Report: reworked Direct Action could lower emissions

New research from carbon advisory firm, RepuTex, indicates that the proposed Direct Action Plan of Australia’s conservative Liberal-National government may lead to more domestic emissions reductions than the current carbon price.

However, the report indicated Direct Action would still fall short of Australia’s five per cent emissions reduction target by a significant margin.

The fixed price Emissions Trading Scheme (ETS) currently in operation was legislated by the previous Labor government and the current government is seeking to repeal it before July this year.

RepuTex analysed the domestic emissions reduction potential of the coalition’s Direct Action Plan in comparison to what it called the Carbon Price Mechanism (CPM).

In doing so it took account of new design elements presented in the government’s Emissions Reduction Fund (ERF) Green Paper, such as the application of absolute baselines and the introduction of flexible compliance arrangements for companies to offset emission increases.

According to RepuTex, the government’s ERF is likely to result in domestic abatement of 123 million tonnes (Mt) by 2020.

This could increase to 243Mt should the ERF be supported by ‘absolute’ emissions baselines, and an obligation for companies to offset any emissions above historic levels, as suggested by the government’s Green Paper.

This compares to estimated domestic emissions abatement of just 156 million tonnes under the legislated CPM.

RepuTex says that while the Direct Action plan may lead to more domestic emissions abatement than the currently legislated CPM, critically, Direct Action is still forecast to fall 188Mt/CO2-e short of Australia’s five per cent emissions reduction target, a significant gap.

Conversely, the CPM is forecast to meet Australia’s emissions reduction target, be it a five or 15 per cent reduction, through the sourcing of an additional 275 million international emissions offsets, enabling Australia to meet its emissions reduction commitment.

Hugh Grossman, Executive Director of RepuTex noted that the environmental performance of the government’s Direct Action Plan would be greatly improved by the introduction of a secondary market.

This would allow companies to “make-good” on any emissions increases by trading offsets with one another, as raised by the government in its Green Paper.

“As a base case, we anticipate that the government’s ERF will cause domestic abatement of 123 million tonnes through to 2020, which is similar to the domestic abatement achieved under the CPM, yet still well short of the 431Mt required to achieve Australia’s 5 per cent emissions reduction target,” he said.

“Should the government introduce a secondary market for companies to trade offsets to maintain their emissions at required levels, Direct Action could achieve significant domestic emissions reductions, far more than the CPM,” said Mr Grossman.

According to RepuTex, the highly emissions intensive coal mining and Liquefied Natural Gas (LNG) industries are the key drivers of domestic emissions growth, meaning that if exempted from the government’s policy, national emissions would continue to increase.

“If left unchecked, we forecast emissions from the coal mining and LNG industries will increase nearly 34 per cent to 2020.

“Enabling these industries to balance emissions increases above business as usual levels via the use offsets, even if calibrated to match historical maximum emissions levels, would result in around 120Mt more domestic abatement being delivered to the government via a secondary market”

“These gains would come for the same budget commitment previously stated by the government, which represents an easy win in the government’s policy,” said Mr Grossman.

Despite the positive findings for the re-worked Direct Action Plan, the news is not all good, with Direct Action still facing an uphill battle to reach the nation’s five per cent emissions reduction target.

“The findings indicate that Direct Action has improved, but the elephant is still in the room, even with these gains, Direct Action is likely to fall more than 40 per cent short of Australia’s Kyoto Two commitment.,” said Mr Grossman.

“At the end of the day, that indicates a policy breakdown that the draft legislation will need to address and that the market will need to be cautious of,” said Mr Grossman.