Australian Climate Change Policy - Where To From Here?

Abstract

Over the past decade, Australia's approach to climate change policy could be described as erratic. In 2007, both major political parties announced support for a domestic emissions trading scheme (ETS) but bipartisan agreement evaporated in 2009. An ETS was established in 2011 but then repealed in 2014. The Commonwealth Government has subsequently introduced a “Direct Action” climate change policy, but there is little political agreement about the best long-term policy approach. This is unfortunate given climate science is indicating that relatively significant cuts to emissions may be required to avoid “dangerous climate change.” This article provides some insights for future Australian climate change policy suggested by an analysis of the realities of electricity generation costs, international policy settings and Australian policy history. Enlightened and effective policy cannot ignore how comparative generation costs affect incentives to replace existing assets and how different policy instruments impact on electricity prices. As a significant exporter of emitting fuels, Australia would also be wise to consider how to manage the economic risks of reduced international demand for these fuels in the absence of technological development that eliminates externality costs. Such consideration could be focused on both reductions in domestic emissions and Australia's strategic negotiating position ahead of international climate change mitigation negotiations in late 2015.