If the PM refuses to commit to net zero by 2050, it’s not inner city types who will miss out but Australian farmers denied the carbon storage business opportunities of the lower-emissions global economy.
As Prime Minister Morrison dials into President Biden’s climate summit this week, he can seize a one-in-a-century opportunity for Australia, or he can place our country in long-term economic jeopardy.
Most of our major trading partners have committed to achieving zero net emissions by 2050 or earlier, with China at net zero by 2060. Australia has not done so.
In the last few days, the United States and China have agreed to work together and with other countries to raise ambition and strengthen implementation of the Paris Agreement.
If our major trading partners continue to consider Australia lacks ambition on emission reductions, and their ambition is backed by actual policy, they will not tolerate the undercutting of their clean-energy industries by our emissions-intensive exports.
Already the European Union is developing a carbon border adjustment mechanism, scheduled to start in two years’ time, that will apply carbon levies to imports of goods whose production is emissions intensive.
While Australia doesn’t export large quantities of emissions-intensive goods to the European Union, China, as our largest trading partner, does – and China uses lots of Australian fossil fuels. As European industries switch to clean-energy technologies, they will apply carbon levies to emission-intensive imports from China, which will reverberate back to Australia.
Economic modelling for a recent Melbourne Economic Forum https://www.afr.com/policy/economy/china-s-net-zero-target-to-hit-gas-coal-exports-but-boost-iron-ore-20210407-p57h6v suggests that implementing China’s own target of zero net emissions by 2060 would slash the country’s import demand for coal and gas by more than 65 per cent.
Japan and Korea have committed to net-zero emissions by 2050 and they are already looking to Australia to partner with them to accelerate the development and application of new clean-energy technologies.
If Australia was to join with other countries in lifting its ambition, it could become a powerhouse for exporting goods produced by clean-energy technologies as well as selling lucrative carbon credits.
Australia’s potential as a clean-energy superpower has been canvassed widely by Professor Ross Garnaut and others. Integral to that future will be the production of hydrogen from hydrocarbons with carbon being captured and stored, and from renewable energy. Both pathways are designed to deliver zero-emissions hydrogen.
Australia’s abundance of solar and wind power offers us a strong competitive advantage in the production of hydrogen and from it, clean steel and aluminium, which would be a boon for regional Australia.
Our farmers, too, can be big winners from decarbonisation. Of special relevance to them in any policy of zero net emissions is the word “net.” Countries do not necessarily expect to be emitting no carbon in 2050 but to be emitting none in net terms.
Their remaining emissions, therefore, will need to be offset by carbon storage through nature-based and geological methods.
Australia’s vast endowments of land could be utilised to absorb carbon from the atmosphere through agricultural, forestry and other land-use projects. By cultivating mulga, brigalow and other vegetation, as well as other ways of storing carbon in soil, our farmers could generate valuable carbon credit units that could be traded internationally.
Already Australian farmers are generating carbon credit units that are being purchased by Australian businesses and governments that want or need to offset their emissions.
Australia also has the geology for large-scale carbon capture and storage. Last September the Prime Minister promised a methodology for this technology to generate Australian carbon credit units within a year.
At present Australian carbon credit units are fetching at home around A$19 per tonne of carbon sequestered.
But in the European Union the going price of a carbon credit unit is 45 Euros, which is around $A70.
Yet Australian farmers cannot sell carbon credit units in the European Union or anywhere else for that matter.
The integrity of Australia’s carbon accounting system and of our Clean Energy Regulator would offer a competitive advantage for Australian carbon credits units in an international carbon trading system, whether global or bilateral.
Australia is seeking to negotiate a free-trade agreement with the European Union. But the Europeans are not interested in including trade in Australian carbon credit units at this stage, concerned that we might simply increase our emissions elsewhere in the country.
Japan and Korea are more prospective purchasers of Australian carbon credit units. Neither has opportunities for large-scale carbon sequestration and both are vulnerable to trade restrictions on their exports to high-ambition countries of manufactured goods such as vehicles and machinery.
While the Biden summit will not be make-or-break for Australia, it will be followed by a G7 meeting hosted by Britain’s Prime Minister Boris Johnson in June, to which Australia has been invited, and the next United Nations Climate Change Conference in Glasgow in November.
If Australia refuses to commit to net zero emissions by 2050, our export industries will not only be hit by new trade restrictions, but our regional and farming communities will also miss out on enormous new business opportunities.
Continuing to be seen as a climate-change laggard is not just bad policy for Australia it will become increasingly bad politics for the Coalition government.
Craig Emerson managing director of Emerson Economics, is a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT and adjunct professor at Victoria University’s College of Business.