Malcolm Turnbull was right: Direct Action is a waste of money

As a member of the Opposition not burdened by harsh political realities, Malcolm Turnbull was free to say what he really thought: that Direct Action was reckless, a fig leaf for climate action, and a waste of money. He was right.

A new study from the Australian National University has underpinned what Turnbull thought then and what he won’t admit now as prime minister: that Direct Action has serious flaws and is largely spending money on projects that were going ahead anyway, delivering “windfall rents” to project developers.

The study by climate economist Dr Paul Burke says that the scheme likely overstates the amount of emissions reduction achieved through Direct Action, and much of the $1.7 billion committed in the auctions to date has been wasted. So much so, that some beneficiaries are referring to it as “cream” and “too good to be true.”

The Coalition government, and environment minister Greg Hunt in particular, has sought to make much of the “cheap” abatement price achieved in the auctions, namely $10.70 in the latest, biggest, handout of taxpayer funds and the $12.10 average so far.

Burke, however, suggests this is no great achievement. “Unfortunately, projects that would have gone ahead even without a subsidy – ‘anyway projects’ – have a cost advantage that makes them well placed to win the auctions,” Burke said.

“When projects of this type receive funding, taxpayers’ money is being used ineffectively.”

It is not the first study to come to this conclusion, and it surely won’t be the last. But this comes in the midst of an election campaign, and at a time when scientists are becoming increasingly alarmed by dramatic changes in climate data – particularly the breaching of the key 400 parts per million reading on greenhouse gas emissions – and another month of record high temperatures.

Embarrassing as it should be for the government, climate change is not, however, becoming a mainstream political issue in this election campaign. It was barely mentioned at the first leader’s debate last Friday, which excluded the only party prepared to make climate change and clean energy a frontline issue, the Greens.

Labor has sought to differentiate itself from the Coalition by unveiling a much higher emissions reduction target by 2020 and recognising that some form of carbon price – even if only an adaptation of a “baseline and credit scheme” – will be needed to achieve it.

Labor, though, is not seeking to make climate change a big issue; wary of the “electricity tax” accusations thrown at it by Turnbull, Hunt and others – even though the Coalition would have to adopt a similar scheme if it was to meet even its own modest emissions reduction targets.

This much was confirmed by a government-appointed review conducted by Energetics, and was to have been the main conclusion of a review by the Climate Change Authority, now dominated by Coalition appointees including the principal author of Direct Action. But this report has been buried until after the election.

Burke comes to a similar conclusion to Energetics, the CCA, and the government’s own advisors: a baseline and credit scheme is the obvious path to evolve Direct Action into something useful.

His report also comes amid new data that shows while Australia’s coal generation, and emissions, continue to rise following the removal of the carbon price, they continue to fall in major economies.

In the US, coal production declined a record 33 per cent year on year to May 2016, with a total of 102MW of coal-fired power to be closed this decade. In China, total Chinese coal output was down 6.8 per cent year on year, while India slashed coal imports by 15 per cent.

Burke said examples of ‘anyway projects’ include many landfill gas capture projects, which have received Direct Action payments even though they can already generate revenues from their gas. Other projects include upgrades to supermarket lighting and vehicle fuel efficiency; types of activities that happen routinely anyway.

“Some of the funded projects are likely to be providing genuine reductions in emissions. Unfortunately, however, some project categories are rather questionable.”

“Landfill operators have been awarded Direct Action subsidies in each of the auctions. Their projects are often already generating revenues from electricity sales and renewable energy certificates.” One study from Reputex suggested pay-back times of three years in these projects, even without the Direct Action subsidies.

“The biggest winner to date has been vegetation projects. Among these are projects to reduce tree clearing, including of invasive native species near Cobar and Bourke in New South Wales.

“The large payments for these projects are likely to have preserved some vegetation. But some farmers appear to have not actually been planning to clear. If so, funding is going to ‘anyway’ projects.

“Other Direct Action winners include projects to reduce tree clearing. While some of the funding will help preserve vegetation, it is unclear if all farmers included had been planning to clear vegetation.”

Bourke also raises the possibility that some farmers have been using Direct Action payments to fund tree clearing on other properties. “Some projects might even cause a net increase in emissions.”

Burke says there are many other downsides to Direct Action. “These include its administrative complexity, the issue of emissions reappearing elsewhere in the economy, and the subsidy culture it inculcates,” he writes in The Conversation.

Other perverse outcomes include delays to projects that might have happened anyway. Burke says some companies have an incentive to delay emissions-reducing projects until they are registered with the Clean Energy Regulator.

He points out that emissions from electricity generation are rising again and the country would be better off returning to what was working: putting a price on emissions.

“Australia has a big challenge ahead in decarbonising our economy. There are many opportunities, but we need to get our policy settings right. It would be better to move on from Direct Action subsidies. An approach centred on pricing emissions makes more sense.”