Australia emissions trading scheme ends ‘10 years of policy dysfunction’

Australia’s new Labor government will introduce an emissions trading scheme next year, almost a decade after the previous conservative administration repealed its first attempt to price carbon.

Energy minister Chris Bowen said on Friday that the policy, which will only apply to industrial emitters and is much weaker than the previous scheme, would end “10 years of policy dysfunction” on climate change. It will come into force on July 1 2023 following industry consultation.

Climate policy has been highly politicised in Australia, a carbon-intensive economy with large coal and gas export industries. As in the US, political attitudes have been split along party lines, with conservatives often hostile to policies that seek to to restrict emissions.

The conservative Liberal-National Coalition government, which was in power in Australia from 2013 to 2022, watered down or repealed Labor’s climate policies and introduced few stringent measures of its own.

Labor, led by Anthony Albanese, won an election in May promising to end the “climate wars” and, since taking office, has raised Australia’s 2030 emissions reduction target under the Paris agreement to 43 per cent, up from 26 to 28 per cent.

It has also promised to increase investment in renewables and electricity networks, but has continued to support new coal and gas extraction.

The new emissions trading scheme would apply only to industrial emitters such as smelters, miners and manufacturers. It would exclude electricity generators and emissions from buildings, transport and agriculture, and would be a softer policy than those in Europe, Britain and North America.

Bowen said an economy-wide carbon price, similar to the one legislated in 2011 by then-Labor prime minister Julia Gillard and later repealed, was no longer necessary.

“The world has changed dramatically since . . . 2011 in reduction of price in renewables, [so] you don’t need that price signal now,” Bowen said. “You need, I think, what is better than an economy-wide carbon price, a sectoral approach.”

Environmental groups have broadly welcomed the policy. Gavan McFadzean of the Australian Conservation Foundation was hopeful that the scheme would force industry to decarbonise, but called for it to be extended to more sectors.

“As a tool to drive down emissions, it can actually be very effective instrument of government for emissions reduction,” he said.

Under the scheme, businesses will only be forced to buy permits for emissions above a certain baseline, rather than for every tonne of carbon they emit, as under the EU’s trading scheme. Businesses that undershoot their baselines will be given carbon credits that they can trade.

The plan builds on an existing scheme known as the “safeguard mechanism”, which sets a baseline for the country’s biggest emitters. Under Labor’s plan, many more businesses will be brought under the mechanism and the baseline will be reduced every year, reaching zero in 2050.

Hugh Grossman, managing director of carbon market research firm RepuTex, said his organisation’s modelling suggested the policy would “create an effective signal for long-term investment in emissions reductions”.