The Federal Government’s Direct Action package is still a series of “known unknowns”, as former US secretary of defence Donald Rumsfeld once infamously described the linking of Iraq and weapons of mass distraction. It might even be in the state of unknown unknowns, given the uncertainty it has created.
The release of the government’s Green Paper on Direct Action just before Christmas has done little to dispel the doubts and uncertainty about the Abbott government’s signature policy to reduce greenhouse gas emissions – albeit by the paltry amount of 5 per cent – or on the operations of the proposed Emissions Reduction Fund.
But one of the most damning assessments has been produced by Bloomberg New Energy Finance, which has trashed the proposal on its two key measures – its ability to attract finance and its ability to deliver additional emissions reductions. On both counts, says BNEF, it fails.
“On the whole, the green paper does little to dispel the widely held view that the government’s Direct Action policy will not be effective, and is largely an exercise in wishful thinking,” BNEF said in a release issued soon after the Green Paper.
“It is very hard to see how projects will be viable under this mechanism, particularly ones that will be big enough to provide the amount of abatement the government requires. All of the bankers we have surveyed have said projects under the scheme will be practically unfinanceable.”
It goes on to note “the government has acknowledged that it will be difficult to ensure emissions reductions that it funds will be genuine. It is not yet sure how to guard against this, and has asked industry for its ideas, but this is likely to be a continual problem for this sort of scheme. The government may well end up funding emissions reductions that would have occurred anyway.”
A damming assessment indeed. The question of “genuine” emissions reductions is one that has plagued the Clean Development Mechanism, which Environment Minister Greg Hunt cheerfully cites as a valid predecessor to his ERF.
But there is also anecdotal evidence that industries have simply shut up shop on some investments that could reduce greenhouse emissions because they would prefer to wait to see if they can get a government hand-out.
The government proposes to launch its fund on July 1, 2014, regardless of whether approval has been obtained for repealing the carbon price, or even endorsing Direct Action. It has $1.5 billion of funds to be allocated in the first three years of operation. Projects to be funded will be chosen through a reverse tender, a process that is likely to be so labour-intensive that the government has already announced it will have to boost numbers of its recently depleted ranks of emissions experts.
The BNEF analysis laments that the government has yet to make clear how it can prove that projects will be “additional”, and how “aggregated” projects can deliver the scale assumed. It suggests that the auction system may be able to be “gamed” and prices distorted.
The biggest issue comes in the proposal to limit agreements to just 5 years.
“Projects are very unlikely to attract finance given this short contract tenure, the likely small deal sizes which will be subscale for project finance and lenders’ lack of familiarity with the areas of abatement, methodologies, developers and counterparties.”
It sees problems in the setting of baselines and how the government will manage any breaches of these baselines, and it fears that many current carbon farming projects will be stranded if the price offered under the auction system is too low.
Newman renews attack on climate science, renewables
This likely failure of Direct Action to achieve anything of consequence – particularly in relation to the science, which calls for a much higher target, as the threatened Climate Change Authority has made clear – can possibly be explained by the repeated attacks on climate science and renewable energy from the government and its advisors.
Abbott’s chief business advisor Maurice Newman was at it again in The Australian today, stringing together a loose collection of “facts” to justify his extreme positions on climate science and green energy.
Newman cited the research on temperature movements by one scientist, Roy Spencer, as “empirical fact” that disproves the work and views of thousands of other scientists, including Australia’s own chief scientist, the Bureau of Meteorology, and the CSIRO.
He tenuously supported this claim by noting that the Canadian environment minister discarded a proposal from her department to publicly state that the Harper government recognised scientific evidence that humans were “mostly responsible” for climate change. Canada and Australia stand as the most obstructive countries in climate change talks, mostly because they want to extract as much tar sands and coal as they can.
Newman then moved on to renewables, citing a report in The Telegraph, repeated in The Australian, that the EU is about to end wind subsidies. Like its report on the IPCC, this is nonsense and has already been denied by the EU.
Indeed, three of the biggest economies in the EU – Germany, France, and Italy, along with Austria, Belgium, Denmark, Ireland, and Portugal – are pushing the European Commission to expand its continent-wide renewable energy target to 30 per cent of all energy (not just electricity). Sure, subsidies will be reduced, but that is what they are designed to do as solar and wind costs fall.
In a continuation of the virtual circle between News Ltd and the government, Newman cites The Australian’s story on the weekend about expanded coal generation in Germany.
As we explained on Monday, this coal generation was locked in before the Fukushima-inspired decision to end nuclear generation, and before the scale of the renewables boom was apparent. The 15 planned coal plants cited by Newman once stood at more than 20. Six have already been cancelled and the biggest generation companies have made clear they plan no new fossil fuel generation, and the new government is aiming for 60 per cent renewables by 2030.
“The green delusion is finally confronting economic reality,” Newman writes.
Actually, it’s more likely that the fossil fuel delusion is finally confronting economic reality.
He should note that the much-hailed gas boom in the US may be a temporary mirage. The rise is gas prices (they need to rise to justify the high cost of fracking deeper reserves) means gas generation is now being replaced by coal-generation, and the US Energy Department this week noted that energy emissions actually rose last year because of it.
And then he could note AEMO’s update assessment of South Australia – particularly the bit about cost of technology. Solar, even based on out-of date 18 month old assessments, is cheaper than much gas generation, and wind energy is cheaper than both “clean” coal and gas. Or he could read the latest advice from the government’s own economic advisor on where energy costs are heading – very much in favour of green energy.