Hunting for Hunt’s Direct Action costings

New analysis shows Direct Action will end up 300 million tonnes short of its emissions target by 2020, equivalent to 1½ years of electricity production. Why won't the government reveal its own costings to explain why it remains so 'confident'?

The Federal Government is likely to fail – and fail horribly – in achieving its 2020 emission reduction target according to updated analysis by carbon and energy market analysis firm Reputex.

To meet its 5 per cent emissions reduction target as embodied in the Kyoto II international commitments, the government says it needs to acquire 421 million tonnes of CO2 abatement between now and 2020. Reputex modelling suggests the Emission Reduction Fund as outlined in the government’s White Paper and the May budget will only manage to acquire between 30 million to 120 million tonnes, leaving a shortfall of at least 300 million.

To provide a feel for how big a shortfall they’re facing, bridging a 300 million tonnes CO2 gap is equivalent to completely stopping:

a)      car, truck, train and air travel in Australia for three years; or

b)      electricity generation in Australia for a year and a half.

Because the government is still yet to reveal just how much of taxpayers’ money it's willing to spend to meet the 2020 target (funding of little more than a billion dollars was only revealed to the 2017-18 financial year in the May budget), Reputex developed its assessment based on three potential abatement acquisition price caps the government might be willing to pay.

If we were to use the funding numbers provided in the May budget as a guide then, according to Reputex, the government could only afford to pay an average of $5 per tonne of CO2. Reputex then also looked at $10 per tonne and $20 per tonne ,which would require the government to massively boost budget allocations to the ERF from what has been revealed to date.  

The chart below illustrates what Reputex project the effect would be on Australia’s annual emissions under these three potential abatement auction price caps, relative to what’s required to meet the 2020 target of a 5 per cent cut from 2000 levels.

Australia’s total CO2 equivalent emissions under different ERF auction price caps relative to Coalition government’s emission reduction target

Graph for Hunting for Hunt’s Direct Action costings

Source: Reputex (2014) Emission Reduction Fund Supply: Powering Up and Powering Down?

Now Reputex don’t have some perfect crystal ball of the future. If there’s one thing that the history of environmental markets proves, it’s that modellers fail to anticipate the kind of low-cost innovations markets induce and therefore they overestimate the cost of achieving pollution reduction targets.

Nonetheless, the 300m tonne gap is so big that even if they were too pessimistic, it still seems incredibly unlikely the government will make the target without a huge boost to the ERF budget.

In addition, this analysis from Reputex has an awful lot more rigour behind it than the costing we’ve seen from the Coalition Government. So far all we’ve seen is a flimsy brochure dating back to the 2010 election campaign the evidence base of which was a handful of letters from lobbyists.

In the next subsequent month or two the government will ask Parliament to repeal the carbon pricing scheme and replace it with a scheme which lacks any detailed and credible costing on how it will achieve the government’s 2020 target.

Instead, we’ve got some kind of Monty Python-like response from the government saying that they may or may not have tried to fully cost the Emissions Reduction Fund but, irrespective, they are “very confident” it will achieve the targets (reprinted below for the second time because it is just so funny).

If the government is so confident and Reputex and other analysts (using computers instead of the back of an envelope) have got it so wrong, then why can’t they let us see the costing analysis for the ERF?

*Extract from Senate Estimates Hearing -26 May 2014:

Senator URQUHART (Labor): The current target for emissions reduction is five per cent by 2020. How has the capacity of the ERF to achieve this been modelled?

Mr Power (Department of Environment): I am aware of a number of external modelling parties who have done some work in a proxy manner. None of those studies have been conducted and directly modelled the actual white paper policy; they were conducted before that. ………..

Senator URQUHART: What about the departmental modelling, can you provide that?

Mr Power: The department has not released any modelling in relation to the Emissions Reduction Fund. As I said, it is a matter for government to release any estimates and it would consider that through its projections process.

Senator URQUHART: If the department has not done any modelling how do you expect to reach the targets?

Senator Birmingham (Liberal – Parliamentary Secretary for the Environment): That is not what Mr Power said. What Mr Power has highlighted is that there is a process for 2014 projections being undertaken but, based on the 2013 projections, we are aware of the abatement task that is required to meet the five per cent reduction on 2000 levels by 2020. We are confident that the structure of the ERF and the budget provided to it will allow the government to do so. Of course, further projections – the 2014 projections – are expected to be finalised near the end of the year and released somewhere around the New Year period.

Senator URQUHART: There is $2.55 billion of public money; why will you not release that material?

Senator Birmingham: We have released a lot of material and we have been through a very comprehensive white paper process in relation to the design of the Emissions Reduction Fund. The 2013 projections are publically available and the 2014 projections will be made publically available.

Senator URQUHART: But I am talking about the modelling. Why will you not release the modelling that the department has done?

Senator Birmingham: The government has been through a very open and consultative process in designing the ERF to achieve the bipartisan target.

Senator URQUHART: That does not answer my question. Why will you not release the modelling?

Senator Birmingham: I think there is ample information out there. There is all sorts of advice provided to government over time, but what we have been very conscious of in this process is ensuring that the design of the ERF is robust. That is why we have engaged in such extensive consultations, been through a green-paper and white-paper process and made sure that we have in place a structure that can achieve abatement to achieve the 2020 targets without the type of punitive mechanisms that your government imposed.

Senator URQUHART: None of the material that you have released covers the projected abatement. Why will you not release the modelling that you have done?

Senator Birmingham: The material released gives clear demonstration on how the government intends to achieve its targets – bipartisan targets. Ultimately, of course, we will be judged and the success of the ERF will be judged on meeting those targets. We are confident that will occur.

Senator URQUHART: That still does not answer my question.

Senator Birmingham: I do not think I have anything else to add. In opposition we went through a very detailed process of looking at the potential sources and costs of abatement in government in getting the design of the ERF right. We are confident it will meet the targets.

Senator URQUHART: There is a serious majority of stakeholders who do not believe that you have released anything like enough detail, so why will you not release that?

Senator Birmingham: I would invite people to have a read of the white paper if they want some more detail on the ERF.

Senator URQUHART: I am sure they have got detail on the ERF, but I am talking about the modelling that it is based on.

Senator Birmingham: On these budget estimates processes and the expenditure of public funds the ERF is our primary vehicle.

Senator URQUHART: Which is $2.55 billion.

Senator Birmingham: We have been very transparent in its development and we are very confident that it will meet the targets.

Senator URQUHART: This is $2.55 billion of public money.

Senator Birmingham: And that is why we have gone through a very thorough, transparent, open, consultative and engaging green-paper and white-paper process to get the structure of the ERF right.

Senator URQUHART: Why won't you release the modelling?

Senator Birmingham: That is what that whole process has been about.

Senator URQUHART: If you believe it is so good, why do you not release the modelling?

Senator Birmingham: We have been quite open through this whole process. I cannot help but keep repeating that the development of the ERF has – in the very short period of time that the government has been in place, with a lot of hard work from a lot of people – seen the green paper released, seen extensive consultations and seen us make sure that we get the model right. We are confident that the type of process outlined will deliver value for money abatement for the taxpayer that will ultimately get us to the target. The test will ultimately be in terms of reaching that target.

Senator URQUHART: You are so confident, but you are not prepared to release that document for fear that it might show something.

Senator Birmingham: You are talking about a document that may or may not even exist.

Senator URQUHART: I am sure there is modelling. Are you suggesting that there has been no modelling?

Senator Birmingham: The government has all sorts of advice to it, and advice to government is not something that we traditionally explore at these estimates.

Senator URQUHART: I understand that, but I was asking about why you would not release the modelling.

Senator Birmingham: I am not sure what the modelling you are talking about is.

Senator URQUHART: The department modelling.

Senator Birmingham: I am not sure what the modelling you are talking about is. There are all sorts of input and advice received by government.

Senator URQUHART: So you are going to spend $2.55 billion, and there is no modelling.

Senator Birmingham: Very wisely and prudently and in accordance with the terms of the white paper.

Senator URQUHART: And no modelling?

Senator Birmingham: Very wisely and prudently to accrue genuine abatement in accordance with the terms of the white paper.

Senator URQUHART: But without any modelling from the department.

Senator Birmingham: We have had lots of advice from the department in the construct of the ERF, as we have from all manner of other stakeholders, and we are very grateful for their participation in that process.

Senator URQUHART: Does that modelling prove that the ERF will work and achieve the targets?

Senator BIRMINGHAM: The government is confident that the ERF will allow us to achieve the bipartisan target by 2020.

Senator URQUHART: Are you confident on the basis of the modelling?

Senator BIRMINGHAM: We are confident.

Senator URQUHART: On the basis of the modelling that you have received?

Senator BIRMINGHAM: We are confident.

Senator URQUHART: Alright, I will move on because I think you are just going to keep saying the same thing over and over.

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