Turnbull government plans to top up Direct Action funds before review

Long-term funding of the Turnbull government's keystone climate policy remains in doubt as mixed messages emerged from the government about whether further funds will be allocated beyond the current $2.55billion.

Finance Minister Mathias Cormann was reported on Monday as saying that there was no funding for the Emissions Reduction Fund beyond the 10-year period out to 2024 covered by the first phase of the fund.

Power play: what happens when Direct Action runs out of money?
Power play: what happens when Direct Action runs out of money? Photo: Fairfax

"Future funding for the Emissions Reduction Fund beyond 2024 will need to be considered through a future budget process," a spokeswoman for Mr Cormann told Fairfax Media on Monday.

The budget for 2016-17, due to be released in May, is yet to be finalised, she said.

However, it is understood that Environment Minister Greg Hunt, who has led carriage of the so-called direct action policy that replaced the carbon tax as the government's main climate policy, is "relaxed" about the availability of further funds.

Further allocations for an "ERFII" will be made "over the next 18 months", a government source told Fairfax.


The spending so far has gone mainly to revegetation or landfill projects, with about 93 million tonnes of carbon abatement bought at two auctions for a price between $12-$14 per tonne.

Critics of the policy say the safeguard mechanisms are too weak to ensure other parts of the economy don't simply increase their emissions – thereby wiping out the savings.

They also note that national emissions are beginning to rise again, particularly in the electricity sector, now that there is no penalty for higher carbon-intensive fuel use.

The government is planning a third auction of the ERF in April, with another expected late in the year that market analysts had expected to use up all of the $1.2 billion left.

Analysts such as Reputex warned that using up all the funds without securing new money – as implied by Mr Cormann's comments – created the potential for a void in climate policy because the ERF is not due to be reviewed until mid-2017.

Any recommended changes – assuming the Turnbull government is returned to power later this year – would be unlikely to be implemented until well into the following year.

"There will be a black hole," Hugh Grossman, executive director of RepuTex, said. "It's not a way to give certainty to the market."

However, the government source denied that a void will open up between the end of the present funding and new money: "There's not going to be a gap."

"The government has made a long-term commitment to funding the ERF through to 2030," a spokesman for Mr Hunt said.

"As the ERF White Paper said, further funding will be considered in future budgets."

Bloomberg New Energy Finance, another analyst group, is also telling investors that existing policy remains "cursory and vague" beyond 2020.

The government has pledged to cut 2000-level emissions by 5 per cent by 2020 and by about 19 per cent by 2030.

"Some heroic assumptions have been made," Bloomberg NEF said in a recent report. "A total of about 60 per cent of nominated abatement to 2030 come from areas where no policies currently exist."

Political opponents were also critical.

"The policy places no cap on emissions and hands out taxpayers dollars to big polluters for projects they were going to undertake anyway," Mark Butler, Labor's shadow climate spokesman, said.

"Taxpayers are simply not getting value for money from under Direct Action."

The Greens' deputy leader Larissa Waters said the policy was a "sham" that would not curb emissions.

"The rest of the world is taking action on global warming and seizing the economic opportunities of this global transition to a clean energy future," Senator Waters said.

"But the Liberal Government is just tipping billions of dollars into their big-polluter donors' pockets until the money runs out."

With Gareth Hutchens