A draft plan for Emissions Reduction Fumbles

On Friday the government released an exposure draft of its legislation for the Direct Action Emissions Reduction Fund entitled the Carbon Credits (Carbon Farming Initiative) Amendment Bill. 

Half-baked outline

The half-baked nature of this scheme is revealed on the very first page of descriptive text within the Explanatory Memorandum, where it states:

The Emissions Reduction Fund … will allow businesses, local governments, community organisations and individuals to undertake approved emissions reduction projects and to seek funding from the government for those projects through a reverse auction or other purchasing process.

Yes they’d like to use an auction to purchase abatement, which would force them to develop some degree of rigour and transparency around the entire scheme when you select projects solely on basis of cost per tonne of CO2.

But because they’re essentially making this up as they go along, and aren’t quite sure they can pull this off in the compressed timeframe, they’ve allowed themselves to fudge it. What is or are these “other purchasing process”? Yes, a tender might be one way but the legislation says they are free to use some ‘other process’ as well.

At the same time rather interestingly, the Clean Energy Regulator, the regulator of the policy, has been exempted from the Commonwealth Procurement Rules which seek to ensure public servants achieve value for money in spending taxpayers' money.

Also, as presaged in the White Paper, the explanatory memorandum explains that they’ll be developing the legislative provisions to guard against firms increasing their emissions above historical levels (the “safeguard mechanism”) sometime later.

Trust us on environmental integrity

Nervousness around the integrity of the scheme is further reinforced by lack of detail on how eligibility of abatement projects should be assessed to ensure they deliver genuine reductions in emissions relative to business as usual. This is actually an inherently problematic component of the Emissions Reduction Fund because sometimes a production practice that reduces emissions can also make good commercial sense to implement. Sometimes such practices will be adopted without government having to hand out any money (but not always). For example, improving soil carbon levels on farms is thought to reduce emissions and also enhance soil fertility, but farmers don’t necessarily adopt soil carbon enhancement practices due to lack of knowledge or just plain habit. Similar issues arise with energy efficiency.

In the prior Carbon Farming Legislation it explicitly set out what is known as the “common practice” test. If it was common for an industry to undertake production using a practice which had low emissions associated with it (for example, farmers nowadays commonly retain crop stubble rather than burning it which results in less greenhouse gas emissions), then a business wasn’t allowed to claim carbon credits for employing such a practice over some more emissions-intensive alternative practice.

While this test has been misused by some abatement project proponents (who claim that if the project isn’t common practice they should automatically qualify for abatement credits), keeping this as one test for what does not qualify would help lower the potential for rorting of the scheme.

Door left ajar for international carbon credits

Interestingly, the legislation’s definition of eligible carbon credits does not appear to rule out the potential for the government to purchase carbon credits from overseas schemes such as the United Nations Clean Development Mechanism.

Government ignores its own red tape cutting advice

I was shocked to find no regulatory impact statement accompanying the ERF legislation, comparing this scheme against alternatives and why it represented a superior cost-benefit case.

Amidst a bonfire of red tape, the government had assured us that they were going to force public servants to see regulation in a ‘new light’ by following a seven-step guide to evaluating new regulations. This guide states:

Every policy option must be carefully assessed, its likely impact costed and a range of viable alternatives considered in a transparent and accountable way.

I wonder when we’ll see the detailed cost-benefit analysis for the ERF relative to other regulatory alternatives, such as a simple price on carbon emissions.