Australia's emissions reduction goals will be hard to reach, RepuTex says Photo: Bloomberg
The Abbott government’s main policy alternative to the carbon tax may fall as much as 300 million tonnes short of Australia’s 2020 emissions reduction goal, according to modelling by RepuTex.
To meet the 2020 target, Australia needs to cut emissions by 421 million tonnes of carbon-dioxide equivalent between 2015 and the end of the decade.
However, its centrepiece policy – the $2.55 billion Emissions Reductions Fund (ERF) – is likely to buy just 30-120 million tonnes of emissions, leaving a shortfall of about 70 per cent of the abatement challenge, analysis by the consultancy found.
Environment Minister Greg Hunt
The ERF will work as a reverse auction, with the government filling its abatement quota with the lowest bids. If the benchmark price is set too low, big emitters have little incentive to participate, while too high a price would spur competition but potentially blow the fund’s budget, RepuTex said.
“If the regulator takes a low-price approach and tries to focus purely on the least-cost abatement, then that would certainly stifle competition,” Hugh Grossman, RepuTex’s executive director.
If the benchmark price is set at $5 a tonne, RepuTex estimates polluters will offer abatement of just 3-4 million tonnes in the first year. At $20-$30, that supply would rise to 11 million tonnes – but still shy of the 70 million tonnes on average the government will need to abate each year to 2020.
The carbon tax, now at $24.15 per tonne, is due to rise to $25.40 on July 1. Its survival is unlikely if, as is now expected, Clive Palmer's Palmer United Party senators vote with the Coalition to repeal the price once the new Senate sits next month.
A spokesman for Environment Minister Greg Hunt said the government remains confident it can meet Australia’s emissions reduction goal without a price on carbon: “Our position has not changed. We will meet the 5 per cent target easily.”
Climate change policies have gained centre stage this month, with President Barack Obama last week outlining plans to cut emissions from power plants by 30 per cent on 2005 levels by 2030.
Prime Minister Tony Abbott, who meets President Obama in Washington this week, has been keen to deflect criticism of Australia's goals, saying this week that he backs action provided it doesn’t “clobber the economy”.
Andrew Macintosh, associate director at the Australian National University’s Centre for Climate Law and Policy, said it is too early to assess the ERF's likely success.
“You’ve got to be wary of projections at this point of time because the policy parameters have not been settled,” Dr Macintosh said, adding that key baselines won’t be fixed until next March.
Australia’s abatement task may also turn out to be less than expected after a surprise fall in emissions from land-clearing. “If that trend continues,...then Australia’s going to get a significantly larger chunk of (forest management) credits than what the government has recently forecast,” he said.
Grant Anderson, a partner in the Allens law firm, said clients are wary of participating in the auctions. (See an analysis by Allens of the ERF here.)
“They say ‘If I’m a large emitter, why should I bother reducing my emissions and going through this hassle of selling emissions into the ERF?’”, Mr Anderson said. “The price doesn’t look terribly wonderful and the costs are likely to be reasonably significant.”
RepuTex said the ERF may spend $2 billion -$2.3 billion by 2020, based on budget forecasts. The government has allocated $1.147 billion for the scheme's first four years although Mr Hunt's office insists he has discretion to spend the full $2.55 billion even within the first year.