Australia’s Direct Action Plan Set to Replace Carbon Trading Scheme

Australian Prime Minister Tony Abbott’s Direct Action Plan, the policy mechanism proposed to replace the coal-rich country’s now-defunct carbon trading program, cleared the Senate despite staunch opposition on Oct. 31. The alternative climate plan now heads to the House, where its passage is assured.

It means the country will soon adopt the measure to establish the A$2.55 billion Emissions Reduction Fund (ERF), a pool of capital to support “direct action” by industry to reduce greenhouse gas (GHG) emissions. Government documents setting out the final design of the ERF released on April 24 suggest that it will use the fund to purchase lowest-cost abatement (in the form of Australian carbon credit units) from a wide range of sources across the economy. It will then provide incentives for carbon emitters to take action to reduce their emissions.

After Australia in July became the first nation to abolish a price on carbon, it was uncertain whether Abbott—who recently declared that coal would be the foundation of Australia’s prosperity for the foreseeable future—could make his Direct Action Plan effective.

In a more recent Sept. 23–released Green Paper, the government said it is determined to reduce the country’s GHG emissions to 5% below 2000 levels by 2020.

The Green Paper follows the government’s December 2013 Issues Paper, and it precedes the much-awaited Energy White Paper (expected in December 2014), which will contain the framework for reform of Australia’s energy laws and policies. In Australia and other parts of the British Commonwealth, green papers are essentially drafts of policy proposals for debate or discussion. They can result in white papers, which serve as official government statements of policy or guidance documents.

Among the Green Paper’s major attributes is that it reiterates the government’s ambitions to reduce unnecessary costs relating to emissions reductions, though it doesn’t specify how. It only mentions, for example, that the government will “consider findings” of the controversial Warburton Review of the nation’s Renewable Energy Target (RET) carried out by the government’s hand-picked expert panel and released in August. That review recommended closing the large-scale RET to new entrants and freezing the current 41,000 GWh target by 2020 at just 16,000 GWh (Figure 2).

2. In the face of uncertainty. The Australian government’s push to reduce the Renewable Energy Target has spurred layoffs and frozen projects across the country. In November, despite the investment chill and concerns about the future of the nation’s renewables-boosting policies, New Zealand–based Trustpower put online the 90-turbine, 270-MW Snowtown Wind Farm in South Australia, currently the country’s second-largest wind farm. Courtesy: Trustpower

In addition, it urges completing the sale of state- and territory-owned electricity assets, though many states have already begun privatizing generators; proposes changing electricity pricing to an approach based on peak demand, not average kilowatt-hours; and rules out reserving a portion of the country’s natural gas production for domestic use.

According to the Australian Bureau of Statistics, the repeal of the carbon price led to an average 5.1% drop in the electricity consumer price index (CPI) across Australia between June and September 2014. All state capitals—with the exception of Brisbane and Adelaide, presumably due to an increase in network and solar costs—saw a decrease in power prices.

For an in-depth look at resource-rich Australia’s generation troubles in the context of its contentious carbon policy fight, see “Australia’s Carbon Policy Predicament,” in POWER’s April 2014 issue.