As the government announces fund top-up, changes to rules point to problems with how emissions calculated

Scott Morrison recently announced the Coalition would inject another $2bn into the emissions reduction fund – the Tony Abbott-era “direct action” policy that pays farmers and businesses from the budget to reduce greenhouse gas – but serious questions have emerged about $1bn already allocated.

Amendments to the fund rules, released for public consultation, indicate there have been problems with how emissions cuts from projects that involve managed regrowth of native forests and vegetation have been calculated.

The two methods used under the fund in this area are complex, but it suggests some projects have received more carbon credits than they deserved for vegetation that has not yet grown as expected, others for plant life that already existed. This is supported by documents released under freedom of information laws, which show officials at the Clean Energy Regulator were concerned about the issue early last year.

The revegetation projects under the two methods are supposed to be delivering half of the emissions cuts – nearly 100m tonnes – contracted under the fund. They will receive more than $1bn from taxpayers and are creating carbon credits that count against Australia’s greenhouse targets.

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Suzanne Harter, a climate change campaigner with the Australian Conservation Foundation, says it shows the fund needs significant reform before more public money is spent on it. “This rule change appears to reflect the growing concerns within the bureaucracy that some regeneration projects may have gained credits and cash from the emission reduction fund for pollution cuts that may not have occurred.

“Vegetation regeneration projects make up a significant proportion of the projects under the fund. We must make sure they are genuinely helping cut pollution.”

There are two ways to look at the amendments. On the one hand, it is good the problem may be fixed. On the other, it is another problem with the fund, which has been the subject of several damning critiques.

The then Coalition environment spokesman Greg Hunt spent the 2009/10 summer working on a solution so Abbott could say he would meet climate targets while launching a ferocious attack on Labor’s carbon pricing plans. The result was to remove a requirement for industry to pay for its pollution and introduce a pot of money from which landowners and businesses would bid for public money to cut emissions, with the cheapest projects winning support.

The government dedicated $2.55bn to the fund after winning power in 2013, $476m of which has been paid out. Another $1.8m is under contract and $226m is yet to be allocated. Most of the funds are going to land-based projects.

A Guardian Australia investigation highlighted problems with the scheme: there are limits on the extent to which guarantees that land will be permanently protected can be enforced; it is impossible to know if landowners embarking on so-called “avoided deforestation” projects would have cut down trees on their property if not paid by the government; claims it may be cheaper to buy land from farmers than paying them to protect it; the scheme largely ignores the role climate change is projected to play in degrading landscapes.

Apart from the methodological issues, the type of land-based projects supported by the fund have broad cross-party support – there is no doubt there should be a scheme to improve the health of cleared forests, agricultural pastures and arid grazing lands.

But other projects getting taxpayers’ money raise thornier questions. It was found giving climate funding to landfill sites that capture and combust leaking methane was a waste of money as they were already receiving cash from other government sources and would have existed anyway.

Multinational mining companies are receiving climate funding for fossil fuel projects: Rio Tinto received $2m to build a diesel power plant and Gold Fields is getting $1m for a gas-fired plant it says it would have built regardless. Critics object to these projects getting climate funding as they add to climate change and the giant companies receiving the cash do not need the public support.

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As currently designed, the emissions reduction fund could also be used to pay for an upgrade at a coal-fired power plant. The owners of the Vales Point coal station have been registered under the scheme. Green finance experts say Australia is the only developed country with a system that allows climate funding to go to coal plants.

The government is yet to respond to these issues. It put little focus on the emissions reduction fund when Malcolm Turnbull was prime minister but that has changed under Morrison. He promised the scheme, rebranded as a “climate solutions” fund, would be boosted by an extra $200m a year from 2021 under the Coalition.

To date, the data shows the fund has failed to do its job. National emissions have risen each year since it was introduced.

Analysts say the central problem with the fund is that it does virtually nothing to address industrial and transport emissions, which are driving most of the pollution growth. A related policy known as the safeguard mechanism was supposed to stop increases in industrial emissions, but in practice has been lax. In many cases, companies have been able to nominate their own emissions limits, known as baselines. The government last week introduced further changes that allow baselines to be reset annually in line with production levels.

Labor has been highly critical of the fund. Along with the Greens and independents in 2011, the ALP introduced the Carbon Farming Initiative – a forerunner to the fund that awarded carbon credits to projects that restored habitat. The crucial difference to the Coalition’s model was that the cuts were paid for solely by big polluters, which bought the credits to use as offsets.

Labor has been discussing a return to this type of model with industry, including the safeguard mechanism being adapted into some form of an emissions trading scheme to limit industrial pollution. Details have yet to be released. The ALP says a policy will be announced in coming weeks.