Environment Victoria's Submission on the Government’s Direct Action Plan

17 January 2014

The Australian Senate Standing Committee on Environment and Communications Parliament House Canberra ACT 2600

Dear Ms McDonald,

Re: Inquiry into the Government’s Direct Action Plan

Environment Victoria welcomes the opportunity to make a submission on the Federal Government’s proposed Direct Action Plan (DAP) and other policy and legislative matters relating to climate change.

About Environment Victoria

Environment Victoria is one of Australia’s leading independent environment groups. With over 80 member groups and tens of thousands of individual supporters, we’ve been representing Victorian communities on environmental matters for over 40 years.

We have been working on climate change for over 15 years, with specific focus on addressing the contribution of our electricity generation to greenhouse gas emissions.

Below, we set out a range of concerns on the issues covered by the inquiry’s Terms of Reference.

Effectiveness of Direct Action Plan

DAP unlikely to achieve sufficient emissions reductions

A number of reputable analyses have suggested that DAP, and more specifically the Emissions Reduction Fund (ERF), will not be able to achieve the 5% cut to emissions that the Government has agreed to. In fact, modelling by SKM MMA and Monash University’s Centre of Policy Studies found a likely increase in emissions by 8‐10% by 2020.1 In a study

by Reputex, emissions growth of 16% by 2020 was projected under DAP.2

In its “Blue Book” prepared for the incoming Coalition Government in 2013, Treasury said that “in the absence of a carbon price, the 5 per cent reduction target is unlikely to be met without significant budgetary or economic costs.”3 (p24) Treasury went on to say that:

A market‐based mechanism can achieve the necessary abatement at a cost per tonne of emissions, far lower than other alternative direct 1

The Climate Institute (2013), Coalition Climate Policy and the National Climate Interest. http://www.reputex.com/publications/behind‐the‐numbers‐adding‐up‐to‐the‐direct‐action‐plan/ 3 http://www.scribd.com/doc/38100930/Redacted‐Blue‐Book‐Pt2 p24 2

action policies. Moreover, many direct action policies cannot be scaled up to achieve significant levels of abatement, and for those that can be scaled, the cost per tonne of abatement would rise rapidly, imposing further costs on taxpayers and consumers.4

Further, as reported by the Climate Change Authority, an emissions reduction target of 5% of 2000 levels by 2020 will not be enough to meet the global target of limiting warming to two degrees Celcius. It is an “inadequate” target if Australia is to (a) make an equitable contribution to global efforts, and (b) avoid the need for more rapid decarbonisation post‐ 2020.5

The Climate Change Authority has also stated that:

A 5 per cent target would leave such large reductions for later that future Australians would either face a very large emissions reduction task or have to abandon the long term national emissions budget.

This is inequitable in the first case and against Australia’s national interest in the second.”6

It is likely that, before 2020, the Government’s own criteria7 for increasing our national target to 15% reductions will be met (if they haven’t already – the Climate Change Authority claims the criteria have already been met8). As noted above, it is not clear that Direct Action generally or the ERF specifically can be scaled up sufficiently to meet a more ambitious target.

DAP won’t drive transformation of Victoria’s electricity supply

Victoria’s coal‐fired power stations are amongst the most polluting power stations in the world – a combination of their old age and the low‐grade brown coal used as the fuel source. These power stations currently supply approximately 90% of Victoria’s electricity, and are responsible for over 50% of Victoria’s greenhouse gas emissions.9

In the absence of a carbon price, the low cost of generation for these power stations means there is very little incentive to address the high emissions they generate. Removing the Clean Energy Package and instead relying on Direct Action and the ERF means Victoria’s emissions intensive coal‐fired power stations will become more profitable and thus more likely to continue polluting unabated. At a time when the National Electricity Market is

4

http://www.scribd.com/doc/38100930/Redacted‐Blue‐Book‐Pt2 p25.

Climate Change Authority (2013), Targets and Progress Review, Draft Report, 12.

6 Climate Change Authority (2013), Targets and Progress Review, Draft Report, p105.

7 http://www.climatechange.gov.au/climate‐change/greenhouse‐gas‐measurement‐and‐reporting/australias‐ emissions‐projections/national 8 Climate Change Authority (2013), Targets and Progress Review, Draft Report, p11.

9 Victorian Department of Sustainability and Environment (2012), Report on Climate Change and Greenhouse Gas Emissions in Victoria (2012), p6.

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over‐supplied with some 4000 MW of electricity generation capacity,10 continuation of the Clean Energy Package could help reduce emissions by making coal‐fired power stations less competitive and ultimately forcing them out of the market.

Abatement opportunities through the proposed ERF are unlikely to result in any reductions in emissions from Victoria’s brown coal generators, because the price incentive per tonne of abatement will be too low. At the prices available (estimates range between $5‐ 13/tonne), there are few, if any, options for improving the emissions profile of brown coal power stations.11

Incongruity of Direct Action and fossil fuel subsidies

There is a clear conflict between the objectives of Direct Action and a number of fossil fuel subsidies.

For example, fuel subsidies to the mining and aviation industries reduce the incentive for companies in those industries to identify new efficiency opportunities that would allow them to use less fuel. In the absence of the subsidy, commercial imperatives would push affected companies to use their expertise to find ways of minimising fuel consumption.

The ERF effectively provides a government guaranteed loan for companies to pursue efficiency opportunities. To simultaneously spend money (in the form of fuel subsidies) to remove incentives for efficiency opportunities is poor public policy, economically inefficient, and involves creation of unnecessary bureaucracy.

Removing fuel subsidies would create financial incentives for the aviation and mining sectors to actively seek ways of consuming less fuel, thus potentially creating a very low cost source of abatement.

Other impacts of repealing the Clean Energy Package

Importance of independent assessment of climate policy

In the interests of both policy certainty and appropriate climate policy, Environment Victoria considers it to be absolutely essential that the Climate Change Authority be retained. It plays a critically important role as an independent organisation with a strong commitment to climate science and policy rigour. We believe that the CCA is vital to bring an evidence‐based and long‐sighted view to the intensely politicised Australian climate policy arena.

Importance of sending strong signals to other jurisdictions

10

Australian Energy Market Operator (2013), National Transmission Network Development Plan, p.iii IEA Clean Coal Centre (2009) Efficiency upgrades and partial carbon capture for coal‐fired power plants, Report CCC/150, p20.

11

Repeal of the Clean Energy Package could hamper international efforts to reduce carbon pollution. Addressing global climate change will rely on emissions reductions by many countries. For Australia to avoid the worst of possible future climate impacts, it is in our interests to have other countries making serious abatement efforts. Repealing effective legislation, and replacing it with a policy that is widely regarded as likely to be ineffective, sends a signal to other countries that weak action is acceptable, which will ultimately cost Australia through more severe climate change.

This view is echoed by Treasury:

While Australia is only a small contributor to global emissions, its push for, and participation in, a strong global agreement would help reduce the likely adverse impacts from climate change, of which, Australia is expected to suffer some of the worst consequences.12

Unnecessary cost at a time of tight budgets

It is increasingly accepted that the most efficient and effective approach to emissions reductions is through carbon pricing.13 The growth of national and regional carbon pricing schemes across the EU, North America and more recently China, demonstrates that the world is moving towards emissions trading as the preferred mechanism for emissions reductions. In that context, it seems a poor fiscal option to unwind the regulatory and bureaucratic framework that has been established to support an ETS, especially if we’re likely to need to re‐establish it in the future.

Further, we note that the Clean Energy Finance Corporation is actually providing the Government with a profit.14 This adds further weight to the importance of keeping it, beyond its role in driving the decarbonisation of our energy supply.

Summary

• The Direct Action Plan is unlikely to meet the existing 5% emissions reduction target, and incapable of meeting higher targets that are more in keeping with a future safe climate.

• Replacing the Clean Energy Package with the Direct Action Plan will reduce the likelihood of abatement from Victoria’s highly polluting power stations.

• Implementing DAP while also providing fossil fuel subsidies is both counterproductive and economically inefficient.

12

http://www.scribd.com/doc/38100930/Redacted‐Blue‐Book‐Pt2 p26. http://www.oecd.org/newsroom/countries‐should‐make‐carbon‐pricing‐the‐cornerstone‐of‐climate‐policy‐ says‐oecd.htm 14 For example: http://www.smh.com.au/business/carbon‐economy/green‐investment‐bank‐profitable‐as‐ abbott‐axe‐looms‐ceo‐yates‐says‐20131019‐2vt12.html 13

•

Unwinding the Clean Energy Package and abolishing its associated agencies, such as the Clean Energy Finance Corporation and the Climate Change Authority, are retrograde steps for Australian climate policy.

Thank you again for the opportunity to make a submission to this Inquiry.

Dr Nicholas Aberle

Safe Climate Campaign Manager Environment Victoria

nicholas.aberle@environmentvictoria.org.au 0402 512 121