Australia's carbon price poised for bull market

Reforms look set to restore trust, significantly increasing ambition

Australia has long dragged its heels on efforts to decarbonise its economy.

However, the election of a new government in May 2022, one intent on reversing the country’s poor international standing on climate policy, looks set to spark new energy into Australia’s carbon market.

One of the first moves by the new government was to increase the country’s 2030 emissions reduction target under the Paris Agreement to 43% below 2005 levels (up from 26–28% previously), while also reaffirming Australia’s commitment to hit net zero emissions by 2050. Parliament has enshrined these targets into law through the Climate Change Act 2022.

Passing it into law, even if subsequent administrations could realistically alter it, is the most important driver of an effective climate change policy. Legally binding obligations force polluters to respond. By making carbon policy part of the legislative process it means that it is open to public scrutiny. That makes it much more difficult for policymakers to quietly drop the policy (see Commitment issues).

Australia currently operates a hybrid carbon market whereby some participants have a compliance obligation, but it is also possible for firms to participate on a voluntary basis. The system relies heavily on carbon credits to deliver the emission abatement.

However, new proposals expected to be implemented in July 2023 will seek to transition Australia’s carbon market towards one more dependent on cap-and-trade. Together with a number of other reforms that tighten the market, Australia’s carbon price could get quite interesting.

Lets dive in.