The Carbon Market and a new Labor Government, what happens now?
As the campaigning for the Australian Federal Election reached fever pitch last week, how did the result affect the Australian carbon market?
The value of generic (non-methodology specific) spot ACCUs climbed moderately across the week from $29.60 on Friday 13th to $30.00 on Friday the 20th. Meanwhile spot HIR (human induced regeneration) saw greater gains over the same period from $31.25 to $33.15.
However the clarion call that was Saturday’s election result had a hefty impact on the ACCU market in the period since. The market saw a sharp increase when trading resumed on Monday, with the generic spots reaching $36.00 by Tuesday’s close, while the spot HIR market reached $37.50 along the way.
The Australian Federal Election result
The weekend’s stunning election result has redrawn the political boundaries on climate change, with a thumping swing away from the Liberal Party towards The Greens and ‘teal’ independents.
Whilst it is still possible that Labor may achieve the 76 seats required to achieve a majority in the House of Representatives, it is a certainty that it will need to negotiate in the Senate. While the results in the Upper House are still being determined, it appears likely The Greens will hold 14 seats and should progressive former Wallabies skipper David Pocock deny Zed Seselja in the ACT, Labor will be dragged in the direction of more ambitious climate action in order to get legislation through.
What is a ‘teal’ independent?
The term ‘teal independent’ refers to a candidate that is a shade between blue and green.
These ‘teal’ independents are independents that represent a drift away from the two major parties (Liberal and Labor). They share a broad set of policies, heavily swayed towards the greens, receiving funding from Climate 200 and similar donor campaigns.
Their common campaign themes are climate change, anti-corruption and insuring integrity in Australian politics.
How will the ‘teal’ independents affect the climate policies of a labor government?
Far from being forced to temper its emissions reductions targets, Labor will now face pressure to increase them with many of the independents pushing for a 60% reduction by 2030.
What are The Greens’ emissions reductions policies?
The Greens climate policy aims at ensuring Australia’s climate policy is consistent with our Paris Agreement obligations and minimising atmospheric greenhouse gas emissions to 350 parts per million or lower. The aim being to ensure global temperature increases do not exceed 1.5 degrees Celsius.
In order to achieve this, the party has the most ambitious emissions reductions targets of all the main players, with a Net-Zero target by 2035 or sooner.
What will the next 3 years under Labor look like for Australia’s carbon market?
Firstly, Labor’s policy to tighten the Safeguard Mechanism’s baselines will induce an increase in demand for ACCUs over the medium term, which will go some way to meeting the increased supply that will result from former Minister Angus Taylor’s decision to allow participants to exit carbon abatement contracts previously entered into under the government’s emissions reduction fund.
Labor has also committed to introduce a Safeguard credits methodology which would see covered facilities able to receive rewards for emissions reductions in the form of ACCUs (or an equivalent unit) which they could then sell to others in the market.
A more ambitious federal government emissions reductions target will also set the bar higher for corporations seeking to make voluntary commitments, which could result in additional ACCU demand.
These increases in demand, combined with the ability for project proponents to exit their carbon abatement contracts with the government and sell on market will likely lead to a far more liquid, vibrant and sustainable ACCU market across the coming years.
The enormity of the swings toward The Greens and ‘teal’ independents and the realities of the current parliamentary landscape will mean that Anthony Albanese and his team will be forced to negotiate with a crossbench in the House of Representatives (possibly) and the Senate (definitely) that has committed to far more ambitious emissions reduction goals than they have.
Significant steps are going to be required to take Australia from its current 26-28% below 2005 levels by 2030 target to Labor’s 43% target. Yet it is possible the crossbench will demand a greater cut in exchange for support of Labor’s legislative agenda.
The coming three years will likely be the beginning of a major move towards a Net-Zero reality with a positive investment climate for the renewable energy, energy storage and emissions reductions projects that are going to be essential to achieve this aim.
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