Three days to the Australian election, and both major political parties are still planning 20 years of climate inaction. I’ve written at length about the climate policy of the incumbent Labor Government led by Kevin Rudd, who wants to move from Australia’s existing fixed carbon price to a 20-year emissions trading scheme (ETS) with a do-nothing 5%-by-2020 reduction target to be met by international offsets. Meanwhile the Opposition, Tony Abbott’s Liberal/National Coalition, proposes to abolish the carbon price altogether (and has also ruled out an emissions trading scheme), and replace it with a 20-year voluntary incentive scheme misleadingly named the “Direct Action Plan”.
Description of the policy
Our main source of information on the Direct Action Plan is a policy document released before the 2010 election (which is no longer available on the Liberals’ website but you can read a copy here), as well as more recent speeches by Liberal climate spokesperson Greg Hunt. Strangely, the Liberals have not released an updated detailed policy document despite the change in start date and various ambiguities of interpretation.
On Thursday they announced $320 million worth of cuts to the Direct Action Plan, and refused to allow any verification of the Plan’s costings, claiming it is “bulletproof“.
The Plan aims to cut national CO2 emissions at least 5% below 1990 by 2020, similar to Labor’s target except with all action occurring within Australia’s borders. (It is not clear whether the Liberals’ target includes non-CO2 greenhouse gases.)
Emissions Reduction Fund
The central plank of the Plan is the Direct Action Emission Reduction Fund (DAERF), which would financially reward polluting companies who voluntarily act to avoid emitting CO2 they otherwise would have emitted. Effectively, the DAERF would purchase carbon credits representing government estimates of avoided emissions relative to a counterfactual baseline of business-as-usual growth, similar to the Kyoto Protocol international offset mechanisms to which Labor’s ETS will be linked. On Monday Abbott clarified that companies’ emissions baselines will be based on historical emissions intensity (emissions per economic output).
The DAERF can be understood as a reverse carbon price: instead of setting a mandatory penalty which polluting companies pay the government, it would give polluters incentives to voluntarily avoid emissions. A penalty would apply only in the extremely unlikely case of a company’s emissions exceeding its baseline, and not even then for “new entrants or business expansion at ‘best practice’”.
The DAERF would adapt the existing Carbon Farming Initiative (CFI), which provides incentives for land carbon storage, by expanding it to cover all sectors of the economy. Emissions would be measured using the existing National Greenhouse and Energy Reporting System. Emissions cuts and methods of verifying them would be approved by the existing Clean Energy Regulator.
The government would sign contracts guaranteeing a payment rate per tonne of CO2 emissions avoided, and make payments only after the emissions cuts are delivered and verified. For a project to be supported by the DAERF, it must also have non-climate-related benefits and no negative economic impacts.
A Liberal government would consult with polluting companies on further policy details, including how to ensure claimed emissions cuts would not have occurred anyway. The DAERF would begin on 1 July 2014 and receive $300 million in its first year, followed by $500 million, $750 million, and $1 billion per year from then on. It would not be allowed to exceed this budget. The policy would be reviewed in 2015, and there would be a second stage after the 5% target is met. The Liberals intend to continue this climate policy approach for the next 20 years.
Other Liberal climate policies
The Liberals propose numerous measures beyond the DAERF, including a million solar roofs by 2023; 125 community renewable energy projects; reserving part of the RET for emerging technologies; voluntary energy efficiency targets for energy-intensive businesses; a “Green Army” to plant 20 million trees; and investigating thorium as a potential future energy source. Internationally, they would deprioritize UN climate talks, instead lobbying the US, EU, China, and India (the “G4”) to negotiate agreements to cut emissions in specific sectors, particularly forestry.
They would abolish many existing climate programs and institutions in addition to the carbon tax, including the Climate Change Authority (CCA), Climate Commission, Clean Energy Finance Corporation (CEFC). They even refuse to honor CEFC contracts that have already been signed. They would cut jobs from the Clean Energy Regulator, cut funding for the Australian Renewable Energy Agency (ARENA), and suspend funding for Connecting Renewables “until committed demand is identified”.
The Liberals claim to support the present Renewable Energy Target (RET) of 41,000 GWh by 2020, yet they will review it. It’s not clear who will do this review, but opponents of the RET want it to be the Productivity Commission who would almost certainly recommend scrapping the RET. Individual Coalition politicians and state Coalition governments have campaigned against the RET and against wind power. Origin Energy, and at least one Liberal candidate, have campaigned to sabotage the RET by reducing it to account for falling electricity demand.
Their energy policy does not mention solar at all, and its only mention of renewable energy is that the Liberals will establish an inquiry into the health effects of wind farms, and real-time monitoring of wind farm “noise emissions”.
The Liberals support a future for the coal industry and oppose banning coal exports. Indeed, they want to fast-track coal mines, promote coal seam gas development with a “use it or lose it” policy on offshore oil and gas fields, restore the profitability of coal-fired power stations, reverse the World Heritage listing of Tasmanian forests, spend billions of dollars building new roads, delegate environmental protection powers to state governments, cut “red and green tape” deemed “unworkable” by an audit of all regulations, and consider investor-state dispute settlement in the Trans-Pacific Partnership free trade agreement.
Debunking one unjustified criticism of the policy
Many people who should know better (including Ross Garnaut, the Labor Party, Malcolm Turnbull, and Alan Kohler) have misrepresented the Direct Action Plan as anti-free-market. In reality the DEARF is, like Labor’s policy, a market mechanism intended to deliver the cheapest possible emissions cuts. And as a voluntary incentive-based system, it is much more light-touch than a mandatory carbon tax.
The underlying premise of Garnaut et al. is that a market-based approach is the best way to cut emissions, but I am not convinced of this. It seems to me very unwise to leave too many climate-related decisions to markets, because it is a market failure driving climate change in the first place. Thus I suspect a climate policy with more limited markets and more restrictive regulations is more likely to be effective.
The one way in which the Liberals’ policy is truly anti-market – it doesn’t allow emissions trading or international offsets – is in my opinion its one redeeming feature, because I am skeptical about the effectiveness of emissions trading and international offsets. I agree with Abbott when he says buying international offsets would be “shirking our environmental duty”. However, it is unclear if the Liberals will continue to eschew offsets. The Australian Financial Review recently reported that senior Coalition politicians have privately stated buying international offsets is an option if Australia’s 2020 emissions reduction target is increased from its present 5%.
It is unfortunate that the “Direct Action Plan = anti-free-market” meme has gained so much traction, because there are so many real problems with the policy.
13 real problems with the policy
The target is inadequate
The Plan aims for Labor’s ludicrously inadequate 5%-by-2020 emissions reduction target, which Tony Abbott himself has described as “crazy”. The Coalition would abolish CCA which otherwise might recommend a stronger target. Liberal climate spokesperson Greg Hunt says the Liberals support Labor’s conditional 2020 targets of 15% and 25%, but Nationals Senator Ron Boswell says a 15% target would “render Australia virtually uninhabitable by non-hippies”. They have no 2050 target.
The budget cap sabotages the target
Recent analyses have found the DAERF would need to spend up to $35 billion more than budgeted to meet even just the 5% target. Under optimistic assumptions, the Climate Institute projects emissions would rise 10% by 2020. Even the Liberals’ own estimates of total tonnes avoided, total cost, and cost per tonne avoided do not add up. Also, it is incongruous that the timeframe of funding has not been accelerated since the last election despite the fact that the target date is three years closer.
The Liberals remain confident they have budgeted enough money, but they have neglected to model their policy and their confidence is based solely on assurances from polluting companies eligible for support from the DAERF. Such assurances are not reliable, particularly since the price of DAERF carbon credits will be set by the market so companies may be able to game the price.
Abbott clarified on Monday that the DAERF would not spend any more money than budgeted regardless of whether it meets its target. Nationals Senator Fiona Nash has described this as “just common sense” because Australians are more worried about the economy than the emissions target. This strict budget cap makes it extremely unlikely that any absolute emissions reduction will take place, unless the Liberals introduce significant new regulatory measures additional to the DAERF.
Voluntary policies don’t work
A voluntary policy by definition cannot guarantee results. The DAERF contains no requirement for businesses to participate; no upfront incentive to participate; no way of knowing if contracts would result in delivery of action; and no guarantee that any emissions cuts would take place. The previous Liberal government tried similar voluntary programs which failed.
As the Liberals clearly stated in 2010 “businesses will not be penalized for continuing to operate at ‘business as usual’ levels” – ie. no penalty for continuing along a business-as-usual trajectory that, if followed worldwide, will cause an unimaginably catastrophic ~6°C of global warming by 2100.
Emissions intensity reduces automatically
Offering incentives for emissions intensity reduction, instead of absolute emissions levels, is essentially pointless. As shown in the graph below, emissions intensity will fall automatically even if emissions rise. Abbott himself likes to boast that Australian businesses have reduced their emissions intensity in the last two decades “without a carbon tax through direct action policies”, yet during that period absolute emissions excluding LULUCF rose by 30%. Abbott says the DAERF is for “reinforcing what businesses are already doing”, but rewarding businesses for what they are already doing is not enough: climate change requires urgent action on a far greater scale.
The emissions cuts may not be real
This is a corollary of the above point. Because the emissions cuts claimed by companies would be defined relative to business-as-usual emissions intensity instead of in absolute terms, it would be hugely problematic to ensure they would not have happened anyway. Shadow Treasurer Joe Hockey has even suggested selected actions companies have already taken could be counted towards the 2020 target.
I don’t understand how the Liberals would add up the actions funded by the DAERF to ensure they achieve the target. Would they need to translate each individual company’s emissions intensity reduction target into an amount of emissions avoided relative to business-as-usual, and ensure enough of those are made to add up to the their overall 5% absolute emissions reduction target? Even if they add up on paper, they may not add up in reality.
The investment criteria limit action
Insisting projects must have extra environmental benefits and no economic costs is counterproductive because it unnecessarily limits the scope of the DAERF, and looks suspiciously like the policy of a party who do not understand human-caused global warming is a real and urgent crisis. The Liberals keep contradicting themselves about whether projects will be chosen by the market or by government; for example, a leaked policy discussion paper proposed a particular pet project be supported by the DAERF.
It would lock in continued fossil fuel use
As explained by the Climate Commission, “Most of the available fossil fuels cannot be burned if we are to stabilise the climate this century.” Yet the Liberals want to vastly expand fossil fuel mining and burning, and even make coal power plants profitable again.
The Liberals say they will “clean up rather than close down power stations”. Hunt recently clarified the DAERF may fund conversion of power plants from coal to gas, which would lock in new fossil fuel infrastructure with a lifetime of decades.
It relies on unachievable soil carbon storage
The Liberals have budgeted for 60% of the DAERF target to be met by sequestering carbon in soils. Yet experts say the Liberals have dramatically overestimated the potential for soil carbon storage and underestimated the cost of doing so. Anyway, it is impermanent and no substitute for urgently phasing out fossil fuel CO2 emissions which will stay in the atmosphere for millennia. The Liberals’ other intended sources of emissions cuts are unlikely to take up the slack.
Renewables must be deployed at scale now
The Liberals argue renewable energy is not ready yet, and their approach focuses on R&D. Their goal of 1 million new solar roofs will be achieved by 2017 anyway, and is utterly dwarfed by the required scale of action. Reducing the RET would effectively halt the deployment of renewables by 2016. Thorium will not be deployed for decades. We don’t have time to wait around for new energy technologies such as thorium, which will not be deployed for decades. We urgently need large-scale deployment of existing renewables, which can provide 100% of Australia’s energy.
The biggest countries won’t solve climate change
Although the G4 countries and Australia have the power to largely solve climate change because they are responsible for most global emissions, for exactly the same reason they do not have the political will to agree and implement the rapid phaseout of fossil fuels that is urgently required. Although a G4 agreement would sideline oil exporters who have helped obstruct the UN process, it would also sideline the best advocates for the required scale of climate action, the small island states. A sector-specific focus has the advantage of acknowledging different sources of emissions are non-equivalent, but would likely lead to agreements on anything but what is most urgently required: rapidly cutting fossil fuel CO2 emissions.
Investor-state tribunals threaten democracy
Investor-state dispute settlement would give multinational corporations the power to sue a government for any policy that hurts their profits. An ISDS tribunal would have the authority to overrule a national government and force it to pay unlimited compensation to companies, with no accountability. It would effectively be a radical transfer of power from government to corporations, and an attack on national sovereignty and democracy. If governments sign away their power to regulate transnational corporations, then it will become virtually impossible to solve climate change. Any climate policy or restriction on fossil fuel industries could be overturned through ISDS.
Climate and environment laws are already too weak
Labor’s climate change and environment policies are already completely inadequate compared to the scale of the climate crisis, as explained at length elsewhere on this blog. Labor’s policies will also allow Australia’s onshore emissions to rise, and fossil fuel exports to expand. Climate change policies urgently need to be strengthened, not weakened.
The Liberals can’t be trusted on climate
Although Hunt says he has 100% confidence of the Shadow Cabinet’s support and stakes his job on it, I personally don’t trust the party to implement the Direct Action Plan. If it’s such a great policy and they intend to follow through, why haven’t they released an updated, detailed, consistent, coherent policy document, costings, and modeling?
Instead Abbott, Hunt, and other Coalition politicians have appeared to contradict each other on myriad details. Liberal candidate Jaymes Diaz has described the Direct Action Plan as “a real army of people going out planting trees [and] a solar panel”.
The Liberals failed to take meaningful action on climate change during their previous twelve-year stint in government, and Australia’s emissions excluding LULUCF climbed by 23%. Many Liberals, including Tony Abbott, have made repeated statements indicating denial of climate science. Queensland’s Liberal National government wants to remove climate from the school curriculum. And as recently as Monday, Abbott said “the argument among the experts is not quite the one-way street that it might have seemed four or five years ago.”
It has been argued that if elected the Liberals may sneakily replace the Direct Action Plan with either:
- no climate policy at all, as has been advocated by some forces within the party, the Australian Chamber of Commerce and Industry, and Liberal-aligned think tank the Institute of Public Affairs (IPA);
- a baseline-and-credit ETS (essentially like the DAERF but with tradable credits), as has been advocated by independent Senator Nick Xenophon (who could be in balance the power), (at one time) Malcolm Turnbull, and (at one time) the Australian Industry Group;
- or even a cap-and-trade ETS like Labor’s, as has been advocated by Malcolm Turnbull and the Australian Industry Group. This is perhaps the worst possible outcome because it would result in bipartisan agreement on 20 years of international offsets.
Will the real Liberal climate policy please stand up?