03 June 2011

'Direct Action' could reward polluters rather than discourage

First published in Crikey, 3 June 2011

Without any mechanism to discourage additional carbon emissions, the Coalition’s "direct action" climate plan may perversely reward them.

The Coalition plan proposes cash rewards for actions to "support 140 million tonnes of abatement per annum by 2020 to meet our 5% target", at a cost to taxpayers said to be $3.2 billion over the first four years. (The government now assesses that abatement task at 160 metric tonnes, for the meagre 5% goal of both major parties -- which stands in sharp contrast to the carbon budget approach advocated in the recent Climate Commission report.)

The Coalition plan does not discourage additional pollution, whether from new industrial investment or increased energy use accompanying population growth and increased household consumption. At $25 a tonne, the plan’s budget for 2012-13 would buy 20 million tonnes of abatement. Economic growth of 4% would be enough to nullify most of that.
And the plan is predicated on a 2011-12 start, but the earliest the Coalition is likely to get near a federal budget is 2014-2015. With less time, and a higher abatement target than specified, the plan’s year-by-year costings are not credible.

"We are committed to incentives rather than penalties," says the Coalition, but proposes businesses that "undertake activity with an emissions level above their 'business as usual' levels will incur a financial penalty".

A "financial penalty"? In plain language, a carbon tax. So, carbon pollution for new activity above a company’s "business-as-usual" emission baseline at the start of the scheme would be taxed after all? No, says the Coalition: "Provision will be made to ensure penalties will not apply to new entrants or business expansion at 'best practice'."

So long as a new coal-fired power station or mine can be considered, by that most indefinite of terms, "best practice", additional emissions face no penalty.

And here the devil is in the detail: for a party that espouses minimising the role of government, it is ironic that every business investment which involves substantial emissions will need to be scrutinised in minute detail by government. Is it a routine plant upgrade? Or a new and genuine abatement project eligible for a Direct Action Plan handout? Is it world’s "best practice", or not, and so subject to "financial penalty"? If Hazelwood power station patches up an out-of-order generator, can it receive a handout by turning it off again, and claim abatement? Or not repair it, and claim abatement cash for keeping it offline? Take an old, polluting plant out of mothballs, and put your hand out?

These problems of "additionality" and genuine abatement have plagued and undermined the world’s first experiment in "direct action" -- the Kyoto Protocol’s Clean Development Mechanism. In one spectacular instance, a US$5 million incinerator in China that was built to destroy hydrofluorocarbon gases earned European investors $500 million.

The Coalition has no mechanism to discourage new emissions. Some emissions may be poured out of the pollution bucket by their plan, but there will be a tap pouring in new emissions driven by the mining boom, by population and economic growth, and perverse incentives.

When you pay people to fill in holes, don’t be surprised if they try to make a living digging new ones.