By Frank Jotzo, Director of the Centre for Climate Economics and Policy at ANU, and Howard Bamsey, adjunct Professor at ANU and previously Australia's Special Envoy on Climate Change.

President Obama's Clean Power Plan is a step towards a climate-friendlier US economy. It will encourage further action by other countries and improve prospects for international negotiations. It ought to be taken seriously in Canberra.

Obama's Clean Power Plan uses federal powers of pollution regulation to impose emissions targets for carbon dioxide from power stations for each of the 50 US states. It is left up to each state how to achieve it, a smart move that can help with political acceptability.

This is Obama's answer to having his plans for national emissions trading thwarted by Congress. In economic terms it is second-best compared to a broad-based price on carbon. It is a demonstration in the art of the feasible, with climate change clearly a key plank in Obama's search for a legacy.

The plan targets a 32% reduction of power-sector emissions by 2030 compared to 2005. The US is already about halfway to that reduction goal, on account of the recession and cheap natural gas. The second half of the journey may be the more difficult part but this will depend on changes in the price of gas, the cost of renewables and opportunities for energy savings. Experience has shown that emissions savings often come cheaper than expected.

As Obama hopes, the Clean Power Plan will indeed have a positive impact on international climate-change negotiations. It is a demonstration of leadership by the largest developed-country emitter. It underpins America's intended nationally determined contribution (INDC) for the Paris meeting, with a 26-28% economy-wide emissions reduction target at 2025 at its core. The US action now will help allay concerns that the commitments that countries take to Paris are just rhetoric.

The Clean Power Plan will contribute perhaps a quarter of the reductions needed to reach the US national target, so clearly much more needs to be done. But the Plan is an expression of earnest political will, the fuel of the negotiating process. Sustained US leadership throughout Obama's second term has helped move that process from feeble sputtering to a steady tick.

Obama claims US action is the reason China is moving on climate change. This is a massive overstatement. China acts for its own domestic reasons and objectives. But it is true that without commitments and action in the US, it would be harder for China to take a leadership role on climate change. The converse holds true too: if there was less action in China, it would be more difficult for Obama to run hard on the issue of climate change.

In Australia, commentary about our prospective INDC has focused on the reduction target the Government is now finalising. But in order to be credible under the new paradigm agreed in Lima last year, an INDC needs to be more than just a number. To reassure others, governments need to put forward concrete policies to substantiate the target, and show the will to follow through. China's INDC is a good example, with its long list of policies planned and already in place, and an explanation of China's commitment to reining in emissions growth.

In Australia, as in the US, there is a large, aging fleet of coal-fired power stations and little likelihood that new ones will be built. A near zero-emissions power system is possible, as shown in the Deep Decarbonisation Pathway Project. Policy that took Australia in this direction would add credibility to our target. So would additional policies for improved energy productivity, fuel economy standards for motor vehicles and similar moves in other sectors. All of this is within reach for Australia and could underpin an ambitious target. But new mechanisms would be necessary, or at least substantial strenghtening of current policies. An essential first step would be to equip the Emissions Reduction Fund, which provides subsidies for private projects that aim to reduce emissions, with a robust and rigorous 'safeguard mechanism' to take it towards a baseline-and-credit mechanism. That is second-best to an emissions trading scheme, but it would be better than the existing policy.  

Some observers will argue that the US plan is unlikely to be implemented because it will face lengthy litigation. If you were Tony Abbott you might call it 'airy fairy'.

Certainly, implementation will not be trouble-free. Governors from some Republican states, especially those where coal production is important, are preparing to launch a legal challenge. The EPA believes that it has a solid legal foundation for the plan and is confident that it will withstand all challenges. And once the states devise plans to implement the targets in a way that suits their circumstances and political economy, there may not be much appetite to go back.

None of this is unusual or unexpected. This is the American way of reform. Even if the next president were hostile to the plan and wished to dismantle it, this would not be easy. Replacement regulations would be required and they would have to be negotiated through the same legal obstacle course as the present ones. So while nobody could guarantee that the plan will be implemented as drafted, it is reasonable to expect that it will. Nothing airy-fairy about that.

Photo by Flickr user 10 10.