Climate change and environment related initiatives were again few in this year’s budget with the most material measures being announced ahead of budget night.
Its absence is notable.
The budget attempts to have something for everyone, but those waiting for a strong signal about Australia’s response to climate change will again be disappointed.
Climate Solutions Fund
As previously announced in February 2019, the new $3.5 billion Climate Solutions Fund injects an additional $2 billion into the Emissions Reduction Fund (ERF) over the next 15 years.
This ERF cash injection almost doubles the original ERF funding of $2.55 billion over the five years since 2014. The original ERF funding has contracted for 193 million tonnes of CO2 reduction to date, however, with the cheapest abatement having been taken up, we are likely to see the ERF paying more for each tonne of abatement going forward, with the new funding expected to deliver approximately 100 million tonnes of abatement to 2030.
100 million tonnes represents less than 2 percent of Australia’s emissions over this period. The mechanism that Australia will use to ratchet down our emissions remains a major unanswered question for business with many now starting to act on their own to prepare for a low carbon future.
Other previously announced components of the Climate Solutions Fund include:
- Investment in the expansion of the Snowy Mountains Scheme (Snowy 2.0) ($1.38 billion in equity over six years) and $56.0 million to assess a second interconnector between Victoria and Tasmania.
- Helping households and businesses improve energy efficiency and lower energy bills ($61 million over four years).
The budget also contains a new Practical Environment Restoration package of $137 million over four years for onground protection and restoration of the environment including $100 million to establish an Environment Restoration Fund to provide grants for a range of environmental issues.
There is rarely a day that goes by at the moment without a headline related to climate change. Whether this is the impact of a mega cyclone, a drought in regional Australia, new temperature records, energy policy debate or the embedding of climate change actions into ongoing free trade agreement negotiations.
This level of interest is appropriate and it is only going to increase with the impending federal election and the expectations that Australia’s current policies are insufficient to meet our existing emissions reduction commitments.
Next year, we will also need to show our hand under the ratcheting mechanism under the Paris Agreement which will call on us to increase (or reconfirm) our emission reduction ambitions.
However, to ready ourselves for a low carbon future and to achieve declining emissions, most businesses that we talk to merely desire clear, consistent and stable policies that will facilitate the orderly transformation of our energy, agriculture, property and transport sectors. The finance and investment community have recognised this and are swiftly reducing their exposures to heavily impacted industries and switching their investments to “new economy” sectors that are less directly exposed to climate change risks.
In addition to economic impacts, under every plausible scenario, including the achievement of the Paris target of limiting global temperature rise to well below 2 degrees above pre-industrial levels, the physical impacts from climate change will range somewhere between ‘significant’ and ‘disastrous’.
Our ability to fund these impacts such as increased reconstruction costs from storms, social costs from regions left behind from transformed or abandoned industries (such as energy and tourism) and the lower productivity from our biological resources will begin to exert a noticeable drag on our economic growth. How this plays out in future budgets, such as disaster relief levies, greater farmer assistance funding or economic hardship programs for impacted regions are issues that it seems have been left for future Treasurers to manage.