Anthony Albanese’s Greens deal risks power and prosperity
It wasn’t quite the embrace we saw between Julia Gillard and Bob Brown in 2010 but make no mistake, the deal struck between Labor and the Greens this week means energy in Australia will be more expensive and less secure.
The world has changed a lot since 2010 when Julia Gillard did her fatal deal with the Greens to introduce a carbon tax that broke a promise and sealed her government’s demise.
There was no keen embrace between Anthony Albanese and Greens leader Adam Bandt this week as they agreed to introduce Labor’s signature climate policy, a revised safeguard mechanism.
The Prime Minister declared it was “a great day for our environment, for jobs, and for the economy. A good day for manufacturing, but a good day as well for all those who voted for a government to take action on climate change last May.”
But there was no dancing in the streets.
The Greens dropped their demand for no more coal and gasmines but booby-trapped the exits. It is no longer business as usual for fossil fuels and the world is starting to take note. But not always in a good way.
Bandt boasted the Greens had secured a “safeguard pollution trigger” to stop coal and gas projects. “For the first time in history, the government must assess the impact new coal and gas projects have on the climate, and can stop them,” he said.
Chris Bowen is leaving the door ajar but there will be big and lengthy tests applied to new projects when the need for energy security is at a premium, both here and overseas.
The industry is in retreat from waves of impositions and restrictions, and environment groups are gearing up to double down in preparation for Australia hosting a meeting of the UN Framework Convention on Climate Change Conference of Parties in 2026.
The nature of negotiations between the Greens and the Labor government has left the environment movement split. Many had worried the Greens would refuse to budge on their demands and repeat the disaster of the Rudd government’s carbon trading plan, the carbon pollution reduction scheme.
With the Albanese government’s legislation now in place there are bitter recriminations about those who lost their nerve. Tasmanian Greens senator Nick McKim said the environment movement had to “collectively get its shit together”.
Having signed up to Australia achieving a net-zero target for carbon dioxide emissions by 2050 the federal opposition is conflicted on the issue but refusing to support Labor’s amendments to the safeguard mechanism that it introduced. Opposition energy spokesman Ted O’Brien says the deal will make energy more expensive and gas more scarce.
“Prices will go up, investment will go down and emissions will be sent offshore and multiplied,” he says. “The Australian people lose out of this and so does industry.”
Despite some waverings, Peter Dutton was able to force a united position by the Coalition against the revised safeguard changes in parliament.
Nonetheless, Tony Abbott says there has been a loss of fight on the issue among conservatives.
“The recent (NSW) state election was a case in point, with neither side interested in keeping reliable, affordable fossil fuel power in the system,” the former Liberal prime minister says.
“No one seemed to be interested in keeping Eraring open or in getting the Narrabri gas field out of planning limbo, yet we need both if we are to keep the lights on and remain a country that makes things. The Coalition wants to get emissions down, everyone does, but there has to be this proviso: provided it’s done in ways that don’t cost jobs or put heavy burdens on people’s cost of living.
“Frankly, I’m amazed that neither side of politics has committed to removing the ban on nuclear power on land, now that both are happy to have it at sea.”
Senator Matt Canavan says the original sin of Labor’s climate policies is that it will make energy more expensive by restraining the supply of energy. He says the Labor-Greens deal this week imposes a “hard cap” on new energy production and that will only increase prices.
He says both sides of politics face the pressures of being pulled left by an inner-city elite out of touch with the struggles of most people, and that elections will be decided by whatever party can demonstrate they are on the side of the majority who just want help to pay their bills.
“The next election will be won by the party that convinces people they can help them pay their bills” Canavan says. “Labor’s new carbon tax amounts to a ‘hard cap’ on new energy supplies and therefore can only increase the cost of living. The Liberal and Nationals have the opportunity to argue to remove the carbon tax levy on everyone’s power bills and provide help.”
When the vote was finally taken in federal parliament on the safeguard mechanism it passed by 89 to 50 votes, with Labor, the Greens and most independents supporting it. The Coalition and Bob Katter voted against it. Tasmanian Liberal Bridget Archer abstained.
Passage of the revised safeguard mechanism was overshadowed in parliament by the introduction of a bill for a referendum for an Indigenous voice to parliament, Albanese’s other project of ambition. Both things, the safeguard mechanism and the voice to parliament, have the potential to radically change the way that Australia is governed and perceived.
Superficially, they are a demonstration of good heart, a nation wanting to play its part in the global demands for equity and making amends for historical actions to make a better future. But both could make the nation less efficient, more bureaucratic and overly governed for intangible benefits with potentially large collateral costs. The safeguard mechanism will be a slow burn as what is now a fixed rate of total emissions is progressively reduced to meet the net-zero target by 2050.
The country’s biggest emitters will be required to reduce their emissions by 5 per cent every year. If emissions cannot be avoided they must be offset by buying permits not needed by other companies or generated from activities including tree plantings and land repair.
Potential fossil fuel projects will be put to a higher and sometimes impossible test.
The electricity sector is excluded from the safeguard mechanism but the energy sector is not. Industries such as steelmaking, aluminium and cement-making will receive government support to aid the transition.
Eventually they may be protected through a new carbon border adjustment mechanism, another sign the world is returning to protectionism and trade barriers under cover of doing environmental good.
Big companies that have made a virtue of promising to reduce their carbon dioxide emissions must now deliver.
Australian Industry Group chief executive Innes Willox says the passage of the government’s safeguard mechanism reforms through the parliament is a major step in Australia’s transition to net-zero emissions, but there is still much work to be done. He says the legislation delivers a measure of much-needed certainty that Australia is serious about its emissions goals and the centrality of competitive industry to achieving them. “Maintaining and building our competitiveness is crucial both to our prosperity and our ability to deliver a net-zero emissions economy,” Willox says.
“Improved measures in the package recognising the importance of manufacturing are welcome. The government’s review of a carbon border adjustment mechanism will be important to balancing competitiveness with deepening emissions targets.”
The Carbon Market Institute, which will play a key role in developing a carbon trading market, says the passing of the strengthened safeguard mechanism bill comes after 10 years of political division and delay and marked “an historic day for climate policy progress in this country”.
But CMI chief executive John Connor says there is more to be done. “This is only a starting point in urgently addressing industrial sector decarbonisation, and must be a springboard for greater action, as well as scaling to other sectors over time,” Connor says.
“It also cannot operate in isolation. It must be accompanied by other policy measures to address Australia’s broader structural transition, such as the need for a formal independent transition authority and mandatory transition planning.”
The mining industry says it is moving towards net zero but the challenges to meet the safeguard mechanism shouldn’t be underestimated.
“If we are not careful, some facilities in Australia will close,” the Minerals Council of Australia, the mining industry’s peak lobby group, said after the deal had been done with the Greens. “Not only would that damage our economy and slash tens of thousands of regional jobs and billions in investment, it also would push the emissions reduction burden on to other nations that are less able or less willing to decarbonise.”
The biggest concerns are being expressed by those in the coal and gas sector, who are warning the changes will drive up energy prices, destroy Australian jobs and kill off foreign investment.
Whitehaven Coal chief executive Paul Flynn warns the Greens’ amendments put Australia at a significant competitive disadvantage internationally and create new risks for energy security for key strategic partners.
These fears were highlighted on Thursday by Takayuki Ueda, the head of Japanese gas giant Inpex, who highlighted the rising level of sovereign risk in a country that had been a dependable investment partner. Ueda’s speech came as the company celebrated its 500th LNG cargo from the firm’s Darwin port.
Japanese ambassador Shingo Yamagami endorsed the Inpex president and warned the “neon lights of Tokyo” would go out if Australia stopped producing energy resources. He said the transition towards net zero could not be achieved “overnight”.
The Albanese government is playing down the impact the redrafted safeguard mechanism represents for the gas and coal sectors. But it is only the latest in a string of actions taken by government that has made exploration and production more difficult, increased sovereign risk and taken the ALP further away from its election campaign promise to reduce energy bills for households and industry.
Gas industry lobby group the Australian Petroleum Production & Exploration Association says new gas supply investment needs policy and regulatory certainty but, instead, the Labor-Greens deal creates additional barriers to investment and adds to the growing list of regulatory challenges.
There is plenty of uncertainty for future coal and gas developments in how the revised safeguards mechanism will work. A pollution trigger in the safeguard mechanism bill will require the climate change minister to test a new or expanded project’s impact on the hard cap and net carbon budgets. The minister’s action or lack of action would be subject to legal enforcement, which means it could open the way for long delays in the courts. A best practice test that will be applied for new projects demands that gas developments will have zero emissions.
According to Bowen, future projects will have to invest in onsite abatement with the technology available to them or offset that. “Companies will have to factor that into their investment decisions,” he says. “But that’s quite appropriate for our country.”
Our trading partners are looking at events unfold and wondering where it will end.
Ueda says “changes we are seeing to Australian policy settings will choke investment and strangle the expansion of LNG projects in this country”: “Australia may be a lucky country but needs to recognise it is in a global competition. The race has started, and Australia already lags far behind.”
The government does not seem to be listening. Already there are moves to lift taxes further on windfall profits for gas producers in the May budget.
There is a salutory lesson to be learned from Britain, where the government is looking to quickly withdraw a windfall profits tax imposed on North Sea oil and gas producers because investment has collapsed. Warnings from Japan add a new strategic layer to how Australia moves forward on its path to net zero.
Ueda warns that Australia’s “quiet quitting” of the LNG business has potentially very sinister consequences.
“The question of who will replace Australian supply into the market is front and centre,” he says. “Alarmingly, the inconvenient truth is most likely that Russia, China and Iran fill the void.”
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