Direct Action - could it be a $35b budget blowout?

A new study by Reputex finds the Coalition's Direct Action budget blowout could be $35 billion to meet the 5 per cent reduction target.

Analysis released today by energy and carbon emission analysts Reputex reinforces increasing doubts about the credibility of the Coalition’s budget costing for its climate change policies.

Analysis by Monash University and engineering and energy consulting firm Sinclair Knight Merz conservatively estimated that the Coalition would blow out its budget by $4 billion to meet its commitment to reduce emissions by 5 per cent below 2000 levels by 2020.

Reputex’s analysis finds the budget blowout would be more like $35 billion.

The reasons Reputex found the costs would be so much higher than the Monash-SKM study are not entirely clear from comparing the reports. 

One factor is that Reputex assumes emissions growth closer to that within the government’s 2012 emission projections. There are good reasons to expect that emissions growth will be noticeably lower than this (as explained by Climate Spectator here) so this might act to overestimate costs. Although one wrinkle is that Queensland land clearing restrictions have been considerably loosened, and this could spur greater emissions growth.

Another possible reason is that the SKM modelling didn’t examine abatement supply costs per tonne of CO2 beyond the level at which the Coalition’s budget ran out. This doesn’t make any sense, as you’d expect that abatement costs would increase as you attempted to procure more. Also, SKM’s modelling assumed that actions would be taken to ensure that the renewable energy target would be met, even though they thought the abandonment of the carbon price would actually mean this didn’t happen.

Determining which study is closest to the budget blowout figure is hard to say. But this Reputex study only serves to illustrate that the Monash-SKM $4billion blow-out estimate is likely to be extremely conservative, just as Climate Spectator explained previously.

Further findings from the study are that:

– If the Coalition were to stick to their current allocated budget (which Hunt has said they would do) then they fall very far short of their emissions reduction target, with emissions 16 per cent above 2000 levels in 2020 instead of 5 per cent below.

– The auction price would need to ascend to $58 per tonne of CO2 by 2020 to meet the 5 per cent target;

– If the Coalition were to apply emission baselines on companies based on their historical average absolute emissions which they had to offset if exceeded (rather a baseline of emissions per unit of production), this would save the government a considerable amount of money. But they would still face a budget blowout of $14 billion to meet the target. In addition it would mean firms would pay out $5 billion in 2020 purchasing emission offsets. Under the current ETS design their costs would be not all that much greater at $6 billion because they can utilise very cheap international emission allowances/credits. 

– According to Reputex, “None of the modelled scenarios for the ERF were able to achieve a 25 per cent emissions reduction target by 2020, with domestic abatement alone, at any reasonable cost”.

– The market share of renewables in electricity supply would be reduced from 25 per cent in 2020 to just 14 per cent with the dumping of the carbon price.

– If the government’s ETS was retained 45 per cent of the abatement to deliver the 5 per cent emission reduction target would be derived from purchasing overseas allowances or credits.

Naturally Greg Hunt disputed the findings of the report, saying:

“Labor’s supporters of the carbon tax have gone into a report frenzy ahead of the election. Why are they so critical of the Coalition’s target for a 5 per cent reduction, yet silent on Labor which has the same target. This dodgy report is fundamentally flawed and goes against the government’s own emissions predictions. It has been delivered solely for a political agenda.”

However, his office did not supply any analysis to support his claim that acquisition of abatement under the Coalition’s scheme would be noticeably cheaper than what has been estimated in the Reputex or Monash-SKM studies.

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