Why Direct Action won’t make the cuts we need

Direct Action has nothing to compel the most polluting companies to make the emission cuts we need.

The Coalition government’s Direct Action policy has become law after passing the lower house on November 23.

The centrepiece of Direct Action is the Emissions Reduction Fund. Under this scheme, the government will pay for projects that will reduce CO2 emissions "at least cost".

Businesses, farmers, community organisations, local councils and individuals will be able to compete for $2.55 billion in government funding for projects to reduce their emissions.

Participants will take part in a “reverse-auction” in which they will bid to implement projects to reduce emissions at the lowest price. If they are successful, they will be issued with Australian Carbon Credit Units (ACCUs), which the government will buy from them on completion of the project.

The government is still in the process of creating methodology that it says will ensure emissions cuts will meet the criteria of being “both real and additional to business as usual”.

Prime Minister Tony Abbott says this is a cheaper way to deliver emissions cuts compared to the former Labor government’s carbon price.

However, there is nothing to stop companies being granted funding for projects that they would have implemented anyway. And, unlike the carbon price, Direct Action is a voluntary scheme so there is nothing to compel the most polluting companies to make the large emission cuts that are urgently needed.

Safeguard mechanisms

Independent Senator Nick Xenophon successfully amended the legislation to include a “safeguard” mechanism to keep companies within a baseline level of polluting. This is to stop one company raising its emissions while others are lowering them, which would cancel out the emission reductions overall.

If a company exceeds the baseline emission limit, it will need to buy excess carbon credits from other companies.

This safeguard mechanism is due to begin in July 2016. The details of the baseline level, which industries it applies to and the penalties for exceeding it are yet to be negotiated and will be implemented through separate legislation. This not only leaves a gap during which there is no constraint on emissions, but it could introduce a big loophole into the scheme.

If the baseline is set too generously, companies could be given funding for very little reduction. The government has indicated it believes the baseline should not apply to electricity generators, transport, agriculture or deforestation.

Even the toughest environmental legislation falls down in practice when it relies on compromised governments to enforce it. Given the mining industry already enjoys large public subsidies, no one should be surprised when it uses its enormous power to negotiate generous conditions.

History shows that Abbott, who has declared coal is “good for humanity” is not interested in policing the most polluting industries.

Greens leader Christine Milne criticised the legislation, saying: "The dodgy Direct Action scheme is nothing more than voluntary grants that will allow polluters to get their sticky fingers into taxpayers' pockets. There is no modelling or any evidence to suggest it will do anything at all to reduce pollution.”

Emission targets too low

The Australian government says it is on track to meet its target of reducing emissions by 5% compared to 2000 levels, by the end of 2020.

However, independent analysis suggests Direct Action might not be able to achieve it.

Alex St John and Kai Swoboda found “the government must acquire 421 million ACCUs by the 2020–21 financial year” if it is to meet its 5% target.

“Our analysis suggests that the ERF will have spent $2.25 billion by 2020–21, which means that the average price the government can pay is $5.35 per ACCU. It is not clear if this price will be sufficient to purchase enough abatement to reach the target; currently similar certificates from other state-based energy savings schemes are trading in the range of $8-18 per tonne of avoided emissions.”

However, the government may have drastically underestimated its emissions. A new report by the United Nations Environment Programme released on November 19 found Australia is on track to emit 710 million tonnes of CO2 by 2020. This is well above government estimates of 555 million tonnes.

Even if Australia does reach the 5% target, it is a paltry amount that does very little compared to what is needed. Market mechanisms, whether Direct Action or a carbon tax, cannot deliver the large emissions cuts the planet desperately needs.

Climate change getting worse

The Intergovernmental Panel on Climate Change released its final report on November 3. It warned the Earth is on track for a 4ºC degree rise by 2100, and called for substantial cuts in emissions by mid-century through large-scale changes in energy systems.

This change in the energy systems — switching from coal to renewables — will not be delivered by the market, which is dominated by the fossil fuel industry.

Instead, the government should directly target the handful of companies that are responsible for most of the carbon emissions in Australia.

Speaking at the Greens.Reboot.Future conference in Sydney in September, carbon markets researcher Gareth Bryant said: “Just 10 owners, made up of 7 corporations and 3 state governments, were responsible for close to two-thirds of the emissions covered by the carbon price.

“They were, in order: AGL, Energy Australia, GDF Suez, the Queensland government, Origin, Woodside, Rio Tinto, the governments of WA and NSW and BHP Billiton.”

These companies have made many billions of dollars profit in their lifetimes and have the resources to clean up after themselves. Those that refuse should be put under public ownership and non-essential features can be shut down.

The government can then spend public money on directly investing in large-scale renewable energy.

It will take transformation on this scale to win the cuts we need.

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