Re-Capping Australia’s Carbon Trading

24 September 2009

Written by: Christopher Scanlon

The Carbon Pollution Reduction Scheme (CPRS) was defeated in mid-August by the Senate, much to the dismay of Prime Minister Kevin Rudd and his Minister for Climate Change, Penny Wong.

‘It is a very disappointing day indeed for Australia when the Liberal Party and National Party cannot even become united enough to have a single united voice on climate change’, Rudd told parliament.

Having returned to the drawing board, the Rudd Government initiated negotiations with the Australian Greens to gain numbers in the Senate. The proposed CPRS has been criticised for being linked to the bill for the Renewable Energy Target (RET) which sets a goal for the percentage of energy created from renewable resources.

Forced to split the legislation, Australia has set its first benchmark for Copenhagen — a renewable energy target of 20 per cent by 2020. Rudd has since urged the Opposition to make a decision on amendments to the proposed scheme by mid October.

Whether or not the emissions trading legislation should be passed prior to Copenhagen is a matter of contention. Dr Nicola Durrant, a specialist in Environmental Law and Climate Change at the Queensland University of Technology, believes that it is not vital for the legislation to be finalised ahead of the Climate Change Conference.

‘The talks will centre on emission reduction targets for nation states post 2012. They are not dependent on domestic legislation have been passed of that agreement’, said Durrant

But ‘sooner rather than later’ is Durrant’s key message, reaffirming that of the CEO of the International Emissions Trading Association, Henry Derwent, who told the ABC that, ‘the most important thing is the level of emissions reduction ambition that developed countries like Australia bring to the table’. Setting benchmarks demonstrates to the international community our commitment to reversing the effects of climate change.

Firm commitments to targets has been a hurdle for Australian industry — particularly the agricultural sector. Agriculture has been excluded from the CPRS and a decision on suitable emissions targets is not expected to be reached until after 2012. This decision will largely depend on whether the industry can accurately monitor various emissions from its land.

Dr Durrant notes, ‘some farmers are very keen to be included as they want to be able to create carbon credits for the carbon sequestered in the vegetation on their land. But once in they must account for their livestock et cetera… it would be better to create a separate offsets scheme to deal with the unique circumstances of agriculture’.

The National Farmers’ Federation president, David Crombie, also believes that a separate trading system is needed, such as those of the US, UK and some European countries. From his perspective, the traditional cap-and-trade model, like that adopted by the CPRS, would not successfully cover agricultural emissions.

But for the past two years, a separate market has existed in the form of voluntary trading of carbon units on the Australian Climate Exchange. Managing Director of the Exchange, Tim Hanlin admits though, that despite their exclusion from draft legislation, ‘agriculture has not been very active thus far’.

So if agriculture is not making use of the voluntary emissions trading scheme and all other sectors are covered by the CPRS, then is there a future for the Australian Climate Exchange? As the tug-of-war continues over changes to the CPRS, Hanlin is hoping that the Federal Government’s Energy Efficiency Pledge Fund will be reviewed because of its possible detrimental impact on voluntary trading. The Fund was established to allow individuals and companies to use savings made from energy efficiency to buy and retire carbon emission permits and maintain the tightness of the permit market.

‘The problem with this approach is that you are asking people to voluntarily implement abatement measures and then offset the tonnes of carbon dioxide abated — no one is likely to do this’ says Hanlin.

Hanlin also says that purchasing the permits form the government for voluntary action means paying the government for the abatement options undertaken which misses the point of making cleaner production methods more financially attractive.

However, threats to the voluntary carbon market have not only been domestic. The World Wildlife Fund is particularly critical of the Voluntary Carbon Standard which has been adopted by voluntary markets globally, saying that loopholes in the standard for market conduct may result in large numbers of Voluntary Carbon Standard certified but non-additional carbon credits.

‘There are many NGOs and other institutions who advocate, quite erroneously in my view, that voluntary action within a Cap & Trade market place has no net reduction in emissions because it loosens the cap and allows heavy emitters to continue to pollute’, says Hanlin, wary of the unfriendly publicity.

But it’s not all doom and gloom, with one of Australia’s leading consultancy firms, the Carbon Reduction Institute, reporting an increased volume of clients voluntarily reducing carbon emissions.

‘Many companies manage their carbon output, or footprint, due to a variety of reasons including corporate responsibility, marketing, stakeholders or part of a longer term cost reduction strategy’, says Environmental Director Gavin Pereira.

In the meantime, regardless of the legislation brought in, the environmental consultancy industry is set to grow phenomenally in the coming years. Hanlin too, predicts that there will be a role for voluntary markets long after Australia has established its emissions trading scheme, with large service and financial corporations tending towards a preference for meeting voluntary targets with the use of compliance credits to offset emissions.

As debate over the changes to the CPRS continues, it remains to be seen whether Australia will enter the international arena at Copenhagen with a fully-fledged emissions trading scheme. Perhaps discussion in New York will provide fresh stimulus for the Rudd government’s amendments to Australia’s climate change policy.

Cassandra O’Connor is a Sydney-based journalist currently studying at the University of Sydney. This is her first piece for upstart.