The Safeguard needs a complementary policy.

There are mounting concerns about the proposed reforms to the safeguard mechanism and the government’s ability to reduce emissions anywhere fast enough to avert the impending crisis, most recently evidenced by Cyclone Gabrielle’s devastation of New Zealand. The safeguard is weak and has attracted some fine critiques in recent days.

It is increasingly clear that the fossil fuel industry still has enormous power over government and its short-term interest in further profit-taking are preventing the adoption of effective policy. This is not surprising in a capitalist economy that promotes and supports the exploitation of natural resources for profit and exaggerates the amount of jobs and wealth they generate. Only government regulation can curb the growth imperative that drives the fossil fuel and related industries. It is pointless to expect the industry to self-regulate and phase itself out. It must be actively phased down by effective and comprehensive policies which also assist it to reinvest and transition towards zero carbon. The best we can expect is that the industry recognises and asks for policies that help them to steadily lower their emissions and transition to zero carbon.

A predictably rising carbon price like climate dividends is sufficiently comprehensive to achieve this. And Canada’s experience has shown that a dividend paid to households will make the price resilient to populism. A Carbon Border Adjustment Mechanism (CBAM) like the EU is introducing will protect our export industries from countries without a carbon price.

Three recent critiques of the safeguard are worth noting -

-          Richard Dennis argues that the safeguard will allow unlimited credits to be purchased to offset emissions allowing industry to seriously delay actual emission reductions

-          Adam Morton assembles compelling evidence that the fossil fuel industry is intent on expansion  and cannot be expected to collaborate in reducing their emissions

-          And Bill Hare and Climate Analytics calculates that the use of carbon offsets could lead to increased emissions by allowing fossil fuel companies to offset all their scope 1 emissions (those that arise from the extraction and production process) – only a fraction of the total emissions that the fuel in question will cause. Their report  finds that every carbon credit used to offset one tonne of CO2 from liquified natural gas production in Australia would lead to about 8.4 tonnes of CO2 going into the atmosphere, once the gas was sold and burned overseas. In the case of coal, every Australian carbon credit used to offset a tonne of emissions from coalmining was associated with between 58 and 67 tonnes of CO2.

These critiques are important and useful. They provide powerful arguments on which policy improvements can be made as the government proceeds to legislate and implement its policies.

Improving the policies may not be enough, however. Additional solutions are necessary to supplement these limited and piecemeal reforms that will do too little to reduce emissions or assist the phase-down of fossil fuels.

At CCL we have made our own critique in our Submission on the Safeguard Mechanism reforms and more recently in our Response to the proposed Safeguard reforms. Importantly, we have proposed climate dividends as a strong and comprehensive solution that can complement the safeguard and fill in the many gaps and loopholes that it will leave.

Another concern is that most of the government’s policies and the few alternatives proposed in the above critiques are aimed at reducing demand for fossil fuels and high emission products. They do little to reduce supply, thus allowing fossil fuels to expand without restriction. They offer some help to renewables and other solutions to compete with fossil fuels but do not do nearly enough to restrict the fossil fuel industry and guide their phase down. (We are working on an article about this issue this issue for the Playbook – it will be published soon)

Climate dividends works on both supply and demand simultaneously – it boosts demand for zero carbon activity, steadily reduces the supply of high carbon energy and gives fossil fuel companies a strong incentive to phase down and reinvest in zero carbon. The dividend ensures that the price on carbon can keep rising predictably until the transition is complete. It is the comprehensive policy that Australia badly needs.