Political settlement on climate as 2022 election firms

Trade and security concerns drive Australia’s political settlement on climate as 2022 election firms

The Morrison Government’s peace deal with Nationals on a 2050 net-zero emission target is an historic political settlement on a politically divisive issue. It is being driven by a mix of climate and energy policy and growing strategic trade and security tensions, with the timing forced by the upcoming COP26 Global Climate Summit in Glasgow.

The reality is that Australia could no longer go it alone on climate policy in the face of the escalating threat of trade bans – carbon adjustment tariffs particularly from the EU – and the need to stay close to US and UK allies as geo-political tensions rise.

To have turned up empty-handed in Glasgow would have been a huge political disaster for Australia that risked estrangement from its trade and new AUKUS security partners at the worst possible time.

It’s as much playing to an international audience, and UK PM Boris Johnson, who’s hosting Glasgow, has already hailed the Australia decision as “heroic” considering its extensive carbon resources.

Scott Morrison flagged there would be further announcements in the Federal Budget next year, all but confirming a Federal Election is likely in April or May 2022.

Nationals grudgingly accept political reality.

The bottom line is that the National Party leadership has accepted the political reality and tried to carve out the best possible deal, however there will be hold-out MPs in regional Queensland who will campaign against it, particularly to fend off far-right challenges from One Nation and Clive Palmer’s UAP.

The details and generosity of this deal are yet to emerge but the Nationals have Resources Minister Keith Pitt back in Cabinet to keep a closer eye on how climate policy proceeds. There was no announcement about the so-called “peace plan” with the Nationals which is yet to come and will reportedly include a “regional Australia future fund”.

Evolution, not revolution – the election pitch.

In the face of these pressures, the Federal Coalition has sought to pull together an electorally saleable approach to Middle Australia. It balances growing domestic political support for action on climate change while seeking to protect its strategic resources and agriculture industries.

Prime Minister Scott Morrison is not promising an energy revolution. Rather, he is positioning a careful evolution that seeks to contain the household costs of transition and protect jobs but which will anger those who believe the world is running out of time on global warming.

Emissions targets will not be legislated.

The Federal Government will not legislate the net-zero 2050 emissions target – which avoids a potentially politically damaging vote in the Parliament – and will not take a new 2030 interim target to Glasgow.

But it will release figures that show Australia is on target to cut emissions by up to 35% by the end of the decade, substantially beating its original 26 to 28% commitment, and bettering those of many of its trading partners.

These will be the baseline National Determined Contributions (NDCs) that Morrison will take next week to Glasgow where there will be pressure for not only more ambitious targets, but also possibly legally binding agreements.

Morrison doubles down on technology solutions.

Today’s announcement focused on the Federal Government’s existing policies including a $20 billion technology investment fund aimed at low emissions, especially hydrogen, ultra low-cost solar, energy storage, low-emissions steel and aluminium production, and support for carbon capture and storage; and the development of carbon offsets in the agriculture industry.

The $20 billion technology investment fund is designed to act as a catalyst for an additional $60 billion to $100 billion of state government and private sector investment in research deployment, demonstration and commercialisation. There will also be support for Electric Vehicles, as pressure for emissions reductions move from the energy sector to transportation.

The Coalition and Labor have pledged a hands-off approach to coal and gas exports but there is growing understanding these industries have to change to continue to access financing and trade their commodities.

Industry policy that backs “winners” is back.

Energy and industry policy is merging with a more interventionist “picking winners” approach that overturns the market-based approach dominant since the 1980s and 1990s.

This approach is designed to ease political pressure on rural and regional communities who will largely bear the burden of the transition. As a fail-safe, the Productivity Commission will conduct a 5-year review of the net zero target’s impact on regional Australia, enabling a pause if costs are outweighing benefits.

Also influencing outcomes is ESG-driven capital markets outpacing government policy. This is impacting investment decisions and debt and financing allocations for carbon-based industries.

Scott Morrison’s big gamble.

The Federal Coalition is taking a considerable gamble with this climate target announcement as it risks politically landing in “no-mans” land, shot down by the Left and Right for not going far enough, or too far.

It’s certainly not expected to end the Climate Wars.

Scott Morrison is gambling that Middle Australia will respond favourably to practical measures that assist people in making their own personal energy choices in home solar and batteries while seeking to protect the community from any potential energy or economic shocks. Polling finds growing support for action on climate change but there are questions as to how much Australians are willing to pay.

Labor is unlikely to commit to targets that step too far away from the Coalition’s policies, other than legislating the 2050 target.

Election battlegrounds.

The key battlefield seats on climate will be:

  • The Central Queensland coal belt seats of Flynn, Capricornia and Dawson where One Nation, Clive Palmer’s UAP, and Bob Katter’s KAP will seek to capitalise on any backlash; and
  • Blue ribbon Melbourne-based Higgins, Kooyong and Flinders, and North Sydney where incumbent Coalition MPs are facing “Independent Progressive” campaigns funded by environmental activist Simon Holmes à Court and other groups.

The unresolved political question is how much climate change will bite during a Federal Election campaign next April or May when people’s focus is likely to be on rebuilding after the last two years of the COVID pandemic.

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