On December 22 the Climate Change Authority released its second review of the Renewable Energy Target and the Carbon Farming Initiative.

The next day the National Greenhouse Accounts were released, showing that annual emissions for the 2013/14 financial year fell 1.4% to 542.6 megatonnes of CO2 equivalent (excluding the land sector). It sparked a political tit-for-tat as Labor claimed credit via the carbon price and the Coalition said it reflected the slowing economy.

The data provides few clues. With the biggest drop coming in the electricity sector, down 4% to 179.4Mt and industrial emissions down 1.3% to 31.7Mt, the results could be argued either way. Waste emissions did not change.

While the 10-millionth Australian Carbon Credit Unit was issued under the CFI in late November, the CCA review concluded “participation has been lower than it might have been” due to policy uncertainty driving down credit prices and deterring participation, gaps in coverage and relatively high transaction costs.

Rolling it in with the new Emissions Reduction Fund in November will fix some of those issues, but the CCA is sceptical about the scheme.

While noting there have been no auctions and the details of the potentially significant “safeguard mechanism” have still to be disclosed, it concludes that “on the basis of its current configuration and funding … the authority considers it unlikely the ERF would deliver even the minimum 5% target without significant complementary action, such as purchases of appropriate international permits and the maintenance of a robust RET”

It also raises a warning about the complexity of assuring any carbon abatement is truly additional to business as usual. It recommends enhanced “additionality” tests for individual projects that would generate a large volume of credits and, even more boldly, it calls for an independent and periodic review of “the ongoing appropriateness of the ERF for achieving emissions reductions in particular situations”

No wonder the federal government wants to axe the authority. The RET review was no more welcome, concluding the large-scale target should not be reduced but instead re-phased slightly to increase the chances that it can be met.

The CCA reiterated its 2012 view that the RET was not as good as an approach targeting different types of electricity generation on the basis of their emissions intensity – in other words a broad-based price signal – but said it was the best option currently available.

“The authority finds that, while the RET arrangements are not perfect, they are effective in reducing emissions at reasonable cost in the centrally important electricity sector, and are the only currently prospective policy instrument in the electricity supply sector that can be relied upon to deliver sizeable volumes of emissions reductions,” it said.

Given the sharp decline in investor confidence, the resulting slowdown in renewables investment and the further reduction in projected electricity demand, the government should defer the 2020 target for the LRET by up to three years.

Subsidising household PV under the small-scale Renewable Energy Scheme is a relatively expensive way to reduce emissions in the electricity sector, but the authority has not recommended any changes, largely because SRES assistance will shortly begin to phase out and the overall costs are relatively modest.

Longer term, it believes that increases in, and extensions of, the existing RET targets should remain an option in the period beyond 2020, as should expanding arrangements to cover a wider set of technologies.

The Palmer Review

The CCA will conduct a special review to assess whether Australia should have an emissions trading scheme, as well as what post-2020 targets it should set and what actions Australia should take to implement outcomes flowing from the seminal UN climate change conference in Paris late next year. It is the price that must be paid for winning the support of the Palmer United Party to close down the carbon price mechanism.

In a short letter to CCA chair Bernie Fraser, Hunt asked the CCA to consider whether other countries, including the US, China, Japan, South Korea and the European Union, had climate policies that were equivalent to an emissions trading scheme. It will publish three reports:

• A draft report on future emissions reduction goals (by June 30);
• A draft report on emissions trading schemes by November 30; and
• A final report by June 30, 2016 recommending the action Australia should take to implement any obligations agreed in Paris.

The authority will release further information on the process in early 2015, including consultation.