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Targets and Progress Review: Executive Summary

Summary

This is the Climate Change Authority's Draft Report on its Targets and Progress Review ...

The Climate Change Authority is required under existing legislation to conduct a review of Australia's greenhouse gas emissions reduction goals - the 'Targets and Progress Review'. The purpose of this Review is to recommend emissions reduction goals for the short, medium and long term that are in Australia's national interest. It is primarily about ends, not means. This Draft Report sets out draft recommendations on targets and emissions budgets for Australia, based on the Authority's deliberations over several months and stakeholder submissions and consultations. The Draft Report also details the progress Australia has made in reducing emissions, and identifies opportunities and challenges ahead.

... which is to be completed by 28 February 2014.

The Climate Change Authority is an independent statutory agency that reports to the Australian Parliament through the Minister responsible for climate change. The Final Report for this Review is required to be lodged by 28 February 2014. In preparing its Final Report, the Authority will have regard to stakeholder feedback on this Draft Report.

Why is this Review important?

 

This Review comes at an important time for Australia for several reasons.

This Review can inform upcoming decisions on international commitments ...

Australia has an international undertaking to reduce emissions by at least 5 per cent by 2020 compared with 2000 levels. Australia has indicated it may do more - up to 15 per cent or 25 per cent - under certain circumstances. As part of the international negotiations schedule, Australia will be asked to review its minimum 5 per cent offer and to firm up its 2020 intentions in 2014.

 

A new international agreement, involving all major emitting economies, is scheduled to be negotiated by 2015. This agreement will cover emissions reduction goals beyond 2020; Australia will be expected to participate in this process.

... guide long-term investment decision-making ...

On the domestic front, longer term guidance on emissions reduction goals is a critical factor for many investment decisions, particularly in long-lived capital items.

... and inform the design of the Government's Direct Action Plan.

And, not least, the recent change of government is leading to changes in climate policy, with the carbon pricing mechanism to be replaced by a Direct Action Plan. The centrepiece of the Direct Action Plan is an Emissions Reduction Fund, which will purchase emissions reductions through a reverse auction process. Material contained in this Review sheds light on where emissions reduction opportunities and challenges might lie, and how targets beyond the minimum 5 per cent might be achieved.

What has the Authority considered in forming its draft recommendations?

The Authority's views are grounded in the science ...

The Authority's considerations start with the science (Chapter 2). The most recent report from the Intergovernmental Panel on Climate Change (IPCC) confirms that warming in the climate system is unequivocal, and that human influence on the climate system is clear.

Continued growth in global emissions creates real risks for all countries, including Australia. It is in Australia's interests to contribute to global action to limit the increase in global average temperature compared with pre-industrial levels to below 2 degrees. This is the goal agreed by the international community, along with the objective of avoiding 'dangerous' climate change.

... which says the world needs a long term limit on emissions to stay below 2 degrees of warming and reduce the risks of dangerous climate change.

Climate science also suggests that to have a reasonable chance of achieving this goal, the amount of greenhouse gas emissions needs to be limited (Chapter 3). Keeping within a global emissions budget of 1 700 000 million tonnes of carbon dioxide equivalent (Mt CO2-e) between 2000 and 2050 is estimated to give a 67 per cent chance of staying below 2 degrees - emitting less would improve these odds; emitting more would reduce them.

Australia also needs to take a long term view of emission limits and set a 2050 emissions budget.

If Australia is to take this science - and the below 2 degrees goal - seriously, it needs to act now and continue this effort over the long term. In this Draft Report, the Authority has expressed its view on what might constitute Australia's fair share of the estimated global emissions budget. The Authority's view is that an Australian emissions budget of 10 100 Mt CO2-e for the period 2013 to 2050 (or around 1 per cent of the estimated global budget) would represent an equitable share (Chapter 9). The long term emissions budget should obviously be kept under review.

The Authority has also considered international action on climate change ...

A global problem requires global action, and what might be considered a fair effort by Australia depends in part on what other countries are doing. The Authority has therefore reviewed the scale and pace of international action on climate change (Chapter 4), considering both the targets other countries have pledged to achieve, and the policies chosen to pursue those targets.

 

The evidence suggests international action on climate change is strengthening, particularly in some of the world's largest economies.

... which shows a clear trend towards more ambitious action ...

Ninety-nine countries, including Australia's major trading partners and neighbours, and covering over 80 per cent of global emissions and over 90 per cent of the world's economic output, have 2020 emissions reduction pledges. All of these countries are implementing policies to reduce emissions, including renewable energy targets, emissions trading schemes and vehicle emissions standards.

 

In particular, the world's two largest emitters - China and the United States (jointly producing over a third of global emissions) - are stepping up their efforts to reduce emissions. Both countries have emissions reduction targets. China is investing heavily in renewable energy projects, closing inefficient coal power plants and trialling market mechanisms to reduce emissions. President Obama announced an ambitious plan for US action in June 2013, including new restrictions on emissions from coal-fired power plants, strengthened vehicle emission standards and renewable energy activities. These complement state-based market initiatives to reduce emissions.

... although all countries need to do more.

Despite these efforts, the cumulative effect of current 2020 emissions reduction pledges falls short of what is required to hold temperature increases below 2 degrees. This suggests all countries, including Australia, will need to do more to help achieve this goal.

The Authority has considered the economic implications of stronger targets ...

As required, the Authority has considered the economic implications of adopting more ambitious targets than the existing 5 per cent minimum commitment.

As part of this consideration, it reviewed Australia's progress to date on emissions reduction (Chapter 7). This suggests that it is possible to sustain economic growth while reducing emissions. Since 1990, the size of the Australian economy has doubled, but the level of emissions has stayed much the same. Emissions reduction policies and other changes in the composition of the economy have been important in keeping emissions flat. Major policy initiatives have included regulations to restrict land clearing, incentives to promote lower emissions sources of electricity generation and energy efficiency policies. A change in the composition of the economy toward a greater reliance on lower emissions sectors (for example, services) and less reliance on high emitting sectors (for example, manufacturing) has also played a role.

... and has concluded that it is possible to move to stronger targets at relatively small cost to the economy.

The Authority has also drawn on modelling work to estimate the costs to the economy of moving to a stronger target (Chapter 10), and to identify where opportunities and challenges might arise in seeking further emissions reductions (Chapter 12). This work suggests that the impact on economic activity and national income would be relatively small even if more ambitious emissions reduction targets were to be adopted.

What is the Authority recommending?

The Authority's draft recommendations seek to balance short term clarity and stability with longer term flexibility ...

In this Draft Report, the Authority is recommending emissions reduction goals for the short, medium and long term (Chapter 8). These recommendations seek to balance the need to:

  • set clear goals for the near term that are consistent with current long term objectives; but
  • maintain flexibility to respond to changing circumstances as they emerge.

... by recommending a single 2020 target and a trajectory range to 2030.

In its Final Report, the Authority proposes to recommend a single target for 2020, a trajectory range to 2030, and a long term emissions budget to 2050.

The trajectory range and the long term emissions budget would be subject to periodic review, having regard to developments in:

  • climate change science;
  • what other countries are doing; and
  • the likely costs of achieving different targets.

Is a 5 per cent reduction enough by 2020?

The Authority considers a 5 per cent target for 2020 to be inadequate because ...

In short, the Authority views Australia's current minimum 5 per cent target more as a benchmark than an appropriate target, and believes Australia should do better (Chapter 11).

 

Three main reasons are advanced.

... the Government's conditions and the pace of international action justifies us going further ...

First, the scale and pace of international action suggests that Australia should be pursuing a stronger target. Taken as a whole, the Government's own conditions for moving beyond 5 per cent appear to have been met. More broadly, a 5 per cent target would put Australia at the lower end of effort compared with other developed countries. This position would sit uncomfortably with Australia's relative prosperity and high per person emissions.

... it is inconsistent with action toward the 2 degree goal ...

Second, 5 per cent is considered an inadequate first step if Australia is to play its part in limiting warming to below 2 degrees. Australia would spend a large part of the proposed long term emissions budget earlier, leaving little for the rest of the period out to 2050. A 5 per cent target would require an implausibly rapid acceleration of effort beyond 2020. Failing to do more in the short term is likely to increase future costs and cause unnecessary disruption to the economy and community more broadly. To keep open the option of acting in accordance with the below 2 degrees goal, Australia needs to do more in the short term than is implied in the 5 per cent target.

... and more ambitious targets might now be easier to achieve than earlier thought.

Third, the Authority considers that moving to a stronger target now could be accommodated at a relatively low cost to the economy, based on modelling of Australia's economy and emissions outlook.

 

Since Australia first announced its target range, the estimated effort required to achieve the 5 per cent (or any stronger) target has fallen. Emissions are not growing as quickly as previously forecast. Australia can now count a broader range of emissions reduction activities toward its target. The costs of several low emissions technologies, particularly renewable energy, have fallen significantly. And Australia's emissions in 2008 to 2012 were lower than its commitment under the Kyoto Protocol, which means that Australia has 91 Mt CO2-e of emissions rights which it can 'carry over' to the next period - this represents a potential 3 percentage point contribution that might form part of a more ambitious 2020 target.

 

Official projections made in 2012 indicated that 754 Mt CO2-e of emissions reductions were required in the period to 2020 to deliver the 5 per cent reduction target. On current estimates, the same level of emissions reductions would be equivalent to an 11 per cent reduction. Taking into account the Kyoto 'carry over' equivalent to 91 Mt CO2-e, this would imply a 14 per cent reduction by 2020.

Further, a wide range of emissions reduction opportunities are available across all sectors of the economy at relatively modest cost (Chapter 12). Electricity is the most important sector for potential emissions reductions. It has the largest share of Australia's emissions, and the modelling undertaken for the Authority suggests it could contribute the largest share of emissions reductions if policy drivers are effective.

Options for 2020 and 2030

The Authority presents two options for 2020 - 15 per cent and 25 per cent, with different trajectory ranges to 2030.

The Authority's present thinking is that a target of 15 per cent by 2020 is the minimum option consistent with what, in the Authority's view, represents an equitable share for Australia of the estimated global emissions budget to 2050.

This Draft Report presents two sets of options for Australia's 2020 target and 2030 trajectory range (Chapter 11):

  • 15 per cent reduction compared with 2000 level emissions by 2020, and a trajectory range of 35 to 50 per cent by 2030; and
  • 25 per cent reduction by 2020 and a trajectory range of 40 to 50 per cent by 2030.
 

The pros and cons of these options are canvassed in this Report.

Compared with 25 per cent, 15 per cent would require faster reductions later, and would use up more of the budget sooner ...

In relation to their consistency with the long term emissions budget, a 25 per cent target would clearly make a greater short term contribution to emissions reductions, allowing a more consistent pace of emissions reductions in the period to 2050. A 15 per cent target would defer more reductions to later in the period, requiring an acceleration of effort after 2020.

... would place us in the middle of the pack on climate change action ...

Compared with what other countries are doing, the 15 and 25 per cent targets are both broadly in line with the efforts of other key countries.

In terms of the Government's 'conditional' targets, a 15 per cent target would be more consistent with its stated conditions than a 25 per cent target.

... and would cost slightly less in the short term.

In terms of economic costs, a 15 per cent target would impose lower costs on the Australian economy in the short term, but would imply higher costs later (given the implied steeper emissions cuts in future). Based on the modelling, the Authority estimates that the incremental reduction in Gross National Income (GNI) in 2020 would be $2.7 billion, or 0.16 per cent, for a 25 per cent target compared with a 15 per cent target.

 

As noted above, Australia has the opportunity to carry over unused emissions rights from the first commitment period of the Kyoto Protocol. The Authority's current view is that this carryover of 3 percentage points would be best used to strengthen Australia's 2020 target (Chapter 8).

 

The Authority is continuing its deliberations on these options, and seeks stakeholder views.

The role of international emissions reductions

Australia can use international emissions reductions to help meet its target.

Australia's international commitments to reduce greenhouse gas emissions are all expressed in net terms. That is, if actual emissions in Australia are higher than the target, they can be offset by purchases of international emissions reductions. This is the case under the Kyoto Protocol (covering Australia's commitments from 2008 to 2012, and now from 2013 to 2020), and will almost certainly be the case under any new post-2020 agreement.

 

Climate change is a global phenomenon and requires reductions in emissions around the globe. From a global environmental perspective, there is no special merit in confining emissions reductions to domestic actions, so long as the international emissions reductions purchased are credible.

 

The Government has stated it will achieve the minimum 5 per cent target domestically, but is still to decide whether international emissions reductions would be drawn upon to meet any stronger target.

While we have many domestic opportunities to reduce emissions ...

Extensive emissions reduction opportunities are available domestically, and progress has been made towards meeting the 5 per cent unconditional target. Based on the modelling, the Authority identifies substantial low to medium cost emissions reduction opportunities across all sectors of the economy - for example, using energy more efficiently in homes and businesses, continuing to reduce land clearing, and adopting cleaner, low emission technologies and production processes.

... allowing international emissions reductions to be part of the mix can help lower costs.

While there are extensive emissions reductions opportunities available in the domestic economy, the modelling also shows that international emissions reductions can help Australia meet its targets in a cost-effective way. There are many options for securing emissions reductions from other countries.

The Government should consider allowing the use of international emissions reductions to go beyond 5 per cent.

In the Authority's view, the Government should consider allowing the use of international emissions reductions to go beyond its minimum 5 per cent commitment, paying careful attention to the environmental integrity of the emissions reductions allowed. Moreover, the Government could consider using genuine international emissions reductions to complement domestic efforts to achieve Australia's minimum 5 per cent commitment.

Next steps

The Authority seeks feedback on this Draft Report to inform its deliberations on final recommendations.

The Authority welcomes public comment on this Draft Report and the draft recommendations presented. The Authority will consider all submissions received as it finalises this Review and its recommendations on Australia's emissions reduction goals.

The Final Report will be presented to the Minister and published on the Authority's website by 28 February 2014. The report must be tabled in the Australian Parliament within 15 sitting days of the Minister receiving it.

Summary of draft recommendations

 

The Authority's key draft recommendations are summarised below:

National emissions reduction goals to 2020 and 2030

Two sets of options are canvassed for the national emissions reduction target in 2020, carbon budget to 2020, indicative trajectory to 2020 and trajectory range from 2020 to 2030:

 

Option 1

Option 2

2020 emissions reduction target

15 per cent below 2000 levels

25 per cent below 2000 levels

Indicative national emissions trajectory for the period 2013-2020

A straight line to the 2020 target. This line starts at Australia's first commitment period target under the Kyoto Protocol (108 per cent of 1990 levels) in 2010, and ends at 15 per cent below 2000 levels in 2020.

A straight line to the 2020 target. This line starts at Australia's first commitment period target under the Kyoto Protocol (108 per cent of 1990 levels) in 2010, and ends at 25 per cent below 2000 levels in 2020.

National carbon budget for the period 2013-2020

4 314 Mt CO2-e

4 010 Mt CO2-e

Trajectory range to 2030

Beyond 2020, reduce emissions within a trajectory range bounded by the paths to a 35 and 50 per cent reduction below 2000 levels in 2030.

Beyond 2020, reduce emissions within a trajectory range bounded by the paths to a 40 and 50 per cent reduction below 2000 levels in 2030.

National budget to 2050

A national carbon budget for the period 2013-2050 of 10 100 Mt CO2-e, to be reviewed regularly, having regard to developments in climate science, international action and economic factors.

Using international emissions reductions

Australia to keep under consideration the use of genuine international emissions reductions where this is a cost-effective way of helping to meet its emissions reduction goals.

Level of carbon pollution caps

As called for in the current legislation, five annual carbon pollution caps for the existing carbon pricing mechanism:

 

If Australia adopts a 2020 target of 15 per cent (Mt CO2-e)

If Australia adopts a 2020 target of 25 per cent (Mt CO2-e)

2015-16

234

193

2016-17

229

178

2017-18

224

182

2018-19

219

171

2019-20

214

165