Is direct action enough?

If Treasurer Scott Morrison really believes Australia is faced with an expenditure problem, rather than a revenue shortfall, he need look no further than the Emissions Reduction Fund (ERF) to reduce government expenditure by $1.4 billion. The fund was established to pay greenhouse gas emitters to reduce their emissions, replacing Labor legislation which taxed the worst emitters for their emissions.

The ERF has been funded with $2.55 billion. Prime Minister Tony Abbot made it clear that these funds were capped, irrespective of their adequacy in reducing emissions to 5% below 2000 levels by 2020 and 26-28% below 2005 levels by 2030. The first auction of bids from industry to reduce emissions resulted in the fund purchasing 47.3 million tonnes of carbon for $659,835, putting a price of $13.95/tonne of carbon.

Paying people not to emit greenhouse gasses rather than taxing them if they do is a legitimate though extravagant approach. In our present circumstances of burgeoning public debt, The Prime Minister and his Treasurer must ask … 'is it affordable, is it the most cost effective means of reducing emissions and realistically, what are the risks of it failing to achieve reduction targets?'

Cost of Carbon

The Direct Action approach has many problems, not least being that the initial reverse auction attracted the cheapest carbon available at that time -the lowest of the low hanging fruit. It is very likely that among the lowest bidders were those who had approval for tree clearances which they did not intend to fully implement and willingly accepted payment from the ERF for not doing so, neither cost-effective or efficient.

The next auction will be less propitious. It will attract those less willing to reduce their emissions - those who can only do so at greater cost. On their part, they will demand higher compensation, resulting in higher bids. The initial market price of carbon will rise significantly without achieving greater bidding competition and subsequent auctions will achieve the same results, costing the taxpayer more and more to achieve less and less.

Yet Environment Minister Hunt assures us that Direct Action has got off to a marvelous start and will easily achieve announced 2020 and 2030 targets with available funds. This might be so were it not for a number of complicating factors apparently not fully taken into account by the scheme, particularly loss of carbon dioxide absorbing vegetation.

Vegetation Loss

Land clearance resulting in total loss of natural vegetation includes significant tree loss. Loss of trees and vegetation reduces their capacity to absorb carbon dioxide from the atmosphere. Worse, it results in carbon already stored in trees and other vegetation being released back to the atmosphere when they die and decompose. Yet major land clearance is a continuing feature in rural Australia. It results from human activity and from bushfires.

Around 700,000 ha. of natural bush land is being cleared every year in Australia. During the tenure of the Newman government in Queensland land clearance was made a far easier process, a problem which the Palaszczuk government has yet to address. In Queensland alone more than 250,000 ha of tree covered land has been cleared in 2015 and is ongoing. This rate of attrition far exceeds the capacity of new tree plantings to absorb carbon dioxide from the atmosphere.

As global warming continues, it is likely to increase the number and severity of El Nino and La Nina events. El Nino's affect the east coast of Australia, intensifying drought conditions, increasing the incidence of bushfires and reducing the capacity of the land to produce food. They are followed by La Nina events which bring flooding rains which are often destructive and likely to initially constrain food production and distribution.

Industry Emissions