Abbott blows his carbon budget in first Direct Action auction

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The Abbott government appears to have already blown its carbon budget, selling emissions abatement in the first round of auctions at a price that would make it impossible to meet even Australia’s modest 5 per cent cut in emissions by 2020 (from 2000 levels).

The Clean Energy Regulator said on Thursday said it had contracted to spend $660 million buy more than 47 million tonnes of abatement – mostly from carbon farming and landfill gas projects at an “average” price of $13.95.

It means that the government has theoretically met one quarter of its target at the first go, although nearly half the abatement bought in the first auction will not be delivered before 2020.

Unless the government can find much cheaper abatement, it will not be able to meet the target of buying around 236 million tonnes of CO2 equivalent to meet that 2020 target.

The Climate Institute said at these prices, the government would deliver only 15 per cent of its own 2020 target, but had already spent one quarter of its money. It would only meet 7 per cent of the target recommended by the Climate Change Authority, which calls for a 19 per cent cut below 2000 levels by 2020.

This is no surprise to market analysts, who have said it would be impossible to meet any target with the Direct Action policy. It should also be noted that the CER has said previously that its only task is to buy as much abatement as it can in its $2.55 billion budget, not to meet the 5 per cent target.

That target has been significantly reduced anyway because of a carryover surplus from the Kyoto targets (Australia was allowed to increase emissions 8 per cent over that period, even with generous land clearing credits), and because of reduced industrial production and improvements in the electricity sector (rapidly  being reversed since repeal of carbon price).

However, Australia – despite being questioned by China, the US, the EU and others about its modest emissions reductions target –  says it will not entertain the sort of targets being proposed by the Climate Change Authority (minus 30 per cent by 2025), or more ambitious targets by other climate experts.

Environment minister Greg Hunt said this week such targets would be “onerous”, and the government would insist on continuing with its Direct Action plan. Citigroup said in a report this month that the plan looked unsustainable and costly, and would not deliver a price signal for decarbonising the economy.

But the government is under intense pressure to not decarbonise. The Minerals Council of Australia said the targets recommended by the CCA would “slash economic growth, real wages and household living standards. ”

CEO Brendan Pearson, whose remit includes the coal industry, told the Guardian: “A 40 per cent cut in emissions is equivalent to closing down Australia’s electricity, transport and agriculture sectors. It is neither feasible nor economically responsible.” However, numerous studies, including one released this week by ANU, says that achieving such targets is possible, and at little extra cost, if any.

unnamed(1)Industry analysts Reputex said the auction results indicated that the budget for the Emission Reductions Fund would be quickly exhausted.

“On the present trajectory, the ERF budget would be eroded very quickly, so the medium-term sustainability of the scheme is a concern” said Hugh Grossman, the chief analyst.

Climate Institute’s Erwin Jackson said  the government has shifted the responsibility for pollution reduction from the polluter to the taxpayer, which is footing the bill.

“The results highlight the inadequacy of the policy in two key ways. First, the abatement purchased through the auction is a mere drop in the bucket of the level of carbon pollution reduction that the government needs to achieve,” Jackson said in an emailed statement.

“As the government has admitted, Australia’s pollution is continuing to grow, and therefore so will the costs to the public purse of this expensive, inefficient policy.”

“Under the previous carbon laws major emitters would not only be responsible for their emissions, they would be paying around $10 a tonne, whereas the government is paying nearly $14.

“It is good that projects under the Carbon Farming Initiative which began under the carbon laws have come to fruition, but this kind of policy alone is not going to drive the modernisation that is required for Australia’s clunker economy, especially in the electricity sector.”

Reputex’ Grossman said the auction result indicated that landfill gas and native forest protection project developers had sought to ‘cash in’ from the first auction while industry – such as electricity generators – wait on the sidelines.

Grossman said the fact that so much was sold in the first auction indicated that high emitters would need to move quickly, or miss out on funds if they are unable to develop projects in time.

However, Grossman said that the industry is likely to be cautious because of the $14 average price. It may not give a good enough price signal for them to act.

“One the one hand, a $14 average price may allay the worst fears of carbon farmers – who have feared rock bottom prices – yet on the other hand, that price is unlikely to see high emitting companies rush to participate in the scheme” said Grossman.

“Companies will therefore face a decision as to whether it is worth their while to fast-track projects if they want to capitalise while funding is still available” he said.

He said the disclosure of the “average price” would be of little use to companies because it does not reflect the real “market price” of carbon credits.

“Given the figure of $14 does not reflect the real value of abatement, it is largely useless for industry to apply as a forward price signal” said Grossman.

“In disclosing only the average price of abatement, the Regulator is seeking to make prices appear to be lower than they have actually paid. An average is not a true reflection of the real clearing price that the Regulator paid, which is higher”

“Industry will seek to identify the “highest” clearing price, not the average price, which will give firms a better understanding of their abatement value”, he said.

“It is the ‘highest’ price which will ultimately determine whether industry participates in subsequent auctions.”


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  • Tim Buckley

    This would be farcial except it involves $660m of tax payer funding which Australia cant afford. Last time I checked, Toxic Tony had a massive fiscal budget deficit that is getting bigger every month as Australia’s fossil fuel exports get devalued by international markets that don’t see the same value as “coal is good for humanity” Tony. The Liberal party, bastion of free markets, is using tax payer funds to pay polluters to clean up their own mess, or to get contractors to do it on their behalf. Ridiculous. Bring in a price on carbon pollution so the user pays. Then leave the market to sort itself out, free of rent seeking fossil fuel lobbyists.

    • Barry

      I totally agree Tim. The party that loves to espouse “individual responsibility” railed against a polluters pay system and instead socialised responsibility for GHG abatement using tax payers money.

    • john

      Exactly the taxpayer pays for others bad business practise.
      I can not see this finding the amount to meet a pathetic 5% target.

  • Barry

    So a couple of questions. The highest selected volume is 3.4 m ACCUs over 10 years from Corporate Carbon Solutions Pty Ltd’s Charon Point Carbon Project that will be seeking to generate ACCUs from Sequestering Carbon in Soils in Grazing Systems in NSW, NT and Qld. This project was registered on 9 April 2015. A google search yield no details on either the company or the project – so does anyone know anything about either the company or the project?
    Now $660m spent means that out of the $2.55 b budget there is roughly $1.9 b left. As 236 M tCO2e is required and 47.3 M tCO2e has been bought, another 207.6 M tCO2e is required, which using the remaining buget equates to an average of $10 per t CO2e. However, only just over half of the 47.3 M tCO2e will be delivered by 2020, and if this is 60% the amount falls to 28.4 M tCO2e. This means the Govt still required 207.6 M tCO2e by 2020, which equate to $9.10 per tCO2e if all of the remaining budget is spent on abatement delivered by 2020. However, if only 60% of what is purchased in the future is delivered by 2020, then the remaining budget will need to purchase 346 M tCO2e, which using the remaining budget comes out at $5.50 per tCO2e. To go from nearly $14 per tCO2e to $5.50 per tCO2e will require a lot of new projects with very very low costs – say energy efficiency projects that are viable without any support but bid in to pick up some additional revenue. My question is, have I got this right or am I missing something?

    • Sam C

      holy shit Barry, you’re on top of this shit!

    • Shaun Colley

      Thanks Barry, I can’t confirm or deny your maths but those are exactly the sort of questions we need answered. (Imagine what this will cost if we actually moved to a scientifically supportable or even globally equivalent target – say 15% – 19%) Instead we get spin and cover ups.
      I too am interested to find out more about the “Charon Point” carbon project. I am a big fan of soil carbon from grazing systems (I know some people are sceptical) but I was unaware that a methodology had been signed off by the DOIC to allow registration of this type of project. I hope that this is not the type of project that RM Williams tried a few years ago – de stocking large properties – that does not work.
      Using stock grazing systems to increase soil carbon works but there are all sorts of issues around the time period (100 years) that made it difficult for farmers to sign up. Watch this space I suppose.

    • Brendon Pywell

      I think you’re on target with the math but there are two things I would also consider.

      There is nothing to prevent companies (outside of those included in Direct Action) from increasing their emissions. The energy companies are doing just that since the repeal of the carbon tax and according to the Pitt and Sherry report, had increased emissions by 2.8% in recent months.

      This is the first round of auctions with the government selecting the cheapest bidders. I expect future rounds of auctions will get more expensive as the cheapest are already engaged.

    • Nathan Lim

      Great point Barry. Your point that energy efficiency projects would be viable without any support is spot on. Paying someone to do something they were going to do without prompting is pork barrelling at its worst. While energy efficiency is a very important part of the solution, it does feel like this is going to be a big handout and more of a stimulus plan than a true emissions reduction policy.

    • Steve Young

      The maths for the last bit is off, probably due to using a high abatement target (326m). The average price would only be around high $8, which is still lower than the average price for the first auction.

  • There unfortunately no value in saying “I told you so.”
    Direct action was doomed from the start. Now we are left paying for these mistakes with little to show for it. It is enough to make one weep.

  • Les Johnston

    Carbon reduction based upon farming initiatives is based on a degree of guess work and hope. These “carbon reductions” are not worth much so $14 is not much to pay – except this is tax payers money. I would rather see tax payers money given to charity than given to snake oil schemes.

  • john

    I heard the esteemed Minister on G. Hunt give some figures today I think he was saying that the previous scheme saved ? tonne of carbon for about 1.3 billion dollars hmm I think that is just a bit wrong.
    or perhaps it was 150,000 tonnes for 15 billion dollars.
    Ok here is his new announcement 1/90 of the cost to get his figures
    so at 13.95 a tonne that was $1255 a tonne previously hmm
    As to an electricity tax wrong the result of the exercise has been a lowering of price for electricity.
    However this is covered up by the smoke screen put up by deceitful media statements.

    • Shaun Colley

      If you want to see one of the great examples of a government minister smiling straight down the camera and lying through his teeth have a look at tonight’s interview of Greg Hunt by Leigh Sales on 7.30. Unfortunately Leigh started well but obviously did not know what questions to ask when Hunt started to lie. The mathematics were ignored in favour of slogans (what a surprise) and lies.

      • Peter

        Actually I think Greg Hunt sincerely believes some of his own spin. I suspect a lot of cognitive dissonance is taking place. Afterall he doesn’t believe he is a bad guy does he?
        The interview was all about bashing Labour and hailing the success of the Direct Action. A lot of spin and very little substance. For the average person watching I would think they would have been totally befuddled.

        • Shaun Colley

          I agree Peter, the interview did nothing to bring out the truth. In hindsight I suppose that Hunt could say he will meet the 2020 target with the current budget ($2.55B) because that only covers the period to 2018 – who knows how much money they will need to spend in 2019/2020 – he hopes its not his problem.

  • Krystel Spicer Theorists

    Obviously if common people won’t be able to afford to emit carbon, the auction (funding) is to compensate for lost revenue. Am i right?

  • electroteque

    They have laundered money to criminals to “promise” to plant a few token trees when everyone knows they take hundreds of years to really have an effect. It was always a fraud scheme to give money to their mates and was never supposed to help in anyway.

  • Hugh M

    the direct action I’m interested in seeing is government funded renewable plants (wind or CST). That might meet the emissions targets.

  • RobertVincin

    Hunt & Prime Minister are very poorly advised in matters of climate Change, CO2e, soil and carbon
    trading desertification and rural poverty. Trees are a source of CO2 taking biomass
    carbon from the soil not atmosphere. Geo sequestration a mixture of a wide
    array of toxins pumped into now partially dry aquifers has stopped globally. Ad
    hoc tree planting draining soil carbon results in to exhausted land subject to
    erosion. Invited by UN USG to join the UN body becoming Kyoto protocol very
    strict rules apply and $14 will not cover such. Be it the Hunt tree planting,
    or indeed CH4 from garbage dumps a serious baseline measurements must be lodged
    with UNFCCC. Trees an essential part of
    the sustainable eco system are motors not engines. All can see the shallow
    roots draining the soil around the base. Canada withdrew from Kyoto because its
    trees are a source of CO2e. It is my strongest advice to recipients’ of public
    money the gain immediate legal escape advice “as they will not deliver on their
    noble thoughts of saving the Planet. What the Minister must do in look at the
    decaying farm land erosion exhausted aquifers billabongs and gain advice how a
    master plan can return Australia to be the world’s food bowl. We planned to
    UNFCCC Kyoto protocol Australia could be the legitimate CO2 sink of the world
    and principal food meat wool exporter by 2020. Let the buyer of Minister Hunts “CO2
    credits beware” without prejudice

  • john

    My take out from the Minister today when he outlined that previous method resulted in $1300 a tonne of mitigation is rather not in line with his reasoning.
    I previously said $1255 a quibble however here is the simple fact without reducing our output a lot we can only hang our heads in shame.
    Mind the $1300 is rather a strange figure to come up with however that is of no importance the basic fact is I can not see Australia being a citizen of the world but a greedy selfish mob of people.

  • Jon

    What I don’t understand is why people are not discussing the fact that a large proportion of these projects are existing and were previously supported under the carbon farming initiative (particularly the Landfill Gas projects). I’d like to know how much new abatement will result from this auction?