Australia's climate targets still out of reach after second emissions auction

The government’s Clean Energy Regulator yesterday announced the results of the second “reverse auction”. It spent A$557 million to buy emissions cuts of some 45 million tonnes of carbon dioxide.

Australia needs to cut its CO₂ emissions by 236 million tonnes to meet its current 2020 mitigation target of -5% below 2000 levels. The Direct Action Plan and its Emissions Reduction Fund (ERF) is the Turnbull government’s major program for doing so.

The first auction, in April this year, spent A$660 million for 47.3 million tonnes.

So far, then, almost half of the A$2.55 billion allocated to the ERF has been used and some 92.8 million tonnes of emissions reduction “bought” at an average rate of almost A$13.12 per tonne of CO₂. The ERF will also form part of efforts to achieve Australia’s 2030 climate target.

The latest round of UN climate negotiations begins in Paris in three weeks’ time. These talks aim to produce tougher national greenhouse targets for the decade to 2030. Ironically, the focus on Paris is drawing attention away from the urgency of emissions cuts that need to be delivered beforehand.

In Australia, the Paris talks encourage us to accept as given our 2020 target of -5% below 2000 emissions levels, although it is among the weakest of national mitigation efforts for that period.

They encourage us to ignore the fact that - according to criteria accepted by both Labor and Coalitions governments and now met because of the rising ambitions and efforts of major emitters elsewhere - Australia’s target should have increased to -15% by 2020.

It is against this second benchmark that the Turnbull government’s efforts should now be measured.

Crunching the numbers

Assuming all the emissions reductions contracted in these auctions are delivered, and the price per tonne of carbon remains the same for future sales, then the A$1.89 billion remaining in the ERF’s coffers will buy around another 101 million tonnes of emissions.

All up then, the total emissions reduction bought by the ERF will be around 193 million tonnes of CO₂. While this is 10 million tonnes better than predicted after the first auction this outcome remains 44 million tonnes (or about 19%) short of Australia’s -5% target – and much more for the -15% goal.

But that’s not the whole story. Some 275 projects will deliver their contracted emissions reductions over different periods – a few in a year, some over three, a few over five, many over seven, and most over ten years… by 2025.

Looking at the duration of contracts, it appears that only 45% (by volume) of this mitigation effort will contribute to the 2020 target. The rest will be occur after 2020.

In other words, only 51 million tonnes of emissions will be have been cut by 2020, leaving Australia 85 million tonnes (or 36% of the total) short of its -5% target and at least treble that amount for a -15% goal.

Structural change needed

The vast bulk of the contracts agreed in both the first and second auctions have re-funded emissions reduction schemes established well before the Direct Action Plan was conceived. As was the case for the first auction, most of the projects (by volume of emissions) involve “forest protection”. These rural projects generate carbon credits by paying to halt the destruction of native vegetation (so-called “avoided deforestation”). Such reductions could be achieved at no cost through regulatory intervention.

Most people paying superficial attention to the workings of the ERF would expect public money to be spent on creating structural change, by moving our industries onto renewable energy sources, for instance, rather than on paying rent to rural landowners to avoid activities that may release emissions in the future. Useful though these projects are, one wonders whether they should constitute the core and bulk of Australia’s flagship climate policy.

If the average price of carbon rises in subsequent auctions – and if Australian energy use and emissions continue to grow – the overall shortfall will increase still further. Recent evidence suggests that emissions from stationary electricity production and energy have increased by some 3% since the removal of the carbon price last year.

It is notable that – again - no major emitters in the energy and resource sectors were among the successful bidders. In other words, the major sectors involved in producing Australia’s emissions are not engaged by this scheme.

The ERF’s reverse auction approach seems incapable of driving an economic and cultural transition to renewable energy or of encouraging substantial mitigation by major industrial emitters. It is not helping Australia work “more agilely, more innovatively”, as Prime Minister Turnbull has put it, in this case to tackle climate change.

Using this mechanism Australia won’t meet, let alone exceed, even its very weak 2020 reduction target. The ERF would need well over A$3 billion to buy all the emissions needed for that goal.

And it is equally clear that this approach is doing nothing to prepare Australia for the 2030 target it is taking to Paris, of -26 to -28% below 2005 levels. Nor for the much more ambitious targets required to avert dangerous climate change.

Peter Christoff does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.