Business group warns of burden on taxpayer of using Direct Action to achieve reductions after 2020 as AGL calls for cap on Australia’s greenhouse emissions

Taxpayers will have to pay at least $20bn to meet even a low post-2020 emissions reduction target for Australia under the Abbott government’s Direct Action policy, a leading business group has warned.



And in a separate submission, the energy retailer AGL has said Australia must impose an overall cap or limit on its greenhouse emissions if the government’s policy is to have any chance of success – something it currently does not do.

The initial auction under Direct Action’s $2.55bn emissions reduction fund was revealed last week to have purchased 47m tonnes of carbon dioxide abatement at $14 per tonne – a result environment minister Greg Hunt claimed was “stunning” and proved Australia would easily meet its 2020 target of a 5% reduction compared with 2000 levels by 2020.

That task now requires less than one third of the abatement originally thought necessary because emissions have fallen without government action – partly because of the closure of manufacturing industry.

Calculations by Peter Christoff, associate professor at the University of Melbourne, indicate that even if the fund can continue to buy abatement at $14 a tonne it will fall at least 23% short of the 2020 target, or require almost $750m more.

And that is even before taking into account that much of the abatement bought in this first auction will not happen until after 2020.

The Climate Institute pointed out after the auction that it had achieved barely 15% of the reductions needed for the 5% 2020 target, and industry analysts Reputex said the auction results showed how quickly the emissions reduction fund would be used up.

Now, in a submission to the government, the Australian Industry Group (AI Group) has warned that using Direct Action to achieve the deeper emission reductions after 2020 – which Australia will be required to do in any agreement at the United Nations conference in Paris in December – will impose an increasingly onerous burden on the taxpayer.

The AI Group also notes that the “safeguards mechanism” – which is supposed to ensure that industrial emissions do not rise and cancel out any reductions bought primarily from avoiding tree-clearing and capturing gases from landfill – would need “substantial amendment” if it was to help reduce greenhouse emissions.

At the moment it “meets the government’s objective that the mechanism will not be a driver of abatement towards the 2020 target”, AIG said.

The independent senator, Nick Xenophon, who agreed to provide an essential vote for Direct Action on the understanding that the safeguards mechanism would be given “teeth”, said recently that the final form of the “safeguards” showed Direct Action had been “neutered” and could not guarantee the emission reductions it had promised.

Xenophon provided one of the six crossbench votes the government needed to get Direct Action through the Senate last July, in return for assurances that the safeguards mechanism would impose real limits on greenhouse emissions from industry.

In its submission AGL warned that an overall “cap” on emissions – or a national carbon “budget” – was essential.

“For long-term carbon budgetary goals to have any chance of success it is essential that short-term metrics are defined by reference to the national carbon budget. Without such a long-term context to short-term decision-making, short-term targets risk being inconsistent with long-term plans, ultimately necessitating more drastic mitigation strategies in the future to counteract earlier policy short-sightedness,” it said.

And while the current policy appears unlikely to force any changes in electricity generation – 88% of which comes from fossil fuels – AGL says this has to happen.

“AGL supports the use of both regulatory and market-based policy mechanisms to deliver the required emission reductions. Importantly, a range of policies are likely to be needed.” it said. It specifically suggested:

• emissions standards for all new power stations

• regulation to drive the progressive closure of older, emissions-intensive power stations or retrofitting with CCS technology; and

• continued incentives for renewable energy, such as the renewable energy target.

According to the AI Group’s calculations, which assume an abatement cost of $35 a tonne, maintaining Australia’s emissions at 5% lower than 2000 levels until 2025 would require at least $19bn to be spent on Direct Action. Adopting a target equivalent to the lower end of those proposed by the United States would require taxpayers to spend at least $25bn.