Emissions shift may reduce taxpayer burden

The new government's proposed climate change bill introduced to parliament on Wednesday would lock in a minimum 43 per cent cut in emissions by 2030, trouncing the coalition's 26-28 per cent goal, to set the scene for a future 2035 target and achieve net zero by 2050.

Climate Change and Energy Minister Chris Bowen says the stronger commitment "signals to the market, both here and abroad, that Australia is open for business".

And much of the work will be left to the business and investment community.

"This is about a framework for private sector investment, we designed it that way to encourage that private sector investment," the minister said.

An array of agencies and mechanisms will usher in tougher pollution limits for heavy industry in 2023, along with a new class of tradeable carbon credits for cutting industrial emissions.

More than 200 of Australia's largest industrial facilities will have more stringent caps on emissions, forcing firms to change the design, operation and fuel supply of plants and equipment.

The industry-led Carbon Market Institute welcomed the draft laws, saying the climate change bill provides "strong policy certainty that industry and the business community have been missing for some time".

Economic advisor to the federal government Steven Kennedy, a veteran of the decades-long climate wars, says the new arrangements will "significantly" reduce the burden on taxpayers.

The federal Treasury chief has worked closely with numerous prime ministers, treasurers and ministers to draft and repeal climate policy.

Before the 47th parliament began this week, the Labor administration was already reviewing the inner workings of the former government's key climate policy tool, the Emissions Reduction Fund, which rewards heavy industry for offsetting emissions.

The so-called safeguard element of the scheme involves the government setting speed limits, or baselines, for the emissions produced by more than 200 of the nation's largest industrial operations.

This design provides an opportunity for governments to set tougher emissions limits over time.

Dr Kennedy says the government has indicated a "willingness" to use the safeguard mechanism to tighten requirements, consistent with achieving net-zero emissions by 2050.

"This will also significantly reduce the call on the budget," he said in a recent speech.

In place for seven years, the mechanism covers metals and mining, oil and gas extraction, manufacturing, transport, and waste facilities each producing more than 100,000 tonnes of greenhouse gas emissions per year.

Critics say the old baselines have been too soft, allowing heavy emitters to avoid penalties when they were meant to be avoiding emissions.

And while carbon credits have been mostly generated by nature and land-based projects - including growing trees on farmland - a proposed new class of "safeguard credits" will be earned from future projects retrofitted to refineries, chemical plants and other heavy industrial facilities.

Polluters can also buy the carbon credits to manage emissions.

An unresolved policy conundrum is whether Australia should be able to trade emissions with other countries.

"There's a tremendous opportunity to create new jobs and industry from securing carbon in our land and through changed land management practices," Greens leader Adam Bandt said.

"But all of this opportunity will be lost if domestic or international offsets are used by Labor as a cover to allow new coal and gas projects," he told AAP.

The latest modelling from research house RepuTex shows the new "baseline and credit" framework will provide companies with a fresh incentive to cut emissions and offer more flexibility to manage emissions.

But RepuTex expects heavy industry to rely on domestic carbon credits to offset emissions before investment begins in truly transformative pollution-busting projects for new facilities and equipment.

Carbon Market Institute head John Connor says a strengthened safeguard mechanism and a "fit-for-purpose" carbon crediting system are vital next steps.

"The rubber will really hit the road once these reforms are complete, and will lay the foundation for an even stronger 2035 (NDC) Nationally Determined Contribution," he said.

The NDC, or climate action plan, must be updated by every party to the Paris Agreement every five years, and Australia's is due for submission within this term of government.

The current president of UN climate negotiations, the UK's Alok Sharma, says the 2030 target is "a good start".

But Australia will be expected to show more ambition if it wants to lead international climate talks in coming years, he told the ABC this week.

Preparing the way, Labor's new laws will beef up the Climate Change Authority so it can hold the government to account on progress against national targets and assess what a 2035 target should be.

"New: Job vacancies now open. The Authority is recruiting for multiple positions," the agency's website says after years in the budget doldrums under the coalition government.

Urging detailed consultation, Minerals Council CEO Tania Constable said the mining industry recognises the need to reduce emissions globally, nationally and at the sites and facilities driving the resources industry.

But policy reform that forces Australian businesses to cut production or close because they can't compete with countries who are not implementing strict emissions constraints on their export industries is not on.

"This would just shift emissions overseas to jurisdictions without strict emissions requirements - it would be neither sustainable nor real emissions reduction," she said.

Labor says it is also "putting the R back into ARENA" by restoring the focus of the Australian Renewable Energy Agency on renewable energy and electrification, rather than unproven fossil fuel-based technology.

The new climate focus and targets, which the Greens and some independent MPs say won't do enough, will also be enshrined in the mission of the the nation's green bank for investments in green agriculture, energy, hydrogen, infrastructure, property, transport and waste.

The Northern Australia Infrastructure Facility, which finances projects in the Northern Territory, Queensland and Western Australia, along with ARENA and Infrastructure Australia, will also be central to the transition.

But contentious methods that extend the use of fossil fuels remain in the federal climate policy toolkit.

Carbon capture and storage technologies, switching industrial facilities from coal to gas, and using alternative fuels such as liquid hydrogen derived from coal and gas for transport fleets are still in the running.

RepuTex says investors also need certainty that one carbon credit equals one tonne of emissions abatement before they accept stronger baselines and more voluntary commitments by firms.

An independent review of existing carbon credits is checking their integrity and will report back to government by the end of 2022.

The Greens, whose votes could be vital to pass the climate bill, support using carbon credits to draw carbon down from the atmosphere, and not for an offset regime for "big polluters" or the safeguard mechanism.

Nor could the 114 coal and gas projects in the pipeline be offset, Mr Bandt said.

Advice on international carbon credits, commissioned by the former government, has been repackaged for the new minister and is due to be published soon.

A consultation paper on safeguard mechanism changes, intended to take effect from July 1, 2023, will also be released.

Australian Associated Press