ANALYSIS: Would a change of government in Australia impact the country's carbon credit market?

Quantum Commodity Intelligence - Australian opposition leader and prime minister hopeful Peter Dutton has called the government's reformed emissions compliance scheme a "carbon tax" and labelled its 2030 emissions targets "unachievable", but has not fully laid his cards on the table when it comes to climate policy.

Dutton is the leader of the Liberal party, which along with the National party, forms the main opposition Coalition and is challenging the incumbent Prime Minister Anthony Albanese for the top government post.

Australia is due to hold a federal election on or before May 17. Conservatives have taken over power in several democracies over the past year, most prominently in the US, questioning climate policies and the economic burden imposed on voters.

A look at Dutton's policies shows a nuanced picture, with criticism of some climate policies, but an overall commitment to net zero.

Elected to the parliament eight times starting in 2001, he has served at various ministerial positions, with the last one being the minister for defence.

Leading

The Coalition has been leading the Labor party by a small margin in the latest opinion polls, with Albanese seeing a dip in ratings.

Further, the environment has taken a back seat among voters, with the rising cost of living, a brewing housing crisis, as well as law and order becoming the biggest election issues.

Dutton, a former police officer, has kept the country in suspense by refusing to clarify whether a potential Coalition government would abandon the country's 2030 target or roll back reforms to the emissions compliance scheme, called the Safeguard Mechanism (SM).

Australia targets a 2030 emissions reduction of 43% below 2005 levels in its National Determine Contribution (NDC) under the Paris Agreement on climate change.

"The government's changed the SM into a new carbon tax — one that is three times higher than that proposed by Julia Gillard," Dutton said in a speech in 2024, referring to the levy imposed by the former Labor prime minister in 2012. Dutton claims that this "tax" has driven up the price of groceries and electricity.

Originally created by a previous Coalition government, SM was further tightened by the Labor government in its current term with crucial support from the Australian Greens party in the Senate.

Dutton has also blamed the Labor's policies for job losses and slowdown in project approvals within the resources sector, which mostly includes mining as well as oil and gas.

"A Dutton coalition government will be the best friend of that the mining and resources sector in Australia will ever have," he said in September 2024.

Dutton has stressed that Australia's strength lies in legacy sectors such as iron ore, coal, gas, and uranium, and has attacked Labor's policy to subsidise renewables.

However, the Coalition's official energy policy continues to provide room for renewables and wants to move away from the current government's "all-eggs-in-one-basket approach", it said.

"We believe in using a mix of technologies — renewables firmed by gas and nuclear," Dutton has said. He has also excoriated the country's recently enacted climate disclosure rules, calling them "more draconian than anywhere in the world".

Net zero

When asked about potential changes to the 2030 NDC target or a potential 2035 NDC target that his government will need to decide if Coalition wins the elections, Dutton has said that the party doesn't have the resources to model such scenarios currently.

He, however, remains committed to Australia's net zero goal by 2050.

While slamming the reformed SM, the Coalition has so far refused to clarify whether it will make any specific changes to the scheme.

"I suspect loosening the rules, primarily the rate of decline in the emissions cap, could be done by a Coalition government although that would depend on the makeup of the parliament," said Tony Wood, programme director, energy and climate change at the Grattan Institute, an Australian think tank.

Some of the SM's rules related to baselines, such as decline rate, emission intensity value, as well as zero reservoir emissions for new gas fields, could be amended by the respective minister without having to go through parliament, said Elisa de Wit, a partner at law firm Norton Rose Fullbright Australia.

However, the reformed Safeguard legislation also requires that SM emissions fall to no more than 100 million tonnes of CO2 equivalent by 2030.

"Accordingly, if the Coalition sought to amend the baselines or the way net emissions are measured which was inconsistent with the Safeguard outcomes, I think that would present problems for them," De Wit said.

The other option would be to amend the legislation, but that would be "extremely difficult" as the Coalition would be unlikely to receive support from Labor, the Greens or independents, she added.

Ted O'Brien, the Coalition's shadow minister for climate change and energy, said in late October that the opposition had no "in principle problem" with the Australian Carbon Credit Unit scheme but added that it was not "sufficiently effective" and developments were "stalling".

Australian carbon market participants have raised concerns about the slow development of new methodologies as the older ones expire, leaving them little room for the registration of new projects.

While Dutton has remained committed to Australia's net zero target by 2050, the country's industries would not get to know what the Coalition's SM policy and NDC goals are until after the elections.

"The current (NDC) target is roughly in line with net zero by 2050. So, doing less early and more later both increases emissions in the short term and means harder action later, remembering that the key commitment is the carbon budget," Wood said.

At the same time, industry participants are worried that a watered down Safeguard Mechanism could lead to more companies abandoning their individual climate targets.

Sydney-based Macquarie has become the first big Australian financial institution to leave the Net-Zero Banking Alliance, following the exit of a string of large US banks earlier in the year.

"There have already been calls from some businesses and their industry associations to slow down on emissions reduction and renewable electricity targets and I would expect that noise to increase," Wood added.