Government advisers call for changes to Direct Action policy to end investment in schemes that do not reduce emissions • Sign up to receive the top stories every morning

Independent experts advising the Turnbull government have called for changes to the Coalition’s Direct Action climate policy to prevent tens of millions of dollars of public money going to projects that would have gone ahead anyway.



The recommendation is in a review of the $2.55bn emissions reduction fund, the central plank of Direct Action, which pays landowners and companies to avoid emissions or sequester carbon dioxide in plants at the lowest cost. The fund is supposed to support projects that would reduce Australia’s carbon pollution below what it would otherwise have been.

But the Emissions Reduction Assurance Committee found one type of project – existing landfill sites that capture methane, a potent greenhouse gas, from decomposing rubbish and burn it to generate energy – already make enough money from the sale of electricity and renewable energy certificates to cover their costs and were mostly likely to continue without taxpayer support. The report was published online in late March.

It follows long-standing criticism that the emissions reduction fund is in some cases not delivering the cuts the government has promised. Critics say under the current design it is creating “junk” carbon credits that do not represent actual reductions, but are used by industry and government to offset emissions.

The committee recommended that no electricity generating landfill gas projects currently receiving carbon credits be given extensions when agreements lapse. Most existing contracts run to 2021 or longer.

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The University of Melbourne legal academic Tim Baxter, who has published peer-reviewed research revealing flaws in the fund, said the change was long overdue.

He said several analyses had suggested many of the emissions reductions paid for from the fund were not genuine as they would have happened without spending more than $2bn of taxpayers’ money. Landfill gas was probably the worst example, he said.

“There is no way that 191m tonnes of abatement is being kept in the ground or sequestered (as the government has claimed),” Baxter said. “Based on the design and accounting, we are either counting abatement that they were already doing or we’re counting emissions they were not going to be released anyway.”

The emissions reduction fund is the only policy the Coalition has legislated to cut emissions. It was hastily devised by then opposition environment spokesman Greg Hunt after Tony Abbott took the Liberal leadership in December 2009 promising to oppose carbon pricing, and introduced in 2014.

Landfill gas projects have long been controversial inclusions in the Direct Action scheme, largely because about three-quarters of them were already operating before the emissions reduction fund was created in 2014.

Half of the projects received payments under the defunct New South Wales greenhouse gas reduction scheme (the world’s first mandatory emissions scheme) or the federal greenhouse friendly offsets program that shut in 2010. Labor and the Greens offered continued support by including them in the Carbon Farming Initiative set up in 2011. The Coalition extended it further by including them in the list of projects that could win funding under Direct Action.

All parties received departmental or agency advice that they may be crediting projects that were likely to happen anyway, and therefore not cutting emissions below what they otherwise would have been.

Baxter said it was a transparent case of political expediency overruling good policy.

“For the sake of being able to say ‘our scheme per tonne of emissions is cheaper than the previous government’s scheme’ you’re seeing essentially junk credits being created,” he said.

“These projects are allowed into the fund to make the price cheaper based on a spurious argument that if we don’t provide credits that these worthwhile landfill gas projects would close. There is no evidence that any of these projects were at or near closure.”

Iain Macgill, from the University of NSW’s Centre for Energy and Environmental Markets, welcomed the committee’s recommendation but said the evidence that landfill gas should be excluded was not new, and suggested it should be extended to cover other projects that just flared methane emissions but did not generate electricity. “Why has it taken so long to address?” he said.

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Macgill said emissions from landfills needed to be cut but policy efforts would be better focused on reducing the proportion of waste being dumped.

Environment minister Josh Frydenberg did not directly respond to questions about whether he would accept the committee’s recommendation. He said a departmental review of climate policies last year confirmed Australia had a comprehensive set of emission reduction policies and the emissions reduction fund was internationally recognised as one of the world’s largest domestic carbon offset markets.

Emissions from waste increased 1% last year, part of an overall increase in national emissions of 1.5%.

Under Labor and the Greens, the credits would have been paid for by businesses offsetting their emissions. Under Direct Action, their main source of income to date is public money.

The government has 87 existing emissions contracts with landfill gas projects, promised to prevent about 20m tonnes of emissions – about 4% of what Australia emits each year. Assuming landfill operators are paid the average price of $11.90 per tonne of carbon dioxide, they would be getting $243m worth of carbon credits from taxpayers.

This is likely to be an overestimate. The emissions reduction fund works as a reverse auction – the lowest credible bids win government contracts. Given they have existing revenue streams for their electricity, landfill operators could bid in at a price less than the average. Some estimates suggest they may be paid about half the average price.

About half of the promised emissions cuts are contracted with one company, Adelaide-based LMS Energy. The rest are spread across several companies and councils. They included energy giants AGL and EnergyAustralia, though AGL sold its landfill gas generation assets last month. LMS Energy declined to comment on the proposed changes.

In a research paper with Dr George Gilligan published in the Australian Journal of Environmental Law in December, Baxter found the emissions reduction fund had been set up to include landfill gas projects even though they should not qualify based on three tests built into the legislation to ensure all projects were “additional” – that they are delivering carbon abatement that would not happened anyway.

In simple terms, the three tests are that each project must be new, not have access to other government funding and not be required by other laws or regulations.

For landfill gas, Baxter said the last two tests were overruled by a declaration that being a methane-capture-and-combustion project alone was enough to qualify, regardless of other circumstances. The “newness” test has been overridden by ministerial decision.

“Two of the three tests are replaced with a statement that ‘a landfill gas operator is a landfill gas operator’. It’s just nuts,” Baxter said. “It is legal because it is built into the act, but it is of questionable morality. It is a neutering of the letter of the law and the spirit of the law.”

The independent expert review comes as the Clean Energy Regulator, the government agency that runs the emissions reduction fund, prepares for its seventh auction on 6 and 7 June. To date, $2.285bn has been contracted, leaving $265m to spend.

The Clean Energy Regulator chairman, David Parker, told a Senate estimates hearing last week that he expected contracts worth between $50m and $100m would be signed in June.