Australia’s new Abbott Government intends to replace the former government’s climate policies with a “Direct Action Plan”, consisting mainly of an “Emissions Reduction Fund”. This post will examine the flaws of the proposals outlined in the recently released Green Paper.
They should have just called it the “Paper”, because it contains very little that is green. Large sections discuss how best to “allow businesses to continue ordinary operations without penalty”, “encourage efficient greenfield and brownfield expansions as an integral part of national economic development”, “allow businesses to determine their own approaches to ensuring emissions are at best practice levels”, “work closely with the [electricity] sector on how the policy can best apply to its needs” and design “flexible compliance arrangements”. The Green Paper says the policy is “founded on a presumption of economic growth as a positive and inevitable good for Australia” (if it’s inevitable, why is the Government going to such lengths to protect it?).
What we know about Abbott’s climate policies
Emissions Reduction Fund
The Emissions Reduction Fund is a voluntary incentive-based market mechanism supposed to deliver the cheapest possible emissions cuts. It will begin in July and will aim to cut Australia’s emissions 5% below 2000 by 2020 (with deeper targets conditional on international action). The Fund will financially reward polluting companies (and other entities, including organizations aggregating small projects) who voluntarily act to avoid emitting CO2 they otherwise would have emitted. It can be understood as a sort of reverse carbon price: instead of setting a mandatory penalty which polluting companies pay the government, it will give polluters incentives to voluntarily avoid emissions.
More precisely, it will purchase carbon credits representing government estimates of avoided emissions relative to a counterfactual baseline of business-as-usual growth based on historical emissions intensity (if you’re confused about what this means, see point 7 below). This baseline-and-credit approach is similar to the Kyoto Protocol international offset mechanisms to which the former government’s emissions trading scheme (ETS) would have been linked. The Fund will adapt the existing Carbon Farming Initiative (CFI) by expanding it to cover all sectors of the economy and possibly weakening its rules. Delivered emissions cuts will be credited with Australian Carbon Credit Units (ACCUs).
Polluting companies and other entities applying for funding will make bids at regular reverse auctions, and the Government will select the lowest-priced projects. The Government will sign standardized contracts, with a maximum duration of five years, guaranteeing a payment rate per tonne of CO2 emissions avoided. Payments will be made only after the promised emissions intensity reductions are delivered. Any recipients who fail to deliver must “make good”, probably by buying offsets. The Fund will not be allowed to exceed an annual budget: $300 million in its first year, followed by $500 million, $750 million, and $1 billion per year from then on.
A “safeguard mechanism” will be designed to discourage emissions intensity growth by companies outside the Fund. It will not be a financial penalty for pollution; it may be a requirement to buy offsets.
Other climate-related policies
The Government proposes numerous measures beyond the Emissions Reduction Fund, including a phase-out of HFCs; One 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, it is deprioritizing UN climate talks, and says it will instead lobby the US, EU, China, and India (the “G4”) to negotiate agreements to cut emissions in specific sectors, particularly forestry. A review in late 2015 will design a post-2020 stage of the Direct Action Plan, which is intended to continue the Emissions Reduction Fund approach for 20 years.
The Government seeks to repeal the former Government’s carbon tax, Clean Energy Finance Corporation (CEFC), and Climate Change Authority (CCA). It claims to support the present Renewable Energy Target (RET) of 41,000 GWh by 2020, yet it will be reviewed, possibly by the Productivity Commission who will almost certainly recommend scrapping or reducing the RET.
The Government is expanding fossil fuel industries by fast-tracking coal mine approvals, and promoting coal seam gas development with a “use it or lose it” permit policy. It even aims to restore the profitability of coal-fired power stations. It aims to reverse the World Heritage listing of Tasmanian forests, and spend billions of dollars building new roads. It is already well into the process of delegating its environmental protection powers to state governments. And in free trade negotiations the Government is offering to sign up to investor-state dispute settlement (ISDS).
And without further ado, here is the list of flaws. Click for more information on each flaw.
Problems with the Emissions Reduction Fund
1. It ignores key implications of climate change science.
2. It ignores Australia’s responsibility to lead.
3. Its target is inadequate.
4. It doesn’t penalize business-as-usual.
5. It’s voluntary so can’t guarantee results.
6. It rewards polluters.
7. It’s designed to cut emissions intensity, not absolute emissions.
8. Its claimed emissions intensity cuts may not be real.
9. It will weaken the Carbon Farming Initiative.
10. Its focus on least-cost action is short-sighted.
11. It relies on unachievable soil carbon storage.
12. It may allow offsets after all.
13. Its budget cap limits action.
14. It won’t attract finance.
15. It’s designed by polluting industries.
Problems with the Government’s broader climate policy
16. It locks in fossil fuel industry growth.
17. It weakens already weak climate policies.
18. It abolishes independent reviews of climate policy.
19. It delays deployment of existing renewable energy technologies.
20. It cuts small island states out of climate talks.
21. It threatens national sovereignty and democracy.
Rebutting an unjustified criticism
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 Emissions Reduction Fund is a market mechanism, 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.
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.
Changes from the pre-election policy
I’m pleased the Government has dumped its unnecessary pre-election criteria that projects must have non-climate-related environmental benefits and no job losses or price impacts. Similarly, the Government will not select pet projects as some of its members had implied before the election. However, this appears to be because the business lobby wanted a pure market mechanism targeting least-cost abatement rather than because the Government has suddenly realized the overarching importance of mitigating global warming.
I’m also pleased to see the Government now acknowledges at least some need for regulatory measures to reduce greenhouse gas emissions, though at this stage the only one they have proposed is phasing out HFCs.
The biggest negative change is that the Green Paper has opened the door to international offsets and domestic emissions trading, despite Abbott having described this as “a so-called market in the non-delivery of an invisible substance to no one”. During the election I said the choice between the major parties’ climate policies was a choice between voluntary incentives and international offsets; it now looks like we might end up with international offsets when the voluntary incentives fail.
Australia needs a real direct action plan
I agree with the Government’s emphasis on direct action. Voters are right to be suspicious of the complexity of emissions trading schemes, which if less than perfect can actively prevent climate action. But the so-called “Direct Action Plan” is neither direct, nor active, nor likely to achieve much. See here for my thoughts on what a real direct action plan might look like.
Although the existing carbon tax is deeply flawed, it should be repaired instead of repealed. This could be done by either repairing the scheduled future ETS as outlined here, or repealing the scheduled future ETS and extending the fixed carbon tax.
Australia needs a real direct action plan, but the plan proposed by the Government is not it.
If you’d like to tell the Government what’s wrong with its policies, submissions on the Green Paper close 21 February.