A hand-picked advisory group has warned the Abbott government its Direct Action climate change plan would need to offer 15-year contracts to effectively reduce greenhouse emissions – three times longer than the Coalition has proposed.



A “green paper” issued by the environment minister, Greg Hunt, proposed the emission reduction fund – which has so far been funded for just three years – would offer five-year contracts to companies and organisations competing in a competitive tender for the fund’s grants.

But Danny Price – chosen by Hunt as an “eminent economist” to co-chair the expert reference group advising him on the scheme – told Guardian Australia five years was “way too short”.

“Contracts will need to be 15 years at least to attract the major capital-intensive projects with lifetimes of well over a decade,” Price said, saying the issue was “one of the biggest threats” to the effectiveness of Direct Action.

The government is expected to release a white paper next week outlining its final decisions about the design of the emissions reduction fund, which is supposed to start in July – the date from which the government is decreeing the carbon tax be repealed, even if it takes the Senate longer to actually repeal the law.

Price said the other “threat” identified by the 15-person expert group was the need for effective “safeguards” to ensure that other industries did not unreasonably increase their emissions.

The green paper said Direct Action was designed to allow businesses to continue ordinary operations without penalty, but also proposed ways to make sure businesses did not exceed their historical emissions to “safeguard the value of funds” spent reducing emissions in other parts of the economy.

But the Minerals Council argued the “baselines” for its historical emissions should take into account the fact that as ore grades decline it will take more energy for existing mines to produce and process the same amount, and “gassier” coal deposits will have to be accessed. The LNG (liquefied natural gas) industry pointed out its production is set to treble over the next six years, and baselines would need to take account of that. The Australian Industry Group argued it might be better not to have baselines at all.

Price said clear baselines and “sufficiently rigorous” safeguard penalties for those who exceeded them were also critical for the credibility of the scheme, and this had been the “general, although not universal” view of the expert group.

Price also argued that the renewable energy target – under review by the government – should be retained but expanded to include gas generation and new highly efficient coal generation.

So far the emissions reduction fund has been allocated $300m, $500m and $750m over the next three years. It was originally slated to spend $1bn a year after that, but this money has not been confirmed or included in the budget.

Banks and big business have also warned the government five-year contracts would deter many projects and drive up the amount the government would have to pay to buy emission reductions.

In a submission on the green paper, the Business Council of Australia (BCA) said the five-year contract plan was “of concern” because it could force bids up to cover the cost of projects likely to last more than five years, instead of spreading the costs more evenly over a longer period.



The National Environmental Law Association (Nela) has also warned the government that “a five-year contract term will prove to be a significant inhibitor in terms of ERF participation”.

“In particular, Nela is aware that none of the big four banks are likely to be willing to offer project finance for ERF projects, unless a longer contract term is available,” the association said in its submission on the fund.