Blog | 29th Oct, 2014

Missed opportunities on Direct Action

Last night the Abbott government announced that it had reached a deal with Clive Palmer to legislate its ‘direct action’ policy. So four months after the repeal of the carbon price, it looks like we’ll again have a climate policy. The question is: is it any good?

There are two key components of Direct Action: (1) the Emissions Reduction Fund, (2) the Safeguard Mechanism.

The Emissions Reduction Fund (ERF) is a $1.15 billion bucket of money that the Government will give to companies who are proposing to implement something that will reduce emissions. (It was touted as being a $2.55 billion bucket, but the budget papers confirm it is less than half the amount originally promised). The range of projects that could be funded is quite wide – anything from soil carbon sequestration to energy efficiency. The scheme will select the lowest-cost ways of reducing emissions.

The safeguard mechanism sets baseline emissions levels for each “large emitter”. The theory is that each individual emitter won’t go above their historical emissions – a big assumption that is currently not adequately addressed by the legislation. The baselines are set against a company’s historical highpoint, which is too lenient: a better starting position would have been a “best in class” reference point. A particularly polluting factory should be required to keep pace with their less polluting competitors (something a carbon price would have addressed).

In practice, the scheme is voluntary – nobody will be required to do anything to reduce emissions. Without clear penalties for exceeding the baselines emission levels, there’s also no way of preventing increases in emissions. And even if the ERF delivers emissions reductions in one aspect of a company’s operations, that company could increase emissions from another part of their operations at no penalty. It’s like a diet where you only have carrots for lunch but all-you-can-eat doughnuts for dinner. Saving on one hand but letting loose on the other.

The big elephant in the Coalition party room is our electricity supply. At the prices likely to be paid from the ERF for Direct Action projects, it is highly unlikely that this policy will drive any change in the electricity sector. Burning coal and gas for electricity represents about 40 percent of national emissions (over 50 percent in Victoria), so a climate policy that essentially ignores these emissions is of limited value.

Modelling also suggests that there’s no way the money available will be enough to deliver the existing emissions reduction target of 5 percent. And let’s be frank: a 5percent emissions reduction target itself is hopelessly unambitious. It’s nowhere near what the science suggests is necessary, so at best, Direct Action is an expensive way of tinkering around the edges of a very serious problem.

Clive Palmer’s deal to pass the legislation in exchange for securing a review of emissions trading scheme is also a wasted opportunity. Instead of trading his votes for a string of beads, Palmer could have used his clout in the Senate to actually improve the legislation, chiefly through securing a stronger safeguard mechanism (without which the policy is worth nothing, despite costing billions). For all his grand-standing about being the saviour of climate policy, his efforts were badly misdirected. He might be a populist, but he’s also a coal baron.

Bernie Fraser, chair of the Climate Change Authority (long may they live), hoped this would be the “beginning of a broader political consensus” on climate change. The key test for any climate policy needs to be whether it will reduce emissions. As outlined above, it’s not clear that Direct Action can deliver, in which case it is not a great consensus. Given these failings, ensuring the continuation of a strong Renewable Energy Target now becomes non-negotiable.

Abbott and Hunt will trumpet Direct Action as a victory. For anyone who wants to see serious reductions in Australia’s emissions, it is not.