View all services
Australia's New Climate Change Bill

22 September 2022

Australia's New Climate Change Bill

On September 9th the Australian Senate passed the Climate Change Bill 2022 (the Bill), making it the first legislative requirement regarding greenhouse gas emission reduction targets, to be passed in Australia. It is also the country’s first climate change related legislation to be passed in over a decade.

The Australian Labor Party’s Federal election promise - to achieve net zero emissions by 2050 – is captured in the Bill, setting specific long-term targets to be achieved in the next three decades. Whilst the legislation will not create a detailed plan to be enacted, it will align Australia’s climate goals with the rest of the world and demonstrate the commitment the new government has made to acting on climate change. Through this, the Australian government can signal to industry and investors that Australia is committed to decarbonising the economy, and becoming a renewable energy superpower, whilst aiming to restore Australia’s international reputation and guide future governments along the journey.

The Climate Change Bill 2022 has four main elements.

  1. Enshrines into law Australia’s Nationally Determined Contribution (NDC) of 43% emissions reduction below 2005 by 2030, and achieve net zero emissions by 2050;
  2. The Climate Change Authority, formed in 2012, will be tasked with providing advice on Australia’s progress against the targets, as well as advising on new targets under the Paris Agreement;
  3. The climate change minister will be required to provide an annual climate change statement to report on the progress to Parliament; and
  4. Key government agencies, including Australian Renewable Energy Agency (ARENA), Clean Energy Finance Corporation (CEFC) and Infrastructure Australia, will need to embed the nation’s targets into their current and future objectives and functions.

The first objective is focused on the targets that Australia must legally achieve by both 2030 and 2050. They are constructed to align with the Paris Agreement’s long-term temperature goal, with the main aim to reach the global peaking of greenhouse gas emissions as soon as possible, and to concurrently limit the global temperature increase in this century to 2 degrees Celsius above pre-industrial levels, and possibly further to 1.5 degrees. Signed in 2015 by Australia, and now encapsulating 196 countries, the Paris Agreement is a legally binding international treaty that came into force on 4th of November 2016 and requires Australia to submit an updated climate action plan – known as a Nationally Determined Contribution – every five years. As such, Australia must continually demonstrate its commitment to work towards a net-zero emissions economy. Implemented as a point target, a reduction of 43% in emissions below 2005 levels, a 15-percentage point increase on Australia’s previous 2030 target, and to achieve net zero by 2050, have been enshrined into law through the Climate Change Bill. This is following the projections from RepuTex, who was commissioned by the government to model the possible emissions impact the government’s current climate plan - Powering Australia, would deliver (the full RepuTex report can be found here). However, it is emphasised that this is a floor and not a ceiling, meaning that there is nothing to prevent the deliverance of stronger reductions in the next decade.

The second objective will require the Minister for Climate Change to annually report to Parliament regarding Australia’s progress, making them accountable for delivering these targets. Referred to as the ‘annual climate change statement’, it must cover four aspects. The first and most imperative will be relating to Australia’s achievements made throughout the year toward the emissions reduction targets. It must also cover any international developments relevant to addressing climate change, climate change policy, and the effectiveness of those policies in contributing to achieving the emission reduction targets.

Advisory functions will be restored to the Climate Change Authority, requiring it to inform the preparation of the annual climate change statement and emissions reductions targets that are to be included in a new, or adjusted, nationally determined contribution, on top of advising a new target for 2035. After its establishment in 2011 as an independent statutory body, the Climate Change Authority (the Authority) was largely relegated to the background under the coalition government, and its magnitude and influence was cut back. The Bill will increase its role to the largest it has ever been, requiring the provision of annual expert advice, conducting commissioned reviews, and undertaking targeted climate change research. Not only with reference to the government, but the Authority will also have an expanded role in assisting businesses, regions, and communities to achieve the emission reduction goals. The Bill will not only require the Authority to give the advice, but the Climate Change Minister must publish a copy of the written advice and address each element in the annual climate change statement. If the Minister does not accept one or more material aspects of the advice, they must prepare a written statement, discussing the reasons why they chose not to follow it. This does not exclude the Minister receiving other advice and giving regard to it as well. Subsequently, the Minister for Climate Change will now be accountable to the Authority and the public on their actions, or lack thereof, regarding material recommendations and advice.

The Bill will also require key Commonwealth agencies and schemes to embed the targets into their objectives and functions. In conjunction with the Climate Change Bill, the Climate Change (Consequential Amendments) Bill 2022 is also included to facilitate these provisions. The main agencies included are Australian Renewable Energy Agency (ARENA), Clean Energy Finance Corporation (CEFC) and Infrastructure Australia, largely involving amendments to the legislation establishing them. The Climate Change Authority legislation will also be updated with reference to the targets of the Paris Agreement and the new Bill, as well as incorporating these similar updates with reference to existing legislation and policies.

Similar legislative frameworks have been implemented overseas, such as in the UK, where they have played significant roles in reducing emissions, helping those countries adapt to climate impacts, increased climate ambition, and helped to remove politics from the climate change debate. Other economies worldwide have set similar targets to reduce emissions, and have increased them recently, with the EU aiming for at least a 55% reduction and the majority of developed countries promising to cut at least 50% this decade. Australia is falling behind, with 43% emission reduction target, but this is an improvement on the original goal of a 28% reduction, and amendments to emphasise that this target is a floor for Australia’s ambition encourages deeper cuts before 2030.

Whilst the Bill does not include specific mechanisms and targets, the Labor government’s climate plan, Powering Australia, outlines specific deliverables that, if achieved, will fulfill the 2030 emission reduction requirement. The plan will spur $76 billion of investment, covering three sectors: electricity; industry, carbon farming and agriculture; and transport. The major policies are ‘Rewiring the Nation’ under electricity and reforming the ‘Safeguard Mechanism’ under industry, carbon farming and agriculture. Rewiring the Nation will invest $20 billion into new electricity transmission links, bringing electricity to different regions and cities from new renewable energy zones, upgrading the electricity grid to improve efficiency and reduce the price of power.

The second major policy is to reform the Safeguard Mechanism, which was originally introduced by the Liberal government in 2014 with the purpose of limiting increases in industrial emissions, such that if a major industrial site exceeds this baseline, they will have to buy carbon offsets. This policy was not effective, as baselines were lifted to accommodate business expansion, and on top of this, the purchase of carbon offsets increased by 70% in the past year, demonstrating it has not effectively deterred industry from increasing emissions. The reformation of the policy would include new emissions limits for the country’s biggest industrial sites - those that emit more than 100,000 tonnes of carbon dioxide every year, also known as the ‘big polluters’, and as such, is the most influential aspect of the Powering Australia climate plan.

Targeting the 215 big polluters, it will include power companies, airlines, coal mines, smelters, cement producers and other large-scale manufacturers. This will involve managing new coal and gas projects, and a suggested emissions reduction target of 3.5% to 6% per year which follows the Business Council of Australia’s recommendations to create a framework to reduce emissions baselines predictably and gradually overtime.

Whilst the Climate Change Minister is aiming to have the updated safeguard mechanism in place by July 2023, there are still uncertainties regarding its impact on companies including:

How baselines will be set and enforced for existing facilities: Currently, facilities covered are afforded flexibility to choose the benchmark, an industry average emissions-intensity set by the government, or a site-specific intensity the company determines themselves. The standards decided will need to be consistent, whether it is based on one of the existing methods or a new one altogether, as this has historically contributed to ‘headroom’ - the gap between the baseline emission target, and the actual emissions of the company. It is also uncertain if the framework will remain based on emissions intensity, such that the baseline will fluctuate in line with production levels, or an absolute cap on emissions will be applied.

How new facilities will be treated: Facilities becoming covered by the Safeguard Mechanism after 1 July 2021 will be subject to the new standards. Since they will increase total industrial emissions, which have already been increasing under the current scheme, they will be subject to thresholds. But the government wants to ensure they support international competitiveness and economic growth at the same time, further fuelling uncertainty.

How credits and offsets will be traded: There is a proposal to grant companies who exceed their emission reduction baseline credits they can sell to other companies, creating a carbon trading scheme. The details of how this would operate are unclear and will require further steps to ensure the cuts are real, given the fact facilities largely report their own emissions. Another concern is how many credits and offsets a business can buy to claim as their own cuts. This would determine whether companies must cut emissions onsite or if they can offset all their requirements.

Whilst the Bill has passed through both houses of parliament,  the real challenge remains, as practical action must now be taken to reduce Australia’s emissions and make a material impact on climate change.

Multiple members of parliament still have concerns over the current misalignment of actions, as commitments to climate reductions are made for existing facilities but there is still policy for considering the impacts of new coal and gas projects. The Australian Greens want to address this, suggesting the introduction of a ‘climate trigger bill’, requiring the government to analyse the emissions of new fossil fuel developments, proposing to ban those that would emit more than 100,000 tonnes of carbon, and require environmental assessments of projects which would emit between 25,000 and 100,000 tonnes. The Greens have other concessions to strengthen Australia’s impact, including for the government to achieve 2030 reduction targets of 75%, and net zero by 2035, to align with the 1.5-degree cap on temperature increase rather than 2 degrees. They also request the government to sign up to the Global Methane Pledge and amend the Renewable Energy (Electricity) Act 2000 so that native forests cannot be burned as a ‘renewable’ energy source.

Whilst the Climate Bill itself is not a specific and detailed plan to reach net zero emissions, it does put into law an emissions reduction target that is based on the best available scientific knowledge, reputable modelling and that it is a minimum standard. It also reduces the risk of chaotic climate policy making, developing consistent measures, and thereby reducing investment risks and costs across Australia. Whilst it is not an ambitious target, there are still uncertainties around how net zero will be reached and whether the targets will be sufficient to align with the temperature goals of the Paris Agreement.

Nonetheless, the Bill will commit governments to consistent action against climate change, providing a floor for achievements and holding the government accountable. Now, the government must take immediate action to begin a trajectory of steep emissions reductions.

Download now
For further inquiries
Contact us
Contact us

Please complete this form to be contacted by a Morrow Sodali representative.