Businesses back emissions caps as IMF says the world needs a carbon price

Business groups are backing limits on carbon emissions to drive the green transition to net zero, as the International Monetary Fund (IMF) says the world needs a price on carbon and global leaders must deliver it together.

But the federal government is ruling out both carbon caps and a carbon price in its plan to achieve Australia’s new net zero by 2050 emissions target.

The IMF has told the world’s richest nations they must set a minimum price on carbon to ensure businesses are guided to make the emissions cuts needed to hit net zero within 29 years.

Prime Minister Scott Morrison has ruled out imposing a price or cap on carbon emissions.

Prime Minister Scott Morrison has ruled out imposing a price or cap on carbon emissions. Credit:Alex Ellinghausen.

“One thing is clear: putting a robust price on carbon lies at the heart of any comprehensive policy package,” IMF managing director Kristalina Georgieva told a meeting of G20 leaders in Rome on Wednesday night.

“Here G20 leadership will be critical, particularly when it comes to building support for an international carbon price floor. Moving together could also help overcome political constraints.”

Prime Minister Scott Morrison flies out for the G20 talks on Thursday before he heads to the Glasgow summit on Monday.

This week he said no caps or charges would be used to force companies to reduce their carbon footprint, as he announced the government’s investment road map would invest more than $20 billion of public funds in low emissions technologies. Mr Morrison has backed his “technology not taxes approach”, which he says will enable businesses and individuals to choose green alternatives.

But Australian business and industry groups say the existing Safeguard Mechanism, which sets a carbon emission baseline limited to the nation’s 200 biggest polluters, should be strengthened with caps or hard limits to drive business investment in green technology.


AiGroup principal national advisor Tennant Reed said Australian emissions targets “need to be clear if they are to assist decisions by business”.

“Many businesses look to the existing emissions Safeguard Mechanism, which could be built on to drive emissions cuts in large facilities while preserving competitiveness,” Mr Reed said.

Earlier this month the Business Council of Australia (BCA) called for the federal government to lift its 2030 emissions reduction target to between 46 and 50 per cent below 2005 levels.

“[Australia should] enhance and expand the role of the Safeguard Mechanism to deliver a strong carbon investment signal to invest in new low, zero and negative emissions technology,” the BCA report said.

The Carbon Market Institute’s survey of 409 large carbon-emitting businesses and investors found 79 per cent back tightening the caps under the Safeguard Mechanism, and 54 per cent are already factoring in a carbon price.

However, companies can currently apply for exemptions and carbon credit consultant Reputex found in April the Safeguard Mechanism had failed to lower emissions for carbon-intensive industries.

Instead of imposing carbon cuts or a price, the government has pledged a $20 billion taxpayer-funded investment to commercialise lower emissions technologies, from which it expects to generate between $60 billion and $100 billion in private spending.

A carbon price is a cost per tonne for the greenhouse gases industries emit. A carbon cap is a legally enforceable limit on the volume of emissions.

United Nations secretary-general Antonio Guterres said on Tuesday the current global commitments to cut emissions were insufficient and the world is on track for a “catastrophic global temperature rise of around 2.7 degrees” and it was “clear” nations must price carbon to decarbonise the economy.

Australia installed an emissions trading scheme after Kevin Rudd and John Howard both backed it at the 2007 election, but it was removed under then-prime minister Tony Abbott in 2014.

The government’s road map says the $20 billion spend won’t be enough to eliminate emissions. The plan assumes there will still be more than 100 million tonnes in annual emissions that must be offset for the country to achieve net zero by 2050.

Grattan Institute energy policy director Tony Wood said going green will “have to be paid for”.

“That money has to come from somewhere. Either the government pays for technology and offsets, or the taxpayer and consumer does,” Mr Wood said.

Mr Morrison attacked the opposition during the 2019 election campaign for not releasing modelling of the economic impact of its climate targets, which were to hit 45 per cent emissions cuts by 2030 and net zero by 2050.

Federal Treasury officials told Senate estimates on Wednesday Treasury had not modelled the effects of climate change and emissions reductions on the nation’s economy for years and revealed its limited involvement in the government’s new plan for net zero by 2050.

Modelling has been prepared by the Department of Industry, Science, Energy and Resources and global management consultants McKinsey & Company and Mr Morrison said on Wednesday it may not be released to the public for a “couple of weeks”.

Energy Department officials revealed to an Estimates hearing on Monday that economist Brian Fisher, whose work the Coalition used to slam Labor’s climate change policy in 2019, was paid about $100,000 to review the government’s new modelling.

A group of global investors a combined $US52 trillion of assets under management called on nations to commit to ambitious carbon cuts to limit global warming to 1.5 degrees, cutting carbon pollution 45 per cent by 2030 based on 2010 levels. Australia’s has a less ambitious goal with its commitment to cut emissions at least 26 per cent by 2030, based on 2005 levels.

“We believe that those who set ambitious targets in line with achieving net-zero emissions, and implement consistent national climate policies in the short-to-medium term, will become increasingly attractive investment destinations,” said a joint statement from the investor group that includes huge funds such as Barclays, UBS, Zurich Investments, and PIMCO, as well as giant retirement and church pension funds.

Ms Georgieva said IMF analysis had found projects that increased energy efficiency and transitioned to renewables could be a net job creator, noting that in many cases they were more labour-intensive than fossil fuels

In line with the federal government’s own analysis of its emissions plan, she said a comprehensive investment plan on green energy could lift global GDP by 2 per cent this decade and create 30 million new jobs. But those initiatives needed a carbon price to help drive investment.

Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via Twitter or email.
Shane Wright – Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via Twitter or email.

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