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Guglyuvatyy, Evgeny; Stoianoff, Natalie --- "Carbon Policy in Australia- A Political History" [2016] UTSLRS 25; (2016) Green Fiscal Reform for a Sustainable Future (ed.) Natalie Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor 31

Last Updated: 16 May 2017

Carbon Policy in Australia – a Political History
Dr Evgeny Guglyuvatyy & Prof Natalie P. Stoianoff

Australia had actively participated in the 1992 Earth Summit in Rio de Janeiro, endorsing the Summit goals which were formed by the desire for sustainable development. Australia also joined the United Nations Framework Convention on Climate Change and much later signed the Kyoto Protocol enthusiastically supporting greenhouse gas reduction. A range of measures aimed to reduce Australia’s greenhouse gas emissions have been on the agenda at the Federal and State level for the last two decades. Until recently, successive Australian governments have been committed to the introduction of a carbon tax or an emissions trading scheme designed to mitigate climate change. This paper examines the historical progress of Australian climate change policy including the implementation of the present Australian Government’s Direct Action Plan. The article in particular observes several interesting and significant aspects of Australian climate law highlighting governmental approaches and processes leading to the introduction of those laws. The historical perspective is necessary to identify most common features of the climate law implementation procedures and to identify what political factors influence these processes in Australia. Examination of the Australian climate change regime indicates how different actors influence policy proposals to achieve their own goals, rather than to cooperate in a process of generating the best overall legal option. This paper concludes that the development of climate law in Australia required some innovative and responsive law initiatives. However, the practical implementation of various climate change laws had been constantly impacted by various economic and political factors.

In June 1992 at the Rio Earth Summit, 154 countries joined the United Nations Framework Convention on Climate Change (UNFCCC).[1] The UNFCCC set the goal for industrialised countries to limit Greenhouse Gas (GHG) emissions to 1990 levels in the year 2000. However, since the targets were voluntary, only some countries introduced legally binding policies to reduce GHG emissions and achieve the goal.[2] Australia had actively participated in the Rio Earth Summit in 1992, endorsing the Summit goals which were formed by the desire for sustainable development. Australia also joined the United Nations Framework Convention on Climate Change[3] and later signed the Kyoto Protocol[4] supporting GHG reduction.

However, even before the Rio Summit, climate change was on the agenda in Australia. In 1989, in the lead up to the 1990 Australian federal election, both leading political parties discussed the introduction of GHG reduction policy. The Labor Party in particular considered a GHG emissions reduction target of 20 percent by 2005.[5] Simultaneously, the Liberal Party was developing similar policies and the Liberal shadow environment minister at the time argued during the 1990 election campaign that the Liberal Party was ahead of Labor on climate change, and on many other environmental issues.[6] However, interest in climate change issues diminished during the 1990s. Environmental issues were gradually dropped from the political agenda and did not appear in the 1993 election campaign. According to some commentators, the 1990s recession, increasing dominance of neoliberalism among Labor ministers and ascendancy of the energy and coal lobby were amongst the factors leading to declining interest in environmental issues.[7]

Howard Government (March 1996 - December 2007)
Despite the declined attention given to environmental issues in the early 1990s, a range of measures aimed at reducing Australia’s greenhouse gas emissions have been on the Federal and State level agendas for the last two decades. Successive Australian governments have been committed to the introduction of either a carbon tax or an emissions trading scheme (ETS) designed to mitigate climate change.[8] Some Australian state and local governments have introduced pollution and waste management charges for example, landfill levies. There has been some experience with the deployment of ETSs in Australia. At a sub-national level, that is state level, for instance, the NSW Greenhouse Gas Abatement Scheme (GGAS) commenced in 1997 and became mandatory in 2003 imposing obligations on all electricity retailers in New South Wales.[9] This was the world’s first mandatory GHG ETS.[10]

At the federal level, support for a national ETS followed long-standing support at the state government level. According to Senator Birmingham, the Howard Government considered climate change issues and acted upon them from the moment of election in 1996.[11] For example, in 1997 Prime Minister Howard announced a $180 million package to reduce GHG, established the Australian Greenhouse Office in 1998 together with a $555 million package to develop systems for measuring and monitoring GHG emissions as well as energy performance standards for a range of appliances and equipment.[12] In 2000 the Howard Government introduced the Renewable Energy (Electricity) Act 2000, which established the Mandatory Renewable Energy Target Scheme aimed to boost the development of renewable energy sources across Australia.

However, in 2004 the Howard Government produced an Energy White Paper which rejected an Emissions Trading System, refused to adopt a mandatory renewable energy target of 20% by the year 2020 and confirmed its 2002 decision not to ratify of the Kyoto Protocol.[13] Two years later, in 2006, ‘doing something’ about global warming gathered strong political momentum in Australia.[14] In particular, the Labor Opposition called for the ratification of Kyoto demonstrating a deeper commitment to action on global warming.[15]

In order to ‘do something’ the Howard Government responded by accepting the recommendation of a joint Business/Government taskforce to introduce an ETS that would protect export exposed sectors and the mining industry.[16] Additionally, the government indicated that Australia would support a new international agreement to limit the growth of GHG emissions, provided that it bound all nations.[17]

In December 2006, Prime Minister Howard announced that Australia would move towards a domestic ETS, to start no later than 2012.[18] The Prime Ministerial Task Group on Emissions Trading was established to develop an ETS considering the following terms of reference:

The Task Group reported that ‘the most efficient and effective way to manage risk is through market mechanisms’ and that accordingly an ETS is the preferable emission reduction mechanism for Australia.[20] This firm belief was based on the view that it is far better to enable the market to ‘decide which new or existing technologies will reduce emissions at least cost’ rather than leaving it to the government to ‘pick winners’.[21] The main design features of the Task Group’s proposed ETS were based on a ‘cap and trade’ system and included the following:

In addition to these design features, The Task Force noted the necessity for the ETS to be flexible, technology neutral and operating nationally. It was made clear in the report that complementary measures addressing market failures not corrected by the ETS would need to be adopted, including informational or educational and voluntary strategies,[23] as well as subsidies for the development of new technologies.[24]

In September 2007, the National Greenhouse and Energy Reporting Bill was introduced as a first step towards emissions trading. This Bill established an emissions reporting scheme that would cover around 75 per cent of total emissions in Australia.[25] The coverage of the scheme incorporated transport and other fuels as well as including all six gases identified by the Kyoto Protocol. The scheme’s reporting requirements covered about 700 Australian companies and provided a uniform, national reporting framework that removed duplicative arrangements developed by state and territory governments.[26] The legislation passed both Houses of Parliament and received Royal Assent by the end of the month.[27] The next Federal election was called and 24 November 2007 saw the demise of the Howard Government.[28]

Rudd Government (December 2007 – June 2010)
In the lead up to the 2007 Federal Election, Opposition Leader Kevin Rudd declared Labor’s intention to ‘tackle’[29] climate change as a crucial point distinguishing Labor from the Liberal – National Coalition (Coalition).[30] In particular, Labor indicated its intention to ratify the Kyoto Protocol, supported the Garnaut Review[31] commissioned by the Labor State premiers and confirmed the introduction of an ETS that included a set of targets aligned with a 60 per cent reduction of GHG emissions below 2000 levels by 2050.[32] It appeared that Labor would act determinedly on climate change.

Indeed, soon after the election the Rudd Government ratified the Kyoto Protocol[33] and, by the middle of its first year in office, proposed the Australian Carbon Pollution Reduction Scheme (ACPRS). The proposed ACPRS had two objectives: first, to meet Australia’s emissions reduction targets in the ‘most flexible and cost-effective way’; and second, to sustain a global response to climate change.[34] In July 2008 the Rudd Government issued a Green Paper that outlined the preferred design of the ACPRS and identified the parameters which needed to be considered further.[35] Then a White Paper was made public in December 2008[36] including a third objective of ‘adapting to the impacts of climate change that we cannot avoid’[37] (which will not be considered in this paper), followed by the proposed legislation in May 2009.

According to the proposed legislation, a series of short-term annual caps for overall emissions were to be established from 2011, consistent with meeting the long-term goal to reduce Australia’s emissions by 60 per cent by 2050.[38] The emissions cap would be progressively reduced over time which should result in a higher GHG price, enhanced investment in low-emissions technologies and a decline in overall emissions. Participants in the scheme would need to hold enough emissions permits to account for their annual emissions. Permits would be allocated through auctioning, though some would be grandfathered in order to assist emissions-intensive trade exposed (EITE) industries in adjusting to a carbon constrained economy.[39]

The Rudd Government was committed to reducing emissions by 5 per cent of 2000 emissions levels by 2020.[40] This reduction level was expected to increase to as much as 25 per cent of 2000 levels by 2020, conditional on an international agreement.[41] Originally, however, the reduction target was 5 per cent on 2000 levels by 2020 and 15 per cent if an international agreement was reached. As a result of industry pressure, the Rudd Government delayed the start of the scheme (initially until 2010, then 2011) until 2012, kept the 5 per cent goal and enlarged the conditional 15 per cent to 25 per cent.[42] In addition, the compromise included a relatively low, fixed initial price for permits of $10 per tonne, and even more permits were to be grandfathered.[43]

The ACPRS covered the same GHGs as the Kyoto Protocol – those emitted by stationary energy, transport, fugitive emissions (such as methane emissions from black coal mining), industrial processes, imports, production and use of synthetic GHGs, and wastes.[44] The proposed ACPRS expected to cover around 1,000 large emitters estimated to be responsible for/account for 75 per cent of Australia’s emissions.[45] It was also expected to be broader in coverage and scope than any other ETS proposed or operating in Australia or overseas, including the EU ETS, and the proposal put forward by the Australian states and territories in 2006.

The development of the ACPRS from its conception in the Green Paper to the draft legislation was a movable feast. For example, in relation to the international offset credit arrangements, the Green Paper proposed restricted linkage, explicitly stating that only a limited number of international offset credits could be surrendered for compliance.[46] Meanwhile, the exposure draft legislation later provided unrestricted linkage – participants would be able to use an unlimited number of Kyoto units[47] on top of GHG permits. Unlimited use of Kyoto units could have potentially jeopardised the achievement of Australia’s national reduction target. It would have been reasonable for the Rudd Government to set a limit on the amount of international offset units that could be surrendered by businesses, as is provided, for example, in the EU ETS. This relaxing of restrictions demonstrated the need to address the intense political environment brewing around the attempt to introduce the ACPRS.

There are further examples of where the Rudd Government needed to placate a variety of industry sectors, such as the emissions-intensive trade exposed (EITE) industries. The Rudd Government proposed to allocate more than 30 per cent of annual permits free of charge in order to assist EITE industries to meet their obligations under ACPRS. EITE activities that would generate more than 1,500 tonnes of CO2 for each million dollars of revenue would receive free permits to cover up to 66 per cent of their emissions; meanwhile, EITE activities that would generate more than 2,000 tonnes of CO2 for each million AU dollars of revenue would receive free permits to cover up to 94.5 per cent of their emissions.[48] However, the expectation was that the level of assistance to EITE sectors would decline over time.

In addition, special attention was given to industries expected to be strongly affected by the ACPRS but not eligible for EITE assistance. The proposed legislation indicated that coal-fired electricity generators were likely to be included in this category. Thus, additional assistance was to be provided to the coal-fired electricity generation industry, such as support for carbon capture and storage technology development, and structural adjustment for affected workers, communities and regions.[49] Direct cash payments to these coal-fired electricity generators were to be provided as well.[50]

It should be noted that more than 50 per cent of Australia’s GHG is emitted by electricity generators and 77 per cent of Australia’s electricity is generated from coal. Consequently, any serious climate change solution must target the electricity sector directly.[51] A price on GHG through the ACPRS would provide some incentive for the energy generation sector to reduce its GHG intensity. However, the significant compensation to EITE sectors and to the coal-fired electricity generation industry proposed by the then Rudd Government would have almost certainly given businesses the wrong signal, and distorted the ultimate target of mitigating climate change. Substantial compensation can wipe out, or at least seriously diminish, the projected incentives for developing new energy efficient production processes or shifting to renewable energy sources.[52] Furthermore, if external costs are not internalised by the producers, the environmental impact of such a climate change mitigation instrument would be neutralised.

Since the ACPRS was expected to cover approximately 1,000 businesses, a relatively small number of entities would receive valuable free permits. This was expected to result in considerable extra costs to non-EITE industries and to those EITE businesses falling outside the eligibility thresholds.[53] Assistance to EITE industries and the energy generating sector would effectively provide a subsidy to the worst carbon emitters leaving the burden of the ACPRS to less polluting industries and reducing the opportunities for cleaner energy alternatives.[54] Instead of compensating designated businesses, the revenue from the ACPRS would have been put to better use by providing additional assistance for the implementation of low emissions technologies.

In order to eliminate the negative impact of the ACPRS on the cost of living of households, the Rudd Government proposed to increase payments to people receiving social allowance benefits above automatic indexation.[55] In addition to that, targeted assistance was to be provided to low-income households through the tax and welfare systems.[56]

Further, with the inclusion of petrol in the proposed scheme, the cost of fuel would increase and that increase would be passed on to consumers. In order to compensate the initial price increase to be caused by the ACPRS, the Government indicated that the excise tax on petrol would be reduced on a ‘cent-for-cent’ basis.[57] However, as a result of this measure, petrol consumers would not notice the price effect of the ACPRS and would not see an emissions cost included in the petrol price. Consequently, an incentive to reduce petrol consumption would be eliminated as the preferential fuel prices regime would not pass a correct price signal onto consumers.

Like the EU ETS, the Rudd Government prioritised an international harmonisation of emissions trading. Many analysts agree that an ETS is much easier to harmonise with other countries’ carbon mitigation programs.[58] Indeed, an ETS generates a natural unit of exchange for harmonisation: permits denominated in units of GHG emissions. If emissions reductions are cheaper to make in China than in Australia, emissions ought to be reduced first in the former where costs are lower.[59] Another key consideration of the Rudd Government was international competitiveness. In other words, Australian industries subject to the proposed ACPRS would be disadvantaged in international markets compared to their competitors from countries that did not impose a price on carbon. To address this issue the Rudd Government proposed that exposed industries would receive free permits to diminish this concern.[60] Unlike the EU ETS, ACPRS extensively addresses distributional issues associated with it.[61]

Despite the numerous concessions and preferential treatment incorporated in the design of the ACPRS, industry pressure led to the Rudd Government deciding to delay the start of the proposed scheme as mentioned above. However, in the end, the ACPRS legislation was twice defeated in the Australian Parliament in 2009 despite extensive political negotiations with the Liberal – National Coalition Opposition led by Malcolm Turnbull, who was then deposed by Tony Abbott as leader while the legislation was in play. The defeat occurred in the upper house, the Senate, with The Greens members voting with the Coalition against the ACPRS legislation. [62] An unlikely alliance, The Greens voted against the legislation on the basis that the scheme did not do enough while the Coalition voted against the legislation due to a strong objection to an emissions trading scheme on the basis that is was just another tax.[63] As a result, in April 2010 the Rudd Government put the ACPRS on hold.

Gillard Government (June 2010 – June 2013)
Later in 2010, there was a change of leadership in the Labor party and the Deputy to Kevin Rudd, Julia Gillard, became Australia’s first female Prime Minister. She led the government into the next election with an election promise of no carbon tax but due to a significant swing toward the Coalition Opposition, found that she could only form government with the assistance of The Greens and three independent members of parliament. In order to maintain this alliance so as to form government, Prime Minister Gillard announced the new government’s intention to propose a temporary carbon pricing scheme[64] as well as to establish the Multi-Party Climate Change Committee (the Committee)[65] consisting of members of the federal government and senators.[66]

The Committee’s intention was to establish a climate change framework outlining the broad architecture for a carbon price. The Committee issued eleven policy principles designed to provide a consistent basis for the deliberations on a carbon price.[67] The principles were as follows:

• To support Australia’s international objectives and obligations [68]

The Multi-Party Climate Change Committee stated that the 11 principles would guide the design decisions of the pricing mechanism.

The Committee released draft legislation on 28 July 2011. In October 2011, the Australian House of Representatives passed the carbon pricing legislation which was also passed by the Australian Senate in November. The carbon pricing scheme (the scheme), forming part of the Clean Energy Future regime, operated from 1 July 2012 as a temporary measure designed to reduce greenhouse gases (GHG). The carbon price was $23 for the 2012–13 financial year and was designed to increase by 2.5 per cent in each of the following two years.[69] Under the scheme, liable entities were to buy and surrender carbon units equal to their direct emissions (based on historic levels) of carbon dioxide equivalents (CO2). Failure to surrender necessary carbon units would result in a fine. After the transitional period, the carbon pricing mechanism was to convert to a cap-and-trade ETS supplying a flexible carbon price.[70] From 1 July 2015, the carbon units were intended to be auctioned. Hence, even though the carbon pricing mechanism is sometimes labeled a ‘carbon tax’, the Australian government was committed to emissions trading.

The carbon pricing scheme covered four of the six GHGs counted under the Kyoto Protocol, those being: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and perfluorocarbon (PFC),[71] and had broad coverage of the following emissions sources:

The scheme covered around 500 entities emitting 25,000 tonnes of CO2 per year or more and certain waste facilities emitting more than 10,000 tonnes per year, constituting about 50 per cent of Australia’s GHG.[73] Agriculture and transport fuels were excluded from the scheme, although transport fuels used by off-road heavy vehicles (except for agriculture, fishing and forestry) were covered indirectly by a reduction in existing fuel tax concessions.[74] To transfer a carbon price signal to rail, domestic shipping and domestic aviation, fuel tax excises were increased. The treatment of fuel was to be reviewed in 2014. During the fixed price transitional period under the scheme, liable parties could not use international emissions reduction units for compliance. However, during the flexible price period, it was intended that internationally recognised permits may be used to acquit up to 50 per cent of a party’s’ liability.[75]

There was no cap on emissions during the fixed price period and the number of carbon units was unlimited. However, starting from 2015–16, it was intended that the Climate Change Authority[76] would set a cap on emissions taking into consideration international and Australian emissions reduction targets. During the Gillard Government, Australia was committed to reducing emissions by 5 per cent of 2000 emissions levels by 2020, and by 80 per cent of 2000 levels by 2050.[77]

It was projected that the carbon price scheme would raise $24.5 billion over its first four years. However, the scheme would not be revenue neutral; the budget deficit was expected to be around $4 billion.[78] The explanation was an extensive spending plan to compensate industries and households and to invest in renewable energy including the provision of significant income tax cuts and increases in allowances, payments and benefits. In particular, the tax free threshold on incomes was more than tripled from the previous $6,000 to $18,200 from 1 July 2012, and then set to increase to $19,400 from 1 July 1 2015. The consequence of these changes was that all taxpayers with an income below $80,000 effectively received tax cuts from 1 July 1 2012.[79]

Further, an assistance package of $9.2 billion was allocated over the first three years to Australian industries to eliminate competitiveness issues associated with the carbon price scheme.[80] Most affected industries such as steel, aluminium, zinc, pulp and paper makers will acquire free permits covering about 94.5 per cent of industry’s average carbon costs. In addition, $300 million was to be assigned to the steel industry’s shift to clean energy. A coal sector jobs package of $1.3 billion was dedicated for mines most affected by the carbon price.[81]

Consideration was also given to complementary measures that supported research, development and commercialisation of green technologies. In particular, a $10 billion Clean Energy Finance Corporation was created to invest in new technologies, and $3.2 billion was allocated to the Australian Renewable Energy Agency.[82] Additionally, small grants were made available for community-based energy efficiency programs. On top of that, the Gillard Government was committed to the closure of 2000 megawatts of the dirtiest power generators by 2020.[83]

Since agricultural and land sector emissions were not covered under the carbon pricing mechanism the Gillard Government introduced the Carbon Farming Initiative. The Carbon Farming Initiative is a carbon offsets scheme that provides new economic opportunities for farmers, forest growers and landholders to help the environment by reducing carbon pollution.[84] Farmers and land managers are able to generate credits that could then be sold to other businesses wanting to offset their own carbon pollution. In particular, The Carbon Farming Initiative enables land managers to earn credits for actions including:

Liable entities covered by the carbon price scheme were allowed to surrender Kyoto-compliant CFI credits for up to five per cent of their liability in the fixed price period and, during the flexible price period there would be no quantitative restrictions on surrender of Kyoto-compliant CFI credits. Kyoto compliant CFI credits were tradable between entities.

Overall, the broad architecture of the Clean Energy Future regime, and in particular the carbon pricing scheme, seemed to resemble in some aspects the design of the proposed ACPRS.[85] However, the carbon price, in some respects, was a substantial improvement on the heavily compromised ACPRS. Generous compensation for affected industry was a temporary measure and based on historic emissions levels: thus the incentive to reduce emissions was not eroded. The assistance package for households was designed to compensate low and medium income earners rather than high income earners. Raising the income tax threshold removed about a million low income taxpayers from the income tax system.[86] Further, the range of supporting measures designed to encourage carbon farming, energy efficiency and green innovation provided a significant improvement over the ACPRS.

Abbot Government (September 2013 – September 2015)
In September 2013, the Coalition, led by Tony Abbott, won the federal election. The attitude to climate change was quite different from that of the previous two prime ministers. The Gillard Government’s carbon pricing legislation was repealed by the Abbott Government in July 2014 and replaced by the Direct Action Plan by the end of that year.

The Abbott Government indicated the Direct Action Plan was introduced to ‘efficiently and effectively source low cost emissions reductions that will contribute towards our 2020 target.’[87] The Direct Action Plan includes as a centerpiece the Emissions Reduction Fund (ERF) designed to provide incentives for GHG reduction activities across the entire Australian economy. Under the ERF the Government pays for projects that will reduce CO2 emissions at minimal cost. Funding from the ERF is allocated through auctions. A range of possible projects for CO2 reduction include: energy efficiency, cleaning up power stations, reafforestation and revegetation and/or improvement of soil carbon.[88]

There has been very little detailed public or economic analysis of the Emissions Reduction Fund and its design.[89] However, there are numerous in-built design problems with the Emissions Reduction Fund. According to various commentators the major design issues which will impact on the ERF's ability to reduce Australia's greenhouse gas emissions, include:

Evidently, any policy to reduce Australia's GHG emissions requires a limit or 'cap' on overall emissions, and mechanisms preventing polluters from exceeding emissions limits.[92] However, at present there are no emissions caps or instruments that would insure that the polluters are limiting their GHG emissions. The Government issued a consultation paper on a Safeguard Mechanism that will apply to facilities with direct emissions in excess of 100,000 tonnes of CO2-e per year.[93] According to the Consultation Paper, the Safeguard Mechanism would cover around 140 businesses (emissions-intensive generators) which emit around 57 percent GHG from the electricity sector.[94] The Safeguard Mechanism obliges polluters to avoid net emissions from their facility from exceeding the baseline emissions levels throughout a monitoring period (a financial year).

Nevertheless, the Consultation Paper does not present details on how individual baselines will be designated or how emissions-intensive generators will be identified. It is also unclear whether all generators, irrespective of fuel source, will be treated similarly or if there will be allowances for businesses which are expected to produce higher emissions. The Consultation Paper proposes a number of enforcement options for entities that exceed an emissions limit, including: infringement notices; enforceable undertakings; injunctions to rectify an emissions exceedance; and civil penalties to be imposed by a court. The amount of civil penalty for an emissions exceedance is not specified. The Government indicated that the safeguard mechanism, which is absolutely critical to the scheme, will not be in place until July 2016 at the earliest.[95]

The important feature of the Direct Action Plan is its voluntary nature. Numerous commentators argue that a voluntary carbon mechanism does not provide an incentive for businesses to participate and compete for participation in the ERF.[96] The Australian Senate inquiry on the Direct Action Plan provided the following comment: ‘The committee is persuaded that the Government's Direct Action Plan and the proposed Emissions Reduction Fund are fundamentally flawed. They ignore the well-established principle of 'polluter pays', and instead propose that the Australian taxpayer should effectively subsidise big polluters.’[97] Overall, the Direct Action Plan has been significantly criticised and it is labeled as a step backwards for Australian climate change policy.

The Abbott Government also sought to abolish the Climate Change Authority which was established by the previous government to provide independent assessment and advice on carbon policy. Should the Authority be abolished, there will be no independent assessment of policy and targets and no requirement for the Government to respond to independent review, which would further reduce transparency and accountability of carbon policy-making. In this light, it is difficult to consider the climate change law-making process of the present Government (now led by Malcom Turnbull after Tony Abbott’s leadership as Prime Minister was successfully challenged in October 2015) as adequate and comprehensive. Thus, the Abbott Government’s policy-making practice raised even more questions, and as one may note, the climate change policy-making process in Australia deteriorated over the last two years, falling far short of that of the previous Coalition Government in 2007.

From the discussion above it is noteworthy that, starting from the Howard Government, Federal governments considered climate change and acted on it. Conversely, the efforts of the governments vary significantly with markedly different resultant policies. The obvious explanation for such a different approach is complex political games of the leading Australian political parties. This analysis attempts to shed some light on what is influencing climate related policies in Australia and how specific climate change polices are developed.

As highlighted above the Howard Government started to act on climate change soon after the election in 1996. The range of packages and programs introduced by the Howard Government arguably provided some basis for future GHG reduction efforts. Nevertheless, if we will look closer at the reasons behind some of the introduced policies, for example, the $400m GHG abatement programme that reinforced largescale costeffective abatement focusing on the first commitment period of the Kyoto Protocol (20082012), was, according to the former treasurer Peter Costello, a tradeoff for the support of the Australian Democrats (who held the balance of powers in the Senate at time) in relation to the introduction of Goods and Services Tax.[98] A further statement by Peter Costello illustrates the ‘concerns’ of the Howard Government about climate change at that time: 'This was 1999. Neither Howard nor I had much of an idea of what a greenhouse gas was, let alone how to abate it...’[99]

In June 2002, despite international pressure especially from European countries, the Howard Government announced that Australia would not ratify the Kyoto Protocol.[100] The justification for this was that: the treaty covers less than 70% of global emissions; developing countries were excluded from emission limitations; and the then largest GHG emitter, the US, did not ratified the treaty. Nonetheless, the Howard Government declared that Australia would meet its Kyoto target, but without ratification.[101]

The Howard government undeniably introduced some of the most innovative climate change policies such as the establishment of the first in the world national agency to tackle GHG emissions. However, the Howard Government has been considered to have acted rather erratically on environmental issues. Some commentators argue that John Howard ‘has misread the trend - witness the rising concern about climate change.’[102] Realistically, it appears that Prime Minister Howard had no specific vision and/or ideas regarding the environment and as a result, his government’s actions in prioritising issues and/or allocating expenditure in relation to climate change was not considered the most effective.[103] This point is better expressed by John Howard himself: ‘I have always been something of an agnostic on global warming. I have never rejected, totally, the multiple expressions of concern from many eminent scientists but the history of mankind has told me of his infinite capacity to adapt to the changing circumstances of the environment in which he lives’[104]

The ACPRS scheme introduced by the Rudd Government was a significant improvement in terms of policy development in comparison with the Howard Government approach to climate change policy. The ACPRS legislation took into consideration work of the Prime Minister Howard’s Task Group on Emissions Trading, National Emissions Trading Taskforce, the Garnaut Climate Change Review and Treasury modelling.[105] As a result of this methodical approach the proposed legislation provided a number of measures addressing various issues associated with carbon market instruments. One of the key considerations was the competitiveness issue. The ACPRS provided that internationally exposed industries receive free permits to diminish this concern. Additionally, the ACPRS extensively addressed distributional issues associated with it.

As mentioned above there was an intensive industry pressure that forced the Rudd Government to adjust the initial design of the scheme. Specifically, restricted international linkage of the scheme was changed to unrestricted linkage and even more free permits were to be allocated to industries. As one of the commentators notes:

‘the carbon lobby and EITEI put significant pressures on the newly elected Labor government to delay the CPRS and pursue a scheme as favourable to industry as the one proposed by the Howard government.’[106]
The concessions provided by the Rudd Government to polluting industries did not help to achieve passage of the legislation but considerably influenced the ACPRS design to the point where the scheme’s capacity to combat climate change was greatly corrupted. [107] As a result, as noted above, the start of the scheme was delayed and later the Government put the ACPRS on hold.

The Gillard Government continued the efforts of the Rudd Government regarding the introduction of emissions trading but chose a different approach. Instead of introducing a straightforward emission trading scheme, the Government, supported by The Greens, introduced the Clean Energy Future regime which included an initial temporary carbon pricing scheme to be followed by an ETS from 2015. This designed was as a result of the deliberation of the Multi-Party Climate Change Committee (the Committee)[108] established by the Gillard Government soon after forming government in September 2010. The Committee added extra strength to the policy development process by utilizing explicit policy principles designed to provide a consistent basis for the considerations of a carbon price. This process was also a departure from the usual approach to policy development led by the relevant government department. It is arguable that by charging the Committee (consisting of Labor, Greens and Independent members of the Federal Government and senators) with the task of developing a climate change policy is what led to successfully introducing the Clean Energy Future regime. Even though the architecture of the carbon price scheme resembled in some aspects the design of the ACPRS, some features of the Gillard carbon pricing scheme provided significant enhancements compared to the ACPRS. Further, the Clean Energy Future package as a whole provided a number of novel and advanced policies and measures in addition to the carbon pricing component.

Although the Rudd Government was unable to resist the industry lobby, the Gillard Government utilised the vehicle of the Committee, with the support of The Greens, and effectively overcame industry pressure. Overall, that resulted in a successful introduction of the Clean Energy Future climate change policy by the Gillard Government, even though it was short-lived.

The Abbott Government’s attitudes towards climate change were radically different from the past two Labor governments as demonstrated above. After the federal election in September 2013, there was some skepticism concerning the election promise by Tony Abbott to repeal the carbon pricing scheme.[109] Nonetheless, the carbon pricing legislation was indeed repealed by the Abbott Government soon after the election. According to some commentators Abbott ‘reinstate(d) industry influence over policy’.[110] The Direct Action Plan proposed by the Government instead of carbon pricing was heavily criticised from the start. The Abbott Government stated that the Direct Action Plan was introduced to ‘efficiently and effectively source low cost emissions reductions.’[111] Unfortunately, the Abbott Government did not provide details concerning the development of the Direct Action Plan. It is not clear what the basis for the introduced policy was. Successive Australian governments attempting to introduce climate change related policies took into consideration policy developments and proposals of previous Governments. However, the policy introduced by the Abbott Government is strikingly different to carbon pricing and/or emissions trading mechanisms favoured by former Australian governments. In the same vein, the Abbott Government neither disclosed which criteria were used to develop the Direct Action Plan, if any, nor which criteria or principles were prioritised to establish the new regime. Now that Australia have a new Coalition Prime Minister, Malcolm Turnbull, there is an expectation that climate change policy will be addressed in the new term if he is successful in retaining government. And even if Turnbull and the Coalition lose the upcoming election, the Labor Opposition has vowed to reintroduce carbon pricing in that next term should they form government.[112]


What this paper demonstrates is the significance of political influence on the development of policy and design of market based instruments in the quest to deal with the issue of climate change. Whether the motivation is to placate the business and industry sectors, as did the Howard, Rudd and Abbott governments, or to ensure the Gillard government remained in power by placating parliamentary power brokers who hold the balance of power, it is clear that actually dealing with climate change has been a secondary consideration. The Howard Government engaged with climate change in exchange for support of the Goods and Services Tax. The Rudd Government tried to satisfy all the players and thereby satisfied none. The Gillard Government was trying to form a government after having gone into an election promising no carbon tax. However, her approach to climate change policy was the most successful, having engaged with the relevant political power brokers to create a regime by consensus. And even though the carbon pricing mechanism was repealed by the Abbott Government, not all aspects of the Clean Energy Future regime have been dismantled. Although there has been no change to the current government’s climate change policy since the ascension of the new Coalition Prime Minister, Malcom Turnbull, there is hope that the use of market based instruments to tackle climate change will have their time again in the near future.

[1] Sustainable Development Knowledge Platform. Agenda 21, Available:
[2] In particular, Scandinavian and some other European countries have implemented policies to reduce GHG emissions since 1990.
[3] With Australia having signed the Convention on 04 June 1992, ratified it on 30 December 1992 with entry into force being 21 March 1994.
[4] With Australia having signed the Protocol on 29 April 1998, but not ratifying it until 12 December 2007 with entry into force being 11 March 2008.
[5] Staples, J. (2009), ‘Australian Government Action in the 1980s’, in Sykes, H. (ed), Climate Change on for Young and Old, Future Leaders, Melbourne.
[6] Ibid.
[7] Ibid.

[8] Wilder M. and Fitz-Gerald L. (2009), ‘Review of policy and regulatory emissions trading frameworks in Australia’. AERLJ, vol. 27, pp. 1-22.
[9] IPART, NSW Greenhouse Gas Reduction Scheme Strengths, weaknesses and lessons learned Greenhouse Gas Reduction Scheme, July 2013, p. 1.
[10] IPART, Greenhouse Gas Reduction Scheme, at
<> accessed 28 January 2015.
[11] Senator Birmingham speech in the Australian senate Thursday, 20 September 2007 <;query=Id%3A%22chamber%2Fhansards%2F2007-09-20%2F0379%22> [12] Ibid.
[13] Zahar A, Peel J and Godden L, (2013), Australian Climate Law in Global Context. Cambridge University Press, p 156.
[14] Howard J. One Religion Is Enough, The Global Warming Policy Foundation Annual Lecture, The Institution of Mechanical Engineers 5th November 2013. London.
[15] Staples, above note 5.
[16] Howard, above note 14.
[17] Staples, above note 5.
[18] Ibid. Note, however, that in 2005, the Australian State and Territories issued a discussion paper concerning a national emissions trading scheme which would cover the power generation sector.
[19] Howard, J. Prime Ministerial Task Group on Emissions Trading, Press release, 10 December 2006.
[20] Prime Ministerial Task Group on Emissions Trading, Report of the task group on emissions trading, 2007, Commonwealth Australia, at <> accessed 28 December 2015, p. 6.
[21] Ibid.
[22] Report of the task group on emissions trading, (2007), Commonwealth Australia.
[23] Gumley, W. & Stoianoff, N., Carbon Pricing Options For A Post-Kyoto Response To Climate Change In Australia, Federal Law Review, Vol 39(1), (2011) 131, 132-135.
[24] Prime Ministerial Task Group on Emissions Trading, above note 20.
[25] Australian Government, Department of the Environment, National Greenhouse and Energy Reporting, at <> accessed 20 January 2016.
[26] Ibid.
[27] National Greenhouse and Energy Reporting Act 2007, Section 2.
[28] ABC Elections (2007) <> accessed 28 December 2015.
[29] Gartrell, T. (2007), ‘Labor won the campaign outright, speech to the National Press Club’, Canberra, 4 December [Online], Available: [2008 July 29].
[30] In Australia, the Coalition is an alliance of centre-right political parties. The partners in the alliance are the Liberal Party, the National Party and others.
[31] The Garnaut Climate Change Review, was commissioned in 2007 and the final report was released on 30 September 2008.
[32] Gartrell, above note 29
[33] 12 December 2007
[34] Parliament of Australia, Carbon Pollution Reduction Scheme. at <> accessed 20 January 2016
[35] Carbon Pollution Reduction Scheme, above note 34.
[36] Carbon Pollution Reduction Scheme, above note 34.
[37] Ibid.
[38] Ibid.
[39] Ibid.
[40] Beder, S. 2009. Token Environmental Policy Continues in Australia. Pacific Ecologist, 18, 45-48.
[41] Carbon Pollution Reduction Scheme, above note 34.
[42] Beder, above note 40.
[43] Carbon Pollution Reduction Scheme, above note 34.
[44] Carbon Pollution Reduction Scheme, above note 34.
[45] Carbon Pollution Reduction Scheme, above note 34.
[46] See, Carbon Pollution Reduction Scheme Green Paper and Carbon Pollution Reduction Scheme Bill 2010 at <> accessed 20 January 2016.
[47] Kyoto units are the units that were created by means of the Kyoto Protocol mechanisms.
[48] Carbon Pollution Reduction Scheme, above note 34.
[49] Carbon Pollution Reduction Scheme, above note 34.
[50] Carbon Pollution Reduction Scheme, above note 34.
[51] Carbon Pollution Reduction Scheme, above note 34.
[52] Parry, I. W. & Pizer, W. (2007). ‘Emissions Trading Versus CO2 Taxes Versus Standards’. Resources for the future, Issue brief 5. Washington DC.
[53] Beder, above note 40.
[54] Beder, above note 40.
[55] Carbon Pollution Reduction Scheme, above note 34.
[56] Carbon Pollution Reduction Scheme, above note 34.
[57] Department of Climate Change, Carbon Pollution Reduction Scheme - Australia’s Low Pollution Future, Australian Government, 15 December 2008, at <> accessed 19 January 2016.
[58] Green, K. P., Hayward, S. F. & Hassett, K. A. (2007). ‘Climate Change: Caps vs. Taxes’ <> accessed 12 January 2015; Garnaut, R. (2008). ‘Garnaut Climate Change Review”.
<> accessed 5 January 2016.
[59] Stavins, R. (2007). ‘Proposal for a U.S. Cap-and-Trade System to Address Global Climate Change: A
Sensible and Practical Approach to Reduce Greenhouse Gas Emissions’. The Brookings Institution.
Washington DC.
[60] Department of Climate Change, above note 57.
[61] For detailed discussion see, Guglyuvatyy E. (2012) ‘Australia’s Carbon Policy – a Retreat from Core Principles?’ eJournal of Tax Research, Vol. 10, (3) 552-572.
[62] Beder, above note 40; Brook, B. (2009). ‘Carbon Tax or Cap-and-Trade? The Debate we never had’ > accessed 19 January 2016.
[63] AAP and Mark Davis, Dead ETS to rise again, Sydney Morning Herald, December 2, 2009, at <> accessed 18 January 2016.
[64] The Australian carbon pricing scheme is often called a ‘tax’ because during the fixed price period, the liable parties are obliged to purchase fixed price carbon units which is similar to paying tax. However, they cannot trade the units on the market, as under an emissions trading scheme.
[65] Guglyuvatyy, above note 61.
[66] The Committee includes: the Prime Minister, the Hon Julia Gillard MP, the Deputy Prime Minister, the Hon Wayne Swan MP and the Minister for Climate Change and Energy Efficiency, the Hon Greg Combet AM MP, joined by co-deputy chair of the Committee, Australian Greens Deputy Leader Senator Christine Milne, Australian Greens Leader Senator Bob Brown, Mr Tony Windsor MP, and Mr Rob Oakeshott MP. The Committee is assisted by the Parliamentary Secretary for Climate Change and Energy Efficiency, Mr Mark Dreyfus QC MP and Mr Adam Bandt MP, and by expert advisors Professor Ross Garnaut, Professor Will Steffen, and Mr Rod Sims.

[67] Zahar Zahar, A Peel, J and Godden L. (2012), Australian climate law in global context. Cambridge University Press.

[68] It is important to note that the principles are not stated in any order of priority.
[69] Zahar et al.above note 67.
[70] Ibid.

[71] Hydrofluorocarbons and sulphur hexafluoride will face an equivalent carbon price, which will be applied through existing synthetic greenhouse gas legislation.
[72] Stationary energy includes emissions from fuel consumption for electricity generation, fuels consumed in the manufacturing, construction and commercial sectors, and other sources like domestic heating. Industrial processes emissions are side-effects of production from non-energy sources, for example, it includes emissions from cement production, metal production, chemical production, and consumption of HFCs and SF6 gases. The fugitive emissions relates to the energy sector and covers emissions that are linked with the production, processing, transport, storage, transmission and distribution of fossil fuels such as black coal, oil and natural gas. The waste emissions relate to waste dumped at landfills.
[73] Zahar et al., above note 67.
[74] Department of Climate Change, above note 57.

[75] The Commentary on the provisions also states that international linking with the European Union scheme and New Zealand Schemes are desirable and if agreed, EU Allowances and NZ units would be prescribed under the Clean Energy Bill. (Zahar et al., above note 67). However, a detailed discussion of this international aspect is beyond the scope of this paper.
[76] The Climate Change Authority is an independent statutory body which was established in July 2012.
[77] The Australian Government has been criticised for these low GHG reduction targets. For example, Professor Garnaut (the federal government’s climate change adviser) recommended a 25 per cent reduction, while many other commentators suggest that an even more ambitious GHG reduction target is needed. See for example: Garnaut, R. (2008). ‘Australia Counts Itself out.’ <> accessed 17 January 2016; Brook, above note 62.
[78] Zahar et al., above note 67.

[79] However, the individual income tax rates for higher income earners were raised. For example: 19% for income over $18,200 (was 15%) and 32.5% for income over $37,001 (was 30%). < & doc=/content/00309813.htm> accessed 18 January 2016.
[80] Zahar et al., above note 67.

[81] For details see: Carbon Pollution Reduction Scheme and Carbon Pricing Mechanism: comparison of selected features. <> accessed 15 January 2016.
[82] Ibid.
[83] Department of Climate Change, above note 57.
[84] Department of Climate Change, above note 57.
[85] For details see: Carbon Pollution Reduction Scheme, above note 34.

[86] Department of Climate Change, above note 57.
[87] The Emissions Reduction Fund, available at: <> accessed 20 January 2016.
[88] Ibid.
[89] The Australian Senate, Environment and Communications References Committee. (2014) ‘Direct Action: Paying polluters to halt global warming?
[90] An additionality assesses whether a project or activity creates ‘additional’ emissions reductions that would not have occurred in the absence of the incentive.
[91] Ibid.
[92] Ibid.
[93] Emissions Reduction Fund: Safeguard mechanism - Consultation paper, available at: <> accessed 20 January 2016.
[94] Ibid.
[95] Ibid.
[96] See for example, Australian Government Department of Environment, Emissions Reduction Fund, public submission of Professor David Karoly, Professor Ross Garnaut, WWF-Australia and others, available at: <> accessed 20 January 2016.
[97] The Australian Senate, above note 89.
[98] Hartcher P. (2011). The Sweet Spot: How Australia Made Its Own Luck – And Could Now Throw It All Away, Black Inc, Melbourne.
[99] Ibid.
[100] Bamsey H and Rowley K. (2015). Australia and climate change negotiations: at the table, or on the menu? Lowy Institute.
[101] Staples, above note 5.
[102] Kelly P, (2008). ‘The Howard Decade - Separating Fact From Fiction’. Issue 7, May 2008. <> accessed 18 January 2016.
[103] Ibid.
[104] Howard, above note 14.
[105] Department of Climate Change, above note 57.
[106] Crowley, K. (2013). ‘Irresistible Force? Achieving Carbon Pricing in Australia’. Australian Journal of Politics and History, Volume 59, (3) 368-381.
[107] Beder, above note 40 Brook, above note 62.
[108] Ecogeneration, Multi-Party Climate Change Committee announced, Wed 29 September 2010, Great Southern Press, at <> accessed 18 January 2016.
[109] Crowley, above note 106.
[110] Priest, M. Coalition Eyes $20bn Carbon Cuts, Australian Financial Review, 9-10 March 2013.
[111] The Emissions Reduction Fund, above note 87.
[112] Ellen Whinnett, CARBON COPY: Labor leader Bill Shorten vows to bring back policy, The Mercury, Tasmania, 17, July 2014, at <> accessed 18 January 2016.

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