Fact Check: Was the cost of cutting emissions 100 times greater under Labor?

Updated

With Chinese President Xi Jinping announcing in September that China will put a price on carbon emissions and the world's leaders set to discuss emissions targets in Paris in November, Australia's carbon reduction policies are under scrutiny.

The claim: Environment Minister Greg Hunt says the Coalition's emissions reduction fund, at $13.95 per tonne of carbon, is around 1 per cent of the cost of reducing carbon under the former Labor government's carbon pricing scheme, which he says cost $1,300 a tonne.

Environment Minister Greg Hunt says the Coalition's emissions reduction fund, at $13.95 per tonne of carbon, is around 1 per cent of the cost of reducing carbon under the former Labor government's carbon pricing scheme, which he says cost $1,300 a tonne. The verdict: Experts told Fact Check that government revenue raised by the carbon price did not represent the cost of that method of reducing emissions and that comparing the carbon price, which raised government revenue, with the ERF, which is a government expense, didn't make sense because the money raised from the carbon price was distributed back into the economy. Mr Hunt's comparison of the two schemes is untenable.

Environment Minister Greg Hunt said in Question Time on October 20 that the Government was reducing emissions and bringing down electricity prices at the same time.

He said there were two aspects to delivering this: the first was repealing Labor's carbon tax.

The claim

"The second thing is, of course, that the first emissions reduction fund auction was a spectacular success - 47 million tonnes, $13.95 per tonne of abatement and approximately 1 per cent of the more than $1,300 per tonne cost of abatement under Labor's failed scheme," Mr Hunt said.

Is the cost of reducing emissions under the Government's "direct action" policy around 1 per cent of the cost of Labor's carbon reduction scheme? ABC Fact Check investigates.

Cutting carbon pollution

Labor's carbon pricing mechanism, which ran from 2012 to 2014, taxed the largest carbon-emitting companies for each tonne of carbon they emitted, creating an incentive for them to reduce those emissions and resulting in a revenue gain for the government.

Climate advisory panel A panel of experts has agreed to advise ABC Fact Check for its work on climate issues.

For this fact check, Tony Wood and Frank Jotzo were consulted.

Meet the full panel.

In contrast, the main component of the Government's plan to reduce carbon emissions is the emissions reduction fund (ERF).

Via the $2.55 billion ERF, the Government pays companies for projects that cut the amount of greenhouse gases they create, thereby creating a positive financial incentive for businesses to proactively reduce their emissions.

Projects include using landfill gas that would otherwise have put carbon into the atmosphere to generate energy, and reforesting marginal farmland, which captures carbon from the atmosphere.

The Government's documents on the ERF give the example of an agricultural processor that installs a plant to collect waste heat from electricity generation, which reduces the factory's carbon emissions by 15 per cent, for which it is paid from the ERF.

But there is no requirement for any company to reduce its emissions, although a safeguard mechanism to start in 2016 will ensure that large emitting companies are not continuing to increase emissions outside the scheme.

Pricing tonnes of carbon

Under the ERF, the Government holds auctions to buy contracts from companies that submit projects to reduce carbon emissions.

In the first auction in April, the Government contracted 144 projects that will in future reduce carbon emissions by 47 million tonnes.

It will pay the successful companies $660 million for these reduced emissions, averaging $13.95 per tonne.

These were the numbers a spokeswoman for Mr Hunt gave Fact Check to support his claim about the cost of the Government's scheme.

She told Fact Check the price of Labor's carbon pricing policy was calculated by taking the revenue the government earned over the two years the carbon tax was in place, and dividing it by the change in overall carbon emissions over that time.

Her starting point was the accrual revenue tables from the budget papers.

The 2013-14 final budget outcome shows that accrual revenue from the carbon pricing mechanism was $6.6 billion in that financial year and $6.5 billion in 2012-13.

She described these figures as "carbon pricing direct liability revenue" and said additional revenue brought the total for the carbon price mechanism to $13.5 billion over the two years.

"In addition to direct carbon price mechanism revenue, Treasury and the Department of the Environment estimated equivalent carbon tax payments in both 2012-13 and 2013-14," she said.

"Equivalent carbon tax payments include import levies on synthetic greenhouse gases, excise on aviation and non-transport gaseous fuels, and fuel tax credit reductions on off-road vehicle fuel use. These estimates are not published separately in the budget papers because they are part of broader revenue and expense items."

These estimates came to a further $1.8 billion over the two financial years, bringing the "total carbon tax accrual revenue" to $15.4 billion.

She said Labor's scheme reduced carbon emissions by 12 million tonnes, based on the greenhouse gas inventory for the three months to September 2014.

Free permits under the carbon tax

Paul Burke, an environmental economist at ANU's Crawford school of public policy, told Fact Check that the accrual revenue numbers include free permits.

Under Labor's carbon pricing mechanism, companies that faced high costs from the scheme were given free carbon units to assist them with the additional costs.

"No net payment was made to the government for those permits by the emitters," he said.

Bret Harper, director of research at carbon and energy analytics consultancy Reputex, told Fact Check the revenue collected from Labor's scheme was a lot lower than Mr Hunt claims.

"Many, many emissions-intensive, trade-exposed industries received their allocations for free," he said.

Real carbon reductions?

Ian MacGill, joint director, engineering for the University of NSW Centre for Energy and Environmental Markets, told Fact Check that the ERF involved "highly abstract calculations" of abatement and it may or may not genuinely reduce emissions.

"So the $13.95 a tonne for 47 million tonnes that's claimed, there's no way of being sure that genuinely 47 million tonnes less went to the atmosphere than otherwise would have happened, due to the ERF," he said.

Dr Burke said it was hard to calculate the cost of emissions reductions from direct action.

"Imagine that first round of auctions bought nothing, it's just paying for permits for trees which were standing on this abandoned agricultural land anyway, and so paying companies to not cut down those trees, to not follow through on a threat to cut down the trees," he said.

"If actually Direct Action has bought nothing then the cost per unit of abatement is mathematical infinity."

Is a tax a cost?

The experts Fact Check spoke to said Mr Hunt's comparison of the costs of abatement was problematic for two reasons.

The first is that Mr Hunt's claim implies that the price paid under the carbon tax represents the underlying cost of reducing emissions to the Australian economy.

Mr Harper said tax revenue collected should not be used to represent the cost of reducing emissions.

"That's because measuring the cost of a tax on overall economic activity is not the same as measuring how much revenue was collected," he said.

Rather, the tax revenue collected was invested back into the economy.

He said Mr Hunt's claim was very misleading.

"No-one has paid $1,300 a tonne for anything."

Dr MacGill said Mr Hunt's comparison was "likely to mislead".

He said the theoretical cost of the former government's carbon tax was the dollars per tonne the scheme imposed, so if it costs an emitter $25 to emit a tonne of carbon and $10 a tonne to reduce it, they will choose to reduce emissions and save $15 a tonne.

"The cost of a reduction is not the total revenue that the scheme raised, or some measure of national emissions, it is on the margin, which was $24 a tonne," he said.

"So the real comparison is $14 versus $24, which was the fixed price [of the carbon tax]."

Dr Burke said the "number one issue" with Mr Hunt's claim was that revenue raised by Government should not be included in the cost of cutting carbon.

"The Government's often-repeated calculation is misleading," he said.

"This revenue was able to be used by the Government, just like any other revenue and including this revenue leads to vast overstatements in the cost of abatement."

Comparing apples with oranges

The second problem identified by the experts was that unlike the carbon tax that redistributed revenue raised for other purposes, the ERF uses government revenue to pay emitters.

Roger Dargaville, deputy director of the University of Melbourne's Melbourne Energy Institute said the Government was "comparing apples and oranges, it is not the same thing at all".

"The price on carbon applied to all emissions but it was a revenue neutral tax, in that all the revenue is returned to energy users in the form of tax reform and also to compensate the high emitters and trade-exposed emitters," he said.

Individual taxpayers were compensated for increased prices resulting from the carbon tax by $7 billion in tax cuts applied by raising the tax free threshold from $6,000 to $18,200, which is still in place.

"The $1,300 a tonne is nonsense because it didn't cost anyone that amount of money; the money was redistributed throughout the economy," he said.

"Whereas the $660 million that has been spent so far on direct action is a net cost to the government with no compensation, no compensating revenue out of it. So it's only a cost to the federal budget, not a benefit."

Dr MacGill said Labor's carbon tax was a revenue raiser for taxpayers.

"Taxpayers were also paying that price through increased electricity prices and so on," he said.

"But you can't compare a direct taxpayer expenditure to a price which is actually raising revenue."

The numbers

Mr Hunt said the price per tonne of $13.95 for the Coalition's Direct Action scheme is nearly 100 times lower than Labor's carbon reduction scheme, at $1,300 a tonne.

Mr Hunt's $1,300 figure does not take account of the free permits large emitters were given.

In addition, experts told Fact Check said it was difficult to measure whether the Coalition's scheme would lower emissions beyond what would have happened with no scheme in place, so the $13.95 figure is difficult to verify.

The verdict

The experts said there was a much greater issue with Mr Hunt's claim than the concerns with the numbers.

They said government revenue raised by the carbon price did not represent the cost of that method of reducing emissions.

In addition, comparing the carbon price, which raised government revenue, with the ERF, which is a government expense, didn't make sense because the money from the carbon price was distributed back into the economy.

Mr Hunt's comparison of the two schemes is untenable.

Sources

Topics: environment, climate-change, environmental-policy, pollution, australia

First posted