Upcoming Mallesons seminarsCarbon reductions will significantly affect all areas of the Australian economy.
What do you need to do?Analyse the impacts of a carbon price on your business.
Louis Chiam
Partner
Louis Chiam
Partner
T +61 3 9643 4086
Sydney
Vishal Ahuja
Dominic Bortoluzzi
Melbourne
Louis Chiam
Perth
Tim Warman
Brisbane
Matthew Austin
Prof Ross Garnaut, the Australian Government’s emissions trading adviser, recommends Australia commit to reducing greenhouse gas emissions to 90% of 2000 levels by 2020. Launching his “Targets and Trajectories” report today, Prof Ross Garnaut advocated a unilateral commitment to reducing emissions by 5% regardless of international negotiations and by 10% if a comprehensive international agreement can be reached on emissions reductions.
The conditional offer to reduce emissions by 10%, the centrepiece of Prof Garnaut’s report, is less aggressive than some had speculated. It is broadly consistent with the Business Council of Australia, which recently described a 10% reduction as challenging and advocated a more moderate target pending an agreed global emissions scheme. However, it is likely to disappoint those pressing for more aggressive targets. Greenpeace recently argued that even a 15% reduction would not be adequate to prevent significant environmental damage, while the Climate Change Institute has called for a 25% reduction against 1990 levels.
The target for overall emissions will determine the number of emissions permits to be sold. Aggressive reductions in the target will reduce the number of emissions permits available, in turn driving up the price (and economic cost) of carbon, while modest reductions targets should produce a lower carbon price.
Prof Garnaut also recommended setting a fixed carbon price of $20 per tonne for the first two years of the emissions trading scheme. If a comprehensive international agreement is reached at that time, then the permit price would be allowed to float. However, if there is no agreement, then the fixed price would continue, escalated at CPI +4%. The Government's analysis in its Green Paper (July) indicated that a carbon price of $20 per tonne would produce a 16% increase in electricity prices.
In Prof Garnaut’s preferred scenario, Australia would reduce its emissions by 10%, resulting in a 2020 carbon price of $34.50 (in 2005 $). In contrast (and counter-intuitively) the scenario in which Australia reduces emissions by only 5% produces a higher carbon price. Prof Garnaut suggests the 5% scenario implies a lack of global cooperation, limiting the pool of available international abatement opportunities, which would drive up the cost of carbon in Australia to $52.60 in 2020.
Prof Garnaut’s report will be considered by the Government, which is due to publish its economic modelling next month.
Prof Garnaut’s “Targets and Trajectories” report is available here.