This is an except from a speech to be delivered by Greens leader Senator Christine Milne at the Second Australian Summer Study on Energy Efficiency and Decentralised Energy at the Brighton Beach Novotel on Friday.
“Let’s consider Mr Hunt’s Direct Action Plan. It’s a sham.
“This week the Coalition has been all over the shop. From “we will compensate businesses” from Joe Hockey and “we will not compensate businesses” from Tony Abbott and “we will impose penalties” from Abbott and “we don’t expect to” from Mr Hunt.
The world is on a trajectory of 4 degrees of warming. The fact that Direct Action cannot be scaled up, is only intended to reduce emissions by 5% and cannot effectively achieve more is its overwhelming and fundamental failure. Who in their right mind thinks that such a weak target in any way reflects the science?
At a time when we have IMF boss Christine Lagarde saying, “Unless we take action on climate change future generations will be roasted, toasted fried and grilled” to try to suggest that an Australian target of just -5% by 2020 is acceptable is a lie. As the rest of the world move towards a legally binding global treaty and the second commitment period of the Kyoto Protocol, such a lax target will become untenable and indefensible.
To the detail of the plan, it is in essence a massive ‘competitive grant programme’ which seeks to reduce emissions by companies putting in ‘tenders’ for actions that reduce greenhouse gas emissions and the government then paying those companies which submit the lowest bids (per tonne of abatement).
There are numerous fundamental problems, many of which, while widely understood are rarely discussed. For example:
1) The Coalition expects more than 60% of the abatement to come from soil carbon – but the science to back this up is not yet solid, so this abatement would not be recognised in international treaties. That’s a showstopper.
2) Assessing the tenders to ensure that they involve genuine reductions in emissions is fraught with difficulty. As Malcolm Turnbull has said, and I quote “if a scheme operates whereby the government pays the firm to reduce its emissions intensity … there is firstly going to be a substantial and contentious debate about what the correct baseline is, and then whether it will actually be reduced…Arguments of considerable ferocity will arise as to whether a new piece of equipment would have been bought anyway, with the risk that the government ends up funnelling billions of dollars to companies to subsidise their profit without achieving any real additional cuts in emissions.” End quote. That’s another showstopper..
But there are also numerous less well understood but equally profound problems. For example:
3) tendering for emissions reduction would be most attractive to a company with a marginally profitable facility (eg a steelworks struggling to compete with the $A at a high level) that could be closed. The scheme would then mean that taxpayers’ money is being used to put people out of work;
4) a multinational firm could successfully tender by committing to reduce production and hence emissions in Australia but then increase them overseas;
5) there could also be domestic ‘carbon leakage’ if the output of a firm successfully tendering to reduce its production and hence emissions is just replaced by increased output by another domestic firm (or another plant owned by the same firm);
6) as the scheme potentially rewards a company for reducing production, it increases the breakeven price a company needs to charge. This would likely lead to an increase in prices facing consumers, but without any of the compensation measures in the Government’s scheme;
7) a company that has been operating inefficiently and polluting a lot has much more scope to put in a tender than a responsible firm that has already taken action to minimise its emissions. The scheme therefore penalises past good behaviour and rewards bad behaviour;
8) the scheme requires the government to raise more tax revenue and then make payments. It therefore increases the ‘churn’ in the tax system. Those concerned with efficiency costs from taxation should prefer a scheme where a carbon tax replaces some income tax collections, which of course the existing scheme does by increasing the tax free threshold;
9) the cost of the scheme is borne by taxpayers and the benefits are received by the polluters;
10) it gives no incentives for consumers, and firms not making successful tenders, to seek out ways of using energy more efficiently and provides little encouragement for the development of renewable energy; and
11) as it only runs to 2020 it does not provide incentives for longer-term measures.
12) the Australia Institute conservatively estimated the number of abatement projects that the Department of Climate Change (which the Coalition wants to abolish) that would need to be assessed as around 150,000. That is a massive undertaking, especially as it’s not like a bond tender where there is only one parameter. The Coalition plan says that projects will be evaluated on their impacts on employment, prices for consumers, other environmental outcomes, and other public policy benefits. Assessing projects on multiple criteria will require considerable judgement and trade-offs and give room for favouritism. Furthermore, there are varying degrees of uncertainty about the emissions reductions from different proposals. Should a bid of $16 a tonne using an existing proven technology be preferred over a bid of $14 a tonne for a project using a new untested technology? And because it is an auction, nothing can happen until every tender has been assessed. And once the successful tenderers are eventually chosen, and any appeals resolved, who will be checking that all these firms actually make the emissions reductions they have promised?
Now to the cost: the Direct Action plan is supposed to cost $10.5 billion but the Department of Climate Change analysed the Plan and it would cost more than double that. In addition Treasury has said that: “Direct Action measures alone cannot do the job without imposing significant economic and budget costs…Moreover, many of the direct action measures cannot be scaled up to achieve significant levels of abatement, and for those that can be scaled up, the cost per tonne of abatement would rise rapidly.
The Coalition cannot hide from the fact that Direct Action is a slogan, not a policy. It’s time that they were called out on it.”