The Guardian - Adam Morton
Before the latest auction figures, Adam Morton investigates the plan Turnbull once called ‘a recipe for fiscal recklessness’
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| The government’s enthusiasm for the Direct Action climate policy has
visibly waned since Malcolm Turnbull returned to the leadership in 2015.
Photograph: Bloomberg via Getty Images
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At some point in June, the Australian government will announce it has spent up to
$2.3bn over three years on a scheme that the prime minister believes is a reckless waste of public money.
That is not how it will be expressed. If the
past is a guide, the government is likely to quietly issue an understated press release saying the latest auction of the
emissions reduction fund
– the scheme better known as Direct Action, which the former
environment minister Greg Hunt described as the centrepiece of
Australia’s efforts to tackle climate change – has been a success.
However, the specifics of how the money is to be spent will be all but impenetrable to most people.
First, a recap: Hunt
hastily conceived Direct Action
over the summer of 2009-10 after Tony Abbott pipped Malcolm Turnbull by
a vote in a ballot for the Liberal leadership, having run on a platform
of quasi-climate scepticism and withdrawing Coalition support for
requiring big polluters to pay for the carbon dioxide they emitted. With
Kevin Rudd a popular first-term leader, Abbott becoming prime minister
seemed a remote possibility. But he proved a brutally effective
opposition leader, Labor imploded and the 2013 election was a blue-tied
landslide. Hunt set about implementing a $2.55bn policy that, even
within the Coalition, many thought unlikely to ever be legislated.
It would have been cheaper if the government negotiated to buy the land rather than pay landowners to protect it.
The emissions reduction fund pays farmers and businesses to cut
carbon dioxide emissions below what they would have otherwise been. It
does this through a reverse auction – people nominate how cheaply they
believe they can reduce emissions and bureaucrats choose the cheapest
bids. The government buys carbon credits from the successful projects
once emissions cuts are verified.
According to the scheme’s architect, it is great value for money. In
the run up to the landmark Paris climate conference in 2015, Hunt said
early auction results were
“stunning”.
He looked forward to telling the United Nations meeting about how
Australia had built “one of the most effective systems in the world for
significantly reducing emissions” that would meet our recently announced
2030 target, a cut of at least 26% cut below 2005 levels.
Turnbull described it another way. While on the backbench, he
observed that Direct Action would involve billions of taxpayers’ dollars
being spent paying farmers to create offsets
so industry could freely pollute,
a plan he described as “a recipe for fiscal recklessness on a grand
scale”. He noted that, from Abbott and Hunt’s perspective, the policy at
least had the virtue that it could be easily scrapped if climate change
proved not real, or if the rest of the world was doing nothing about
it.
Emissions reduction fund abatement by type
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| Guardian Graphic | Source: Clean Energy Regulator |
Today, the evidence of the impact of climate change
continues to
mount, the world has made
significant, though
inadequate,
commitments to address the problem, and the emissions reduction fund
rolls on. It has now been Turnbull government policy longer than it was
Abbott government policy.
The Clean Energy Regulator, which runs the fund for the government,
has signed contracts to buy credits equivalent to 191.7m tonnes of
carbon dioxide over the next decade or so – about 3% of what Australia
is expected to emit in that time. About 30.5m have been acquitted so
far.
But national emissions, which fell between 2012 and 2014 under the
carbon price scheme introduced by Labor and the Greens and abolished by
the Coalition, are tracking
upwards year-on-year. A
thinktank analysis late last year found Australia was the only wealthy country where emissions from energy combustion were at a record high.
Though it continues, the government’s enthusiasm for its
self-described main climate policy has visibly waned since Turnbull
returned to the leadership in 2015. The “Direct Action” label has
disappeared from the government’s lexicon. Frydenberg does not spruik
the emissions reduction fund’s wares with Hunt’s brio, and its notional
funding has been slashed.
In the dying months of Abbott’s prime ministership, he and Hunt
promised it would be topped up with $200m a year between 2018 and 2030,
lifting public spending on offsets to nearly $5bn. But there was nothing
for it over the next four years in the recent budget.
While political and media attention has fallen away, projects being
bankrolled by the emissions reduction fund may become increasingly
important in the years ahead assuming the government is successful in
negotiating into life its plan for the electricity sector – the
national energy guarantee, or Neg.
As proposed, it would allow electricity retailers to buy carbon
offsets as an alternative to reducing emissions, potentially creating a
larger secondary market beyond the government for farmers and businesses
to sell the credits they generate. Big polluters covered by the other
part of Direct Action – what the government calls the
“safeguard mechanism”,
which was promised to stop industrial emissions increasing emissions to
wipe out the cuts the government is paying for – are already using the
offsets in small amounts.
Two questions, then: what are taxpayers getting for their billions?
And how robust are the projects that are counted as emissions cuts?
Plants, rubbish dumps and supermarket lights
About
80% of projects with contracts under the emissions reduction fund are
in the rugby league states north of the Murray. The overwhelming
majority of those are in a corridor of land between Cobar in western New
South Wales and Quilpie in south-western Queensland and involve
restoring or protecting plant life. Vegetation projects – regenerating
degraded habitat, tree-planting and “avoided deforestation” schemes in
which landowners are paid to not clear their land – are expected to
deliver two-thirds of the cuts promised to date.
Using these projects to create offsets isn’t a new idea. Many existed under the
Carbon Farming Initiative
introduced under Labor in 2011. The notable difference between the
parties is who pays for the credits. Under Labor, they would have been
mostly sold to business. Under the Coalition, it is taxpayers who have
been doing the buying.
The regeneration projects have broad support – few would argue that
they do not perform valuable work or store carbon dioxide. University of
Queensland research fellow
Megan Evans found they can have not just environmental benefits, but be good for regional communities, bringing investment and jobs.
However, some critics have questioned what happens after the
“permanence period” – either 100 or 25 years, depending on the contract,
in which the land must not be cleared. As the law stands, bulldozers
could come out as soon as the period is up. Equally, fire or drought
could sweep through at any point and release what has been protected.
Yet supporters believe that once a market is established, the rationale
to use carbon farming to make marginal land profitable will continue.
Emissions reduction fund status
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| Guardian Graphic | Source: Clean Energy Regulator |
Avoided deforestation projects, which have been signed up to deliver 26m tonnes and – based on the
average $11.90 per tonne of carbon dioxide
paid under the scheme – could receive more than $300m of public money,
are more contentious. They rely on a counterfactual though – it is
impossible to know if a landowner ever really intended to clear the
land.
Tim Baxter, a legal academic with the
Australian-German Climate and Energy College,
doubts many with government contracts did. He says some landowners had
permits to clear their land for more than eight years before registering
with the fund. At the other end of the scale, one project received a
permit to clear just 49 days before registering. “Both raise serious
questions,” he says.
Thinktank
the Green Institute
looked at the cost per hectare and found that it would have been far
cheaper in most cases if the government negotiated to buy the land
rather than pay landowners to protect it.
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| Academics believe
landowners who received public money for avoided deforestation projects
may not have intended to clear the land. Photograph: Auscape/UIG via
Getty Images |
But early evidence from satellite data suggests avoided deforestation
projects could be making a difference. In an analysis published by the
government’s Climate Change Authority, academics Megan Evans and Andrew
Macintosh
found a steep decline in deforestation
in western NSW since 2012, while other parts of the state showed little
change in land-clearing rates. Evans did say, however, it was a desktop
analysis only and it is not yet clear what has caused the decline.
About half of all outback vegetation abatement projects are being managed by the Sydney-based environmental markets company
Green Collar.
Its chief executive and co-founder, James Schultz, says the methods
used to estimate the emissions reductions from avoided deforestation and
habitat regeneration projects are based on conservative assessments of
what drove changes in land-clearing rates in the past, such as commodity
prices and input costs.
“The
method doesn’t pretend to say ‘this is a precise estimate of exactly
what happens with clearing over every square inch of every property’,”
he says. “They’re all estimates. The important thing is the estimate is
well within the margins of what we think happens in the real world.
They’re all going to be under-estimates of what is delivered.”
While it is necessarily imperfect, Schultz says Australia’s carbon
offsets scheme is world-class and rigorously policed. “We do hundreds of
audits a year and then the Clean Energy Regulator does spot audits
across the top of that,” he says.
According to Baxter, a glaring omission from the rules is the impact
of climate change itself. Australia’s scientific agencies suggest that,
under the goals of the Paris conference, western NSW is projected to be
on average 2.3 degrees warmer and have 8% less rainfall by 2100, a shift
that would make it more akin to outback Queensland. “The difference
between the closed woodlands of Bourke and the open woodlands of its
future is a loss of approximately half its foliage cover – and a
commensurate loss of carbon stored in the forests,” Baxter says. “The
law doesn’t deal with that.”
An arguably larger question hangs over landfill sites that receive
credits for capturing and combusting methane that leaks from decomposing
rubbish. As
revealed by Guardian Australia,
an independent expert committee has recommended the government not
extend contracts with sites that use the methane to generate electricity
as they are what economist Paul Burke calls “anyway” projects – they
would have existed without the fund and have a viable revenue stream
from selling electricity and renewable energy certificates. This has
been a long-standing criticism of landfill gas projects, dating back to
their inclusion in earlier schemes. Critics say it means they are
creating “junk” credits that do not reflect additional emissions cuts.
Frydenberg is yet to say whether he will accept the committee’s advice.
Where are Australia's emissions coming from?
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| Guardian graphic | Source: NGGI. *LULUCF is negative for 2011 onwards
|
Less employed emission reduction fund methods – including
supermarkets installing new lighting systems and companies reducing
pollution from vehicle fleets – have also drawn flak. Burke, from the
Australian National University’s Crawford School of Public Policy, says
the fund should never have been extended to include industrial emitters,
energy or transport as there were more effective ways to cut emissions
in those parts of the economy – some form of carbon price, for example.
“I don’t think it’s a good idea for the Australian public to be paying
for Coles and Woolies to change their lights,” he says.
As Turnbull has pointed out, in Australia the offsets scheme is the policy. And it is barely making a dent.
Added up, it is difficult to know what taxpayers are getting for
their investment. There has been surprisingly little academic research
into what it is delivering. Some insiders privately say the Clean Energy
Regulator does not do enough to ensure the projects they sign contracts
with will be able to deliver, pointing particularly to the experimental
techniques involved in storing carbon in soil. Even supporters believe
as designed it is unlikely to deliver the cuts the government has
promised.
What is clear is that there is little support inside and outside
government for using taxpayers’ money to offset a fraction of
Australia’s growing emissions. An offset scheme is generally used in
conjunction with other policies to help make cuts as cheap as possible
for those having to make them.
As Turnbull has pointed out, in Australia the offsets scheme
is the policy. And it is barely making a dent.
The most recent greenhouse gas data shows pollution is up in every
sector of the economy that gets money from the emissions reduction fund.
Deforestation is outstripping habitat restoration by
a rate of five-to-one based on government data.
Emissions from waste, agriculture and big industry all rose last year.
Recent auctions indicate industry interest has slumped, in part because
the government seems indifferent to the scheme.
James Schultz, whose company is perhaps the greatest beneficiary
under the emissions reduction fund, is among those who wants the
government to change tack. “I’m a strong advocate for a more pure
market-based mechanism,” he says. “It is just not economically efficient
to have the taxpayer pay for it rather than private industry.”
Where to from here?
The only sector in which there has been a fall in emissions is the
one not covered by the emissions reduction fund – electricity, due to
the closure of some coal-fired power. Electricity is also the area where
there are obvious steps being taken to introduce a policy. The
government wants to bring in a Neg with a target of a 26% cut by 2030 – a
level scientists say is far short of what is needed in the power
sector. Some analysis has suggested this goal
would be reached regardless given the pace of the transition under way.
The
government is also moving to make changes to the safeguard mechanism
that covers big industrial emitters. Currently, polluters are set an
emissions limit – known as a baseline – at the highest level they
emitted between 2009 and 2014. Though the scheme is supposed to stop
emissions rising, companies can apply to get a higher baseline. This
freedom to increase emissions without penalty did not stop 16 industrial
sites breaching their baseline last year and having to hand in millions
of dollars-worth of carbon credits, mostly bought from emissions
reduction fund projects – a sign that Australia has an operational
carbon market, albeit a small one.
The government is now considering making the safeguard mechanism less tied to historic emissions. A
climate policy review
released in December suggested emission limits could be loosened so
they “increase with production, supporting business growth”. This has
widely been interpreted as letting companies emit more without penalty.
Insiders say an effective reboot of the scheme could also be used to
tighten the baselines for the majority of polluters that are now
emitting below – sometimes well below – their historic highs. It would
prevent these businesses being able to argue in future that they should
be given free carbon credits for beating an outdated historic baseline
and selling them to polluting companies that are breaching their limit.
Those familiar with the thinking say there may also be a shift in the
way the baseline is expressed from total emissions to emissions
intensity – that is, how much a company emits for each widget it makes.
This would allow emissions at a site to “increase with production” as
the government has promised without immediately blowing out the
baseline.
This could leave industrial emissions soaring unchecked. But it is
also being interpreted as potentially laying the groundwork for a future
emissions intensity scheme – the kind the government emphatically ruled
out for the electricity sector amid uproar from the Coalition’s right
wing.
The argument goes that a trading scheme – or two, if you count the
Neg – could eventually provide a future government with a market for
Australia’s carbon credits if it chose not to put more cash into the
emissions reduction fund.
Of course, these sort of predictions have been made before and the
government’s position is that it opposes any form of carbon price or
trading. Its message is that it will not stand in industry’s way and
wants to encourage new and expanding operators to invest in Australia
without penalty.
But it is worth remembering that Hunt promised the safeguard mechanism would
cut industrial emissions by 200m tonnes between 2020 and 2030 to help meet the Paris greenhouse target.
Guardian Australia last week asked Frydenberg if this remained the government’s position. He did not answer the question.
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