Overview

Australia has begun to address climate change. The Commonwealth Government has committed to reducing greenhouse gas emissions by 26–28 per cent below 2005 levels by 2030. But we do not have a comprehensive, credible domestic policy framework to achieve this target. We do not even have bipartisan support for the central planks of such a framework, which is essential for such an important public policy issue.

The government has a suite of policies in place to meet its current target of reducing emissions by five per cent below 2000 levels by 2020. These will need to be re-engineered, if not redesigned, to meet the 2030 target and any additional targets the government may commit to in future. The Labor Party is consulting on a target of reducing emissions by 45 per cent below the 2005 baseline by 2030. It has also committed to a cap on emissions of unspecified coverage, an associated emissions trading scheme and an aspiration to generate 50 per cent of Australia’s electricity from renewables by 2030.

While an economy-wide, market-based scheme is the most effective and efficient means to reduce Australia’s emissions, the adoption of market-based schemes, such as cap and trade schemes, has been inconsistent and politically fraught, both in Australia and overseas. If these issues cannot be overcome, policymakers in Australia will need to look at alternative options that can achieve the current 2030 target — and, potentially, more ambitious future targets — without straying too far from the efficient ideal.

Bipartisan support is essential for whatever mechanisms are adopted. Firms are unlikely to make long-term investments to reduce their emissions unless they are confident that policies are stable. Despite political agreement on targets, Australia has lacked political consensus on climate change policy since 2008.

In this working paper we assess a range of policy options that could reduce emissions, including cap and trade emissions trading, carbon taxation, intensity baseline emissions trading, emissions purchasing, regulation and tradeable green certificates. We assess each policy for:

• credibility: ability to meet the volume of emissions reductions required by current and future targets;

• political viability: capacity to evolve from current policy settings and achieve bipartisan support;

• flexibility: ability to adjust to changes in targets, political developments and technological change;

• adaptability: potential to move towards an economy-wide, market-based scheme over time;

• public acceptability: ability to be understood and accepted by the community; and

• low cost.

None of the plausible policies fulfils all of the criteria. The task is to find solutions to the limitations of an individual policy, or to combine policies so that collectively they satisfy the criteria.

This working paper will be followed in early 2016 by a report that recommends an overall set of policies that Australia should implement to meet its current and future emissions reduction targets. The report will define a path that, if followed, could meet Australia’s future targets and secure bipartisan support.