Direct action subsidies: wrong way, go back

26 Mar 2014

Nothing has happened since the election to challenge the view that the Coalition’s Direct Action plan for carbon reduction is vastly inferior to carbon pricing.

DIRECT ACTION is often perceived as an exercise in keeping up appearances: a fig-leaf policy from a government that has expressed little enthusiasm for serious action on climate change. But with the possible neutering of the Renewable Energy Target, Direct Action subsidies are set to be the main pillar of Australia’s climate change mitigation effort as well as a new drain on our scarce fiscal resources.
The cornerstone of Direct Action is a system of subsidies for emissions-reducing projects, channelled through an Emissions Reduction Fund. In a nutshell, government will pay companies to implement specific projects that are thought to reduce emissions. It will “buy up the cost curve,” purchasing the lowest-cost emissions reductions first.

Not much more detail is available about the policy than was sketched before the election. The government’s December 2013 green paper leaves many of the most crucial questions open, including how baselines would be set, whether there would be a penalty for companies that exceed their baselines, and whether projects in all parts of the economy would compete directly or there would be separate pots of money for sectors such as agriculture, forestry and industrial energy efficiency…

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