Direct Action Policy and the Renewable Energy Target

| October 31, 2014

The Direct Action climate plan has passed the senate with help from Palmer United Party. Professor Kevin Parton urges the federal government to retain Australia’s current Renewable Energy Target (RET) in the light of this latest development.

What is the Direct Action Policy? It has two components: an emissions reduction fund and a safeguard mechanism. Polluters (mainly electricity generators) can bid for the emission reduction funds to be spent on their own greenhouse gas reduction schemes, or offsets like planting trees. The trouble is that this by itself does not reduce Australia’s overall carbon pollution, because other firms can simply increase their pollution levels.

The second component of the policy, the safeguard mechanism, is needed to control aggregate carbon pollution levels. It puts a restriction on overall carbon emissions. The details of this component have not been explained by the government, nor is it clear how this could be easily managed. It seems to require a regulating authority to visit the major pollution businesses and monitor their compliance.

Together the two components of the scheme seem like an old-fashioned environmental policy, of the type that was used in Europe in the 1960s to reduce industrial pollution. The characteristics of these schemes are that they can be effective, but costly. Indeed, analysis comparing Direct Action with an Emissions Trading Scheme (ETS) shows that Direct Action is far more costly for all carbon emissions targets except the achievement of small reductions.

After long negotiations the government has obtained the support of Clive Palmer to have the Direct Action legislation pass the Senate. One component of the deal with Mr Palmer is to have an enquiry into a future possible Emissions Trading Scheme (ETS). This seems a strange proviso, given that the government continues to announce that it will never introduce such a price policy.

In addition, exhaustive economic analysis of the various schemes has been completed over recent years, and it is unlikely that anything new would turn up. This analysis shows that an ETS is the most efficient, least-cost policy, and that to achieve significant emission reductions, Direct Action, by itself, would be very costly to the taxpayer.

Also, an ETS may eventually be forced on the Australian government as part of an international carbon emission reduction agreement.

Enter the Renewable Energy Target (RET), which the government has so far thankfully failed to abolish, despite rhetoric that it will do so. The purpose of the Renewable Energy Target (RET) is to encourage Australia to invest in renewable energy at reasonable cost. To date this objective has been so satisfactorily achieved that most analysts regard the RET as one of the Government’s most successful policies. Greenhouse gas emissions are falling, and under the RET Australia is likely to surpass the 2020 target of 20 per cent of power generated from renewable sources.

The impact of the RET has been to encourage investment in a wide range of non-polluting electricity generation from solar panels on household roofs to large-scale wind power stations. An amended RET could be used in conjunction with the safeguard mechanism component of the Direct Action policy. The RET would reduce the pressure on the safeguard mechanism, and thereby reduce the risk of a budget blowout of the Direct Action policy, which could occur once it moved to full operation entailing more ambitious greenhouse gas reduction objectives.