Australia's economic future depends on climate policy certainty: FSC

Ahead of Australia's federal election in May, business and finance groups have united to endorse the continued bipartisan commitment to its Safeguard Mechanism and Paris Agreement goals, according to a joint statement by the country's Financial Services Council.

The FSC sets mandatory standards and develops policies for more than 100 member companies in one of Australia's financial services sectors to support a competitive environment.

"Market confidence will be determined by secure and stable policy. The evolution of Australia's carbon policy settings to date has been pretty consistent, but our clients still worry about changes that might affect current projects," an Australia-based carbon project developer and manager said.

Australia has made notable strides in its climate response, with net zero targets firmly established and emissions on a downward trajectory.

Political uncertainty weighing market down

In the leadup to the compliance deadline March 31, market participants of the Australian carbon credit unit scheme have mostly been on the sidelines as the federal election has caused a significant slowdown in activity.

Multiple sources said there has not been a lot of activity in ACCUs recently due to the compliance deadline and regulatory developments that are obscuring market direction.

Prices across the liquid segment of the market -- encompassing Generic, Generic without avoided deforestation, and Human-Induced Regeneration ACCUs -- have also been more volatile, fluctuating between A$33-34/mtCO2e.

Platts, part of S&P Global Commodity Insights, assessed Generic ACCUs at A$34/mtCO2e and HIR ACCUs at A$34.20/mtCO2e on March 6, both unchanged on the session.

There were emerging concerns that climate change policies would not be as rigorous if the Coalition government unseats the incumbent Labor government, as they have previously declared their intention to tone down the mandatory environmental reporting requirements for high-emission industries.

"I think we've seen the last of big changes, with the removal of HIR, but we do need a commitment from the current government and the opposition party that existing ACCUs cannot be rolled back under future changes. Current projects need to be grandfathered if changes are made, and that way the market will remain confident," the developer said.

Global landscape conducive for growth

"According to the world's central banks' mid-range estimate, global GDP would be 7% higher in 2050 if emissions fall steadily to net zero, rather than if today's climate policies get no stronger. In fact, the difference could be even higher: actuaries suggest the range of credible estimates includes a global GDP benefit of 25% by mid-century and 50% by 2090," the FSC said in its statement.

Australia's Safeguard Mechanism requires facilities emitting more than 100,000 mtCO2e to keep their net emissions at or below their baselines, as both standard and landfill baselines will fall each year by 4.9% until June 30, 2030, in line with Australia's climate targets.

In 2024, global investment in the net zero transition reached $2.1 trillion, representing a 20% increase over Australia's GDP. As competition for capital intensifies on the global stage, the FSC said a credible net zero plan for Australia, an actionable 2035 Nationally Determined Contribution, and comprehensive policies will help secure its share of this investment opportunity.

Despite fluctuations in global politics, Australia's clean energy sector investments have nearly doubled compared with fossil fuels, with renewable energy accounting for 91% of new global electricity capacity added in 2023.

Almost all of Australia's key trading partners have implemented climate-related disclosure policies in recent years, signaling a global shift toward transparency and accountability in climate action.

Commodity Insights previously reported that mandatory climate reporting will commence starting Jan. 1, 2025 for the largest emitters, companies and financial institutions. These annual disclosures require them to measure and report their different types of emissions, also known as scopes.