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May 13, 2021

What future for carbon markets?

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The carbon market is now looking at whether big polluters such as the brown-coal-fuelled power stations in the Latrobe Valley will be given new life under a coalition government or whether clean-energy wind-farm generators such as South Australia’s Hallett 1 will continue to grow if the political climate changes. Photos Wikipedia.


Giles Parkinson, Reneweconomy

If Tom Waterhouse ever does get punted from his prominent position in the rugby league industry, perhaps there is an opportunity in the business of climate change that he hasn’t yet exploited.

Professionals from Australia’s nascent carbon markets and the nation’s biggest polluters gathered in Sydney on Monday to hear the latest analysis about the state of the industry.

But there was really only one man they wanted to hear from, the ABC’s resident election analyst Antony Green, and his take on the likely result of the September 14 poll and its impact on the Clean Energy Future climate package.

The market is already writing it off. The forward curve of the carbon market, such as it is, is pricing odds of 60 per cent that the carbon price will no longer exist by July next year, analysts say. The market odds for it to be gone by 2016 are 80 per cent.

The forward curve for contracts in the national electricity market is pricing the odds around the same level. Even Bloomberg New Energy Finance, which said earlier this year that there was just a 30 per cent chance of repeal, is now reviewing that assessment and is likely to lift the odds to above 50 per cent.

Little wonder, according to Gary Wyatt, head of energy trading at ANZ, that means most liable entities are either ignoring the carbon risk, or, in the case of electricity industry, passing it on to consumers.

Blame it on the polls. In the last few months, Labor’s disastrous showing has increased the likelihood that the coalition, with the help of independents such as the DLP’s John Madigan and others, could have an effective majority in the Senate, enabling them to deliver on Tony Abbott’s ‘blood oath’ to repeal the carbon price.

And even if the coalition did not get the numbers, there is increased talk that the remaining rump of Labor politicians may not have the spine to continue to advocate for their climate policy, with the factions finally let loose and keen for retribution for anything associated with the partnership with the Greens.

Antony Green’s presentation was the best attended of the entire day hosted by the Carbon Market Institute. And, quite frankly, I’ve never seen a banker take quite so many notes. That’s probably because, one way or another, there’s several billion dollars worth of assets that could be stranded or not.

As you might expect from his profession, Green gave a cautious outlook on how the Senate voting might evolve. The complexities of the Senate voting system and preferences means the final position within a state can turn into a lottery. Labor tried to be too clever and ended up having to deal with Family First. A Christian group focusing on anti-abortion accidentally caused a pro-gay member to be elected in WA.


The first thing Green noted was that it was pretty hard to see how Labor could possibly hold onto office. But the key on how Abbott will be able to govern, and to deliver on the repeal of the carbon price and other climate initiatives and institutions, is the makeup of the Senate, and how quickly the coalition could move to a double dissolution if it didn’t have the numbers.

Green suggested that the practicalities meant that a double dissolution wouldn’t happen before July, 2014, anyway, barring Labor folding its cards on climate and waving the repeal through.

Even in the event of an indecisive result, the legislation was likely to be referred by the Senate to committee, as is its wont, which would take 3–6 months, before an initial vote. There is no clear thought on whether the coalition could force a double dissolution before senators elected in September take their seat next July; two articles in the Constitution give conflicting advice.

If the coalition did have a majority, with the support of independents, then it would be unlikely to try to force a second vote before July 1 in any case, if it was clear that they would have the numbers soon after.

Under Green’s analysis, the path from 34 seats to 39 needs the support of Madigan in Victoria, winning a third seat in Tasmania (likely) and getting up three Liberals plus Xenophon in South Australia (possible).

Then it needs something else to happen. The most likely states for this are in Queensland and Western Australia, where a bunch of smaller parties (Bob Katter’s, Clive Palmer’s, and the separately listed Nationals in the west) could claim the last seat, particularly if Labor and the Greens fail to reach a combined 43 per cent.

But it was just as likely that the last seat could go to a candidate that has simply benefited from a favourable position on the ballot paper and a swag of preferences.

And then was the final hurdle. Repealing the carbon tax is one thing, working through the fine details is quite another; there are big issues over compensation, and the exposure of liable entities.

As Green suggested, trying to get agreement from independent Senator Nick Xenophon, the DLP’s Madigan, Bob Katter and another would be ‘complex’.

‘I can see a scenario where the coalition gets enough [in the Senate],’ Green says. ‘It’s hard to see anything other than a Labor defeat.’ And if the polls stayed as they are, then we may have the coalition and a collection of people we haven’t heard of having the numbers to pass legislation in the Senate.

In the evening, it was the turn of the coalition’s climate change spokesman Greg Hunt to take the floor. This audience hasn’t taken Hunt’s speeches very seriously for a long time now, ever since Direct Action was first unveiled, along with the Green Army, in 2010.


The fact that the coalition has failed to flesh out any details has only increased the belief that this is a political position, not a policy one.

But now, it seems, not only is Hunt on the verge of taking office; a workable Senate majority may mean he has to actually deliver on his promise. Given the paucity of policy detail, it’s not entirely clear that this is what was planned.

Hunt was introduced as a former champion debater. Being a champion debater means that if you are tasked to make a contrary argument, such as that the world is flat, then you can do a pretty good job. His defence of Direct Action as a credible and long-term climate policy is put in the same context.

As it was, Hunt kept pretty much to an ad-lib version of a speech he gave last month at an ANU climate conference. It includes such pearls as assuming that China will lift its coal consumption to seven billion tonnes (China said this year it will be capped at four billion), and claims that no other nation is going too far on carbon pricing than Australia, which this audience knew to be patently false, most of them having hosted delegations from China, Japan, South Korea, the US, Mexico, South Africa and even Kazakhstan trying to learn from Australia’s blueprint.

The incredulity of the audience was reflected by the questions. Does the coalition actually believe in climate change and, if so, how does it propose to scale its policy so it can meet the science? Has this policy, based around an emissions reduction fund, been used successfully?

Hunt’s response was, of course, in the affirmative; being the captain of the debating team means he couldn’t really say anything else. But the audience was in no doubt: it is certainly not scalable, and there is important action elsewhere.

The Clean Development Mechanism cited by Hunt as Direct Action in action relied on a tradable carbon market. An emissions reduction fund has been tried before, under the Howard era’s Greenhouse Gas Abatement Program. It was a hopeless failure.

So many questions remain. It is one thing to repeal a tax, but quite another to work around the compensation issues and the baseline scenarios to encourage polluters to do no worse than business as usual.

How are they to be framed, are they absolute or relative, are they corporate based or facility based? Are they historical or forward looking? What about businesses that have yet to measure them? Has anyone thought about this?

For some in the audience, the coalition’s real stance on climate is reflected in the proposal to move what’s left of the climate change department to the environment portfolio, not to mention scrapping the various bodies that could offer independent advice, and usher in the new technologies that would replace many of the incumbents.

That’s because the task of addressing climate change revolves around the ability of the world, and individual countries, to transform the economy, and make it a low-carbon one. It’s as much an economic challenge as an environmental one.

That’s why most suggest the climate change department is better merged with the energy department, where much of the work needs to be done, or in the industry and innovation portfolio, where it was recently relocated.

But the conservative view is that this is an environmental issue, and should be treated as such. That enables the coalition to get away with the Green Army concept, which, as a policy response to anything beyond littering, is so absurd it beggars belief.

Hunt dismisses grand targets and wants climate action to be taken ‘step by step’. That fits in nicely with the marching theme. Onward climate soldiers, marching unto, well, goodness knows what or where. Or maybe unto Tom Waterhouse’s gambling den.


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