Australia's Senate voted Thursday to abolish the Carbon Pricing Mechanism, leaving the country with no active climate change policy and question marks around future action.
The Senate passed the CPM repeal bills, with 39 votes for and 32 against.
It was the fourth attempt by the Coalition government, elected last September, to ditch the so-called carbon tax. A vote last week was scuppered at the eleventh hour by the Palmer United Party senators, whose backing for the bills was contingent on rebates for consumers.
In the Senate, which was sworn in at the start of this month, the Coalition government needs six of the eight independent senators -- including the three PUP senators -- to vote with it.
But the PUP -- as well as Labor and the Greens -- favour an emissions trading system and are opposed to the government's Direct Action Plan, whereby it would purchase domestic offset reduction credits in reverse auctions via the Emissions Reduction Fund.
Legislation for the ERF has yet to be formally presented to policymakers, and both chambers are set to go on winter break once the session finishes late Thursday or Friday, until the end of August. This has led to concerns among stakeholders that the country is facing a policy vacuum.
"It is a recipe for confusion and uncertainty, and ever increasing emissions," Erwin Jackson, deputy CEO of think-tank The Climate Institute in Melbourne, said by telephone. "It leaves Australia with no real limit on emissions and no investment signal for low-emissions technology."
"The ETS debate is not going to go away -- it is only going to get more pointed through time as we see other economies come forward with post-2020 targets, and escalating climate impacts on Australia, unfortunately ... A potential policy timebomb has been created," he added.
The country's 2020 emissions reduction target, for a 5% cut from 2000 levels, remains in place. But several analysts have warned in recent months that the DAP will not be sufficient to meet that goal.
"Australia's emissions reduction task is going to intensify," said Melbourne-based Carbon Market Institute chief executive Peter Castellas. "Climate change is an economic issue and the costs of inaction will be significant."
In an e-mailed statement, Castellas called for the government to hasten its work on the design of the ERF safeguards, to ensure emissions do not rise.
"It is time now to look to the design of the Safeguard Mechanism -- especially in the context of next year's international [climate change] agreement," he said.
Phil Cohn, a director at consultancy RAMP Carbon in Melbourne, said via e-mail Thursday that while there has been some progress on the design of the Emission Reduction Fund, the devil would be in the detail.
"Without regulated caps on emissions from major energy generators and industrial emitters, there is little to no hope that Australia will be able to reach even its modest, internationally agreed targets," he said.
Rob Fowler, the Melborne-based Australia and New Zealand representative for lobby group the International Emissions Trading Association, said the reduction in energy costs as a result of the CPM repeal will be very small, especially for those industries close to natural gas prices.
He said the imminent start-up of LNG trains to serve the export market would have to buy gas intended for domestic use to ensure they can meet demand -- particularly in Asia, where gas prices are higher than in Australia.
"Coal will then become even more competitive, and gas prices will go up two or three times," Fowler said by telephone. "Wholesale electricity prices will go down a bit without carbon, but they have been coming down anyway because of [increased] renewables."
The Australian Petroleum Production & Exploration Association welcomed the vote as removing a cost facing Australian LNG exporters competing in global markets.
"Wood Mackenzie forecasts that by 2025, LNG demand within the Pacific Basin alone will outstrip supply from existing or committed LNG projects by 160 million mt," it said in an emailed statement.
"Surging LNG demand in Asia presents an enormous opportunity for Australia. But rising development costs raise doubts about the attractiveness of continued investment in Australian projects. While initiatives are being taken within the industry to address cost competitiveness, it is good to see policy action that removes costs for trade-exposed producers," it added.
