Why direct action on climate change fails

The reasons why Opposition proposals to reduce greenhouse gas emissions through Direct Action (DA) are flawed and open to abuse have been eloquently and cogently put by Malcolm Turnbull. This paper does not seek to repeat those considerations but rather look at the effectiveness of Liberal Party proposals for DA as a means of reducing greenhouse (CO2-e) gas emissions.

The DA proposal calls for “business as usual” with taxpayer funded financial rewards offered as incentives for business to voluntarily reduce CO2-e emissions. By contrast, government proposes to place a cap or limit on the level of emissions which may be made each year by the leading one thousand CO2-e emitters and imposes penalties on those who do not comply.

In each case, the outcome aimed for is that by 2020 Australia’s emissions have been reduced by 5 per cent below 2000 levels. This calls for annual reduction of 0.5 per cent of the 535 million tonnes emitted in 2000 (27 million tonnes), plus 0.5 per cent of increase in emissions (15 million tonnes) which occurred during the decade 2000-2010 (about 0.075 million tonnes) plus 100 per cent of subsequent annual emissions (estimated as 3 per cent growth or an average 18.91 million tones) occurring in 2011-12 and each year thereafter.

In summary, to achieve a 5 per cent reduction on 2000 emissions by 2020, Australia needs to reduce its emissions by an average of about 61m tonnes per annum from 2011-12 to 2019-20, a total of 550m tonnes over the period. Failure to achieve the annual target simply increases the target which must be met in future years, if the decade total is to be met. Further, it is far from clear that the DA proposal addresses the conservative 3 per cent annual growth in demand for energy.

It is unlikely in the extreme that annual targets of this magnitude could or would be met by the DA scheme at the carbon price being offered by it. That price is simply too low. To achieve a 5 per cent reduction target, industries responsible for emissions would have to be offered much higher inducement than a carbon price of $10-$15/tonne to develop and adopt alternative technology or reduce their use of fossil fuels. Even if a more realistic $25/tonne were offered in 2011-12, under the DA proposal, response of industry would be entirely voluntary since it involves no compulsion or penalties, with one exception.

The scheme provides that “Businesses that emit above their ‘business as usual’ levels will incur a financial penalty”. Neither the magnitude nor nature of the penalty to be imposed is specified in the policy statement. One is left to wonder how such a penalty might inhibit, even retard expansion of the economy or of individual businesses?

Funding of a higher inducement would be an additional impost on the taxpayer with absolutely no guarantee that it would achieve the desired result. Further, the DA proposal is based on the assumption that the price of carbon remains unchanged over the decade, whereas the Department of Climate Change predicts that it will rise to $50/tonne by 2020.

The consensus among climate scientists is that if a rise in global warming is to be kept to less than 2C by 2100, it will be necessary to reduce global CO2-e emissions by 25-40 per cent below 2000 levels and do so by 2020. If Australia, together with other major emitters, is to make a meaningful contribution to reducing the rate of global warming, it will have to achieve a reduction of at least 25 per cent below its 2000 emissions, five times the present annual target of 61m tonnes.

As global warming increases, countries not achieving internationally agreed targets may be subjected to penalties such as a carbon levy on exports, imposed by the UN or by those countries which do meet reduction targets. That would make their exports less competitive, lead to reduced production and use of less energy emitting greenhouse gases by the offending country. To avoid punitive action of this kind, Australia must adopt and implement a reliable, efficient and cost effective mechanism for reducing its emissions.

Government proposals for an ETS are well equipped to deal with an emissions reduction target five times higher than that currently aimed for. To meet a higher target, it needs to increase the annual cap on emissions, let the market place a price on carbon and provide households compensation for resulting higher energy costs. The DA proposal has no mechanism for achieving a higher level of emissions reduction and since it can not achieve a 5 per cent reduction by 2020, it will not achieve substantially higher targets.

Implementation of an ETS necessitates placing a price on carbon which penalises those responsible for CO2-e emissions. Importantly, it also stimulates development and use of technology required for efficient and cost effective production of energy involving progressively lower emissions. It encourages CO2-e emitters to adopt that technology.

The DA proposal does not involve the pricing of carbon by the market but arbitrary lower pricing by government. It therefore provides no such stimulus for technology or its use for production of low or no emission energy.