In November the Turnbull Government ratified Australia’s commitment to comply with the Paris Agreement on Climate Change. Australia has set a target to reduce emissions by 26 to 28% below 2005 levels by 2030, which builds on the 2020 target of reducing emissions by 5% below 2000 levels. The 2030 target is equivalent to about 13% below 2000 emission levels so the 2030 target is not as good as it sounds.

Currently the government’s main plan to reduce greenhouse gas emissions to meet our obligations under the Paris Treaty is called the Direct Action Plan. Introduced in 2014, the scheme operates by reverse auction, funding projects voluntarily proposed by the private sector. Projects are selected on the amount of greenhouse gas emissions expected to be abated at the cheapest price. So far $1.7 billion has been allocated out of a budget under the Emissions Reduction Fund (ERF) of $2.55 billion over 4 years.

Direct action also involves an emissions ‘safeguard mechanism’ to discourage large emitters from increasing their emissions above historical benchmarks. It commenced on 1 July 2016. It is not clear yet whether the rules will be effective in controlling increases in emissions.

This article draws on two recent analyses of the effectiveness of the Direct Action Plan:

• Paul J Burke, Undermined by Adverse Selection: Australia’s Direct Action Abatement Subsidies, Australian National University, April 2016
• Margaret Blakers and Margaret Considine, Mulga Bills won’t Settle our Climate Accounts: An Analysis of the Emissions Reduction Fund, The Green Institute, November 2016

Risk of Adverse Selection

Paul Burke questions the effectiveness of the direct action projects because of fundamental flaws in the scheme design:

1. There is no way of preventing the direct action scheme subsidising projects that would have gone ahead anyway. For example funding has been provided for replacing machinery that is inefficient and upgrading lighting in supermarkets. These projects would provide a financial benefit to the proponent in any case so a subsidy has no justification.
2. The international rules of carbon accounting require additionality. This means that credit for emissions reductions must not include changes that would have occurred anyway, say, because of legislation.
3. The information about emissions expected to be abated will depend on a definition of baseline emissions, that is, what emissions would have been if the project had not been implemented. It is the proponent’s responsibility to identify their baseline in accordance with approved methods, and there is some flexibility. The government’s inability to know true project baselines creates a major challenge. Projects with overgenerous baselines will be able to submit relatively low auction bids because the abatement they offer will be easy to achieve, and thus cheap. These bids are well placed to secure funding. If the baseline is higher than business as usual, in the end the project will deliver less abatement than notionally indicated.

Effectiveness and Value for Money of Abatement to be Delivered

Margaret Blakers and Margaret Considine have undertaken the first ever analysis of the ERF auctions. They found that direct action not only fails its own test of delivering ‘real and additional’ emissions reductions, but also that it cannot serve as the foundation for more serious action without very substantial changes to its architecture. Their key findings are:

1. Large sums of money (around $1.2 billion) have been poured into protecting land sector carbon. At the same time there is no federal policy safeguarding existing landscape carbon stocks. They are turning a blind eye to state governments rolling back land clearing controls. The entirety of the abatement purchased by the ERF so far (143 Mt CO2-e) at a cost of $1.73 billion accounts for less than 20% of projected emissions from land clearing up until 2030.
2. Over half of all abatement comes from just two mulga-dominated bioregions in south-west Queensland and western NSW. The value of ERF contracts in and around these regions is about $1 billion. With carbon payments estimated to average $195 per hectare, this represents many times the per hectare value of land in the region. Paul Burke makes a similar point. This situation only applies to land with existing land clearing permits predating 1 July 2010. The payments rest on the assumption that clearing would have happened without the subsidy. No doubt some vegetation has indeed been preserved, albeit at a high price. Some of the spending has questionable additionality, however, given that the incentive to clear was anyway rather low (clearing is expensive and the productivity of the land is low).
3. Much of the scheme’s expenditure has either been wasted or is at risk due to doubtful additionality (as per Paul Burke’s examples) and lack of permanence. 25% of ERF abatement has a ‘permanence’ period of only 25 years, after which time landholders regain ‘full land-use flexibility’. As well, the concentration of abatement in the semi-arid mulga regions carries its own risks such as from drought and climate change itself.

Fundamentally the ERF abatement profile is at odds with Australia’s emissions profile. Over 80% of our emissions are from industry, but 80% of direct action abatement is from the land sector. Only 4% is from the energy and industrial processes sectors, which produce most of Australia’s emissions.

Inadequacies in Methods for Vegetation Abatement

All the methods apply to ‘forest’ which is defined under the international rules. No methods are available at present for non-forest native vegetation or existing native forests on public land. Native forests on private land protected by legislation or covenant do not qualify because they are required by law to be protected.

Most landscape carbon resides in natural ecosystems. If well-managed, these will be resilient and are likely to persist and accumulate large carbon stocks in soils and plants over decades and centuries. Natural ecosystem management requires coherent, continental-scale policies and funding for the long term coordinated by the states and Commonwealth, not the ad hoc project funding that direct action provides.

The ERF is failing the climate, failing the land sector and failing the budget. To be credible, Australia’s climate policies must address the land sector in its own right and must stem the loss of carbon from the landscape caused by clearing, logging and other forms of degradation.

Ultimately the only effective long-term strategy to reduce Australia’s greenhouse gas emissions is to place a direct price on emissions.