First auctions to prove Direct Action more slogan than policy | RenewEconomy

First auctions to prove Direct Action more slogan than policy

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Tony Abbott’s Direct Action plan to address Australia’s modest emission reduction targets finally hit the road this week. If the analysts are right, it will prove nothing more than the emperor has no clothes.

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Tony Abbott’s Direct Action plan to address Australia’s modest emission reduction targets finally hit the road this week. If the analysts are right, it will prove nothing more than the emperor has no clothes.

The Direct Action plan, and its proposal to “buy back abatement” from polluters, has been pilloried by all independent analysts because it probably won’t meet Australia’s small abatement target, and it won’t send a market signal for the decarbonisation that everyone knows is needed.

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The first (silent) auctions will be held this Wednesday and Thursday by the Clean Energy Regulator, with the results likely to be released some time next week – most likely next Thursday.

The first auctions are likely to attract the cheapest and most readily accessible abatement. And that will almost certainly prompt the government to crow about its success.

But here’s the thing. According to Reputex, the market analysts, getting cheap abatement at the first auction will be self defeating, because it will simply mean that there is no incentive for major polluters to make the investments they need to reduce emissions.

“Penny wise, pound foolish” says Hugh Grossman, the chief analyst at Reputex. Grossman believes that if the auction does produce cheap abatement, then the Abbott government will struggle to meet even 20 per cent of the 236 million tonnes it needs to abate to meet its 2020 target of cutting emissions by 5 per cent below 2000 levels.

And if the government auction does produce results around the $20/tonne mark – enough to attract the interest, perhaps, of major polluters – it will simply confirm that the budgeted $2.5 billion will be enough to buy only half the abatement needed.

“A low contract price has the potential to considerably deflate the new emissions market by discouraging investment to reduce emissions,” Grossman says.

“If the price is high, we will see companies actively want to reduce their emissions and participate in the market. However if the price is low, we will see many firms simply sit on their hands and continue to pollute.”

The problem is compounded by the fact of the secrecy surrounding the auction. The CER has not revealed its “benchmark price”, or price cap, and it won’t release the details of the auction results, just the average price received.

And the CER has also given up on the pretence that the policy is designed to meet the 5 per cent abatement target, stating that it will only buy what it can afford. But no one knows how much that will be.

The problem is compounded by the fact that there is no incentive now for major polluters to reign in emissions. The carbon price has gone, and the so-called safeguards mechanism that accompanies Direct Action is so generous it may allow some polluters to increase emissions.

The renewable energy target, which obliges utilities to invest in green energy, is also being wound back, and large-scale investment has fallen to virtually zero.

And the two biggest policy documents released by the government in the last few weeks – its discussion paper on future emissions targets, and the energy white paper – make no mention of the 2°C global warming target, only the scenario that allows for more fossil fuel burning and a catastrophic 4°C warming result.

emperorIt reminds some of the Hans Christian Andersen story about the emperor who commissioned clothes so magnificent that only the stupid and the incompetent could not see. And in modern Australia, no one in the Abbott entourage will admit that they cannot see a climate policy, even when it is patently obvious that none exists.

Abbott’s first auctions – the ultimate result of his “axe the tax” promise that marked his campaigning before and after the election – comes as the World Bank joins the chorus for carbon prices to be imposed on industry.

Chief executive Jim Yong Kim also called for the immediate repeal of fossil fuel subsidies, saying it was “crazy” to subsidise the burning of more coal.

“When I meet business leaders from the very carbon-intensive industries, their openness to a carbon price is striking. They say, ‘let’s do it’,” he told the Guardian.

The Abbott government, however, says it will not canvass a carbon price, indicating that even its longer-term targets would be met through the Direct Action mechanism. The Climate Change Authority and others have suggested a target of 40 per cent by 2025 or 2030.

Most analysts say that will cost billions if funded by Direct Action. Citigroup last week suggested up to $15 billion a year by 2030 if the target was for a 40 per cent cut, comparable with the actions of other major economies. It said the policy was expensive and inadequate.

Reputex hasn’t even bothered modelling it. “It is so unlikely that this sort of scheme could do long-term targets, and so prohibitively expensive, that it would not be worth modelling,” Grossman says.

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5 Comments
  1. john 5 years ago

    So lets look at the situation a larger burner of brown coal which is worlds worst practise decides to bid to reduce its carbon footprint.
    Right just what on earth can the brown coal burner do?
    Burn less hmm no.
    Introduce a more efficient burning of the bad poor quality product to produce a better energy outcome hmm perhaps.
    So they bid a price to introduce some new intensive oxygen high pressure type pulverised brown coal feed process which costs about $900 million to build.
    Now this will reduce the CO2 output by 5%.
    The return will be what exactly; if accepted a $900 million expend; which taxpayers pay; for 5% reduction which I do not see as achievable at all but stay with me.
    So work out the cost per tonne of CO2 reduced for the expend I bet you it comes out at over $50 and upwards per tonne.
    I can only see this fund as being one very tasty honey pot for all types of rip-offs.
    You may as well dream up some kind of CO2 reduction process for any type of business and then make out a process to substantiate the process which you can then bid into being paid to do it.
    Usually the business pay back from being more environmentally aware is a bottom line plus for any business.
    I can see a lawyers picnic in the making here big time.
    Please point out one area where any business can be beneficial to the Australian public by this idea and I will be just quietly amazed.

    • mike flanagan 5 years ago

      It is nothing more than a $2.55 billion slush fund introduced to feed money into farmers and others with an election time frame in mind, that could be disrupted by a double dissolution hopefully.

  2. Guest 5 years ago

    If Macfarlane was a Labor minister he’d say he knew it (Direct inAction) was bad, even though he hadn’t read it. This time he’d be right!

    • john 5 years ago

      When the International best practise attitude is lets get serious and says use a price on carbon let us please get real and not play silly buggers ok.

  3. Ken Fabian 5 years ago

    Don’t be surprised when the lion’s share goes to big mining and corporate agriculture that have been the bedrock of opposition to action on climate and emissions; this will be climate action opponents making the most of a climate policy that the government probably never intended to become actual policy – the Abbott government having intended and hoped to see it voted down. Which would have been their ideal outcome; no climate policy due to those most wanting effective climate action voting it down – a win win for climate science deniers and fossil fuel investors. Just why PUP voted it through is a question… Spite?

    Giving climate action money to interests most opposed to climate action would tickle and amuse this government, that is so determined to prevent effective action that it cannot bring itself to be upfront and honest about those intentions.

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