Scientists back carbon pricing over direct action

The government’s Direct Action Plan will cost more than the existing price on carbon and is unlikely to meet emissions targets, say environmental economists. Tim Dean reports.

Australia has agreed to cut carbon emissions by a minimum 5% on 2000 levels by 2020. – AAP Image/Julian Smith

As governments around the globe wrestle with climate policy, aiming to cut maximum carbon with minimum pain, Australia looks poised to embark on a unique experiment. The Coalition government that came to power last year wants to throw out the current “carbon tax” and replace it with a “direct action” climate plan, a scheme to directly pay polluters to reduce carbon emissions.

Until now, the proposal has been hazy. In late April the government released new details of the plan, which have failed to impress the analysts.

Independent experts calculate that, under the scheme, Australia will miss its carbon emission reduction commitments, and any cuts that are achieved will be significantly more expensive than under the existing carbon pricing arrangements.

More significantly, the experts argue that the plan has little hope of achieving the far deeper cuts in emissions the Intergovernmental Panel on Climate Change (IPCC) says will be crucial if we are to limit global warming to less than 2°C this century.

So far, Australia has agreed to cut its carbon emissions by a minimum 5% on 2000 levels by 2020. That amounts to shedding at least 421 megatonnes of carbon dioxide (or equivalent reductions in other greenhouse gases) by 2020 compared to business-as-usual projections.

In a bid to meet this goal, the previous Labor government set up a carbon pricing scheme, in which big polluters had to buy (or, in some cases, were granted) permits for every tonne of CO2 they emitted. But political opponents branded the scheme "a giant new tax on everything”, and swept to power in the 2013 federal election with a battle cry to “axe the tax”.

Under the incoming Coalition government's direct action plan, polluters bid for carbon-cutting projects and, like an auction in reverse, the government pays the lowest bidder the amount needed from an Emissions Reduction Fund (ERF). Clearly, the volume of cuts the ERF achieves depends on how much money the government puts into the pot to reduce emissions. And there’s the rub. According to independent research, the amount they have committed to the scheme falls well short of what’s needed.

Most climate scientists agree much deeper cuts are needed to have any
chance of keeping temperature rises below 2°C this century.

The government has committed $2.55 billion to the fund over four years, with another $1.2 billion expected each year after that until 2020. The government has also been adamant that it does not intend to add any more funds to the ERF over its lifetime. That gives a total of $4.95 billion to cut the required 421 megatonnes by 2020.

Tap those numbers into a calculator and the flaws immediately appear. They equate to a price per tonne of CO2 of $11.76. But cutting carbon costs more than that, and so the money committed to the ERF will not stretch far enough to achieve the 5% emissions cut.

An independent think tank, the Grattan Institute, says the cost of each tonne of CO2 abated by New South Wales’ carbon trading scheme, which operated for a decade up until 2012, was between $15 and $40. Since 2009, the price per tonne of CO2 in NSW’s Energy Savings Scheme has ranged between $15 and $32.

And a study by Rick Roush, Dean of the Melbourne School of Land and Environment, and colleagues published in Nature Scientific Reports last year found that the cost of soil carbon sequestration, one of the proposed pillars of the direct action plan, was at least $36 a tonne.

Even if we assume carbon cuts can be achieved for $25 per tonne of CO2, the money committed to the ERF would cut less than 200 megatonnes over its lifetime, falling far short of the 421 megatonne target.

To reach the 2020 emissions target, analysts at consultancy group SKM–MMA and Monash University’s Centre of Policy Studies for the Climate Institute found the government would have to spend an extra $4 billion.

That’s a lot of money – and it’s just to achieve a 5% cut. Most climate scientists agree much deeper cuts are needed to have any chance of keeping temperature rises below 2°C this century. The Climate Change Authority, an independent body established by the federal government in 2011, has recommended cutting emissions by 15% on 2000 levels by 2020. This amounts to cutting a further 427 megatonnes of CO2.

Analysts agree the existing carbon pricing scheme that the Coalition is itching to junk, and the emissions trading scheme (ETS) it was intended as a stepping stone towards, are a more effective and cost-efficient way to reduce emissions. One economic benefit of an ETS, for example, is that it lets market forces find the cheapest ways of reducing emissions, rather than the government choosing those it believes will be most likely to work.

Of the many economic appraisals of alternative climate policies, “the overwhelming conclusion is that a well-run emissions trading scheme is the most efficient, lowest-cost way to reduce greenhouse gas emissions,” says Kevin Parton, at the Institute for Land, Water and Society at Charles Sturt University.

Frank Jotzo, who directs the Centre for Climate Economics & Policy Crawford School of Public Policy at the Australian National University, agrees. In a submission to the government on the Direct Action Plan, he states that “carbon pricing, in particular emissions trading, would allow Australia to meet the unconditional national emissions target ... at low economic cost, and international trading in emissions permits would allow Australia to achieve a more ambitious target at little additional cost”.

And that cost doesn’t come from the taxpayer. An ETS would add to government coffers because emitters pay for each tonne of CO2 they release. The Climate Institute has estimated the existing carbon price would generate $18 billion in revenue to 2020.

The money to fund the ERF, in contrast, comes straight from the public purse, hitting the budget bottom line. That places the cost of cutting emissions on the shoulders of taxpayers rather than polluters, says Alan Pears at RMIT’s School of Global, Urban and Social Studies. “The ERF shifts the cost of abatement from high emitting businesses and energy consumers to all tax payers. Since many high emitting businesses pay little Australian tax, this is also a shift of costs to households and small business from large emitters.”

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