As China launches a national emissions trading scheme, Australian states threaten to go back to the future

China has added itself to the list of countries prepared to price carbon. Of course, Australia knows more about putting a national price on carbon than almost any other country. And it also knows about dismantling such a price.

But what is perhaps less well-known is the significant role the Australian states and territories have played in carbon pricing. Based on reports earlier this month, it’s conceivable that they could play such a role again.

South Australia’s environment minister, Ian Hunter, reportedly said last week that, while the state “had always supported” a national emissions trading scheme (and it has), it “could act unilaterally if it were necessary” (and it can).

Hunter said that the SA government was gathering information about state-based schemes and that – more interestingly – he had earlier raised the prospect of an “interstate ETS” with his counterparts from New South Wales, Victoria and Queensland. He claimed that those ministers were supportive of his idea.

It was further reported that Hunter had requested information about state-based and provincial schemes such as those operating in California and Quebec.

He has now backed away from these comments, and South Australian Premier Jay Weatherill subsequently stated that there were “some very substantial constitutional barriers which would prevent us from introducing such a scheme” – which there really aren’t.

Australia’s tortured history of carbon pricing

Carbon pricing in Australia has a tortured history and it begins – and perhaps ends – with significant state action.

The “constitutional barriers” to which Weatherill referred are not as substantial as he makes out. Australian states are generally free to enact their own climate and emissions-related legislation, and have done so in the past: NSW implemented its Greenhouse Gas Reduction Scheme (GGAS), which closed in mid-2012, and Queensland ran its 13% Gas Scheme until the end of 2013.

In fact, by the time Australia’s first proposed national emissions trading scheme was announced in 2009, hundreds of climate and energy-efficiency schemes were already running all over the country. This was mainly because the states and territories had filled the policy void left by the Commonwealth’s slow progress on the issue.

Then, in anticipation of a national emissions trading scheme, state governments began to wind up or roll back their own climate programs, to avoid duplicating the anticipated Commonwealth one. Of course, that program, the ill-fated Carbon Pollution Reduction Scheme, didn’t make it through the Senate. We had to wait until 2011 for its successor, the Clean Energy Act, which was itself dismantled in 2014 to make way for the current Emissions Reduction Fund (ERF), which is not based on emissions trading.

So it is clear that Australia has failed to implement and maintain a national price on carbon, although goodness knows it can certainly plan for one.

Without an ETS or a carbon tax (and there are real advantages to a carbon tax over an ETS) at the national level (the ERF is hardly a substitute), why shouldn’t the states take action again and introduce their own carbon pricing scheme without federal involvement? After all, it has been done before.

Collective state-based climate action

In 2004 all of the Australian states and territories formed a National Emissions Trading Taskforce to develop a model for a national ETS. In August 2006 the taskforce released a discussion paper, ahead of a 2007 report from the Prime Ministerial Task Group on Emissions Trading.

The discussion paper detailed the states and territories' clear preference for the Commonwealth to be involved in emissions trading. However, the paper said that, in the event that the Commonwealth chose not to participate, operation of an ETS remained feasible without such participation:

In the absence of Commonwealth participation, the State and Territory Governments would still be able to implement nationally consistent legislation based on the approaches used in previous areas of joint effort that have not involved the Commonwealth.

The paper set out two options. The preferred option involved using Commonwealth legislation to create an ETS, with states and territories passing complementary laws.

The second option, described as a “viable alternative”, was to go ahead without the Commonwealth, with one state to pass template legislation that the others would then copy. This is what Ian Hunter meant when he referred to an “interstate ETS”.

As the 2006 discussion paper noted, this would be:

… a relatively straightforward way to obtain consistent nationwide legislation without the involvement of the Commonwealth … [N]ational institutions could be created with powers conferred by each State and Territory…_

Australia’s recent history shows that one dispenses with state-based programs at one’s peril. For some reason, Australia can’t seem to introduce and keep a national price on carbon. On past form, the states and territories might have more luck.

There are comparisons too with other federal countries. Both Canada and the United States currently have no national carbon price but significant provincial action. Last week we could have added China to that list, but it is now poised to take its provincial emissions trading schemes to the next level.

The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.