Safeguard mechanism design critical for effective climate policy

A climate policy vacuum must not be allowed following the repeal today of Australia’s carbon pricing mechanism says the Carbon Market Institute.

“Australia has an international obligation to meet its emissions reduction target,” says Carbon Market Institute chief executive Peter Castellas. “With the carbon tax repealed, we must look to and expect the Government’s policy – the Emissions Reduction Fund and the associated Safeguard Mechanism – to be designed and implemented to meet our target.”

The Government’s legislation to establish the ERF, the Carbon Farming Initiative Amendment Bill 2014, has passed the lower house but is not likely to be voted on in the Senate until August.

“There is no time to waste,” says Castellas. “With no carbon liability for large emitters, the initial funding of abatement through the ERF will be vital to ensure continuity of Carbon Farming Initiative projects – our successful domestic offsets scheme – and to provide incentives for investment in non land-sector abatement activities,” he says.

“Two elements of the Government’s ERF, the crediting and purchasing of abatement are starting to take shape. But it’s the third key element of the ERF – the Safeguard Mechanism which aims to set baselines for large emitters to ensure that carbon emissions reductions purchased by the fund are not negated by an increase in emissions elsewhere in the economy – that needs to be detailed,” he says.

“Industry consultation on the detailed design features of the Safeguard Mechanism needs to be fast-tracked,” he says.

The design of the Government’s national policy approach to meeting emissions reduction targets should also be considered in context with the policy measures and market developments that are taking place in international markets.

If the ERF and the Safeguard Mechanism are the primary means to meet internationally agreed targets then it is logical to factor in, agree and set the post-2020 targets under the UNFCCC process in the lead up to the Paris Agreement in 2015 before the rules on the Safeguard Mechanism are finalised.

“It is time now to look to the design of the Safeguard Mechanism – especially in the context of next year’s international agreement,” says Castellas.

Castellas says that depending on the design of the Safeguard Mechanism, the way in which baselines are set and allocated over time could translate to the Safeguard Mechanism operating as an effective baseline-and-credit scheme, which is a market-based mechanism.

Through the Safeguard Mechanism, a key design feature should be for the Government to adjust allocated baselines over time to below historical levels, or business as usual, to more effectively limit emissions growth and meet future emissions targets. The allocated baselines could be set by an independent authority, such as the Climate Change Authority, and business given adequate time to prepare for the future compliance against those baselines.

“Australia’s emissions reduction task is going to intensify. Climate change is an economic issue and the costs of inaction will be significant,” says Castellas.

“Hopefully, our political and business leaders can now draw the line on the past and begin to undertake a more mature bipartisan debate about what Australia’s current and post-2020 emissions reduction targets should be, and frame, agree and implement our next suite of policies accordingly.”

CMI Briefing Note – Market-based approaches to emissions reduction: Australia’s key trading partners

CMI has produced a briefing note as a high level overview of the main policy options available to governments to meet their emissions targets and the market-based approaches used by some of Australia’s key trading partners.

For more information, please contact:
Carbon Market Institute General Manager Communications Gabrielle Callahan
Phone: 03 9245 0960 or 0408 997 486

The Carbon Market Institute is an independent membership-based not-for-profit organisation. Our aim is to assist Australian businesses in meeting the challenges and opportunities associated with market-based approaches to emissions reduction and the transition to a low carbon economy.

As the peak body for carbon market participants, CMI has established an important role in the evolution of the carbon market in Australia. The Institute facilitates the networks, knowledge exchange and commercial interaction amongst key government policy makers and regulators, industry, financiers and investors, professional services companies and technology solution providers.

CMI membership represents a broad range of professionals, organisations and industry. Our members include leading professional service providers, NGERs reporting entities, secondary market participants, offset providers, academia and international organisations. Individuals within the CMI membership base are some of the most respected Australian carbon market innovators and leaders.

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