Hunt's tender no man's land

The government has effectively admitted that its Direct Action abatement auction won't be ready as promised in time to replace the abolished carbon price by July. Instead the government will make it up as they go along using a tendering process with poorly defined rules.

The Direct Action Emission Reduction Fund Green Paper subtly reveals that Environment Minister’s Greg Hunt’s promise to have an auction scheme commencing July 1, 2014 was hopelessly optimistic. It provides a strong reason for why the Senate should act to reject any attempt to have the carbon price abolished until after June 30, 2015.

Back in February last year, Hunt, then in opposition, outlined a substantial advancement in the design of the Direct Action Emission Reduction Fund – it would use an auction system, not tendering, to acquire abatement. As part of this acquisition method, government defines the rules upfront for which types of abatement projects qualify (known as ‘abatement activities’) and how abatement from these projects is quantified and verified. This creates a streamlined, cookie-cutter model for producing abatement credits similar to the United Nations Clean Development Mechanism and the NSW Greenhouse Gas Abatement Scheme. 

At the time I noted that this represented a huge improvement (Hunt puts some flesh on the bones of Direct Action, February 28). That’s because tendering tends to become bogged down in bureaucratic second-guessing where selection of projects becomes open to subjective and sometimes politicised decision-making. As has been explained in the Grattan Institute history of Australian government carbon abatement policies, tendering programs have been a monumental debacle. Predefined black and white rules about what types of projects qualify and how abatement will be quantified allows project developers to know more clearly where they stand and enforces discipline and transparency on government. Tendering, on the other hand, tends to be almost completely opaque, where the rules seem to be made up by bureaucrats and politicians as they go along.  

In order to have any hope of meeting the Abbott government’s 5 per cent reduction by 2020 emission target, they must have a streamlined, cookie-cutter method for assessing and purchasing abatement. The volumes of abatement projects required to deliver the target are just too numerous to apply a one-by-one tendering process.

In the lead-up to the election, in a series of speeches, Hunt promised that his auction scheme would commence on July 1, 2014. This would neatly dovetail in with the government’s carbon price repeal bills, which would have the carbon price end on June 30, 2014.

However, the green paper states:

"At the start of the Emissions Reduction Fund … Businesses could submit bids at any time and, at regular intervals, the Clean Energy Regulator could run tender rounds to select eligible offers …Once the supply of emissions reductions is well established, the Clean Energy Regulator would move to a more formal auction process."

The government is still trying to label this tender process as being “akin to a reverse auction”, but it will be a Clayton’s auction. Hunt’s election promise has hit a public service reality check. The public service does not have the experience or information required to develop the rules for crediting emissions reductions in more than a small number of abatement activities in time for July 1, 2014. 

The Carbon Farming Initiative, set up under the prior government, provides a clear precedent. The CFI was set up to encourage abatement in the agriculture sector, which was exempt from the carbon price. The process for developing rules for new abatement activities (such as planting trees or capturing methane from piggeries) has commonly stretched out beyond 12 months.  

The green paper effectively lets the cat of the bag by acknowledging that it won’t be imposing penalties (or make-good provisions) on existing polluting facilities for increasing their emissions above historical levels (known as ‘baselines’) until mid-2015 in order to:

“... provide sufficient time for consultation with businesses on baselines and the treatment of new market entrants.”

How can the government award firms taxpayers' money for reducing their production plant’s emissions when it’s still to work out what the plant’s underlying historical emission baseline is? 

This is putting the cart before the horse.

It looks as though we could end up in a no man’s land. Post-July 2014, the carbon price may no longer exist and neither will the emission reduction auction scheme. What’s more, the whole scheme is supposed to be reviewed in 2015 yet this review could be evaluating a non-existent scheme.