Australia’s $234 Billion Climate Gamble

The Climate Change Guy

As of last year, China and the US were first and third on the list of Australia’s trading partners. Australian trade with China was worth $152.53 billion - a total that has grown by 12.2% on average over the last 5 years. Australia’s trade with the US was worth $60.43 billion as of 2014, having grown 4% on average over the last 5 years.

See more on Australia’s trade figures here

In March this year, China raised a number of concerns regarding Australia’s Intended Nationally Determined Commitment (INDC) for greenhouse gas emissions in the lead up to the Paris Climate Summit in December. In particular, they queried whether replacing the planned Emissions Trading Scheme (ETS) and the Carbon Farming Initiative (CFI) with the Emissions Reduction Fund (ERF) will yield the reductions that were likely under those two. The US also queried whether the ERF will primarily replace the ETS or whether other Policies and Measures will be considered.
I discussed a number of issues regarding the ERF (the Flagship of the Australian Government Direct Action plan) and the first Auction in April this year in an earlier blog. The second Auction will be held on 4 and 5 November, which is approximately three and a half weeks prior to the Paris Summit. It is possible that news of the second Auction results will spread as widely and quickly as for the first, including to representatives of other nations attending the Summit. The representatives may be keen to quiz the Australian party on the results, particularly if the results are questioned as extensively in social media as the results of the first Auction were. This will be very interesting to watch indeed.

See more on the second ERF Auction here 

In the time since the first Auction, it is fair to say that a lot has transpired politically in an international and domestic context that highlights and brings into focus Australia’s stance on emissions reductions. In an international context, China and the US have progressed a deal on emissions reductions reached last November with discussions earlier this month, as a result of which many cities including Atlanta, Houston, New York, Beijing, Guangzhou and Zhenjiang have pledged new actions. A number of other nations have announced their INDCs in the lead up to Paris.
Last Friday (US time) Chinese President Xi Jinping announced a nationwide cap and trade emissions program as part of efforts to tackle climate change. Cap and trade programs cap the total emissions and sources including power stations and factories purchase and sell credits. In terms of the US, although plans for a nationwide cap and trade program were defeated in 2009, California and other north-eastern states have implemented emissions trading schemes.

See more on President Xi Jinping’s announcement here

Domestically, the Government has changed leadership resulting in the installation of Malcolm Turnbull as Prime Minister. Last week, in response to the announcement of China’s cap and trade program, Environment Minister Greg Hunt announced that the Government will stay the course regarding the ERF which is reported to be “the best, most effective scheme in the world”.

See more on the Australian Government response to China’s announcement here

 According to the Government, further reductions could be considered in 2017/18 as part of discussions on Australia’s 2030 target policy framework.


See more on Australia’s actions here

Given that China and the US (amongst others) have raised concerns with Australia’s commitment for Paris and have signed agreements to peak and reduce emissions respectively, I would be very surprised if they (and other nations attending the Paris Summit) would be prepared to give Australia until 2017/18 to consider further emissions reductions. I think it more likely that the US and China lead the charge in maintaining pressure on Australia to do more in the global challenge that is climate change.
Given the recent announcements by the Australian Government with respect to the state of the domestic economy and the discussions as to the exact nature of the problem, I struggle to fathom why they believe they can maintain one particular strategy and direction with respect to emissions reduction when an increasing number of countries are going in another.
If trade with China and the US continues on their current respective trajectories, by 2017, the combined figure is at approximately $233.7 billion (at a minimum) - $170.84 billion from China and $62.85 billion from the US. I don’t know if many Australians would be prepared to allow their Government to gamble such a figure on any matter - least of all emissions reduction specifically but climate change more generally, especially given the global nature of today’s economy. This is effectively what they are doing by continuing to ignore the rising tide of emissions trading.