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Polluters get 'in principle' okay to buy foreign carbon credits

Polluters get 'in principle' okay to buy foreign carbon credits

Heavy polluters will be allowed to buy foreign carbon credits to help meet their emissions obligations under the proposed National Energy Guarantee, Environment and Energy Minister Josh Frydenberg has revealed.

The timing and quantity and quality criteria for foreign carbon credits are to be determined in 2020 under the "in principle" decision – the first to emerge from the Turnbull government's long-awaited Climate Change Review, to be released on Tuesday.

It would allow large emitters of planet-warming greenhouse gases, such as carbon dioxide, to purchase carbon credits from foreign sellers in time for the commencement of the National Energy Guarantee's emissions guarantee.

The decision will hope to settle long-running disputes over climate policy in the Coalition: Whether heavy emitters of greenhouse gases should be able to buy and sell carbon credits to manage carbon liabilities; and if so whether they should be able to buy foreign credits, which may not be subject to the same rigour as domestic ones.

"There are more than 60 countries that have indicated that, as part of the Paris accord, they want to participate in the market once international rules are finalised," Mr Frydenberg writes in The Australian Financial Review today.

"These include like minded economies, Canada, New Zealand, Japan and South Korea. Recognising the Government's commitment to seek emissions reduction at lowest cost, we are giving in principle support to the use of permits with a final decision by 2020 on appropriate timing, quantity and quality considerations."

Improved 'emissions safeguard'

In another sign that carbon trading will play a bigger role than previously acknowledged, Mr Frydenberg writes that the government will consult on improvements to the emissions safeguard of its Emissions Reduction Fund policy, which has features of a carbon cap and trade system but is not geared to work like one now.

The emissions safeguard sets caps for the heaviest emitters, allowing them to trade credits to meet their caps, but has been criticised for setting easily attainable historical caps. Setting emissions caps in line with national emissions goals could make the mechanism work more like a cap and trade system.

The decisions will delight the power industry and heavy energy users and emitters but anger climate policy advocates who believe Australia should take care of its own greenhouse gas emissions rather than using foreign carbon credits to bail out heavy emitters.

The Energy Security Board's proposal for the National Energy Guarantee says that domestic and foreign carbon credits "could be permitted to meet a proportion of the retailer's (emissions) guarantee".

However, it envisages power companies and large energy users would in the first instance contract with generators with the appropriate emissions to meet their guarantee, and in the second instance trade among themselves in "a secondary exchange".

Business wants lowest cost abatement

Business believes international trading in carbon permits will help them find the lowest cost carbon abatement, but environmental advocates argue it will be harder to ensure the integrity of foreign credits and they could just be a means for business to escape their carbon liabilities on the cheap.

Mr Frydenberg writes that new carbon emissions data for the June quarter and updated emissions projections to 2030 show national emissions fell 0.6 per cent overall in the June quarter and 1.6 per cent in the electricity sector, which benefited from closure of Australia's dirtiest power station, Victoria's Hazelwood brown coal plant, in March.

He says Australia is on track to beat its 2020 target – a 5 per cent reduction in emissions from 2005 – by 294 million tonnes of CO2 equivalent and has shaved 128 MT off the 1000 MT cumulative requirement in 2016's official emissions projections to meet the 2030 target of a 26-28 per cent reduction.

That means emissions still have to be slashed by more than 850 MT to meet the Paris target, but the long-term trend is moving in the right direction.

"There is cause to be optimistic with new technologies unlocking emissions reduction possibilities that were previously not there," Mr Frydenberg writes.

Financial Review

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