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“Direct action”: The coalition’s voluntary approach to environmental policy - part 2

The Coalition uses the phrase “Direct Action” to obscure the fact that they take a voluntary approach to environmental policy. The policy has been described as a farce and a non-optimal, do-nothing approach by some Coalition members and it appears to be designed as a handout for the worst polluters.

The Coalition’s policy is designed around a reverse auction system which polluters, farmers and foresters can choose to participate in.

For example, farmers could adopt ‘soil-carbon’ initiatives by changing their production processes. These projects are very questionable but in theory they increase carbon sequestration. Under the reverse auction scheme, those projects with the lowest cost per tonne of carbon sequestered would be allocated funds.

Similarly, polluters could choose to install new technology that reduces their emissions relative to a business-as-usual level and then seek funding under the reverse auction scheme.

However, it is difficult to see why firms would participate in the scheme. That is, as a voluntary approach to environmental policy, it has been poorly designed.

First, there is no punishment for continuing to emit at business-as-usual levels. Moreover, the definition of business-as-usual emissions allows for higher emissions when these result from economic growth or increases in a firm’s scale of operations.

In addition, should a firm manage to emit more than its business-as-usual level, the penalty for this will be set ‘in consultation with industry’. As we have seen from the mining super-profits tax, a tax set by industry is no tax at all.

Second, a good voluntary approach requires a credible threat to introduce harsh mandatory policies if the targets are not reached. This encourages firms to participate under the logic that if they don’t, something much worse will follow.

The coalition proposes no such thing and in fact by promising to repeal the carbon pricing scheme, as they continue to do, they move in quite the opposite direction. In short, there will be no ramifications if business fails to reach the target.

There are other problems too. For example, the proposal rewards past bad behaviour because the worst polluters can, if they choose, reduce emissions cheaply. Hence, they are more likely to receive funding under the reverse auction system. In contrast, those who have worked hard to reduce emissions in the past will find it more expensive to do so in the future.

The policy also creates investment uncertainty because it is narrowly targeted and transitional and would replace the existing carbon pricing scheme under which projects have been planned.

A final issue is the way it encourages wasteful lobbying. Each project must be approved by a government-appointed technical committee and, at least as the policy is currently written, industry must incur the project costs upfront and perhaps receive funding later. This encourages an aggressive lobbying effort to secure the funds.

All this suggests that it is extremely unlikely that many will participate in the scheme. Firms don’t have to, they are not punished for business as usual, and they may not receive any funding.

Indeed, in the similarly structured Howard government’s Greenhouse Gas Abatement Scheme, only 30% of the funds were ever paid out and there were failures with the projects originally approved.

Perhaps, however, there is one group of producers who will participate in the scheme – those firms with the greatest economic and political power in our economy and the worst polluters.

Large, high-polluting firms with market power could pass on to consumers any initial cost of their investment in emission reductions. If they then receive funding, as they are likely to do given their power and the relatively lower cost of their emission reductions, they will reap windfall gains.

Such an outcome suggests that the Coalition’s policy is simply a handout for big industry. Yet, they seem to be suggesting they have political courage by stating they will repeal the carbon price if elected. Instead, real political courage requires a government that will stand up to business and face the moral obligation to reduce Australia’s CO2 emissions.