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Chapter 6 Australia’s action on climate change

Australia’s existing policy mix – and planned changes to that mix – provide important context for considering its future emissions reduction goals.

Over more than two decades, Australian governments at all levels have implemented policies to reduce emissions. Regulatory measures include labelling and minimum performance standards for appliances, building codes and restrictions on land clearing. A range of trading schemes has been implemented to promote renewable energy, emissions reductions in the land sector, energy efficiency, and emissions reductions more generally.

In 2011, legislation was passed to create the carbon pricing mechanism (a cap-and-trade emissions trading scheme). The Government intends to repeal this legislation, and implement the Direct Action Plan. The centrepiece of this Plan is the Emissions Reduction Fund, which is to purchase emissions reductions through a reverse auction.

Chapter 6 introduces Australia’s policy initiatives to reduce emissions. It:

  • outlines the range of policy measures for addressing climate change;
  • describes Australia’s existing climate change policies to reduce emissions; and
  • outlines the Government’s proposed new policy.

In the next chapter we assess the extent to which Australia has progressed towards a low-emissions economy.

6.1 Australia’s climate change policy options

Like other countries, Australia has drawn on a wide range of measures to reduce its greenhouse gas emissions. The policy ‘toolbox’ includes:

  • voluntary measures, such as the GreenPower renewable energy purchasing scheme;
  • regulatory measures, such as labelling laws, minimum performance standards, building codes and restrictions on land clearing;
  • trading schemes, such as the carbon pricing mechanism, Renewable Energy Target (RET), state-based energy efficiency trading schemes, the former NSW Greenhouse Gas Reduction Scheme (GGAS) and the Carbon Farming Initiative (CFI); and
  • a wide range of government funding schemes, such as grants provided by the Australian Renewable Energy Agency (ARENA) and the Government’s planned Emissions Reduction Fund.

In Australia, climate change policies have been introduced by both major parties and at all levels of government since the late 1980s. Climate change policies began with voluntary schemes such as energy labelling (initially in New South Wales and Victoria from 1986) and the national Greenhouse Challenge Program for industry from 1995. Energy labelling became mandatory from 1992, and progressed to minimum standards on a range of devices from 1999 (for example, refrigerators, freezers and air conditioners). In 2003, New South Wales introduced GGAS, one of the first mandatory emissions trading schemes in the world. The Commonwealth Parliament introduced a mandatory renewable energy target in the electricity sector in 2001 (see Section 6.2.1 for detail).

6.2 Major existing policy and legislation

In 2011, the Clean Energy Future Package was legislated. The Clean Energy Act 2011 (Cth) established long term goals to reduce emissions by 80 per cent from 2000 levels by 2050 and to contribute to a global response to limit global warming to no more than 2 degrees above pre-industrial levels. Other major elements include a carbon price that covers over half of Australia’s emissions and the CFI which provides incentives to reduce emissions in the land sector.

A broader suite of sector-specific initiatives are also in place, and state and local government levels play an important role through, for example, land use controls, energy efficiency and renewable energy programs.

At the Commonwealth Government level, the main legislated policy tools are currently the RET, the CFI and the carbon pricing mechanism. These policies, plus a range of other significant policies applying to particular activities, are summarised below.

6.2.1 Renewable Energy Target

The RET drives investment in renewable energy. It creates a guaranteed market for renewables using a tradable certificate scheme that encourages projects at large scale (for example, wind farms) and small scale (for example, solar PV on household rooftops). Electricity retailers and other entities that purchase wholesale electricity are required to surrender a certain number of renewable energy certificates each year or pay a shortfall charge.

The RET has been in place and driving renewable energy generation since 2001. The target, initially legislated by the Howard Government, was expanded in 2009 to 45 000 GWh by the Rudd Government. At the time, this was expected to deliver around 20 per cent of electricity generation in 2020. Recent softening of electricity demand means that 45 000 GWh could constitute a higher share in 2020 (CCA 2012).

This target was split into two schemes in 2011:

  • the Large-scale Renewable Energy Target (LRET) supports large-scale renewable energy projects. The LRET has annual fixed targets and a 2020 target of 41 000 GWh; and
  • the Small-scale Renewable Energy Scheme (SRES) supports the installation of small-scale renewable technology systems. The SRES has an implicit target of 4 000 GWh, but is uncapped. The Authority estimates it may result in about 11 000 GWh of generation in 2020 (CCA 2012).

Since the introduction of a RET in 2001, Australia’s renewable electricity capacity has doubled (CCA 2012). In terms of electricity generation, there was 24 GWh of renewable electricity in 2012, about 9 per cent of total electricity.

Around one million households have already installed rooftop solar PV (DIICCSRTE 2013), which the Australian Energy Market Operator (AEMO) estimates will generate around 2 700 GWh in 2013 (AEMO 2013).

6.2.2 Carbon pricing mechanism

The carbon pricing mechanism began operation in 2012 and requires Australia’s largest greenhouse gas emitters to report and be liable for their greenhouse gas emissions, creating an incentive to reduce those emissions. As noted above, the Government intends to repeal the carbon pricing mechanism; this section describes the scheme as currently legislated. The carbon pricing mechanism covers about 370 of Australia’s biggest emitters, accounting for more than half of Australia’s emissions, including in electricity generation, other direct combustion, landfills, wastewater, industrial processes and fugitive emissions1. Some other sectors are covered by an equivalent carbon price (see Part E for further details).

For every tonne of greenhouse gases emitted, firms need to surrender one unit to the regulator. The price of these units is referred to as the carbon price. The carbon pricing mechanism has a three-year fixed-price period from 1 July 2012 to 30 June 2015. During the fixed price period, liable entities pay a price for each unit that starts at $23 a tonne in 2012–13 and rises at 2.5 per cent a year in real terms. When the fixed-price period ends, a cap will limit the emissions units that can be issued. Under the legislation, the Minister responsible for climate change must set caps, taking into consideration the Authority’s advice as part of this Review. The legislation requires caps to be announced five years in advance. In the event that Parliament does not set caps through regulation, default caps apply.

Approved international units can be surrendered to meet up to 50 per cent of an entity’s carbon liability. At present, approved international units include European Union Allowances (EUAs) and units generated under the Kyoto Protocol. More detail on international carbon markets is provided in Appendix B.

6.2.3 Carbon Farming Initiative

The CFI commenced in 2011. It allows approved carbon reduction projects to generate carbon units. Sectors eligible for the CFI are not covered by the carbon pricing mechanism and include agriculture, forestry and landfills (for waste deposited before July 2012). Units created under the CFI are called Australian Carbon Credit Units. These can be sold to liable parties under the carbon pricing mechanism, or to individuals and organisations wishing to voluntarily offset their emissions (for example, in the Carbon Neutral Program).

Activities that have earned units under the scheme include:

  • Reduction of emissions from waste. The waste sector accounts for the largest share of registered CFI projects. As at 12 September 2013, the CFI has 60 registered waste projects involving gas capture, combustion and diversion. The Clean Energy Regulator (2013) reports that about 1.9 million Australian carbon credit units have been issued, representing a reduction in emissions of 1.9 million tonnes of carbon dioxide equivalents (CO2-e).
  • Management of savanna burning in the Northern Territory. The Indigenous Land Corporation has generated credits by implementing a method of controlled burning early in the dry season.
  • Capture of methane generated from manure at a piggery in New South Wales. The electricity generated from the captured methane at Blantyre Farm has been sufficient to power the entire property.

6.2.4 Other sector-specific initiatives

A range of initiatives exist to reduce emissions in the land use, industry and buildings sectors:

  • Land clearing. Annual rates of land clearing have decreased substantially since 1990, due to state-based regulations in New South Wales and Queensland on new land clearing and weaker economic conditions for farming (leading to reduced incentives for farmers to clear land and expand production).
  • Minimum energy performance standards. From 1999, some products and appliances such as refrigerators and air conditioners have been subject to minimum energy performance standards through state government legislation. Building upon this, the Greenhouse and Energy Minimum Standards (GEMS) Act 2012 (Cth) implements nationally consistent standards for appliances in the residential and commercial sectors.
  • The Energy Efficiency Opportunities program. Introduced in 2006, this program promotes energy efficiency in Australia’s largest energy-using firms (firms that consume more than 0.5 PJ of energy per year – equivalent to 10 000 households). The program requires firms to assess their energy use and identify cost-effective energy efficiency opportunities (with up to a four-year payback period).
  • New building standards. Under the Building Energy Efficiency Disclosure Act 2010 (Cth), commercial offices must disclose energy performance and receive a building efficiency rating through the National Australian Built Environment Rating System. Since 2003, residential energy efficiency standards have existed for new buildings in the National Construction Code, and these were strengthened in 2010. Most states and territories now require energy performance equivalent to 6-stars on a 10-star scale for new residential construction.
  • Efficient lighting. The Commonwealth is also phasing out inefficient lighting and moving to more efficient alternatives such as compact fluorescent and LED lamps. Sales restrictions on inefficient lighting began in 2009 and standards will be rolled out to include a broader range of energy efficient lighting over time.

The Government intends to replace the carbon pricing mechanism with the Direct Action Plan. Details of the plan are being developed and are discussed in Section 6.3.

6.3 The Direct Action Plan

The Government has committed to introduce the Direct Action Plan to replace the carbon pricing mechanism and other elements of the 2011 Clean Energy Future Package.

Work is underway on the implementation of the Direct Action Plan. In this Review, the Authority has not made any assumptions regarding the detailed policy design or implementation beyond what has been announced.

A central feature of the Direct Action Plan is to be the Emissions Reduction Fund. It is proposed the Fund will purchase least-cost emissions reductions in Australia through reverse auctions. It is expected that the scope of methodologies under the Carbon Farming Initiative will be expanded and that the Clean Energy Regulator will continue to play a central role on the approval of projects (Hunt 2013).

The Government has indicated it will call for submissions on issues such as the auction process and the setting of baselines within 30 days of forming government, and that the Emissions Reduction Fund would commence on 1 July 2014.

In addition to the Emissions Reduction Fund, the Direct Action Plan proposes to include:

  • rebates for solar panels, solar hot water systems and heat pumps;
  • grants for renewable energy in schools and towns; and
  • planting an additional 20 million trees.

Australia’s policy mix, combined with underlying trends in the economy, has influenced its emissions performance. Chapter 7 sets out how Australia’s emissions have been tracking to date.

1 Fugitive emissions are greenhouse gases emitted during the extraction, production, processing, storage, transmission and distribution of fossil fuels such as coal, oil and gas.