Climate White Paper creates only uncertainty

by Tony Wood

Published by The Australian Financial Review, Tuesday 29 April

Federal Environment Minister Greg Hunt has released a white paper on the proposed emissions reduction fund (ERF), the centrepiece of the government’s Direct Action plan to reduce Australia’s greenhouse gas emissions by 5 per cent below 2000 levels by 2020.

Is the white paper a substantial policy instrument to meet this target effectively and efficiently or a fig-leaf policy from a government with a strong climate-sceptic leaning?

The government was elected with a climate change policy consisting of two fundamentally separate parts.

The first is the long-term policy framework, due in 2015, which promises to support global efforts to address climate change by keeping average temperature increases to below 2 degrees centigrade.

The second is the Direct Action plan and associated programs intended to meet the 5 per cent reduction target.

The ERF is a short-term mechanism to meet a short-term target. It is therefore pointless to criticise the white paper as failing to comprehensively address climate change when it is not designed to do so. Rather, it should be judged on the government’s own criteria: will it help to meet the target by delivering genuine emissions reduction at lowest cost and with streamlined administration?


One thing we do know is the ERF will be used to fund a system of reverse auctions, in which organisations tender for funds to deliver emissions reductions. Reverse auctions are indeed one way to deliver effective and cost-efficient emissions reductions. Yet their effectiveness and efficiency will depend on the design parameter details. It is on five criteria that we should judge the ERF and the Direct Action plan.

First, is there enough money to pay for the projected emissions reduction and meet the target? Mr Hunt continues to exude the confidence of the 2010 Direct Action plan, put together in opposition and with numbers to show that the target can be met on time and on budget.

In the meantime, professor Ross Garnaut and other critics have produced analysis to the contrary. The white paper provides no evidence to support the Minister, only confirming previously announced funding of $2.55 billion over four years while failing to provide any estimate of the ERF’s expected contribution to meeting the target.

Second, the cost of meeting the target could increase over time, probably substantially. Growing businesses may increase their emissions and new businesses could produce more, offsetting reductions paid for by the ERF. The white paper recognises the issue but has deferred a solution.

Third, by limiting the term – possibly five years – for which the government will contract for emissions reductions, there is a likelihood that large, low-cost projects that will deliver emissions reductions over much longer periods will be excluded. Again, problem acknowledged, but solution deferred.

Fourth, if the current review into the Renewable Energy Target decides to scale back the commitment of previous governments to source a fixed amount of Australia’s electricity from renewable energy by 2020, the change will make it harder and more expensive for the ERF to meet the overall emissions target. The white paper offers no detail on how the government intends to co-ordinate development of the ERF with the review.

Fifth, the nature of the ERF requires that any emissions reductions go beyond “business as usual”. In other words, companies should not be able to claim funding for emissions cuts they would have made anyway. This principle is hard to prove, though the white paper makes an attempt through a range of new concepts, processes and working groups. Yet another case of hard yards still to be covered.


Finally, the white paper should be judged on the administrative burden that will be imposed to meet the above criteria. The range of new processes and structures it proposes suggests the burden will be substantial.

A recent report from the American Academy for the Advancement of Science concludes “the overwhelming evidence of human-caused climate change documents current impacts with significant costs and extraordinary future risks to society and natural systems”. The white paper should be a first step to addressing these impacts and risks, and to developing a credible, long-term climate change policy.

But it does not address the above criteria to prove that the government’s own design principles will be met. An opportunity to set Australia on a responsible path to addressing climate change has been squandered.

Securing Senate support will be even harder than it might have been, while replacing a flawed ETS with a worse substitute will set back climate change policy by many years. Investors in the energy sector will be paralysed by the ongoing threat to efficient investment that uncertainty creates and those who care about the future will despair. There is much at stake and much work to do.