With legislation to repeal the carbon tax introduced to Parliament yesterday, it is timely to consider the impacts of the carbon policy that is likely to eventually replace it: the Coalition’s Direct Action policy.

That’s not easy, because we don’t have a huge amount of detail on Direct Action yet beyond this paper from 2010, which is why both Labor and the Greens tried and failed to set up separate parliamentary inquiries into the legislation yesterday. But we do have some cursory draft terms of reference for the centrepiece $1.6 billion Emissions Reduction Fund, which will buy abatement from polluters through a reverse auction process, and an outline of a range of other initiatives as part of the so-called Clean Air Plan.

I wanted to look on the bright side. After all, it is debatable whether the existing carbon tax at $26 a tonne and rising was really driving emissions reductions … yet. Certainly the latest data showed Australia’s overall greenhouse gas emissions were unchanged at 557 megatonnes a year. Falling emissions from the electricity sector — attributable to reduced demand from households and heavy industry, and some fuel-switching away from coal — were offset by rising fugitive emissions from coal mines and natural gas production.

What’s happening in the electricity sector is complicated: household demand has fallen profoundly by some 15%-20% over the last three years, according to energy expert Hugh Saddler from Pitt and Sherry. That’s a backlash against rising prices, which have much more to do with higher charges to cover investment in electricity transmission and distribution networks — the “gold-plating” problem — than the carbon tax.

In heavy industry we’ve seen three major baseload power users shut down in New South Wales: the Kurri Kurri aluminium smelter, one of BlueScope’s blast furnaces at Port Kembla, and Shell’s Clyde oil refinery in Sydney. The trend is likely to continue with aluminium smelters at Victoria’s Point Henry and Portland, and the Caltex refinery at Kurnell, all facing possible closure. A high Australian dollar, ageing infrastructure and smaller scale are rendering these plants uncompetitive. The carbon tax is a marginal factor, and abolishing it won’t bring them back.

Falling demand means some half-dozen coal-fired power stations around the country are in temporary or permanent shutdowns — like Playford in South Australia, Collinsville in Queensland and Redbank in NSW — and many other power stations are either running below capacity, like Hazelwood and Yallourn, where units have been rotated in and out, or facing possible closure, like Wallerawang.

With these trends continuing, even if the Coalition abolished the carbon tax, surely Direct Action could still make a significant dent in Australia’s emissions if we just kept the Renewable Energy Target and installed a million more rooftop solar panels, as Environment Minister Greg Hunt has promised. The Emissions Reduction Fund could be used to (say) retire a big brown coal-fired power station in the Latrobe Valley or convert it to gas — which has always loomed as a big lick of abatement. And that doesn’t even count energy efficiency or the abatement potential of 20 million trees or soil carbon — which, while not as miraculous as Hunt originally proposed, is still significant.

No joy. Before the election the Climate Institute commissioned the most thorough assessment of the abatement potential of Direct Action to date and, although Hunt dismissed the study as partisan, it stands as the most detailed analysis to date. Climate Institute deputy CEO Erwin Jackson told Crikey potential abatement from a doubling of rooftop solar panels — there are about a million installed now — would only reduce emissions by some 4 million to 5 million tonnes by 2020 cumulatively. (To reduce emissions by 5% by 2020, we need to reduce cumulative emissions by 370 million tonnes.) We are talking much less than 1% of the nation’s emissions.

Closing one of our dirtiest brown coal-fired power stations, like Hazelwood in the Latrobe Valley, which generates some 3% of the country’s emissions, is off the table — the Prime Minister has made that clear — and the economics of converting the generators to gas has been undermined by a doubling and likely trebling of east coast gas prices as Queensland’s coal seam gas/liquefied natural gas projects come on line from 2015. In any case, as Chris Dunstan at the Institute for Sustainable Futures at the University of Technology, Sydney, points out, with so much over-capacity in the network, the shutdown of one coal-fired generator just means the power gap is likely to be plugged by another. With the removal of the carbon price, brown coal is only going to get more competitive — against gas, and against renewables.

Which leaves the Renewable Energy Target — which Prime Minister Tony Abbott this week told radio Alan Jones was in his sights. The RET is the only policy left on the table than can achieve significant abatement — some 204 megatonnes cumulatively by 2020, according to the Climate Institute’s figures. Without the RET, we are truly stuffed.

It seems there is no analysis anywhere that suggests Direct Action can achieve anything like the 5% reduction the government’s repeal legislation commits us to. It will be up to consumers, and to the market.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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