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Palmer deal gives green light to Direct Action – experts react

Environment minister Greg Hunt will now push forward with his Direct Action policy, after successfully negotiating with Clive Palmer. AAP Image/Alan Porritt

The federal government’s Direct Action climate policy, a A$2.5 billion scheme aimed at paying polluters to cut their greenhouse emissions, is set to be approved in the Senate after a deal between environment minister Greg Hunt and Palmer United Party leader Clive Palmer.

The policy will see the government introduce its Emissions Reduction Fund, the centrepiece of the Direct Action plan, in exchange for agreeing to a review of emissions trading around the world – despite the government pledging never to return to emissions pricing after repealing the carbon tax in July.

The deal also earns a reprieve for the Climate Change Authority, which will carry out the emissions trading review having now been saved from the government’s earlier plan to abolish the agency.

Below, experts react to the new developments.

Frank Jotzo, Director, Centre for Climate Economics and Policy, Australian National University

Direct Action is a subsidy scheme that gives taxpayers’ money to companies for claimed emissions reductions. It is vastly inferior to putting a price on emissions.

If a future Australian government is serious about significantly reducing emissions in an economically sensible way, then emissions trading or a carbon tax must be brought back.

It is sensible for the Climate Change Authority to investigate other countries’ emissions trading schemes, even though Minister Hunt called it a “gesture”.

The authority’s report will show that many countries have emissions trading schemes in place, and more are coming. Crucially, China now has regional carbon-trading schemes that cover more than twice the emissions under the scheme that was in place in Australia, and a national Chinese scheme is in preparation.

The Authority should also be asked to take stock of the many other policies that countries use to restrain their emissions. These range from aggressive energy-efficiency standards, to support for renewable energy and limits on coal-fired power generation, and of course energy and carbon taxes.

Australia is falling behind on practically all of these measures.

Jemma Green, Research Fellow, Curtin University

The Direct Action policy still gives a worrying sense of being on a diet but without stopping eating cream buns.

Of the standout issues, which I highlighted in my Conversation article in April, many still remain:

  • The “baselines” (the starting point from which emissions are to be reduced) are determined from the high point of the past five years, which means polluters are starting from a very high base and may not need to reduce much at all to comply with the policy. This differs from many other baseline and credit schemes around the world, which look at the emissions delivered by the best available technology in each sector of industry, and then use that standard to determine an appropriate baseline for that sector.

  • No more funds are available beyond the A$2.5 billion pledged by the government, even if this doesn’t result in Australia reaching its emissions reduction target. A number of independent research institutes have calculated that a lot more money will be required, ranging from A$4 billion to A$35 billion.

  • It’s going to be very expensive to scale up to bigger emissions reductions beyond 2020, and many other countries are increasing their commitments. China, for example, has signed eight pacts with the United States focused on carbon storage, utilisation and smart grids, and has also signed a series of deals with the United Kingdom on energy and low-carbon technology.

One safeguard has been put in place in Direct Action, to ensure that for the sectors not covered by Direct Action, their emissions growth doesn’t dwarf any reductions seen by companies that are reducing emissions inside the Direct Action tent.

Probably the most peculiar thing in today’s announcement was Clive Palmer saying that an emissions trading scheme is the most important thing for Australia, and therefore we will wait until after the United Nations climate negotiations in Paris in December 2015 to see whether Australia will adopt one.

In matters of climate policy, some countries lead and some watch others. If the targets are not reached, these policies will need to be reviewed and new policies introduced. The big question remains: who will be in government when this transpires?

John Quiggin, Professor, School of Economics, University of Queensland

As a Member of the Climate Change Authority, I’m naturally gratified to see that the value of our work has been recognised by the government and the Parliament. Much more important, though, is that the option of an emissions trading scheme has been kept alive and that it will be the subject of rigorous study.

The overwhelming view of economists is that a price-based measure such as an ETS is a critical component of a carbon-mitigation policy and a natural complement to policies of Direct Action.

Caroline Sullivan, Professor of Environmental Economics and Policy, Southern Cross University

What appears to be a compromise on climate policy for Australia will soon become reality, opening the way for carbon-reduction schemes to be put in place across the country. While the focus may be on emissions reduction by large emitters, the fact that the use of overseas carbon offsets has been rejected provides opportunities for organisations in Australian regions to capture some of the potential offset market.

With vegetation and soils having capacity to act as carbon sinks, there is no reason why some of the A$2.5 billion set aside in the government’s Direct Action plan cannot be used to pay for Australian-based offsets to cover that inevitable portion of emissions which will continue to be made under any climate policy scheme.

As we will always need energy, some level of emissions will continue to be produced, so let us consider how this relatively large sum of money can not only help to motivate carbon reductions from large emitters (through the Emissions Reductions Fund), but could also provide a hugely important (and much needed) economic stimulus for rural and regional Australia.

Hopefully, with Senator Xenophon’s proposed “safeguard mechanism” in place, we will be able to ensure that this policy will not just become an excuse to emit more carbon.

Neil Perry, Research Lecturer, University of Western Sydney

Something is usually better than nothing. The securing of the Direct Action plan in parliament, however, does not fill me with such thoughts.

In my opinion, the carbon pricing scheme fell into this category of something being better than nothing. While the commodification of nature can undermine the conservation of nature, the carbon pricing policy was at least symbolically important. It made some polluters pay for the social cost of their production. It could have, over time, contributed to changing values in society, which is ultimately needed for true environmental protection to take place.

In contrast, despite the rhetoric, the Direct Action scheme is a voluntary emissions reduction policy that simply appeases big polluters. That is, polluters do not have to participate and they are unlikely to unless they see a business case – a window of opportunity to profit from carbon reductions.

This scheme will not contribute to changing societal values and it is not symbolically important because it rewards firms for being big polluters.

Greg Hunt says he wants to concentrate on “practical things in Australia right now that will actually reduce emissions”. If that is the case, he should get behind, and strengthen, the Renewable Energy Target. Instead, the government has increased investment uncertainty in the renewable energy industry by publishing another review that weakens the target.

Ultimately, the only good thing arising from the deal to secure the Direct Action plan is the retention of the Climate Change Authority. The authority will provide a countervailing voice on the Renewable Energy Target and, hopefully, the government will in time learn to trust this voice and implement meaningful emission-reduction targets and policies.

Alan Pears, Sustainable Energy and Climate Researcher, RMIT University

If the scheme is carefully designed, it could support a business-run “baseline and credit” trading scheme – not dissimilar to the ASX.

This would allow the government to say it isn’t implementing an ETS but would give industry the flexibility of a trading mechanism – which industry would prefer.

There was extensive debate over the best form of ETS within Australia (the then Australian Greenhouse Office published an excellent series of explanatory discussion papers) as well as globally. The (by far) majority view of economists and policy makers was to prefer a “cap and trade” model over “baseline and credit”.

For government, the issues seem to be:

  • It would have to work out a credible mechanism for setting (and adjusting) baselines. This is very challenging as it is very difficult to gain access to quality information, and the demise of the Energy Efficiency Opportunities program has removed one effective way of understanding industrial realities instead of the claims made by companies about what is possible.

  • It would have to define the boundaries of the scheme: would existing power stations, coal seam producers, petroleum suppliers, etc be included? This could lead to hot debate and create uncertainty.

  • Those monitoring the performance of the scheme would have a lot of political opportunities to highlight “rorting” and manipulation.

  • Given the likelihood that the initial baselines and targets would be generous to existing emitters, there may be a need to frequently tighten the cap on overall emissions – and hence the individual baselines. Failure to regularly update the scheme design would lead to low carbon prices, and windfall profits for incumbent industries – which some interest groups may quite like!

This could also cause uncertainty, unfair decisions and encourage game playing within industry, which may create pressures and power games within industry associations. If the trading scheme was industry-run, such intra-industry conflict could become quite nasty, eventually leading to calls for government to take it over…

But this approach would allow the government to maintain its public stance that it is opposed to emissions trading (but industry is free to trade if it wants to), and it could use a package of mechanisms to drive action, including the Emission Reduction Fund and mechanisms that use new names (but utilise the experience gained in recent years) to replace the Clean Energy Finance Corporation, Australian Renewable Energy Agency, Clean Technology Innovation Fund, etc. This would allow the government to “lubricate” progress.

Given its present negative attitude to regulation, which is an effective form of direct action, it is unclear to what extent the government might rely on other policy tools to drive abatement.

This seems to be yet another example where pragmatic compromise and incumbent vested interests will drive policy rather than elegant, optimal policy design. Sounds a lot like tax policy!

Ken Coghill, Associate Professor, Monash University

There are several fundamental weaknesses in the Palmer-Hunt version of Direct Action:

  • The target (5% reduction on year 2000 emissions) remains among the weakest among comparable countries, despite producing more carbon pollution per person than any other developed country in the world.

  • The target makes no commitment to any further reductions beyond 2020, in contrast to the European Union which will cut emissions to 40% below 1990 levels by 2030.

  • There are no effective sanctions for any business that betrays the public interest by increasing emissions above their baseline.

  • The timing of the review report is a missed opportunity for Australia to prepare for negotiation at the Paris Conference in late 2015, at which most of Australia’s competitors will report support for emissions trading as the preferred policy instrument.

Reactions compiled with the help of the Australian Science Media Centre.

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