Australia signs up for clear carbon trading rules, hinting at policy change

Extract from The Guardian

Signing declaration at the Paris climate talks ‘recognises the role a carbon market might play after 2020’, foreign minister Julie Bishop says

IMF managing director Christine Lagarde on carbon: policy makers need to ‘price it right, tax it smart and do it now’. Photograph: Bao Dandan/Xinhua Press/Corbis

Lenore Taylor in Paris

@lenoretaylor

Thursday 10 December 2015 08.08 AEDT

Australia has signed a Paris declaration calling for new clear rules for international carbon trading in a signal the Coalition’s six-year carbon pricing policy veto could be softening as it prepares to review its climate policy in 2017.

Foreign minister Julie Bishop, who signed the declaration in Paris, said it was in Australia’s interests to recognise the role an international carbon market might play in reducing emissions after 2020.

“It’s just a declaration, it’s not legally binding,” she said after a speech to an event organised by Australia’s Carbon Market Institute.

“It’s signalling our commitment to working with others about rules for a carbon market post 2020. The detail is for each country to include in their domestic policies, and this is something Australia will consider in due course.

“It is a declaration that recognises the role a carbon market might play after 2020 and we thought it would be in our national interest to sign up to it,” she said.

“We are engaging closely with business as we work towards developing and reviewing our domestic climate policies in 2017 and we deeply appreciate the private sector’s interest in accessing international [carbon] units and recognise international carbon markets are also a key part of the global effort to reduce emissions. Carbon markets can provide flexibility for countries and companies to use genuine and verified international units to help meet their commitments.”

The declaration, pushed by New Zealand and set to be announced at the end of the Paris meeting, calls for countries to work on transparent rules for carbon trading after 2020 so that they have the choice to enter into bilateral or multilateral carbon trading arrangements.

The Coalition has said it will review its Direct Action climate policy in 2017, including the so-called safeguards mechanism – which could at that time become a baseline and credit emissions trading scheme – and also whether businesses will be able to buy offshore carbon permits.

The quality of international carbon markets has been of concern to the Coalition in the past. Tony Abbott once described buying international permits as being like sending “money … offshore into dodgy carbon farms in Equatorial Guinea and Kazakhstan”.

Australia’s opposition to allowing businesses to buy offshore permits began to soften towards the end of Abbott’s prime ministership, and is now considered almost inevitable after 2017.

Bishop said the declaration was not about domestic climate policy, but companies only need offshore credits if they have a domestic liability.

At the moment the “baselines” or benchmarks set for emissions from the 140 businesses covered by the safeguards mechanism are set to stop wild increases in emissions, with no business ever likely to exceed them.

But the 2017 review will consider whether they should be tightened to make sure policies can achieve the 2030 emissions reduction target Australia has pledged in Paris; to allow businesses who exceed their baselines to buy emission reduction credits from those who have managed to do better; and whether they should be able to source permits offshore. The review could also consider other versions of carbon pricing.

Environment minister Greg Hunt has said the “safeguards mechanism” is slated to deliver 200m tonnes of greenhouse gas abatement by 2030 – something that would require major change.

There has been an overwhelming consensus from business groups in Paris that a carbon price would be the most efficient mechanism to drive deep emission reductions.

On the first day of the talks the World Bank, the International Monetary Fund and six heads of state launched the carbon pricing leadership coalition, which called on all countries to start pricing carbon pollution. The coalition includes more than 90 businesses and non government organisations.

IMF managing director Christine Lagarde said “the right carbon price” had to be at the centre of reducing emissions and “given the slump in energy prices, there has never been a better time to transition to smart, credible and effective carbon pricing”.

“Policy makers need to price it right, tax it smart and do it now,” she said,

The call was backed by Canadian prime minister Justin Trudeau, Mexican president Enrique Peña Nieto, French president François Hollande, German chancellor Angela Merkel, Chilean president Michelle Bachelet Jeria, and Ethiopian prime minister Hailemariam Desalegn.

World Bank group president Jim Yong Kim said it was important to get “momentum” behind carbon pricing.

Labor’s environment minister Mark Butler told the same Carbon Markets Institute event Labor remained convinced that a cap and trade scheme was the most effective policy, but indicated Labor might reconsider – in the interests of business certainty – if the Coalition won the next election and established its safeguards mechanism as a working baseline and credit scheme.

He said businesses told him a baseline and credit scheme was a “clunkier model” and that they would prefer cap and trade, but he said “if years down the track it has become a serious proposition and has deep roots and everyone has constructed their operations around it, then come back to me”.

Lewis Tyndall, co-founder of GreenCollar – a firm that has been a big winner from the government’s Direct Action auctions, told the same event: “Greg Hunt has described the safeguards mechanism as a baseline and credit system ... everybody is saying we should have a carbon markets of some kind, from a tax to baseline and credit system to an emissions trading scheme, and we agree.”

Greens leader Richard Di Natale said he was disappointed at the lack of ambition in the Australian government’s position in Paris.

“We continue to be one of the few countries who advocate the use of fossil fuels as a solution to poverty,” he said.

New Zealand is particularly keen for clear international carbon trading rules as its domestic emissions are largely from agriculture and it has limited options to reduce them.