The high cost of direct action on climate change

The Australian National Audit Office (ANAO) has just published a report which contains a performance audit of some Howard-era programs which were designed to reduce Australia’s greenhouse gas emissions through rebates and subsidies (Report No. 26 2009-10, Administration of Climate Change Programs).

Among the five programs reviewed were two rebate programs and three competitive grants programs.

The two rebate programs, both of which continued under the Rudd Government, but have now been replaced by the Solar Credits Initiative, were:

-  The $286.5 million Solar Homes and Communities Plan (SHCP), which provided rebates of up to $8,000 ($8 per watt up to one kilowatt) to homeowners for the installation of solar photovoltaic systems on their principal place of residence, and rebates to community organisations that installed photovoltaic power systems for educational purposes.

-  The $399.1 million Renewable Remote Power Generation Program (RRPGP), which provided financial support to increase the use of renewable generation in remote parts of Australia that relied on fossil fuel for electricity supply.

The three competitive grants programs provided grants ranging from $1 million to $100 million for projects such as large scale demonstration projects supporting new technologies to reduce greenhouse gas emissions.  The recipients have tended to be large private industrial or resource companies, or consortia of governments, industry and community organisations. The three schemes  were:

 -  The $400 million Greenhouse Gas Abatement Program (GGAP)

-  The $93.8 million Solar Cities Program

-  The $500 Low Emission Technology Demonstration Fund (LETDF).

The audit report’s overall findings in respect of these programs were:

20.  Program achievements against objectives varied for the grant programs and rebate schemes. The high risk, large value grant programs have achieved minimal results to date.  Actual achievements for GGAP, the longest running program, were substantially less than originally planned with only 30 per cent of planned emissions abatement being achieved.  This underperformance was because of delays in finalising arrangements and termination of nine out of the twenty-three approved projects.  LETDF and Solar Cities are not sufficiently advanced for any meaningful comments on overall results to be made to date.

21.  For the two rebate schemes, SHCP and RRPGP, demand outstripped available funds – particularly for SHCP.  As a consequence, the SHCP has substantially contributed to growth in the up-take of renewable energy in Australia.  However, in terms of abatement, this has come at high unit cost ($447/tonne/CO2e) and at a significant cost to the budget estimated to be $1.053 billion. The abatement achieved by the RRGP program is also very expensive especially when compared to a possible emissions trading scheme market carbon price closer to $20-30/tonne/CO2e.

Not much to show for the expenditure of almost $1.7 billion over a period of a decade.

Any audit report is of course a snapshot of the past. But the findings of these two short paragraphs give a good feel for how costly to the economy, and how ineffective, will be the programs of direct action on climate change which the Opposition, remarkably for political parties which proudly describe themselves as conservative, prefers to market based instruments.