which could be sold to eligible entities under the carbon pricing mechanism.

Like other schemes of its type, the CFI was administratively intense, resulting in relatively high transaction costs. These, together with gaps in coverage and uncertainty about future prices of credits, worked to constrain participation in the scheme.

Overall, the Authority judged that the scheme had performed reasonably well, achieving real reductions in greenhouse gas emissions equivalent to around 10 million tonnes of carbon dioxide (10 Mt CO2) over the past four years—with about 60 per cent coming from landfill and waste treatment projects, and a further 30 per cent from projects that avoided deforestation.

The CFI legislation was amended in November 2014 and the scheme was expanded to become the ERF. Participants in the CFI were rolled into the ERF which now covers all sectors of the economy. Under the ERF the government will purchase emissions reductions through auctions, and $2.55 billion has been allocated for this purpose to date. The Government has stated that it may consider additional funding in the future.

The ERF incorporates significant design improvements compared with the CFI, including greater certainty around future prices for credits (as projects receive a fixed price for the life of the purchase contract). Other changes to streamline procedures and lower transaction costs are also improvements.

It retains, however, much of the administrative intensity and complexity inherent in schemes where credits are assessed on outcomes against pre-determined baselines. In such schemes there can be no certainty that the credits awarded to participants always relate to emissions reductions which are genuinely additional to those that would have occurred in the absence of the scheme.

On this point, the big difference between the CFI and the ERF which replaced it is the much greater scale of the latter – and the much greater consequences of the risks that the scheme might not only miss some real opportunities to reduce emissions but also (and perhaps more worryingly) result in large payments for reductions that would have occurred anyway.

This will be a constant challenge for the scheme's administrators. The Authority's two recommendations on the ERF relate to this point:

• the first is that enhanced ‘additionality’ tests be considered in respect of individual projects that would generate a large volume of credits (and therefore receive a large payment) under the scheme; and

• the second is that the ongoing appropriateness of the ERF for achieving emissions reductions in particular situations be subjected to independent and periodic review.

With its recent creation, and the earlier repeal of the carbon pricing mechanism, the ERF has become the spearhead of the Government’s climate change policy.

The relevant legislation was passed only last month: no auctions have been conducted to this time, and the details of the potentially significant ‘safeguard mechanism’ have still to be disclosed. For these reasons it is too early to be reaching firm conclusions on the capacity of the ERF to deliver emissions reductions on the scale required to meet Australia's current and prospective targets. On the basis of its current configuration and funding, however, the Authority considers it unlikely the ERF would deliver even the minimum 5 per cent target without significant complementary action, such as purchases of appropriate international permits and the maintenance of a robust RET.

Renewable Energy Target

Electricity generation in Australia is responsible for one-third of the nation's total greenhouse gas emissions. Large, on-going reductions in emissions in this sector are therefore unavoidable as Australia strives to reach its targets.

The main burden of this task currently rests with the RET which, by creating a market for additional renewable electricity, encourages investment in new renewable generation capacity.

The present RET arrangements comprise the Large-scale Renewable Energy Target (LRET), which covers wind and other large-scale generators, and the Small-scale Renewable Energy Scheme (SRES) , which helps households, small businesses and community groups with the upfront cost of installing small-scale systems, such as rooftop solar PV systems and solar hot water systems.

When the current arrangements were put in place in 2010, these two schemes, together with existing hydro-electric generation, were broadly targeted to meet at least 20 per cent of then-projected total demand for electricity in 2020. The largest and most prominent part of this calculation was the 41,000 GWh set in legislation as the target for LRET in 2020.

It is this particular target which has been the focus in recent calls to, if not abandon the target altogether, then at least cut into it. One proposal is to reduce the LRET so that the overall target for renewables would represent a ‘real’ 20 per cent target—that is, 20 per cent of currently projected demand for electricity in 2020 (which is significantly lower than it was at the time the 20 per cent figure was first mooted). On this basis the LRET for 2020 would drop from 41,000 GWh to about 25,500 GWh.

The Authority does not see any magic in a ‘real’ 20 per cent figure, or in other figures of this kind. What really matters is that sustained emissions reductions be made in the electricity sector and, in the absence of better alternatives, this means the RET—and LRET in particular—will have to continue to lead this transformation. The Authority is not, therefore, recommending any reduction in the level of the LRET. The Authority acknowledges in its review that—largely because of the general erosion of bipartisan support for the RET and heightened speculation around the LRET which has flattened investment in the sector— there is now some doubt that the 41,000 GWh target can be achieved in 2020. Rather than reduce the level of the target, the Authority recommends that the 2020 target year for LRET be pushed out by, say, up to three years.

The Authority also acknowledges that forecasts of electricity demand have declined a lot from the levels anticipated a few years ago and that this is adding to the adjustment problems of some incumbent (fossil fuel based) generators. Extending the LRET target date in the manner recommended will not do a lot to ease those problems. But nor will slashing the target: the underlying difficulties in the sector will remain, the lost emissions reductions will have to be made good elsewhere, and negative signals will have been sent on the long term future for renewables.

In a separate recommendation on the RET the Authority has proposed that consideration be given to the nature and time-frame of possible RET arrangements in the post-2020 period, with particular regard to increasing and extending targets, and expanding coverage to a wider set of technologies. This reflects the Authority's view that, particularly in the absence of credible alternative policies, RET-type arrangements might be required to support increased penetration of renewables in electricity for some time.

The review includes some discussion of the question of exemptions from electricity costs under the RET for emissions-intensive, trade-exposed (EITE) industries. It notes that existing exemptions provided to some businesses are based on their overall emissions intensity, whether or not those emissions are related to electricity use. The Authority has not recommended any broadening of these exemptions but has suggested that if further exemptions were granted, this should be on the basis of electricity intensity, rather than emissions intensity.

The Authority made no recommendations in relation to SRES in this review. It noted that subsidizing household solar PV is a relatively expensive way to reduce emissions in the electricity sector but did not recommend any changes, largely because the assistance will soon begin to phase out, and the overall costs are relatively modest.

The Big Picture

The CFI and RET schemes essentially targeted opportunities to reduce emissions in particular sectors not always accessible through broader measures (such as the previous carbon pricing mechanism, for example). Although not perfect, these schemes have generated significant reductions in greenhouse gas emissions— reductions that otherwise would have to be made good elsewhere, if they were made up at all.

The Authority has argued consistently throughout its short life that an effective policy response to the risks of climate change requires favourable winds on at least two fronts:

• first , a broad community consensus that climate change poses real risks to the community; and

• secondly, a well-stocked toolbox to be able to tap into opportunities to reduce emissions wherever they occur.

Neither exists today. The earlier broad political consensus has ruptured in recent years, and no early repair is in prospect. And the tool box is feeling less weighty, with the removal of the carbon pricing mechanism, an unproven ERF, and an uncertain outlook for the RET. The Authority's recommendations and conclusions in the two reports released today have been framed against this background, and in the knowledge that in matters to do with climate change, policy makers have to plan for the long term, which is way past 2020.

In formulating its advice, the Authority is obliged to think about the long term, and as countries negotiate a framework for stronger climate action beyond 2020, the Authority will be considering Australia’s contribution—including emissions reduction goals, and the policies needed to meet them—in its special review next year.

Media contact: 0417 540 537 media@climatechangeauthority.gov.au

The Climate Change Authority is proceeding with its statutory review of the Renewable Energy Target (RET), which must be completed by 31 December 2014.

The Authority conducted its first review of the RET in 2012. That report emphasised the role of the RET in reducing greenhouse gas emissions, and the need for a stable and predictable policy environment for investors. It concluded that no major changes were warranted to the overall scheme design, but suggested some minor operational changes.

The Authority conducted its 2012 Review against the policy backdrop that existed at that time. Since then, significant changes have occurred. In particular, the carbon pricing mechanism has been repealed and the outlook for electricity demand remains subdued, even more so than it was in 2012.

The Authority’s 2014 RET Review will have regard to the role of the electricity sector in cost‑effectively meeting the national emissions reductions goals that are in Australia’s interest, in the period to 2020 and beyond.

Australia, together with the broader international community, has agreed to a goal of limiting global warming to no more than 2 degrees Celsius above pre-industrial levels. In its Targets and Progress Review released in February 2014, the Authority recommended an emissions budget consistent with that agreed goal.

In the Authority’s view, key considerations for reviewing the RET are the need to reduce greenhouse gas emissions (both now and in the longer term), and the critical role that a decarbonised electricity sector will play as Australia and the world move to a low-emissions economy. In the absence of alternative policies to decarbonise Australia’s electricity supply, severely curtailing the RET would risk stalling Australia’s progress, at a time when climate change science makes it clear that rapid reductions in emissions are required.

The Authority will conduct a necessarily limited RET review, with the aim of making a constructive contribution while not exacerbating policy uncertainty for the electricity sector.

How can I be involved in the Authority’s Review?

The Authority will draw on its previous work as well as the public submissions, analysis (including modelling) and report of the recent Warburton Review. Given the limited time available, the Authority will not release an Issues Paper or draft report. Stakeholders are, however, invited to provide additional thoughts to the Authority via submissions@climatechangeauthority.gov.au. All submissions except those made in confidence will be published on the Authority's website.

The Climate Change Authority today released an Issues Paper and invited submissions to the Authority’s Review of the Carbon Farming Initiative (CFI)

The Carbon Farming Initiative (CFI) is part of the Commonwealth Government’s response to climate change. It is a national, voluntary baseline and credit scheme. It provides incentives to encourage projects that reduce or avoid greenhouse gas emissions.

The CFI, introduced in 2011, was originally intended to provide offsets for businesses with liabilities under the carbon pricing mechanism, which was subsequently repealed in July 2014. The government now proposes to streamline and expand the CFI to form its Emissions Reduction Fund (ERF), the central element of its Direct Action Plan to reduce Australia's greenhouse gas emissions.

The Authority will consider how the CFI has performed during its first two years of operation and options for improvement, taking account of the government's proposed changes to streamline and expand the scheme. The Review will draw on other review and policy processes, including a study published by the Authority earlier this year, Coverage, Additionality and baselines—Lessons from the Carbon Farming Initiative and other schemes,  and, where relevant to the CFI, the government’s Emissions Reduction Fund White Paper(Opens in a new tab/window).

The Authority welcomes submissions from interested parties on the issues canvassed in the Issues Paper. Submissions are due by Friday, 31 October 2014.

The Authority is required by legislation to submit its report to the Australian Government by the end of December 2014.

Media contact: 0427 805 900, media@climatechangeauthority.gov.au.

Statement by the Chair, Mr Bernie Fraser

26 June 2014

Australia could almost double the fuel efficiency of its new vehicle fleet by 2025, save motorists thousands of dollars over the life of their vehicles, and significantly reduce greenhouse gas emissions – all by introducing mandatory emissions standards for light vehicles.

A new report released by the Climate Change Authority today says that improving the efficiency of light vehicles is one of the least costly emissions reduction options available to Australia. Passenger and light commercial vehicles (light vehicles)

contribute 10 per cent of Australia’s emissions. In its report, Light vehicle emissions standards for Australia, the Authority argues that a mandatory standard is the best policy for improving the efficiency of the light vehicle fleet.

Australia is unusual in the developed world in not having mandatory emissions or fuel economy standards. The United States, Canada, the EU, Japan and Korea all have mandatory standards. China and India also have mandatory standards, and both have more efficient passenger vehicle fleets than Australia.

The Authority proposes that the first phase of mandatory standards be introduced with effect from 2018, by which time local manufacture of automobiles is expected to have ceased. The standards would progressively reduce carbon dioxide emissions from new light vehicles to 105g/km in 2025, almost half the current level of 192g/km. This 2025 standard would broadly bring Australia into line with the United States, and still trail the tighter European Union targets by several years.

It is proposed that the targets would be set as an average across the fleet as a whole, rather than be applied to individual vehicles. This fleet-average approach would preserve customer choice in the purchase of light vehicles.

Implementation of a standard to reduce carbon dioxide emissions to 105g/km is estimated to increase the average cost of a new car in 2025 by about $1500. This, however, would be offset several times by fuel savings of about $8500 over the life of the vehicle, leaving motorists better off. The proposed standard is projected to avoid 59 million tonnes of greenhouse gas emissions over the period to 2030, equivalent to the current annual emissions of all light vehicles.

The details of the standard would be a matter for the Government of the day to finalise but the Authority has identified some possible best-practice design features, including:

coverage of new passenger and light commercial vehicles under a single standard flexible compliance mechanisms to reduce regulatory costs, including ‘banking’ and limited ‘borrowing’ of compliance credits using existing testing processes, to minimise regulatory burdens financial penalties for non-compliance.

The Authority has also suggested that a review be held in 2021 to consider the operation of the scheme, and to recommend new national average standards for a second phase, which would begin after 2025.

Mr Fraser said that the proposed standard was a win-win for the environment and for motorists. He expressed the hope that the proposal would be embraced by the major political parties and even mark the beginning of a necessary broad political consensus on effective climate change policy.

Background note

The Climate Change Authority is an independent statutory body established in 2012 to provide expert and balanced advice on climate change policy issues (including Australia’s emission reductions goals). It comprises members with considerable expertise in relevant disciplines, including climate science and economic policy, and is backed by an experienced and independent secretariat. The Government has introduced a Bill to abolish the Authority; that Bill is still before the Parliament.

Read the report on Light vehicle emissions standards for Australia

Next year Australia will be called upon to present its climate change credentials and policy to the world at the global climate conference in Paris.

The conference will seek to reach agreement on concerted and collective action beyond 2020 consistent with keeping global average warming below 2°C, compared with pre-industrial levels. Preparations are now underway for this conference and some countries are expected to indicate their goals for climate action beyond 2020 by April 2015.

As an intended contribution to Australia’s preparations for the Paris conference and the meetings leading up to it, the Climate Change Authority has today released the paper entitled International climate change: priorities for the next agreement.

The Paris conference follows the last comparable conference held in Copenhagen in 2009. Mr Fraser noted the forthcoming conference was likely to be held in rather more favourable circumstances than the last, which coincided with the early onset of the global financial crisis.

He also believed that since Copenhagen mainstream climate scientists had continued to strengthen their earlier findings on the links between human-induced increases in greenhouse gas emissions and the rise in average global temperatures.

The paper discusses several of the core priority issues which are expected to be considered in the meetings. These issues include:

• The collective goal to limit global warming to 2°C or below
• Post 2020 international emissions reduction targets for major emitting countries
• The common framework for tracking emissions and progress towards targets
• Greater clarity on the role the international trade in emission units will play in meeting targets
• Regular reviews of collective and individual efforts to reduce emissions

Effective collective action to contain global warming is as much in Australia’s interests as it is for other countries. Australia has played an active role at past international negotiations and, as a wealthy developed country and a high per capita emitter of greenhouse gases, it will be expected to carry a fair share of the post 2020 emissions reductions.

Background note

The Climate Change Authority is an independent statutory body established in 2012 to provide expert and balanced advice on climate change policy issues (including Australia’s emission reductions goals). It comprises members with considerable expertise in relevant disciplines, including climate science and economic policy, and is backed by an experienced and independent secretariat. The Government has introduced a Bill to abolish the Authority; that Bill is still before the Parliament.

Read the report on International climate action: priorities for the next agreement

Statement by the Chair, Mr Bernie Fraser

27 February 2014

The Climate Change Authority has today released its final report and recommendations on “Reducing Australia’s Greenhouse Gas Emissions”, as called for in the Clean Energy Act 2011.

The Authority’s major recommendation is that Australia target a minimum reduction of 15 per cent in greenhouse gas emissions – compared with 2000 levels – by 2020. This would represent a significant tightening of Australia’s existing commitment to reduce emissions in 2020 by a minimum of 5 per cent.

Adoption of the recommended 2020 target would constitute a responsible response by Australia at this time to the challenges of climate change. These challenges will require sustained actions by Australia (and other countries) and the Authority has made a number of recommendations to help guide policy makers in the decades beyond 2020.

The Science

As it is required to do, the Authority has consulted widely with stakeholders and carefully weighed many considerations in coming to its recommendations. Particular weight has been given to the accumulating scientific evidence that global temperatures have been trending upwards over the last 50 years and that greenhouse gas emissions from everyday activities by businesses and households are the major driver of this trend. Assessments of future social and economic consequences of on-going global warming are necessarily more provisional than the identification and explanation of the trend itself but are nonetheless very challenging.

In broad terms, mainstream climate science suggests that many of the social, economic and environmental impacts of climate change might be manageable if, for the long term, warming could be held to 2 degrees Celsius (compared with pre-industrial levels) – certainly more manageable than they would be if temperatures were to rise by 4 or 5 degrees.

The same body of climate science also suggests there is a 2 in 3 chance – a 67 per cent probability – that the rise in global temperatures would be held to 2 degrees if total global emissions between 2000 and 2050 were to be limited to 1,700 billion tonnes of greenhouse gas emissions (in carbon dioxide equivalent tonnes). What makes climate change such a challenging task for policy makers everywhere is that roughly a third of this global emissions “budget” has been used already.

There are signs that momentum in other countries to address climate change is growing. In particular, the world's two largest emitters, China and the United States, are stepping up their efforts to reduce emissions. Australia should play its part in this global endeavour.

Emissions Reduction Targets and Guidance for Australia

Against this background the Authority believes adoption of its recommendation for a minimum 2020 emissions reduction target 15 per cent below 2000 levels would be a credible response by Australia to the task of containing the rise in global temperatures. It would require concerted action over the years to 2020, the more so given that emissions in 2012 were about 2½ per cent above 2000 levels.

Australia has some emission credits which have accrued under the Kyoto Protocol as a result of its emissions in recent years being less than its Kyoto target. These credits can be carried forward to the 2013-2020 period and are equivalent to an extra 4 percentage points on Australia’s 2020 target. The Authority has recommended that these credits be applied to extend the minimum 15 per cent target for 2020 to an effective target of 19 per cent (rather than be offset against the recommended minimum of 15 per cent or, for that matter, against the current commitment to a minimum 5 per cent reduction).

Even with the large reductions in emissions envisaged in the Authority’s recommendations for 2020, sustained actions would continue to be required in subsequent decades.

The Authority calculates Australia’s fair share (about 1 per cent) of the global emissions ‘budget’, estimated to give a 67 per cent probability of holding warming to under 2 degrees, as a national emissions budget of 10.1 billion tonnes of greenhouse gas emissions for 2013-2050. The Authority recommends emissions reductions of between 40 and 60 per cent below 2000 levels by 2030 – the centre of this range is consistent with this national emissions budget.

This recommended ‘trajectory range’ is intended as guidance for longer-term policy and investment decision making in the climate change area. It also highlights the important trade-offs involved: a smaller reduction in emissions in the period to 2020 would push more of the burden of adjustment into later periods and onto future generations.

In its deliberations the Authority has had access to various modelling activities, including work published by the Intergovernmental Panel on Climate Change (IPCC) and work commissioned from the Treasury; these are detailed in the report. The assumptions fed into these models and the outcomes produced will, inevitably, change over the years, and possibly in substantial respects. There is no reason to believe, however, that the net effect of such changes will be favourable in terms of the emission reductions tasks facing Australia and other countries.

To help manage the risks inherent in all modelling exercises the Authority has recommended that the trajectory range and national emissions budget be reviewed at least every 5 years, having regard to developments in climate science, international actions, and other relevant factors.

Costs of Emissions Reduction Goals

As required by its legislation, the Authority’s primary focus in this Review has been on Australia’s goals for reducing emissions (and progress towards them), rather than possible measures (and their costs) for pursuing these goals; these latter considerations, however, have necessarily entered into its deliberations.

The costs of delivering any emissions reduction target depends on the particular suite of measures implemented for the task. This is very uncertain territory at present: the carbon pricing mechanism is slated for abandonment but the details of the Government’s alternative Direct Action Plan are still being developed. The Government has also announced it will review the current Renewable Energy Target arrangements over the months ahead. These matters will need to be clarified before meaningful estimates of the costs of achieving domestic emissions reductions can be made.

The Authority has, however, drawn attention to two particular matters related to measures and costs.

First, given the magnitude and complexity of the challenges posed by climate change it makes sense for policy makers to access the widest possible range of policy tools – to use market mechanisms (including prices on carbon and emission trading schemes) where these work effectively, and non-market arrangements (including regulations and standards) where they do not work well.

Several prospective opportunities for pursuing reductions in emissions are identified in the report. At this time the Authority is recommending that the Government investigate the possible early introduction of CO2 emission standards for light motor vehicles.

Secondly, to be competitive in the lower carbon global economy of the future, Australia should be developing cost effective programs now which, by reducing domestic emissions, will not only assist in the necessary structural transformation of the economy but also open up opportunities for new investments and exports.

Even in a generally receptive political environment these kinds of initiatives would have quite long lead times before any resultant reductions in emissions began to emerge. In the meanwhile, however, to bridge the gap between what domestic actions can achieve and Australia’s 2020 goals international emission reductions could be purchased. In terms of reducing global emissions and helping to limit the rise in global temperatures, such purchases would have much the same effects as reductions in domestic emissions.

A large supply of genuine emissions reductions is currently available in global markets at historically low prices. The budgetary cost of moving from the current minimum 5 per cent target to the Authority’s recommended target entirely through international purchases is estimated at between $210 and $850 million, assuming average unit prices of between $0.50 and $2 (current prices are under $1).

The Authority has recommended that the Government establish a fund to purchase international units to help meet the recommended 2020 goals.

Media contact:
0427 805 900
media@climatechangeauthority.gov.au

Background Note

The Climate Change Authority is an independent statutory body established in 2012 to provide expert and balanced advice on climate change policy issues (including Australia’s emission reductions goals). It comprises members with considerable expertise in relevant disciplines, including climate science and economic policy, and is backed by an experienced and independent secretariat. The Government has introduced a Bill to abolish the Authority; that Bill is still before the Parliament.

Download: 

Targets and Progress Review final report media release