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Australia’s big fail on climate and energy policies

By May 5, 2015In the News

Australia is going backwards in climate policies and is being accused of deliberately throttling the renewable industry. This, as pressure mounts for global climate targets to be even more ambitious.


Australia’s environment minister Greg Hunt still insists that the Coalition government’s Direct Action policy is a stunning success and Australia’s great gift to the world. In reality, it is a case of smoke and mirrors.

This truth was highlighted on the ABC Q&A program on Monday night, when opposition spokesman Mark Butler pointed out that the abatement bought in last week’s auction of carbon abatement – paid for by taxpayers – would be offset by rises in carbon emissions from the electricity sector since the carbon price was repealed.

As Canberra consultancy Pitt & Sherry wrote on Monday, electricity sector emissions have risen 4.6 million tonnes in the 12 months to the end of April, mostly as a result of the repeal of the carbon price last June. The government, meanwhile, is hailing the 47 million tonnes of abatement (spread over average of 10 years) it bought at an auction last week as a great victory.

“So, even taking Greg’s 47 million tonnes that he bought with your money a couple of weeks ago, over the next five to ten years, if that (emissions) increase continues, almost all of it is offset by the increase in pollution from the electricity sector,” Butler said. “This is the central problem with this Direct Action policy.”

It’s not the only problem. There is also the question of “additionality”, the test of whether abatement is new, or would happen anyway. This is a question hanging over much of the abatement, and landfill gas plants in particular.

Butler again:

“So Greg is going to hand over millions of taxpayers dollars to the biggest polluter in the country to continue the landfill gas operations that they have been operating in some cases for more than 10 years … so there’ll be some reduction in carbon pollution but it was going to happen anyway. At the same time, AGL is able to continue increasing its carbon pollution from the coal-fired generators it operates in other part of its business.

“This is a hopeless policy and an absolutely irresponsible use of taxpayers dollars.”

That question of “additionality” is a sensitive one in the carbon markets sector. At the Carbon Market Institute Australia Emissions Reduction Summit at the MCG in Melbourne, where some record numbers of people have turned up, many have either won, or are keen to win new contracts, it’s not a question people want to address.

So, what about additionality, would these have happened anyway? “Well, who knows,” responded one, a legal adviser. And that is the problem, no one can really prove one way or another. It is the central problem of handing out money to individual projects rather than having a market price to provide an economy-wide incentive.

At best, the federal government can claim to have merely extended the carbon farming initiative and elements of the greenhouse abatement scheme, which supported landfill. Certainly, the abatement is welcome. But would it have happened anyway? “That’s a counter-factual,” said one. Others agreed. Many wince at the spin being put on the auction by the government. “That’s not helpful,” said one, grateful to have had winning bids in the auction.

Grant Anderson, a partner of Allens, said Direct Action as currently constructed could simply not support the required climate goals. It was ironic that at an average price of $13.95 per tonne abated, it was quite expensive compared to carbon prices in Europe ($10), New Zealand ($6) and internationally ($1-$2).

But it actually gets worse. The scheme to pay some to reduce emissions could be tolerated if there were controls to stop others from lifting emissions without penalty. But that’s not happening.

The so-called safeguards mechanism, which is supposed to regulate that aspect, is hopeless under the current proposed design. Kobad Bhavnagri, the head of Bloomberg New Energy Finance, said new businesses were being provided with a “perverse incentive” of maximising emissions in their first few years, to lock in a higher baseline, from where they could potentially get taxpayer funds to reduce those levels.

Independent Senator Nick Xenophon, who paved the way for Direct Action through the Senate, on the basis of promises not delivered, reiterated his dismay about the safeguards mechanism, which he said made him furious.

He described the government’s climate policy as a “Burlesque” that might win points with big emitters but was impossible to sustain if funds were to come from the budget.

Allens’ Grant noted: “It doesn’t provide any cap… it does not displace emissions which are increased elsewhere.” And he noted, the safeguards mechanism only applied to big emitters, and did not cover 50 per cent of Australia’s emissions.

BNEF’s Bhavnagri gave a damning assessment of Australia’s policy settings, saying that overall Australia was failing miserably in most of the major global trends towards decarbonisation. The policy approach, he said, was basically incoherent.

In some cases, such as the renewable energy target, it might be deliberate. He noted the effective investment freeze in the last 18 months. The government had mishandled the review of renewable energy target. “Perhaps it was handled deliberately that way,” he said.

Australia also had the “glorious distinction” of being the first country to remove a carbon price – an issue highlighted by Gayatri Acharya, the lead economist with the World Bank.

Acharya noted that on the world map of carbon pricing – now including 60 countries – Australia was about to be removed. “Australia was coloured in. We’ve just changed it for this presentation,” she said.

Bhavnagri noted that the replacement for the carbon price, based around Direct Action policy, and its taxpayer-funded auctions, was providing no investment incentive, and was incoherent.

He said this was part of the government’s deliberate attempt to avoid a carbon pricing signal. But it meant that no signal was sent to business to make rational economic decisions about the future.

And it had opened up an administrative nightmare. By choosing to allocate baselines facility by facility, it had left the government open to intense lobbying.

On energy efficiency, Australia had a virtual policy-free zone. There were no efficiency standards on cars. On electric vehicles Australia was virtually not on the map, and there were virtually no incentives for the uptake of EVs, as occurred in other countries.


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