A new analysis from research firm Bloomberg New Energy Finance suggests that the Coalition will succeed in repealing the carbon price after the new Senate sits from July 1 next year, but will come under intense pressure to produce its own carbon pricing mechanism.
The BNEF assessment says that the market is “mired by uncertainty,” despite Tony Abott’s sizeable election victory. Even though Labor and the Greens have vowed to fight the repeal of the current carbon pricing mechanism, energy markets are pricing in an 80 per cent likelihood that it will be repealed within 12 months.
It notes that “Abbott’s crusade” will be bolstered when newly elected senators, including six to eight conservative independents, take their seats in July 2014, even if he is tempted to move earlier with a double dissolution.
There will certainly be plenty of colour and movement. Already, one backbencher from the right of the Labor Party has broken ranks on defending the carbon price, while one of Clive Palmer’s two Senators has expressed support for carbon pricing, so long as the price is right, or low.
The real crunch, however, comes in what follows. Green groups are calling for a “reveal” before a repeal, and it may be that the Coalition will have to complete its white papers on an emissions reduction fund, and the energy market for that matter, before they get support.
Sitting senators such as Nick Xenophon want more details of what the Coalition proposes in its place under Direct Action. He is urging a “baseline and credit” model developed by Frontier Economics that he had previously championed with Malcolm Turnbull.
BNEF noted that “scant details” are available on the Direct Action policy, which it says “lacks a credible mechanism” to achieve Australia’s emissions reduction objectives and obligations under the second commitment period of the Kyoto Protocol.
“The main mechanism for the policy is an emissions reduction fund in which the government buys least-cost abatement, predominantly from the land sector,” it notes. “Elements of a baseline-and-credit scheme have also been mooted to prevent growth in emissions from existing installations.
“It is likely that the new Australian government will come under pressure from some business groups and the international community (particularly the EU) to develop the ‘Direct Action’ plan into a more substantive policy with market-based elements.
“Given the underlying economic imperative to reduce emissions and international treaty obligations, business groups are likely to pressure the government to develop a more credible policy that gives clear signals to investors and alleviates the carbon policy risk that is currently undermining investment.”
Another research firm, RepuTex, has suggested the Coalition’s best opportunity in repealing the carbon tax may, in fact, be negotiating with the ALP.
“The policy transparency of the major parties is likely to make it far easier for the Coalition to negotiate with the ALP then the new Senators in spring 2014 – better the devil you know” said Hugh Grossman, RepuTex executive director of carbon markets.
However, he also said any such agreement from the ALP would be conditional on support for a traded carbon price.
“It would be considered a win for the Coalition to repeal the carbon tax within its first 100 days, even if that means compromising on emissions trading,” said Grossman.
“Given that industry supports the continuation of the carbon price, but at a lower level, a swift outcome to repeal the carbon tax in favour of emissions trading may look very appealing to the Coalition in comparison to 18 months of a high carbon price and potential deadlock with minor parties.
“By late 2014 the Australian market will be only 6 months shy of the end of the carbon tax – so it is a huge risk for the Coalition to take, for little gain, particularly when a quick, palatable outcome is likely to sit a lot closer to home.”