Irrespective of who wins the next election, the 2016-19 parliament will play a key role in shaping Australia’s long-term climate policy framework, with policymakers likely to work towards a bi-partisan policy framework prior to the conclusion of the Kyoto Protocol in 2020 in order to provide greater policy certainty going into the post-2020 period.
While bi-partisanship rarely means agreement on all policy levers, consensus on key structural design factors – such as the mechanism itself (ETS or baseline and credit), market structure and coverage – is a key ingredient to support policy certainty in the post-2020 period.
This level of bipartisanship would align Australia with many markets internationally, where consensus on the core elements of national policy ensures the operation of an efficient market that is able to achieve a pre-set environmental target.
While consensus remains lost in the short-term quagmire of the 2016 election campaign, the Coalition and the ALP have commented on the importance of bi- partisanship in the next parliament. Environment Minister, greg Hunt, has stated:
“I think that there is convergence and there will be convergence around the safeguards mechanism. What the safeguards mechanism represents – and I have said this before – it represents a capping of 50 per cent of emissions, but it’s the mechanism that matters”7
Opposition environment spokesperson, Mark Butler, has also supported consensus on climate change as a key issue for the next parliament:
“…there really is a challenge for the next Parliament as business groups and environmental groups have pointed out to start to rebuild that consensus. Otherwise, we’ll be in the 2019 election, in the 2020 period at the end of the Kyoto Protocol, again not having made progress in this area.”8
In this context, the outcome of the federal election is likely to entrench either major party’s policy framework – be it an ETS or baseline and credit scheme – as the starting point for any future policy bi-partisanship. As has been the theme of all parliaments over 2007-16, the greater roadblock remains the willingness of the parties to engage on climate change, and more directly, the ability of the Coalition to find consensus within its own Liberal-National party room.
Policy design similarities may assist bi-partisanship
Should the government be returned, which remains the most likely outcome of the July 2 election, debate between – and within – the major parties is likely to be brought about by the government’s policy review process, commencing in the second half of 2016.
This process is likely to be informed by public positioning by the ALP and Senator Xenophon, with the latter playing a key role as the likely holder of the balance of power in the new Senate, should the government seek to enact legislative amendments in the next parliament.9
Irrespective of whether the government seeks to enact new legislation, however, its ability to reach a bi-partisan agreement with the ALP remains a key goal for the next parliament.
The role of the ALP – Going back to go forward?
Should the government be returned, we believe the ALP is likely to be open to finding a policy middle ground with the government in order to sure-up a workable system to meet Australia’s emissions reduction objectives.
The ALP has previously shown a preparedness to reach a compromise with the government on environmental issues, most notably the renewable energy target (RET), where the ALP supported the Coalition’s proposed downscaling of the RET after 12 months of political gridlock, cutting the original large-scale target of 41,000 gigawatt hours of annual renewable energy production by 2020 to 33,000 gigawatt hours.
While the ALP agreed to a lower target, in reaching a compromise it was able to push the Coalition from a proposed target of 26,000 gigawatt hours to a higher target of 33,000, and thaw out an otherwise frozen investment market. The ALP has since adopted a 50 per cent renewable energy goal by 2030, which it will seek to gain a mandate to implement at the next election.
The RET experience may provide a point of reference for future negotiations on climate change between a returned Coalition government and the ALP – a process likely to be aided by the considerable design similarities between the policy platforms of the two major parties.
Notably, the ALP’s two tier ETS policy, promoting the establishment of separate schemes for the power and industrial schemes may be transferrable to the Coalition’s safeguard framework, which also establishes separate approaches for the power sector (a sector wide emissions intensity baseline) versus the industrial sectors (high point absolute baselines).
In addition, the ‘soft start’ ambition of the ALP’s ‘cap and offset’ scheme (Phase I of its ETS) may also be transferable to the Coalition’s current safeguard scheme, with the two systems largely interchangeable, separated by the ambition of each party’s 2020 target (the ALP supports an absolute 2020 target rather than net).
The close proximity of the two policies was recognised by the Business Council
of Australia, which stated that the ALP’s plan could provide a platform for bipartisanship, supporting Labor’s differentiation between key sectors of the economy, while suggesting that “…the opposition’s plan could build a bridge
from the existing regulatory frameworks to the first phase of their proposed emissions trading scheme.”10 This was also recognised by opposition environment spokesperson, Mark Butler, who noted:
“…some of the models we’ve put in place around capping and reducing pollution in the electrician sector and then more broadly in the heavy industry sector could intellectually be brought together with a proper safeguards mechanism, not the one that Greg currently has. And I think the Business Council made that point in response to the release of our plan, that it was potentially a platform for greater bipartisanship, and that would be critical.”
Could Xenophon support a ‘meeting in the middle’?
The influence of expected kingmaker, Nick Xenophon, may also have a positive impact on any negotiations between the major parties, with Xenophon’s 2009 ‘baseline and credit’ policy proposal (also adopted by then opposition leader Malcolm Turnbull) largely in step with core elements of the ALP’s proposed ETS framework, and the design of the government’s safeguard mechanism.
Senator Xenophon previously voted for reforms that established the safeguard mechanism and was instrumental in the moving of an amendment to link the 2017 policy review to Australia’s climate target and international progress. Following the tabling of the government’s watered down safeguard rules, Xenophon was critical, suggesting the baselines were “toothless”, and that his agreement with Environment Minister, greg Hunt, had been “neutered”, vowing to try to disallow the new rules unless the government made significant changes.11
While Xenophon did not seek to disallow the final rules, his comments reflect broader support for a workable climate policy framework, with NXT proposing an “efficient and effective” ETS structure. To this end, Senator Xenophon continues to support his initial 2009 baseline and credit model12 – a position that may facilitate consensus between the major parties should Xenophon engage in the political debate and seek to draw the ALP and the Coalition to a common meeting point.
The Greens – Sidelined unless the ALP wins?
For its part, the Greens may find themselves sidelined should the government be returned, with little political imperative for the Coalition to work with the left given the likelihood of better political bedfellows in the political centre, in NXT and the ALP.
Should the ALP win, however, the influence of the greens on the ALP’s policy platform would again be strong, with the ALP requiring the support of the left to pass legislation in the Senate. This is likely to be the case with Phase II of the ALP’s ETS, which it will seek to legislate in the next parliamentary term (assuming Phase I is implemented via regulation).
The workability of any agreement between the ALP and the greens would also need to consider the input of NXT, whose support in the Senate would be a prerequisite to pass any ETS legislation. While this is likely to be a challenging path for the ALP to negotiate, the greens under Richard Di Natale are likely to seek to avoid the missteps of the former Brown/Milne negotiations on carbon pricing policy, whereby their hard political stance ultimately led to a political impasse on carbon pricing.
A new consensus in the political centre – How do the policies compare?
Below, we summarise the key components of the Coalition, ALP, NXT and The greens, with shading indicating the key similarities between the parties, and potential areas for compromise should the government be returned.
Should the government be returned we believe reasonable grounds for compromise may emerge between the Coalition, the ALP and the NXT, with a scaled up form of the government’s current safeguard mechanism likely to represent the most obvious starting point for consensus between the parties.
As this analysis shows, agreement on a preferred policy structure may – in theory – be readily achieved, with the similarity of the Coalition, ALP and NXT policy frameworks likely to provide a positive platform for compromise between the parties.
Notably, the existing structure of the major party policies, including the design of separate schemes for the power and industrial sectors, a low ambition first phase prior to 2020, and greater ambition in the post-2020 period, suggests that Australia may already be close to a bipartisan climate policy framework.
To this end, the willingness of parties to engage in negotiations is potentially a greater roadblock to bipartisanship than policy design, with the Coalition’s ability to reach agreement on climate change within its own Liberal-National party room the key hurdle for progress on climate policy.
In this context, the Prime Minister’s ability to drag the Liberal and National parties to the political centre on remains a key question mark, however in similar fashion to the deal on the RET, compromise may well be within reach in the next parliamentary term, irrespective of who wins on July 2.