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Trade neutrality, flexibility, focus on successful transition are the key to deeper emissions targets

"The climate targets announced today by the Federal Opposition represent a heavy lift for many parts of the Australian economy and would be workable only if they were delivered in tandem with commitments to avoid trade distortions, allow many sources of flexibility and facilitate major low-carbon investments," Ai Group Chief Executive Innes Willox said today.

"Ai Group recognises that our national emissions targets will deepen over time to achieve the widely shared objectives of the major parties and business: a successful global effort to mitigate the risks of climate change, together with continued and increased Australian prosperity. These targets should be pursued through policies that maintain our trade competitiveness and help industry, employees and the broader community thrive through a successful transition.

"Moving to a 45% emissions reduction target for 2030 would be a tough ask for many industries including those covered by the current Safeguard Mechanism which Labor proposes to expand and attach a specific 45% target to as well. If a Safeguard target is adopted, policy design needs to make it as easy as possible by three means:  

  • Accessing least-cost abatement from anywhere in the domestic economy, and from credible international options. Labor’s references to various sources of domestic offsets are positive and would help equalise marginal abatement costs despite the moves all parties have taken towards sector-specific policies. Access to international offsets is positive, though as-yet-unspecified limits should only relate to ensuring the quality of units and stability of domestic policy.
  • Addressing trade exposed industries to avoid a loss of competitiveness. Labor’s references to tailored treatment of Emissions Intensive Trade Exposed (EITE) industries, and to a principle of comparative impact, are positive. But many trade exposed industries are not defined as EITE under the current Government’s arrangements, and turning these measures into detailed policy would be challenging.
  • Making the options for low- and zero-carbon transition in industry more tangible and investable. The proposed Strategic Industries Fund could be useful, though important detail is lacking on coverage, level of matching and more.

"In short, we should not underestimate how difficult the trade-offs would be between the expectations of different industries and other stakeholders. Close consultation with the breadth of affected industries would be essential to deliver on such ambitious goals. Flexibility would be needed on the trajectory towards deeper targets for individual facilities, the Safeguard sectors, and the Australian economy as a whole. Transparent oversight of the trajectory-setting process would be essential to give industry and the community confidence.

"Other announcements on vehicle emissions, land clearing and transition are broadly compatible with Ai Group's policy priorities, albeit with similarly large scope for further detail. On electricity we welcome the continued plan to pursue a version of the National Energy Guarantee (NEG), though this should be dependent on agreement with the States rather than the Federal Parliament.

"We note that Labor and the Coalition have both disclaimed the use of carbon pricing to reduce Australia's emissions. However, the business community generally agrees that pricing carbon – with appropriate measures to ensure trade neutrality and social equity – is an essential part of the policy toolkit to deliver least-cost abatement.

"Governments can't anticipate and prescribe every solution to the complex economy-wide task of cutting emissions. Markets can't respond fully when externalities are unvalued. Regulatory policies have costs that are just as real as, and often higher than, explicit prices. And Australia already has a form of carbon pricing through the current Safeguard Mechanism.

"If all sides of politics could get over their near blanket rejection of prices and market mechanisms, we could have a much more productive debate about the designs for market and non-market policies that will serve Australia and our industries best.

"We urgently need stability in this area of policy to both contribute to climate goals and support investment," Mr Willox said.

Media enquiries: Tony Melville – 0419 190 347