Abolishing carbon pricing could cost the federal budget at least $4 billion a year within five years, if the Abbott government wants to reduce emissions in line with Australia's international commitments, says economist Ross Garnaut.
The Abbott government has limited the cost of Direct Action by "capping" funding at $1.55 billion over three years, but costs would blow out in the future if the Coalition wanted to keep up with international standards.
''A fund large enough to provide similar incentives for emissions reduction to those under existing policies would see a deterioration of the budget of around $4-5 billion per annum,'' wrote Professor Garnaut, in a stinging submission to a Senate inquiry on Friday on the Abbott government's Direct Action scheme.
But Professor Garnaut, who is a strong supporter of having a price on carbon, believes the ultimate cost to the budget of the Abbott government's climate policy could be much greater than $4 billion a year, given many countries are committing to more ambitious emissions reduction targets.
Unlike a price on carbon – which provides a disincentive to pollute – the Coalition's Direct Action scheme pays companies ''incentives'' to lower their greenhouse gas emissions.
''The lower limit of budget deterioration . . . is based on a target of reducing emissions by 5 per cent by 2020,'' Professor Garnaut wrote.
''Higher targets, as required by the Australian government's domestic political and international commitments, would expand the budget deterioration.''
The independent Climate Change Authority, which the Abbott government this week in the Senate failed a second time to scrap, last month called for Australia to lift its emissions reductions goal from 5 per cent to 19 per cent to take into account international moves, Australia's fair share and the urgency of the climate change threat.
At the Senate hearing on Friday, Professor Garnaut, who dialed in on a speaker phone, told the senators that it was misleading to compare the Abbott government's ''Direct Action'' program to the Obama administration's ''muscular direct action'', which was ''highly interventionist''.
The US government was taking much stronger actions than the Abbott government to reduce greenhouse gas emissions, Professor Garnaut suggested.
The tone of the committee hearing became icy when Nationals Senator John Williams asked Professor Garnaut whether he believed in democracy and respected ''the will of the Australian people'' to abolish the carbon tax.
Senator Williams, who was a truck driver in the 1970s, told Professor Garnaut ''the truckies will love you'' for advocating higher taxes on diesel fuel.
Professor Garnaut replied that he did indeed respect democracy, but pointed out that there were two houses of Parliament in Australia, and simply forming government does not automatically endow one with the right to do whatever one wants.
In his submission Professor Garnaut said direct action was vague and failed public interest analysis tests.
He said the government's Green Paper on the Emissions Reduction Fund aimed at replacing the Rudd-Gillard climate policies ''is a shooting of the breeze'', merely raising a few questions that it failed to answer.
''It is an unusual document, lacking any semblance of the framework of public interest analysis that is characteristic of Australian policy-related papers of modern times,'' Professor Garnaut said in his submission.
In his submission, he also said the direct action plan places the Senate in a ''Martian beauty contest''.
The government had asked the Senate to repeal the carbon tax by ''introducing some indelicate features of the first contestant'' and then invited judges to award the price to a second candidate – the direct action plan to the pay polluters to cut back – while it was ''still hidden from view''.
''We have seen some gnarled toes, and people who are expert in these things can guess at the shape of the rest of the body,'' he said.
''The glimpse of the second contestant should make us cautious about awarding the prize to the Martian under the veil until the second contestant is in full view.''
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